SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the 12
months ended February 28, 1999.
The year under review was challenging for the global and domestic bond markets.
Rarely have we witnessed the magnitude of volatility that we experienced over
the past year, which was due to a number of different factors, ranging from the
global financial crisis that impacted regions in Asia, Latin America and eastern
Europe, to the liquidity crisis created by the concerns and uncertainties
associated with a number of hedge funds' investment activities in third quarter
1998. Although certain market segments, such as the corporate high yield and
mortgage areas, were hit the hardest, the municipal bond market also faced some
challenges. The four-year declining interest-rate trend continued in 1998 as
many regions around the world experienced slowing and, in certain cases,
recession- or even depression-like economies. These regions had a direct impact
on the U.S. economy through fewer purchases of American goods, reducing U.S.
export levels. Throughout the same period, the American consumer boosted the
domestic economy at much higher-than-anticipated levels. With global and
domestic inflation virtually nonexistent, the Federal Reserve Board's (the
Fed's) monetary policy panel, the Federal Open Market Committee, three times
made quarter-point cuts to the federal funds target rate, lowering it to 4.75%
on November 17, 1998. The Fed hoped to stimulate global economic growth and
instill confidence in the financial markets. The 30-year Treasury bond followed
suit, dropping from 5.92% on February 28, 1998, to 5.57% on February 28, 1999.
As interest rates declined, municipal bond issuers increased their refinancing
activity of outstanding, higher interest-rate debt. In addition, many
municipalities were in excellent fiscal condition due to the strong national
economy, which gave them higher confidence to borrow money for new projects.
These two conditions led to a surge in 1998's new-issue supply with total volume
closely matching 1993's record $293 billion. Although demand from individual
investors was relatively stable, at times, the municipal bond market had
difficulty absorbing this huge bond supply, which caused the municipal bond
market to underperform the Treasury bond market during the past year. To put it
in perspective, in October 1998 an investor could purchase
CONTENTS
Shareholder Letter ....................................................... 1
Special Feature:
A Word About
Municipal Bond Insurance ................................................. 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 .................................................... 15
Franklin Massachusetts Insured
Tax-Free Income Fund .................................................... 20
Franklin Michigan Insured
Tax-Free Income Fund .................................................... 25
Franklin Minnesota Insured
Tax-Free Income Fund .................................................... 30
Franklin Ohio Insured
Tax-Free Income Fund .................................................... 35
Municipal Bond Ratings ................................................... 40
Financial Highlights &
Statement of Investments ................................................. 42
Financial Statements ..................................................... 90
Notes to Financial Statements ............................................ 98
Independent Auditors' Report ............................................. 103
Tax Information .......................................................... 104
[FUND CATEGORY PYRAMID GRAPH]
a 30-year, AAA municipal bond yielding approximately 105% of the yield on a
comparable Treasury bond versus the historical average of approximately 89%. The
last time we saw such attractive municipal market valuations was 1985 or 1986.
The prevalence of bond insurance was another trend affecting municipal bond
market fundamentals. The increasingly higher percentages of AAA-insured
municipal bond issues coming to market over the past four years seems to have
finally peaked at approximately 50% in 1998, compared with 37% in 1994. One of
the impacts on the market from having so many new bonds insured has been fewer
and fewer uninsured bonds. With investors continuing to demand higher yields in
a falling interest-rate environment, municipal bond market credit spreads, or
the additional interest rate paid to investors for AAA- versus BBB-rated bonds,
were extremely narrow. This condition abruptly changed in July 1998 when a large
health care organization, with a substantial amount of insured debt outstanding,
filed for bankruptcy. In large part, this significant event prompted municipal
bond insurers to reevaluate their business models and use a less aggressive
strategy in certain market sectors, particularly health care. The market impact
has been a widening of credit spreads in the lower-quality, or high yield,
market segment.
Looking forward, we anticipate supply pressures to moderate in 1999. Already,
municipal new issuance for the first six weeks of the year was down about 18%,
compared with the same period last calendar year.* We also expect mid-1998's
improved municipal bond demand to continue. Under such circumstances, the
municipal bond market would be well-positioned in 1999.
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 portfolios. Depending on your federal and state tax rates, a taxable
investment would need to offer a higher yield, called the taxable equivalent
yield, to match the yield on a
*Source: The Bond Buyer, February 28, 1999.
2
tax-free investment. 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,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Thomas J. Kenny
Thomas J. Kenny
Director
Franklin Municipal Bond Department
WHAT DOES "TAXABLE EQUIVALENT" MEAN FOR YOU?
For yield and distribution rate, the taxable equivalent is the amount a taxable
investment would have to earn to match a tax-free investment such as municipal
bonds.* You can find your fund's taxable equivalent distribution rate and yield
in the Performance Summary that follows your fund's report.
*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.
3
A WORD ABOUT MUNICIPAL BOND INSURANCE
[SPECIAL FEATURE GRAPHIC]
Municipal bond insurers guarantee the timely payment of interest and principal
on insured bond issues, providing bond investors with additional protection
against the potential of the issuer's payment default. Moody's and Standard &
Poor's assign the four principal municipal bond insurers -- MBIA, AMBAC, FGIC
and FSA -- their highest rating, AAA, based on their ability to pay claims. This
is important, as once a bond is insured it no longer carries the underlying
security's rating, but the insurer's rating. In 1998, the four primary municipal
bond insurers comprised more than 98% of the market, with MBIA controlling the
largest share, 35.4%.
Municipal bond insurers often work with bond reinsurers to enhance their ability
to generate new business. By purchasing portions of insured bond portfolios from
the insurers, bond reinsurers assume a portion of the risk, freeing up the
insurers' capital and enabling them to insure additional municipal bond issues.
The added capital provided by the reinsurers, in turn, increases the overall
size of the insured municipal bond market.
Currently, many municipal bond issuers favor the use of bond insurance. In 1998,
municipal bond insurers covered 50.8% of the new-issue municipal bond market,
involving 5,825 new issues valued at $145 billion. For issuers, obtaining bond
insurance can often lower their borrowing costs as it often improves their
credit rating,
4
which more than makes up for the cost of the insurance. In addition, the four
primary, AAA-rated bond insurers presently charge issuers comparatively
inexpensive insurance premiums, due to the extremely competitive environment for
municipal bond insurance. Bond insurance also enables issuers to market their
bonds to a larger pool of potential buyers. For example, insured municipal bond
funds purchase primarily, if not exclusively, insured bonds.
Low-cost municipal bond insurance benefits investors beyond the credit
protection it provides against payment default. As insured bonds appeal to a
wider variety of investors, insurance can lead to improved liquidity, allowing
investors to more easily buy and sell bonds.
[BAR GRAPH]
INSURED MUNICIPAL BOND ISSUES*
AS A % OF MUNICIPAL BOND MARKET
<TABLE>
<S> <C>
1993 37.0%
1994 37.0%
1995 43.0%
1996 46.0%
1997 49.0%
1998 50.8%
</TABLE>
[PIECHART]
INSURERS' MARKET SHARE*
12/31/98
<TABLE>
<S> <C>
MBIA 35.4%
FSA 22.0%
FGIC 21.5%
AMBAC 19.6%
OTHER 1.5%
</TABLE>
*Source: The Bond Buyer, 1999.
5
PORTFOLIO BREAKDOWN
Franklin Arizona Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Education 27.9%
Utilities 22.5%
Housing 10.7%
Hospitals 10.5%
Prerefunded 7.5%
Other Revenue 6.0%
Road Improvement 5.2%
Industrial 3.9%
General Obligation 3.2%
Certificates of Participation 1.4%
Miscellaneous 0.7%
Sales Tax 0.5%
</TABLE>
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Arizona Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Arizona state personal income
taxes through a portfolio consisting primarily of Arizona municipal bonds.(1)
STATE UPDATE
[ARIZONA STATE GRAPHIC] Fueled by solid economic gains, high income tax receipts
and stringent borrowing practices, Arizona achieved tremendous growth during the
year under review. This was accomplished despite the state's lower-than-average
income levels and reduced corporate and personal income tax rates. Unemployment
levels remained below the nation's while efforts to shift away from the
traditional pillars of mining, agriculture and real estate were successful. The
state generated its fourth consecutive operating surplus as ongoing
diversification efforts bolstered the services and manufacturing sectors. With
exports accounting for more than 100,000 jobs, and high-technology goods making
up some 80% of the total, Arizona, like many states, faced vulnerabilities as a
result of the Asian currency crisis. However, the state's ample $291 million
budget stabilization fund could counter a cyclical downturn. In addition, the
state intends to increase maximum contribution levels to this "rainy day" fund
to 7.1%, from 5.6% of general fund revenues, in fiscal 1999.(2)
The state predicts some general fund depletion in fiscal 1999, in part due to
increased spending as a result of "Students FIRST." This legislation, upheld by
the Arizona Supreme Court, mandated centralization of various aspects of the
school system. Although not allowed to issue general obligation (GO) debt, which
helps to explain the low overall debt levels and Standard & Poor's high ratings
on the state's revenue bonds, certain districts will be allowed to vote in
support of property tax increases
(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.) Source: Standard & Poor's(R) CreditWeek Municipal, August 10, 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 43 of
this report.
6
that may ultimately help fund special GO issues. Regardless, as one of the
fastest-growing economies in the nation, Arizona looks well-positioned to handle
the increased burden.
PORTFOLIO NOTES
The supply of Arizona bonds in 1998 was very strong at $4.18 billion, an
increase of 35.6% from 1997. Fifty-eight percent of Arizona bonds were insured,
compared with 47.5% in 1997, as bond insurance was comparatively inexpensive
during the 12 months under review. The large number of insured bonds offered the
fund opportunities to purchase new issues and maintain portfolio
diversification. Notable purchases during the fund's fiscal year included Mesa
GO, Glendale IDA - Midwestern University, Maricopa County GO - Chandler Unified
School District #80 and Arizona Health Facilities Authority Hospital System
Revenue - Northern Arizona Healthcare System.
Franklin Arizona Insured Tax-Free Income Fund's Class A share price, as measured
by net asset value, increased seven cents, from $10.77 on February 28, 1998, to
$10.84 on February 28, 1999. Asset growth was strong during the fund's fiscal
year -- assets increased 39%, from $58.0 million on February 28, 1998, to $80.7
million on February 28, 1999. At the same time, the total number of the fund's
positions increased from 66 to 84, giving the fund an increasingly diversified
and stable asset base. Education, comprising 27.9% of the fund's total long-term
investments, remained the fund's largest sector holding. We found value in the
hospital sector during the 12 months under review, as we felt the bonds were
cheap relative to other sectors in the market. The hospital sector increased
from 4.5% of total long-term investments on February 28, 1998, to 10.5% on
February 28, 1999.
Please keep in mind that the fund can distribute only what it earns. Due to the
low interest-rate environment, we were forced to invest proceeds from sales as
well as new money in securities that carried a lower interest rate than those
bonds we sold. As a result, the dividend decreased in March 1998, and another
dividend cut is scheduled for March 1999.
Going forward, we believe the municipal bond supply in 1999 should be
approximately the same as in 1998. This, combined with strong demand for Arizona
bonds, should continue to make the state's municipal securities attractive
investments for investors seeking tax-free income. We will continue our fiscally
responsible strategy of protecting share value and maintaining the fund's
competitive yield.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Insured
Tax-Free Income Fund
3/1/98-2/28/99
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- ----- ----------
<S> <C>
March 4.4 cents
April 4.4 cents
May 4.4 cents
June 4.4 cents
July 4.4 cents
August 4.4 cents
September 4.4 cents
October 4.4 cents
November 4.4 cents
December 4.4 cents
January 4.4 cents
February 4.4 cents
----------
TOTAL 52.8 CENTS
</TABLE>
*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.
7
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.07 $10.84 $10.77
DISTRIBUTIONS
-------------
Dividend Income $0.528
</TABLE>
CLASS A (formerly Class I):
Subject to 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 may be slightly lower. The fund's manager agreed in advance to
waive a portion of its management fees, which reduces operating expenses and
increases yield, distribution rate and total return to shareholders. Without
these reductions, the fund's distribution rate and total return would have been
lower, and yield for the period would have been 3.68%. The fee waiver may be
discontinued at any time upon notification to the fund's Board of Trustees.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
- ------- ------ ------ ---------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.75% +37.64% +45.95%
Average Annual Total Return(2) +1.24% +5.67% +5.91%
Distribution Rate(3) 4.45%
Taxable Equivalent Distribution Rate(4) 7.76%
30-Day Standardized Yield(5) 3.81%
Taxable Equivalent Yield(4) 6.64%
</TABLE>
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charges.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge.
(3.) Distribution rate is based on an annualization of the current 4.2 cent per
share monthly dividend and the maximum offering price of $11.32 on February 28,
1999.
(4.) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Arizona state personal income tax bracket of 42.6%, based
on the federal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
8
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
The following line graph compares the performance of the Franklin Arizona
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 4/30/93 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Fund No. Inception 4/30/93
0177
- ----------------------------------------------------------------------------------------------------
Franklin Arizona Lehman Brothers CPI
Insured Tax-Free Municipal Bond Index
Income Fund-Class A
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4/30/93 $9,579 $10,000 $10,000
5/31/93 $9,646 0.56% $10,056 0.14% $10,014
6/30/93 $9,837 1.67% $10,224 0.14% $10,028
7/31/93 $9,837 0.13% $10,237 0.00% $10,028
8/31/93 $10,053 2.08% $10,450 0.28% $10,056
9/30/93 $10,183 1.14% $10,569 0.21% $10,077
10/31/93 $10,187 0.19% $10,589 0.41% $10,119
11/30/93 $10,047 -0.88% $10,496 0.07% $10,126
12/31/93 $10,334 2.11% $10,718 0.00% $10,126
1/31/94 $10,477 1.14% $10,840 0.27% $10,153
2/28/94 $10,147 -2.59% $10,559 0.34% $10,187
3/31/94 $9,518 -4.07% $10,129 0.34% $10,222
4/30/94 $9,613 0.85% $10,215 0.14% $10,236
5/31/94 $9,707 0.87% $10,304 0.07% $10,244
6/30/94 $9,612 -0.61% $10,241 0.34% $10,278
7/31/94 $9,848 1.83% $10,429 0.27% $10,306
8/31/94 $9,864 0.35% $10,465 0.40% $10,347
9/30/94 $9,666 -1.47% $10,312 0.27% $10,375
10/31/94 $9,425 -1.78% $10,128 0.07% $10,383
11/30/94 $9,185 -1.81% $9,945 0.13% $10,396
12/31/94 $9,480 2.20% $10,163 0.00% $10,396
1/31/95 $9,870 2.86% $10,454 0.40% $10,438
2/28/95 $10,240 2.91% $10,758 0.40% $10,479
3/31/95 $10,382 1.15% $10,882 0.33% $10,514
4/30/95 $10,388 0.12% $10,895 0.33% $10,549
5/31/95 $10,764 3.19% $11,243 0.20% $10,570
6/30/95 $10,600 -0.87% $11,145 0.20% $10,591
7/31/95 $10,660 0.95% $11,251 0.00% $10,591
8/31/95 $10,817 1.27% $11,394 0.26% $10,618
9/30/95 $10,899 0.63% $11,465 0.20% $10,640
10/31/95 $11,078 1.45% $11,632 0.33% $10,675
11/30/95 $11,345 1.66% $11,825 -0.07% $10,667
12/31/95 $11,494 0.96% $11,938 -0.07% $10,660
1/31/96 $11,555 0.76% $12,029 0.59% $10,723
2/29/96 $11,429 -0.68% $11,947 0.32% $10,757
3/31/96 $11,227 -1.28% $11,794 0.52% $10,813
4/30/96 $11,189 -0.28% $11,761 0.39% $10,855
5/31/96 $11,184 -0.04% $11,757 0.19% $10,876
6/30/96 $11,348 1.09% $11,885 0.06% $10,882
7/31/96 $11,445 0.91% $11,993 0.19% $10,903
8/31/96 $11,417 -0.02% $11,990 0.19% $10,924
9/30/96 $11,651 1.40% $12,158 0.32% $10,959
10/31/96 $11,783 1.13% $12,296 0.32% $10,994
11/30/96 $12,031 1.83% $12,521 0.19% $11,015
12/31/96 $11,957 -0.42% $12,468 0.00% $11,015
1/31/97 $11,953 0.19% $12,492 0.32% $11,050
2/28/97 $12,064 0.92% $12,607 0.31% $11,084
3/31/97 $11,872 -1.33% $12,439 0.25% $11,112
4/30/97 $11,996 0.84% $12,544 0.12% $11,125
5/31/97 $12,192 1.51% $12,733 -0.06% $11,119
6/30/97 $12,328 1.07% $12,869 0.12% $11,132
7/31/97 $12,715 2.77% $13,226 0.12% $11,145
8/31/97 $12,555 -0.94% $13,101 0.19% $11,166
9/30/97 $12,706 1.19% $13,257 0.25% $11,194
10/31/97 $12,773 0.64% $13,342 0.25% $11,222
11/30/97 $12,853 0.59% $13,421 -0.06% $11,216
12/31/97 $13,066 1.46% $13,617 -0.12% $11,202
1/31/98 $13,207 1.03% $13,757 0.19% $11,223
2/28/98 $13,202 0.03% $13,761 0.19% $11,245
3/31/98 $13,219 0.09% $13,774 0.19% $11,266
4/30/98 $13,150 -0.45% $13,712 0.18% $11,286
5/31/98 $13,378 1.58% $13,928 0.18% $11,307
6/30/98 $13,420 0.39% $13,983 0.12% $11,320
7/31/98 $13,463 0.25% $14,017 0.12% $11,334
8/31/98 $13,668 1.55% $14,235 0.12% $11,347
9/30/98 $13,837 1.25% $14,413 0.12% $11,361
10/31/98 $13,829 0.00% $14,413 0.24% $11,388
11/30/98 $13,885 0.35% $14,463 0.00% $11,388
12/31/98 $13,890 0.25% $14,499 -0.06% $11,381
1/31/99 0.96% $14,023 1.19% $14,672 0.24% $11,409
2/28/99 -0.44% $13,980 -0.44% $14,607 0.12% $11,422
Total 39.80% 46.07% 14.22%
Return
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
9
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
Your Fund's Goal: 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
[FLORIDA STATE GRAPHIC] Broad population growth represented one of the
demographic trends that drove Florida's economy during the year under review.
The state's population rose from 10th among the states in 1960 to fourth in
1990, where it remained, as of the end of the reporting period. Two age groups,
seniors and the youthful population, dominated this trend, whereas the main
segment of the working age population (25-44) is projected to decrease from 30%
in 1990 to 23% in 2010.
The high proportion of seniors -- 18.5% of the population was 65 and older
compared with 12.7% nationally in 1997 -- heightens the risk that Medicaid and
other health care service costs will increase more rapidly than elsewhere in the
nation. However, the relatively high income level of many seniors contributed
significantly to spending, and thus sales tax revenue somewhat offset senior
health care-related expenses. The rise in Florida's 5- to 17-year-old population
has proved more costly, necessitating large investments to support the state
school system. In 1998, education-directed debt issues accounted for 63% of the
state's $12.9 billion total debt outstanding.(2)
Florida's stable financial picture over the past several years, based on
relatively moderate debt levels and a services-based economy that continues to
expand faster than
(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, April 6, 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 46 of
this report.
10
the nation's, contributed to its AA+ general obligation debt rating by Standard
and Poor's, a national credit rating agency.(3) Although the state has no
personal income tax, the sales tax, which comprises 60% of Florida's revenues,
grew by a healthy 5.5% in 1996 and 6.8% in 1997. While figures for 1998 were not
available at the end of the reporting period, the sales tax is projected to grow
7.0% in 1999.(2) The state also makes yearly deposits to its Budget
Stabilization Fund, reducing its dependence on the sales tax.
PORTFOLIO NOTES
Franklin Florida Insured Tax-Free Income Fund's Class A share price, as measured
by net asset value, increased 10 cents, from $10.43 on February 28, 1998, to
$10.53 on February 28, 1999. The fund's total net assets also increased, from
$101.5 million, to $124.5 million over the same period.
Throughout the year under review, falling interest rates prompted Florida
municipalities to refinance outstanding debt and vigorously issue new bonds, as
demonstrated by the state's 27% issuance increase compared with the previous
reporting period. Florida also participated in the national trend of
municipalities offering greater amounts of insured debt, with over 50% of
municipal debt coming to market insured during the reporting period.
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.
DIVIDEND DISTRIBUTIONS*
Franklin Florida Insured
Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- ----- ----------
<S> <C>
March 4.3 cents
April 4.3 cents
May 4.3 cents
June 4.3 cents
July 4.3 cents
August 4.3 cents
September 4.3 cents
October 4.3 cents
November 4.3 cents
December 4.3 cents
January 4.3 cents
February 4.3 cents
----------
TOTAL 51.6 CENTS
</TABLE>
*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.
(3.) This does not indicate Standard & Poor's rating of the fund.
11
PORTFOLIO BREAKDOWN
Franklin Florida Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 36.9%
Hospitals 13.4%
Other Revenue 13.1%
Prerefunded 11.9%
Housing 6.0%
Certificates of Participation 5.0%
Industrial 2.9%
Health Care 2.8%
Sales Tax 2.6%
General Obligation 2.1%
Transportation 2.0%
Special Assessment 1.3%
</TABLE>
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
The large demand for Florida municipal bonds allowed yields to remain
significantly lower than national levels. Despite the appetite for the state's
debt, credit spreads, the higher yields paid to investors for the project risk,
widened toward the close of 1998. This enabled us to take advantage of
attractive opportunities in the market. Purchases during the reporting period
included Clearwater Gas System Revenue; Indian Trace Community Development
District; Martin County Health Facilities Authority Hospital Revenue - Martin
Memorial Medical Center Project; Miami Dade County School Board Certificates of
Participation; and South Miami Health Facilities Authority Hospital Revenue
Baptist Health System Obligation Group. We believe that Florida's strong economy
and conservative financial practices make the state an attractive investment,
going forward.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
12
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.10 $10.53 $10.43
DISTRIBUTIONS
-------------
Dividend Income $0.516
</TABLE>
CLASS A (formerly Class I):
Subject to 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 may be slightly lower. The fund's manager agreed in advance to
waive a portion of its management fees, which reduces operating expenses and
increases yield, distribution rate and total return to shareholders. Without
these reductions, the fund's distribution rate and total return would have been
lower, and yield for the period would have been 3.77%. The fee waiver may be
discontinued at any time upon notification to the fund's Board of Trustees.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
- ------- ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +6.01% +36.30% +41.71%
Average Annual Total Return(2) +1.54% +5.46% +5.38%
Distribution Rate(3) 4.47%
Taxable Equivalent Distribution Rate(4) 7.40%
30-Day Standardized Yield(5) 3.79%
Taxable Equivalent Yield(4) 6.27%
</TABLE>
(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 current, applicable,
maximum sales charge.
(3) Distribution rate is based on an annualization of the current 4.1 cent per
share monthly dividend and the maximum offering price of $11.00 on February 28,
1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
13
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year +1.54%
5-Year +5.46%
Since Inception (4/30/93) +5.38%
</TABLE>
The following line graph compares the performance of the Franklin Florida
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 4/30/93 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Fund No. Inception 4/30/93
0178
- -----------------------------------------------------------------------------------------------------
Franklin Florida Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class A Index
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4/30/93 $9,579 $10,000 $10,000
5/31/93 $9,550 0.56% $10,056 0.14% $10,014
6/30/93 $9,703 1.67% $10,224 0.14% $10,028
7/31/93 $9,722 0.13% $10,237 0.00% $10,028
8/31/93 $9,921 2.08% $10,450 0.28% $10,056
9/30/93 $10,024 1.14% $10,569 0.21% $10,077
10/31/93 $10,059 0.19% $10,589 0.41% $10,119
11/30/93 $9,910 -0.88% $10,496 0.07% $10,126
12/31/93 $10,207 2.11% $10,718 0.00% $10,126
1/31/94 $10,319 1.14% $10,840 0.27% $10,153
2/28/94 $9,949 -2.59% $10,559 0.34% $10,187
3/31/94 $9,309 -4.07% $10,129 0.34% $10,222
4/30/94 $9,382 0.85% $10,215 0.14% $10,236
5/31/94 $9,446 0.87% $10,304 0.07% $10,244
6/30/94 $9,359 -0.61% $10,241 0.34% $10,278
7/31/94 $9,635 1.83% $10,429 0.27% $10,306
8/31/94 $9,569 0.35% $10,465 0.40% $10,347
9/30/94 $9,369 -1.47% $10,312 0.27% $10,375
10/31/94 $9,056 -1.78% $10,128 0.07% $10,383
11/30/94 $8,846 -1.81% $9,945 0.13% $10,396
12/31/94 $9,201 2.20% $10,163 0.00% $10,396
1/31/95 $9,599 2.86% $10,454 0.40% $10,438
2/28/95 $9,968 2.91% $10,758 0.40% $10,479
3/31/95 $10,056 1.15% $10,882 0.33% $10,514
4/30/95 $10,070 0.12% $10,895 0.33% $10,549
5/31/95 $10,444 3.19% $11,243 0.20% $10,570
6/30/95 $10,289 -0.87% $11,145 0.20% $10,591
7/31/95 $10,357 0.95% $11,251 0.00% $10,591
8/31/95 $10,491 1.27% $11,394 0.26% $10,618
9/30/95 $10,570 0.63% $11,465 0.20% $10,640
10/31/95 $10,769 1.45% $11,632 0.33% $10,675
11/30/95 $11,001 1.66% $11,825 -0.07% $10,667
12/31/95 $11,159 0.96% $11,938 -0.07% $10,660
1/31/96 $11,185 0.76% $12,029 0.59% $10,723
2/29/96 $11,057 -0.68% $11,947 0.32% $10,757
3/31/96 $10,863 -1.28% $11,794 0.52% $10,813
4/30/96 $10,812 -0.28% $11,761 0.39% $10,855
5/31/96 $10,816 -0.04% $11,757 0.19% $10,876
6/30/96 $10,978 1.09% $11,885 0.06% $10,882
7/31/96 $11,084 0.91% $11,993 0.19% $10,903
8/31/96 $11,076 -0.02% $11,990 0.19% $10,924
9/30/96 $11,296 1.40% $12,158 0.32% $10,959
10/31/96 $11,392 1.13% $12,296 0.32% $10,994
11/30/96 $11,603 1.83% $12,521 0.19% $11,015
12/31/96 $11,539 -0.42% $12,468 0.00% $11,015
1/31/97 $11,509 0.19% $12,492 0.32% $11,050
2/28/97 $11,629 0.92% $12,607 0.31% $11,084
3/31/97 $11,436 -1.33% $12,439 0.25% $11,112
4/30/97 $11,557 0.84% $12,544 0.12% $11,125
5/31/97 $11,727 1.51% $12,733 -0.06% $11,119
6/30/97 $11,861 1.07% $12,869 0.12% $11,132
7/31/97 $12,257 2.77% $13,226 0.12% $11,145
8/31/97 $12,118 -0.94% $13,101 0.19% $11,166
9/30/97 $12,254 1.19% $13,257 0.25% $11,194
10/31/97 $12,368 0.64% $13,342 0.25% $11,222
11/30/97 $12,457 0.59% $13,421 -0.06% $11,216
12/31/97 $12,656 1.46% $13,617 -0.12% $11,202
1/31/98 $12,794 1.03% $13,757 0.19% $11,223
2/28/98 $12,787 0.03% $13,761 0.19% $11,245
3/31/98 $12,803 0.09% $13,774 0.19% $11,266
4/30/98 $12,769 -0.45% $13,712 0.18% $11,286
5/31/98 $12,946 1.58% $13,928 0.18% $11,307
6/30/98 $12,999 0.39% $13,983 0.12% $11,320
7/31/98 $13,053 0.25% $14,017 0.12% $11,334
8/31/98 $13,245 1.55% $14,235 0.12% $11,347
9/30/98 $13,374 1.25% $14,413 0.12% $11,361
10/31/98 $13,391 0.00% $14,413 0.24% $11,388
11/30/98 $13,483 0.35% $14,463 0.00% $11,388
12/31/98 $13,500 0.25% $14,499 -0.06% $11,381
1/31/99 0.88% $13,619 1.19% $14,672 0.24% $11,409
2/28/99 -0.46% $13,574 -0.44% $14,607 0.12% $11,422
Total 35.74% 46.07% 14.22%
Return
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
14
FRANKLIN INSURED TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Insured Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal income tax through a portfolio
consisting primarily of insured municipal bonds.(1)
PORTFOLIO NOTES
During the reporting period, municipal bonds traded at attractive levels
compared with the 30-year Treasury bond. At times, we were able to purchase
insured municipal bonds at nominal yields that were actually higher than the
30-year government bond yield. Historically the yield ratio between high-grade
municipal bonds and the 30-year Treasury bond has been about 85%. At the end of
the year under review, we could purchase insured bonds with long maturities at
approximately 95% of the 30-year Treasury bond yield.
This unusually high ratio is largely a result of a combination of events that
changed the supply-and-demand environment for government and municipal bonds.
First, there was a flight to the 30-year Treasury bond as Asia, Russia and most
recently Brazil experienced economic stress, which contributed to the 30-year
Treasury bond's yield declines. Furthermore, as our own domestic stock market
experienced volatility during the period, we again saw a shift of assets into
long-term government bonds. At the same time, the 1998 volume of municipal bond
issuance -- more than $280 billion in new supply -- was the second highest in
history. This prevented municipal bond yields from decreasing at the same rate
as government bond yields. In short, we saw unusually large demand for the
30-year government bond, driving down its yield, and a large municipal bond
supply that caused the yield spread of the two to increase. Although municipal
bonds lagged Treasuries during the investors' flight to
(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 49 of
this report.
15
PORTFOLIO BREAKDOWN
Franklin Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 23.3%
Prerefunded 17.9%
Hospitals 15.1%
Health Care 10.1%
Education 8.7%
Transportation 8.0%
General Obligation 5.0%
Housing 4.2%
Certificates
of Participation 3.5%
Other Revenue 2.3%
Sales Tax 1.0%
Industrial 0.8%
Special Assessment 0.1%
</TABLE>
quality, as fundamentals reverse, we expect that municipals should close the gap
with Treasuries.
As interest rates declined, we continued to see bonds become prerefunded. When
an outstanding bond becomes prerefunded, it will be called at its first call
date. In most cases, prerefunded bonds are backed by an escrow of U.S.
Treasuries and thus have a substantial price increase -- depending on their call
date.
To extend the fund's income earning potential and protect the share value, over
the 12-month reporting period we continued our focus of selling prerefunded
securities with approximately five years left to the call date. Overall, the
fund's prerefunded bonds comprised 17.9% of the fund's total long-term
investments on February 28, 1999. Recent purchases in the fund included Atlanta,
GA General Obligation, North Carolina Medical Care Commission Health Care
Facilities Revenue, Novant Health Project and Jefferson County, KY Health System
Revenue - Alliant Health System Inc.
In 1999, the lower interest-rate environment should continue to put some
pressure on the fund's overall income earnings. Please keep in mind that the
fund can distribute only what it earns, so the fund's dividend distributions may
have to be decreased in the future if interest rates remain at current or lower
levels. In addition, it was difficult for the fund to generate enough capital
losses to offset the gains realized from the bond sales. Thus, the fund made
distributions totaling 9.24 cents per share in long-term capital gains and 0.77
cents per share in short-term capital gains in June and December. The fund may
make another capital gain distribution in June 1999. It is important to note
that we have not changed our philosophy of investing for income and share value
stability. We believe that on a comparative basis the fund should rank favorably
to other investment alternatives.
Looking forward, insured funds should offer value as municipal bond insurers
continue to face a very competitive business environment, which has resulted in
a lower cost of insurance -- more than 50% of 1998's new issuance was insured.
Also, with lower interest rates some investors have elected to seek higher
yielding securities, which has resulted in a narrowing of the yield spread
between insured bonds and lower quality bonds. Thus, on a comparative basis,
insured bonds remain attractive.
16
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Insured Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
------------------------
MONTH CLASS A CLASS C
- ----- ------- -------
<S> <C> <C>
March 5.5 cents 4.91 cents
April 5.5 cents 4.92 cents
May 5.5 cents 4.92 cents
June 5.3 cents 4.72 cents
July 5.3 cents 4.77 cents
August 5.3 cents 4.77 cents
September 5.3 cents 4.77 cents
October 5.3 cents 4.75 cents
November 5.3 cents 4.75 cents
December 5.2 cents 4.65 cents
January 5.2 cents 4.65 cents
February 5.2 cents 4.65 cents
---------- -----------
TOTAL 63.9 CENTS 57.23 CENTS
</TABLE>
*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.
17
FRANKLIN INSURED TAX-FREE INCOME FUND
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.05 $12.26 $12.31
DISTRIBUTIONS
-------------
Dividend Income $0.6390
Long-Term Capital Gain $0.0924
Short-Term Capital Gain $0.0077
TOTAL $0.7391
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.05 $12.33 $12.38
DISTRIBUTIONS
-------------
Dividend Income $0.5723
Long-Term Capital Gain $0.0924
Short-Term Capital Gain $0.0077
TOTAL $0.6724
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares. Past expense reductions by the fund's
manager increased the fund's total returns.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.72% +32.92% +107.61% +203.38%
Average Annual Total Return(2) +1.20% +4.95% +7.11% +7.97%
Distribution Rate(3) 4.78%
Taxable Equivalent Distribution Rate(4) 7.91%
30-Day Standardized Yield(5) 3.83%
Taxable Equivalent Yield(4) 6.34%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.12% +18.03% +26.68%
Average Annual Total Return(2) +3.04% +5.34% +6.09%
Distribution Rate(3) 4.31%
Taxable Equivalent Distribution Rate(4) 7.14%
30-Day Standardized Yield(5) 3.38%
Taxable Equivalent Yield(4) 5.60%
</TABLE>
Franklin Insured Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 9.24 cents ($0.0924) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
18
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
The following line graph compares the performance of the Franklin Insured
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Fund No. Inception 4/3/85
0121
- -----------------------------------------------------------------------------------------------------
Date Franklin Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond Index
Fund-Class A
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 9,576 $10,000 $10,000
3/31/89 9,574 -0.24% $9,976 0.58% $10,058
4/30/89 9,789 2.37% $10,212 0.65% $10,123
5/31/89 9,988 2.08% $10,425 0.57% $10,181
6/30/89 10,118 1.36% $10,567 0.24% $10,206
7/31/89 10,204 1.36% $10,710 0.24% $10,230
8/31/89 10,157 -0.98% $10,605 0.16% $10,246
9/30/89 10,100 -0.30% $10,574 0.32% $10,279
10/31/89 10,196 1.22% $10,703 0.48% $10,329
11/30/89 10,330 1.75% $10,890 0.24% $10,353
12/31/89 10,419 0.82% $10,979 0.16% $10,370
1/31/90 10,333 -0.47% $10,928 1.03% $10,477
2/28/90 10,450 0.89% $11,025 0.47% $10,526
3/31/90 10,447 0.03% $11,028 0.55% $10,584
4/30/90 10,351 -0.72% $10,949 0.16% $10,601
5/31/90 10,592 2.18% $11,187 0.23% $10,625
6/30/90 10,685 0.88% $11,286 0.54% $10,682
7/31/90 10,863 1.48% $11,453 0.38% $10,723
8/31/90 10,601 -1.45% $11,287 0.92% $10,822
9/30/90 10,682 0.06% $11,294 0.84% $10,913
10/31/90 10,841 1.81% $11,498 0.60% $10,978
11/30/90 11,069 2.01% $11,729 0.22% $11,002
12/31/90 11,103 0.44% $11,781 0.00% $11,002
1/31/91 11,284 1.34% $11,939 0.60% $11,068
2/28/91 11,357 0.87% $12,042 0.15% $11,085
3/31/91 11,401 0.04% $12,047 0.15% $11,102
4/30/91 11,565 1.34% $12,209 0.15% $11,118
5/31/91 11,640 0.89% $12,317 0.30% $11,152
6/30/91 11,635 -0.10% $12,305 0.29% $11,184
7/31/91 11,792 1.22% $12,455 0.15% $11,201
8/31/91 11,888 1.32% $12,620 0.29% $11,233
9/30/91 12,047 1.30% $12,784 0.44% $11,283
10/31/91 12,123 0.90% $12,899 0.15% $11,299
11/30/91 12,117 0.28% $12,935 0.29% $11,332
12/31/91 12,362 2.15% $13,213 0.07% $11,340
1/31/92 12,408 0.23% $13,243 0.15% $11,357
2/29/92 12,424 0.03% $13,247 0.36% $11,398
3/31/92 12,460 0.04% $13,253 0.51% $11,456
4/30/92 12,560 0.89% $13,370 0.14% $11,472
5/31/92 12,747 1.18% $13,528 0.14% $11,488
6/30/92 12,914 1.68% $13,756 0.36% $11,530
7/31/92 13,384 3.00% $14,168 0.21% $11,554
8/31/92 13,200 -0.98% $14,029 0.28% $11,586
9/30/92 13,225 0.65% $14,121 0.28% $11,619
10/31/92 13,005 -0.98% $13,982 0.35% $11,659
11/30/92 13,318 1.79% $14,232 0.14% $11,676
12/31/92 13,499 1.02% $14,378 -0.07% $11,667
1/31/93 13,681 1.16% $14,544 0.49% $11,725
2/28/93 14,078 3.62% $15,071 0.35% $11,766
3/31/93 13,990 -1.06% $14,911 0.35% $11,807
4/30/93 14,083 1.01% $15,062 0.28% $11,840
5/31/93 14,142 0.56% $15,146 0.14% $11,856
6/30/93 14,384 1.67% $15,399 0.14% $11,873
7/31/93 14,407 0.13% $15,419 0.00% $11,873
8/31/93 14,698 2.08% $15,740 0.28% $11,906
9/30/93 14,861 1.14% $15,919 0.21% $11,931
10/31/93 14,884 0.19% $15,949 0.41% $11,980
11/30/93 14,837 -0.88% $15,809 0.07% $11,989
12/31/93 15,097 2.11% $16,143 0.00% $11,989
1/31/94 15,241 1.14% $16,327 0.27% $12,021
2/28/94 14,941 -2.59% $15,904 0.34% $12,062
3/31/94 14,460 -4.07% $15,257 0.34% $12,103
4/30/94 14,520 0.85% $15,386 0.14% $12,120
5/31/94 14,617 0.87% $15,520 0.07% $12,128
6/30/94 14,568 -0.61% $15,425 0.34% $12,170
7/31/94 14,801 1.83% $15,708 0.27% $12,202
8/31/94 14,838 0.35% $15,763 0.40% $12,251
9/30/94 14,699 -1.47% $15,531 0.27% $12,284
10/31/94 14,509 -1.78% $15,255 0.07% $12,293
11/30/94 14,270 -1.81% $14,978 0.13% $12,309
12/31/94 14,557 2.20% $15,308 0.00% $12,309
1/31/95 14,895 2.86% $15,746 0.40% $12,358
2/28/95 15,248 2.91% $16,204 0.40% $12,408
3/31/95 15,374 1.15% $16,390 0.33% $12,448
4/30/95 15,411 0.12% $16,410 0.33% $12,490
5/31/95 15,757 3.19% $16,933 0.20% $12,515
6/30/95 15,678 -0.87% $16,786 0.20% $12,540
7/31/95 15,755 0.95% $16,946 0.00% $12,540
8/31/95 15,898 1.27% $17,161 0.26% $12,572
9/30/95 15,975 0.63% $17,269 0.20% $12,597
10/31/95 16,171 1.45% $17,519 0.33% $12,639
11/30/95 16,395 1.66% $17,810 -0.07% $12,630
12/31/95 16,541 0.96% $17,981 -0.07% $12,621
1/31/96 16,633 0.76% $18,118 0.59% $12,696
2/29/96 16,564 -0.68% $17,995 0.32% $12,736
3/31/96 16,401 -1.28% $17,764 0.52% $12,803
4/30/96 16,359 -0.28% $17,714 0.39% $12,852
5/31/96 16,385 -0.04% $17,707 0.19% $12,877
6/30/96 16,548 1.09% $17,900 0.06% $12,885
7/31/96 16,657 0.91% $18,063 0.19% $12,909
8/31/96 16,683 -0.02% $18,060 0.19% $12,934
9/30/96 16,887 1.40% $18,313 0.32% $12,975
10/31/96 17,037 1.13% $18,519 0.32% $13,017
11/30/96 17,272 1.83% $18,858 0.19% $13,041
12/31/96 17,225 -0.42% $18,779 0.00% $13,041
1/31/97 17,250 0.19% $18,815 0.32% $13,083
2/28/97 17,373 0.92% $18,988 0.31% $13,124
3/31/97 17,211 -1.33% $18,735 0.25% $13,156
4/30/97 17,336 0.84% $18,893 0.12% $13,172
5/31/97 17,534 1.51% $19,178 -0.06% $13,164
6/30/97 17,689 1.07% $19,383 0.12% $13,180
7/31/97 18,107 2.77% $19,920 0.12% $13,196
8/31/97 17,956 -0.94% $19,733 0.19% $13,221
9/30/97 18,140 1.19% $19,968 0.25% $13,254
10/31/97 18,251 0.64% $20,096 0.25% $13,287
11/30/97 18,378 0.59% $20,214 -0.06% $13,279
12/31/97 18,629 1.46% $20,509 -0.12% $13,263
1/31/98 18,788 1.03% $20,720 0.19% $13,288
2/28/98 18,780 0.03% $20,727 0.19% $13,314
3/31/98 18,818 0.09% $20,745 0.19% $13,339
4/30/98 18,764 -0.45% $20,652 0.18% $13,363
5/31/98 19,034 1.58% $20,978 0.18% $13,387
6/30/98 19,128 0.39% $21,060 0.12% $13,403
7/31/98 19,179 0.25% $21,113 0.12% $13,419
8/31/98 19,435 1.55% $21,440 0.12% $13,435
9/30/98 19,660 1.25% $21,708 0.12% $13,451
10/31/98 19,665 0.00% $21,708 0.24% $13,484
11/30/98 19,733 0.35% $21,784 0.00% $13,484
12/31/98 19,756 0.25% $21,838 -0.06% $13,476
1/31/99 0.91% $19,936 1.19% $22,098 0.24% $13,508
2/28/99 -0.40% $19,882 -0.44% $22,001 0.12% $13,524
Total 98.82% 120.01% 35.24%
Return
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following line graph compares the performance of the Franklin Insured
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fund No. Inception 5/1/95
221
- ---------------------------------------------------------------------------------------------------------------------
Date Franklin Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond Index
Fund-Class C
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/1/95 $9,901 $10,000 $10,000
5/31/95 $10,122 3.19% $10,319 0.20% $10,020
6/30/95 $10,075 -0.87% $10,229 0.20% $10,040
7/31/95 $10,119 0.95% $10,326 0.00% $10,040
8/31/95 $10,206 1.27% $10,458 0.26% $10,066
9/29/95 $10,259 0.63% $10,523 0.20% $10,086
10/31/95 $10,379 1.45% $10,676 0.33% $10,120
11/30/95 $10,509 1.66% $10,853 -0.07% $10,112
12/29/95 $10,605 0.96% $10,957 -0.07% $10,105
1/31/96 $10,659 0.76% $11,041 0.59% $10,165
2/29/96 $10,610 -0.68% $10,966 0.32% $10,198
3/29/96 $10,502 -1.28% $10,825 0.52% $10,251
4/30/96 $10,478 -0.28% $10,795 0.39% $10,291
5/31/96 $10,489 -0.04% $10,791 0.19% $10,310
6/28/96 $10,589 1.09% $10,908 0.06% $10,316
7/31/96 $10,662 0.91% $11,008 0.19% $10,336
8/30/96 $10,665 -0.02% $11,005 0.19% $10,356
9/30/96 $10,790 1.40% $11,159 0.32% $10,389
10/31/96 $10,880 1.13% $11,286 0.32% $10,422
11/29/96 $11,024 1.83% $11,492 0.19% $10,442
12/31/96 $10,989 -0.42% $11,444 0.00% $10,442
1/31/97 $10,999 0.19% $11,466 0.32% $10,475
2/28/97 $11,081 0.92% $11,571 0.31% $10,508
3/31/97 $10,963 -1.33% $11,417 0.25% $10,534
4/30/97 $11,047 0.84% $11,513 0.12% $10,547
5/31/97 $11,167 1.51% $11,687 -0.06% $10,540
6/30/97 $11,260 1.07% $11,812 0.12% $10,553
7/31/97 $11,519 2.77% $12,139 0.12% $10,565
8/31/97 $11,419 -0.94% $12,025 0.19% $10,586
9/30/97 $11,529 1.19% $12,168 0.25% $10,612
10/31/97 $11,594 0.64% $12,246 0.25% $10,639
11/30/97 $11,668 0.59% $12,318 -0.06% $10,632
12/31/97 $11,831 1.46% $12,498 -0.12% $10,619
1/31/98 $11,916 1.03% $12,627 0.19% $10,640
2/28/98 $11,915 0.03% $12,631 0.19% $10,660
3/31/98 $11,924 0.09% $12,642 0.19% $10,680
4/30/98 $11,884 -0.45% $12,585 0.18% $10,699
5/31/98 $12,058 1.58% $12,784 0.18% $10,719
6/30/98 $12,112 0.39% $12,834 0.12% $10,731
7/31/98 $12,139 0.25% $12,866 0.12% $10,744
8/31/98 $12,295 1.55% $13,065 0.12% $10,757
9/30/98 $12,431 1.25% $13,229 0.12% $10,770
10/31/98 $12,429 0.00% $13,229 0.24% $10,796
11/30/98 $12,466 0.35% $13,275 0.00% $10,796
12/31/98 $12,475 0.25% $13,308 -0.06% $10,789
1/31/99 0.86% $12,582 1.19% $13,466 0.24% $10,815
2/28/99 -0.44% $12,542 -0.44% $13,407 0.12% $10,828
Total 25.42% 34.07% 8.28%
Return
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
19
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Massachusetts Insured Tax-Free Income Fund seeks to
provide high, current income exempt from regular federal and Massachusetts state
personal income taxes through a portfolio consisting primarily of insured
Massachusetts municipal bonds.(1)
COMMONWEALTH UPDATE
[MASSACHUSETTS STATE GRAPHIC] During the year under review, the mood in
Massachusetts was upbeat, and rightly so. Following the severe recession in the
early '90s, the state's economy dramatically rebounded. At that time, the
reserve fund was significantly pared, but has since received successive cash
infusions. Reserves and the undesignated balance from the last surplus,
approximately $1.2 billion as of year-end 1998, were likely the result of
policies initiated during tough times. Other indicators of fiscal health
included employment levels that have grown at more than a 2% rate for the last
several years, driving the unemployment rate to 3.4% in June 1998, when the
national rate was 4.5%.(2) A two-tiered tax cut initiative, targeted at earned
and unearned income, should help spur further expansion.
Balanced against favorable economic events, the commonwealth maintained one of
the nation's highest debt levels, 7.7% of personal income compared with the 1.9%
national median.(2) The debt burden is likely to remain elevated due to the
enormous capital demands of the Central Artery/Ted Williams Tunnel project. The
commonwealth may have to issue significant levels of debt, as the next phase is
expected to be more capital intensive at a time of reduced federal funding.
Funding for the Artery seems justified, however, as Massachusetts has the
fastest-growing economy in the northeast, and the nation's fourth-highest per
capita income level.(3) Other upcoming initiatives include appropriations for a
convention center, highway improve-
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.
2. Source: Moody's Investors Service, Municipal Credit Research, August 26,
1998.
3. Source: Standard & Poor's CreditWeek Municipal, December 14, 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 65 of
this report.
20
ments, prisons and schools. Although these projects may incur more debt, they
should generate still more job growth in the construction sector.
Moody's, a national credit rating agency, assigned Massachusetts a "stable"
outlook and Aa3 rating due to the state's strong reserves, revenues continually
exceeding estimates and conservative fiscal policies forged in the midst of the
last cyclical downturn.(4)
PORTFOLIO NOTES
During the reporting period, the fund diligently sought to buy municipal
securities that provided the best relative value consistent with our goal of
providing long-term, tax-exempt income to shareholders. The fund purchased
current coupon bonds with at least 10-year call protection in an attempt to
protect the fund's long-term income stream. By actively managing the fund's
exposure to prerefunded bonds and reinvesting the proceeds in current coupons
with longer call protection, we helped protect the fund's share value and
maintain a competitive yield.
During the period, the fund found value in and purchased Amesbury General
Obligation, Massachusetts State Industrial Finance Agency Revenue - College of
the Holy Cross and Massachusetts State Industrial Finance Agency Revenue - WGBH
Educational Foundation. The fund also took advantage of its ability to buy
uninsured bonds by investing in two high quality, AA-rated credits at relatively
attractive yields. These securities were Massachusetts State Health and
Education Facilities Authority Revenue for Wellesley College and Boston College.
These purchases maintained diversification in a broad range of credits, which
helped reduce the fund's exposure to risk and volatility that may affect any one
credit.
PORTFOLIO BREAKDOWN
Franklin Massachusetts Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Hospitals 28.0%
Education 24.5%
Prerefunded 12.1%
Transportation 11.9%
General Obligation 9.4%
Housing 8.3%
Utilities 3.8%
Health Care 1.2%
Certificates of Participation 0.8%
</TABLE>
(4) This does not indicate Moody's rating of the fund.
21
We continue to closely monitor the supply of Massachusetts insured municipal
bonds. In 1998, the commonwealth issued a total of $10.3 billion, of which 56%
was insured. Compared with 1997, total issuance increased by 32.9%. Because
supply outpaced demand throughout the year, we acquired the above securities at
relatively attractive yields. Looking ahead, the lower borrowing costs may
prompt issuers to refund additional issues, increasing the new-issue supply.
Also, we will carefully track the commonwealth's debt management ability, as
borrowing may increase with pressure to meet routine infrastructure needs and to
fund the Central Artery Tunnel Project, now estimated to cost $11.6 billion to
complete.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Massachusetts Insured Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
------------------------
MONTH CLASS A CLASS C
- ----- ---------- -----------
<S> <C> <C>
March 4.9 cents 4.34 cents
April 4.9 cents 4.34 cents
May 4.9 cents 4.34 cents
June 4.9 cents 4.34 cents
July 4.9 cents 4.32 cents
August 4.9 cents 4.32 cents
September 4.9 cents 4.32 cents
October 4.9 cents 4.35 cents
November 4.9 cents 4.35 cents
December 4.9 cents 4.35 cents
January 4.9 cents 4.35 cents
February 4.9 cents 4.35 cents
---------- -----------
TOTAL 58.8 CENTS 52.07 CENTS
</TABLE>
*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.
22
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.04 $11.71 $11.75
DISTRIBUTIONS
-------------
Dividend Income $0.5880
Long-Term Capital Gain $0.0324
Short-Term Capital Gain $0.0360
TOTAL $0.6564
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.04 $11.76 $11.80
DISTRIBUTIONS
-------------
Dividend Income $0.5207
Long-Term Capital Gain $0.0324
Short-Term Capital Gain $0.0360
TOTAL $0.5891
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.36% +32.70% +103.30% +177.96%
Average Annual Total Return(2) +0.89% +4.91% +6.89% +7.30%
Distribution Rate(3) 4.66%
Taxable Equivalent Distribution Rate(4) 8.20%
30-Day Standardized Yield(5) 3.75%
Taxable Equivalent Yield(4) 6.60%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.74% +17.74% +26.41%
Average Annual Total Return(2) +2.70% +5.24% +6.04%
Distribution Rate(3) 4.22%
Taxable Equivalent Distribution Rate(4) 7.43%
30-Day Standardized Yield(5) 3.33%
Taxable Equivalent Yield(4) 5.86%
</TABLE>
Franklin Massachusetts Insured Tax-Free Income Fund paid distributions derived
from long-term capital gains totaling 3.24 cents ($0.0324) per share in June and
December 1998. The fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852 (b)(3).
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Massachusetts state personal income tax bracket of 43.2%,
based on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
23
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year +0.89%
5-Year +4.91%
10-Year +6.89%
Since Inception (4/3/85) +7.30%
</TABLE>
The following line graph compares the performance of the Franklin Massachusetts
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Fund No. Inception 4/3/85
0118
- -----------------------------------------------------------------------------------------
Date Franklin Massachusetts Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class A Index
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $ 9,575 $10,000 $10,000
3/31/89 $ 9,556 -0.24% $ 9,976 0.58% $10,058
4/30/89 $ 9,738 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,947 2.08% $10,425 0.57% $10,181
6/30/89 $10,075 1.36% $10,567 0.24% $10,206
7/31/89 $10,176 1.36% $10,710 0.24% $10,230
8/31/89 $10,091 -0.98% $10,605 0.16% $10,246
9/30/89 $10,053 -0.30% $10,574 0.32% $10,279
10/31/89 $10,137 1.22% $10,703 0.48% $10,329
11/30/89 $10,268 1.75% $10,890 0.24% $10,353
12/31/89 $10,343 0.82% $10,979 0.16% $10,370
1/31/90 $10,246 -0.47% $10,928 1.03% $10,477
2/28/90 $10,351 0.89% $11,025 0.47% $10,526
3/31/90 $10,351 0.03% $11,028 0.55% $10,584
4/30/90 $10,244 -0.72% $10,949 0.16% $10,601
5/31/90 $10,459 2.18% $11,187 0.23% $10,625
6/30/90 $10,548 0.88% $11,286 0.54% $10,682
7/31/90 $10,716 1.48% $11,453 0.38% $10,723
8/31/90 $10,517 -1.45% $11,287 0.92% $10,822
9/30/90 $10,497 0.06% $11,294 0.84% $10,913
10/31/90 $10,628 1.81% $11,498 0.60% $10,978
11/30/90 $10,840 2.01% $11,729 0.22% $11,002
12/31/90 $10,871 0.44% $11,781 0.00% $11,002
1/31/91 $11,065 1.34% $11,939 0.60% $11,068
2/28/91 $11,116 0.87% $12,042 0.15% $11,085
3/31/91 $11,168 0.04% $12,047 0.15% $11,102
4/30/91 $11,324 1.34% $12,209 0.15% $11,118
5/31/91 $11,397 0.89% $12,317 0.30% $11,152
6/30/91 $11,408 -0.10% $12,305 0.29% $11,184
7/31/91 $11,567 1.22% $12,455 0.15% $11,201
8/31/91 $11,663 1.32% $12,620 0.29% $11,233
9/30/91 $11,802 1.30% $12,784 0.44% $11,283
10/31/91 $11,888 0.90% $12,899 0.15% $11,299
11/30/91 $11,888 0.28% $12,935 0.29% $11,332
12/31/91 $12,116 2.15% $13,213 0.07% $11,340
1/31/92 $12,171 0.23% $13,243 0.15% $11,357
2/29/92 $12,167 0.03% $13,247 0.36% $11,398
3/31/92 $12,197 0.04% $13,253 0.51% $11,456
4/30/92 $12,305 0.89% $13,370 0.14% $11,472
5/31/92 $12,468 1.18% $13,528 0.14% $11,488
6/30/92 $12,656 1.68% $13,756 0.36% $11,530
7/31/92 $13,069 3.00% $14,168 0.21% $11,554
8/31/92 $12,896 -0.98% $14,029 0.28% $11,586
9/30/92 $12,915 0.65% $14,121 0.28% $11,619
10/31/92 $12,671 -0.98% $13,982 0.35% $11,659
11/30/92 $12,990 1.79% $14,232 0.14% $11,676
12/31/92 $13,183 1.02% $14,378 -0.07% $11,667
1/31/93 $13,365 1.16% $14,544 0.49% $11,725
2/28/93 $13,747 3.62% $15,071 0.35% $11,766
3/31/93 $13,743 -1.06% $14,911 0.35% $11,807
4/30/93 $13,845 1.01% $15,062 0.28% $11,840
5/31/93 $13,889 0.56% $15,146 0.14% $11,856
6/30/93 $14,112 1.67% $15,399 0.14% $11,873
7/31/93 $14,144 0.13% $15,419 0.00% $11,873
8/31/93 $14,405 2.08% $15,740 0.28% $11,906
9/30/93 $14,545 1.14% $15,919 0.21% $11,931
10/31/93 $14,576 0.19% $15,949 0.41% $11,980
11/30/93 $14,522 -0.88% $15,809 0.07% $11,989
12/31/93 $14,738 2.11% $16,143 0.00% $11,989
1/31/94 $14,893 1.14% $16,327 0.27% $12,021
2/28/94 $14,653 -2.59% $15,904 0.34% $12,062
3/31/94 $14,163 -4.07% $15,257 0.34% $12,103
4/30/94 $14,194 0.85% $15,386 0.14% $12,120
5/31/94 $14,275 0.87% $15,520 0.07% $12,128
6/30/94 $14,243 -0.61% $15,425 0.34% $12,170
7/31/94 $14,452 1.83% $15,708 0.27% $12,202
8/31/94 $14,484 0.35% $15,763 0.40% $12,251
9/30/94 $14,337 -1.47% $15,531 0.27% $12,284
10/31/94 $14,176 -1.78% $15,255 0.07% $12,293
11/30/94 $13,951 -1.81% $14,978 0.13% $12,309
12/31/94 $14,204 2.20% $15,308 0.00% $12,309
1/31/95 $14,563 2.86% $15,746 0.40% $12,358
2/28/95 $14,923 2.91% $16,204 0.40% $12,408
3/31/95 $15,035 1.15% $16,390 0.33% $12,448
4/30/95 $15,094 0.12% $16,410 0.33% $12,490
5/31/95 $15,393 3.19% $16,933 0.20% $12,515
6/30/95 $15,333 -0.87% $16,786 0.20% $12,540
7/31/95 $15,434 0.95% $16,946 0.00% $12,540
8/31/95 $15,563 1.27% $17,161 0.26% $12,572
9/30/95 $15,664 0.63% $17,269 0.20% $12,597
10/31/95 $15,848 1.45% $17,519 0.33% $12,639
11/30/95 $16,046 1.66% $17,810 -0.07% $12,630
12/31/95 $16,205 0.96% $17,981 -0.07% $12,621
1/31/96 $16,281 0.76% $18,118 0.59% $12,696
2/29/96 $16,232 -0.68% $17,995 0.32% $12,736
3/31/96 $16,072 -1.28% $17,764 0.52% $12,803
4/30/96 $16,009 -0.28% $17,714 0.39% $12,852
5/31/96 $16,043 -0.04% $17,707 0.19% $12,877
6/30/96 $16,178 1.09% $17,900 0.06% $12,885
7/31/96 $16,299 0.91% $18,063 0.19% $12,909
8/31/96 $16,320 -0.02% $18,060 0.19% $12,934
9/30/96 $16,509 1.40% $18,313 0.32% $12,975
10/31/96 $16,657 1.13% $18,519 0.32% $13,017
11/30/96 $16,891 1.83% $18,858 0.19% $13,041
12/31/96 $16,836 -0.42% $18,779 0.00% $13,041
1/31/97 $16,869 0.19% $18,815 0.32% $13,083
2/28/97 $17,003 0.92% $18,988 0.31% $13,124
3/31/97 $16,784 -1.33% $18,735 0.25% $13,156
4/30/97 $16,921 0.84% $18,893 0.12% $13,172
5/31/97 $17,162 1.51% $19,178 -0.06% $13,164
6/30/97 $17,348 1.07% $19,383 0.12% $13,180
7/31/97 $17,818 2.77% $19,920 0.12% $13,196
8/31/97 $17,654 -0.94% $19,733 0.19% $13,221
9/30/97 $17,852 1.19% $19,968 0.25% $13,254
10/31/97 $17,944 0.64% $20,096 0.25% $13,287
11/30/97 $18,067 0.59% $20,214 -0.06% $13,279
12/31/97 $18,327 1.46% $20,509 -0.12% $13,263
1/31/98 $18,451 1.03% $20,720 0.19% $13,288
2/28/98 $18,451 0.03% $20,727 0.19% $13,314
3/31/98 $18,465 0.09% $20,745 0.19% $13,339
4/30/98 $18,431 -0.45% $20,652 0.18% $13,363
5/31/98 $18,684 1.58% $20,978 0.18% $13,387
6/30/98 $18,793 0.39% $21,060 0.12% $13,403
7/31/98 $18,823 0.25% $21,113 0.12% $13,419
8/31/98 $19,063 1.55% $21,440 0.12% $13,435
9/30/98 $19,272 1.25% $21,708 0.12% $13,451
10/31/98 $19,205 0.00% $21,708 0.24% $13,484
11/30/98 $19,286 0.35% $21,784 0.00% $13,484
12/31/98 $19,314 0.25% $21,838 -0.06% $13,476
1/31/99 0.85% $19,478 1.19% $22,098 0.24% $13,508
2/28/99 -0.19% $19,466 -0.44% $22,001 0.12% $13,524
Total Return 94.66% 120.01% 35.24%
- -----------------------------------------------------------------------------------------
</TABLE>
CLASS A (3/1/89 - 2/29/99)
insert Plot Points
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year +2.70%
3-Year +5.24%
Since Inception (5/1/95) +6.04%
</TABLE>
The following line graph compares the performance of the Franklin Massachusetts
Insured Tax-Free Income Fund's Class C shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund No. 218 Inception 5/1/95
- --------------------------------------------------------------------------------------------
Date Franklin Massachusetts Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class C Index
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/1/95 $ 9,904 $10,000 $10,000
5/31/95 $10,100 3.19% $10,319 0.20% $10,020
6/30/95 $10,064 -0.87% $10,229 0.20% $10,040
7/31/95 $10,125 0.95% $10,326 0.00% $10,040
8/31/95 $10,213 1.27% $10,458 0.26% $10,066
9/29/95 $10,265 0.63% $10,523 0.20% $10,086
10/31/95 $10,380 1.45% $10,676 0.33% $10,120
11/30/95 $10,513 1.66% $10,853 -0.07% $10,112
12/29/95 $10,611 0.96% $10,957 -0.07% $10,105
1/31/96 $10,655 0.76% $11,041 0.59% $10,165
2/29/96 $10,618 -0.68% $10,966 0.32% $10,198
3/29/96 $10,501 -1.28% $10,825 0.52% $10,251
4/30/96 $10,464 -0.28% $10,795 0.39% $10,291
5/31/96 $10,481 -0.04% $10,791 0.19% $10,310
6/28/96 $10,564 1.09% $10,908 0.06% $10,316
7/31/96 $10,647 0.91% $11,008 0.19% $10,336
8/30/96 $10,646 -0.02% $11,005 0.19% $10,356
9/30/96 $10,774 1.40% $11,159 0.32% $10,389
10/31/96 $10,855 1.13% $11,286 0.32% $10,422
11/29/96 $11,002 1.83% $11,492 0.19% $10,442
12/31/96 $10,961 -0.42% $11,444 0.00% $10,442
1/31/97 $10,977 0.19% $11,466 0.32% $10,475
2/28/97 $11,068 0.92% $11,571 0.31% $10,508
3/31/97 $10,921 -1.33% $11,417 0.25% $10,534
4/30/97 $10,996 0.84% $11,513 0.12% $10,547
5/31/97 $11,147 1.51% $11,687 -0.06% $10,540
6/30/97 $11,272 1.07% $11,812 0.12% $10,553
7/31/97 $11,561 2.77% $12,139 0.12% $10,565
8/31/97 $11,450 -0.94% $12,025 0.19% $10,586
9/30/97 $11,582 1.19% $12,168 0.25% $10,612
10/31/97 $11,635 0.64% $12,246 0.25% $10,639
11/30/97 $11,709 0.59% $12,318 -0.06% $10,632
12/31/97 $11,861 1.46% $12,498 -0.12% $10,619
1/31/98 $11,945 1.03% $12,627 0.19% $10,640
2/28/98 $11,939 0.03% $12,631 0.19% $10,660
3/31/98 $11,943 0.09% $12,642 0.19% $10,680
4/30/98 $11,916 -0.45% $12,585 0.18% $10,699
5/31/98 $12,072 1.58% $12,784 0.18% $10,719
6/30/98 $12,137 0.39% $12,834 0.12% $10,731
7/31/98 $12,161 0.25% $12,866 0.12% $10,744
8/31/98 $12,299 1.55% $13,065 0.12% $10,757
9/30/98 $12,427 1.25% $13,229 0.12% $10,770
10/31/98 $12,389 0.00% $13,229 0.24% $10,796
11/30/98 $12,424 0.35% $13,275 0.00% $10,796
12/31/98 $12,447 0.25% $13,308 -0.06% $10,789
1/31/99 0.79% $12,545 1.19% $13,466 0.24% $10,815
2/28/99 -0.32% $12,520 -0.44% $13,407 0.12% $10,828
Total Return 25.20% 34.07% 8.28%
- -----------------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 - 2/28/99)
insert Plot Points
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
24
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
Your Fund's Goal: 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
[MICHIGAN STATE GRAPHIC] Perhaps no other state has benefited more than Michigan
from the nation's prolonged economic expansion. Since July 1996, the state's
unemployment rate has been lower than the U.S. average, in contrast to the prior
15-year period, when Michigan's rate was higher than the national average.
Personal income grew 4.6% in 1997, extending a period of strong growth that
began with the end of the recession in the early '90s. While the state is still
dependent on the cyclical auto industry, corporate restructuring and
reinvestment improved the auto companies' competitive positions, which should
make them less vulnerable to economic cycles than in the past.(2)
As a result of the healthy economic environment, the state was able to improve
its financial situation significantly. Spending in recent years was below
revenue levels, eliminating the state's once sizable deficit and allowing
Michigan to build up a large surplus. At the same time, the government went
through a period of downsizing and cost reduction and control. Furthermore,
these factors enabled the state to introduce substantial tax cuts.(3)
With record low unemployment, strong personal income growth, solid financial
operations and an auto industry less susceptible to economic cycles, Michigan is
hitting on all cylinders. Reflecting the state's healthy economy, Moody's, a
national credit rating agency, rated Michigan's general obligation debt Aa1.(4)
(1.) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable. 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.
(2.) Source: Fitch IBCA, November 1998.
(3.) Source: Moody's, November 1998.
(4.) 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 70 of
this report.
25
PORTFOLIO BREAKDOWN
Franklin Michigan Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Prerefunded 32.2%
Education 22.2%
Hospitals 18.8%
Utilities 12.3%
General Obligation 4.8%
Transportation 3.7%
Other Revenue 3.0%
Health Care 1.6%
Housing 0.9%
Tax Allocation 0.4%
Sales Tax Revenue 0.1%
</TABLE>
PORTFOLIO NOTES
During the year under review, municipal bonds traded at historically attractive
levels, compared with the 30-year Treasury bond. At the end of the reporting
period, long-term, insured municipal bonds yielded approximately 95% of the long
Treasury bond. At the same time, 1998 was the second-highest year in history for
municipal bond issuance nationally, with more than $280 billion in new supply.
This prevented municipal bond yields from decreasing at the same rate as those
of government bonds. Although municipal bonds lagged behind Treasuries during
foreign investors' flight to quality from international stock market volatility
in 1998, as fundamentals reverse, we expect the municipal bond market should
close the gap.
The fund's total net assets increased slightly during the year under review,
rising by $36 million, to $1.21 billion on February 28, 1999. In addition,
Franklin Michigan Insured Tax-Free Income Fund's Class A share price, as
measured by net asset value, increased eight cents, from $12.20 on February 28,
1998, to $12.28 on February 28, 1999. The fund's asset allocation changed
slightly during the period. Prerefunded securities was the largest sector in the
fund, comprising 32.2% of total long-term investments at the end of the
reporting period, compared with 17.2% a year earlier. When an outstanding bond
becomes prerefunded, it will be called at its first call date. In most cases,
prerefunded bonds are backed by an escrow of U.S. Treasuries and thus have a
substantial increase in price -- depending on their call date. Education, making
up 22.2% of total long-term investments at the end of the reporting period,
remained an important sector in the portfolio, as we continued to find value
there.
The fund purchased current coupon bonds with at least 10-year call protection in
an attempt to protect its long-term income stream. Also, by actively managing
the fund's exposure to prerefunded bonds and reinvesting the proceeds in current
coupons with longer call protection, we helped to protect its share value and
maintain a competitive yield. Significant purchases during the period included
Fenton Area Public School General Obligation, Northview Public School District
General Obligation and Michigan State Hospital Finance Authority Revenue
- -Oakwood Obligation Group.
However, due to 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, the fund made distributions totaling 5.13 cents per share in long-term
capital gains and 0.36 cents per share in short-term capital gains in June and
December. Additionally, the fund may make another capital gain distribution in
June 1999.
26
Going forward, the fund should perform well when compared with other
fixed-income investments. However, please keep in mind that in this low
interest-rate environment, the fund may have to further decrease the dividend
payment, if interest rates stay at their recent, low level.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Michigan Insured Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
-------------------
MONTH CLASS A CLASS C
- ----- ------- -------
<S> <C> <C>
March 5.1 cents 4.49 cents
April 5.1 cents 4.50 cents
May 5.1 cents 4.50 cents
June 5.1 cents 4.50 cents
July 5.1 cents 4.52 cents
August 5.1 cents 4.52 cents
September 5.1 cents 4.52 cents
October 5.1 cents 4.60 cents
November 5.1 cents 4.60 cents
December 5.0 cents 4.50 cents
January 5.0 cents 4.50 cents
February 5.0 cents 4.50 cents
---------- -----------
TOTAL 60.9 CENTS 54.25 CENTS
</TABLE>
*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.
27
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.08 $12.28 $12.20
DISTRIBUTIONS
-------------
Dividend Income $0.6090
Long-Term Capital Gain $0.0513
Short-Term Capital Gain $0.0036
TOTAL $0.6639
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.09 $12.36 $12.27
DISTRIBUTIONS
-------------
Dividend Income $0.5425
Long-Term Capital Gain $0.0513
Short-Term Capital Gain $0.0036
TOTAL $0.5974
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +6.23% +33.98% +106.98% +192.30%
Average Annual Total Return(2) +1.73% +5.11% +7.08% +7.68%
Distribution Rate(3) 4.63%
Taxable Equivalent Distribution Rate(4) 8.02%
30-Day Standardized Yield(5) 3.71%
Taxable Equivalent Yield(4) 6.43%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.71% +18.91% +27.92%
Average Annual Total Return(2) +3.70% +5.60% +6.36%
Distribution Rate(3) 4.15%
Taxable Equivalent Distribution Rate(4) 7.19%
30-Day Standardized Yield(5) 3.28%
Taxable Equivalent Yield(4) 5.68%
</TABLE>
Franklin Michigan Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 5.13 cents ($0.0513) per share in June and
December 1998. The fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852 (b)(3).
(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 current,
applicable, maximum sales charge(s) for that class.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4.) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Michigan state personal income tax bracket of 42.3%, based
on the federal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
28
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
The following line graph compares the performance of the Franklin Michigan
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fund No. Inception 4/3/85
0119
- -------------------------------------------------------------------------------------
Date Franklin Michigan Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class A Index
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $ 9,578 $10,000 $10,000
3/31/89 $ 9,553 -0.24% $ 9,976 0.58% $10,058
4/30/89 $ 9,740 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,972 2.08% $10,425 0.57% $10,181
6/30/89 $10,107 1.36% $10,567 0.24% $10,206
7/31/89 $10,180 1.36% $10,710 0.24% $10,230
8/31/89 $10,118 -0.98% $10,605 0.16% $10,246
9/30/89 $10,064 -0.30% $10,574 0.32% $10,279
10/31/89 $10,147 1.22% $10,703 0.48% $10,329
11/30/89 $10,295 1.75% $10,890 0.24% $10,353
12/31/89 $10,370 0.82% $10,979 0.16% $10,370
1/31/90 $10,287 -0.47% $10,928 1.03% $10,477
2/28/90 $10,391 0.89% $11,025 0.47% $10,526
3/31/90 $10,393 0.03% $11,028 0.55% $10,584
4/30/90 $10,300 -0.72% $10,949 0.16% $10,601
5/31/90 $10,539 2.18% $11,187 0.23% $10,625
6/30/90 $10,666 0.88% $11,286 0.54% $10,682
7/31/90 $10,822 1.48% $11,453 0.38% $10,723
8/31/90 $10,601 -1.45% $11,287 0.92% $10,822
9/30/90 $10,613 0.06% $11,294 0.84% $10,913
10/31/90 $10,752 1.81% $11,498 0.60% $10,978
11/30/90 $10,981 2.01% $11,729 0.22% $11,002
12/31/90 $11,002 0.44% $11,781 0.00% $11,002
1/31/91 $11,174 1.34% $11,939 0.60% $11,068
2/28/91 $11,246 0.87% $12,042 0.15% $11,085
3/31/91 $11,288 0.04% $12,047 0.15% $11,102
4/30/91 $11,442 1.34% $12,209 0.15% $11,118
5/31/91 $11,515 0.89% $12,317 0.30% $11,152
6/30/91 $11,507 -0.10% $12,305 0.29% $11,184
7/31/91 $11,654 1.22% $12,455 0.15% $11,201
8/31/91 $11,738 1.32% $12,620 0.29% $11,233
9/30/91 $11,886 1.30% $12,784 0.44% $11,283
10/31/91 $11,972 0.90% $12,899 0.15% $11,299
11/30/91 $11,963 0.28% $12,935 0.29% $11,332
12/31/91 $12,209 2.15% $13,213 0.07% $11,340
1/31/92 $12,253 0.23% $13,243 0.15% $11,357
2/29/92 $12,245 0.03% $13,247 0.36% $11,398
3/31/92 $12,279 0.04% $13,253 0.51% $11,456
4/30/92 $12,400 0.89% $13,370 0.14% $11,472
5/31/92 $12,597 1.18% $13,528 0.14% $11,488
6/30/92 $12,782 1.68% $13,756 0.36% $11,530
7/31/92 $13,242 3.00% $14,168 0.21% $11,554
8/31/92 $13,064 -0.98% $14,029 0.28% $11,586
9/30/92 $13,096 0.65% $14,121 0.28% $11,619
10/31/92 $12,872 -0.98% $13,982 0.35% $11,659
11/30/92 $13,173 1.79% $14,232 0.14% $11,676
12/31/92 $13,341 1.02% $14,378 -0.07% $11,667
1/31/93 $13,509 1.16% $14,544 0.49% $11,725
2/28/93 $13,895 3.62% $15,071 0.35% $11,766
3/31/93 $13,859 -1.06% $14,911 0.35% $11,807
4/30/93 $13,949 1.01% $15,062 0.28% $11,840
5/31/93 $14,029 0.56% $15,146 0.14% $11,856
6/30/93 $14,260 1.67% $15,399 0.14% $11,873
7/31/93 $14,258 0.13% $15,419 0.00% $11,873
8/31/93 $14,538 2.08% $15,740 0.28% $11,906
9/30/93 $14,712 1.14% $15,919 0.21% $11,931
10/31/93 $14,780 0.19% $15,949 0.41% $11,980
11/30/93 $14,706 -0.88% $15,809 0.07% $11,989
12/31/93 $14,954 2.11% $16,143 0.00% $11,989
1/31/94 $15,084 1.14% $16,327 0.27% $12,021
2/28/94 $14,780 -2.59% $15,904 0.34% $12,062
3/31/94 $14,306 -4.07% $15,257 0.34% $12,103
4/30/94 $14,399 0.85% $15,386 0.14% $12,120
5/31/94 $14,469 0.87% $15,520 0.07% $12,128
6/30/94 $14,415 -0.61% $15,425 0.34% $12,170
7/31/94 $14,634 1.83% $15,708 0.27% $12,202
8/31/94 $14,667 0.35% $15,763 0.40% $12,251
9/30/94 $14,502 -1.47% $15,531 0.27% $12,284
10/31/94 $14,310 -1.78% $15,255 0.07% $12,293
11/30/94 $14,081 -1.81% $14,978 0.13% $12,309
12/31/94 $14,367 2.20% $15,308 0.00% $12,309
1/31/95 $14,694 2.86% $15,746 0.40% $12,358
2/28/95 $15,060 2.91% $16,204 0.40% $12,408
3/31/95 $15,184 1.15% $16,390 0.33% $12,448
4/30/95 $15,218 0.12% $16,410 0.33% $12,490
5/31/95 $15,577 3.19% $16,933 0.20% $12,515
6/30/95 $15,482 -0.87% $16,786 0.20% $12,540
7/31/95 $15,569 0.95% $16,946 0.00% $12,540
8/31/95 $15,710 1.27% $17,161 0.26% $12,572
9/30/95 $15,798 0.63% $17,269 0.20% $12,597
10/31/95 $15,993 1.45% $17,519 0.33% $12,639
11/30/95 $16,229 1.66% $17,810 -0.07% $12,630
12/31/95 $16,359 0.96% $17,981 -0.07% $12,621
1/31/96 $16,463 0.76% $18,118 0.59% $12,696
2/29/96 $16,391 -0.68% $17,995 0.32% $12,736
3/31/96 $16,208 -1.28% $17,764 0.52% $12,803
4/30/96 $16,187 -0.28% $17,714 0.39% $12,852
5/31/96 $16,180 -0.04% $17,707 0.19% $12,877
6/30/96 $16,353 1.09% $17,900 0.06% $12,885
7/31/96 $16,484 0.91% $18,063 0.19% $12,909
8/31/96 $16,476 -0.02% $18,060 0.19% $12,934
9/30/96 $16,693 1.40% $18,313 0.32% $12,975
10/31/96 $16,840 1.13% $18,519 0.32% $13,017
11/30/96 $17,115 1.83% $18,858 0.19% $13,041
12/31/96 $17,051 -0.42% $18,779 0.00% $13,041
1/31/97 $17,058 0.19% $18,815 0.32% $13,083
2/28/97 $17,193 0.92% $18,988 0.31% $13,124
3/31/97 $16,985 -1.33% $18,735 0.25% $13,156
4/30/97 $17,108 0.84% $18,893 0.12% $13,172
5/31/97 $17,332 1.51% $19,178 -0.06% $13,164
6/30/97 $17,482 1.07% $19,383 0.12% $13,180
7/31/97 $17,913 2.77% $19,920 0.12% $13,196
8/31/97 $17,742 -0.94% $19,733 0.19% $13,221
9/30/97 $17,925 1.19% $19,968 0.25% $13,254
10/31/97 $18,036 0.64% $20,096 0.25% $13,287
11/30/97 $18,146 0.59% $20,214 -0.06% $13,279
12/31/97 $18,448 1.46% $20,509 -0.12% $13,263
1/31/98 $18,602 1.03% $20,720 0.19% $13,288
2/28/98 $18,636 0.03% $20,727 0.19% $13,314
3/31/98 $18,637 0.09% $20,745 0.19% $13,339
4/30/98 $18,608 -0.45% $20,652 0.18% $13,363
5/31/98 $18,872 1.58% $20,978 0.18% $13,387
6/30/98 $19,001 0.39% $21,060 0.12% $13,403
7/31/98 $19,049 0.25% $21,113 0.12% $13,419
8/31/98 $19,286 1.55% $21,440 0.12% $13,435
9/30/98 $19,523 1.25% $21,708 0.12% $13,451
10/31/98 $19,524 0.00% $21,708 0.24% $13,484
11/30/98 $19,605 0.35% $21,784 0.00% $13,484
12/31/98 $19,641 0.25% $21,838 -0.06% $13,476
1/31/99 0.90% $19,818 1.19% $22,098 0.24% $13,508
2/28/99 -0.09% $19,824 -0.44% $22,001 0.12% $13,524
Total Return 98.24% 120.01% 35.24%
- -------------------------------------------------------------------------------------
</TABLE>
The following line graph compares the performance of the Franklin Michigan
Insured Tax-Free Income Fund's Class C shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Fund No. 219 Inception 5/1/95
- -----------------------------------------------------------------------------------------
Date Franklin Michigan Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class C Index
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/1/95 $ 9,899 $10,000 $10,000
5/31/95 $10,141 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,134 0.95% $10,326 0.00% $10,040
8/31/95 $10,220 1.27% $10,458 0.26% $10,066
9/29/95 $10,281 0.63% $10,523 0.20% $10,086
10/31/95 $10,402 1.45% $10,676 0.33% $10,120
11/30/95 $10,549 1.66% $10,853 -0.07% $10,112
12/29/95 $10,629 0.96% $10,957 -0.07% $10,105
1/31/96 $10,690 0.76% $11,041 0.59% $10,165
2/29/96 $10,639 -0.68% $10,966 0.32% $10,198
3/29/96 $10,513 -1.28% $10,825 0.52% $10,251
4/30/96 $10,495 -0.28% $10,795 0.39% $10,291
5/31/96 $10,494 -0.04% $10,791 0.19% $10,310
6/28/96 $10,591 1.09% $10,908 0.06% $10,316
7/31/96 $10,671 0.91% $11,008 0.19% $10,336
8/30/96 $10,670 -0.02% $11,005 0.19% $10,356
9/30/96 $10,805 1.40% $11,159 0.32% $10,389
10/31/96 $10,895 1.13% $11,286 0.32% $10,422
11/29/96 $11,066 1.83% $11,492 0.19% $10,442
12/31/96 $11,020 -0.42% $11,444 0.00% $10,442
1/31/97 $11,019 0.19% $11,466 0.32% $10,475
2/28/97 $11,109 0.92% $11,571 0.31% $10,508
3/31/97 $10,960 -1.33% $11,417 0.25% $10,534
4/30/97 $11,034 0.84% $11,513 0.12% $10,547
5/31/97 $11,173 1.51% $11,687 -0.06% $10,540
6/30/97 $11,273 1.07% $11,812 0.12% $10,553
7/31/97 $11,544 2.77% $12,139 0.12% $10,565
8/31/97 $11,420 -0.94% $12,025 0.19% $10,586
9/30/97 $11,541 1.19% $12,168 0.25% $10,612
10/31/97 $11,596 0.64% $12,246 0.25% $10,639
11/30/97 $11,671 0.59% $12,318 -0.06% $10,632
12/31/97 $11,858 1.46% $12,498 -0.12% $10,619
1/31/98 $11,951 1.03% $12,627 0.19% $10,640
2/28/98 $11,966 0.03% $12,631 0.19% $10,660
3/31/98 $11,961 0.09% $12,642 0.19% $10,680
4/30/98 $11,936 -0.45% $12,585 0.18% $10,699
5/31/98 $12,099 1.58% $12,784 0.18% $10,719
6/30/98 $12,185 0.39% $12,834 0.12% $10,731
7/31/98 $12,210 0.25% $12,866 0.12% $10,744
8/31/98 $12,355 1.55% $13,065 0.12% $10,757
9/30/98 $12,500 1.25% $13,229 0.12% $10,770
10/31/98 $12,496 0.00% $13,229 0.24% $10,796
11/30/98 $12,542 0.35% $13,275 0.00% $10,796
12/31/98 $12,560 0.25% $13,308 -0.06% $10,789
1/31/99 0.85% $12,667 1.19% $13,466 0.24% $10,815
2/28/99 -0.13% $12,663 -0.44% $13,407 0.12% $10,828
Total Return 26.63% 34.07% 8.28%
- -----------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
29
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
Your Fund's Goal: 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
[MINNESOTA STATE GRAPHIC] With perhaps the most balanced economy in the U.S.,
conservative stewardship of fiscal policy and a vigorous growth trend, Minnesota
walked away from 1998 with a clean bill of health. Beyond solid and soaring
fundamentals, including an unemployment rate less than half the national
average, during the year under review, the state maintained the highest possible
credit ratings with an increased revenue stream and continued control over
current and future spending initiatives. Unaudited revenues for fiscal 1998
increased $400 million over 1997, with individual income taxes spawning 87% of
the increase.(2) Synergies between the services, trade and manufacturing sectors
offered resilience in the event of a major economic downturn. Independent of
positive forecasts for a surplus in fiscal 1999, the state just received the
first of many multi-million dollar annual installments as a result of the
historic $6.1 billion tobacco settlement, which is payable over 25 years.
Tobacco companies promised to provide $1.7 billion in funds during the next five
years.(3)
As a result of the November elections, "tripartisan" may become the operative
word as the governorship, Senate and House each fall under the control of a
different political party. With $1.4 billion in reserves and another projected
surplus, the first item on the agenda requiring cooperation may be a coordinated
tax relief plan.(4) However, the new political forces will not have to worry
about a new debt structure. Touted as one of the more simplistic, yet effective,
debt management policies in the
(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.
(2) Source: Moody's Investors Service, Municipal Credit Research, October 23,
1998.
(3) Source: Moody's Investors Service, Municipal Credit Research, May 26, 1998.
(4) Standard & Poor's CreditWeek Municipal, January 18, 1999.
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.
30
nation, almost all debt issued by Minnesota falls under general obligation (GO),
70% of which is scheduled to retire in the next 10 years. The Debt Management
Policy, which restricts GO debt to 2.5% of personal income and limits total debt
to 5.0%, underscores the state's commitment to responsible borrowing practices.
The "stable" outlook and Aaa rating assigned Minnesota by Moody's, a national
credit rating agency, is as much the result of excellent management from the
government's highest levels as it is a product of a booming, diverse economy
that has hit its stride.(5)
PORTFOLIO NOTES
Issuers continued to redeem higher interest-rate bonds during the one-year
review period, albeit at a slower pace than last year. Seeking to extend the
portfolio's long-term, income-earning potential, we sold a percentage of these
prerefunded bonds and reinvested the proceeds in bonds offering longer call
protection. At the end of the reporting period, prerefunded bonds made up 6.5%
of the fund's total long-term investments, down from 15.5% on February 28, 1998.
Selling prerefunded securities is consistent with our fiscally responsible
strategy of managing the fund to maximize tax-free income and maintain a stable
share value. To further increase stability, we do not use derivatives or attempt
to forecast where interest rates are heading.
Franklin Minnesota Insured Tax-Free Income Fund's total net assets grew 6%
during the 12 months under review, reaching approximately $536.1 million on
February 28, 1999, compared with $505.4 million a year earlier. We invested new
money as well as proceeds from sold securities in a wide range of industries to
maintain the fund's broad sector diversification. At the end of the period, the
hospital sector had the fund's heaviest weighting, comprising 17.8% of the
fund's total long-term investments, compared with 16.4% on February 28, 1998. We
also found value in the education sector, which increased from 13.1% to17.5% of
the fund's total long-term investments during the same period. Purchases
included Minneapolis/St. Paul Metropolitan Airport Commission Airport Revenue;
Buffalo GO - Independent School District and Minneapolis Multifamily Revenue -
Riverside Plaza.
PORTFOLIO BREAKDOWN
Franklin Minnesota Insured
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Hospitals 17.8%
Education 17.5%
Housing 16.3%
Utilities 12.5%
Transportation 10.0%
Health Care 7.0%
Prerefunded 6.5%
General Obligation 5.3%
Other Revenue 3.3%
Certificates
of Participation 2.2%
Tax Allocation 1.4%
Sales Tax 0.2%
</TABLE>
(5) This does not indicate Moody's rating of the fund.
31
The fund should perform well into the next reporting period, aided by stable
interest rates and ample supply of new bonds. However, the fund's substantial
new investments in the current, historically low interest-rate environment
increased pressure on the dividend payment. If interest rates stay in the same
range, it is likely that there will be further dividend payment cuts in the next
reporting period. In addition, it may be difficult for the fund to generate
enough capital losses to offset the gains realized from prerefunded bond sales.
Thus, the fund may make a capital gain distribution in June 1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Minnesota Insured Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
------------------------
MONTH CLASS A CLASS C
---------- -----------
<S> <C> <C>
March 5.2 cents 4.61 cents
April 5.2 cents 4.69 cents
May 5.2 cents 4.69 cents
June 5.2 cents 4.69 cents
July 5.2 cents 4.62 cents
August 5.2 cents 4.62 cents
September 5.2 cents 4.62 cents
October 5.2 cents 4.61 cents
November 5.2 cents 4.61 cents
December 5.0 cents 4.41 cents
January 5.0 cents 4.41 cents
February 5.0 cents 4.41 cents
TOTAL 61.8 CENTS 54.99 CENTS
</TABLE>
*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.
32
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.02 $12.14 $12.16
DISTRIBUTIONS
-------------
Dividend Income $0.6180
Long-Term Capital Gain $0.0206
TOTAL $0.6386
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.02 $12.19 $12.21
DISTRIBUTIONS
-------------
Dividend Income $0.5499
Long-Term Capital Gain $0.0206
TOTAL $0.5705
</TABLE>
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.18% +30.60% +98.04% +187.60%
Average Annual Total Return(2) +0.71% +4.57% +6.61% +7.56%
Distribution Rate(3) 4.73%
Taxable Equivalent Distribution Rate(4) 8.56%
30-Day Standardized Yield(5) 3.83%
Taxable Equivalent Yield(4) 6.93%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.58% +16.39% +24.16%
Average Annual Total Return(2) +2.57% +4.85% +5.53%
Distribution Rate(3) 4.31%
Taxable Equivalent Distribution Rate(4) 7.80%
30-Day Standardized Yield(5) 3.41%
Taxable Equivalent Yield(4) 6.17%
</TABLE>
Franklin Minnesota Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 2.06 cents ($0.0206) per share in June and
December 1998. The fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852 (b)(3).
(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 current,
applicable, maximum sales charge(s) for that class.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4.) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Minnesota state personal income tax bracket of 44.7%, based
on the federal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
33
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year +0.71%
5-Year +4.57%
10-Year +6.61%
Since Inception (4/3/85) +7.56%
</TABLE>
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Fund No. Inception 4/3/85
0120
- ---------------------------------------------------------------------------------------
Date Franklin Minnesota Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class A Index
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $ 9,574 $10,000 $10,000
3/31/89 $ 9,562 -0.24% $9,976 0.58% $10,058
4/30/89 $ 9,765 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,969 2.08% $10,425 0.57% $10,181
6/30/89 $10,104 1.36% $10,567 0.24% $10,206
7/31/89 $10,179 1.36% $10,710 0.24% $10,230
8/31/89 $10,123 -0.98% $10,605 0.16% $10,246
9/30/89 $10,075 -0.30% $10,574 0.32% $10,279
10/31/89 $10,160 1.22% $10,703 0.48% $10,329
11/30/89 $10,300 1.75% $10,890 0.24% $10,353
12/31/89 $10,377 0.82% $10,979 0.16% $10,370
1/31/90 $10,301 -0.47% $10,928 1.03% $10,477
2/28/90 $10,406 0.89% $11,025 0.47% $10,526
3/31/90 $10,412 0.03% $11,028 0.55% $10,584
4/30/90 $10,362 -0.72% $10,949 0.16% $10,601
5/31/90 $10,580 2.18% $11,187 0.23% $10,625
6/30/90 $10,688 0.88% $11,286 0.54% $10,682
7/31/90 $10,834 1.48% $11,453 0.38% $10,723
8/31/90 $10,642 -1.45% $11,287 0.92% $10,822
9/30/90 $10,619 0.06% $11,294 0.84% $10,913
10/31/90 $10,768 1.81% $11,498 0.60% $10,978
11/30/90 $10,975 2.01% $11,729 0.22% $11,002
12/31/90 $10,981 0.44% $11,781 0.00% $11,002
1/31/91 $11,142 1.34% $11,939 0.60% $11,068
2/28/91 $11,196 0.87% $12,042 0.15% $11,085
3/31/91 $11,241 0.04% $12,047 0.15% $11,102
4/30/91 $11,405 1.34% $12,209 0.15% $11,118
5/31/91 $11,490 0.89% $12,317 0.30% $11,152
6/30/91 $11,483 -0.10% $12,305 0.29% $11,184
7/31/91 $11,637 1.22% $12,455 0.15% $11,201
8/31/91 $11,710 1.32% $12,620 0.29% $11,233
9/30/91 $11,866 1.30% $12,784 0.44% $11,283
10/31/91 $11,950 0.90% $12,899 0.15% $11,299
11/30/91 $11,943 0.28% $12,935 0.29% $11,332
12/31/91 $12,173 2.15% $13,213 0.07% $11,340
1/31/92 $12,217 0.23% $13,243 0.15% $11,357
2/29/92 $12,210 0.03% $13,247 0.36% $11,398
3/31/92 $12,265 0.04% $13,253 0.51% $11,456
4/30/92 $12,363 0.89% $13,370 0.14% $11,472
5/31/92 $12,545 1.18% $13,528 0.14% $11,488
6/30/92 $12,706 1.68% $13,756 0.36% $11,530
7/31/92 $13,135 3.00% $14,168 0.21% $11,554
8/31/92 $12,942 -0.98% $14,029 0.28% $11,586
9/30/92 $12,943 0.65% $14,121 0.28% $11,619
10/31/92 $12,716 -0.98% $13,982 0.35% $11,659
11/30/92 $13,023 1.79% $14,232 0.14% $11,676
12/31/92 $13,199 1.02% $14,378 -0.07% $11,667
1/31/93 $13,366 1.16% $14,544 0.49% $11,725
2/28/93 $13,732 3.62% $15,071 0.35% $11,766
3/31/93 $13,700 -1.06% $14,911 0.35% $11,807
4/30/93 $13,801 1.01% $15,062 0.28% $11,840
5/31/93 $13,866 0.56% $15,146 0.14% $11,856
6/30/93 $14,079 1.67% $15,399 0.14% $11,873
7/31/93 $14,088 0.13% $15,419 0.00% $11,873
8/31/93 $14,325 2.08% $15,740 0.28% $11,906
9/30/93 $14,471 1.14% $15,919 0.21% $11,931
10/31/93 $14,514 0.19% $15,949 0.41% $11,980
11/30/93 $14,443 -0.88% $15,809 0.07% $11,989
12/31/93 $14,649 2.11% $16,143 0.00% $11,989
1/31/94 $14,776 1.14% $16,327 0.27% $12,021
2/28/94 $14,503 -2.59% $15,904 0.34% $12,062
3/31/94 $14,088 -4.07% $15,257 0.34% $12,103
4/30/94 $14,133 0.85% $15,386 0.14% $12,120
5/31/94 $14,238 0.87% $15,520 0.07% $12,128
6/30/94 $14,192 -0.61% $15,425 0.34% $12,170
7/31/94 $14,393 1.83% $15,708 0.27% $12,202
8/31/94 $14,439 0.35% $15,763 0.40% $12,251
9/30/94 $14,289 -1.47% $15,531 0.27% $12,284
10/31/94 $14,088 -1.78% $15,255 0.07% $12,293
11/30/94 $13,852 -1.81% $14,978 0.13% $12,309
12/31/94 $14,130 2.20% $15,308 0.00% $12,309
1/31/95 $14,471 2.86% $15,746 0.40% $12,358
2/28/95 $14,814 2.91% $16,204 0.40% $12,408
3/31/95 $14,934 1.15% $16,390 0.33% $12,448
4/30/95 $14,966 0.12% $16,410 0.33% $12,490
5/31/95 $15,276 3.19% $16,933 0.20% $12,515
6/30/95 $15,195 -0.87% $16,786 0.20% $12,540
7/31/95 $15,278 0.95% $16,946 0.00% $12,540
8/31/95 $15,415 1.27% $17,161 0.26% $12,572
9/30/95 $15,512 0.63% $17,269 0.20% $12,597
10/31/95 $15,687 1.45% $17,519 0.33% $12,639
11/30/95 $15,876 1.66% $17,810 -0.07% $12,630
12/31/95 $16,014 0.96% $17,981 -0.07% $12,621
1/31/96 $16,088 0.76% $18,118 0.59% $12,696
2/29/96 $16,003 -0.68% $17,995 0.32% $12,736
3/31/96 $15,827 -1.28% $17,764 0.52% $12,803
4/30/96 $15,795 -0.28% $17,714 0.39% $12,852
5/31/96 $15,802 -0.04% $17,707 0.19% $12,877
6/30/96 $15,958 1.09% $17,900 0.06% $12,885
7/31/96 $16,087 0.91% $18,063 0.19% $12,909
8/31/96 $16,067 -0.02% $18,060 0.19% $12,934
9/30/96 $16,263 1.40% $18,313 0.32% $12,975
10/31/96 $16,405 1.13% $18,519 0.32% $13,017
11/30/96 $16,616 1.83% $18,858 0.19% $13,041
12/31/96 $16,567 -0.42% $18,779 0.00% $13,041
1/31/97 $16,600 0.19% $18,815 0.32% $13,083
2/28/97 $16,730 0.92% $18,988 0.31% $13,124
3/31/97 $16,568 -1.33% $18,735 0.25% $13,156
4/30/97 $16,686 0.84% $18,893 0.12% $13,172
5/31/97 $16,874 1.51% $19,178 -0.06% $13,164
6/30/97 $17,021 1.07% $19,383 0.12% $13,180
7/31/97 $17,410 2.77% $19,920 0.12% $13,196
8/31/97 $17,301 -0.94% $19,733 0.19% $13,221
9/30/97 $17,463 1.19% $19,968 0.25% $13,254
10/31/97 $17,554 0.64% $20,096 0.25% $13,287
11/30/97 $17,659 0.59% $20,214 -0.06% $13,279
12/31/97 $17,847 1.46% $20,509 -0.12% $13,263
1/31/98 $17,983 1.03% $20,720 0.19% $13,288
2/28/98 $18,002 0.03% $20,727 0.19% $13,314
3/31/98 $18,035 0.09% $20,745 0.19% $13,339
4/30/98 $18,008 -0.45% $20,652 0.18% $13,363
5/31/98 $18,235 1.58% $20,978 0.18% $13,387
6/30/98 $18,317 0.39% $21,060 0.12% $13,403
7/31/98 $18,350 0.25% $21,113 0.12% $13,419
8/31/98 $18,550 1.55% $21,440 0.12% $13,435
9/30/98 $18,721 1.25% $21,708 0.12% $13,451
10/31/98 $18,769 0.00% $21,708 0.24% $13,484
11/30/98 $18,834 0.35% $21,784 0.00% $13,484
12/31/98 $18,861 0.25% $21,838 -0.06% $13,476
1/31/99 0.74% $19,001 1.19% $22,098 0.24% $13,508
2/28/99 -0.34% $18,961 -0.44% $22,001 0.12% $13,524
Total Return 89.61% 120.01% 35.24%
- ---------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year +2.57%
3-Year +4.85%
Since Inception (5/1/95) +5.53%
</TABLE>
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class C shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fund No. 220 Inception 5/1/95
- -------------------------------------------------------------------------------------
Date Franklin Minnesota Lehman Brothers CPI
Insured Tax-Free Municipal Bond
Income Fund-Class C Index
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/1/95 $ 9,900 $10,000 $10,000
5/31/95 $10,105 3.19% $10,319 0.20% $10,020
6/30/95 $10,046 -0.87% $10,229 0.20% $10,040
7/31/95 $10,097 0.95% $10,326 0.00% $10,040
8/31/95 $10,190 1.27% $10,458 0.26% $10,066
9/29/95 $10,240 0.63% $10,523 0.20% $10,086
10/31/95 $10,351 1.45% $10,676 0.33% $10,120
11/30/95 $10,479 1.66% $10,853 -0.07% $10,112
12/29/95 $10,565 0.96% $10,957 -0.07% $10,105
1/31/96 $10,608 0.76% $11,041 0.59% $10,165
2/29/96 $10,547 -0.68% $10,966 0.32% $10,198
3/29/96 $10,426 -1.28% $10,825 0.52% $10,251
4/30/96 $10,399 -0.28% $10,795 0.39% $10,291
5/31/96 $10,408 -0.04% $10,791 0.19% $10,310
6/28/96 $10,496 1.09% $10,908 0.06% $10,316
7/31/96 $10,576 0.91% $11,008 0.19% $10,336
8/30/96 $10,567 -0.02% $11,005 0.19% $10,356
9/30/96 $10,682 1.40% $11,159 0.32% $10,389
10/31/96 $10,770 1.13% $11,286 0.32% $10,422
11/29/96 $10,904 1.83% $11,492 0.19% $10,442
12/31/96 $10,867 -0.42% $11,444 0.00% $10,442
1/31/97 $10,882 0.19% $11,466 0.32% $10,475
2/28/97 $10,969 0.92% $11,571 0.31% $10,508
3/31/97 $10,855 -1.33% $11,417 0.25% $10,534
4/30/97 $10,927 0.84% $11,513 0.12% $10,547
5/31/97 $11,045 1.51% $11,687 -0.06% $10,540
6/30/97 $11,145 1.07% $11,812 0.12% $10,553
7/31/97 $11,383 2.77% $12,139 0.12% $10,565
8/31/97 $11,306 -0.94% $12,025 0.19% $10,586
9/30/97 $11,406 1.19% $12,168 0.25% $10,612
10/31/97 $11,460 0.64% $12,246 0.25% $10,639
11/30/97 $11,523 0.59% $12,318 -0.06% $10,632
12/31/97 $11,650 1.46% $12,498 -0.12% $10,619
1/31/98 $11,733 1.03% $12,627 0.19% $10,640
2/28/98 $11,739 0.03% $12,631 0.19% $10,660
3/31/98 $11,755 0.09% $12,642 0.19% $10,680
4/30/98 $11,732 -0.45% $12,585 0.18% $10,699
5/31/98 $11,875 1.58% $12,784 0.18% $10,719
6/30/98 $11,923 0.39% $12,834 0.12% $10,731
7/31/98 $11,939 0.25% $12,866 0.12% $10,744
8/31/98 $12,063 1.55% $13,065 0.12% $10,757
9/30/98 $12,167 1.25% $13,229 0.12% $10,770
10/31/98 $12,193 0.00% $13,229 0.24% $10,796
11/30/98 $12,229 0.35% $13,275 0.00% $10,796
12/31/98 $12,251 0.25% $13,308 -0.06% $10,789
1/31/99 0.69% $12,336 1.19% $13,466 0.24% $10,815
2/28/99 -0.46% $12,292 -0.44% $13,407 0.12% $10,828
Total Return 22.92% 34.07% 8.28%
- -------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
34
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Ohio Insured Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and Ohio state personal income
taxes through a portfolio consisting primarily of insured Ohio municipal
bonds.(1)
STATE UPDATE
[OHIO STATE GRAPHIC] During the year under review, Ohio maintained remarkable
strength, bolstered by fiscal prudence and an ever more-diversified economy.
Unemployment drifted lower and remained slightly below the national average,
while the bustling economy, once dominated by the manufacturing sector,
blossomed in the services and trade sectors. With more than 20% of exports
destined for Asia, the export sector suffered, but only slightly. Although
manufacturing still accounted for a disproportionately high percentage of total
state output, the state broadened its exposure beyond the cyclical auto and
steel sectors, reducing the manufacturing sector's vulnerabilities. Growth as a
whole slowed somewhat, but this could have been predicted given the already
fully tapped employment levels. In short, Ohio continued to maintain a solid
growth trend despite low but increasing wage pressures exacerbated by tight
labor market conditions.
In addition to the buoyant economy, the state's balance sheet exceeded
expectations. As with the previous seven years, Ohio witnessed yet one more of
higher-than-anticipated revenues combined with expenses below estimates. Ohio
added $44 million to its already hefty "rainy day" reserve fund, bringing the
total to an impressive $907 million.(2) State reserves have now surpassed those
of pre-recession levels in the early '90s, leaving Ohio well-positioned to
defend itself should the economy take a downturn. An additional $701 million,
earmarked to fund an income tax reduction
(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.
(2.) Source: Moody's Investors Service, Municipal Credit Research, January 29,
1999.
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 83 of
this report.
35
initiative, and another $200 million designated for the public school system,
should help further stimulate the economic base. The state also maintained
manageable debt levels for fiscal 1998, with 75% of total state debt on a rapid,
10-year retirement schedule.(3)
With low debt levels, reserves approaching the $1 billion mark and judicious yet
generous fiscal policies, Ohio enjoys a well-deserved Aa1 rating of "stable
outlook" on general obligation bonds by Moody's, a national credit rating
agency.(4)
PORTFOLIO NOTES
Franklin Ohio Insured Tax-Free Income Fund's total net assets increased by
approximately $50 million for the 12 months under review, to $818.9 million on
February 28, 1999. This was due to new money coming into the fund as well as
appreciation of the fund's existing bonds' values. The fund's Class A share
price, as measured by net asset value, increased four cents, from $12.45 on
February 28, 1998, to $12.49 on February 28, 1999.
The fund's asset allocation changed little during the reporting period, as we
sought to maintain broad sector diversification. Utilities remained the fund's
largest sector, comprising 27.3% of total long-term investments at the end of
the reporting period, followed by education, 19.9%, and prerefunded bonds, at
15.6%. Purchases during the period included Cleveland Waterworks Revenue;
Pickerington Local School District General Obligation and Hamilton Hospital
Facilities Revenue - Children's Hospital Medical Center.
Our treatment of prerefunded bonds remained the same. We generally sell
prerefunded bonds as they approach five years to their call date and use the
sale proceeds to purchase current coupon bonds, at a slight discount, that offer
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 prerefunded bond sales. Thus, the fund made
long-term capital gain distributions totaling 2.99 cents during the one-year
period and may make another capital gain distribution in June 1999. The fund
will continue its strategy of selling prerefunded bonds to decrease call
exposure.
PORTFOLIO BREAKDOWN
Franklin Ohio Insured Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 27.3%
Education 19.9%
Prerefunded 15.6%
Hospitals 11.6%
General Obligation 10.8%
Housing 4.4%
Transportation 3.5%
Industrial 3.4%
Certificates
of Participation 2.8%
Other Revenue 0.7%
</TABLE>
(3.) Source: Standard & Poor's CreditWeek Municipal, January 25, 1999.
(4.) This does not indicate Moody's rating of the fund.
36
Going forward, the fund should continue to do well. However, the low
interest-rate environment will put some pressure on the fund's overall income
earnings. 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 stay at recent levels or move lower. It is important to note that we still
adhere to our philosophy of investing for income and share value stability. We
believe the fund should rank favorably when compared with other fixed-income
investment alternatives.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Ohio Insured Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
------------------------
MONTH CLASS A CLASS C
---------- -----------
<S> <C> <C>
March 5.3 cents 4.70 cents
April 5.3 cents 4.73 cents
May 5.3 cents 4.73 cents
June 5.1 cents 4.53 cents
July 5.1 cents 4.51 cents
August 5.1 cents 4.51 cents
September 5.1 cents 4.51 cents
October 5.1 cents 4.50 cents
November 5.1 cents 4.50 cents
December 5.1 cents 4.50 cents
January 5.1 cents 4.50 cents
February 5.1 cents 4.50 cents
---------- -----------
TOTAL 61.8 CENTS 54.72 CENTS
</TABLE>
*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.
37
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.04 $12.49 $12.45
DISTRIBUTIONS
-------------
Dividend Income $0.6180
Long-Term Capital Gain $0.0299
TOTAL $0.6479
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.05 $12.56 $12.51
DISTRIBUTIONS
-------------
Dividend Income $0.5472
Long-Term Capital Gain $0.0299
TOTAL $0.5771
</TABLE>
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.63% +33.19% +106.05% +191.88%
Average Annual Total Return(2) +1.17% +4.98% +7.03% +7.67%
Distribution Rate(3) 4.69%
Taxable Equivalent Distribution Rate(4) 8.33%
30-Day Standardized Yield(5) 3.84%
Taxable Equivalent Yield(4) 6.82%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.10% +18.58% +27.39%
Average Annual Total Return(2) +3.03% +5.50% +6.25%
Distribution Rate(3) 4.26%
Taxable Equivalent Distribution Rate(4) 7.57%
30-Day Standardized Yield(5) 3.42%
Taxable Equivalent Yield(4) 6.08%
</TABLE>
Franklin Ohio Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 2.99 cents ($0.0299) per share in June and
December 1998. The fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852 (b)(3).
(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 current,
applicable, maximum sales charge(s) for that class.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4.) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Ohio state personal income tax bracket of 43.7%, based on
the federal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
38
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fund No. Inception 4/3/85
0122
- -------------------------------------------------------------------------------------
Date Franklin Ohio Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class A Index
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $ 9,574 $10,000 $10,000
3/31/89 $ 9,549 -0.24% $ 9,976 0.58% $10,058
4/30/89 $ 9,734 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,955 2.08% $10,425 0.57% $10,181
6/30/89 $10,089 1.36% $10,567 0.24% $10,206
7/31/89 $10,162 1.36% $10,710 0.24% $10,230
8/31/89 $10,101 -0.98% $10,605 0.16% $10,246
9/30/89 $10,058 -0.30% $10,574 0.32% $10,279
10/31/89 $10,132 1.22% $10,703 0.48% $10,329
11/30/89 $10,271 1.75% $10,890 0.24% $10,353
12/31/89 $10,345 0.82% $10,979 0.16% $10,370
1/31/90 $10,255 -0.47% $10,928 1.03% $10,477
2/28/90 $10,368 0.89% $11,025 0.47% $10,526
3/31/90 $10,370 0.03% $11,028 0.55% $10,584
4/30/90 $10,297 -0.72% $10,949 0.16% $10,601
5/31/90 $10,533 2.18% $11,187 0.23% $10,625
6/30/90 $10,651 0.88% $11,286 0.54% $10,682
7/31/90 $10,826 1.48% $11,453 0.38% $10,723
8/31/90 $10,638 -1.45% $11,287 0.92% $10,822
9/30/90 $10,661 0.06% $11,294 0.84% $10,913
10/31/90 $10,801 1.81% $11,498 0.60% $10,978
11/30/90 $10,990 2.01% $11,729 0.22% $11,002
12/31/90 $11,033 0.44% $11,781 0.00% $11,002
1/31/91 $11,214 1.34% $11,939 0.60% $11,068
2/28/91 $11,257 0.87% $12,042 0.15% $11,085
3/31/91 $11,291 0.04% $12,047 0.15% $11,102
4/30/91 $11,455 1.34% $12,209 0.15% $11,118
5/31/91 $11,529 0.89% $12,317 0.30% $11,152
6/30/91 $11,524 -0.10% $12,305 0.29% $11,184
7/31/91 $11,681 1.22% $12,455 0.15% $11,201
8/31/91 $11,767 1.32% $12,620 0.29% $11,233
9/30/91 $11,925 1.30% $12,784 0.44% $11,283
10/31/91 $12,012 0.90% $12,899 0.15% $11,299
11/30/91 $12,006 0.28% $12,935 0.29% $11,332
12/31/91 $12,240 2.15% $13,213 0.07% $11,340
1/31/92 $12,286 0.23% $13,243 0.15% $11,357
2/29/92 $12,266 0.03% $13,247 0.36% $11,398
3/31/92 $12,299 0.04% $13,253 0.51% $11,456
4/30/92 $12,418 0.89% $13,370 0.14% $11,472
5/31/92 $12,590 1.18% $13,528 0.14% $11,488
6/30/92 $12,754 1.68% $13,756 0.36% $11,530
7/31/92 $13,198 3.00% $14,168 0.21% $11,554
8/31/92 $13,022 -0.98% $14,029 0.28% $11,586
9/30/92 $13,032 0.65% $14,121 0.28% $11,619
10/31/92 $12,810 -0.98% $13,982 0.35% $11,659
11/30/92 $13,130 1.79% $14,232 0.14% $11,676
12/31/92 $13,318 1.02% $14,378 -0.07% $11,667
1/31/93 $13,507 1.16% $14,544 0.49% $11,725
2/28/93 $13,922 3.62% $15,071 0.35% $11,766
3/31/93 $13,921 -1.06% $14,911 0.35% $11,807
4/30/93 $13,999 1.01% $15,062 0.28% $11,840
5/31/93 $14,066 0.56% $15,146 0.14% $11,856
6/30/93 $14,317 1.67% $15,399 0.14% $11,873
7/31/93 $14,327 0.13% $15,419 0.00% $11,873
8/31/93 $14,592 2.08% $15,740 0.28% $11,906
9/30/93 $14,752 1.14% $15,919 0.21% $11,931
10/31/93 $14,784 0.19% $15,949 0.41% $11,980
11/30/93 $14,723 -0.88% $15,809 0.07% $11,989
12/31/93 $14,980 2.11% $16,143 0.00% $11,989
1/31/94 $15,132 1.14% $16,327 0.27% $12,021
2/28/94 $14,796 -2.59% $15,904 0.34% $12,062
3/31/94 $14,267 -4.07% $15,257 0.34% $12,103
4/30/94 $14,337 0.85% $15,386 0.14% $12,120
5/31/94 $14,443 0.87% $15,520 0.07% $12,128
6/30/94 $14,391 -0.61% $15,425 0.34% $12,170
7/31/94 $14,620 1.83% $15,708 0.27% $12,202
8/31/94 $14,655 0.35% $15,763 0.40% $12,251
9/30/94 $14,467 -1.47% $15,531 0.27% $12,284
10/31/94 $14,240 -1.78% $15,255 0.07% $12,293
11/30/94 $14,014 -1.81% $14,978 0.13% $12,309
12/31/94 $14,309 2.20% $15,308 0.00% $12,309
1/31/95 $14,682 2.86% $15,746 0.40% $12,358
2/28/95 $15,056 2.91% $16,204 0.40% $12,408
3/31/95 $15,179 1.15% $16,390 0.33% $12,448
4/30/95 $15,200 0.12% $16,410 0.33% $12,490
5/31/95 $15,580 3.19% $16,933 0.20% $12,515
6/30/95 $15,473 -0.87% $16,786 0.20% $12,540
7/31/95 $15,547 0.95% $16,946 0.00% $12,540
8/31/95 $15,712 1.27% $17,161 0.26% $12,572
9/30/95 $15,786 0.63% $17,269 0.20% $12,597
10/31/95 $15,978 1.45% $17,519 0.33% $12,639
11/30/95 $16,211 1.66% $17,810 -0.07% $12,630
12/31/95 $16,366 0.96% $17,981 -0.07% $12,621
1/31/96 $16,455 0.76% $18,118 0.59% $12,696
2/29/96 $16,357 -0.68% $17,995 0.32% $12,736
3/31/96 $16,164 -1.28% $17,764 0.52% $12,803
4/30/96 $16,143 -0.28% $17,714 0.39% $12,852
5/31/96 $16,177 -0.04% $17,707 0.19% $12,877
6/30/96 $16,361 1.09% $17,900 0.06% $12,885
7/31/96 $16,490 0.91% $18,063 0.19% $12,909
8/31/96 $16,482 -0.02% $18,060 0.19% $12,934
9/30/96 $16,724 1.40% $18,313 0.32% $12,975
10/31/96 $16,883 1.13% $18,519 0.32% $13,017
11/30/96 $17,154 1.83% $18,858 0.19% $13,041
12/31/96 $17,092 -0.42% $18,779 0.00% $13,041
1/31/97 $17,099 0.19% $18,815 0.32% $13,083
2/28/97 $17,232 0.92% $18,988 0.31% $13,124
3/31/97 $17,026 -1.33% $18,735 0.25% $13,156
4/30/97 $17,162 0.84% $18,893 0.12% $13,172
5/31/97 $17,383 1.51% $19,178 -0.06% $13,164
6/30/97 $17,547 1.07% $19,383 0.12% $13,180
7/31/97 $17,987 2.77% $19,920 0.12% $13,196
8/31/97 $17,820 -0.94% $19,733 0.19% $13,221
9/30/97 $18,013 1.19% $19,968 0.25% $13,254
10/31/97 $18,091 0.64% $20,096 0.25% $13,287
11/30/97 $18,213 0.59% $20,214 -0.06% $13,279
12/31/97 $18,493 1.46% $20,509 -0.12% $13,263
1/31/98 $18,661 1.03% $20,720 0.19% $13,288
2/28/98 $18,650 0.03% $20,727 0.19% $13,314
3/31/98 $18,654 0.09% $20,745 0.19% $13,339
4/30/98 $18,613 -0.45% $20,652 0.18% $13,363
5/31/98 $18,875 1.58% $20,978 0.18% $13,387
6/30/98 $18,951 0.39% $21,060 0.12% $13,403
7/31/98 $18,998 0.25% $21,113 0.12% $13,419
8/31/98 $19,215 1.55% $21,440 0.12% $13,435
9/30/98 $19,463 1.25% $21,708 0.12% $13,451
10/31/98 $19,495 0.00% $21,708 0.24% $13,484
11/30/98 $19,558 0.35% $21,784 0.00% $13,484
12/31/98 $19,592 0.25% $21,838 -0.06% $13,476
1/31/99 0.81% $19,751 1.19% $22,098 0.24% $13,508
2/28/99 -0.24% $19,728 -0.44% $22,001 0.12% $13,524
Total Return 97.28% 120.01% 35.24%
- -------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
The following line graph compares the performance of the Franklin Minnesota
Insured Tax-Free Income Fund's Class C shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fund No. 222 Inception 5/1/95
- -------------------------------------------------------------------------------------
Date Franklin Ohio Insured Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/1/95 $ 9,900 $10,000 $10,000
5/31/95 $10,139 3.19% $10,319 0.20% $10,020
6/30/95 $10,065 -0.87% $10,229 0.20% $10,040
7/31/95 $10,116 0.95% $10,326 0.00% $10,040
8/31/95 $10,218 1.27% $10,458 0.26% $10,066
9/29/95 $10,261 0.63% $10,523 0.20% $10,086
10/31/95 $10,389 1.45% $10,676 0.33% $10,120
11/30/95 $10,535 1.66% $10,853 -0.07% $10,112
12/29/95 $10,631 0.96% $10,957 -0.07% $10,105
1/31/96 $10,692 0.76% $11,041 0.59% $10,165
2/29/96 $10,623 -0.68% $10,966 0.32% $10,198
3/29/96 $10,492 -1.28% $10,825 0.52% $10,251
4/30/96 $10,474 -0.28% $10,795 0.39% $10,291
5/31/96 $10,490 -0.04% $10,791 0.19% $10,310
6/28/96 $10,595 1.09% $10,908 0.06% $10,316
7/31/96 $10,692 0.91% $11,008 0.19% $10,336
8/30/96 $10,682 -0.02% $11,005 0.19% $10,356
9/30/96 $10,823 1.40% $11,159 0.32% $10,389
10/31/96 $10,929 1.13% $11,286 0.32% $10,422
11/29/96 $11,098 1.83% $11,492 0.19% $10,442
12/31/96 $11,052 -0.42% $11,444 0.00% $10,442
1/31/97 $11,051 0.19% $11,466 0.32% $10,475
2/28/97 $11,131 0.92% $11,571 0.31% $10,508
3/31/97 $10,994 -1.33% $11,417 0.25% $10,534
4/30/97 $11,076 0.84% $11,513 0.12% $10,547
5/31/97 $11,213 1.51% $11,687 -0.06% $10,540
6/30/97 $11,313 1.07% $11,812 0.12% $10,553
7/31/97 $11,599 2.77% $12,139 0.12% $10,565
8/31/97 $11,487 -0.94% $12,025 0.19% $10,586
9/30/97 $11,597 1.19% $12,168 0.25% $10,612
10/31/97 $11,650 0.64% $12,246 0.25% $10,639
11/30/97 $11,723 0.59% $12,318 -0.06% $10,632
12/31/97 $11,897 1.46% $12,498 -0.12% $10,619
1/31/98 $11,999 1.03% $12,627 0.19% $10,640
2/28/98 $11,986 0.03% $12,631 0.19% $10,660
3/31/98 $11,993 0.09% $12,642 0.19% $10,680
4/30/98 $11,952 -0.45% $12,585 0.18% $10,699
5/31/98 $12,113 1.58% $12,784 0.18% $10,719
6/30/98 $12,166 0.39% $12,834 0.12% $10,731
7/31/98 $12,181 0.25% $12,866 0.12% $10,744
8/31/98 $12,323 1.55% $13,065 0.12% $10,757
9/30/98 $12,475 1.25% $13,229 0.12% $10,770
10/31/98 $12,490 0.00% $13,229 0.24% $10,796
11/30/98 $12,524 0.35% $13,275 0.00% $10,796
12/31/98 $12,530 0.25% $13,308 -0.06% $10,789
1/31/99 0.84% $12,635 1.19% $13,466 0.24% $10,815
2/28/99 -0.29% $12,612 -0.44% $13,407 0.12% $10,828
Total Return 26.12% 34.07% 8.28%
- -------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
39
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.
40
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.
41
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
----------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 10.77 $ 10.36 $ 10.36 $ 9.80 $ 10.28
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .53 .54 .55 .55 .55
Net realized and unrealized gains (losses) .07 .42 -- .57 (.48)
------- ------- ------- ------- -------
Total from investment operations .60 .96 .55 1.12 .07
------- ------- ------- ------- -------
Less distributions from net investment income (.53) (.55) (.55) (.56) (.55)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.84 $ 10.77 $ 10.36 $ 10.36 $ 9.80
======= ======= ======= ======= =======
Total return* 5.75% 9.53% 5.55% 11.64% .94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $80,684 $58,059 $39,693 $38,199 $20,794
Ratios to average net assets:
Expenses .37% .30% .25% .16% .10%
Expenses excluding waiver and payments by affiliate .84% .82% .86% .86% .96%
Net investment income 4.87% 5.11% 5.45% 5.51% 5.80%
Portfolio turnover rate 10.68% 17.44% 18.27% 4.12% 44.61%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
See notes to financial statements.
42
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------- ----------
<S> <C> <C>
LONG TERM INVESTMENTS 97.5%
Arizona Health Facilities Authority Hospital System Revenue, Northern Arizona
Healthcare System, AMBAC Insured, 5.00%, 10/01/23 .......................................... $3,500,000 $3,451,140
Refunding, AMBAC Insured, 4.75%, 10/01/30 .................................................. 1,000,000 943,830
Arizona State University Revenue, Refunding, Series A, MBIA Insured, 5.50%, 7/01/19 ........... 1,000,000 1,026,200
Arizona State Wastewater Management Authority Wastewater Financial Assistance Revenue,
AMBAC Insured, 5.75%, 7/01/15 ............................................................... 750,000 812,393
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 .................................. 400,000 429,952
Douglas Municipal Property Corp. Municipal Facilities Excise Tax Revenue, MBIA Insured,
5.75%, 7/01/15 .............................................................................. 525,000 565,919
Gilbert GO, Projects of 1988, Series C, MBIA Insured, 5.50%, 7/01/23 .......................... 1,000,000 1,033,590
Glendale IDA, Midwestern University, Series A, MBIA Insured, 5.375%, 5/15/28 .................. 2,000,000 2,051,480
La Paz County School District No. 4, Quartzsite Elementary School Improvement, MBIA
Insured, 5.70%, 7/01/16 ..................................................................... 480,000 501,206
Marana Municipal Property Corp. Municipal Facilities Revenue, Refunding, MBIA Insured,
5.25%, 7/01/22 .............................................................................. 1,100,000 1,119,668
Maricopa County GO,
Hospital District No. 1, AMBAC Insured, 5.00%, 6/01/21 ..................................... 1,250,000 1,231,750
School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 .......... 700,000 764,778
School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 .......... 500,000 547,395
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ........... 700,000 768,817
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 .......... 500,000 538,085
School District No. 31, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 7/01/13 .............. 570,000 640,047
School District No. 66, Roosevelt Elementary, Projects of 1996, Series B, FGIC Insured,
5.30%, 7/01/13 ........................................................................... 1,540,000 1,612,580
School District No. 68, Alhambra Elementary, Refunding and Improvement, AMBAC Insured,
5.125%, 7/01/13 .......................................................................... 500,000 513,010
School District No. 98, Fountain Hills Unified, AMBAC Insured, 5.75%, 7/01/12 .............. 500,000 543,870
School District No. 98, Fountain Hills Unified, Series A, MBIA Insured, Pre-Refunded,
6.20%, 7/01/10 ........................................................................... 235,000 263,879
USD No. 9, Wickenburg Projects of 1997, AMBAC Insured, 5.55%, 7/01/14 ...................... 1,000,000 1,062,910
USD No. 9, Wickenburg Projects of 1997, AMBAC Insured, 5.65%, 7/01/16 ...................... 1,055,000 1,115,884
USD No. 80, Chandler, FGIC Insured, 5.85%, 7/01/13 ......................................... 435,000 468,730
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 5.85%, 7/01/13 ........................... 265,000 295,857
USD No. 80, Chandler, Projects of 1995, Series E, FGIC Insured, 5.00%, 7/01/13 ............. 1,750,000 1,784,790
USD No. 95, Queens Creek, Series A, AMBAC Insured, 5.70%, 7/01/14 .......................... 400,000 428,940
Maricopa County IDA,
MFHR, Metro Gardens, Mesa Ridge Project, Series A, MBIA Insured, 5.15%,
7/01/29 .................................................................................. 1,350,000 1,345,788
MFHR, National Health Facilities II Project, Series A, FSA Insured, 5.10%, 1/01/33 ......... 2,500,000 2,483,850
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ............ 1,000,000 1,013,530
MFHR, Villas De Merced Apartment Project, Series A, GNMA Secured, 5.50%, 12/20/37 .......... 570,000 574,486
Water System Revenue Improvement, Chaparral Water Co., Series A, AMBAC Insured,
5.40%, 12/01/22 .......................................................................... 1,000,000 1,021,180
Water System Revenue, Series B, AMBAC Insured, 5.30%, 12/01/22 ............................. 515,000 521,695
Mesa Arizona IDAR, Lutheran Health Systems, Refunding, Series A-1, MBIA Insured, 5.00%,
1/01/19 .................................................................................. 1,490,000 1,476,948
Mesa GO, FGIC Insured, 5.00%, 7/01/18 ......................................................... 1,000,000 991,370
Mesa Street and Highway Revenue, FGIC Insured, 5.00%, 7/01/17 ................................. 1,000,000 999,930
Mesa Utility System Revenue, FGIC Insured,
5.25%, 7/01/16 ............................................................................. 500,000 514,015
5.375%, 7/01/17 ............................................................................ 500,000 516,985
Mohave County GO, Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ............................................................... 610,000 659,349
Navajo County PCR, Arizona Public Service Co., Series A,
AMBAC Insured, 5.50%, 8/15/28 .............................................................. 2,400,000 2,470,728
MBIA Insured, 5.875%, 8/15/28 .............................................................. 2,450,000 2,604,154
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured,
5.55%, 7/01/17 .............................................................................. 700,000 749,007
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, MBIA Insured,
Pre-Refunded, 6.90%, 7/01/21 ................................................................ 1,000,000 1,161,900
Phoenix Civic Improvement Corp. Water System Revenue, junior lien,
AMBAC Insured, 5.50%, 7/01/21 .............................................................. 500,000 517,315
FGIC Insured, 5.50%, 7/01/24 ............................................................... 1,000,000 1,035,250
MBIA Insured, 5.375%, 7/01/22 .............................................................. 1,000,000 1,022,480
Phoenix IDA, SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 .......................... 1,500,000 1,509,240
Pima County IDA, SFMR, GNMA Secured, 6.625%, 11/01/14 ......................................... 540,000 574,333
Pima County USD No. 6, Marana Projects of 1995, Series B, FGIC Insured, 5.00%, 7/01/17 ........ 1,600,000 1,590,400
Pinal County USD No. 43, Apache Junction, Series C, FGIC Insured, 5.00%, 7/01/15 .............. 1,000,000 1,012,820
Prescott Municipal Property Corp. Municipal Facility Revenue, FGIC Insured, 5.125%, 1/01/18 ... 1,000,000 1,008,620
Puerto Rico Commonwealth GO, MBIA Insured, Pre-Refunded, 6.45%, 7/01/17 ....................... 845,000 966,807
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, MBIA
Insured, 5.00%, 7/01/38 ..................................................................... 3,100,000 3,068,163
</TABLE>
43
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------- -----------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Electric Power Authority Revenue, Series R, FSA Insured, Pre-Refunded, 6.25%,
7/01/17 .................................................................................. $ 800,000 $ 879,184
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Hospital Revenue, Hospital Auxilio Mutuo Obligation, Series A, 6.25%,
7/01/24 .................................................................................. 840,000 931,636
Puerto Rico PBA Revenue, Government Facilities, Series B, AMBAC Insured, 5.00%, 7/01/27 .... 300,000 298,179
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Refunding, Series D, 5.50%, 1/01/25 ..................................................... 1,000,000 1,023,010
Series D, 6.25%, 1/01/27 ................................................................ 1,205,000 1,293,905
Series D, Pre-Refunded, 6.25%, 1/01/27 .................................................. 295,000 321,574
Santa Cruz County USD No. 1, Nogales, Series B, AMBAC Insured, Pre-Refunded, 6.10%, 7/01/14 250,000 277,483
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured,
6.15%, 1/01/15 .......................................................................... 360,000 395,622
5.00%, 1/01/18 .......................................................................... 1,250,000 1,255,700
Tucson GO,
Series A, MBIA Insured, 5.375%, 7/01/19 ................................................. 500,000 512,605
Series 1984-G, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 ............................... 650,000 731,432
Tucson Water Revenue, Refunding, FGIC Insured,
5.00%, 7/01/19 .......................................................................... 1,100,000 1,091,607
5.125%, 7/01/20 ......................................................................... 2,000,000 2,007,260
University of Arizona COP,
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/16 ... 500,000 547,520
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/23 ... 1,625,000 1,758,266
Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 ........................... 1,000,000 1,086,490
Yavapai County GO,
Elementary School District No. 6, Cottonwood-Oak Creek, Project of 1993, Series B, AMBAC
Insured, 6.70%, 7/01/09 ............................................................... 250,000 281,800
USD No. 28 Camp Verde, Refunding, FGIC Insured, 6.00%, 7/01/09 .......................... 775,000 850,222
USD No. 22 Humboldt, Project of 1995, Series C, FGIC Insured, 5.40%, 7/01/14 ............ 575,000 605,119
USD No. 22 Humboldt, Series A, FGIC Insured, Pre-Refunded, 5.95%, 7/01/14 ............... 300,000 336,522
Yavapai County IDA, Residential Care Facility Revenue, Margaret T. Morris Center, Series A,
GNMA Secured, 5.40%, 2/20/38 ............................................................. 1,585,000 1,592,687
Yuma County GO, Elementary School District No. 1
MBIA Insured, 5.50%, 7/01/14 ............................................................ 1,000,000 1,066,320
Series A, MBIA Insured, 5.75%, 7/01/14 .................................................. 500,000 542,875
Yuma County Jail District Revenue, AMBAC Insured, 5.25%, 7/01/12 ........................... 1,000,000 1,034,320
Yuma IDA, Hospital Revenue,
Regency Apartments, Refunding, Series A, GNMA Secured, 5.50%, 12/20/32 .................. 920,000 932,668
Yuma Regional Medical Center, Refunding, MBIA Insured, 5.50%, 8/01/17 ................... 1,000,000 1,050,928
-----------
TOTAL LONG TERM INVESTMENTS (COST $75,157,736) 78,631,977
-----------
(a)SHORT TERM INVESTMENTS 1.7%
Apache County IDA, IDR, Tucson Electric Power Co. Project, Series A, Weekly VRDN and Put,
3.00%, 12/15/18 .......................................................................... 200,000 200,000
Maricopa County PCC, PCR, Arizona Public Service Co., Refunding,
Series A, Daily VRDN and Put, 3.20%, 5/01/29 ............................................ 400,000 400,000
Series D, Daily VRDN and Put, 3.10%, 5/01/29 ............................................ 300,000 300,000
Phoenix GO, Series 95-2, Daily VRDN and Put, 3.20%, 6/01/20................................. 100,000 100,000
Pinal County IDA, PCR, Magma Copper Co., Newport Mining Corp., Daily VRDN and
Put, 3.20%, 12/01/09........................................................................ 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 2.60%, 7/01/28 ............................................. 200,000 200,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,400,000) ............................................. 1,400,000
-----------
TOTAL INVESTMENTS (COST $76,557,736) 99.2% ................................................. 80,031,977
OTHER ASSETS, LESS LIABILITIES .8% ......................................................... 652,448
-----------
NET ASSETS 100.0% .......................................................................... $80,684,425
===========
</TABLE>
See glossary of terms on page 89.
(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.
See notes to financial statements.
44
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 10.43 $ 9.99 $ 10.02 $ 9.53 $ 10.07
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income .51 .53 .53 .53 .52
Net realized and unrealized gains (losses) .10 .44 (.03) .49 (.53)
-------- -------- ------- ------- -------
Total from investment operations .61 .97 .50 1.02 (.01)
-------- -------- ------- ------- -------
Less distributions from net investment income (.51) (.53) (.53) (.53) (.53)
-------- -------- ------- ------- -------
Net asset value, end of year $ 10.53 $ 10.43 $ 9.99 $ 10.02 $ 9.53
-------- -------- ------- ------- -------
Total return* 6.01% 9.94% 5.17% 10.95% .21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $124,488 $101,506 $77,177 $69,583 $46,847
Ratios to average net assets:
Expenses .42% .35% .35% .35% .35%
Expenses excluding waiver and payments by affiliate .79% .80% .80% .82% .88%
Net investment income 4.88% 5.16% 5.36% 5.37% 5.61%
Portfolio turnover rate 1.81% 8.08% 32.23% 24.36% 43.71%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
See notes to financial statements.
45
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------- ----------
<S> <C> <C>
LONG TERM INVESTMENTS 97.0%
Alachua County School Board COP, AMBAC Insured, 5.00%, 7/01/18 .............................. $1,000,000 $ 995,030
Bay Medical Center Hospital Revenue, Bay Medical Center Project, AMBAC Insured, 5.00%,
10/01/27 .................................................................................. 2,025,000 1,985,675
Broward County HFA, FSA Insured,
5.60%, 11/01/17 .......................................................................... 630,000 644,099
5.65%, 11/01/22 .......................................................................... 885,000 902,744
5.70%, 11/01/29 .......................................................................... 1,345,000 1,371,913
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 ........ 1,000,000 1,049,500
Celebration CDD, Special Assessment, Series A, MBIA Insured, 5.50%, 5/01/18 ................. 535,000 562,157
Citrus County PCR, Florida Power Corp., Refunding, MBIA Insured, 6.625%, 1/01/27 ............ 2,435,000 2,628,583
Clearwater Gas System Revenue, Refunding, MBIA Insured, 5.00%, 9/01/23 ...................... 1,935,000 1,918,804
Cocoa Beach Improvement Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/20 .................. 1,000,000 1,019,550
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, Pre-Refunded, 5.875%, 10/01/22 ..... 1,000,000 1,134,300
Dade County HFA, MFMR, Siesta Pointe Apartments, Series A, FSA Insured, 5.75%, 9/01/29 ...... 1,890,000 1,951,387
Escambia County Utilities Authority Utility System Revenue, FGIC Insured, 5.625%, 1/01/27 ... 1,500,000 1,566,915
First Florida Governmental Financing Commission Revenue, Refunding, AMBAC Insured, 5.375%,
7/01/18.................................................................................... 1,475,000 1,526,315
Florida HFA, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 ............. 1,600,000 1,739,040
Gainesville Public Improvements, Refunding, AMBAC Insured, 5.50%, 8/01/17 ................... 1,000,000 1,043,180
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 ........... 1,915,000 2,131,318
Hernando County Water and Sewer Revenue, FGIC Insured,
6.00%, 6/01/19 ........................................................................... 1,035,000 1,108,640
Pre-Refunded, 6.00%, 6/01/19 ............................................................. 965,000 1,055,565
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured, 6.25%,
12/01/34 .................................................................................. 1,500,000 1,660,320
Hillsborough County IDAR, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ....... 2,000,000 2,142,700
Hillsborough County School Board COP, Master Lease Program, Series A, MBIA Insured, 5.25%,
7/01/22 ................................................................................... 1,015,000 1,032,275
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ................... 1,250,000 1,303,500
Indian Trace CDD, Water Management Special Benefit Assessment, MBIA Insured, 5.00%, 5/01/27 . 1,000,000 988,020
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 ........................................................................... 1,090,000 1,187,075
5.60%, 8/01/17 ........................................................................... 1,000,000 1,059,960
5.50%, 8/01/22 ........................................................................... 500,000 520,465
Jacksonville Sales Tax Revenue, River City Renaissance Project, FGIC Insured, 5.375%,
10/01/18 .................................................................................. 1,000,000 1,034,200
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%, 8/01/25 ... 1,000,000 1,112,290
Lake Clarke Shores Utility Systems Revenue, Refunding and Improvement, FGIC Insured, 5.80%,
10/01/18 .................................................................................. 1,415,000 1,516,710
Lake Mary Public Improvement Revenue, FGIC Insured, 5.25%, 9/01/15 .......................... 1,000,000 1,031,090
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding, MBIA
Insured, 5.25%, 11/15/16 .................................................................. 2,000,000 2,053,380
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%,
10/01/17 .................................................................................. 500,000 548,315
Lee County Capital and Transportation Facilities Revenue, Refunding, Series A, MBIA Insured,
5.55%, 10/01/18 ........................................................................... 3,000,000 3,118,650
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding, MBIA Insured,
6.05%,
11/01/15 ................................................................................. 2,000,000 2,199,440
11/01/20 ................................................................................. 1,500,000 1,642,455
Lee County Solid Waste System Revenue, MBIA Insured, 5.375%, 10/01/15 ....................... 2,000,000 2,058,740
Lynn Haven Capital Improvement Revenue, Series A, MBIA Insured, 5.75%, 12/01/16 ............. 1,000,000 1,083,710
Martin County Consolidated Utilities System Revenue,
FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 .............................................. 785,000 885,888
Refunding, FGIC Insured, 6.00%, 10/01/24 ................................................. 215,000 233,765
Martin County Health Facilities Authority Hospital Revenue, Martin Memorial Medical Center
Project, AMBAC Insured, 5.00%, 11/15/28 ................................................... 3,500,000 3,430,735
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 ................ 1,000,000 1,098,200
Martin County Utilities System Revenue, Refunding, FGIC Insured, 5.00%, 10/01/24 ............ 1,775,000 1,754,730
Miami-Dade County School Board COP, Refunding, Series C, FSA Insured, 5.00%, 8/01/25 ........ 3,500,000 3,434,410
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded, 6.75%,
10/01/25 .................................................................................. 2,000,000 2,310,180
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26........................ 5,220,000 5,494,102
Okaloosa County Gas District Revenue, Gas System, MBIA Insured,
5.50%, 10/01/21............................................................................ 2,795,000 2,901,266
Okeechobee Utility Authority Utility System Revenue,
Acquisition and Improvement, MBIA Insured, 5.60%, 10/01/25 ............................... 1,500,000 1,569,540
Orange County Capital Improvement Revenue,
AMBAC Insured, Pre-Refunded, 6.00%, 10/01/22 ............................................. 810,000 890,384
Refunding, AMBAC Insured, 6.00%, 10/01/22 ................................................ 490,000 525,750
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series B, FSA Insured, 6.75%, 11/15/21 ................................ 1,000,000 1,084,930
Orlando Regional Healthcare, Refunding, Series A, MBIA Insured, 6.00%, 11/01/24 .......... 2,400,000 2,571,000
</TABLE>
46
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------- ------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ....................... $1,000,000 $ 1,097,670
Orange County Sales Tax Revenue, FGIC Insured,
5.375%, 1/01/24 ............................................................................. 1,000,000 1,019,690
Pre-Refunded, 6.125%, 1/01/19 ............................................................... 500,000 522,625
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 ........................ 875,000 899,351
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured, 5.70%,
12/01/17 ..................................................................................... 630,000 648,717
Osceola County School Board COP, Series A, AMBAC Insured, 6.00%, 6/01/19 ....................... 1,900,000 2,065,490
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%, 4/01/17 ... 1,225,000 1,314,891
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 ............ 1,000,000 1,094,980
Pinellas County Sewer Revenue, FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 ..................... 1,250,000 1,374,050
Port Orange Water and Sewer Revenue, junior lien, Refunding, AMBAC Insured, 5.25%, 10/01/21 .... 1,500,000 1,520,745
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured, 5.125%,
9/01/27 ...................................................................................... 4,000,000 4,014,480
Puerto Rico Commonwealth GO, FSA Insured, Pre-Refunded, 6.00%, 7/01/22 ......................... 1,000,000 1,091,200
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, 5.50%, 7/01/25 ........ 1,000,000 1,044,030
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 ........................ 520,000 560,503
Seminole County School Board COP, Series A, MBIA Insured, Pre-Refunded, 6.125%,
7/01/14 ...................................................................................... 1,000,000 1,130,080
7/01/19 ...................................................................................... 1,000,000 1,130,080
South Miami Health Facilities Authority Hospital Revenue, Baptist Health System Obligation
Group, MBIA Insured, 5.00%, 11/15/28 ......................................................... 3,000,000 2,940,630
St. John's County IDA, IDR, Series A, MBIA Insured,
5.25%, 3/01/11 ............................................................................... 1,250,000 1,327,900
5.50%, 3/01/17 ............................................................................... 1,000,000 1,046,970
St. Lucie County Water and Sewer Revenue, Refunding, AMBAC Insured, 5.50%, 10/01/17 ............ 500,000 522,565
Stuart Utilities Revenue, FGIC Insured, Pre-Refunded,
6.70%, 10/01/14 .............................................................................. 500,000 561,495
6.80%, 10/01/24 .............................................................................. 500,000 563,580
Sunrise Utilities System Revenue,
Refunding, AMBAC Insured, 5.20%, 10/01/22 .................................................... 2,000,000 2,049,500
Series A, AMBAC Insured, Pre-Refunded, 5.75%, 10/01/26 ....................................... 1,000,000 1,120,800
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 ............. 1,000,000 1,043,060
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 ............... 2,000,000 2,033,640
Titusville Water and Sewer Revenue, Refunding, MBIA Insured, 6.20%, 10/01/14 ................... 490,000 557,865
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 ............... 1,500,000 1,536,060
Village Center CDD, Recreational Revenue, Refunding, Series A, MBIA Insured, 5.00%, 11/01/21 ... 1,000,000 993,230
West Melbourne Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, 6.75%,
10/01/14 ..................................................................................... 500,000 564,895
West Palm Beach Utilities System Revenue, Series B, FGIC Insured, 5.40%, 10/01/23 .............. 1,500,000 1,526,673
------------
TOTAL LONG TERM INVESTMENTS (COST $113,940,869) ................................................. 120,730,335
------------
(a)SHORT TERM INVESTMENTS 1.6%
Dade County Health Facilities Authority Hospital Revenue, Miami Children's Hospital Project,
Daily VRDN and Put, 3.20%, 9/01/20 ........................................................... 400,000 400,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 3.15%, 5/15/18 ............................... 500,000 500,000
Pinellas County Health Facilities Authority Revenue, Pooled Hospital Loan Program, Refunding,
AMBAC Insured, Daily VRDN and Put, 3.20%, 12/01/15 ........................................... 100,000 100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.60%, 7/01/28 .......................................................... 100,000 100,000
St. Lucie County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put,
3.15%, 3/01/27 ............................................................................... 900,000 900,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,000,000) ................................................. 2,000,000
------------
TOTAL INVESTMENTS (COST $115,940,869) 98.6% .................................................... 122,730,335
OTHER ASSETS, LESS LIABILITIES 1.4% ............................................................ 1,757,487
------------
NET ASSETS 100.0% .............................................................................. $124,487,822
============
</TABLE>
See glossary of terms on page 89.
(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.
See notes to financial statements.
47
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 12.31 $ 12.15 $ 12.27 $ 11.97 $ 12.45
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................ .63 .66 .69 .71 .71
Net realized and unrealized gains (losses) ... .06 .29 (.11) .30 (.48)
---------- ---------- ---------- ---------- ----------
Total from investment operations .............. .69 .95 .58 1.01 .23
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ........................ (.63) (.66) (.70) (.71) (.71)
In excess of net investment income ........... (.01) (.01) -- -- --
Net realized gains ........................... (.10) (.12) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions ........................... (.74) (.79) (.70) (.71) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .................. $ 12.26 $ 12.31 $ 12.15 $ 12.27 $ 11.97
========== ========== ========== ========== ==========
Total return* ................................. 5.72% 8.09% 4.88% 8.66% 2.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $1,727,014 $1,685,260 $1,662,087 $1,705,038 $1,683,234
Ratios to average net assets:
Expenses ..................................... .62% .61% .60% .60% .59%
Net investment income ........................ 5.11% 5.44% 5.68% 5.81% 6.00%
Portfolio turnover rate ....................... 13.16% 27.77% 18.66% 13.52% 14.42%
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 12.38 $ 12.21 $ 12.31 $ 11.98
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................ .57 .60 .62 .54
Net realized and unrealized gains (losses) ... .05 .29 (.09) .32
---------- ---------- ---------- ----------
Total from investment operations .............. .62 .89 .53 .86
---------- ---------- ---------- ----------
Less distributions from:
Net investment income ........................ (.57)(2) (.60) (.63) (.53)
Net realized gains ........................... (.10) (.12) -- --
---------- ---------- ---------- ----------
Total distributions ........................... (.67) (.72) (.63) (.53)
---------- ---------- ---------- ----------
Net asset value, end of year .................. $ 12.33 $ 12.38 $ 12.21 $ 12.31
========== ========== ========== ==========
Total return* ................................. 5.12% 7.52% 4.42% 7.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 65,166 $ 38,057 $ 21,521 $ 8,152
Ratios to average net assets:
Expenses ..................................... 1.18% 1.18% 1.17% 1.18%**
Net investment income ........................ 4.54% 4.86% 5.10% 5.21%**
Portfolio turnover rate ....................... 13.16% 27.77% 18.66% 13.52%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized.
(1)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(2)Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements.
48
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------- -----------
<S> <C> <C>
LONG TERM INVESTMENTS 99.0%
ALABAMA 3.7%
Alabama Agricultural and Mechanical University Revenue, MBIA Insured, Pre-Refunded,
5.50%, 11/01/20 .......................................................................... $ 1,000,000 $ 1,108,470
Alabama HFA, SFMR, Series A-1, GNMA Secured, 7.80%, 10/01/20 ............................... 1,850,000 1,888,998
Alabama State Board Educational Revenue, Southern Union State Junior College, MBIA
Insured, 6.50%, 7/01/12 .................................................................. 1,000,000 1,093,650
Alabama Water Pollution Control Authority Revolving Fund Loan,
AMBAC Insured, 6.25%, 8/15/14 ........................................................... 100,000 104,842
Series A, AMBAC Insured, 5.60%, 8/15/16 ................................................. 2,000,000 2,075,880
Anniston Regional Medical Center Board, Series A, AMBAC Insured,
5.25%, 6/01/18 .......................................................................... 6,000,000 6,117,000
5.125%, 6/01/28 ......................................................................... 3,000,000 2,983,980
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue, Merscot-Auburn
LP Project, FGIC Insured, 7.30%, 1/01/12 ................................................. 1,420,000 1,482,125
Bessemer Governmental Utility Services Corp., Water Supply Revenue, MBIA Insured, 5.25%,
6/01/32 .................................................................................. 5,000,000 5,076,000
Birmingham Airport Authority Revenue, MBIA Insured, 5.625%, 7/01/26 ........................ 2,000,000 2,116,580
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 3,534,440
Daphne Utilities Board Water Gas and Sewer Revenue,
Capital Improvement Bonds, Series B, FGIC Insured, 7.35%, 6/01/20 ....................... 2,000,000 2,108,640
Refunding, Series B, FGIC Insured, 7.30%, 6/01/10 ....................................... 4,030,000 4,269,301
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation Bond,
Series A, MBIA Insured, 5.25%, 9/01/28 ................................................... 8,500,000 8,591,970
Fort Payne Waterworks Board of Water Revenue, MBIA Insured, 5.45%, 7/01/21 ................. 3,550,000 3,683,196
Huntsville Health Care Authority Facilities Revenue, Series A, MBIA Insured, 6.375%,
6/01/22 .................................................................................. 300,000 324,834
Huntsville Health Care Authority, Series A, MBIA Insured, 5.00%, 6/01/23 ................... 2,000,000 1,955,860
Jefferson County Sewer Revenue, wts., Series D, FGIC Insured, 5.75%, 2/01/22 ............... 5,000,000 5,398,550
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital and
Clinic, Refunding, AMBAC Insured, 6.00%, 3/01/26 ......................................... 4,000,000 4,362,240
Pelham GO, AMBAC Insured, 5.50%,
12/01/21 ................................................................................ 1,565,000 1,632,013
12/01/26 ................................................................................ 2,000,000 2,080,920
University of Alabama Hospital Revenues, Huntsville, Refunding, Series A, MBIA Insured,
5.50%, 5/01/18 ........................................................................... 4,000,000 4,119,600
----------
66,109,089
----------
ALASKA 4.1%
Alaska Energy Authority Power Revenue, Bradley Lake Hydro Project, Series 1, BIG Insured,
7.25%, 7/01/09 .......................................................................... 5,000,000 5,152,500
7.25%, 7/01/16 .......................................................................... 4,765,000 4,913,382
7.25%, 7/01/21 .......................................................................... 5,795,000 6,158,173
Pre-Refunded, 6.25%, 7/01/21 ............................................................ 3,205,000 3,223,140
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured,
5.20%, 7/01/17 .......................................................................... 3,000,000 3,035,160
5.375%, 7/01/20 ......................................................................... 5,000,000 5,115,600
Alaska Industrial Development and Export Authority, Refunding, Series A, MBIA Insured,
6.125%, 4/01/27 .......................................................................... 5,000,000 5,436,950
Alaska State HFC, Refunding, Series A,
6.10%, 12/01/37 ......................................................................... 5,000,000 5,252,050
MBIA Insured, 6.00%, 6/01/27 ............................................................ 5,000,000 5,241,200
MBIA Insured, 5.875%, 12/01/30 .......................................................... 485,000 503,925
Anchorage Electric Utility Revenue, senior lien,
Municipal Light and Power, Series C, AMBAC Insured, 5.125%, 12/01/26 .................... 5,000,000 4,995,900
Refunding, Series A, MBIA Insured, 7.125%, 6/01/06 ...................................... 5,000,000 5,139,400
Series B, MBIA Insured, 5.50%, 2/01/26 .................................................. 4,000,000 4,116,120
Anchorage GO,
General Purpose, AMBAC Insured, Pre-Refunded, 7.30%, 8/01/10 ............................ 2,765,000 2,918,126
Refunding, AMBAC Insured, 7.20%, 6/01/17 ................................................ 5,000,000 5,093,750
Refunding, AMBAC Insured, 6.25%, 6/01/23 ................................................ 3,505,000 3,525,294
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 ....................... 500,000 534,685
University of Alaska Revenues,
Series B, AMBAC Insured, 6.50%, 10/01/17 ................................................ 250,000 266,938
Series G, FSA Insured, 5.45%, 10/01/22 .................................................. 3,155,000 3,264,037
----------
73,886,330
----------
</TABLE>
49
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------- -----------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ARIZONA 1.7%
Arizona State Municipal Financing Program COP, ETM, Series 1986-20, BIG Insured,
7.70%, 8/01/10 ......................................................................... $ 6,000,000 $ 7,508,760
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 ................ 2,200,000 2,365,198
Cochise County USD, No. 68, Sierra Vista,
Refunding, FGIC Insured, 7.50%, 7/01/10 ................................................ 500,000 641,205
Series B, FGIC Insured, Pre-Refunded, 7.625%, 7/01/10 .................................. 3,000,000 3,197,760
Maricopa County GO,
UHSD, No. 216, FGIC Insured, 6.70%, 7/01/11 ............................................ 325,000 340,204
UHSD, No. 216, FGIC Insured, Pre-Refunded, 6.70%, 7/01/11 .............................. 675,000 711,450
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.20%, 7/01/07 ....................... 775,000 821,841
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.20%, 7/01/08 ....................... 825,000 874,863
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.25%, 7/01/09 ....................... 500,000 530,545
USD No. 98, Fountain Hills, Series A, FGIC Insured, Pre-Refunded, 7.10%, 7/01/10 ....... 1,000,000 1,023,260
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Service Hospital,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/16 ..................................... 300,000 376,137
Mohave County USD No. 1, Lake Havasu Project, Series B, AMBAC Insured, 5.375%, 7/01/11 ... 500,000 522,325
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 ... 3,925,000 4,171,961
Phoenix GO, Refunding, Series B, MBIA Insured, 5.50%, 7/01/16 ............................ 890,000 923,589
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ....................... 270,000 290,102
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Refunding, Series A, FGIC Insured, 5.50%, 1/01/19 ...................................... 1,150,000 1,176,151
Tucson Water Revenue, Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 .......... 5,000,000 5,666,800
-----------
31,142,151
-----------
ARKANSAS .1%
Arkansas State Development Finance Authority Water Revenue, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/10 ................................................................ 2,000,000 2,344,020
Pulaski County Health Facilities Board Hospital Revenue, St. Vincent's Infirmary, MBIA
Insured, Pre-Refunded, 10.00%, 9/01/12 ................................................. 25,000 25,853
-----------
2,369,873
-----------
CALIFORNIA 3.5%
California Health Facilities Financing Authority Revenue, Kaiser Permanente, Series A,
FSA Insured, 5.00%, 6/01/24 ............................................................ 5,000,000 4,936,050
California Statewide CDA Revenue, COP, John Muir/Mt. Diablo Health System, MBIA Insured,
5.25%, 8/15/27 ......................................................................... 3,085,000 3,132,015
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ............. 15,000,000 20,930,850
El Centro Financing Authority Water and Wastewater Revenue, Series A, AMBAC Insured,
5.125%, 10/01/27 ....................................................................... 1,800,000 1,809,414
Lancaster RDA, Tax Allocation, Lancaster Residential Redevelopment, Refunding, MBIA
Insured, 6.10%, 8/01/19 ................................................................ 1,515,000 1,618,535
Los Angeles County MTA, Sales Tax Revenue, Proposition C, Series B-2, AMBAC Insured,
5.25%, 7/01/23 ......................................................................... 2,000,000 2,037,540
Oakland RDA, Central District Redevelopment, Refunding, AMBAC Insured, 5.50%, 2/01/14 .... 250,000 273,508
Sacramento Area Flood Control Agency Special Assessment, Capital AD No. 2, FGIC Insured,
5.375%, 10/01/25 ....................................................................... 5,000,000 5,125,750
Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ..... 4,000,000 4,085,720
San Francisco BART District Sales Tax Revenue, FGIC Insured,
5.50%, 7/01/20 ......................................................................... 1,035,000 1,083,148
Pre-Refunded, 5.50%, 7/01/20 ........................................................... 965,000 1,066,923
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A,
MBIA Insured,
5.375%, 1/15/29 ........................................................................ 5,000,000 5,160,050
5.25%, 1/15/30 ......................................................................... 5,000,000 5,092,200
San Jose-Santa Clara Water Financing Authority Sewer Revenue, Series A, FGIC Insured,
5.375%, 11/15/20 ....................................................................... 2,670,000 2,745,428
Stockton East Water District COP, 1990 Project, Series A, AMBAC Insured, 6.40%, 4/01/22 .. 1,460,000 1,584,538
Yuba City USD, COP, Refunding, Series A, MBIA Insured, 5.25%, 2/01/22 .................... 1,750,000 1,779,365
-----------
62,461,034
-----------
COLORADO 5.6%
Adams County PCR, Public Service Co. of Colorado Project, Refunding, AMBAC Insured,
5.10%, 1/01/19 ......................................................................... 6,750,000 6,716,183
Arapahoe County COP,
Arapahoe County Building Finance Corp., FSA Insured, Pre-Refunded, 7.50%, 12/01/10 ..... 1,000,000 1,070,560
Refunding, FSA Insured, 6.625%, 12/01/16 ............................................... 8,695,000 9,539,806
Castle Pines Metropolitan District GO, Refunding and Improvement, FSA Insured,
Pre-Refunded, 7.625%, 12/01/15 ......................................................... 1,500,000 1,637,325
Centennial Water and Sanitation District, Water and Sewer Revenue, Refunding, Series A,
FSA Insured, 5.125%, 12/01/17 .......................................................... 5,000,000 5,085,950
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 2,497,848
</TABLE>
50
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------- ------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
COLORADO (CONT.)
Colorado Health Facilities Authority Revenue, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.25%, 7/15/17 ................................................. $ 1,174,000 $ 1,268,695
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series A,
MBIA Insured, 5.00%, 9/01/21 .......................................................... 5,000,000 4,900,750
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 ............. 2,455,000 2,704,330
Colorado Springs Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 11/15/18 ...................................................................... 1,000,000 1,008,520
Colorado State Board of Agriculture Revenue, MBIA Insured, 6.40%,
3/01/11 .............................................................................. 350,000 375,669
3/01/17 .............................................................................. 440,000 470,215
Colorado Water Resource and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured, 6.70%, 11/01/12 ............................................... 2,000,000 2,207,160
Denver City and County Airport Revenue,
ETM, Series C, MBIA Insured, 6.125%, 11/15/25 ........................................ 3,590,000 4,038,032
Series A, MBIA Insured, 5.50%, 11/15/25 .............................................. 7,250,000 7,474,750
Series C, MBIA Insured, 6.125%, 11/15/25 ............................................. 4,410,000 4,690,388
Series D, MBIA Insured, 5.50%, 11/15/25 .............................................. 3,900,000 4,020,900
Series E, MBIA Insured, 5.50%, 11/15/25 .............................................. 5,000,000 5,167,100
Denver City and County Board of Water Commissioners COP, FGIC Insured,
6.625%, 11/15/11 ..................................................................... 545,000 588,894
Pre-Refunded, 6.625%, 11/15/11 ....................................................... 955,000 1,041,179
Denver City and County Revenue, Children's Hospital Association Project, FGIC Insured,
6.00%, 10/01/15 ....................................................................... 3,000,000 3,227,940
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 ............................. 310,000 323,014
Garfield, Pitkin and Eagle Counties Reorganized School District No. 1, MBIA Insured,
Pre-Refunded, 6.60%, 12/15/14 ......................................................... 3,600,000 4,098,384
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 .............. 2,000,000 2,147,000
Jefferson County COP, Refunding, MBIA Insured, 6.65%, 12/01/08 .......................... 5,000,000 5,520,250
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 .............. 215,000 227,425
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 .... 490,000 538,299
Morgan County PCR, First Mortgage, Public Service Co., Refunding, Series A, MBIA Insured,
5.50%, 6/01/12 ........................................................................ 1,000,000 1,048,820
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 ...................................................................... 1,900,000 2,062,925
5.75%, 6/01/23 ....................................................................... 3,000,000 3,187,710
Parker Water and Sanitation District Water and Sewer Revenue, Refunding, FGIC Insured,
6.20%, 10/01/15 ....................................................................... 275,000 290,835
Postsecondary Educational Facilities Authority Revenue, University of Denver Project,
Refunding, Connie Lee Insured, 6.00%, 3/01/10 ......................................... 1,000,000 1,059,270
Regional Transportation District Sales Tax Revenue, FGIC Insured, 6.25%, 11/01/12 ....... 235,000 254,693
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 ...................................................................... 5,675,000 5,748,945
5.25%, 11/15/22 ...................................................................... 3,800,000 3,868,248
------------
100,108,012
------------
CONNECTICUT .5%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 ............................. 2,000,000 2,141,780
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ............................... 2,450,000 2,630,810
Trinity College, Series D, FGIC Insured, Pre-Refunded, 6.125%, 7/01/24 ............... 2,000,000 2,260,160
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 . 2,000,000 2,162,280
------------
9,195,030
------------
DELAWARE .2%
Delaware State EDA Revenue, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 1,000,000 1,092,220
Delaware State Health Facilities Authority Revenue, Medical Center, MBIA Insured,
Pre-Refunded, 7.00%, 10/01/15 ......................................................... 2,900,000 3,317,571
------------
4,409,791
------------
FLORIDA 3.8%
Bay Medical Center Hospital Revenue, Bay Medical Center Project, Refunding, AMBAC Insured,
5.65%, 10/01/26 ....................................................................... 2,500,000 2,626,250
Cape Coral Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 ....................... 1,800,000 1,883,862
Celebration CDD, Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 ............. 2,375,000 2,484,108
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 ......... 200,000 259,598
Florida State Turnpike Authority Revenue, Department of Transportation, Series A, FGIC
Insured, 5.625%, 7/01/25 .............................................................. 7,400,000 7,712,502
Fort Myers Utility Revenue, Refunding, Series A, 6.00%, 10/01/19 ........................ 25,000 25,302
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured, 6.25%,
12/01/34 .............................................................................. 1,000,000 1,106,880
Hillsborough County IDAR, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ... 3,000,000 3,214,050
</TABLE>
51
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------- -------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
FLORIDA (CONT.)
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding,
MBIA Insured, 5.25%, 11/15/25 $ 1,250,000 $ 1,266,013
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding, MBIA
Insured, 6.05%,
11/01/15 1,000,000 1,099,720
11/01/20 1,000,000 1,094,970
Lee County Solid Waste System Revenue, MBIA Insured, 5.375%, 10/01/15 2,000,000 2,058,740
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 5,000,000 5,760,850
Opa-Locka Capital Improvement Revenue, FGIC Insured, 6.125%, 1/01/24 1,000,000 1,089,060
Orange County Health Facilities Authority Revenue, Orlando Regional Healthcare, Refunding,
Series A, MBIA Insured, 6.00%, 11/01/24 1,000,000 1,071,250
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 5,000,000 5,139,150
Orlando and Orange County Expressway Authority Expressway Revenue, junior lien,
FGIC Insured, 6.50%,
7/01/10 100,000 119,657
7/01/12 225,000 269,973
Orlando Utilities Commission Water and Electric Revenue, Series A, AMBAC Insured, 5.50%,
10/01/26 2,535,000 2,572,518
Osceola County School Board COP, Refunding, Series A, AMBAC Insured, 5.50%, 6/01/19 1,000,000 1,035,520
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured, 6.10%,
4/01/17 1,000,000 1,073,380
Panama City Water and Sewer Revenue, Refunding and Improvement, AMBAC Insured, 5.625%,
6/01/19 1,000,000 1,042,000
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 985,000 1,075,551
(b)Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/24 5,000,000 4,957,500
Reedy Creek ID, Utilities Revenue, Refunding, Series 1, MBIA Insured, 5.00%, 10/01/19 3,500,000 3,495,380
St. Petersburg Public Utilities Revenue, MBIA Insured, 5.60%, 10/01/18 3,910,000 4,086,732
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured, 7.15%,
11/01/15 250,000 318,513
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 2,000,000 2,049,500
Vero Beach Electric Revenue, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 3,200,000 3,276,928
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 5,000,000 5,539,600
-------------
68,805,057
-------------
GEORGIA 2.4%
Atlanta GO, Refunding, FGIC Insured, 5.00%,
12/01/20 4,775,000 4,743,342
12/01/23 6,000,000 5,924,040
Atlanta Water and Sewer Revenue, FGIC Insured,
5.375%, 1/01/20 5,000,000 5,143,800
5.25%, 1/01/27 10,000,000 10,091,000
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured, 6.10%, 10/01/14 1,535,000 1,764,897
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle, 7th Series, MBIA
Insured, 6.625%, 10/01/24 2,000,000 2,068,940
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 1,500,000 1,468,740
Refunding, MBIA Insured, 6.90%, 8/01/18 1,000,000 1,080,780
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 1,500,000 1,606,380
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/24 1,030,000 1,080,800
Macon-Bibb County Urban Development Authority Revenue, MF Housing, Refunding, Series A,
MBIA Insured, 5.55%, 1/01/24 1,590,000 1,650,182
Municipal Electric Authority, Project One, Refunding, Sub Series A, MBIA Insured, 5.375%,
1/01/19 5,000,000 5,112,650
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 1,340,000 1,359,336
-------------
43,094,887
-------------
HAWAII 1.4%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 1,000,000 1,095,770
5/01/13 1,000,000 1,091,150
Hawaii State Airports System Revenue, Second Series 1990, FGIC Insured, 7.50%, 7/01/20 5,000,000 5,319,250
Hawaii State Department of Budget and Finance Special Purpose Mortgage Revenue,
Hawaiian Electric Co. and Subsidiaries, MBIA Insured, 6.55%, 12/01/22 3,000,000 3,294,120
St. Francis Medical Centers, Refunding, FSA Insured, 6.50%, 7/01/22 4,000,000 4,360,160
Hawaii State Department of Budget and Finance Special Purpose Revenue, Hawaiian Electric
Co. Project,
Series A, MBIA Insured, 5.65%, 10/01/27 5,000,000 5,338,700
Series B, MBIA Insured, 5.875%, 12/01/26 2,000,000 2,166,580
</TABLE>
52
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
HAWAII (CONT.)
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05 .......................................................................................... $ 535,000 $ 583,803
7/01/06 .......................................................................................... 605,000 659,196
7/01/07 .......................................................................................... 610,000 664,644
-----------
24,573,373
-----------
IDAHO .1%
Boise State University Revenues, Student Fee, MBIA Insured, 6.50%, 4/01/19 .......................... 1,000,000 1,117,600
-----------
ILLINOIS 4.0%
Aurora SFMR, GNMA Secured, AMBAC Insured, 7.80%, 12/01/15 ........................................... 315,000 325,934
Blue Island Waterworks and Sewer Revenue, MBIA Insured, 5.55%, 12/01/24 ............................. 2,270,000 2,352,492
Chicago Board of Education GO, Chicago School Reform, Series A, AMBAC Insured,
5.25%, 12/01/30 .................................................................................. 2,000,000 2,014,540
Chicago Board of Education Lease COP, Refunding, Series A, MBIA Insured, 6.25%, 1/01/09 ............. 320,000 365,427
Chicago GO, Project and Refunding, FGIC Insured, 5.25%, 1/01/28 ..................................... 9,775,000 9,848,997
Chicago Heights GO, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 ..................................... 100,000 110,113
Cicero GO, FSA Insured, 6.90%, 12/01/12 ............................................................. 1,500,000 1,676,175
Cook County Community College District No. 508 COP, FGIC Insured,
8.50%, 1/01/02 ................................................................................... 7,470,000 8,400,164
8.75%, 1/01/05 ................................................................................... 5,000,000 6,185,150
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 .................... 4,452,000 4,851,166
ETM, Refunding, Series B, MBIA Insured, 7.90%, 8/15/03 ........................................... 403,000 456,127
ETM, Series 1990, FSA Insured, 7.75%, 8/15/10 .................................................... 105,000 136,703
Michael Reese Hospital, ETM, Series A, FSA Insured, 7.60%, 2/15/05 ............................... 4,280,000 4,805,798
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%, 11/15/28 .............. 5,000,000 4,891,400
Series 1990, FSA Insured, 7.75%, 8/15/10 ......................................................... 2,525,000 2,699,503
Series B, MBIA Insured, 7.90%, 8/15/03 ........................................................... 1,783,000 1,806,357
Silver Cross Hospital, MBIA Insured, 7.00%, 8/15/21 .............................................. 1,000,000 1,088,460
Illinois State COP, FSA Insured, 6.95%, 7/01/13 ..................................................... 5,750,000 6,387,330
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured,
6.50%, 1/01/06 ................................................................................... 300,000 341,142
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 4,249,336
Onterie Center HFC, Mortgage Revenue, Refunding, MBIA Insured, 7.05%, 7/01/27 ....................... 2,000,000 2,140,180
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%, 11/01/20 ................. 300,000 389,052
Southwestern Illinois Development Authority Retirement Community Revenue, Meridian
Village Project, GNMA Secured,
5.25%, 8/20/23 ................................................................................... 1,000,000 990,460
5.30%, 8/20/38 ................................................................................... 5,690,000 5,579,159
-----------
72,091,165
-----------
INDIANA .5%
Fort Wayne Hospital Authority Hospital Revenue, Ancillary System Inc., Parkview Memorial
Hospital, Series A, FGIC Insured, Pre-Refunded, 7.50%, 11/15/11 .................................. 250,000 262,705
Indiana Health Facility Financing Authority Hospital Revenue, Community Hospital Project,
Refunding and Improvement, MBIA Insured, 6.40%, 5/01/12 ........................................... 250,000 271,423
Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%, 6/01/15 ................. 500,000 452,575
Jasper County PCR, Northern Indiana Public Service Co., Refunding, MBIA Insured, 7.10%, 7/01/17 ..... 500,000 540,640
Monroe County Hospital Authority Revenue, Bloomington Hospital Project, Refunding,
BIG Insured, Pre-Refunded, 7.125%, 5/01/11 ....................................................... 6,000,000 6,099,180
Patoka Lake Regional Water and Sewer District Waterworks Revenue, Series A, AMBAC
Insured, Pre-Refunded, 6.45%, 1/01/15 ............................................................ 1,500,000 1,686,240
Rockport PCR, Michigan Power Co., Refunding, Series B, FGIC Insured, 7.60%, 3/01/16 ................. 185,000 201,587
-----------
9,514,350
-----------
IOWA .1%
Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured, Pre-Refunded, 7.40%,
7/01/20........................................................................................... 200,000 214,520
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Logan Park Project, Refunding,
Series B, MBIA Insured, 6.50%, 1/01/24 ........................................................... 2,115,000 2,223,478
-----------
2,437,998
-----------
</TABLE>
53
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
KANSAS .6%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding, MBIA Insured,
7.00%, 6/01/31 ............................................................... $ 3,350,000 $ 3,636,827
Cowley and Shawnee Counties SFMR, GNMA Secured, AMBAC Insured, 7.35%, 12/01/11 .. 875,000 916,475
Kansas State Development Finance Authority Health Facility Revenue, MBIA Insured,
5.80%, 11/15/21 .............................................................. 1,330,000 1,434,192
Topeka Public Building Commission Revenue, Tenth and Jackson Projects,
MBIA Insured, 5.00%, 6/01/24 ................................................. 2,250,000 2,214,945
Wichita Hospital Revenue, St. Francis, Refunding and Improvement,
MBIA Insured, 6.25%, 10/01/10 ................................................ 2,000,000 2,166,500
Wichita Water and Sewer Utility Revenue, Refunding and Improvement,
Series B, FGIC Insured, 6.00%, 10/01/12 ...................................... 1,000,000 1,050,640
--------------
11,419,579
--------------
KENTUCKY 1.9%
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured,
5.375%, 6/01/22 .............................................................. 2,000,000 2,057,780
5.50%, 6/01/28 ............................................................... 3,000,000 3,123,750
Jefferson County Health Facilities Revenue,
Alliant Health System Inc., Refunding, MBIA Insured, 5.125%, 10/01/27 ........ 10,000,000 9,815,600
Jewish Hospital Healthcare Services Inc., AMBAC Insured, 6.55%, 5/01/22 ...... 1,000,000 1,082,630
Jefferson County Health System Revenue, Alliant Health System Inc., MBIA Insured,
5.20%, 10/01/28 .............................................................. 7,000,000 7,035,980
Kenton County Water District No. 001 Waterworks Revenue, Series B, FGIC Insured,
5.70%, 2/01/20 ............................................................... 1,250,000 1,328,413
Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Baptist Healthcare System, Refunding, MBIA Insured, 5.00%, 8/15/24 ........... 2,000,000 1,957,660
St. Elizabeth Medical Center Project, Series A, FGIC Insured, 6.00%,
12/01/22.......................................................................... 2,375,000 2,549,159
Kentucky Economic Development Finance Authority Medical Center Revenue,
Ashland Hospital Corp., Refunding and Improvement,
Series A, FSA Insured, 6.125%, 2/01/12 ......................................... 1,000,000 1,082,320
Louisville and Jefferson County Metropolitan Sewer District Sewer and
Drain System Revenue, Series A, AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ... 2,000,000 2,326,340
Northern Kentucky University COP, Student Housing Facilities, FSA Insured,
Pre-Refunded, 7.25%, 1/01/12 ................................................... 2,000,000 2,172,820
--------------
34,532,452
--------------
LOUISIANA .4%
Jefferson Parish Hospital Service District No. 2 Hospital Revenue, FSA Insured,
5.00%, 7/01/28 ............................................................... 5,000,000 4,835,400
Jefferson Sales Tax District Special Sales Tax Revenue, Refunding, Series A,
BIG Insured, Pre-Refunded, 8.00%, 7/01/05 ...................................... 1,700,000 1,727,370
New Orleans GO, Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 .. 500,000 561,745
--------------
7,124,515
--------------
MAINE .7%
Maine State Health and Higher Educational Facilities Authority Revenue,
Eastern Maine Health Care, FGIC Insured, Pre-Refunded, 6.625%, 10/01/11 ...... 2,000,000 2,191,900
Series B, FSA Insured, Pre-Refunded, 7.00%, 7/01/24 .......................... 2,000,000 2,333,360
Series C, FSA Insured, 6.20%, 7/01/25 ........................................ 2,015,000 2,213,316
Maine State Turnpike Authority Revenue, MBIA Insured, Pre-Refunded, 6.00%,
7/01/14 ...................................................................... 525,000 588,793
7/01/18 ...................................................................... 2,500,000 2,803,775
Old Orchard Beach GO, MBIA Insured, Pre-Refunded, 6.65%,
9/01/11 ...................................................................... 1,180,000 1,308,160
9/01/12 ...................................................................... 535,000 601,356
--------------
12,040,660
--------------
MARYLAND .4%
Maryland State CDA, Department of Housing and Community Development,
Infrastructure Financing, Series A, AMBAC Insured,
6.625%, 6/01/12 .............................................................. 245,000 265,004
Pre-Refunded, 6.625%, 6/01/12 ................................................ 1,755,000 1,950,191
Pre-Refunded, 6.70%, 6/01/22 ................................................. 820,000 913,070
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 2,976,480
Series B, FGIC Insured, 7.00%, 7/01/22 ....................................... 200,000 254,376
--------------
6,359,121
--------------
</TABLE>
54
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
MASSACHUSETTS 7.2%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, Pre-Refunded,
6.00%, 11/01/21 ................................................................................$ 3,700,000 $ 3,947,456
Central Berkshire Religious School District GO, Series B, FSA Insured, 5.125%, 3/01/18 .... 1,125,000 1,139,625
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue,
Refunding, Series A,
AMBAC Insured, 6.00%, 7/01/18 ............................................................ 4,455,000 4,684,388
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ........................ 10,000,000 10,797,000
Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 7/01/20 ................. 1,500,000 1,615,725
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/18 ..................... 2,000,000 1,958,620
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 ..................... 5,000,000 4,843,150
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 .................... 5,000,000 4,933,000
Harvard Pilgrim Health, Series A, FSA Insured, 5.00%, 7/01/18 .......................... 3,000,000 2,937,930
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 ................... 1,000,000 1,009,260
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 ................ 9,220,000 10,110,375
Massachusetts Medical Center, Series A, AMBAC Insured, Pre-Refunded, 7.10%, 7/01/21 .... 1,000,000 1,100,560
McLean Hospital, Refunding, Series C, FGIC Insured, 6.625%, 7/01/15 .................... 1,085,000 1,187,229
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ....................... 8,500,000 9,345,070
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 .................... 12,200,000 12,397,274
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 .............................. 8,000,000 7,921,440
Stonehill College, Refunding, Series E, MBIA Insured, 6.60%, 7/01/20 ................... 2,000,000 2,191,500
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 ................... 2,000,000 2,139,860
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22 .................. 3,000,000 3,342,300
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ........................... 5,000,000 5,184,050
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 .... 5,000,000 5,528,800
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ...................................... 3,000,000 3,052,440
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 ...................................... 4,000,000 4,330,560
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 ..................... 1,590,000 1,640,785
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 ..................... 1,560,000 1,609,826
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 ..................... 2,155,000 2,223,831
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 ..................... 2,910,000 3,002,945
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, Sub. Lien,
Refunding, Series B,
MBIA Insured, 5.125%, 1/01/37 ............................................................ 2,100,000 2,067,072
Massachusetts State Water Resources Authority Revenue,
Refunding, Series D, 5.00%, 8/01/24 .................................................... 5,000,000 4,880,300
Series A, FGIC Insured, Pre-Refunded, 5.50%, 11/01/21 .................................. 3,000,000 3,326,880
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 ...... 2,000,000 2,176,920
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 ......................... 2,300,000 2,499,801
-------------
129,125,972
-------------
MICHIGAN 4.2%
Chippewa Valley Schools GO, Refunding, AMBAC Insured, 5.00%, 5/01/27 ...................... 1,000,000 976,310
Detroit Sewage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 ............................. 6,000,000 5,836,920
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 ............................... 7,250,000 7,500,488
Jackson County Hospital Finance Authority Hospital Revenue, W.A. Foote Memorial Hospital,
Series A, AMBAC Insured, 5.25%, 6/01/17 ................................................ 750,000 765,435
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist Hospital,
Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 ............................... 5,500,000 5,909,750
Series A, MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 .................................. 2,000,000 2,244,680
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, Pre-Refunded, 5.625%, 1/15/26 ............................................ 10,000,000 11,151,200
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series D, FSA Insured, 6.10%, 4/01/19 .................................................. 5,000,000 5,501,800
Michigan State Hospital Finance Authority Revenue,
Hospital Botsford Obligation, Refunding, Series A, MBIA Insured, 5.25%, 2/15/22 ........ 2,000,000 2,024,880
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ............ 6,725,000 6,605,362
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ............. 10,000,000 9,582,100
St. John's Hospital and Medical Center, AMBAC Insured, 5.25%, 5/15/26 .................. 3,000,000 3,023,700
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 ................ 2,500,000 2,702,350
</TABLE>
55
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
MICHIGAN (CONT.)
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co.,
Pollution Project, Refunding, FGIC Insured, 6.875%, 12/01/21 ............................... $ 200,000 $ 217,120
Series BB, AMBAC Insured, 7.00%, 5/01/21 ................................................... 250,000 316,110
Saginaw Valley State University Revenue, AMBAC Insured, 5.30%, 7/01/28 ........................ 3,400,000 3,454,774
Yale Public Schools District GO, FSA Insured, 5.375%, 5/01/27 ................................. 3,845,000 3,906,905
Zeeland Public Schools GO, Refunding, MBIA Insured, 5.25%, 5/01/24 ............................ 3,180,000 3,200,717
-----------
74,920,601
-----------
MINNESOTA 2.0%
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ........... 2,000,000 2,143,300
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 ...................... 5,000,000 5,345,950
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 ........ 2,135,000 2,253,001
Northern Municipal Power Agency Electric System Revenue, Refunding, Series B,
AMBAC Insured, 5.50%, 1/01/18 .............................................................. 2,100,000 2,174,886
Southern Minnesota Municipal Power Agency Power Supply System Revenue, Series A,
AMBAC Insured, 5.75%, 1/01/18 .............................................................. 2,870,000 3,038,900
St. Louis Park Health Care Facilities Revenue, Health System of Minnesota Obligated Group,
Refunding, Series A, AMBAC Insured, 5.20%, 7/01/16 ......................................... 8,200,000 8,318,490
Washington County GO,
Governmental Housing, Scandia II Project, Series B, FGIC Insured, 6.30%, 7/01/24 ........... 1,200,000 1,284,648
Raymie Johnson Apartments, Refunding, Series C, FGIC Insured, 6.30%, 1/01/20 ............... 2,415,000 2,595,062
Western Minnesota Municipal Power Agency Power Supply Revenue, Series A, MBIA Insured,
6.125%, 1/01/16 ............................................................................ 8,350,000 8,405,444
-----------
35,559,681
-----------
MISSISSIPPI
Harrison County Wastewater Management District Revenue, Wastewater Treatment Facilities,
Refunding, Series A, FGIC Insured, 8.50%, 2/01/13 .......................................... 200,000 283,330
-----------
MISSOURI .9%
Kansas City IDA, Mortgage Revenue, Presidential Gardens, Refunding,
Series A, FNMA Insured, 5.55%, 8/01/25 ..................................................... 1,000,000 1,033,020
Missouri State HDC, SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 .............................. 910,000 947,838
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 ............................ 1,000,000 1,084,650
Richmond Heights COP, Capital Improvement Projects, Series A, MBIA Insured, 5.30%, 8/15/17 .... 2,000,000 2,045,480
St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured,
6.375%, 3/15/07 ............................................................................ 2,850,000 3,079,254
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 .............................. 295,000 301,186
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 .................... 2,000,000 2,188,160
Refunding and Improvement, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 ...................... 2,025,000 2,281,203
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 ......................... 2,950,000 3,166,412
-----------
16,127,203
-----------
MONTANA 1.2%
Forsyth County PCR, Puget Sound Power and Light Co. Project, AMBAC Insured, 6.80%, 3/01/22 .... 4,475,000 4,868,934
Forsyth PCR, Washington Water Co., Refunding, Series A, MBIA Insured, 7.125%, 12/01/13 ........ 5,000,000 5,221,900
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 ................................. 750,000 823,500
Montana State Board Workers Compensation Investment Program, ETM, MBIA Insured, 6.875%,
6/01/20..................................................................................... 8,500,000 9,134,440
Montana State University Revenue, Higher Education Facilities, Acquisition and Improvement,
Series C, MBIA Insured, 6.00%, 11/15/14 .................................................... 1,000,000 1,001,480
-----------
21,050,254
-----------
NEBRASKA 1.4%
Cass County School District No. 001, Plattsmouth Community Schools, FGIC Insured, Pre-Refunded,
6.35%, 12/01/19 ............................................................................ 2,500,000 2,563,150
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1,
ETM, MBIA Insured, 6.70%, 6/01/22 .......................................................... 2,500,000 2,937,500
Series A, MBIA Insured, 5.375%, 6/01/19 .................................................... 2,715,000 2,784,667
Series B, MBIA Insured, 5.375%, 6/01/17 .................................................... 5,000,000 5,159,400
Lincoln Hospital Revenue, Lincoln General Hospital, Series A, FSA Insured, Pre-Refunded,
6.20%, 12/01/14 ............................................................................ 2,000,000 2,167,700
</TABLE>
56
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
NEBRASKA (CONT.)
Municipal Energy Agency of Nebraska Power Supply System Revenue, Refunding,
Series A, AMBAC Insured, 6.00%,
4/01/15 .................................................................................. $ 2,000,000 $ 2,162,620
4/01/17 .................................................................................. 1,350,000 1,442,772
Nebraska Educational Finance Authority Revenue, Creighton University Project,
AMBAC Insured, 5.95%, 1/01/11 ............................................................ 1,000,000 1,092,350
Nebraska Investment Finance Authority Health Facilities Revenue, Children's
Healthcare Services, AMBAC Insured, 5.50%, 8/15/27 ....................................... 2,000,000 2,088,620
Nebraska Investment Finance Authority SFMR, Refunding,
Series B, FGIC Insured, 8.00%, 7/15/17 ................................................... 2,200,000 2,245,320
Series R1-A, FGIC Insured, 8.00%, 7/15/17 ................................................ 135,000 135,296
-----------
24,779,395
-----------
NEVADA .4%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 ........................ 1,000,000 1,025,050
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 .................................... 250,000 297,858
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 ........................ 4,000,000 4,926,360
Sparks GO, AMBAC Insured, Pre-Refunded, 7.50%, 10/01/09 ..................................... 1,695,000 1,772,139
-----------
8,021,407
-----------
NEW HAMPSHIRE 1.2%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Concord Hospital, Refunding, AMBAC Insured, 6.00%, 10/01/26 .............................. 4,300,000 4,687,301
Mary Hitchcock Memorial Hospital, FGIC Insured, 5.75%, 8/15/23 ........................... 11,000,000 11,683,100
University System, Refunding, MBIA Insured, 6.25%, 7/01/20 ............................... 4,000,000 4,333,280
-----------
20,703,681
-----------
NEW JERSEY 1.6%
Essex County Improvement Authority Lease, Jail and Youth House Projects,
AMBAC Insured, Pre-Refunded, 7.00%, 12/01/24 ............................................. 3,000,000 3,539,340
Refunding, AMBAC Insured, 5.35%, 12/01/24 ................................................ 4,000,000 4,088,040
Essex County Improvement Authority Revenue, Garden State Cancer Center Project,
AMBAC Insured, 6.00%, 12/01/20 ........................................................... 2,525,000 2,755,709
Mantua Township School District COP, MBIA Insured, Pre-Refunded, 7.25%, 6/30/10 ............. 1,700,000 1,821,108
Middlesex County COP, MBIA Insured, 5.30%, 6/15/29 .......................................... 3,575,000 3,663,231
Mount Laurel Township Municipal Utilities Authority System Revenue, Refunding,
Series A, MBIA Insured, 6.00%, 7/01/15 ................................................... 2,000,000 2,142,840
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 2,019,940
Muhlenberg Regional Medical Center, Series B, AMBAC Insured, 8.00%, 7/01/18 .............. 3,000,000 3,062,490
St. Barnabas Health, Refunding, Series B, MBIA Insured, 5.00%, 7/01/24 ...................... 5,000,000 4,936,000
New Jersey State Housing and Mortgage Finance Agency Revenue, Home Buyer, Series C,
MBIA Insured, 7.375%, 10/01/17 ........................................................... 485,000 501,218
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured,
6.50%, 1/01/16 ........................................................................... 300,000 358,782
-----------
28,888,698
-----------
NEW MEXICO .5%
Farmington PCR, Public Service Co. of New Mexico, Refunding, Series A, AMBAC Insured,
6.375%, 12/15/22 ......................................................................... 5,000,000 5,439,750
Gallup PCR, Plains Electric Generation, Refunding, MBIA Insured, 6.65%, 8/15/17 ............. 2,000,000 2,106,420
New Mexico Mortgage Finance Authority SFM Program, Series C, FGIC Insured, 8.625%,
7/01/17 .................................................................................. 720,000 729,490
-----------
8,275,660
-----------
NEW YORK 7.4%
Central Square GO, Central School District, FGIC Insured, 6.50%, 6/15/10 .................... 900,000 1,071,909
Dutchess County IDA, Civic Facilities Revenue, Bard College Project, AMBAC Insured,
5.375%, 6/01/27 .......................................................................... 3,945,000 4,030,409
New York City GO, Series C, Sub Series C-1, MBIA Insured, Pre-Refunded, 6.625%, 8/01/12 ..... 105,000 116,321
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 2,128,400
New York City Trust Cultural Resources Revenue, New York Botanical Garden,
MBIA Insured, 5.80%, 7/01/26 ............................................................. 2,000,000 2,138,640
New York State Dormitory Authority Revenue,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 ......................................... 4,000,000 4,268,320
City University, Series C, 7.00%, 7/01/14 ................................................ 6,110,000 6,479,105
City University, Series C, Pre-Refunded, 7.00%, 7/01/14 .................................. 2,545,000 2,716,660
Mount Sinai School of Medicine, Refunding, MBIA Insured, 6.75%, 7/01/15 .................. 1,500,000 1,617,375
Pace University, MBIA Insured, 5.70%, 7/01/22 ............................................ 7,500,000 8,000,025
</TABLE>
57
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
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FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
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LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
NEW YORK (CONT.)
New York State Dormitory Authority Revenue, (cont.)
Pace University, Refunding, MBIA Insured, 5.75%, 7/01/26 ................................... $ 2,500,000 $ 2,706,275
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 ...................................... 1,230,000 1,256,666
St. John's University, MBIA Insured, 5.70%, 7/01/26 ........................................ 15,000,000 15,900,150
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 ..................................... 4,000,000 4,093,480
New York State Energy Research and Development Authority Electric Facilities Revenue,
Consolidated Edison Project, Series A, MBIA Insured, 6.75%, 1/15/27 ........................ 5,000,000 5,276,250
New York State Energy Research and Development Authority PCR,
Central Hudson Gas, Series A, FGIC Insured, 7.375%, 10/01/14 ............................... 2,000,000 2,102,440
Niagara Mohawk Power Corp., Refunding, Series A, FGIC Insured, 6.625%, 10/01/13 ............ 3,500,000 3,794,070
Rochester Gas and Electric Project, Refunding, Series B, MBIA Insured, 6.50%, 5/15/32 ...... 5,000,000 5,399,950
New York State Medical Care Facilities Finance Agency Revenue,
North Shore University Hospital, Mortgage Project, Series A, MBIA Insured, Pre-Refunded,
7.20%, 11/01/20 ............................................................................ 3,000,000 3,244,260
Presbyterian Hospital, FHA Mortgage, Series A, MBIA Insured, 5.375%, 2/15/25 ............... 3,055,000 3,143,137
New York State Tollway Authority General Revenue,
Series B, MBIA Insured, 5.00%, 1/01/20 ..................................................... 6,635,000 6,592,072
Series C, FGIC Insured, Pre-Refunded, 6.00%, 1/01/25 ....................................... 7,815,000 8,787,499
Niagara Frontier Transportation Authority Airport Revenue, Greater Buffalo
International Airport, Series A, AMBAC Insured, 6.25%, 4/01/24 ............................. 9,000,000 9,765,450
Port Authority of New York and New Jersey Revenue, Consolidated,
102nd Series, MBIA Insured, 5.625%, 10/15/17 ............................................... 5,000,000 5,197,550
102nd Series, MBIA Insured, 5.875%, 10/15/27 ............................................... 10,000,000 10,624,800
109th Series, FGIC Insured, 5.375%, 7/15/22 ................................................ 10,000,000 10,312,200
Upper Mohawk Valley Regional Water Finance Authority Water System Revenue, Refunding,
Series A, FSA Insured, 5.125%, 10/01/26 .................................................... 1,495,000 1,499,171
------------
132,262,584
------------
NORTH CAROLINA 1.7%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ................................... 1,000,000 1,070,590
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
AMBAC Insured, 5.75%, 10/01/26 ............................................................. 1,150,000 1,225,774
MBIA Insured, 5.00%, 10/01/28 .................................................................. 7,000,000 6,820,380
North Carolina Medical Care Commission Health Care Facilities Revenue,
Novant Health Project, Series B, 5.00%, 10/01/28 ........................................... 11,300,000 10,943,485
North Carolina Medical Care Commission Hospital Revenue,
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ...................................... 5,000,000 4,923,200
Wyne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 .................. 5,000,000 4,880,800
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue,
ETM, MBIA Insured, 6.50%, 1/01/10 .......................................................... 20,000 23,131
MBIA Insured, 6.50%, 1/01/10 ............................................................... 80,000 83,095
------------
29,970,455
------------
NORTH DAKOTA .4%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group, MBIA Insured,
5.625%, 8/15/27 ............................................................................ 5,500,000 5,809,100
North Dakota State Building Authority Lease Revenue, Department of Corrections and
Rehabilitation, Series B, AMBAC Insured, Pre-Refunded, 7.40%, 6/01/10 ...................... 150,000 157,521
North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC Insured,
6.75%, 6/01/11 ............................................................................. 300,000 321,519
------------
6,288,140
------------
OHIO 3.8%
Clermont County Building and Road Improvement, Refunding, AMBAC Insured, 5.60%, 9/01/14 ........ 2,000,000 2,107,740
Cleveland Airport Systems Revenue, Series A, FSA Insured, 5.125%, 1/01/27 ...................... 6,000,000 5,916,360
Cleveland Waterworks Revenue,
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/23 ........................... 2,750,000 2,727,120
Series F, AMBAC Insured, Pre-Refunded, 6.50%, 1/01/11 ...................................... 1,625,000 1,779,911
Elyria GO, FGIC Insured, 5.40%, 12/01/17 ....................................................... 2,400,000 2,465,424
Hamilton County Sales Tax, Hamilton County Football, Project B, MBIA Insured,
5.00%, 12/01/27 ............................................................................ 3,250,000 3,186,593
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 ..................... 3,015,000 3,064,175
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 .................. 1,750,000 1,866,515
</TABLE>
58
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
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LONG TERM INVESTMENTS (CONT.)
OHIO (CONT.)
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities,
MBIA Insured, Pre-Refunded, 7.50%, 4/01/14 ......................................................... $12,720,000 $13,017,775
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ................................................. 3,105,000 3,257,362
Ohio Municipal Electric Generation Agency Joint Venture 5, Certificates of Beneficial
Interest, AMBAC Insured, 5.375%, 2/15/24 ........................................................... 5,500,000 5,624,740
Ohio State Turnpike Commission Turnpike Revenue, Series A, MBIA Insured, Pre-Refunded, 5.50%, 2/15/26 .. 15,900,000 17,575,860
University of Cincinnati COP, University Center Project, MBIA Insured, 5.125%, 6/01/24 ................. 2,950,000 2,962,567
West Holmes Local School District GO, MBIA Insured, 5.375%, 12/01/17 ................................... 3,100,000 3,189,559
-----------
68,741,701
-----------
OKLAHOMA .7%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 .............................. 595,000 630,611
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 ...................................... 300,000 344,223
Moore Public Works Authority Revenue, Refunding, AMBAC Insured, 7.60%,
7/01/06 ............................................................................................ 5,000,000 5,164,050
Muskogee County, HFAR, SFMR, Refunding, Series A,
FGIC Insured, 7.60%, 12/01/10 ...................................................................... 420,000 435,124
Oklahoma State Turnpike Authority Turnpike Revenue, First Senior, Series A, AMBAC Insured, 6.00%,
1/01/12 ............................................................................................ 2,000,000 2,144,120
Pottawatomie County Development Authority Water Revenue, North Deer Creek Reservoir Project,
AMBAC Insured, Pre-Refunded, 7.375%, 7/01/26 ....................................................... 250,000 268,070
Tulsa County Home Finance Authority Mortgage Revenue, Series D, GNMA Secured, 6.95%, 12/01/22 .......... 250,000 263,123
Tulsa Industrial Authority Revenue, Holland Hall School Project, FSA Insured, 6.75%, 12/01/14 ......... 3,270,000 3,706,970
-----------
12,956,291
-----------
OREGON 1.9%
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.95%, 6/01/16 ....................... 3,000,000 3,374,610
Clackamas Community College District, MBIA Insured, Pre-Refunded, 5.80%, 6/01/26 ...................... 2,500,000 2,788,750
Deschutes and Jefferson Counties School District No. 2-J, Redmond, MBIA Insured, 5.60%, 6/01/09 ....... 1,500,000 1,568,895
Josephine County School District No. 7, FGIC Insured, 5.70%, 6/01/13 .................................. 5,000,000 5,373,450
Medford Hospital Facilities Authority Revenue, Asante Health System, Series A, MBIA Insured,
5.00%, 8/15/24 ..................................................................................... 3,655,000 3,592,902
Northern Wasco County Peoples Utilities District Electric Revenue, FGIC Insured, 5.625%, 12/01/22 ..... 1,000,000 1,056,070
Ontario Catholic Health Revenue, Holy Rosary Medical Center, MBIA Insured, 5.50%, 11/15/12 ............ 700,000 749,364
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 ..................... 1,500,000 1,554,735
Oregon State Department of Administrative Services COP, Series A,
AMBAC Insured, 5.80%, 5/01/24 ...................................................................... 5,000,000 5,417,250
MBIA Insured, 5.70%, 5/01/17 ....................................................................... 1,000,000 1,069,830
Port of Portland International Airport Revenue, Portland International Airport, Series 11,
FGIC Insured, 5.625%, 7/01/26 ...................................................................... 1,000,000 1,051,390
Washington County Unified Sewer Agency Revenue,
senior lien, FGIC Insured, 5.50%, 10/01/16 ......................................................... 1,845,000 1,945,054
senior lien, Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ............................... 1,000,000 1,118,500
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 3,296,430
-----------
33,957,230
-----------
PENNSYLVANIA 1.6%
Beaver County GO, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 ................................ 2,000,000 2,246,240
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital, Refunding,
Series B, 6.375%, 7/01/18 .......................................................................... 5,000,000 5,511,650
Lehigh County General Purpose Authority Revenue, Hospital Healtheast Inc., Refunding, Series A,
MBIA Insured, 7.00%, 7/01/15 ....................................................................... 100,000 105,625
Montgomery County IDAR, PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 ....... 8,000,000 8,642,400
Pennsylvania Convention Center Authority Revenue, ETM, Series A, FGIC Insured, 6.00%, 9/01/19 ......... 500,000 567,820
Pennsylvania State Pooled Finance Authority Lease Revenue, Capital Improvement, Series B, MBIA Insured,
Pre-Refunded, 8.00%, 11/01/09 ........................................................................ 2,740,000 2,759,235
Pennsylvania State Turnpike Oil Commission Franchise Tax Revenue, Refunding, Series P,
AMBAC Insured, 6.00%, 12/01/17 ..................................................................... 500,000 536,335
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured, 6.10%, 6/15/25 .... 4,000,000 4,329,160
Philadelphia Water and Wastewater Revenue, Refunding, FSA Insured, 5.50%, 6/15/15 ..................... 1,000,000 1,038,050
Pittsburgh Water and Sewer System Authority Revenue, ETM, Refunding, FGIC Insured, 7.25%, 9/01/14 ..... 90,000 110,444
Quaker Valley School District, FGIC Insured, Pre-Refunded, 5.70%, 1/15/19 ............................. 2,000,000 2,187,060
-----------
28,034,019
-----------
</TABLE>
59
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
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LONG TERM INVESTMENTS (CONT.)
RHODE ISLAND 1.3%
Kent County Water Authority General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 ............... $ 2,100,000 $ 2,347,317
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 .............................................. 3,000,000 3,182,940
Rhode Island Clean Water Financing Agency Revenue, Cranston Wastewater Treatment System,
MBIA Insured, 5.80%, 9/01/22 .................................................................... 10,000,000 10,731,600
Rhode Island Port Authority and EDC Revenue, Shepard Building Project, Series B, AMBAC
Insured, Pre-Refunded, 6.75%, 6/01/25 ........................................................... 2,000,000 2,305,660
Rhode Island State GO, Series A, FGIC Insured, 6.25%, 6/15/07 ..................................... 175,000 190,176
Rhode Island State 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 2,377,080
Hospital Financing Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ..................... 1,750,000 1,890,035
-----------
23,024,808
-----------
SOUTH CAROLINA .4%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement, AMBAC Insured,
6.00%, 1/01/16 .................................................................................. 250,000 265,963
Edgefield County School District, ETM, Refunding, FSA Insured, 8.50%, 2/01/01 ..................... 250,000 273,388
Lexington Water and Sewer Revenue, FSA Insured, 5.45%, 4/01/19 .................................... 2,320,000 2,409,204
Piedmont Municipal Power Agency Electric Revenue, Refunding, FGIC Insured, 6.25%, 1/01/21 ......... 200,000 232,674
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
ETM, Series A, FSA Insured, 7.125%, 7/01/17 ..................................................... 3,000,000 3,618,780
Spartanburg Sanitation Sewer District Sewer System Revenue, Implementation, MBIA Insured,
5.50%, 6/01/27 .................................................................................. 500,000 517,910
-----------
7,317,919
-----------
SOUTH DAKOTA 1.0%
Brookings COP, AMBAC Insured, 5.10%, 12/01/18 ..................................................... 5,000,000 4,968,850
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 ......................................... 4,800,000 5,074,848
Lawrence County COP, Courthouse, FSA Insured, Pre-Refunded, 7.65%, 7/01/10 ........................ 2,000,000 2,151,640
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 ................................. 2,095,000 2,138,618
South Dakota Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ................................ 2,720,000 3,330,858
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding,
Series A, MBIA Insured, 5.50%, 4/01/17 .......................................................... 20,000 20,560
-----------
17,685,374
-----------
TENNESSEE 1.1%
Greater Tennessee Housing Assistance Revenue, Section 8, Refunding, Series A, MBIA
Insured, 6.00%, 7/01/24 ......................................................................... 1,420,000 1,468,947
Johnson City Health and Educational Revenue, Medical Center Hospital, Refunding and
Improvement, MBIA Insured,
5.125%, 7/01/25 ................................................................................ 5,000,000 4,897,050
5.25%, 7/01/28 ................................................................................. 8,500,000 8,461,495
Johnson County PBA Revenue, Public Facilities, MBIA Insured, 5.125%, 9/01/20 ...................... 1,665,000 1,678,070
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 .......... 200,000 215,222
Trenton Special School District, AMBAC Insured, 5.75%, 11/01/20 ................................... 3,000,000 3,369,030
-----------
20,089,814
-----------
TEXAS 8.3%
Austin Combined Utility System Revenue,
BIG Insured, Pre-Refunded, 8.625%, 11/15/17 .................................................... 1,000,000 1,150,520
Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 ........................................... 3,000,000 3,289,920
Austin Utility System Revenue,
FGIC Insured, 6.00%, 5/15/15 ................................................................... 35,000 36,164
Refunding, FGIC Insured, 6.00%, 5/15/15 ........................................................ 15,000 15,324
Bell County Health Facilities Development Corporate Revenue, Hospital Cook Children's
Medical, Refunding, FSA Insured, 5.30%, 12/01/23 ................................................. 5,000,000 5,065,050
Bexar County HFC Revenue, Series A, GNMA Secured, 8.20%, 4/01/22 .................................. 2,780,000 2,867,209
Brazos River Authority Revenue, Houston Light and Power Co.. Project, Refunding, Series A,
AMBAC Insured, 6.70%, 3/01/17 ................................................................... 2,000,000 2,172,860
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, 6.30%, 1/01/17 ......... 12,230,000 13,255,608
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 ................................................... 675,000 706,394
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 .................................. 540,000 566,514
Faulkey Gully MUD, GO, AMBAC Insured, 6.625%, 3/01/07 ............................................. 1,520,000 1,646,637
Fort Bend County Levee ID No. 011, AMBAC Insured, 6.00%,
9/01/21 ........................................................................................ 1,395,000 1,530,622
9/01/22 ........................................................................................ 1,495,000 1,640,344
9/01/23 ........................................................................................ 1,610,000 1,765,574
</TABLE>
60
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
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LONG TERM INVESTMENTS (CONT.)
TEXAS (CONT.)
Grand Prairie Health Facilities Development Corp., Dallas/Fort Worth Medical Center
Project, Refunding, AMBAC Insured, 6.875%, 11/01/10 .............................................. $ 2,700,000 $ 2,834,163
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC Insured, 7.40%, 2/15/10 ......... 2,350,000 2,858,846
Harris County Toll Road,
senior lien, Series A, AMBAC Insured, 6.50%, 8/15/17 ............................................ 1,580,000 1,732,565
senior lien, Series B, AMBAC Insured, 6.625%, 8/15/17 ........................................... 240,000 243,636
Series A, FGIC Insured, 6.50%, 8/15/11 .......................................................... 35,000 38,119
Houston Airport System Revenue, sub. lien, Series A, FGIC Insured, 6.75%, 7/01/21 .................. 2,500,000 2,681,125
Houston Water and Sewer System Revenue,
junior lien, Refunding, Series C, AMBAC Insured, 6.375%, 12/01/17 ............................... 935,000 1,005,574
junior lien, Refunding, Series C, MBIA Insured, 5.75%, 12/01/15 ................................. 500,000 533,320
Series A, MBIA Insured, 6.375%, 12/01/22 ........................................................ 1,840,000 2,019,455
Series A, MBIA Insured, Pre-Refunded, 6.375%, 12/01/22 .......................................... 4,540,000 5,056,788
Lubbock HFC, SFMR, Mortgage Extension Program, Refunding, Series B, 8.875%, 12/01/12 ............... 665,000 666,230
Matagorda County Navigation District No. 1 PCR, Central Power and Light Co. Project,
AMBAC Insured, 7.50%, 12/15/14 .................................................................. 200,000 212,082
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 ............................................... 12,850,000 13,442,000
Matagorda County Navigation District No. 1 Revenue,
Houston Industries Inc. Project, Refunding, Series A, MBIA Insured, 5.25%, 11/01/29 ............. 3,185,000 3,193,026
Houston Industries Inc. Project, Refunding, Series B, MBIA Insured, 5.15%, 11/01/29 ............. 2,750,000 2,741,393
Houston Light and Power Co., Refunding, Series C, FGIC Insured, 7.125%, 7/01/19 ................. 2,000,000 2,063,160
Houston Light and Power Co., Refunding, Series E, FGIC Insured, 7.20%, 12/01/18 ................. 100,000 104,614
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 ................................. 6,000,000 6,066,480
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding, AMBAC
Insured, 5.45%, 2/15/25 .......................................................................... 1,450,000 1,485,018
Sabine River Authority PCR, Texas Utilities Electric Co. Project, Collateralized, Refunding,
FGIC Insured, 6.55%, 10/01/22 .................................................................... 3,250,000 3,537,853
San Antonio Water Revenue,
Refunding and Improvement, MBIA Insured, 5.60%, 5/15/21 ......................................... 3,250,000 3,404,343
senior lien, MBIA Insured, 6.50%, 5/15/10 ....................................................... 2,920,000 3,166,360
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured,
5.125%, 8/15/20 ................................................................................. 2,870,000 2,870,890
San Patricio County COP, MBIA Insured, Pre-Refunded, 6.60%, 4/01/07 ................................ 2,500,000 2,716,575
Smithville HDC, Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA Insured,
6.40%, 1/01/22 .................................................................................. 1,055,000 1,124,187
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ................. 1,170,000 1,258,405
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris
Methodist Health, ETM, MBIA Insured, 6.00%, 9/01/24 .............................................. 3,250,000 3,527,778
Tarrant County Health Facilities Development Corp. Hospital Revenue, Fort Worth Osteopathic
Hospital, MBIA Insured, 5.125%, 5/15/21 .......................................................... 2,905,000 2,883,852
Texas Health Facilities Development Corp. Hospital Revenue, All Saints Episcopal Hospitals,
Refunding, Series B, MBIA Insured,
6.25%, 8/15/22 .................................................................................. 2,500,000 2,724,075
6.375%, 8/15/23 ................................................................................. 4,885,000 5,347,268
Texas State Turnpike Authority Revenue, Dallas North Tollway, Refunding, AMBAC Insured,
5.00%, 1/01/20 ................................................................................... 7,250,000 7,129,723
Texas Water Resources Finance Authority Revenue, AMBAC Insured, 7.50%, 8/15/13 ..................... 5,185,000 5,279,626
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 .............................................. 2,435,000 2,510,022
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical Center Project,
Series B, FSA Insured, 5.50%, 11/01/17 .......................................................... 1,000,000 1,051,840
Series C, FSA Insured, 5.60%, 11/01/27 .......................................................... 1,430,000 1,503,759
Series D, FSA Insured, 5.375%, 11/01/27 ......................................................... 14,500,000 14,404,445
------------
149,127,335
------------
US TERRITORIES .1%
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ...................... 740,000 747,400
------------
UTAH 1.3%
Intermountain Power Agency Power Supply Revenue, Refunding,
Series A, AMBAC Insured, 5.50%, 7/01/20 ......................................................... 4,680,000 4,810,338
Series B, MBIA Insured, 5.75%, 7/01/19 .......................................................... 3,250,000 3,548,058
Provo Electric System Revenue, ETM, Refunding, Series A, AMBAC Insured, 10.375%, 9/15/15 ........... 40,000 58,632
Utah County Hospital Revenue, IHC Health Services Inc., MBIA Insured, 5.25%,
8/15/21 ......................................................................................... 5,000,000 5,044,350
8/15/26 ......................................................................................... 5,000,000 5,033,150
</TABLE>
61
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
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LONG TERM INVESTMENTS (CONT.)
UTAH (CONT.)
Utah State Board of Regents Student Loan Revenue, Series H, AMBAC Insured, 6.70%, 11/01/15 .......... $ 1,080,000 $ 1,162,814
White City Water Implementation District GO, Refunding, AMBAC Insured, 5.30%, 2/01/25 ............... 3,435,000 3,476,873
-----------
23,134,215
-----------
VERMONT .7%
Swanton Village Electric System Revenue, Refunding, MBIA Insured, 5.75%, 12/01/19 ................... 1,740,000 1,884,959
Vermont COP, MBIA Insured, Pre-Refunded, 7.25%, 6/15/11 ............................................. 2,205,000 2,357,145
Vermont HFA, Home Mortgage Purchase, Series B, MBIA Insured, 7.60%, 12/01/24 ........................ 6,630,000 6,630,000
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 ................................. 1,000,000 1,073,300
-----------
11,945,404
-----------
VIRGINIA 1.5%
Chesapeake Bay Bridge and Tunnel Commission District Revenue, General Resolution, Refunding,
MBIA Insured, 5.75%, 7/01/25 ..................................................................... 9,850,000 10,363,284
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured, 6.00%,
6/01/12 .......................................................................................... 5,000,000 5,482,350
Danville IDA, Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded,
6.50%, 10/01/24 .................................................................................. 1,000,000 1,142,630
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA Insured, 5.00%,
7/01/28 .......................................................................................... 3,405,000 3,337,990
Spotsylvania County Water and Sewer System Revenue GO, MBIA Insured, 5.40%, 6/01/27 ................. 3,850,000 3,965,731
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University Project,
MBIA Insured,
5.00%, 10/01/18 .................................................................................. 1,000,000 992,560
5.25%, 10/01/28 .................................................................................. 2,420,000 2,451,339
-----------
27,735,884
-----------
WASHINGTON 5.1%
Bellingham Housing Authority Revenue, Cascade Meadows Project, Refunding, MBIA Insured, 5.20%,
11/01/27 ......................................................................................... 4,000,000 4,014,800
Douglas County PUD No. 1 Electric Systems Revenue, MBIA Insured, 6.00%, 1/01/15 ..................... 900,000 988,686
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 .................................. 850,000 915,085
Grant County PUD No. 2, Wanapum Hydroelectric Revenue, Second Series, Series B, AMBAC Insured,
6.75%, 1/01/23 ................................................................................... 2,000,000 2,152,800
King County Public Hospital District No. 001 Hospital Facilities Revenue, Valley Medical Center,
King County Sewer, MBIA Insured, 6.125%, 1/01/33 ................................................. 3,000,000 3,234,270
Kitsap County School District No. 100-C, MBIA Insured, Pre-Refunded, 6.60%, 12/01/08 ................ 1,015,000 1,102,534
Klickitat County PUD No. 001 Electric Revenue, FGIC Insured,
5.65%, 10/01/15 .................................................................................. 1,000,000 1,061,900
5.75%, 10/01/27 .................................................................................. 1,000,000 1,066,150
Mason County GO, School District No. 402, Pioneer, MBIA Insured, Pre-Refunded, 6.60%, 12/01/11 ...... 1,040,000
1,186,058
Pierce County GO, School District No. 003 Puyallup, FGIC Insured, 5.70%, 12/01/15 ................... 1,000,000 1,062,840
Port of Longview GO, MBIA Insured, 6.00%, 11/01/15 .................................................. 2,000,000 2,191,100
Seatac Storm Water Revenue, MBIA Insured, 6.50%, 12/01/13 ........................................... 2,890,000 3,219,142
Seattle Municipality Metropolitan Sewer Revenue, Series W, MBIA Insured, Pre-Refunded, 6.30%,
1/01/33 .......................................................................................... 11,000,000 12,202,520
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 ......................................... 2,000,000 2,132,180
Snohomish County PUD No. 1 Electric Revenue, Generation System, ETM, FGIC Insured, 6.65%,
1/01/16 .......................................................................................... 4,250,000 4,617,923
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 5,364,350
Tacoma Electric System Revenue, Refunding,
AMBAC Insured, 6.25%, 1/01/11 .................................................................... 500,000 536,615
FGIC Insured, 6.25%, 1/01/15 ..................................................................... 6,190,000 6,766,103
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 ................................................. 3,400,000 3,541,406
Thurston and Pierce Counties Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 ............ 1,305,000 1,464,458
Washington State Health Care Facilities Authority Revenue, Swedish Health Services, Refunding,
AMBAC Insured, 5.50%, 11/15/28 ................................................................... 15,370,000 15,837,094
Washington State Housing Finance Commission MFMR, Series A, GNMA Secured, 7.70%, 7/01/32 ............ 2,850,000 2,939,205
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/17 ................................................ 420,000 450,912
Series C, FGIC Insured, Pre-Refunded, 7.75%, 7/01/08 ............................................. 2,500,000 2,692,775
Washington State University Revenues, Housing and Dining System, Refunding, MBIA Insured, 6.40%,
10/01/24 ......................................................................................... 6,130,000 6,794,431
Western Washington University Revenue, Housing and Dining System,
MBIA Insured, 6.375%, 10/01/22 ................................................................... 80,000 86,106
Refunding, 6.375%, 10/01/21 ...................................................................... 770,000 808,369
Refunding, MBIA Insured, 6.70%, 10/01/11 ......................................................... 235,000 249,852
</TABLE>
62
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
WASHINGTON (CONT.)
Whatcom County School District No. 501, GO, Bellingham, FGIC Insured, 6.125%, 12/01/13 .......... $ 2,000,000 $ 2,237,820
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 6/01/19 ............... 350,000 379,656
--------------
91,297,140
--------------
WEST VIRGINIA 1.5%
Harrison County Community Solid Waste Disposal Revenue, Potomac Edison Co., Series C, AMBAC
Insured, 6.75%, 8/01/24 ...................................................................... 11,560,000 12,877,493
Monongalia County Building Community Hospital Revenue, Monongalia General Hospital,
Refunding, Series B, MBIA Insured, 6.50%, 7/01/17 ............................................ 1,000,000 1,066,190
West Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 ................................. 5,000,000 4,867,450
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 ................ 2,250,000 2,443,545
West Virginia State Water Development Authority Revenue,
Loan Program II, Series B, FSA Insured, Pre-Refunded, 7.50%, 11/01/29 ........................ 3,000,000 3,147,390
Loan Program, Refunding, Series A, FSA Insured, 7.00%, 11/01/25 .............................. 2,750,000 2,980,093
--------------
27,382,161
--------------
WISCONSIN 1.6%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E,
FGIC Insured, 6.90%, 8/01/21 ................................................................. 3,000,000 3,772,350
Wisconsin State Health and Educational Facilities Authority Revenue,
Aurora Health Care Inc., Refunding, MBIA Insured, 5.25%, 8/15/27 ............................. 20,275,000 20,404,152
SSM Health Care, Refunding, Series AA, MBIA Insured, 6.25%, 6/01/20 .......................... 500,000 532,720
Wisconsin State Health and Educational Revenue,
Community Provider Program, Series A, FSA Insured, 7.50%, 1/15/04 ............................ 1,965,000 2,031,869
Series A, FSA Insured, 7.50%, 1/15/09 ........................................................ 2,000,000 2,066,020
--------------
28,807,111
--------------
WYOMING 1.3%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society, Refunding, MBIA
Insured, 5.90%, 1/01/16 ...................................................................... 500,000 532,760
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding, AMBAC Insured,
6.00%, 9/15/24 ............................................................................... 9,885,000 10,699,623
University of Wyoming Revenues, Facilities, MBIA Insured, 7.10%, 6/01/10 ........................ 2,245,000 2,335,631
Wyoming CDA, SFMR, Series A, AMBAC Insured, 6.00%, 6/01/23 ...................................... 6,750,000 6,997,793
Wyoming Municipal Power Agency Power Supply System Revenue, Refunding, Series A, MBIA
Insured, 6.125%, 1/01/16 ..................................................................... 2,000,000 2,154,040
--------------
22,719,847
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,662,859,661) ............................................... 1,773,752,781
--------------
(a)SHORT TERM INVESTMENTS .5%
Arkansas State Development Finance Authority Higher Education, Capital Asset, Series A, FGIC
Insured, Weekly VRDN and Put, 3.00%, 12/01/15 ................................................ 100,000 100,000
Connecticut State Special Tax Obligation Revenue, Weekly VRDN and Put, 2.40%, 12/01/10 .......... 500,000 500,000
Emmaus General Authority Revenue, FSA Insured, Weekly VRDN and Put, 3.00%, 12/01/28 ............. 500,000 500,000
Irvine Ranch Water District COP, Capital Improvement Project, Daily VRDN and Put, 2.85%, 8/01/16 2,600,000 2,600,000
Maricopa County PCC, PCR, Arizona Public Service Co., Refunding, Series D, Daily VRDN and Put,
3.05%, 5/01/29 ............................................................................... 2,250,000 2,250,000
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co., Reserve 1,
Refunding, Daily VRDN and Put, 2.95%, 9/01/30 ................................................ 1,600,000 1,600,000
New York City Municipal Water Finance Authority Water and Sewer System Revenue, Series C, FGIC
Insured, Daily VRDN and Put, 3.00%, 6/15/23 .................................................. 1,400,000 1,400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $8,950,000) .................................................. 8,950,000
--------------
TOTAL INVESTMENTS (COST $1,671,809,661) 99.5% ................................................... 1,782,702,781
OTHER ASSETS, LESS LIABILITIES .5% .............................................................. 9,477,293
--------------
NET ASSETS 100.0% ............................................................................... $1,792,180,074
==============
</TABLE>
See glossary of terms on page 89.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
63
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 11.75 $ 11.54 $ 11.65 $ 11.34 $ 11.81
----------- ----------- ----------- --------- -----------
Income from investment operations:
Net investment income .................... .59 .61 .63 .66 .66
Net realized and unrealized gains (losses) .03 .35 (.10) .31 (.47)
----------- ----------- ----------- --------- -----------
Total from investment operations .......... .62 .96 .53 .97 .19
----------- ----------- ----------- --------- -----------
Less distributions from:
Net investment income .................... (.59) (.61) (.64)(2) (.66) (.66)
In excess of net investment income ....... -- (.01) -- -- --
Net realized gains ....................... (.07) (.13) -- -- --
----------- ----------- ----------- --------- -----------
Total distributions ....................... (.66) (.75) (.64) (.66) (.66)
----------- ----------- ----------- --------- -----------
Net asset value, end of year .............. $ 11.71 $ 11.75 $ 11.54 $ 11.65 $ 11.34
=========== =========== =========== ========= ===========
Total return* ............................. 5.36% 8.50% 4.75% 8.80% 1.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 340,109 $ 328,147 $ 325,065 $ 301,529 $ 288,331
Ratios to average net assets:
Expenses ................................. .68% .68% .68% .69% .67%
Net investment income .................... 4.99% 5.21% 5.51% 5.67% 5.89%
Portfolio turnover rate ................... 6.80% 30.46% 29.22% 10.29% 16.90%
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 11.80 $ 11.59 $ 11.69 $ 11.36
---------- ---------- ----------- ---------
Income from investment operations:
Net investment income .................... .52 .55 .57 .50
Net realized and unrealized gains (losses) .03 .34 (.09) .32
---------- ---------- ----------- ---------
Total from investment operations .......... .55 .89 .48 .82
---------- ---------- ----------- ---------
Less distributions from:
Net investment income .................... (.52) (.55) (.58)(2) (.49)
Net realized gains ....................... (.07) (.13) -- --
---------- ---------- ----------- ---------
Total distributions ....................... (.59) (.68) (.58) (.49)
---------- ---------- ----------- ---------
Net asset value, end of year .............. $ 11.76 $ 11.80 $ 11.59 $ 11.69
========== ========== =========== =========
Total return* ............................. 4.74% 7.86% 4.22% 7.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 26,271 $ 13,937 $ 6,378 $ 2,759
Ratios to average net assets:
Expenses ................................. 1.24% 1.25% 1.25% 1.26%**
Net investment income .................... 4.44% 4.59% 4.96% 5.06%**
Portfolio turnover rate ................... 6.80% 30.46% 29.22% 10.29%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized.
(1)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(2)Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
64
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
Amesbury GO, FGIC Insured, 5.00%, 3/15/18 ....................................................... $ 1,500,000 $ 1,503,765
Ashburnham and Westminister Regional School District, MBIA Insured, 6.00%, 12/15/13 ............ 2,700,000 2,950,236
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11 ..................................................................................... 1,045,000 1,146,950
7/01/12 ..................................................................................... 1,045,000 1,144,327
7/01/13 ..................................................................................... 685,000 748,390
7/01/14 ..................................................................................... 755,000 822,610
Blackstone-Milville School District, AMBAC Insured, Pre-Refunded, 6.50%,
5/01/08 ..................................................................................... 705,000 779,244
5/01/09 ..................................................................................... 750,000 828,983
5/01/10 ..................................................................................... 795,000 878,721
Boston GO, Refunding, Series B, FGIC Insured, 5.25%, 4/01/14 ................................... 3,335,000 3,474,170
Boston Revenue, Boston City Hospital, Refunding, Series B, MBIA Insured, 5.75%, 2/15/23 ........ 10,500,000 10,840,305
Boston Water and Sewer Commission Revenue, Series A, GNMA Secured, Pre-Refunded, 7.10%, 11/01/19 1,400,000 1,465,142
Central Berkshire GO, School District, MBIA Insured, Pre-Refunded, 7.25%, 6/01/08 .............. 1,095,000 1,169,657
Chelsea GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16 ......................... 1,750,000 1,783,688
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments, Series A,
GNMA Secured, 6.65%, 2/20/32 ................................................................ 1,650,000 1,744,958
Greenfield GO, MBIA Insured, Pre-Refunded, 6.50%,
10/15/08 .................................................................................... 500,000 542,620
10/15/09 .................................................................................... 500,000 540,010
Holyoke GO, School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04 ................... 1,000,000 1,164,950
Hudson GO, MBIA Insured, 6.00%,
5/15/13 ..................................................................................... 250,000 272,748
5/15/14 ..................................................................................... 240,000 261,134
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11 ............................................................................. 1,000,000 1,084,830
6.625%, 10/15/15 ............................................................................ 500,000 541,160
Leominster GO, MBIA Insured, Pre-Refunded, 7.50%, 4/01/09 ...................................... 450,000 479,268
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 ............................................................................. 210,000 258,044
7.30%, 11/01/08 ............................................................................. 210,000 260,679
7.40%, 11/01/09 ............................................................................. 210,000 265,188
Lynn Water and Sewer Commission General Revenue, Series A,
FSA Insured, 5.125%, 12/01/17 ............................................................... 3,000,000 3,033,030
MBIA Insured, Pre-Refunded, 7.25%, 12/01/10 ................................................. 4,000,000 4,344,560
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 ................................ 1,685,000 1,711,539
Martha's Vineyard Regional High School District No. 100, AMBAC Insured,
6.55%, 12/15/10 ............................................................................. 830,000 945,901
6.60%, 12/15/11 ............................................................................. 725,000 831,321
6.65%, 12/15/12 ............................................................................. 880,000 1,011,296
6.70%, 12/15/14 ............................................................................. 210,000 240,813
Mashpee GO, MBIA Insured, 5.50%, 2/01/17 ....................................................... 2,000,000 2,106,120
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12 ....................................... 500,000 548,850
Massachusetts Bay Transportation Authority COP, BIG Insured, 7.75%, 1/15/06 .................... 2,500,000 3,049,500
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series A, FSA Insured, Pre-Refunded, 5.625%, 3/01/26 ........................................ 1,470,000 1,630,377
Series B, AMBAC Insured, 5.375%, 3/01/25 .................................................... 4,570,000 4,651,666
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%, 1/01/09 1,740,000 1,829,819
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue, Series D, MBIA
Insured, 6.125%, 7/01/19 .................................................................... 4,395,000 4,717,197
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11 ............................................................... 1,665,000 1,786,379
MBIA Insured, 6.50%, 8/01/11 ................................................................ 855,000 917,330
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 1,610,385
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ............................. 5,000,000 5,398,500
Bentley College, Series I, MBIA Insured, 6.125%, 7/01/17 .................................... 1,250,000 1,336,400
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 ............................ 5,500,000 5,965,025
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13 .................. 1,900,000 1,960,439
</TABLE>
65
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Beverly Hospital, Lot 2, Series D, MBIA Insured, Pre-Refunded, 7.30%, 7/01/19 ..................... $ 4,000,000 $ 4,135,920
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21 ........................................... 20,000 21,608
Boston College, Series J, FGIC Insured, Pre-Refunded, 6.625%, 7/01/21 ............................. 2,230,000 2,430,745
Boston College, Series L, 5.00%, 6/01/26 .......................................................... 5,000,000 4,897,600
Brigham and Women's Hospital, Series C, MBIA Insured, Pre-Refunded, 7.00%, 6/01/18 ................ 500,000 514,840
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 ......................... 1,000,000 1,001,070
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 ............................... 2,500,000 2,466,500
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16 .......................... 2,200,000 2,353,714
Community College Program, Series A, Connie Lee Insured, Pre-Refunded, 6.50%, 10/01/09 ............ 1,000,000 1,114,100
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 ............................... 5,595,000 5,781,985
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 ............................... 7,720,000 7,923,268
Dana-Farber Cancer Institute, Refunding, Series F, FGIC Insured, 6.00%, 12/01/15 .................. 1,000,000 1,078,220
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .............................. 26,730,000 26,977,520
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15 ................ 2,500,000 2,683,975
Massachusetts General Hospital, Series F, AMBAC Insured, 6.25%, 7/01/20 ........................... 11,465,000 12,572,175
McLean Hospital, Refunding, Series C, FGIC Insured, 6.625%, 7/01/15 ............................... 1,280,000 1,400,602
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16 ........................................... 2,400,000 2,539,824
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 ..................................... 6,500,000 7,225,205
New England Deaconess Hospitals, Series D, AMBAC Insured, Pre-Refunded, 6.875%, 4/01/22 ........... 1,895,000 2,111,125
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 ................................. 1,300,000 1,401,946
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 ................................. 6,750,000 7,419,263
Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10 ................................ 1,250,000 1,338,775
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 .................................. 3,900,000 4,287,738
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ............................... 5,000,000 5,080,850
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 ......................................... 2,600,000 2,574,468
Springfield College, AMBAC Insured, 5.00%, 10/15/27 ............................................... 2,500,000 2,436,725
Stonehill College, MBIA Insured, 6.55%, 7/01/12 ................................................... 495,000 542,772
Stonehill College, Refunding, Series E, MBIA Insured, 6.60%, 7/01/20 .............................. 3,000,000 3,287,250
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 7/01/10 .......................... 1,025,000 1,103,423
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 7/01/20 .......................... 515,000 554,732
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.55%, 7/01/12 ........................... 395,000 438,229
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 ........................................ 1,690,000 1,776,477
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22 .................................. 3,000,000 3,259,200
Tufts University, FGIC Insured, 5.95%, 8/15/18 .................................................... 5,000,000 5,328,150
University Hospital, Series C, MBIA Insured, Pre-Refunded, 7.25%, 7/01/19 ......................... 1,500,000 1,606,005
Wellesley College, Series F, 5.125%, 7/01/39 ...................................................... 5,000,000 5,001,900
Wentworth Institute of Technology, Series A, AMBAC Insured, Pre-Refunded, 7.40%, 4/01/10 .......... 1,820,000 1,936,462
Wheaton College, Series B, FSA Insured, Pre-Refunded, 7.25%, 7/01/19 .............................. 3,000,000 3,101,460
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 .......................................... 2,500,000 2,578,925
Massachusetts State HFA,
Housing Development, Series D, MBIA Insured, 5.40%, 6/01/20 ....................................... 4,270,000 4,338,021
Housing Revenue, SF, Series 53, MBIA Insured, 6.15%, 12/01/29 ..................................... 2,500,000 2,633,725
Housing Revenue, SF, Series 57, MBIA Insured, 5.55%, 6/01/25 ...................................... 5,080,000 5,162,855
Housing Revenue, SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16 ................................... 1,500,000 1,570,590
MFHR, Section 8 Assisted, ETM, Series A, GNMA Secured, 7.00%, 4/01/21 ............................. 430,000 522,523
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket Electric Co.,
Series A, AMBAC Insured, 5.875%, 7/01/17 .......................................................... 4,000,000 4,279,600
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.375%, 10/01/09 ............................ 750,000 833,798
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22 ............................. 3,105,000 3,459,281
Brandeis University, Series C, MBIA Insured, 6.80%, 10/01/19 ...................................... 7,075,000 7,335,431
College of the Holy Cross, MBIA Insured, 5.00%, 9/01/23 ........................................... 2,050,000 2,001,887
College of the Holy Cross, Refunding, MBIA Insured, 5.625%, 3/01/26 ............................... 1,000,000 1,039,690
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 ............... 2,010,000 2,222,578
Milton Academy, Series A, MBIA Insured, Pre-Refunded, 7.25%, 9/01/19 .............................. 1,000,000 1,040,920
Saint Marks School Issue, MBIA Insured, 5.375%, 1/01/21 ........................................... 2,665,000 2,712,570
Simons Rock College, AMBAC Insured, 5.50%, 6/01/17 ................................................ 1,000,000 1,045,330
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27 ................................................ 1,560,000 1,606,675
</TABLE>
66
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Industrial Finance Agency Revenue, (cont.)
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ............................................... $3,510,000 $3,571,355
Suffolk University, AMBAC Insured, 5.25%, 7/01/27 ............................................... 2,000,000 2,012,520
Trustees Deerfield Academy, 5.25%, 10/01/27 ..................................................... 2,800,000 2,854,544
Western New England College, AMBAC Insured, 5.00%, 7/01/28 ...................................... 4,000,000 3,885,880
WGBH Educational Foundation, AMBAC Insured, 5.00%, 3/01/28 ...................................... 1,250,000 1,220,088
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 ....................... 3,720,000 3,748,532
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 ............. 3,500,000 3,635,765
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27 ............ 4,000,000 3,973,320
Massachusetts State Port Authority Revenue,
Series A, FGIC Insured, 7.50%, 7/01/20 .......................................................... 3,980,000 4,238,421
Series A, FGIC Insured, Pre-Refunded, 7.50%, 7/01/20 ............................................ 1,220,000 1,308,487
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/19 .............................. 2,215,000 2,289,313
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/22 .............................. 2,610,000 2,693,363
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/27 .............................. 1,500,000 1,547,910
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/29 ............................... 7,450,000 7,761,559
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/39 ............................... 3,000,000 3,125,460
US Air Project, Series A, MBIA Insured, 5.875%, 9/01/23 ......................................... 4,500,000 4,770,315
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, Series A, MBIA
Insured, 5.00%,
1/01/37 ......................................................................................... 5,500,000 5,300,790
1/01/27 ......................................................................................... 4,500,000 4,387,455
Massachusetts State Turnpike Authority Western Turnpike Revenue, Series A, MBIA Insured,
5.55%, 1/01/17 .................................................................................. 1,865,000 1,875,164
Massachusetts State Water Resources Authority Revenue, Refunding, Series B, MBIA Insured,
5.00%, 3/01/22 .................................................................................. 1,500,000 1,465,920
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 .................................................................................. 200,000 219,838
6.05%, 8/15/12 .................................................................................. 200,000 220,114
6.10%, 8/15/13 .................................................................................. 200,000 220,286
6.10%, 8/15/14 .................................................................................. 200,000 219,672
Millis School Project GO, Unlimited Tax, AMBAC Insured, 7.40%,
5/01/06 ......................................................................................... 270,000 286,600
5/01/07 ......................................................................................... 270,000 286,440
5/01/08 ......................................................................................... 270,000 286,791
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 ......................................................................................... 450,000 487,278
1/15/11 ......................................................................................... 425,000 458,622
1/15/12 ......................................................................................... 375,000 406,065
1/15/13 ......................................................................................... 300,000 323,397
North Andover GO, FGIC Insured, 5.50%,
1/15/14 ......................................................................................... 850,000 905,327
1/15/15 ......................................................................................... 420,000 445,057
North Andover Municipal Purpose GO, Limited Tax, MBIA Insured, 7.40%, 9/15/09 ...................... 300,000 324,288
North Attleborough GO,
Limited Tax, AMBAC Insured, Pre-Refunded, 7.20%, 6/01/09 ........................................ 125,000 133,446
MBIA Insured, 5.70%, 1/15/16 .................................................................... 850,000 911,005
Northhampton GO, MBIA Insured, 5.60%, 5/15/17 ...................................................... 1,085,000 1,156,078
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 .................... 285,000 298,828
Salem GO, AMBAC Insured,
6.70%, 8/15/05 .................................................................................. 425,000 461,104
6.80%, 8/15/07 .................................................................................. 500,000 543,390
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured, 7.95%, 11/20/30 ................ 3,000,000 3,134,460
South Essex Sewer District GO,
AMBAC Insured, 6.25%, 11/01/11 .................................................................. 330,000 354,572
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 ............................................ 2,800,000 3,268,160
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 ..................................................... 2,375,000 2,580,058
Whately GO, AMBAC Insured,
6.20%, 1/15/07 .................................................................................. 215,000 231,579
6.30%, 1/15/08 .................................................................................. 215,000 232,215
6.40%, 1/15/10 .................................................................................. 200,000 216,602
</TABLE>
67
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 ................................ $ 1,335,000 $ 1,471,010
Worcester Municipal Purpose Loan, Refunding, Series A, AMBAC Insured, 5.25%, 8/01/16 ............ 1,410,000 1,452,145
------------
TOTAL LONG TERM INVESTMENTS (COST $338,031,592) ................................................. 359,869,032
------------
(a)SHORT TERM INVESTMENTS .7%
Massachusetts State Health and Educational Facilities Authority Revenue, Capital Assets
Program, Series D, MBIA Insured, Daily VRDN and Put, 3.15%, 1/01/35 (COST $2,600,000) .......... 2,600,000 2,600,000
------------
TOTAL INVESTMENTS (COST $340,631,592) 98.9% ..................................................... 362,469,032
OTHER ASSETS, LESS LIABILITIES 1.1% ............................................................. 3,911,451
------------
NET ASSETS 100.0% ............................................................................... $366,380,483
============
</TABLE>
See glossary of terms on page 89.
(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.
See notes to financial statements.
68
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.20 $ 12.00 $ 12.09 $ 11.76 $ 12.24
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ...................... .61 .63 .66 .68 .69
Net realized and unrealized gains (losses) . .13 .34 (.09) .34 (.48)
---------- ---------- ---------- ---------- ----------
Total from investment operations ............ .74 .97 .57 1.02 .21
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ...................... (.61) (.63) (.66)(3) (.69)(2) (.69)
In excess of net investment income ......... -- (.01) -- -- --
Net realized gains ......................... (.05) (.13) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions ......................... (.66) (.77) (.66) (.69) (.69)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................ $ 12.28 $ 12.20 $ 12.00 $ 12.09 $ 11.76
========== ========== ========== ========== ==========
Total return* ............................... 6.23% 8.37% 4.90% 8.86% 1.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $1,161,345 $1,142,565 $1,111,537 $1,115,454 $1,037,717
Ratios to average net assets:
Expenses ................................... .63% .63% .62% .62% .61%
Net investment income ...................... 4.98% 5.24% 5.52% 5.65% 5.87%
Portfolio turnover rate ..................... 7.37% 20.08% 30.03% 9.38% 9.12%
CLASS C
- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.27 $ 12.07 $ 12.14 $ 11.77
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ...................... .55 .57 .59 .51
Net realized and unrealized gains (losses) . .13 .33 (.07) .37
---------- ---------- ---------- ----------
Total from investment operations ............ .68 .90 .52 .88
---------- ---------- ---------- ----------
Less distributions from:
Net investment income ...................... (.54) (.57) (.59) (.51)
Net realized gains ......................... (.05) (.13) -- --
---------- ---------- ---------- ----------
Total distributions ......................... (.59) (.70) (.59) (.51)
---------- ---------- ---------- ----------
Net asset value, end of year ................ $ 12.36 $ 12.27 $ 12.07 $ 12.14
========== ========== ========== ==========
Total return* ............................... 5.71% 7.70% 4.44% 7.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 49,970 $ 32,873 $ 20,162 $ 6,683
Ratios to average net assets:
Expenses ................................... 1.19% 1.20% 1.19% 1.20%**
Net investment income ...................... 4.42% 4.67% 4.94% 5.03%**
Portfolio turnover rate ..................... 7.37% 20.08% 30.03% 9.38%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized.
(1)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(2)Includes distributions in excess of net investment income in the amount of
$.001.
(3)Includes distributions in excess of net investment income in the amount of
$.002.
See notes to financial statements.
69
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
Allegan Public School, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ................................. $ 4,165,000 $ 4,637,353
Allendale Public School, MBIA Insured,
5.875%, 5/01/14 ................................................................................. 1,335,000 1,427,315
Pre-Refunded, 5.875%, 5/01/14 ................................................................... 665,000 736,202
School Building, Pre-Refunded, 6.00%, 5/01/24 ................................................... 3,750,000 4,173,338
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 ............................................. 1,925,000 1,982,192
Alpena Public Schools GO, MBIA Insured, 5.625%, 5/01/22 ............................................ 1,665,000 1,839,509
Anchor Bay School District, MBIA Insured, 5.50%, 5/01/26 ........................................... 7,380,000 8,090,104
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 ............................................ 3,850,000 4,286,629
Bath Community Schools GO, Refunding, FGIC Insured, Pre-Refunded, 5.75%, 5/01/25 ................... 1,625,000 1,812,086
Battle Creek Downtown Development Authority, Refunding, MBIA Insured, 5.125%, 5/01/20 .............. 4,500,000 4,514,355
Berkley City School District, FGIC Insured,
5.625%, 1/01/15 ................................................................................. 2,060,000 2,165,266
6.00%, 1/01/19 .................................................................................. 2,125,000 2,274,834
Big Rapids Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 ................ 1,470,000 1,532,901
Brandon School District, FGIC Insured, Pre-Refunded, 5.875%,
5/01/16 ......................................................................................... 5,540,000 6,241,087
5/01/26 ......................................................................................... 7,000,000 7,885,850
Breitung Township School District GO,
FSA Insured, 7.20%, 5/01/19 ..................................................................... 7,500,000 7,843,200
Refunding, MBIA Insured, 6.30%, 5/01/15 ......................................................... 2,935,000 3,168,773
Byron Center Public Schools, Refunding, MBIA Insured, 5.875%, 5/01/2024 ............................ 5,250,000 5,863,246
Cadillac Area Public Schools, FGIC Insured, 5.50%, 5/01/22 ......................................... 5,375,000 5,541,249
Caledonia Community Schools,
MBIA Insured, 5.85%, 5/01/22 .................................................................... 4,400,000 4,699,420
Refunding, AMBAC Insured, 6.625%, 5/01/14 ....................................................... 3,750,000 4,090,238
Refunding, AMBAC Insured, 5.50%, 5/01/22 ........................................................ 1,500,000 1,548,870
Calumet, Laurium and Keweenaw Public Schools GO, FSA Insured, Pre-Refunded, 5.875%, 5/01/20 ........ 875,000 972,300
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%,
5/01/19 ......................................................................................... 2,175,000 2,416,860
5/01/24 ......................................................................................... 3,875,000 4,296,251
Central Michigan University Revenues, FGIC Insured, 5.625%, 10/01/22 ............................... 2,500,000 2,768,750
Chelsea School District, FGIC Insured, Pre-Refunded, 5.875%, 5/01/25 ............................... 3,140,000 3,510,457
Clarkston Community Schools, MBIA Insured, 5.25%, 5/01/23 .......................................... 1,925,000 1,937,551
Coldwater Community Schools, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 .................................................................................. 1,100,000 1,243,495
6.30%, 5/01/23 .................................................................................. 1,700,000 1,929,670
De Witt Public Schools, AMBAC Insured,
5.70%, 5/01/21 .................................................................................. 6,905,000 7,664,343
5.50%, 5/01/26 .................................................................................. 5,500,000 6,029,210
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/21 ............................................... 1,000,000 1,014,120
Series A, FGIC Insured, 5.875%, 11/15/25 ........................................................ 4,400,000 4,729,340
Detroit GO, City School District, Series A, AMBAC Insured, 5.70%, 5/01/25 .......................... 14,000,000 15,726,060
Detroit Sewage Disposal Revenue, Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ................. 12,585,000 12,744,955
Detroit State Aid GO, AMBAC Insured, Pre-Refunded, 7.20%, 5/01/09 .................................. 6,000,000 6,160,140
Detroit Water Supply System Revenue,
FGIC Insured, Pre-Refunded, 7.25%, 7/01/20 ...................................................... 3,500,000 3,749,725
Refunding, FGIC Insured, 6.25%, 7/01/12 ......................................................... 5,000,000 5,369,600
Series A, MBIA Insured, 5.00%, 7/01/27 .......................................................... 5,000,000 4,859,450
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 ............................... 5,000,000 5,034,350
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 ................................. 1,050,000 1,113,473
East Detroit School District, Refunding, FGIC Insured, 6.10%, 5/01/16 .............................. 6,000,000 6,548,340
East Lansing Building Authority GO, Refunding, AMBAC Insured, 7.00%, 10/01/16 ...................... 1,250,000 1,298,525
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 .................................................................... 9,100,000 9,439,703
Refunding, AMBAC Insured, 6.375%, 6/01/14 ....................................................... 1,000,000 1,081,260
Eaton Rapids Public Schools, Building and Site, MBIA Insured, 5.50%, 5/01/20 ....................... 2,435,000 2,512,969
</TABLE>
70
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 ......................................... $ 5,000,000 $ 5,217,150
Farmington Hills Hospital Finance Authority Revenue, Botsford General Hospital, Refunding,
Series A, MBIA Insured, 7.10%, 2/15/14 ........................................................... 10,140,000 11,041,852
Fenton Area Public School GO, FGIC Insured, 5.00%, 5/01/24 .......................................... 2,000,000 1,957,820
Ferndale School District GO,
FGIC Insured, 5.50%, 5/01/22 ..................................................................... 4,525,000 4,680,886
Refunding, FGIC Insured, 5.375%, 5/01/21 ......................................................... 4,185,000 4,260,539
Ferris State College Revenue, AMBAC Insured, Pre-Refunded,
6.15%, 10/01/14 .................................................................................. 1,000,000 1,121,430
6.25%, 10/01/19 .................................................................................. 1,000,000 1,125,610
Ferris State University Revenue, AMBAC Insured, Pre-Refunded,
5.75%, 10/01/17 .................................................................................. 2,500,000 2,799,150
5.85%, 10/01/22 .................................................................................. 2,500,000 2,816,175
5.90%, 10/01/26 .................................................................................. 6,600,000 7,457,208
Fowlerville Community School District,
MBIA Insured, 5.60%, 5/01/21 ..................................................................... 2,000,000 2,206,180
Refunding, FGIC Insured, 5.75%, 5/01/20 .......................................................... 2,150,000 2,262,359
Gibraltar School District GO, FSA Insured, Pre-Refunded, 7.00%, 5/01/15 ............................. 4,000,000 4,025,840
Gladstone Area Public Schools GO, AMBAC Insured, 5.50%, 5/01/26 ..................................... 1,500,000 1,570,110
Godfrey-Lee Public School District GO, MBIA Insured, 5.50%, 5/01/27 ................................. 1,150,000 1,185,731
Gogebic-Iron Wastewater Authority Wastewater Treatment System Revenue, Refunding, MBIA Insured,
5.95%, 1/01/15 ................................................................................... 1,015,000 1,088,567
Grand Haven Area Public Schools GO, Refunding, MBIA Insured, 6.05%, 5/01/14 ......................... 5,000,000 5,387,700
Grand Ledge Public School District GO,
MBIA Insured, Pre-Refunded, 6.60%, 5/01/24 ....................................................... 10,000,000 11,465,100
Refunding, MBIA Insured, 5.375%, 5/01/24 ......................................................... 13,105,000 13,298,430
Grand Rapids Downtown Development Authority Tax Increment Revenue, MBIA Insured, 6.875%, 6/01/24 .... 7,500,000 8,468,325
Grand Rapids Sanitary Sewer System Revenue, Refunding and Improvement, MBIA Insured, Pre-Refunded,
6.00%, 1/01/20 ................................................................................... 3,850,000 3,945,134
Grand Rapids Water Supply System Revenue, FGIC Insured, Pre-Refunded, 7.25%, 1/01/20 ................ 5,375,000 5,664,928
Grand Traverse County Building Authority GO, AMBAC Insured, 5.75%, 9/01/15 .......................... 1,700,000 1,844,449
Grand Traverse County Hospital Finance Authority Revenue, Munson Healthcare, Refunding, Series A,
AMBAC Insured, 6.25%,
7/01/12 .......................................................................................... 2,500,000 2,706,675
7/01/22 .......................................................................................... 7,900,000 8,602,231
Greenville Public School Building GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/19 .................... 1,850,000 2,037,331
Grosse-Ile Township School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 .................. 5,100,000 5,766,060
Hancock Hospital Finance Authority Revenue, Portage Health, MBIA and FHA Insured, 5.45%, 8/01/47 .... 4,400,000 4,461,204
Harrison Community Schools GO, AMBAC Insured, 6.25%, 5/01/13 ........................................ 4,715,000 5,341,011
Haslett Public School District GO,
FSA Insured, Pre-Refunded, 7.50%, 5/01/20 ........................................................ 4,000,000 4,235,200
MBIA Insured, 5.70%, 5/01/26 ..................................................................... 3,900,000 4,328,883
Refunding, FSA Insured, 6.625%, 5/01/19 .......................................................... 3,875,000 4,218,131
Hastings School District, FGIC Insured, 5.625%, 5/01/15 ............................................. 1,000,000 1,080,370
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 ............................... 2,000,000 2,163,080
Holly Area School District, FGIC Insured, 5.625%, 5/01/25 ........................................... 8,775,000 9,391,619
Hopkins Public Schools GO, FGIC Insured,
5.70%, 5/01/21 ................................................................................... 4,000,000 4,207,360
5.50%, 5/01/26 ................................................................................... 1,000,000 1,033,100
Houghton-Portage Township School District GO,
FSA Insured, Pre-Refunded, 7.00%, 5/01/17 ........................................................ 2,700,000 2,717,442
Refunding, AMBAC Insured, 6.00%, 5/01/14 ......................................................... 2,000,000 2,129,420
Howell Public Schools GO, MBIA Insured, 5.60%, 5/01/21 .............................................. 3,475,000 3,640,445
Hudsonville Public Schools GO, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 ................................................................................... 2,000,000 2,246,940
6.10%, 5/01/24 ................................................................................... 2,000,000 2,251,580
Huron Valley School District GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/22 ....................................................... 2,350,000 2,616,514
Refunding, FGIC Insured, 6.125%, 5/01/20 ......................................................... 11,535,000 12,402,547
Kalamazoo Hospital Finance Authority Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 ................................. 3,805,000 4,019,374
Bronson Methodist Hospital, Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 ............. 25,940,000 27,872,530
</TABLE>
71
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, (cont.)
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.25%, 5/15/12 .................................................................................... $ 5,000,000 $ 5,587,550
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.375%, 5/15/17 ................................................................................... 2,460,000 2,760,956
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.50%, 5/15/28 ............................... 15,000,000 15,505,950
Kelloggsville Public School District GO, FGIC Insured, 5.75%, 5/01/13 ................................ 1,000,000 1,093,240
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21 ........................................................................................... 1,235,000 1,313,027
5/01/26 ........................................................................................... 9,000,000 9,551,790
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, Pre-Refunded, 5.625%, 1/15/26 ....................................................... 15,500,000 17,284,360
Lake Linden-Hubbell Public Schools, FSA Insured,
5.40%, 5/01/18 .................................................................................... 825,000 842,606
5.50%, 5/01/23 .................................................................................... 675,000 695,054
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 .................... 2,200,000 2,270,708
Lake Shore Public Schools GO, Macomb County, FSA Insured, 5.50%,
5/01/17 ........................................................................................... 4,500,000 4,670,325
5/01/20 ........................................................................................... 3,540,000 3,666,767
Lake Superior State University Revenue, AMBAC Insured, Pre-Refunded, 6.375%, 11/15/15 ................ 1,500,000 1,724,565
Lakeshore Public Schools GO, Berrien County, MBIA Insured, 5.70%, 5/01/22 ............................ 3,500,000 3,667,370
Lakeview Community Schools GO, Refunding, MBIA Insured, 6.75%, 5/01/13 ............................... 1,500,000 1,612,995
Lakewood Public Schools GO, MBIA Insured,
5.375%, 5/01/20 ................................................................................... 3,300,000 3,361,545
5.75%, 5/01/22 .................................................................................... 2,200,000 2,314,356
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 .................................. 1,470,000 1,527,477
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured, Pre-Refunded, 6.00%, 5/01/25 ... 3,500,000 3,936,695
Lincoln Consolidated School District, FSA Insured, 5.00%, 5/01/28 .................................... 2,000,000 1,951,880
Lincoln Park School District, FGIC Insured,
5.85%, 5/01/15 .................................................................................... 2,885,000 3,245,625
5.90%, 5/01/26 .................................................................................... 6,050,000 6,825,005
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series C, AMBAC Insured, Pre-Refunded, 7.50%, 4/01/07 ............................................. 5,000,000 5,117,250
Series D, FSA Insured, 5.875%, 4/01/11 ............................................................ 4,525,000 4,938,449
Series D, FSA Insured, 6.10%, 4/01/19 ............................................................. 5,225,000 5,749,381
Marysville Public School District, MBIA Insured, 5.75%, 5/01/22 ...................................... 1,100,000 1,211,386
Mason Public School District GO, FGIC Insured, 5.40%, 5/01/21 ........................................ 1,400,000 1,430,464
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/20 ................... 2,675,000 2,853,128
Merrill Community School District GO, FGIC Insured, 5.60%, 5/01/26 ................................... 4,000,000 4,412,360
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A, MBIA Insured,
7.40%, 10/01/04 ................................................................................... 1,360,000 1,424,478
7.55%, 10/01/08 ................................................................................... 1,325,000 1,380,955
Michigan Municipal Bond Authority Revenue, Local Government Loan Program,
Group 15, AMBAC Insured, 7.60%, 5/01/09 ........................................................... 285,000 292,461
Refunding, Series G, AMBAC Insured, 6.75%, 11/01/14 ............................................... 6,490,000 7,361,932
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/14 ............................................... 1,650,000 1,875,770
Refunding, Series G, AMBAC Insured, 6.80%, 11/01/23 ............................................... 825,000 926,805
Series C, MBIA Insured, 6.00%, 11/01/10 ........................................................... 3,790,000 4,122,307
Michigan State Building Authority Revenue,
Detroit Regional Prisons, Series I, MBIA Insured, Pre-Refunded, 7.25%, 10/01/08 ................... 10,000,000 10,247,100
ETM, Series II, MBIA Insured, 7.40%, 4/01/01 ...................................................... 3,580,000 3,711,458
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 ............................................... 1,500,000 1,595,580
Series II, MBIA Insured, 6.25%, 10/01/20 .......................................................... 4,645,000 4,952,731
Michigan State Comprehensive Transportation Revenue, Series A, MBIA Insured, 5.50%, 5/15/22 .......... 4,500,000 4,560,120
Michigan State HDA,
MFHR, Series A, FGIC Insured, 7.55%, 7/01/09 ...................................................... 2,880,000 2,974,320
MFHR, Series A, FGIC Insured, 7.65%, 7/01/15 ...................................................... 2,945,000 3,039,800
SFMR, Series A, AMBAC Insured, 5.95%, 6/01/17 ..................................................... 2,500,000 2,610,875
SFMR, Series A, AMBAC Insured, 6.05%, 12/01/27 .................................................... 1,000,000 1,049,730
</TABLE>
72
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Michigan State Hospital Finance Authority Revenue,
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 ..................................... $ 1,750,000 $ 1,820,315
Detroit Medical Group, Refunding, Series A, AMBAC Insured, 5.50%, 8/15/24 ....................... 15,000,000 15,480,900
Detroit Medical Group, Refunding, Series A, AMBAC Insured, 5.25%, 8/15/27 ....................... 10,000,000 10,079,700
Henry Ford Health, Refunding, Series A, 5.25%, 11/15/25 ......................................... 17,665,000 17,663,587
Holland Community Hospital, AMBAC Insured, 5.625%, 1/01/28 ...................................... 3,000,000 3,155,850
Mercy Health Services, Refunding, Series T, MBIA Insured, 5.75%, 8/15/15 ........................ 10,525,000 11,397,417
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 ................................. 12,090,000 12,300,245
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/16 ................................. 1,500,000 1,543,050
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/26 ................................. 1,750,000 1,780,433
Mercy Health Services, Series U, MBIA Insured, 5.75%, 8/15/26 ................................... 2,300,000 2,462,334
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 .................................... 8,605,000 8,680,552
MidMichigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 ................. 7,500,000 7,643,475
Oakland General Hospital Obligation, Refunding, AMBAC Insured, 7.00%, 7/01/15 ................... 9,020,000 9,317,750
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ..................... 10,375,000 10,190,429
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ...................... 7,050,000 6,755,381
Sparrow Obligation Group, Refunding, MBIA Insured, 6.50%, 11/15/11 .............................. 1,500,000 1,614,690
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 ......................... 3,445,000 3,723,838
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 5/15/14 ......................... 9,545,000 10,358,329
St. John's Hospital, Refunding, Series A, AMBAC Insured, 5.125%, 5/15/17 ........................ 14,500,000 14,554,085
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co., Pollution Project, Refunding, FGIC Insured, 6.875%, 12/01/21 ................ 20,000,000 21,712,000
Detroit Edison Co., Pollution Project, Refunding, Series AA, FGIC Insured, 6.95%, 5/01/11 ....... 5,000,000 6,142,600
Detroit Edison Co., Pollution Project, Refunding, Series BB, AMBAC Insured, 7.00%, 5/01/21 ...... 3,000,000 3,793,320
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.05%, 10/01/23 ...... 1,285,000 1,381,940
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.20%, 8/15/25 ....... 10,250,000 11,321,023
Detroit Edison Co., Pollution Project, Refunding, Series CC, FGIC Insured, 6.95%, 9/01/21 ....... 5,540,000 5,993,006
Detroit Edison Co., Pollution Project, Refunding, Series CC, MBIA Insured, 6.05%, 10/01/23 ...... 5,825,000 6,264,438
St. John-Bon Secours Continuing Care, 7.90%, 11/15/16 ........................................... 1,800,000 1,831,896
Michigan State Trunk Line,
Refunding, Series A, MBIA Insured, 5.00%, 11/01/26 .............................................. 5,000,000 4,896,900
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 ............................................. 1,400,000 1,431,808
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 .............................................. 4,500,000 4,602,240
Series A, FGIC Insured, 5.625%, 11/01/20 ........................................................ 2,765,000 3,088,920
Series A, FGIC Insured, 5.50%, 10/01/21 ......................................................... 1,475,000 1,508,512
Series A, FGIC Insured, 5.80%, 11/15/24 ......................................................... 6,000,000 6,722,700
Series A, FGIC Insured, 5.625%, 11/01/26 ........................................................ 8,990,000 10,043,179
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 ......................................................... 4,000,000 4,387,520
Series 1-B, MBIA Insured, 6.55%, 9/01/24 ........................................................ 4,000,000 4,353,080
Series CC, AMBAC Insured, 7.50%, 12/01/19 ....................................................... 10,000,000 10,563,000
Series CC, MBIA Insured, 6.55%, 6/01/24 ......................................................... 1,150,000 1,247,463
Morley-Stanwood Community Schools, Building and Site, FGIC Insured, 5.625%, 5/01/21 ................ 2,000,000 2,084,100
Muskegon Public Schools GO, Series 95, FGIC Insured, 5.25%,
5/01/18 ......................................................................................... 1,900,000 1,923,598
5/01/21 ......................................................................................... 2,000,000 2,017,660
Northern Michigan University Revenue, AMBAC Insured, 5.60%, 12/01/13 ............................... 1,715,000 1,874,701
Northview Public School District GO, Refunding,
FGIC Insured, 5.00%, 5/01/21 .................................................................... 3,500,000 3,449,040
MBIA Insured, 5.80%, 5/01/21 .................................................................... 4,500,000 4,782,015
Novi Community School District GO,
Building and Site, FGIC Insured, 5.30%, 5/01/21 ................................................. 1,960,000 1,986,656
FGIC Insured, Pre-Refunded, 6.125%, 5/01/18 ..................................................... 4,750,000 5,281,478
Oakland, Washtenaw, etc. Counties Community College District, AMBAC Insured, Pre-Refunded,
6.65%, 5/01/11 .................................................................................. 3,500,000 3,878,595
Oakridge Public Schools GO, FSA Insured, 5.00%, 5/01/23 ............................................ 500,000 490,340
Paw Paw Public School District, Building and Site, FGIC Insured, 5.625%, 5/01/25 ................... 3,500,000 3,837,680
Petoskey Hospital Finance Authority Facilities Revenue, Northern Michigan Hospital, MBIA
Insured, Pre-Refunded,
7.00%, 11/15/07 ................................................................................. 4,500,000 4,714,875
6.75%, 11/15/19 ................................................................................. 1,000,000 1,046,030
</TABLE>
73
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured, 5.50%, 5/01/27 .......... $10,700,000 $11,032,449
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 .......................................................... 4,000,000 4,208,480
Series C, FGIC Insured, 6.50%, 5/01/16 ............................................................ 3,500,000 3,868,585
Series C, MBIA Insured, 6.50%, 5/01/16 ............................................................ 3,000,000 3,315,930
Port Huron School District,
FSA Insured, Pre-Refunded, 7.25%, 5/01/15 ......................................................... 5,500,000 5,860,855
Refunding, AMBAC Insured, 6.00%, 5/01/12 .......................................................... 4,500,000 4,848,075
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 ................................................................................... 770,000 851,866
6.20%, 10/01/20 ................................................................................... 670,000 737,744
Portage Public Schools GO, MBIA Insured, 5.625%, 5/01/19 ............................................. 2,750,000 2,993,265
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, ETM, Series A, FSA Insured,
8.75%, 7/01/00 .................................................................................... 500,000 536,095
Pre-Refunded, 9.00%, 7/01/09 ...................................................................... 2,500,000 3,097,725
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, 6.75%, 7/01/06 ........................ 1,565,000 1,591,386
Puerto Rico Electric Power Authority Revenue, Refunding, Series U, FSA Insured, 6.00%, 7/01/14 ....... 3,400,000 3,736,838
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ...................... 1,290,000 1,360,008
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................... 8,700,000 9,430,614
Redford USD, GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 .......................................... 14,090,000 15,982,005
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 .................................................................... 3,900,000 4,094,337
FGIC Insured, 5.25%, 5/01/22 ...................................................................... 1,250,000 1,259,813
FGIC Insured, 5.25%, 5/01/27 ...................................................................... 3,000,000 3,039,510
FSA Insured, 5.875%, 5/01/19 ...................................................................... 3,150,000 3,306,965
MBIA Insured, 5.875%, 5/01/12 ..................................................................... 1,850,000 1,970,898
MBIA Insured, 5.875%, 5/01/19 ..................................................................... 1,925,000 2,020,923
Romulus Community Schools GO, Refunding, FGIC Insured, 5.75%,
5/01/13 ........................................................................................... 690,000 737,355
5/01/17 ........................................................................................... 1,200,000 1,264,668
5/01/22 ........................................................................................... 5,435,000 5,713,109
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 ................ 5,000,000 5,312,200
Saginaw Hospital Finance Authority Revenue, St. Luke's Hospital Project, Refunding, MBIA Insured,
Series C, 6.875%, 7/01/14 ......................................................................... 5,325,000 5,700,785
Series C, 6.75%, 7/01/17 .......................................................................... 2,000,000 2,132,460
Series C, 6.00%, 7/01/21 .......................................................................... 3,875,000 3,989,739
Series D, 6.50%, 7/01/11 .......................................................................... 1,000,000 1,069,040
Saginaw Valley State University Revenue, AMBAC Insured, 5.25%, 7/01/19 ............................... 2,540,000 2,583,231
Saranac Community School District GO, MBIA Insured, 5.25%, 5/01/21 ................................... 1,350,000 1,364,351
Sault Ste. Marie Water Treatment GO, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ..................... 2,000,000 2,084,260
Schoolcraft Community School District GO, FGIC Insured,
5.75%, 5/01/21 .................................................................................... 2,525,000 2,672,990
5.375%, 5/01/26 ................................................................................... 705,000 717,760
Pre-Refunded, 5.75%, 5/01/21 ...................................................................... 1,050,000 1,111,541
Pre-Refunded, 5.375%, 5/01/26 ..................................................................... 295,000 300,340
Shelby Public School District GO, MBIA Insured, 5.625%, 5/01/21 ...................................... 1,925,000 2,108,722
South Haven Public Schools GO, Refunding, FGIC Insured, 5.50%,
5/01/13 ........................................................................................... 1,000,000 1,052,120
5/01/17 ........................................................................................... 1,725,000 1,785,841
South Redford School District GO, FGIC Insured, 5.50%, 5/01/22 ....................................... 4,610,000 4,918,409
St. Clair County Building Authority GO, MBIA Insured, 5.25%,
4/01/18 ........................................................................................... 2,065,000 2,096,182
4/01/21 ........................................................................................... 2,400,000 2,431,008
St. Clair County EDC, PCR, Detroit Edison Co., Refunding, Series DD, AMBAC Insured, 6.05%, 8/01/24 ... 7,745,000 8,228,056
St. John's Public Schools, FGIC Insured,
5.625%, 5/01/20 ................................................................................... 7,000,000 7,730,660
5.75%, 5/01/25 .................................................................................... 2,000,000 2,222,360
</TABLE>
74
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Sturgis Public School District, MBIA Insured, Pre-Refunded, 6.10%, 5/01/18 ...................... $ 1,000,000 $ 1,106,640
Thornapple Kellogg School District, FGIC Insured, 5.375%, 5/01/22 ............................... 1,960,000 1,994,202
Three Rivers Community Schools, Building and Site, MBIA Insured, Pre-Refunded, 6.00%, 5/01/23 ... 2,400,000 2,722,272
Traverse City Area Public Schools GO, Building and Site, Series I, MBIA Insured, 5.70%, 5/01/20 . 4,550,000 5,043,493
University of Michigan Revenues, Medical Service Plan, MBIA Insured, 6.50%, 12/01/21 ............ 2,365,000 2,526,222
Vestaburg Community Schools GO, Refunding, MBIA Insured, 5.50%, 5/01/26 ......................... 1,000,000 1,033,100
Vicksburg Community Schools GO, Refunding, MBIA Insured, 5.625%,
5/01/12 ...................................................................................... 2,175,000 2,311,786
5/01/20 ...................................................................................... 1,000,000 1,042,640
Walled Lake Consolidated School District GO, Refunding, MBIA Insured, 5.50%, 5/01/22 ............ 3,000,000 3,103,350
Wayland USD, GO, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 ..................................... 2,000,000 2,325,140
Wayne Charter County Airport Revenue, Detroit Metro Airport,
Series A, MBIA Insured, 5.25%, 12/01/18 ...................................................... 5,000,000 5,043,250
sub lien, Refunding, Series C, MBIA Insured, 5.25%, 12/01/21 ................................. 1,000,000 1,014,650
sub lien, Series B, MBIA Insured, 6.875%, 12/01/11 ........................................... 300,000 325,680
sub lien, Series B, MBIA Insured, 6.75%, 12/01/21 ............................................ 2,000,000 2,165,340
Wayne County Airport Revenue, Sub Lien, Series B, AMBAC Insured, 6.00%, 12/01/20 ................ 10,585,000 10,835,124
Wayne-Westland Community Schools GO, Refunding, FGIC Insured, 6.10%, 5/01/13 .................... 2,275,000 2,440,051
West Ottawa Public School District GO,
FGIC Insured, 5.60%, 5/01/21 ................................................................. 2,355,000 2,461,399
FGIC Insured, 5.60%, 5/01/26 ................................................................. 12,100,000 12,621,873
Refunding, FGIC Insured, 6.00%, 5/01/20 ...................................................... 6,630,000 7,012,551
Western School District GO, Refunding, MBIA Insured, 5.50%, 5/01/20 ............................. 1,660,000 1,713,352
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding, FSA Insured,
6.75%, 1/01/15 ............................................................................... 18,710,000 20,040,468
6.50%, 1/01/19 ............................................................................... 4,915,000 5,206,361
White Cloud Public Schools GO, Refunding, FSA Insured, 5.50%, 5/01/20 ........................... 1,000,000 1,033,650
Williamston Community School District GO, Building and Site, MBIA Insured, 5.375%, 5/01/15 ...... 4,900,000 5,084,436
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 ................................ 1,800,000 1,956,582
Wyandotte City School District GO, Refunding, FSA Insured, 5.625%, 5/01/13 ...................... 1,800,000 1,907,982
Wyandotte Electric Revenue, Refunding, MBIA Insured, 6.25%, 10/01/17 ............................ 9,980,000 10,828,200
Yale Public Schools District GO, AMBAC Insured,
5.375%, 5/01/17 .............................................................................. 2,000,000 2,059,080
5.50%, 5/01/19 ............................................................................... 1,500,000 1,554,660
Ypsilanti School District GO, Refunding, FGIC Insured,
5.375%, 5/01/26 .............................................................................. 3,000,000 3,054,300
Pre-Refunded, 5.75%, 5/01/20 ................................................................. 4,700,000 5,233,027
Zeeland Public Schools GO, Series B, MBIA Insured, Pre-Refunded,
6.05%, 5/01/19 ............................................................................... 2,900,000 3,258,063
6.10%, 5/01/24 ............................................................................... 4,000,000 4,503,160
-------------- --------------
TOTAL LONG TERM INVESTMENTS (COST $1,100,673,081) ............................................... 1,190,321,630
-------------- --------------
(a) SHORT TERM INVESTMENTS .4%
Delta County EDC, Environmental Improvement Revenue, Mead Escanaba Paper Project, Refunding,
Series C, Daily VRDN and Put, 3.10%, 12/01/23 ................................................ 1,400,000 1,400,000
Flint Hospital Building Authority Revenue, Hurley Medical Center, Series B, Weekly VRDN and
Put, 2.95%, 7/01/15 .......................................................................... 800,000 800,000
Grand Rapids Water Supply System Revenue, Daily VRDN and Put, 2.90%, 1/01/20 .................... 2,150,000 2,150,000
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co., Reserve 1,
Refunding, Daily VRDN and Put, 3.15%, 9/01/30 ................................................ 400,000 400,000
Midland County EDC, Limited Obligation Revenue, Dow Chemical Co. Project, Refunding, Series B,
Daily VRDN and Put, 3.20%, 12/01/15 .......................................................... 325,000 325,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN
and Put, 2.40%, 12/01/15 ..................................................................... 200,000 200,000
</TABLE>
75
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 2.60%, 7/01/28 $ 400,000 $ 400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $5,675,000) 5,675,000
--------------
TOTAL INVESTMENTS (COST $1,106,348,081) 98.7% 1,195,996,630
OTHER ASSETS, LESS LIABILITIES 1.3% 15,318,720
--------------
NET ASSETS 100.0% $1,211,315,350
==============
</TABLE>
See glossary of terms on page 89.
(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.
See notes to financial statements.
76
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 12.16 $ 12.01 $ 12.14 $ 11.88 $ 12.33
--------- ---------- --------- ----------- -----------
Income from investment operations:
Net investment income .................... .61 .64 .65 .67 .69
Net realized and unrealized gains (losses) .01 .25 (.12) .27 (.45)
--------- ---------- --------- ----------- -----------
Total from investment operations .......... .62 .89 .53 .94 .24
--------- ---------- --------- ----------- -----------
Less distributions from:
Net investment income .................... (.62)(3) (.64) (.66) (.68) (.69)(2)
Net realized gains ....................... (.02) (.10) -- -- --
--------- ---------- --------- ----------- -----------
Total distributions ....................... (.64) (.74) (.66) (.68) (.69)
--------- ---------- --------- ----------- -----------
Net asset value, end of year .............. $ 12.14 $ 12.16 $ 12.01 $ 12.14 $ 11.88
--------- ---------- --------- ----------- -----------
Total return* ............................. 5.18% 7.60% 4.54% 8.06% 2.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 515,174 $ 495,315 $ 482,128 $ 492,139 $ 479,934
Ratios to average net assets:
Expenses ................................. .67% .65% .66% .66% .66%
Net investment income .................... 5.01% 5.29% 5.47% 5.58% 5.81%
Portfolio turnover rate ................... 16.25% 14.87% 14.40% 17.72% 17.59%
CLASS C
- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 12.21 $ 12.05 $ 12.17 $ 11.89
--------- ---------- --------- -----------
Income from investment operations:
Net investment income .................... .54 .57 .59 .50
Net realized and unrealized gains (losses) .01 .26 (.12) .28
--------- ---------- --------- -----------
Total from investment operations .......... .55 .83 .47 .78
--------- ---------- --------- -----------
Less distributions from:
Net investment income .................... (.55)(3) (.57) (.59) (.50)
Net realized gains ....................... (.02) (.10) -- --
--------- ---------- --------- -----------
Total distributions ....................... (.57) (.67) (.59) (.50)
--------- ---------- --------- -----------
Net asset value, end of year .............. $ 12.19 $ 12.21 $ 12.05 $ 12.17
--------- ---------- --------- -----------
Total return* ............................. 4.58% 7.04% 3.98% 6.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 20,896 $ 10,131 $ 4,844 $ 1,152
Ratios to average net assets:
Expenses ................................. 1.23% 1.22% 1.23% 1.25%**
Net investment income .................... 4.44% 4.72% 4.87% 4.94%**
Portfolio turnover rate ................... 16.25% 14.87% 14.40% 17.72%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized.
(1)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(2)Includes distributions from net realized gains of $.004.
(3)Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
77
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.9%
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16 ........................................... $2,295,000 $2,492,416
Albert Lea Minnesota ISD No. 241, MBIA Insured, 5.00%, 2/01/18 ...................................... 2,000,000 1,997,480
Anoka County Housing and Redevelopment Authority,
City of Ramsey, Housing Development, AMBAC Insured, 5.00%, 1/01/28 ............................... 2,045,000 2,014,141
Ice Arena, Series A, MBIA Insured, 5.70%, 2/01/23 ................................................ 2,195,000 2,314,803
Anoka County Resource Recovery Revenue, Northern States Power Co., AMBAC Insured, 7.15%,
12/01/08 ......................................................................................... 2,100,000 2,195,004
Becker GO,
Tax Increment, Refunding, Series D, MBIA Insured, 6.25%, 8/01/15 ................................. 4,870,000 5,282,343
Wastewater Treatment Facility, Series A, MBIA Insured, Pre-Refunded, 5.90%, 2/01/12 .............. 625,000 676,000
Wastewater Treatment Facility, Series A, MBIA Insured, Pre-Refunded, 5.95%, 2/01/15 .............. 610,000 661,124
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15 .................................................. 290,000 302,186
Big Lake ISD No. 727, MBIA Insured,
5.625%, 2/01/19 .................................................................................. 500,000 525,855
5.70%, 2/01/21 ................................................................................... 3,085,000 3,265,843
Bloomington Health Care Facilities Revenue, Masonic Home Care Center, AMBAC Insured, 5.875%,
7/01/22 .......................................................................................... 2,685,000 2,847,469
Braham ISD No. 314, MBIA Insured, 5.20%, 2/01/19 .................................................... 1,800,000 1,813,086
Brainerd Health Care Facilities Revenue, Benedictine Health St. Joseph, Refunding, Series D,
MBIA Insured, 5.875%, 2/15/13 .................................................................... 3,500,000 3,761,345
Buffalo GO,
AMBAC Insured, 5.55%, 6/01/17 .................................................................... 1,000,000 1,042,250
ISD No. 877, Formerly Wright County ISD No.23, Refunding, 5.00%, 2/01/22 ......................... 6,255,000 6,195,765
ISD No. 877, FSA Insured, Pre-Refunded, 6.15%, 2/01/18 ........................................... 2,800,000 3,021,088
Burnsville ISD, Series A, FSA Insured, 6.20%, 2/01/17 ............................................... 2,105,000 2,329,056
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26 .................................... 1,000,000 1,038,460
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 ........................... 2,975,000 3,218,831
Columbia Heights ISD, No. 013, FSA Insured,
5.375%, 2/01/19 .................................................................................. 2,450,000 2,509,315
5.50%, 2/01/23 ................................................................................... 6,000,000 6,193,740
Dakota County Housing and Redevelopment Authority SFMR,
FNMA and GNMA Secured, 5.75%, 4/01/18 ............................................................ 2,992,000 3,104,709
FNMA and GNMA Secured, 5.85%, 10/01/30 ........................................................... 4,988,000 5,170,910
Refunding, GNMA Secured, 8.10%, 3/01/16 .......................................................... 295,000 303,850
Dakota County Housing and Redevelopment Authority, Governmental Housing Revenue, Eagan Senior
Housing Facility, MBIA Insured, 5.40%, 1/01/27 ................................................... 1,315,000 1,339,880
Dakota, Washington and Stearns County SFMR, Series 1990, GNMA Secured,
7.80%, 12/01/10 .................................................................................. 660,000 689,700
7.85%, 12/01/30 .................................................................................. 2,430,000 2,535,997
Dilworth ISD No. 147, MBIA Insured, 6.00%, 2/01/15 .................................................. 1,040,000 1,116,523
Duluth EDA,
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, 6.20%, 11/01/12 .......... 2,880,000 3,141,360
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, 6.30%, 11/01/22 .......... 5,405,000 5,877,019
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded, 6.20%,
11/01/12 ....................................................................................... 1,120,000 1,258,723
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded, 6.30%,
11/01/22 ....................................................................................... 2,125,000 2,398,955
Hospital Facilities Revenue, St. Lukes Hospital, Series A, Connie Lee Insured, 6.40%, 5/01/12 .... 3,000,000 3,071,130
Tax Increment Revenue, MBIA Insured, Pre-Refunded, 7.25%, 8/01/08 ................................ 3,500,000 3,561,600
Eagan MFMR, Forest Ridge Apartments, Refunding, BIG Insured, 7.50%, 3/01/27 ......................... 4,420,000 4,584,778
Eden Prairie ISD No. 272, Series A,
FGIC Insured, 5.45%, 2/01/08 ..................................................................... 1,000,000 1,035,820
FSA Insured, 5.75%, 2/01/15 ...................................................................... 4,980,000 5,233,432
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%,
1/20/31 .......................................................................................... 2,000,000 2,143,300
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25 ...................................... 1,000,000 1,059,190
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15 .................................................. 1,500,000 1,619,295
Ham Lake GO, Anoka County Housing, Senior Housing Project, Series B, MBIA Insured, 6.10%, 1/01/26 ... 2,180,000 2,292,641
Hibbing Health Care Facilities Revenue, The Duluth Clinic Ltd., FSA Insured, 5.00%, 11/01/25 ........ 9,300,000 9,085,077
Hopkins Elderly Housing Revenue, St. Therese Project, Refunding, Series A, GNMA Secured,
5.60%, 11/20/17 .................................................................................. 750,000 776,213
5.70%, 11/20/32 .................................................................................. 3,000,000 3,096,870
Inner Grove Heights Tax Increment, Series D, MBIA Insured, 5.50%, 2/01/19 ........................... 1,000,000 1,026,740
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22 ......................................... 4,030,000 4,417,082
</TABLE>
78
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Lakeville ISD No. 194,
FGIC Insured, 5.40%, 2/01/13 ...................................................................... $ 1,000,000 $ 1,042,260
Series C, MBIA Insured, 5.125%, 2/01/13 ........................................................... 5,325,000 5,400,988
Minneapolis and St. Paul Housing RDA, Health Care System Revenue,
Children's Health Care, Series A, FSA Insured, 5.70%, 8/15/16 ..................................... 1,005,000 1,075,842
Health One Obligated Group, Series A, MBIA Insured, 7.40%, 8/15/11 ................................ 10,390,000 11,080,304
Health One Obligated Group, Series A, MBIA Insured, 6.75%, 8/15/14 ................................ 3,950,000 4,178,903
Minneapolis and St. Paul Metropolitan Airport Commission Airport Revenue, Series A, AMBAC Insured,
5.00%, 1/01/22 .................................................................................... 11,750,000 11,654,355
5.20%, 1/01/24 .................................................................................... 6,600,000 6,648,444
5.00%, 1/01/30 .................................................................................... 33,405,000 32,835,445
Minneapolis CDA and St. Paul Housing RDA, Health Care Facilities Revenue, Carondelet Community
Hospitals Inc., Series B, BIG Insured, Pre-Refunded, 8.875%, 11/01/15 ............................. 900,000 1,198,782
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01 .................... 2,100,000 2,244,165
Minneapolis GO, Sports Arena Project, Refunding, 5.20%, 10/01/24 ..................................... 3,750,000 3,831,488
Minneapolis Hospital Facilities Revenue, Fairview Hospital and Healthcare, Refunding,
Series A, MBIA Insured, 6.50%, 1/01/11 ............................................................ 600,000 648,906
Series B, MBIA Insured, 6.70%, 1/01/17 ............................................................ 7,815,000 8,473,570
Minneapolis MFR, Riverside Plaza, Refunding, GNMA Secured, 5.20%, 12/20/30 ........................... 6,320,000 6,324,298
Minneapolis Revenue University Gateway Project, Series A, 5.25%, 12/01/24 ............................ 3,000,000 3,029,070
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17 .................. 5,000,000 5,402,350
Minneapolis St. Paul Housing Finance Board SFMR,
Phase VI, Series A, GNMA Secured, 8.30%, 8/01/21 .................................................. 2,030,000 2,059,902
Series A, GNMA Secured, 8.375%, 11/01/17 .......................................................... 410,000 419,426
Series C, GNMA Secured, 8.875%, 11/01/18 .......................................................... 310,000 317,068
Minnesota Agriculture and Economic Development Board Revenue,
Evangelical Lutheran Good Samaritan, AMBAC Insured, 5.00%, 12/01/23 ............................... 2,750,000 2,700,005
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/01/22 .............. 5,180,000 5,196,524
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 ......... 14,000,000 14,968,660
Minnesota State GO, Refunding, MBIA Insured, 5.40%, 8/01/09 .......................................... 3,000,000 3,137,310
Minnesota State HFA,
Rental Housing, Refunding, Series D, MBIA Insured, 5.90%, 8/01/15 ................................. 1,245,000 1,314,085
Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 ................................. 2,705,000 2,847,608
Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 ................................. 3,165,000 3,339,930
SFMR, Series D, AMBAC Insured, 7.30%, 7/01/09 ..................................................... 2,650,000 2,717,443
SFMR, Series E, AMBAC Insured, 5.40%, 1/01/25 ..................................................... 9,000,000 9,077,310
SFMR, Series F, MBIA Insured, 6.30%, 7/01/25 ...................................................... 1,500,000 1,585,740
SFMR, Series G, AMBAC Insured, 6.25%, 7/01/26 ..................................................... 2,550,000 2,691,219
SFMR, Series I, MBIA Insured, 6.25%, 1/01/15 ...................................................... 1,400,000 1,473,682
Minnesota State Higher Education Facilities Authority Revenue, Bethel College and Seminary,
Refunding, 5.10%, 4/01/28 ......................................................................... 4,100,000 4,089,627
Minnesota State Higher Educational Facilities Authority Revenue, Series 3, Connie Lee Insured,
Pre-Refunded, 6.50%, 1/01/17 ...................................................................... 3,940,000 4,128,568
Minnetonka MFHR,
Brier Creek Project, Refunding, Series A, GNMA Secured, 6.45%, 6/20/24 ............................ 2,720,000 2,918,506
Cedar Hills East Project, FGIC Insured, 7.40%, 12/01/07 ........................................... 350,000 364,119
Cedar Hills East Project, FGIC Insured, 7.50%, 12/01/27 ........................................... 1,000,000 1,035,540
New Hope MFR, North Ridge, Refunding, Series A, GNMA Secured,
6.05%, 1/01/17 .................................................................................... 450,000 480,047
6.20%, 1/01/31 .................................................................................... 5,470,000 5,781,462
North Branch ISD No. 138 GO, Series A, FGIC Insured, 5.625%, 2/01/17 ................................. 1,240,000 1,334,959
North St. Paul Maplewood ISD No. 622 GO,
Refunding, Series A, 5.125%, 2/01/25 .............................................................. 2,275,000 2,294,770
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19 .............................................. 2,000,000 2,334,880
Northeast Metropolitan ISD No. 916 GO, FSA Insured, 5.80%, 1/01/16 ................................... 5,475,000 5,764,244
Northern Municipal Power Agency Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12 ............................................................ 1,780,000 1,844,685
Refunding, FSA Insured, 5.25%, 1/01/17 ............................................................ 1,000,000 1,030,760
Refunding, FSA Insured, 5.30%, 1/01/21 ............................................................ 1,000,000 1,028,150
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18 ................................................ 8,150,000 8,440,629
</TABLE>
79
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Northern Municipal Power Agency Electric System Revenue, (cont.)
Series C, AMBAC Insured, 6.125%, 1/01/20 .......................................................... $ 8,090,000 $ 8,790,837
Owatonna Public Utilities Commission Public Utilities Revenue, Refunding, Series A, AMBAC
Insured, 5.45%, 1/01/16 ........................................................................... 3,350,000 3,438,239
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16 .................................................................................... 1,600,000 1,768,176
6.125%, 6/01/24 ................................................................................... 1,815,000 1,997,045
Princeton Hospital Revenue, Fairview Hospital and Healthcare, Series C, MBIA Insured, 6.25%,
1/01/21 ........................................................................................... 7,205,000 7,710,575
Princeton ISD, No. 477, Mille Lacs County,
FSA Insured, 5.125%, 2/01/24 ...................................................................... 2,190,000 2,193,416
Series A, FSA Insured, 5.375%, 2/01/17 ............................................................ 2,540,000 2,591,968
Puerto Rico Commonwealth GO, Public Improvement,
5.00%, 7/01/28 .................................................................................... 10,000,000 9,818,100
MBIA Insured, Pre-Refunded, 6.50%, 7/01/23 ........................................................ 3,000,000 3,431,790
Series A, FGIC Insured, Pre-Refunded, 7.375%, 7/01/04 ............................................. 10,000,000 10,294,400
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ...................... 750,000 786,390
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........................... 1,300,000 1,409,174
Robbinsdale Hospital Revenue, North Memorial Medical Center Project,
Refunding, Series A, AMBAC Insured, 5.45%, 5/15/13 ................................................ 2,000,000 2,088,460
Refunding, Series A, AMBAC Insured, 5.55%, 5/15/19 ................................................ 1,000,000 1,038,100
Series B, AMBAC Insured, 5.45%, 5/15/13 ........................................................... 2,900,000 3,028,267
Series B, AMBAC Insured, 5.50%, 5/15/23 ........................................................... 7,900,000 8,124,676
Rochester Health Care Facilities Revenue, Mayo Foundation, Series B, 5.50%, 11/15/27 ................. 5,000,000 5,216,400
Roseville ISD No. 623, Series A,
FGIC Insured, 6.00%, 2/01/23 ...................................................................... 1,250,000 1,303,338
FSA Insured, 5.80%, 2/01/19 ....................................................................... 1,200,000 1,258,308
FSA Insured, 5.85%, 2/01/24 ....................................................................... 2,470,000 2,584,361
FSA Insured, 6.00%, 2/01/25 ....................................................................... 4,260,000 4,535,963
Scott County Housing and Redevelopment Authority Facilities Lease Revenue, AMBAC Insured,
5.25%, 12/01/11 ................................................................................... 2,380,000 2,518,278
5.50%, 12/01/15 ................................................................................... 1,750,000 1,850,590
Scott County Housing and Redevelopment Authority Housing Development Revenue, River City Centre
Project, Series A, FSA Insured,
5.35%, 2/01/20 .................................................................................... 760,000 782,762
5.375%, 2/01/27 ................................................................................... 1,520,000 1,559,414
Scott County Housing and Redevelopment Authority Special Benefits Tax Revenue, River City Centre
Project, Series B, AMBAC Insured, 5.50%, 2/01/27 .................................................. 675,000 700,967
Scott County Housing and Redevelopment Authority Tax Increment Development Revenue, River City
Centre Project, Series E, FSA Insured, 5.375%, 2/01/25 ............................................ 1,170,000 1,200,338
Shakopee Public Utilities Commission Revenue, AMBAC Insured, 5.60%, 8/01/18 .......................... 1,750,000 1,809,185
South Washington County ISD No. 833 GO, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10 ........... 2,080,000 2,179,757
Southern Minnesota Municipal Power Agency Power Supply System Revenue,
Refunding, Series A, MBIA Insured, ETM, 5.75%, 1/01/18 ............................................ 1,000,000 1,073,000
Series A, AMBAC Insured, 5.75%, 1/01/18 ........................................................... 2,250,000 2,382,413
Series A, FGIC Insured, 5.75%, 1/01/18 ............................................................ 1,000,000 1,058,850
Series A, MBIA Insured, 5.00%, 1/01/12 ............................................................ 5,975,000 6,104,777
Series A, MBIA Insured, 5.75%, 1/01/18 ............................................................ 8,865,000 9,386,705
Series B, AMBAC Insured, 6.00%, 1/01/16 ........................................................... 5,000,000 5,376,150
Series C, AMBAC Insured, 5.00%, 1/01/17 ........................................................... 1,000,000 999,930
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding,
Series A, AMBAC Insured, 5.00%, 7/01/15 ........................................................... 2,165,000 2,182,515
Series C, AMBAC Insured, 5.30%, 10/01/20 .......................................................... 1,230,000 1,253,173
St. Cloud Housing and RDA, Sales Tax Revenue, Paramount Theater Project, Refunding, Series A,
FGIC Insured, 5.00%, 3/01/22 ...................................................................... 1,250,000 1,223,250
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13 .................................................................................... 1,500,000 1,686,870
6.375%, 2/01/16 ................................................................................... 5,465,000 6,153,918
St. Louis Park Health Care Facilities Revenue, Health System of Minnesota Obligated Group,
Refunding, Series A, AMBAC Insured, 5.20%,
7/01/16 ........................................................................................... 1,000,000 1,014,450
7/01/23 ........................................................................................... 9,000,000 9,042,660
</TABLE>
80
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1998 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
St. Louis Park Hospital Facilities Revenue, Methodist Hospital Project,
Refunding, Series A, AMBAC Insured, 7.25%,
7/01/08 ................................................................... $ 4,115,000 $ 4,397,412
7/01/15 ................................................................... 1,000,000 1,068,630
St. Paul Housing and Redevelopment Authority Parking Revenue, Series A, FSA
Insured, 5.75%, 8/01/13 ................................................... 5,105,000 5,458,368
St. Paul ISD No. 625,
Series A, FSA Insured, 5.75%, 2/01/16 ..................................... 3,500,000 3,678,395
Series C, MBIA Insured, 6.10%, 2/01/14 .................................... 1,075,000 1,158,818
Series C, MBIA Insured, 6.10%, 2/01/15 .................................... 500,000 537,840
St. Paul Port Authority IDR, Series K, FGIC Insured, 9.50%,
12/01/01 .................................................................. 5,000 5,113
12/01/02 .................................................................. 5,000 5,190
12/01/14 .................................................................. 190,000 187,422
Stillwater ISD No. 834 GO, MBIA Insured, 5.75%, 2/01/15 ...................... 2,990,000 3,238,379
Todd Morrisson and Stearns Counties ISD No. 2753 GO, MBIA Insured, 5.00%,
4/01/17 ................................................................... 2,500,000 2,499,900
Virginia Governmental Housing Project GO, Refunding, MBIA Insured, 5.90%,
2/01/26 ................................................................... 2,915,000 3,071,652
Wadena ISD No. 819, GO, Refunding, AMBAC Insured, 5.60%, 2/01/20 ............. 3,150,000 3,222,702
Washington County Housing and RDAR, Government Housing, Landfall Terrace
Project, Refunding,
5.35%, 2/01/22 ............................................................ 1,000,000 1,017,360
5.40%, 8/01/27 ............................................................ 2,015,000 2,049,920
Washington County SFRMR, Housing and RDA, GNMA Secured, 7.60%, 12/01/11 ...... 125,000 125,245
Western Minnesota Municipal Power Agency Power Supply Revenue, Refunding,
Series A,
AMBAC Insured, 5.50%, 1/01/12 ............................................. 2,745,000 2,938,852
AMBAC Insured, 5.50%, 1/01/13 ............................................. 4,500,000 4,800,915
MBIA Insured, 5.50%, 1/01/15 .............................................. 5,425,000 5,441,058
Western Minnesota Municipal Power Agency Transmission Project Revenue,
Refunding, AMBAC Insured, 6.75%, 1/01/16 .................................. 2,000,000 2,126,480
Worthington ISD No. 518, GO, Formerly Nobles County Consolidated School
District No. 119, FSA Insured, 5.00%, 2/01/24 ............................. 5,675,000 5,595,210
------------
TOTAL LONG TERM INVESTMENTS (COST $499,681,161) .............................. 524,997,218
------------
(a)SHORT TERM INVESTMENTS 1.1%
Beltrami County Environmental Control Revenue, Northwood Panelboard,
Daily VRDN and Put, 3.20%, 7/01/25 ........................................ 1,700,000 1,700,000
Refunding, Daily VRDN and Put, 3.10%, 12/01/21 ............................ 400,000 400,000
Duluth Tax Increment Revenue, Lake Superior Paper, Registered, Weekly VRDN and
Put, 3.00%, 9/01/10 ....................................................... 2,650,000 2,650,000
Hutchinson IDR, Hutchinson Technology Inc. Project, Refunding, Weekly VRDN and
Put, 3.05%, 6/01/04 ....................................................... 1,000,000 1,000,000
------------
SHORT TERM INVESTMENTS (COST $ 5,750,000) .................................... 5,750,000
------------
TOTAL INVESTMENTS (COST $505,431,161) 99.0% .................................. 530,747,218
OTHER ASSETS, LESS LIABILITIES 1.0% .......................................... 5,322,732
------------
NET ASSETS 100.0% ............................................................ $536,069,950
============
</TABLE>
See glossary of terms on page 89.
(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.
See notes to financial statements.
81
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
CLASS A 1999 1998 1997 1996(1) 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.45 $ 12.19 $ 12.22 $ 11.90 $ 12.40
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .62 .64 .66 .68 .69
Net realized and unrealized gains (losses) . .07 .33 (.03) .33 (.50)
---------------------------------------------------------------------------------
Total from investment operations ............ .69 .97 .63 1.01 .19
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.62) (.64)(4) (.66)(3) (.69)(2) (.69)
Net realized gains ......................... (.03) (.07) -- -- --
---------------------------------------------------------------------------------
Total distributions ......................... (.65) (.71) (.66) (.69) (.69)
---------------------------------------------------------------------------------
Net asset value, end of year ................ $ 12.49 $ 12.45 $ 12.19 $ 12.22 $ 11.90
=================================================================================
Total return* ............................... 5.63% 8.22% 5.35% 8.66% 1.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 776,592 $ 741,079 $ 698,360 $ 685,783 $ 652,545
Ratios to average net assets:
Expenses ................................... .65% .64% .64% .64% .63%
Net investment income ...................... 4.98% 5.24% 5.43% 5.58% 5.83%
Portfolio turnover rate ..................... 6.56% 12.84% 14.95% 11.47% 11.76%
CLASS C
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.51 $ 12.24 $ 12.26 $ 11.90
---------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .55 .58 .59 .52
Net realized and unrealized gains (losses) . .08 .34 (.02) .35
---------------------------------------------------------------
Total from investment operations ............ .63 .92 .57 .87
---------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.55) (.58) (.59) (.51)
Net realized gains ......................... (.03) (.07) -- --
---------------------------------------------------------------
Total distributions ......................... (.58) (.65) (.59) (.51)
---------------------------------------------------------------
Net asset value, end of year ................ $ 12.56 $ 12.51 $ 12.24 $ 12.26
===============================================================
Total return* ............................... 5.10% 7.66% 4.79% 7.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 42,258 $ 28,178 $ 15,786 $ 6,085
Ratios to average net assets:
Expenses ................................... 1.21% 1.20% 1.20% 1.22%**
Net investment income ...................... 4.42% 4.67% 4.80% 4.99%**
Portfolio turnover rate ..................... 6.56% 12.84% 14.95% 11.47%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
** Annualized.
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(2) Includes distributions in excess of net investment income in the amount of
$.001.
(3) Includes distributions in excess of net investment income in the amount of
$.003.
(4) Includes distributions in excess of net investment income in the amount of
$.007.
See notes to financial statements.
82
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.1%
Akron Bath Copley Joint Township Hospital Revenue, Akron General Medical Center
Project, Refunding, AMBAC Insured, 5.375%,
1/01/17 ................................................................................. $ 1,000,000 $ 1,040,580
1/01/22 ................................................................................. 1,500,000 1,538,460
1/01/27 ................................................................................. 1,000,000 1,023,300
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 ........................................ 500,000 598,905
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 ....................... 3,660,000 3,867,229
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 ............... 1,000,000 1,095,640
Allen County GO, Refunding, AMBAC Insured, 5.30%, 12/01/15 ................................. 1,250,000 1,280,325
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 .................................. 1,200,000 1,272,756
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 .......................................................... 2,000,000 2,188,060
Refunding, MBIA Insured, 5.90%, 12/01/11 ................................................ 600,000 625,506
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%,
12/01/16 ................................................................................ 1,075,000 1,158,302
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 ................................. 2,500,000 2,727,875
Barberton City School District, FGIC Insured, 5.125%, 11/01/22 ............................. 9,740,000 9,743,506
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 ........................ 8,375,000 8,882,860
Belmont County Correctional Facility, MBIA Insured, 5.85%, 12/01/16 ........................ 500,000 542,110
Bluffton Exempt Village School District, AMBAC Insured, 5.50%, 12/01/16 .................... 1,000,000 1,049,920
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 ............................. 2,295,000 2,514,287
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 ........................................... 1,000,000 1,074,400
Butler County Hospital Facilities Revenue, Middletown Regional Hospital,
Refunding and Improvement, FGIC Insured, 6.75%, 11/15/10 ................................ 2,150,000 2,348,811
Butler County Transportation Improvement, Series A, FSA Insured, 5.125%, 4/01/17 ........... 2,000,000 2,029,480
Butler County Waterworks Revenue,
AMBAC Insured, 6.35%, 12/01/08 .......................................................... 790,000 861,582
AMBAC Insured, 6.40%, 12/01/12 .......................................................... 500,000 546,165
AMBAC Insured, 5.45%, 12/01/16 .......................................................... 1,000,000 1,045,890
(b)Butler County Water, Refunding and Improvement, FSA Insured, 5.00%, 12/01/19 ......... 1,500,000 1,484,600
Canal Winchester Local School District GO, Franklin and Fairfield Co. Ohio, 5.30%, 12/01/25. 5,705,000 5,799,361
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 ................ 400,000 433,596
Celina Wastewater System Mortgage Revenue, FGIC Insured, 6.55%, 11/01/16 ................... 1,200,000 1,279,392
Centerville GO, Capital Facilities, MBIA Insured, 5.65%, 12/01/18 .......................... 2,265,000 2,380,379
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 ................................ 675,000 723,823
Claymont City School District, FGIC Insured, 5.70%, 12/01/21 ............................... 1,000,000 1,065,300
Clermont County Hospital Facilities Revenue, Mercy Health System,
Refunding, Series B, AMBAC Insured, 6.00%, 9/01/19 ...................................... 1,750,000 1,871,818
Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/19 ................................... 515,000 564,445
Clermont County Sewer System Revenue, AMBAC Insured, Pre-Refunded, 7.10%, 12/01/15 ......... 4,280,000 4,493,315
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 .............. 11,000,000 11,709,060
Cleveland Airport Systems Revenue,
Series A, FGIC Insured, 6.25%, 1/01/20 .................................................. 3,000,000 3,260,070
Series A, FSA Insured, 5.125%, 1/01/27 .................................................. 5,900,000 5,817,754
Series B, FGIC Insured, Pre-Refunded, 6.00%, 1/01/14 .................................... 985,000 1,096,128
Series B, FGIC Insured, Pre-Refunded, 6.10%, 1/01/24 .................................... 1,450,000 1,619,926
Cleveland GO, Series 1994, MBIA Insured, Pre-Refunded, 6.70%, 11/15/18 ..................... 2,000,000 2,321,280
Cleveland Public Power Systems Revenue, First Mortgage, Subordinated, Refunding,
Series 1, MBIA Insured, 5.00%, 11/15/24 ................................................. 2,220,000 2,197,645
Cleveland Waterworks Revenue,
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/28 ........................ 23,375,000 22,987,676
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 ...................................... 2,000,000 2,153,700
Series F-92A, AMBAC Insured, Pre-Refunded, 6.25%, 1/01/15 ............................... 1,000,000 1,090,080
Series H, Pre-Refunded, 5.75%, 1/01/26 .................................................. 19,750,000 22,097,485
Clinton-Massie Local School District, Issue I, AMBAC Insured, Pre-Refunded,
7.50%, 12/01/11 ........................................................................... 1,000,000 1,123,320
Columbiana County, Refunding, FSA Insured,
5.25%, 12/01/24 ........................................................................... 1,000,000 1,012,210
Columbus GO, Limited Tax, FGIC Insured,
9.50%, 4/15/03 ............................................................................ 975,000 1,189,032
Columbus Municipal Airport Authority Revenue,
Airport Improvement, Port Columbus International, Series B, AMBAC Insured,
5.00%, 1/01/18 ............................................................................ 3,815,000 3,821,066
Columbus State Community College General Receipts, AMBAC Insured, 5.75%, 12/01/16 .......... 2,100,000 2,300,508
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 .................................. 1,530,000 1,685,800
Crestview Local School District GO, Construction and Improvement, AMBAC Insured, 6.65%,
12/01/14 .................................................................................. 1,650,000 1,822,277
</TABLE>
83
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 ............................ $ 100,000 $ 126,743
Cuyahoga County Hospital Revenue, Metrohealth System Project, Refunding and
Improvement, MBIA Insured, 5.50%, 2/15/27 ............................................... 3,915,000 4,060,638
Cuyahoga County Utility System Revenue,
AMBAC Insured, 5.125%, 2/15/28 .......................................................... 1,750,000 1,753,588
Medical Center Co. Project, Refunding, Series B, MBIA Insured, 6.10%, 8/15/15 ........... 2,945,000 3,212,229
Dayton Airport Revenue, Refunding, AMBAC Insured, 5.25%, 12/01/15 .......................... 2,000,000 2,057,480
Dayton Water System Mortgage Revenue, Refunding, MBIA Insured, 6.75%, 12/01/10 ............. 1,395,000 1,427,810
Defiance GO, MBIA Insured,
6.10%, 12/01/14 ......................................................................... 1,000,000 1,096,680
6.20%, 12/01/20 ......................................................................... 750,000 823,860
Delaware City School District, FGIC Insured, 5.75%, 12/01/15 ............................... 1,640,000 1,754,324
Dover City School District, AMBAC Insured, 6.25%, 12/01/16 ................................. 2,000,000 2,146,860
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 ..................... 1,625,000 1,773,379
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 ........................... 1,100,000 1,217,975
East Liverpool Hospital Revenue, East Liverpool City Hospital Project, Series B,
FSA Insured, 5.00%, 10/01/21 ............................................................. 1,000,000 986,640
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 ....................... 1,390,000 1,547,348
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20............................ 1,000,000 1,074,910
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24 ............................ 1,980,000 2,139,350
Forest Hills Local School District, MBIA Insured, 5.70%, 12/01/16 .......................... 1,500,000 1,610,010
Fostoria City School District GO, AMBAC Insured, Pre-Refunded, 6.70%, 12/01/16 ............. 2,500,000 2,808,100
Franklin County Convention Facilities Authority Tax and Lease Revenue,
Anticipation Bonds, MBIA Insured, 5.00%, 12/01/27 ........................................ 5,350,000 5,261,404
Franklin County Hospital Revenue, Holy Cross Health Systems, AMBAC Insured,
5.875%, 6/01/21........................................................................... 2,500,000 2,706,075
Green County Sewer System Revenue, Governmental Enterprise, MBIA Insured, 5.25%, 12/01/25... 6,000,000 6,126,180
Green County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21 ................ 2,100,000 2,359,728
Green Local School District GO, Summit County, FGIC Insured,
5.875%, 12/01/14 ....................................................................... 2,800,000 3,031,672
5.90%, 12/01/19 ........................................................................ 5,150,000 5,528,319
Hamilton City Electric System Mortgage Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 10/15/23 ..................................... 18,450,000 19,702,940
Series B, FGIC Insured, 6.30%, 10/15/25 ................................................ 2,340,000 2,536,841
Hamilton County Hospital Facilities Revenue,
Bethesda Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 1/01/12 .................. 3,650,000 3,991,713
Children's Hospital Medical Center, Series G, MBIA Insured, 5.00%, 5/15/23 ............. 9,590,000 9,443,753
Hamilton County Sewer System Revenue, Refunding, Series A, FGIC Insured, 6.05%, 12/01/15 ... 3,010,000 3,341,762
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21 ........................................................................ 3,040,000 3,284,355
5.20%, 10/15/23 ........................................................................ 7,525,000 7,616,429
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21............... 4,665,000 4,975,596
Hillard School District GO, Refunding, FGIC Insured, 6.55%, 12/01/05........................ 500,000 573,725
Hudson Local School District GO, Refunding, FGIC Insured, 5.60%, 12/15/14 ,,,,,,,,,,,,,,,,,, 2,750,000 2,903,560
Indian Lake Local School District GO, Construction and Improvement, FGIC Insured,
5.375%, 12/01/23 ......................................................................... 1,000,000 1,020,540
Indian Valley Local School District GO, AMBAC Insured, 5.75%, 12/01/19 ..................... 1,000,000 1,068,580
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22 ............................... 1,000,000 1,041,250
Jackson Local School District GO, Stark and Summit Counties School Building, Construction
and Improvement, MBIA Insured,
5.40%, 12/01/13 ........................................................................ 2,750,000 2,903,313
5.50%, 12/01/21 ........................................................................ 3,060,000 3,188,612
Jackson Waterworks Revenue, AMBAC Insured, 5.60%, 12/01/18 ................................. 500,000 518,310
Kent City School District, FGIC Insured, 5.75%, 12/01/21 ................................... 1,500,000 1,610,565
Kent State University Revenues, General Receipts,
AMBAC Insured, Pre-Refunded, 6.45%, 5/01/12 ............................................ 1,195,000 1,319,077
MBIA Insured, 5.50%, 5/01/28 ........................................................... 5,920,000 6,157,984
Kettering City School District, FGIC Insured, 5.25%, 12/01/22 .............................. 1,000,000 1,008,780
Lake County Hospital Facilities Revenue, Lake Hospital System Inc., AMBAC
Insured, 5.00%, 8/15/23 .................................................................. 7,500,000 7,385,325
Lake County Hospital Improvement Revenue, Lake Hospital System Inc., Series B
and C, AMBAC Insured,
7.875%, 1/01/05 ........................................................................ 1,940,000 1,966,035
8.00%, 1/01/13 ......................................................................... 2,185,000 2,217,032
Lake Local School District GO, Stark County, AMBAC Insured, 6.25%, 12/01/09 ................ 1,000,000 1,093,010
Lakota Local District GO, AMBAC Insured, Pre-Refunded, 6.125%, 12/01/17 .................... 3,200,000 3,618,432
</TABLE>
84
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Lebanon Electric Revenue Mortgage, AMBAC Insured, 5.60%, 12/01/16 ........................ $ 795,000 $ 837,016
Liberty Benton Local School District, AMBAC Insured, Pre-Refunded,
6.00%, 12/01/15 ....................................................................... 2,000,000 2,257,240
6.10%, 12/01/19 ....................................................................... 2,045,000 2,318,498
Lincolnview Local School District, FGIC Insured, 5.50%, 12/01/25 ......................... 4,225,000 4,392,648
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding,
Series B, MBIA Insured, 5.50%, 9/01/27 ................................................ 12,200,000 12,673,238
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 .............................................................................. 120,000 151,046
12/01/08 .............................................................................. 110,000 142,622
12/01/09 .............................................................................. 120,000 157,750
12/01/10 .............................................................................. 220,000 291,293
Lucas County Hospital Revenue,
Promedica Healthcare Obligation, Refunding, MBIA Insured, 5.75%, 11/15/14 ............. 5,000,000 5,497,650
St. Vincent Medical Center, Refunding, Series B, MBIA Insured, 5.25%, 8/15/20 ......... 3,500,000 3,543,785
Mahoning County GO, Bridge Improvement,
Limited Tax, AMBAC Insured, 7.20%, 12/01/09 ........................................... 1,500,000 1,567,500
Unlimited Tax, AMBAC Insured, 7.15%, 12/01/04 ......................................... 1,500,000 1,569,120
Mahoning County Hospital Facilities Revenue,
Western Reserve Care, MBIA Insured, ETM, 5.50%, 10/15/25 .............................. 5,000,000 5,249,450
Youngstown Hospital Inc. Project, Series B, MBIA Insured, Pre-Refunded, 7.00%, 10/15/08 2,000,000 2,224,980
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project,
AMBAC Insured, 6.70%, 12/01/09 ........................................................ 2,500,000 2,728,725
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 .................. 1,000,000 1,072,400
Marietta Sewer System Mortgage Revenue, BIG Insured, 7.50%, 11/01/07 ..................... 465,000 475,114
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21 ................................... 3,875,000 4,218,364
Marysville Exempted Village School District GO, MBIA Insured, 5.75%, 12/01/23 ............ 1,000,000 1,058,770
Marysville Water Systems, Refunding, AMBAC Insured,
5.40%, 12/01/13 ....................................................................... 1,000,000 1,037,860
5.50%, 12/01/18 ....................................................................... 1,500,000 1,545,975
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 ............................... 1,935,000 2,091,232
Maumee Hospital Revenue, Saint Luke's Hospital Project, Refunding, AMBAC Insured,
5.80%, 12/01/14 ....................................................................... 2,755,000 2,997,468
Mentor Exempted Village School District, MBIA Insured,
5.375%, 12/01/11 ...................................................................... 1,000,000 1,047,970
6.625%, 12/01/13 ...................................................................... 2,000,000 2,181,860
Pre-Refunded, 7.40%, 12/01/11 ......................................................... 2,040,000 2,146,141
Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Nursing Care Inc.,
Series B, MBIA Insured, 6.50%, 5/01/21 ................................................ 1,340,000 1,421,995
Middleburg Heights Hospital Revenue, Southwest General Health Center, Refunding,
FSA Insured, 5.75%, 8/15/21 ........................................................... 1,500,000 1,627,125
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities,
MBIA Insured,
7.40%, 4/01/09 ........................................................................ 15,000,000 15,337,650
5.50%, 4/01/26 ........................................................................ 2,000,000 2,070,700
Pre-Refunded, 7.50%, 4/01/14 .......................................................... 5,000,000 5,117,050
Montgomery County Revenue,
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/12 ............ 1,600,000 1,749,040
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/16 ............ 3,250,000 3,515,298
Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%, 5/15/21 .................. 1,565,000 1,677,195
Muskingum County GO,
County Office Building Improvement, AMBAC Insured, 7.20%, 12/01/10 .................... 1,000,000 1,073,920
Justice Center Improvement, AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17 ............. 1,695,000 1,887,942
Napoleon City School District GO, AMBAC Insured, 5.375%, 12/01/18 ........................ 1,000,000 1,024,080
New Lexington HDC, Mortgage Revenue, Lincoln Park, Refunding, Series A, MBIA Insured,
5.85%, 1/01/21 ........................................................................ 1,070,000 1,112,500
New Philadelphia City School District GO, School Improvement, AMBAC Insured,
6.25%, 12/01/17 ....................................................................... 2,000,000 2,158,380
New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 9/01/09 ......... 1,500,000 1,539,810
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 ......................................... 3,800,000 4,149,942
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 ................ 2,900,000 3,134,204
Northeastern Local School District GO, Clark County Improvement, FGIC Insured,
5.55%, 12/01/18 ....................................................................... 1,000,000 1,047,430
Northridge Local School District GO, Licking, Knox and Del Counties Improvement,
FSA Insured, 5.75%, 12/01/18 .......................................................... 1,090,000 1,158,180
Northwest Local School District GO,
Hamilton County, FGIC Insured, 5.15%, 12/01/22 ........................................ 3,400,000 3,415,232
Scioto County, AMBAC Insured, 7.05%, 12/01/14 ......................................... 2,000,000 2,193,880
</TABLE>
85
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Oak Hills Local School District GO, MBIA Insured, 5.45%, 12/01/21 .................... $ 5,000,000 $ 5,191,000
Ohio Capital Corp. HMR,
Refunding, Series G, MBIA Insured, 6.35%, 7/01/22 ................................. 2,000,000 2,134,180
Refunding, Series H, MBIA Insured, 6.90%, 7/01/24 ................................. 4,215,000 4,441,514
Refunding, Series J, MBIA Insured, 6.50%, 1/01/25 ................................. 3,500,000 3,644,970
Westview Apartments, Refunding, Series A, MBIA Insured, 6.125%, 1/01/15 ........... 1,625,000 1,736,410
Westview Apartments, Refunding, Series A, MBIA Insured, 6.25%, 1/01/23 ............ 2,565,000 2,727,698
Ohio HFA,
MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 ....................... 760,000 829,335
MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32 ........ 2,035,000 2,087,279
RMR, Residential, Series A-1, GNMA Secured, 5.40%, 9/01/29 ........................ 3,900,000 3,954,873
SFMR, Series A, GNMA Secured, 7.65%, 3/01/29 ...................................... 2,960,000 3,048,682
SFMR, Series B, GNMA Secured, 7.40%, 9/01/15 ...................................... 635,000 659,809
SFMR, Series C, GNMA Secured, 7.85%, 9/01/21 ...................................... 1,455,000 1,530,034
SFMR, Series C, GNMA Secured, Pre-Refunded, 8.00%, 9/01/08 ........................ 1,690,000 1,740,700
SFMR, Series C, GNMA Secured, Pre-Refunded, 8.125%, 3/01/20 ....................... 1,560,000 1,606,800
SFMR, Series D, GNMA Secured, 7.50%, 9/01/13 ...................................... 945,000 990,436
SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ...................................... 3,760,000 3,944,503
SFMR, Series I, GNMA Secured, 7.60%, 9/01/16 ...................................... 2,640,000 2,768,726
Ohio Municipal Electric Generation Agency Joint Venture 5, Certificates of
Beneficial Interest, AMBAC Insured,
5.625%, 2/15/16 ................................................................... 13,000,000 13,651,950
5.375%, 2/15/24 ................................................................... 7,680,000 7,854,182
Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas and Electric, Refunding, Series B, MBIA Insured, 5.45%, 1/01/24 .... 5,000,000 5,128,400
Columbus and Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 ............. 4,000,000 4,372,520
JMG Funding LP Project, AMBAC Insured, 5.625%, 10/01/22 ........................... 7,500,000 7,794,975
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 1/01/29 ................. 1,230,000 1,347,084
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 4/01/29 ................. 15,245,000 16,696,172
PCR, Ohio Edison, Refunding, Series A, FGIC Insured, 7.45%, 3/01/16 ............... 1,000,000 1,054,250
PCR, Ohio Edison, Refunding, Series B, AMBAC Insured, 5.625%, 11/15/29 ............ 5,400,000 5,630,256
PCR, Pennsylvania Power Co., Refunding, Series A, AMBAC Insured, 6.45%, 5/01/27 ... 7,000,000 7,590,520
Ohio State Building Authority Revenue, Adult Correctional Facilities, Series A,
AMBAC Insured, 5.60%, 4/01/16 ..................................................... 2,000,000 2,119,640
MBIA Insured, 6.125%, 10/01/13 .................................................... 13,000,000 14,452,360
Ohio State Department of Transportation COP, Panhandle Rail Line Project, FSA Insured,
6.50%, 4/15/12 .................................................................... 1,100,000 1,198,538
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ........ 5,000,000 5,202,750
Ohio State Higher Educational Facility Commission Revenue,
(b)Higher Educational Facility Oberlin College, AMBAC Insured, 5.00%, 10/01/26 ........ 5,000,000 4,955,450
University Dayton Project, FGIC Insured, 5.80%, 12/01/14 .......................... 1,300,000 1,399,255
University Dayton Project, FGIC Insured, 6.75%, 12/01/15 .......................... 1,725,000 1,901,537
University Dayton Project, FGIC Insured, Pre-Refunded, 7.25%, 12/01/12 ............ 450,000 486,995
Xavier University Higher Educational Facility, MBIA Insured, 5.375%, 5/15/22 ...... 5,000,000 5,152,050
Ohio State Turnpike Commission Turnpike Revenue, Series A,
FGIC Insured, Pre-Refunded, 5.75%, 2/15/24 ........................................ 1,000,000 1,103,810
MBIA Insured, Pre-Refunded, 5.50%, 2/15/26 ........................................ 19,400,000 21,444,760
Ohio State Water Development Authority PCR, Facilities Revenue,
Pennsylvania Power Co. Project, Refunding, AMBAC Insured, 6.15%, 8/01/23 .......... 3,420,000 3,719,524
Water Control Loan Fund, Water Quality Series, MBIA Insured, 5.125%, 6/01/19 ...... 5,000,000 5,051,050
Ohio State Water Development Authority Revenue,
Cincinnati Gas, Refunding, Series A, MBIA Insured, 5.45%, 1/01/24 ................. 4,000,000 4,102,720
Dayton Power, Refunding, Series A, AMBAC Insured, 6.40%, 8/15/27 .................. 5,000,000 5,379,400
Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 ............................... 8,750,000 9,467,500
Pure Water, Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 ............. 1,000,000 1,069,950
Pure Water, Refunding and Improvement, AMBAC Insured, ETM, 5.50%, 12/01/18 ........ 4,450,000 4,617,988
Pure Water, Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 ......................... 2,000,000 2,371,180
Olentangy Local School District GO, BIG Insured, 7.75%,
12/01/08 .......................................................................... 375,000 476,040
12/01/09 .......................................................................... 375,000 481,605
12/01/10 .......................................................................... 375,000 490,433
</TABLE>
86
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Olmsted Falls Local School District, FGIC Insured,
5.85%, 12/15/17 ...................................................................... $ 1,500,000 $ 1,608,495
Pre-Refunded, 7.05%, 12/15/11 ........................................................ 1,000,000 1,112,870
Ontario Local School District GO, FSA Insured, 5.125%, 12/01/18 ......................... 4,000,000 4,018,960
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 .............. 1,150,000 1,258,319
Ottawa County GO, Catawba Isle, AMBAC Insured, Pre-Refunded, 7.00%, 9/01/11 ............. 1,500,000 1,641,645
Ottawa County Sewer System Revenue, Danbury Project, Refunding, AMBAC Insured,
5.50%, 10/01/14 ...................................................................... 1,950,000 2,038,335
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 ..................................................................... 3,240,000 3,456,432
5.65%, 12/01/15 ...................................................................... 4,490,000 4,731,113
Perrysburg Exempted Village School District, AMBAC Insured, 6.00%, 12/01/15 ............. 2,000,000 2,163,080
Pickerington Local School District GO,
AMBAC Insured, 5.00%, 12/01/25 ....................................................... 8,335,000 8,142,045
Refunding, AMBAC Insured, 5.55%, 12/01/07 ............................................ 1,000,000 1,076,570
Powell Village GO, Series A, MBIA Insured,
5.55%, 12/01/17 ...................................................................... 840,000 881,168
5.60%, 12/01/22 ...................................................................... 445,000 468,518
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 .......................................................... 3,000,000 3,095,130
Refunding, MBIA Insured, 5.75%, 7/01/24 .............................................. 2,000,000 2,140,560
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/21 ....................................................................... 4,000,000 4,176,120
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 .............. 11,000,000 11,325,710
Revere Local School District GO, AMBAC Insured,
5.25%, 12/01/16 ...................................................................... 2,000,000 2,039,640
6.00%, 12/01/16 ...................................................................... 1,600,000 1,727,280
Reynoldsburg City School District GO, Refunding, FGIC Insured, 5.45%, 12/01/17 .......... 4,075,000 4,243,461
Salem GO, AMBAC Insured, 6.50%, 12/01/06 ................................................ 2,000,000 2,311,280
South Range Local School District GO, MBIA Insured, 6.15%, 12/01/18 ..................... 700,000 760,753
SouthWest Regional Water District Revenue, MBIA Insured, 6.00%,
12/01/15 ............................................................................. 1,000,000 1,096,810
12/01/20 ............................................................................. 700,000 763,070
South-Western City School District of Ohio Franklin and Pickway Counties GO,
FGIC Insured, ETM, 7.875%,
12/01/04 ............................................................................. 550,000 661,496
12/01/06 ............................................................................. 600,000 748,938
12/01/07 ............................................................................. 600,000 757,410
Springboro Sewer Systems Revenue, Refunding, MBIA Insured, 5.70%, 6/01/18 ............... 1,410,000 1,505,908
Springboro Water Systems Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/18 ............. 1,125,000 1,153,868
St. Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 ............. 600,000 655,440
St. Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ........................... 750,000 819,300
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 .............................. 2,775,000 2,939,252
Stark County Sewer District Improvement Bonds, FGIC Insured, 5.80%, 12/01/16 ............ 1,000,000 1,084,590
Steubenville City School District, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 12/01/17 2,075,000 2,333,566
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 .......................... 1,750,000 1,919,208
Summit County GO, Limited Tax, Refunding, Series B, AMBAC Insured, 6.95%, 8/01/08 ....... 400,000 434,216
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 ............................ 4,830,000 5,120,283
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 ....................................................... 3,715,000 4,055,071
AMBAC Insured, 6.00%, 12/01/16 ....................................................... 1,000,000 1,100,880
FGIC Insured, 7.375%, 12/01/00 ....................................................... 500,000 535,640
FGIC Insured, 7.375%, 12/01/02 ....................................................... 400,000 451,376
FGIC Insured, 7.375%, 12/01/03 ....................................................... 650,000 747,221
FGIC Insured, 7.375%, 12/01/04 ....................................................... 650,000 760,812
FGIC Insured, 7.375%, 12/01/05 ....................................................... 650,000 768,385
FGIC Insured, 7.375%, 12/01/06 ....................................................... 625,000 745,400
Toledo Sewerage System Mortgage Revenue, Series B, MBIA Insured, 7.75%, 11/15/17 ........ 2,320,000 2,386,166
Trumbull County Hospital Revenue,
Refunding and Improvement, Series A, FGIC Insured, 6.25%, 11/15/12 ................... 1,000,000 1,109,020
Refunding, Series B, FGIC Insured, 6.90%, 11/15/12 ................................... 2,000,000 2,269,020
</TABLE>
87
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 .................... $ 4,000,000 $ 4,350,600
University of Cincinnati COP, MBIA Insured, 6.75%, 12/01/09 ..................... 1,600,000 1,766,144
University of Cincinnati General Receipt,
Series AD, MBIA Insured, 5.125%, 6/01/20 ..................................... 1,500,000 1,503,375
Series W, MBIA Insured, 5.85%, 6/01/16 ....................................... 1,630,000 1,760,693
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 ...... 6,000,000 6,116,100
University of Toledo General Receipt,
FGIC Insured, 5.30%, 6/01/18 ................................................. 2,000,000 2,044,460
Refunding, Series A, FGIC Insured, 5.90%, 6/01/20 ............................ 5,500,000 5,810,310
Upper Arlington County School District GO, MBIA Insured, 5.25%, 12/01/22 ........ 5,000,000 5,059,000
Urbana Wastewater Treatment Plant GO, Improvement, AMBAC Insured, 7.05%, 12/01/11 1,000,000 1,118,900
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 .................... 1,400,000 1,596,420
Warren GO,
MBIA Insured, 6.65%, 11/01/12 ................................................ 2,415,000 2,752,424
Refunding, AMBAC Insured, 5.50%, 11/15/13 .................................... 1,015,000 1,089,633
Wausen Exempt Village School District GO, Refunding and School Improvements,
MBIA Insured, 5.50%, 12/01/17 ................................................ 1,800,000 1,883,214
Wayne Local School District GO, Warren County, AMBAC Insured, 6.10%, 12/01/24 ... 1,800,000 1,976,868
Westerville, Minerva Park, and Blendon Joint Township Hospital District Revenue,
St. Ann's Hospital, Refunding, Series B,
AMBAC Insured, ETM, 7.00%, 9/15/12 ........................................... 5,000,000 5,329,450
Wilmington City School District GO, FGIC Insured, 6.30%, 12/01/14 ............... 2,000,000 2,147,120
Wilmington Sewer System Revenue, First Mortgage, Refunding, MBIA Insured,
5.30%, 2/15/18 ............................................................... 1,170,000 1,200,993
Wilmington Water Revenue, First Mortgage System, AMBAC Insured,
5.90%, 6/15/14 ............................................................... 1,275,000 1,394,761
6.00%, 6/15/21 ............................................................... 2,510,000 2,736,703
Woodmore Local School District GO, Refunding, AMBAC Insured, 5.65%, 12/01/08 .... 500,000 538,170
Wooster City School District GO, AMBAC Insured, 6.50%, 12/01/17 ................. 8,700,000 9,711,810
Worthington City School District GO, Refunding, FGIC Insured, 6.375%, 12/01/12 .. 2,350,000 2,552,641
Youngstown State University General Receipts, AMBAC Insured, 6.00%, 12/15/16 .... 2,250,000 2,540,880
Zane Trace Local School District GO, AMBAC Insured, 5.45%, 12/01/19 ............. 1,000,000 1,039,770
------------
TOTAL LONG TERM INVESTMENTS (COST $759,384,531) ................................. 811,625,146
------------
(a)SHORT TERM INVESTMENTS .5%
Cuyahoga County IDR, Allen Group Inc. Project, Weekly VRDN and Put,
2.95%, 12/01/15 .............................................................. 300,000 300,000
Ohio State Air Quality Development Authority Revenue, Cincinnati Gas and
Electric, Refunding, Series A,
Daily VRDN and Put, 3.15%, 9/01/30 ........................................... 1,500,000 1,500,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put,
2.60%, 7/01/28 ............................................................... 2,200,000 2,200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $4,000,000) .................................. 4,000,000
------------
TOTAL INVESTMENTS (COST $763,384,531) 99.6% ..................................... 815,625,146
OTHER ASSETS, LESS LIABILITIES .4% .............................................. 3,225,425
------------
NET ASSETS 100.0% ............................................................... $818,850,571
============
</TABLE>
See glossary of terms on page 89.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
88
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
GLOSSARY OF TERMS
- --------------------------------------------------------------------------------
AD - Assessment District
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.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA
Insured were originally 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
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority/Agency Revenue
IDR - Industrial Development Revenue
ISD - Independent School District
LP - 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
MTA - Metropolitan Transit Authority
MUD - Municipal Utility District
PBA - Public Building Authority
PCC - Pollution Control Corporation
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
SFRMR - Single Family Residential Mortgage Revenue
UHSD - Unified High School District
USD - Unified School District
89
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED FRANKLIN
TAX-FREE TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------- --------------- ---------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................................... $ 76,557,736 $ 115,940,869 $ 1,671,809,661
=====================================================
Value .............................................................. 80,031,977 122,730,335 1,782,702,781
Cash ................................................................ 12,357 11,359 3,916,593
Receivables:
Capital shares sold ................................................ 301,093 193,329 1,657,856
Interest ........................................................... 761,155 2,069,351 23,907,792
-----------------------------------------------------
Total assets ......................................................... 81,106,582 125,004,374 1,812,185,022
-----------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................... -- -- 11,879,828
Capital shares redeemed ............................................ 93,331 86,779 1,905,738
Affiliates ......................................................... 43,761 64,549 1,032,266
Shareholders ....................................................... 190,944 218,465 2,979,752
Distributions to shareholders ....................................... 88,859 137,240 2,115,033
Other liabilities ................................................... 5,262 9,519 92,331
-----------------------------------------------------
Total liabilities .................................................... 422,157 516,552 20,004,948
-----------------------------------------------------
Net assets, at value ................................................ $ 80,684,425 $ 124,487,822 $ 1,792,180,074
=====================================================
Net assets consist of:
Undistributed net investment income ................................. $ 67,696 $ 40,425 $ --
Accumulated distributions in excess of net investment income ........ -- -- (1,730,568)
Net unrealized appreciation ......................................... 3,474,241 6,789,466 110,893,120
Accumulated net realized gain (loss) ................................ (182,835) (1,267,548) 3,062,284
Capital shares ...................................................... 77,325,323 118,925,479 1,679,955,238
-----------------------------------------------------
Net assets, at value ................................................ $ 80,684,425 $ 124,487,822 $ 1,792,180,074
=====================================================
Class A:
Net assets, at value ................................................ $ 80,684,425 $ 124,487,822 $ 1,727,013,645
=====================================================
Shares outstanding .................................................. 7,442,975 11,825,883 140,839,755
=====================================================
Net asset value per share* .......................................... $ 10.84 $ 10.53 $ 12.26
=====================================================
Maximum offering price per share (net asset value per share / 95.75%) $ 11.32 $ 11.00 $ 12.80
=====================================================
Class C:
Net assets, at value ................................................ -- -- $ 65,166,429
=====================================================
Shares outstanding .................................................. -- -- 5,284,153
=====================================================
Net asset value per share* .......................................... -- -- $ 12.33
=====================================================
Maximum offering price per share (net asset value per share / 99.00%) -- -- $ 12.45
=====================================================
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
90
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED INSURED INSURED INSURED
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................................... $340,631,592 $1,106,348,081 $505,431,161 $763,384,531
===========================================================
Value .............................................................. 362,469,032 1,195,996,630 530,747,218 815,625,146
Cash ................................................................ 243,854 478,098 869,149 439,000
Receivables:
Capital shares sold ................................................ 540,540 1,301,117 1,366,844 978,222
Interest ........................................................... 4,760,073 18,808,415 5,265,115 11,920,017
-----------------------------------------------------------
Total assets ......................................................... 368,013,499 1,216,584,260 538,248,326 828,962,385
-----------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................... -- -- -- 6,492,427
Capital shares redeemed ............................................ 116,805 898,357 464,032 622,561
Affiliates ......................................................... 242,193 730,703 331,595 511,693
Shareholders ....................................................... 831,335 2,196,624 716,246 1,488,143
Distributions to shareholders ....................................... 419,797 1,385,215 625,772 946,716
Other liabilities ................................................... 22,886 58,011 40,731 50,274
-----------------------------------------------------------
Total liabilities .................................................... 1,633,016 5,268,910 2,178,376 10,111,814
-----------------------------------------------------------
Net assets, at value ................................................ $366,380,483 $1,211,315,350 $536,069,950 $818,850,571
===========================================================
Net assets consist of:
Accumulated distributions in excess of net investment income ........ $ (184,372) $ (1,057,561) $ (47,855) $ (27,565)
Net unrealized appreciation ......................................... 21,837,440 89,648,549 25,316,057 52,240,615
Accumulated net realized gain (loss) ................................ -- (84,031) 1,059,053 1,147,411
Capital shares ...................................................... 344,727,415 1,122,808,393 509,742,695 765,490,110
-----------------------------------------------------------
Net assets, at value ................................................ $366,380,483 $1,211,315,350 $536,069,950 $818,850,571
===========================================================
Class A:
Net assets, at value ................................................ $340,109,185 $1,161,345,331 $515,173,828 $776,592,398
===========================================================
Shares outstanding .................................................. 29,050,502 94,578,729 42,439,549 62,170,225
===========================================================
Net asset value per share* .......................................... $ 11.71 $ 12.28 $ 12.14 $ 12.49
===========================================================
Maximum offering price per share (net asset value per share / 95.75%) $ 12.23 $ 12.83 $ 12.68 $ 13.04
===========================================================
Class C:
Net assets, at value ................................................ $ 26,271,298 $ 49,970,019 $ 20,896,122 $ 42,258,173
===========================================================
Shares outstanding .................................................. 2,233,198 4,043,774 1,713,805 3,365,166
===========================================================
Net asset value per share* .......................................... $ 11.76 $ 12.36 $ 12.19 $ 12.56
===========================================================
Maximum offering price per share (net asset value per share / 99.00%) $ 11.88 $ 12.48 $ 12.31 $ 12.69
===========================================================
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
91
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED FRANKLIN
TAX-FREE TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------------------------------------------
<S> <C> <C> <C>
Investment income:
Interest ................................................ $ 3,526,936 $ 5,997,743 $ 100,799,419
-------------------------------------------------
Expenses:
Management fees (Note 3) ................................ 444,848 697,080 8,186,468
Distribution fees (Note 3)
Class A ................................................ 66,900 113,229 1,477,735
Class C ................................................ -- -- 330,443
Transfer agent fees (Note 3) ............................ 19,479 36,373 639,009
Custodian fees .......................................... 637 1,098 17,493
Reports to shareholders ................................. 6,949 12,162 226,595
Registration and filing fees ............................ 9,273 8,760 122,126
Professional fees ....................................... 2,545 3,558 42,309
Trustees' fees and expenses ............................. 699 1,106 15,828
Other ................................................... 16,204 21,813 119,602
-------------------------------------------------
Total expenses ......................................... 567,534 895,179 11,177,608
Expenses waived/paid by affiliate (Note 3) ............. (315,223) (417,537) --
-------------------------------------------------
Net expenses ............................................ 252,311 477,642 11,177,608
-------------------------------------------------
Net investment income .................................. 3,274,625 5,520,101 89,621,811
-------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ...................... 64,058 2,867 10,620,546
Net unrealized appreciation (depreciation) on investments 334,186 979,147 (3,082,372)
-------------------------------------------------
Net realized and unrealized gain ......................... 398,244 982,014 7,538,174
Net increase in net assets resulting from operations ..... $ 3,672,869 $ 6,502,115 $ 97,159,985
=================================================
</TABLE>
See notes to financial statements.
92
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................................ $ 20,020,960 $ 66,806,324 $ 29,428,362 $ 44,538,395
-------------------------------------------------------------------
Expenses:
Management fees (Note 3) ................................ 1,842,232 5,623,372 2,591,321 3,822,228
Distribution fees (Note 3)
Class A ................................................ 296,450 1,014,288 443,034 680,046
Class C ................................................ 124,618 269,619 100,209 229,041
Transfer agent fees (Note 3) ............................ 141,391 564,054 236,613 361,491
Custodian fees .......................................... 3,521 11,911 5,222 7,928
Reports to shareholders ................................. 46,822 169,807 77,042 119,373
Registration and filing fees ............................ 13,174 21,155 12,682 29,030
Professional fees ....................................... 9,111 31,600 12,831 18,851
Trustees' fees and expenses ............................. 3,297 10,773 4,805 7,086
Other ................................................... 36,619 27,547 51,466 75,266
-------------------------------------------------------------------
Total expenses ..................................... 2,517,235 7,744,126 3,535,225 5,350,340
-------------------------------------------------------------------
Net investment income .............................. 17,503,725 59,062,198 25,893,137 39,188,055
-------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ...................... 549,086 2,222,023 1,829,574 2,482,460
Net unrealized appreciation (depreciation) on investments (1,068) 10,636,500 (1,790,539) 1,410,754
-------------------------------------------------------------------
Net realized and unrealized gain ......................... 548,018 12,858,523 39,035 3,893,214
-------------------------------------------------------------------
Net increase in net assets resulting from operations ..... $ 18,051,743 $ 71,920,721 $ 25,932,172 $ 43,081,269
===================================================================
</TABLE>
See notes to financial statements.
93
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN ARIZONA INSURED FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 3,274,625 $ 2,419,028 $ 5,520,101 $ 4,570,472
Net realized gain from investments ...................... 64,058 186,266 2,867 139,100
Net unrealized appreciation on investments .............. 334,186 1,729,964 979,147 3,782,107
----------------------------------------------------------------
Net increase in net assets resulting from operations ...... 3,672,869 4,335,258 6,502,115 8,491,679
Distributions to shareholders from net investment income . (3,262,224) (2,451,451) (5,528,406) (4,572,391)
Capital share transactions: (Note 2) ..................... 22,215,047 16,481,798 22,008,531 20,409,395
----------------------------------------------------------------
Net increase in net assets ................................ 22,625,692 18,365,605 22,982,240 24,328,683
Net assets:
Beginning of year ........................................ 58,058,733 39,693,128 101,505,582 77,176,899
----------------------------------------------------------------
End of year .............................................. $ 80,684,425 $ 58,058,733 $ 124,487,822 $ 101,505,582
================================================================
Undistributed net investment income included in net assets:
End of year .............................................. $ 67,696 $ 55,295 $ 40,425 $ 48,730
================================================================
</TABLE>
See notes to financial statements.
94
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 89,621,811 $ 92,090,668 $ 17,503,725 $ 17,761,637
Net realized gain from investments ...................... 10,620,546 23,962,647 549,086 4,132,958
Net unrealized appreciation (depreciation) on investments (3,082,372) 16,269,474 (1,068) 6,206,833
----------------------------------------------------------------------
Net increase in net assets resulting from operations ...... 97,159,985 132,322,789 18,051,743 28,101,428
Distributions to shareholders from:
Net investment income:
Class A ................................................ (87,334,716) (90,659,720) (16,632,794) (17,272,533)
Class C ................................................ (2,287,095) (1,442,616) (844,761) (450,151)
In excess of net investment income:
Class A ................................................ (856,324) (860,908) -- (212,790)
Class C ................................................ (22,408) -- -- --
Net realized gains:
Class A ................................................ (13,902,736) (16,811,655) (1,931,958) (3,803,786)
Class C ................................................ (425,541) (343,655) (108,794) (118,051)
----------------------------------------------------------------------
Total distributions to shareholders ...................... (104,828,820) (110,118,554) (19,518,307) (21,857,311)
Capital share transactions: (Note 2)
Class A ................................................ 49,150,017 1,404,896 13,335,276 (2,973,753)
Class C ................................................ 27,381,709 16,099,401 12,428,507 7,370,054
----------------------------------------------------------------------
Total capital share transactions ......................... 76,531,726 17,504,297 25,763,783 4,396,301
Net increase in net assets ................................ 68,862,891 39,708,532 24,297,219 10,640,418
Net assets:
Beginning of year ........................................ 1,723,317,183 1,683,608,651 342,083,264 331,442,846
----------------------------------------------------------------------
End of year .............................................. $ 1,792,180,074 $ 1,723,317,183 $ 366,380,483 $ 342,083,264
======================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of year ............................................. $ (1,730,568) $ (851,836) $ (184,372) $ (210,542)
======================================================================
</TABLE>
See notes to financial statements.
95
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 59,062,198 $ 59,917,823 $ 25,893,137 $ 25,936,826
Net realized gain from investments ......................... 2,222,023 10,732,851 1,829,574 4,596,300
Net unrealized appreciation (depreciation) on investments .. 10,636,500 21,097,599 (1,790,539) 5,746,112
------------------------------------------------------------------
Net increase in net assets resulting from operations ......... 71,920,721 91,748,273 25,932,172 36,279,238
Distributions to shareholders from:
Net investment income:
Class A ................................................... (56,963,881) (58,492,475) (25,368,828) (25,706,309)
Class C ................................................... (1,809,222) (1,211,205) (681,854) (335,992)
In excess of net investment income:
Class A ................................................... -- (1,347,076) (46,601) --
Class C ................................................... -- -- (1,254) --
Net realized gains:
Class A ................................................... (5,139,566) (12,008,053) (856,454) (3,868,308)
Class C ................................................... (185,565) (284,824) (29,745) (68,525)
------------------------------------------------------------------
Total distributions to shareholders ........................ (64,098,234) (73,343,633) (26,984,736) (29,979,134)
Capital share transactions: (Note 2)
Class A ................................................... 11,242,515 13,102,580 20,874,563 6,985,703
Class C ................................................... 16,812,877 12,231,280 10,802,209 5,188,792
------------------------------------------------------------------
Total capital share transactions ........................... 28,055,392 25,333,860 31,676,772 12,174,495
Net increase in net assets ................................... 35,877,879 43,738,500 30,624,208 18,474,599
Net assets:
Beginning of year ........................................... 1,175,437,471 1,131,698,971 505,445,742 486,971,143
------------------------------------------------------------------
End of year ................................................. $1,211,315,350 $1,175,437,471 $ 536,069,950 $ 505,445,742
==================================================================
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
End of year ................................................ $ (1,057,561) $ (1,346,656) $ (47,855) $ 157,545
==================================================================
</TABLE>
See notes to financial statements.
96
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................ $ 39,188,055 $ 38,568,347
Net realized gain from investments ............................................... 2,482,460 5,741,354
Net unrealized appreciation on investments ....................................... 1,410,754 14,279,319
------------------------------
Net increase in net assets resulting from operations ............................... 43,081,269 58,589,020
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (37,252,026) (37,331,056)
Class C ......................................................................... (1,528,613) (963,819)
In excess of net investment income:
Class A ......................................................................... -- (449,596)
Net realized gains:
Class A ......................................................................... (1,823,769) (3,968,675)
Class C ......................................................................... (89,688) (134,989)
------------------------------
Total distributions to shareholders ............................................... (40,694,096) (42,848,135)
Capital share transactions: (Note 2)
Class A ......................................................................... 33,237,755 27,458,447
Class C ......................................................................... 13,967,984 11,912,652
------------------------------
Total capital share transactions .................................................. 47,205,739 39,371,099
Net increase in net assets ......................................................... 49,592,912 55,111,984
Net assets
Beginning of year ................................................................. 769,257,659 714,145,675
------------------------------
End of year ....................................................................... $ 818,850,571 $ 769,257,659
==============================
Accumulated distributions in excess of net investment income included in net assets:
End of year ....................................................................... $ (27,565) $ (434,981)
==============================
</TABLE>
See notes to financial statements.
97
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 objective is to
provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
sale or reported bid and asked prices, information with respect to bond and note
transactions, quotations from bond dealers, market transactions in comparable
securities, and various relationships between securities are used to determine
the value of the security. The Trust may utilize a pricing service, bank or
broker/dealer experienced in such matters to perform any of the pricing
functions under procedures approved by the Board of Trustees. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially 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 are 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.
98
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
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 A and Class C. Effective January 1, 1999, Class I and Class II were
renamed Class A and Class C, respectively. The shares differ by their initial
sales load, distribution fees, voting rights on matters affecting a single class
and the exchange privilege of each class.
At February 28, 1999, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN FLORIDA INSURED
INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------
CLASS A SHARES: ............................... SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold .................................. 2,370,125 $ 25,660,758 3,700,444 $ 38,909,596
Shares issued in reinvestment of distributions 146,945 1,590,252 182,603 1,917,371
Shares redeemed .............................. (466,289) (5,035,963) (1,790,202) (18,818,436)
-------------------------------------------------------------------
Net increase .................................. 2,050,781 $ 22,215,047 2,092,845 $ 22,008,531
===================================================================
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
===================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS
TAX-FREE INCOME FUND INSURED TAX-FREE INCOME FUND
-------------------------------------------------------------------
CLASS A SHARES: ............................... SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold .................................. 20,347,674 $ 250,574,059 3,673,445 $ 43,120,431
Shares issued in reinvestment of distributions 3,787,915 46,606,128 740,160 8,686,439
Shares redeemed .............................. (20,145,689) (248,030,170) (3,280,706) (38,471,594)
-------------------------------------------------------------------
Net increase .................................. 3,989,900 $ 49,150,017 1,132,899 $ 13,335,276
===================================================================
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 C SHARES:
Year ended February 28, 1999
Shares sold .................................. 2,858,182 $ 35,405,965 1,236,934 $ 14,603,154
Shares issued in reinvestment of distributions 143,445 1,775,301 59,445 700,881
Shares redeemed .............................. (791,952) (9,799,557) (243,865) (2,875,528)
-------------------------------------------------------------------
Net increase .................................. 2,209,675 $ 27,381,709 1,052,514 $ 12,428,507
===================================================================
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
===================================================================
</TABLE>
99
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold .................................. 8,062,766 $ 98,708,500 4,579,843 $ 55,803,476
Shares issued in reinvestment of distributions 2,592,822 31,727,653 1,138,659 13,862,003
Shares redeemed .............................. (9,743,467) (119,193,638) (4,006,455) (48,790,916)
-------------------------------------------------------------------
Net increase .................................. 912,121 $ 11,242,515 1,712,047 $ 20,874,563
===================================================================
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 C SHARES:
Year ended February 28, 1999
Shares sold .................................. 1,687,220 $ 20,782,927 967,191 $ 11,818,508
Shares issued in reinvestment of distributions 114,497 1,411,093 38,858 475,238
Shares redeemed .............................. (437,096) (5,381,143) (121,981) (1,491,537)
-------------------------------------------------------------------
Net increase .................................. 1,364,621 $ 16,812,877 884,068 $ 10,802,209
===================================================================
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
-------------------------------
CLASS A SHARES: SHARES AMOUNT
-------------------------------
<S> <C> <C>
Year ended February 28, 1999
Shares sold .................................. 7,474,825 $ 93,338,302
Shares issued in reinvestment of distributions 1,562,346 19,499,382
Shares redeemed .............................. (6,380,336) (79,599,929)
-------------------------------
Net increase .................................. 2,656,835 $ 33,237,755
===============================
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 C SHARES:
Year ended February 28, 1999
Shares sold .................................. 1,355,256 $ 17,004,771
Shares issued in reinvestment of distributions 92,437 1,159,580
Shares redeemed .............................. (334,322) (4,196,367)
-------------------------------
Net increase .................................. 1,113,371 $ 13,967,984
===============================
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>
100
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin/Templeton Investor Services, Inc. (Investor Services),
and Franklin Templeton Services, Inc. (FT Services), the Funds' investment
manager, principal underwriter, 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:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE MONTH-END NET ASSETS
------------------- --------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
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 A and Class C, respectively, for costs incurred in
marketing the Funds' shares.
Distributors paid net commissions on sales of the Funds' shares, and received
contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED INSURED INSURED INSURED INSURED INSURED INSURED
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net commissions paid $ (4,607) $ (33,186) $(470,475) $(125,545) $(149,844) $(110,017) $(158,520)
Contingent deferred
sales charges ..... $ -- $ 85 $ 38,597 $ 24,083 $ 10,821 $ 6,400 $ 15,696
</TABLE>
The Funds paid transfer agent fees of $1,998,410, of which $1,774,653 was paid
to Investor Services.
4. INCOME TAXES
At February 28, 1999, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN FLORIDA
INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND
------------------------------------
<S> <C> <C>
Capital loss carryovers expiring in:
2003 $ 165,472 $1,100,392
2005 17,363 167,156
------------------------------------
$ 182,835 $1,267,548
====================================
</TABLE>
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
101
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At February 28, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN MINNESOTA
INSURED INSURED INSURED INSURED INSURED INSURED
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments at cost $ 76,557,736 $ 115,940,869 $ 1,671,812,780 $ 340,631,592 $ 1,106,460,107 $ 505,431,161
=====================================================================================================
Unrealized appreciation $ 3,585,252 $ 6,842,756 $ 112,093,475 $ 22,007,097 $ 89,647,421 $ 25,705,710
Unrealized depreciation (111,011) (53,290) (1,203,474) (169,657) (110,898) (389,653)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation $ 3,474,241 $ 6,789,466 $ 110,890,001 $ 21,837,440 $ 89,536,523 $ 25,316,057
=====================================================================================================
<CAPTION>
FRANKLIN
OHIO
INSURED
TAX-FREE
INCOME FUND
-------------
<S> <C>
Investments at cost $ 763,384,531
=============
Unrealized appreciation $ 52,869,355
Unrealized depreciation (628,740)
-------------
Net unrealized appreciation $ 52,240,615
=============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 28, 1999, were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN MINNESOTA OHIO
INSURED INSURED INSURED INSURED INSURED INSURED INSURED
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases $ 26,194,202 $ 24,905,353 $294,028,629 $ 45,875,516 $ 98,564,045 $112,821,458 $102,300,207
Sales $ 7,077,328 $ 1,978,380 $228,566,473 $ 23,690,822 $ 86,721,405 $ 83,015,134 $ 51,154,467
</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.
102
FRANKLIN TAX-FREE TRUST
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF FRANKLIN TAX-FREE TRUST:
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the seven funds included in
the report, which are part of the Franklin Tax-Free Trust, (hereafter referred
to as the "Trust") at February 28, 1999, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28,1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 2, 1999
103
FRANKLIN TAX-FREE TRUST
Tax Information
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Trust hereby
designates the following amounts as capital gain dividends for the fiscal year
ended February 28, 1999:
<TABLE>
<S> <C>
Franklin Insured Tax-Free Income Fund $10,162,031
Franklin Massachusetts Insured Tax-Free Income Fund $ 575,532
Franklin Michigan Insured Tax-Free Income Fund $ 1,872,168
Franklin Minnesota Insured Tax-Free Income Fund $ 1,828,580
Franklin Ohio Insured Tax-Free Income Fund $ 2,482,460
</TABLE>
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Trust hereby
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1999.
104
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the 12
months ended February 28, 1999.
The year under review was challenging for the global and domestic bond markets.
Rarely have we witnessed the magnitude of volatility that we experienced over
the past year, which was due to a number of different factors, ranging from the
global financial crisis that impacted regions in Asia, Latin America and eastern
Europe, to the liquidity crisis created by the concerns and uncertainties
associated with a number of hedge funds' investment activities in third quarter
1998. Although certain market segments, such as the corporate high yield and
mortgage areas, were hit the hardest, the municipal bond market also faced some
challenges. The four-year declining interest-rate trend continued in 1998 as
many regions around the world experienced slowing and, in certain cases,
recession- or even depression-like economies. These regions had a direct impact
on the U.S. economy through fewer purchases of American goods, reducing U.S.
export levels. Throughout the same period, the American consumer boosted the
domestic economy at much higher-than-anticipated levels. With global and
domestic inflation virtually nonexistent the Federal Reserve Board's (the Fed's)
monetary policy panel, the Federal Open Market Committee, three times made
quarter-point cuts to the federal funds target rate, lowering it to 4.75% on
November 17, 1998. The Fed hoped to stimulate global economic growth and instill
confidence in the financial markets. The 30-year Treasury bond followed suit,
dropping from 5.92% on February 28, 1998, to 5.57% on February 28, 1999.
As interest rates declined, municipal bond issuers increased their refinancing
activity of outstanding, higher interest-rate debt. In addition many
municipalities were in excellent fiscal condition due to the strong national
economy, which gave them higher
CONTENTS
Shareholder Letter ........................................................ 1
Special Feature:
A Word About Municipal
Bond Insurance ............................................................ 4
Fund Reports
Franklin Alabama
Tax-Free Income Fund ..................................................... 6
Franklin Florida
Tax-Free Income Fund ..................................................... 11
Franklin Georgia
Tax-Free Income Fund ..................................................... 17
Franklin Kentucky
Tax-Free Income Fund ..................................................... 22
Franklin Louisiana
Tax-Free Income Fund ..................................................... 27
Franklin Maryland
Tax-Free Income Fund ..................................................... 32
Franklin Missouri
Tax-Free Income Fund ..................................................... 37
Franklin North Carolina
Tax-Free Income Fund ..................................................... 42
Franklin Texas
Tax-Free Income Fund ..................................................... 47
Franklin Virginia
Tax-Free Income Fund ..................................................... 52
Municipal Bond Ratings .................................................... 57
Financial Highlights &
Statement of Investments .................................................. 59
Financial Statements ...................................................... 108
Notes to Financial Statements ............................................. 119
Independent Auditors' Report .............................................. 125
Tax Information ........................................................... 126
FUND CATEGORY
[PYRAMID GRAPHIC]
<PAGE>
confidence to borrow money for new projects. These two conditions led to a surge
in 1998's new-issue supply with total volume closely matching 1993's record $293
billion. Although demand from individual investors was relatively stable, at
times, the municipal bond market had difficulty absorbing this huge bond supply,
which caused the municipal bond market to underperform the Treasury bond market
during the past year. To put it in perspective, in October 1998 an investor
could purchase a 30-year, AAA municipal bond yielding approximately 105% of the
yield on a comparable Treasury bond versus the historical average of
approximately 89%. The last time we saw such attractive municipal market
valuations was 1985 or 1986.
The prevalence of bond insurance was another trend affecting municipal bond
market fundamentals. The increasingly higher percentages of AAA-insured
municipal bond issues coming to market over the past four years seem to have
finally peaked at approximately 50% in 1998, compared with 37% in 1994. One of
the impacts on the market from having so many new bonds insured has been fewer
and fewer uninsured bonds. With investors continuing to demand higher yields in
a falling interest-rate environment, municipal bond market credit spreads, or
the additional interest rate paid to investors for AAA- versus BBB-rated bonds,
were extremely narrow. This condition abruptly changed in July 1998 when a large
health care organization, with a substantial amount of insured debt outstanding,
filed for bankruptcy. In large part, this significant event prompted municipal
bond insurers to reevaluate their business models and use a less aggressive
strategy in certain market sectors, particularly health care. The market impact
has been a widening of credit spreads in the lower-quality, or high yield,
market segment.
Franklin's municipal bond portfolio managers and research analysts certainly
welcome the widening credit spreads, as we have focused on purchasing
AAA-insured securities for the most part, over the past few years. We felt we
weren't getting the appropriate reward of higher interest rates, to take on the
additional credit risk of many lower-quality bonds. As a result, many of our
investment-grade portfolios had a record-high percentage of their net assets
invested in AAA bonds at the funds' fiscal year-end. We believe this puts us in
an excellent position to take advantage of portfolio management opportunities,
as we are now seeing lower-rated securities with the appropriate risk/reward
relationship. Our team of research analysts will continue to seek out these
opportunities and work closely with the portfolio managers in making their
recommendations.
2
<PAGE>
Looking forward, we anticipate supply pressures to moderate in 1999. Already,
municipal new issuance for the first six weeks of the year was down about 18%,
compared with the same period last calendar year.* We also expect mid-1998's
improved municipal bond demand to continue. Under such circumstances, the
municipal bond market would be well-positioned in 1999.
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. Generally, a taxable investment would need to offer a higher yield,
called the taxable equivalent yield, to match the yield on a tax-free
investment. 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,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Thomas J. Kenny
Thomas J. Kenny
Director
Franklin Municipal Bond Department
WHAT DOES "TAXABLE EQUIVALENT" MEAN FOR YOU?
For yield and distribution rate, the taxable equivalent is the amount a taxable
investment would have to earn to match a tax-free investment such as municipal
bonds.(+) You can find your fund's taxable equivalent distribution rate and
yield in the Performance Summary that follows your fund's report.
(+)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.
*Source: The Bond Buyer, 2/18/99.
3
<PAGE>
A WORD ABOUT MUNICIPAL BOND INSURANCE
[LOGO]
Municipal bond insurers guarantee the timely payment of interest and principal
on insured bond issues, providing bond investors with additional protection
against the potential of the issuer's payment default. Moody's and Standard &
Poor's assign the four principal municipal bond insurers -- MBIA, AMBAC, FGIC
and FSA -- their highest rating, AAA, based on their ability to pay claims. This
is important, as once a bond is insured it no longer carries the underlying
security's rating, but the insurer's rating. In 1998, the four primary municipal
bond insurers comprised more than 98% of the market, with MBIA controlling the
largest share, 35.4%.
Municipal bond insurers often work with bond reinsurers to enhance their ability
to generate new business. By purchasing portions of insured bond portfolios from
the insurers, bond reinsurers assume a portion of the risk, freeing up the
insurers' capital and enabling them to insure additional municipal bond issues.
The added capital provided by the reinsurers, in turn, increases the overall
size of the insured municipal bond market.
Currently, many municipal bond issuers favor the use of bond insurance. In 1998,
municipal bond insurers covered 50.8% of the new-issue municipal bond market,
involving 5,825 new issues valued at $145 billion. For issuers, obtaining bond
insurance can often lower their borrowing costs as it often improves their
credit rating,
4
<PAGE>
which more than makes up for the cost of the insurance. In addition, the four
primary, AAA-rated bond insurers presently charge issuers comparatively
inexpensive insurance premiums, due to the extremely competitive environment for
municipal bond insurance. Bond insurance also enables issuers to market their
bonds to a larger pool of potential buyers. For example, insured municipal bond
funds purchase primarily, if not exclusively, insured bonds.
Low-cost municipal bond insurance benefits investors beyond the credit
protection it provides against payment default. As insured bonds appeal to a
wider variety of investors, insurance can lead to improved liquidity, allowing
investors to more easily buy and sell bonds.
INSURED MUNICIPAL BOND ISSUES*
As a % of Municipal Bond Market
[BAR CHART]
<TABLE>
<S> <C>
1993 37.0%
1994 37.0%
1995 43.0%
1996 46.0%
1997 49.0%
1998 50.8%
</TABLE>
INSURERS MARKET SHARE*
12/31/98
[PIE CHART]
<TABLE>
<S> <C>
MBIA 35.4%
FSA 22.0%
FGIC 21.5%
AMBAC 19.6%
Other 1.5%
</TABLE>
*Source: The Bond Buyer, 1999.
5
<PAGE>
FRANKLIN ALABAMA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Alabama Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 59.7%
AA 4.1%
A 8.4%
BBB 24.5%
Below Investment Grade 3.3%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
Your Fund's Goal: Franklin Alabama Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Alabama state personal income
taxes through a portfolio consisting primarily of Alabama municipal bonds.(1)
STATE UPDATE
[ALABAMA GRAPHIC]
The past 15 years have seen a shift in Alabama's non-agricultural employment.
Manufacturing employment, at the end of January 1999, represented 20.2% of jobs,
down from 26.9% in 1981. However, major new durable goods manufacturing in the
state partially offset manufacturing declines, particularly in the textile and
apparel industry. The Mercedes Benz assembly plant, which is planning payroll
expansion to meet demand for its vehicles, represents the state's recent foreign
investment trend. Still, the state suffers from low wealth levels, placing it
39th in the U.S. on a per capita basis.(2)
Alabama's strong balanced budget requirements and below average overall debt
load have resulted in healthy finances, even during cyclical downturns. The
state's conservative financial practices, coupled with its weaker-than-average
economic growth compared with the rest of the nation's, led to a creditworthy
rating of Aa3 from Moody's Investors Service.(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: Moody's Investor Service, Municipal Credit Research, 1/27/99.
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 60 of
this report.
6
<PAGE>
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.
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
The fund maintained its prerefunded exposure at 6.6% of total long-term
investments during the year under review. The fund profited by selling many of
its prerefunded securities for more than it paid. Thus, it made long-term
capital gain distributions in June and December totaling 4.54 cents per share.
Additionally, the fund may make another capital gain distribution in June 1999.
Another significant asset allocation shift during the same period came in the
utilities sector, declining from 28.3% to 21.8% of total long-term investments.
During that time, we found value in the following securities: Valley Special
Care Facilities Financing Authority Revenue; Mcintosh IDB, Environmental
Improvement Revenue; and Montgomery BMC Special Care Facilities Financing
Authority Revenue.
Widening credit spreads, or the additional interest rate paid to investors for
BBB- versus AAA-rated bonds, prompted the fund to sell some of its large, AAA
position to take advantage of the greater yields offered on some lower-rated
credits. Previously, such securities did not offer high enough yield rewards to
justify their higher risk, in our opinion. Despite these sales, the fund
remained extremely high quality, with 59.7% in AAA bonds at the end of the
reporting period.
The fund's share price, as measured by net asset value, declined during the
period partly as a result of a drop in value in one of its holdings, an energy
complex with an integrated pulp and paper mill. The market's reaction to the
owner's decision to close the pulp mill and sell its associated woodlands
operations negatively affected the price of these bonds. However, as of the end
of the reporting period, these bonds represented only 1.67% of the fund's total
long-term investments and we are closely monitoring the situation.
PORTFOLIO BREAKDOWN
Franklin Alabama
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Utilities 21.8%
Hospitals 19.3%
Industrial 16.3%
General Obligation 13.1%
Prerefunded 6.6%
Housing 5.8%
Health Care 4.9%
Transportation 4.3%
Other Revenue 4.0%
Education 3.9%
</TABLE>
7
<PAGE>
We expect Alabama municipal bond supply to be solid in 1999, concentrated on
several large deals for infrastructure projects. Going forward, the fund will
seek to adhere to its investment strategy of protecting share value and
maintaining a competitive yield.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Alabama Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.3 cents 4.73 cents
April 5.3 cents 4.74 cents
May 5.3 cents 4.74 cents
June 5.3 cents 4.74 cents
July 5.3 cents 4.74 cents
August 5.3 cents 4.74 cents
September 5.2 cents 4.64 cents
October 5.2 cents 4.66 cents
November 5.2 cents 4.66 cents
December 5.1 cents 4.56 cents
January 5.1 cents 4.56 cents
February 5.1 cents 4.56 cents
- --------------------------------------------------------------------------------
TOTAL 62.7 CENTS 56.07 CENTS
</TABLE>
*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.
8
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.30 $11.68 $11.98
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
----------------------------------
<S> <C>
Dividend Income $0.6270
Long-Term Capital Gain $0.0454
Short-Term Capital Gain $0.0014
Total $0.6738
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.30 $11.74 $12.04
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
----------------------------------
<S> <C>
Dividend Income $0.5607
Long-Term Capital Gain $0.0454
Short-Term Capital Gain $0.0014
Total $0.6075
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +3.21% +32.46% +105.48% +134.28%
Average Annual Total Return(2) -1.17% +4.87% +7.00% +7.28%
Distribution Rate(3) 4.92%
Taxable Equivalent Distribution Rate(4) 8.57%
30-Day Standardized Yield(5) 4.14%
Taxable Equivalent Yield(4) 7.22%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.62% +16.93% +26.30%
Average Annual Total Return(2) +0.64% +5.00% +6.02%
Distribution Rate(3) 4.47%
Taxable Equivalent Distribution Rate(4) 7.79%
30-Day Standardized Yield(5) 3.72%
Taxable Equivalent Yield(4) 6.48%
</TABLE>
Franklin Alabama Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 4.54 cents ($0.0454) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
FRANKLIN ALABAMA TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Alabama state personal income tax bracket of 42.6%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
9
<PAGE>
FRANKLIN ALABAMA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year -1.17%
5-Year +4.87%
10-Year +7.00%
Since Inception (9/1/87) +7.28%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year +0.64%
3-Year +5.00%
Since Inception (5/1/95) +6.02%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following chart shows the average annual return for Franklin Alabama
Tax-Free Income Fund Class A on 2/28/99.
1-Year -1.17%
5-Year +4.87%
10-Year +7.00%
Since Inception (9/1/87) +7.28%
GRAPHIC MATERIAL (8)
The following line graph compares the performance of the Franklin Alabama
Tax-Free Income Fund's Class C shares to that of th Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
[LINE CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Date Franklin Alabama Lehman Brothers CPI
Tax-Free Income Municipal Bond Index
Fund-Class A
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/1/89 $9,575 $10,000 $10,000
3/31/89 $9,561 -0.24% $9,976 0.58% $10,058
4/30/89 $9,737 2.37% $10,212 0.65% $10,123
5/31/89 $9,952 2.08% $10,425 0.57% $10,181
6/30/89 $10,094 1.36% $10,567 0.24% $10,206
7/31/89 $10,162 1.36% $10,710 0.24% $10,230
8/31/89 $10,082 -0.98% $10,605 0.16% $10,246
9/30/89 $10,030 -0.30% $10,574 0.32% $10,279
10/31/89 $10,128 1.22% $10,703 0.48% $10,329
11/30/89 $10,274 1.75% $10,890 0.24% $10,353
12/31/89 $10,383 0.82% $10,979 0.16% $10,370
1/31/90 $10,310 -0.47% $10,928 1.03% $10,477
2/28/90 $10,430 0.89% $11,025 0.47% $10,526
3/31/90 $10,414 0.03% $11,028 0.55% $10,584
4/30/90 $10,330 -0.72% $10,949 0.16% $10,601
5/31/90 $10,550 2.18% $11,187 0.23% $10,625
6/30/90 $10,663 0.88% $11,286 0.54% $10,682
7/31/90 $10,836 1.48% $11,453 0.38% $10,723
8/31/90 $10,550 -1.45% $11,287 0.92% $10,822
9/30/90 $10,574 0.06% $11,294 0.84% $10,913
10/31/90 $10,720 1.81% $11,498 0.60% $10,978
11/30/90 $10,949 2.01% $11,729 0.22% $11,002
12/31/90 $10,932 0.44% $11,781 0.00% $11,002
1/31/91 $11,133 1.34% $11,939 0.60% $11,068
2/28/91 $11,220 0.87% $12,042 0.15% $11,085
3/31/91 $11,276 0.04% $12,047 0.15% $11,102
4/30/91 $11,417 1.34% $12,209 0.15% $11,118
5/31/91 $11,496 0.89% $12,317 0.30% $11,152
6/30/91 $11,490 -0.10% $12,305 0.29% $11,184
7/31/91 $11,655 1.22% $12,455 0.15% $11,201
8/31/91 $11,767 1.32% $12,620 0.29% $11,233
9/30/91 $11,944 1.30% $12,784 0.44% $11,283
10/31/91 $12,014 0.90% $12,899 0.15% $11,299
11/30/91 $12,051 0.28% $12,935 0.29% $11,332
12/31/91 $12,287 2.15% $13,213 0.07% $11,340
1/31/92 $12,329 0.23% $13,243 0.15% $11,357
2/29/92 $12,305 0.03% $13,247 0.36% $11,398
3/31/92 $12,325 0.04% $13,253 0.51% $11,456
4/30/92 $12,435 0.89% $13,370 0.14% $11,472
5/31/92 $12,602 1.18% $13,528 0.14% $11,488
6/30/92 $12,782 1.68% $13,756 0.36% $11,530
7/31/92 $13,192 3.00% $14,168 0.21% $11,554
8/31/92 $13,040 -0.98% $14,029 0.28% $11,586
9/30/92 $13,073 0.65% $14,121 0.28% $11,619
10/31/92 $12,850 -0.98% $13,982 0.35% $11,659
11/30/92 $13,150 1.79% $14,232 0.14% $11,676
12/31/92 $13,347 1.02% $14,378 -0.07% $11,667
1/31/93 $13,508 1.16% $14,544 0.49% $11,725
2/28/93 $13,929 3.62% $15,071 0.35% $11,766
3/31/93 $13,865 -1.06% $14,911 0.35% $11,807
4/30/93 $13,967 1.01% $15,062 0.28% $11,840
5/31/93 $14,035 0.56% $15,146 0.14% $11,856
6/30/93 $14,235 1.67% $15,399 0.14% $11,873
7/31/93 $14,242 0.13% $15,419 0.00% $11,873
8/31/93 $14,506 2.08% $15,740 0.28% $11,906
9/30/93 $14,694 1.14% $15,919 0.21% $11,931
10/31/93 $14,748 0.19% $15,949 0.41% $11,980
11/30/93 $14,704 -0.88% $15,809 0.07% $11,989
12/31/93 $14,982 2.11% $16,143 0.00% $11,989
1/31/94 $15,124 1.14% $16,327 0.27% $12,021
2/28/94 $14,841 -2.59% $15,904 0.34% $12,062
3/31/94 $14,329 -4.07% $15,257 0.34% $12,103
4/30/94 $14,384 0.85% $15,386 0.14% $12,120
5/31/94 $14,479 0.87% $15,520 0.07% $12,128
6/30/94 $14,432 -0.61% $15,425 0.34% $12,170
7/31/94 $14,668 1.83% $15,708 0.27% $12,202
8/31/94 $14,725 0.35% $15,763 0.40% $12,251
9/30/94 $14,562 -1.47% $15,531 0.27% $12,284
10/31/94 $14,306 -1.78% $15,255 0.07% $12,293
11/30/94 $14,012 -1.81% $14,978 0.13% $12,309
12/31/94 $14,319 2.20% $15,308 0.00% $12,309
1/31/95 $14,708 2.86% $15,746 0.40% $12,358
2/28/95 $15,072 2.91% $16,204 0.40% $12,408
3/31/95 $15,210 1.15% $16,390 0.33% $12,448
4/30/95 $15,282 0.12% $16,410 0.33% $12,490
5/31/95 $15,638 3.19% $16,933 0.20% $12,515
6/30/95 $15,562 -0.87% $16,786 0.20% $12,540
7/31/95 $15,649 0.95% $16,946 0.00% $12,540
8/31/95 $15,791 1.27% $17,161 0.26% $12,572
9/30/95 $15,893 0.63% $17,269 0.20% $12,597
10/31/95 $16,091 1.45% $17,519 0.33% $12,639
11/30/95 $16,348 1.66% $17,810 -0.07% $12,630
12/31/95 $16,508 0.96% $17,981 -0.07% $12,621
1/31/96 $16,585 0.76% $18,118 0.59% $12,696
2/29/96 $16,536 -0.68% $17,995 0.32% $12,736
3/31/96 $16,374 -1.28% $17,764 0.52% $12,803
4/30/96 $16,366 -0.28% $17,714 0.39% $12,852
5/31/96 $16,387 -0.04% $17,707 0.19% $12,877
6/30/96 $16,567 1.09% $17,900 0.06% $12,885
7/31/96 $16,689 0.91% $18,063 0.19% $12,909
8/31/96 $16,710 -0.02% $18,060 0.19% $12,934
9/30/96 $16,921 1.40% $18,313 0.32% $12,975
10/31/96 $17,103 1.13% $18,519 0.32% $13,017
11/30/96 $17,360 1.83% $18,858 0.19% $13,041
12/31/96 $17,323 -0.42% $18,779 0.00% $13,041
1/31/97 $17,360 0.19% $18,815 0.32% $13,083
2/28/97 $17,501 0.92% $18,988 0.31% $13,124
3/31/97 $17,344 -1.33% $18,735 0.25% $13,156
4/30/97 $17,486 0.84% $18,893 0.12% $13,172
5/31/97 $17,675 1.51% $19,178 -0.06% $13,164
6/30/97 $17,862 1.07% $19,383 0.12% $13,180
7/31/97 $18,296 2.77% $19,920 0.12% $13,196
8/31/97 $18,166 -0.94% $19,733 0.19% $13,221
9/30/97 $18,389 1.19% $19,968 0.25% $13,254
10/31/97 $18,506 0.64% $20,096 0.25% $13,287
11/30/97 $18,638 0.59% $20,214 -0.06% $13,279
12/31/97 $18,889 1.46% $20,509 -0.12% $13,263
1/31/98 $19,035 1.03% $20,720 0.19% $13,288
2/28/98 $19,040 0.03% $20,727 0.19% $13,314
3/31/98 $19,076 0.09% $20,745 0.19% $13,339
4/30/98 $19,049 -0.45% $20,652 0.18% $13,363
5/31/98 $18,990 1.58% $20,978 0.18% $13,387
6/30/98 $18,971 0.39% $21,060 0.12% $13,403
7/31/98 $19,025 0.25% $21,113 0.12% $13,419
8/31/98 $19,258 1.55% $21,440 0.12% $13,435
9/30/98 $19,441 1.25% $21,708 0.12% $13,451
10/31/98 $19,428 0.00% $21,708 0.24% $13,484
11/30/98 $19,497 0.35% $21,784 0.00% $13,484
12/31/98 $19,534 0.25% $21,838 -0.06% $13,476
1/31/99 0.86% $19,702 1.19% $22,098 0.24% $13,508
2/28/99 -0.26% $19,675 -0.44% $22,001 0.12% $13,524
Total Return 96.75% 120.01% 35.24%
- ----------------------------------------------------------------------------------------
</TABLE>
CLASS (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin Alabama
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
[LINE CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Alabama Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,127 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,141 0.95% $10,326 0.00% $10,040
8/31/95 $10,220 1.27% $10,458 0.26% $10,066
9/29/95 $10,289 0.63% $10,523 0.20% $10,086
10/31/95 $10,412 1.45% $10,676 0.33% $10,120
11/30/95 $10,572 1.66% $10,853 -0.07% $10,112
12/29/95 $10,679 0.96% $10,957 -0.07% $10,105
1/31/96 $10,723 0.76% $11,041 0.59% $10,165
2/29/96 $10,686 -0.68% $10,966 0.32% $10,198
3/29/96 $10,576 -1.28% $10,825 0.52% $10,251
4/30/96 $10,566 -0.28% $10,795 0.39% $10,291
5/31/96 $10,574 -0.04% $10,791 0.19% $10,310
6/28/96 $10,684 1.09% $10,908 0.06% $10,316
7/31/96 $10,758 0.91% $11,008 0.19% $10,336
8/30/96 $10,766 -0.02% $11,005 0.19% $10,356
9/30/96 $10,896 1.40% $11,159 0.32% $10,389
10/31/96 $11,007 1.13% $11,286 0.32% $10,422
11/29/96 $11,166 1.83% $11,492 0.19% $10,442
12/31/96 $11,138 -0.42% $11,444 0.00% $10,442
1/31/97 $11,156 0.19% $11,466 0.32% $10,475
2/28/97 $11,250 0.92% $11,571 0.31% $10,508
3/31/97 $11,144 -1.33% $11,417 0.25% $10,534
4/30/97 $11,230 0.84% $11,513 0.12% $10,547
5/31/97 $11,345 1.51% $11,687 -0.06% $10,540
6/30/97 $11,459 1.07% $11,812 0.12% $10,553
7/31/97 $11,732 2.77% $12,139 0.12% $10,565
8/31/97 $11,643 -0.94% $12,025 0.19% $10,586
9/30/97 $11,780 1.19% $12,168 0.25% $10,612
10/31/97 $11,849 0.64% $12,246 0.25% $10,639
11/30/97 $11,928 0.59% $12,318 -0.06% $10,632
12/31/97 $12,092 1.46% $12,498 -0.12% $10,619
1/31/98 $12,170 1.03% $12,627 0.19% $10,640
2/28/98 $12,177 0.03% $12,631 0.19% $10,660
3/31/98 $12,184 0.09% $12,642 0.19% $10,680
4/30/98 $12,171 -0.45% $12,585 0.18% $10,699
5/31/98 $12,118 1.58% $12,784 0.18% $10,719
6/30/98 $12,110 0.39% $12,834 0.12% $10,731
7/31/98 $12,139 0.25% $12,866 0.12% $10,744
8/31/98 $12,281 1.55% $13,065 0.12% $10,757
9/30/98 $12,391 1.25% $13,229 0.12% $10,770
10/31/98 $12,377 0.00% $13,229 0.24% $10,796
11/30/98 $12,416 0.35% $13,275 0.00% $10,796
12/31/98 $12,433 0.25% $13,308 -0.06% $10,789
1/31/99 0.81% $12,534 1.19% $13,466 0.24% $10,815
2/28/99 -0.30% $12,509 -0.44% $13,407 0.12% $10,828
Total Return 25.09% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's(R) Micropal.
Past performance is not predictive of future results.
10
<PAGE>
FRANKLIN FLORIDA TAX-FREE INCOME FUND
Your Fund's Goal: 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 GRAPHIC]
Broad population growth represented one of the demographic trends that drove
Florida's economy during the year under review. The state's population rose from
10th among the states in 1960 to fourth in 1990, where it remained, as of the
end of the reporting period. Two age groups, seniors and the youthful
population, dominated this trend, whereas the main segment of the working age
population (25-44) is projected to decrease from 30% in 1990 to 23% in 2010.
The high proportion of seniors -- 18.5% of the population was 65 and older
compared with 12.7% nationally in 1997 -- heightens the risk that Medicaid and
other health care service costs will increase more rapidly than elsewhere in the
nation. However, the relatively high income level of many seniors contributed
significantly to spending, and thus sales tax revenue somewhat offset senior
health care-related expenses. The rise in Florida's 5- to 17-year-old population
has proved more costly, necessitating large investments to support the state
school system. In 1998, education-directed debt issues accounted for 63% of the
state's $12.9 billion total debt outstanding.(2)
CREDIT QUALITY BREAKDOWN*
Franklin Florida Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 69.2%
AA 8.9%
A 8.8%
BBB 12.4%
Below Investment Grade 0.7%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Moody's Investors Service, 1/99.
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 64 of
this report.
11
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Florida
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------
<S> <C>
Prerefunded 24.1%
Utilities 21.7%
Transportation 10.5%
Housing 9.1%
Special Assessment 8.6%
Hospitals 6.6%
Other Revenue 5.8%
Health Care 3.7%
Certificates of Participation 3.4%
General Obligation 3.0%
Education 1.7%
Sales Tax Revenue 1.2%
Industrial 0.6%
</TABLE>
Florida's stable financial picture over the past several years, based on
relatively moderate debt levels and a services-based economy that continues to
expand faster than the nation's, contributed to its AA+ general obligation debt
rating by Standard and Poor's, a national credit rating agency.(3) Although the
state has no personal income tax, the sales tax, which comprises 60% of
Florida's revenues, grew by a healthy 5.5% in 1996 and 6.8% in 1997. While
figures for 1998 were not yet available at the end of the reporting period, the
sales tax is projected to grow 7.0% in 1999.(2) The state also makes yearly
deposits to its Budget Stabilization Fund, reducing its dependence on the sales
tax.
PORTFOLIO NOTES
Throughout the year under review, the fund's Class A share price, as measured by
net asset value, increased four cents, from $11.87 on February 28, 1998, to
$11.91 on February 28, 1999. Meanwhile, on the state level, falling interest
rates prompted Florida municipalities to refinance outstanding debt as well as
vigorously issue new bonds. This was demonstrated by the state's 27% issuance
increase compared with the previous reporting period. Florida also participated
in the national trend of municipalities' offering greater amounts of insured
debt, with over 50% of the national municipal debt coming to market insured
during the reporting period. We saw attractive value in the insured bond sector
and increased the fund's percentage of highest-quality AAA bonds from 62.7% of
total long-term investments on February 28, 1998, to 69.2% on February 28, 1999.
3. This does not indicate Standard & Poor's rating of the fund.
12
<PAGE>
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
The fund profited by selling many of its prerefunded securities for more than it
paid. Therefore, it made a 0.8 cent per share long-term capital gain
distribution in December and may make another capital gain distribution in June
1999.
The large demand for Florida municipal bonds allowed yields to remain
significantly lower than national levels. Despite the appetite for the state's
debt, credit spreads, the higher yields paid to investors for the project risk,
widened toward the close of the calendar year. This enabled Franklin Florida
Tax-Free Income Fund to purchase some attractively yielding, lower-rated bonds.
Purchases during the reporting period included Florida Housing Finance Corp.
Revenue 5.15%; Florida State Department of Transportation General Obligation 5%;
Bay County School Board Certificate of Participation 5%; Highlands County Health
Facilities Authority Revenue 5.25%; and Escambia County HFA, SFMR 5.20%.
13
<PAGE>
We believe that Florida's strong economy and conservative financial practices
make the state an attractive investment, going forward.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Florida Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.63 cents
April 5.2 cents 4.65 cents
May 5.2 cents 4.65 cents
June 5.2 cents 4.65 cents
July 5.2 cents 4.65 cents
August 5.2 cents 4.65 cents
September 5.2 cents 4.65 cents
October 5.2 cents 4.64 cents
November 5.2 cents 4.64 cents
December 5.1 cents 4.54 cents
January 5.1 cents 4.54 cents
February 5.1 cents 4.54 cents
- --------------------------------------------------------------------------------
TOTAL 62.1 CENTS 55.43 CENTS
</TABLE>
*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.
14
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.04 $11.91 $11.87
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.621
Long-Term Capital Gain $0.008
Total $0.629
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.05 $12.01 $11.96
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5543
Long-Term Capital Gain $0.0080
Total $0.5623
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.75% +34.89% +111.72% +144.35%
Average Annual Total Return(2) +1.23% +5.26% +7.32% +7.67%
Distribution Rate(3) 4.82%
Taxable Equivalent Distribution Rate(4) 7.98%
30-Day Standardized Yield(5) 3.78%
Taxable Equivalent Yield(4) 6.26%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.21% +18.69% +28.26%
Average Annual Total Return(2) +3.18% +5.52% +6.45%
Distribution Rate(3) 4.38%
Taxable Equivalent Distribution Rate(4) 7.25%
30-Day Standardized Yield(5) 3.35%
Taxable Equivalent Yield(4) 5.55%
</TABLE>
Franklin Florida Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.8 cents ($0.008) per share in December 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
FRANKLIN FLORIDA
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
federal personal income tax bracket of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
15
<PAGE>
FRANKLIN FLORIDA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +1.23%
5-Year +5.26%
10-Year +7.32%
Since Inception (9/1/87) +7.67%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------
<S> <C>
1-Year +3.18%
3-Year +5.52%
Since Inception (5/1/95) +6.45%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 to 2/28/99)
[LINE GRAPH]
The following line graph compares the performance of the Franklin Florida
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment
from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Florida Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond
Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $9,575 $10,000 $10,000
3/31/89 $9,573 -0.24% $9,976 0.58% $10,058
4/30/89 $9,772 2.37% $10,212 0.65% $10,123
5/31/89 $9,990 2.08% $10,425 0.57% $10,181
6/30/89 $10,108 1.36% $10,567 0.24% $10,206
7/31/89 $10,190 1.36% $10,710 0.24% $10,230
8/31/89 $10,095 -0.98% $10,605 0.16% $10,246
9/30/89 $10,027 -0.30% $10,574 0.32% $10,279
10/31/89 $10,158 1.22% $10,703 0.48% $10,329
11/30/89 $10,318 1.75% $10,890 0.24% $10,353
12/31/89 $10,412 0.82% $10,979 0.16% $10,370
1/31/90 $10,323 -0.47% $10,928 1.03% $10,477
2/28/90 $10,467 0.89% $11,025 0.47% $10,526
3/31/90 $10,455 0.03% $11,028 0.55% $10,584
4/30/90 $10,364 -0.72% $10,949 0.16% $10,601
5/31/90 $10,609 2.18% $11,187 0.23% $10,625
6/30/90 $10,707 0.88% $11,286 0.54% $10,682
7/31/90 $10,886 1.48% $11,453 0.38% $10,723
8/31/90 $10,581 -1.45% $11,287 0.92% $10,822
9/30/90 $10,650 0.06% $11,294 0.84% $10,913
10/31/90 $10,809 1.81% $11,498 0.60% $10,978
11/30/90 $11,050 2.01% $11,729 0.22% $11,002
12/31/90 $11,045 0.44% $11,781 0.00% $11,002
1/31/91 $11,227 1.34% $11,939 0.60% $11,068
2/28/91 $11,306 0.87% $12,042 0.15% $11,085
3/31/91 $11,353 0.04% $12,047 0.15% $11,102
4/30/91 $11,507 1.34% $12,209 0.15% $11,118
5/31/91 $11,587 0.89% $12,317 0.30% $11,152
6/30/91 $11,582 -0.10% $12,305 0.29% $11,184
7/31/91 $11,771 1.22% $12,455 0.15% $11,201
8/31/91 $11,896 1.32% $12,620 0.29% $11,233
9/30/91 $12,065 1.30% $12,784 0.44% $11,283
10/31/91 $12,136 0.90% $12,899 0.15% $11,299
11/30/91 $12,186 0.28% $12,935 0.29% $11,332
12/31/91 $12,432 2.15% $13,213 0.07% $11,340
1/31/92 $12,444 0.23% $13,243 0.15% $11,357
2/29/92 $12,456 0.03% $13,247 0.36% $11,398
3/31/92 $12,491 0.04% $13,253 0.51% $11,456
4/30/92 $12,606 0.89% $13,370 0.14% $11,472
5/31/92 $12,767 1.18% $13,528 0.14% $11,488
6/30/92 $12,917 1.68% $13,756 0.36% $11,530
7/31/92 $13,380 3.00% $14,168 0.21% $11,554
8/31/92 $13,242 -0.98% $14,029 0.28% $11,586
9/30/92 $13,244 0.65% $14,121 0.28% $11,619
10/31/92 $13,033 -0.98% $13,982 0.35% $11,659
11/30/92 $13,305 1.79% $14,232 0.14% $11,676
12/31/92 $13,506 1.02% $14,378 -0.07% $11,667
1/31/93 $13,683 1.16% $14,544 0.49% $11,725
2/28/93 $14,054 3.62% $15,071 0.35% $11,766
3/31/93 $14,004 -1.06% $14,911 0.35% $11,807
4/30/93 $14,123 1.01% $15,062 0.28% $11,840
5/31/93 $14,232 0.56% $15,146 0.14% $11,856
6/30/93 $14,438 1.67% $15,399 0.14% $11,873
7/31/93 $14,462 0.13% $15,419 0.00% $11,873
8/31/93 $14,681 2.08% $15,740 0.28% $11,906
9/30/93 $14,840 1.14% $15,919 0.21% $11,931
10/31/93 $14,950 0.19% $15,949 0.41% $11,980
11/30/93 $14,885 -0.88% $15,809 0.07% $11,989
12/31/93 $15,130 2.11% $16,143 0.00% $11,989
1/31/94 $15,289 1.14% $16,327 0.27% $12,021
2/28/94 $15,015 -2.59% $15,904 0.34% $12,062
3/31/94 $14,548 -4.07% $15,257 0.34% $12,103
4/30/94 $14,619 0.85% $15,386 0.14% $12,120
5/31/94 $14,702 0.87% $15,520 0.07% $12,128
6/30/94 $14,684 -0.61% $15,425 0.34% $12,170
7/31/94 $14,900 1.83% $15,708 0.27% $12,202
8/31/94 $14,934 0.35% $15,763 0.40% $12,251
9/30/94 $14,797 -1.47% $15,531 0.27% $12,284
10/31/94 $14,619 -1.78% $15,255 0.07% $12,293
11/30/94 $14,350 -1.81% $14,978 0.13% $12,309
12/31/94 $14,626 2.20% $15,308 0.00% $12,309
1/31/95 $15,011 2.86% $15,746 0.40% $12,358
2/28/95 $15,371 2.91% $16,204 0.40% $12,408
3/31/95 $15,489 1.15% $16,390 0.33% $12,448
4/30/95 $15,553 0.12% $16,410 0.33% $12,490
5/31/95 $15,918 3.19% $16,933 0.20% $12,515
6/30/95 $15,886 -0.87% $16,786 0.20% $12,540
7/31/95 $15,979 0.95% $16,946 0.00% $12,540
8/31/95 $16,115 1.27% $17,161 0.26% $12,572
9/30/95 $16,208 0.63% $17,269 0.20% $12,597
10/31/95 $16,400 1.45% $17,519 0.33% $12,639
11/30/95 $16,622 1.66% $17,810 -0.07% $12,630
12/31/95 $16,774 0.96% $17,981 -0.07% $12,621
1/31/96 $16,855 0.76% $18,118 0.59% $12,696
2/29/96 $16,793 -0.68% $17,995 0.32% $12,736
3/31/96 $16,660 -1.28% $17,764 0.52% $12,803
4/30/96 $16,626 -0.28% $17,714 0.39% $12,852
5/31/96 $16,636 -0.04% $17,707 0.19% $12,877
6/30/96 $16,836 1.09% $17,900 0.06% $12,885
7/31/96 $16,935 0.91% $18,063 0.19% $12,909
8/31/96 $16,929 -0.02% $18,060 0.19% $12,934
9/30/96 $17,162 1.40% $18,313 0.32% $12,975
10/31/96 $17,307 1.13% $18,519 0.32% $13,017
11/30/96 $17,557 1.83% $18,858 0.19% $13,041
12/31/96 $17,507 -0.42% $18,779 0.00% $13,041
1/31/97 $17,518 0.19% $18,815 0.32% $13,083
2/28/97 $17,665 0.92% $18,988 0.31% $13,124
3/31/97 $17,461 -1.33% $18,735 0.25% $13,156
4/30/97 $17,626 0.84% $18,893 0.12% $13,172
5/31/97 $17,821 1.51% $19,178 -0.06% $13,164
6/30/97 $18,002 1.07% $19,383 0.12% $13,180
7/31/97 $18,433 2.77% $19,920 0.12% $13,196
8/31/97 $18,303 -0.94% $19,733 0.19% $13,221
9/30/97 $18,435 1.19% $19,968 0.25% $13,254
10/31/97 $18,552 0.64% $20,096 0.25% $13,287
11/30/97 $18,669 0.59% $20,214 -0.06% $13,279
12/31/97 $18,929 1.46% $20,509 -0.12% $13,263
1/31/98 $19,125 1.03% $20,720 0.19% $13,288
2/28/98 $19,146 0.03% $20,727 0.19% $13,314
3/31/98 $19,181 0.09% $20,745 0.19% $13,339
4/30/98 $19,152 -0.45% $20,652 0.18% $13,363
5/31/98 $19,383 1.58% $20,978 0.18% $13,387
6/30/98 $19,452 0.39% $21,060 0.12% $13,403
7/31/98 $19,521 0.25% $21,113 0.12% $13,419
8/31/98 $19,772 1.55% $21,440 0.12% $13,435
9/30/98 $19,957 1.25% $21,708 0.12% $13,451
10/31/98 $19,977 0.00% $21,708 0.24% $13,484
11/30/98 $20,064 0.35% $21,784 0.00% $13,484
12/31/98 $20,130 0.25% $21,838 -0.06% $13,476
1/31/99 0.76% $20,283 1.19% $22,098 0.24% $13,508
2/28/99 -0.17% $20,272 -0.44% $22,001 0.12% $13,524
Total Return 102.72% 120.01% 35.24%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 to 2/28/99)
[LINE GRAPH]
The following line graph compares the performance of the Franklin Florida
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment
from 5/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Florida Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,164 3.19% $10,319 0.20% $10,020
6/30/95 $10,147 -0.87% $10,229 0.20% $10,040
7/31/95 $10,192 0.95% $10,326 0.00% $10,040
8/31/95 $10,281 1.27% $10,458 0.26% $10,066
9/29/95 $10,344 0.63% $10,523 0.20% $10,086
10/31/95 $10,452 1.45% $10,676 0.33% $10,120
11/30/95 $10,596 1.66% $10,853 -0.07% $10,112
12/29/95 $10,687 0.96% $10,957 -0.07% $10,105
1/31/96 $10,733 0.76% $11,041 0.59% $10,165
2/29/96 $10,688 -0.68% $10,966 0.32% $10,198
3/29/96 $10,590 -1.28% $10,825 0.52% $10,251
4/30/96 $10,564 -0.28% $10,795 0.39% $10,291
5/31/96 $10,565 -0.04% $10,791 0.19% $10,310
6/28/96 $10,695 1.09% $10,908 0.06% $10,316
7/31/96 $10,742 0.91% $11,008 0.19% $10,336
8/30/96 $10,733 -0.02% $11,005 0.19% $10,356
9/30/96 $10,883 1.40% $11,159 0.32% $10,389
10/31/96 $10,978 1.13% $11,286 0.32% $10,422
11/29/96 $11,130 1.83% $11,492 0.19% $10,442
12/31/96 $11,093 -0.42% $11,444 0.00% $10,442
1/31/97 $11,095 0.19% $11,466 0.32% $10,475
2/28/97 $11,183 0.92% $11,571 0.31% $10,508
3/31/97 $11,053 -1.33% $11,417 0.25% $10,534
4/30/97 $11,152 0.84% $11,513 0.12% $10,547
5/31/97 $11,270 1.51% $11,687 -0.06% $10,540
6/30/97 $11,379 1.07% $11,812 0.12% $10,553
7/31/97 $11,653 2.77% $12,139 0.12% $10,565
8/31/97 $11,556 -0.94% $12,025 0.19% $10,586
9/30/97 $11,643 1.19% $12,168 0.25% $10,612
10/31/97 $11,711 0.64% $12,246 0.25% $10,639
11/30/97 $11,779 0.59% $12,318 -0.06% $10,632
12/31/97 $11,936 1.46% $12,498 -0.12% $10,619
1/31/98 $12,053 1.03% $12,627 0.19% $10,640
2/28/98 $12,060 0.03% $12,631 0.19% $10,660
3/31/98 $12,076 0.09% $12,642 0.19% $10,680
4/30/98 $12,053 -0.45% $12,585 0.18% $10,699
5/31/98 $12,191 1.58% $12,784 0.18% $10,719
6/30/98 $12,239 0.39% $12,834 0.12% $10,731
7/31/98 $12,226 0.25% $12,866 0.12% $10,744
8/31/98 $12,427 1.55% $13,065 0.12% $10,757
9/30/98 $12,527 1.25% $13,229 0.12% $10,770
10/31/98 $12,533 0.00% $13,229 0.24% $10,796
11/30/98 $12,592 0.35% $13,275 0.00% $10,796
12/31/98 $12,616 0.25% $13,308 -0.06% $10,789
1/31/99 0.79% $12,716 1.19% $13,466 0.24% $10,815
2/28/99 -0.22% $12,703 -0.44% $13,407 0.12% $10,828
Total Return 27.03% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
16
<PAGE>
FRANKLIN GEORGIA TAX-FREE INCOME FUND
Your Fund's Goal: 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 GRAPHIC]
Georgia's strong job creation, low average cost of living and extensive
transportation infrastructure continued to drive economic growth during the year
under review. The state's economy was well-diversified across the trade,
services and transportation sectors. The state's population is expected to
remain among the nation's fastest growing over the next five years.(2)
Tax revenue growth was 5.4% for fiscal 1998, despite a planned reduction in the
sales tax on food. State sources calculate that 1998's maximum annual debt
service will be about 5.08% of that year's Treasury receipts, well within
constitutional limits, which restrict debt service from exceeding 10% of
Treasury receipts.(3)
The state's strong financial position, overall favorable credit trends and the
improved timeliness and accuracy of its fiscal reporting underlie its AAA
general obligation debt rating from Standard & Poor's, a national credit rating
agency.(4)
CREDIT QUALITY BREAKDOWN*
Franklin Georgia Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99.
[PIE CHART}
<TABLE>
<S> <C>
AAA 64.7%
AA 12.8%
A 6.3%
BBB 16.2%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's CreditWeek Municipal, 5/11/98.
3. Source: Moody's Investors Service, Municipal Credit Research, 1/29/99.
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 74 of
this report.
17
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Georgia
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------
<S> <C>
Utilities 25.9%
Prerefunded 18.5%
Housing 13.5%
Industrial 8.4%
Hospitals 7.5%
Other Revenue 7.2%
General Obligation 6.7%
Transportation 6.2%
Education 5.4%
Sales Tax Revenue 0.6%
Health Care 0.1%
</TABLE>
PORTFOLIO NOTES
Franklin Georgia Tax-Free Income Fund's total net assets grew 14.61% during the
reporting period. When making new purchases, the fund pursued its philosophy of
buying municipal securities having the best relative value, consistent with
providing long-term tax-exempt income to shareholders. Throughout the year under
review, we found value in the highest-quality, AAA bond sector, which comprised
a significant 64.7% of the fund's total long-term investments as of February 28,
1999.
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. Proceeds from the sale of prerefunded
bonds were most often used to purchase current coupon bonds, at a slight
discount, that offer call protection of approximately 10 years. With this
strategy, the average call protection for fund issues increased to a weighted
average life to first call of 6.74 years at the end of the reporting period,
versus 6.10 years on February 28, 1998. 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 long-term capital gain distributions in June and December
totaling 5.58 cents per share. Additionally, the fund may make another capital
gain distribution in June 1999.
We are closely monitoring Georgia's supply of tax-exempt municipal bonds. During
the year under review, the state issued $6 billion worth of debt, a remarkable
34.6% increase from the previous reporting period. This plentiful supply
outpaced demand, enabling us to acquire issues at relatively attractive yields.
These included Atlanta General Obligation; Columbia County General Obligation;
Savannah Hospital Authority Revenue for Chandler Health System; Camden County
Joint Development Authority for Union Carbide; and Baldwin County Hospital
Authority Revenue for the Oconee Regional Medical Center.
18
<PAGE>
Going forward, we expect supply to remain strong, as the state's low debt burden
and growing need for new infrastructure, such as schools, highways and
affordable housing, should sustain new borrowing requirements. In addition, the
increased number of refunding issues resulting from reduced borrowing costs
could add to new-issue supply, should interest rates remain low.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Georgia Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.62 cents
April 5.2 cents 4.64 cents
May 5.2 cents 4.64 cents
June 5.2 cents 4.64 cents
July 5.2 cents 4.64 cents
August 5.2 cents 4.64 cents
September 5.1 cents 4.54 cents
October 5.1 cents 4.53 cents
November 5.1 cents 4.53 cents
December 5.0 cents 4.43 cents
January 5.0 cents 4.43 cents
February 5.0 cents 4.43 cents
- ----------------------------------------------------------------------------
TOTAL 61.5 CENTS 54.71 CENTS
</TABLE>
*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.
19
<PAGE>
FRANKLIN GEORGIA
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Georgia state personal income tax bracket of 43.2%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.05 $12.07 $12.12
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.6150
Long-Term Capital Gain $0.0558
Total $0.6708
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.04 $12.15 $12.19
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5471
Long-Term Capital Gain $0.0558
Total $0.6029
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.22% +32.70% +107.88% +136.63%
Average Annual Total Return(2) +0.73% +4.91% +7.13% +7.37%
Distribution Rate(3) 4.71%
Taxable Equivalent Distribution Rate(4) 8.30%
30-Day Standardized Yield(5) 3.85%
Taxable Equivalent Yield(4) 6.78%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.70% +17.80% +26.52%
Average Annual Total Return(2) +2.69% +5.26% +6.05%
Distribution Rate(3) 4.33%
Taxable Equivalent Distribution Rate(4) 7.63%
30-Day Standardized Yield(5) 3.43%
Taxable Equivalent Yield(4) 6.04%
</TABLE>
Franklin Georgia Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 5.58 cents ($0.0558) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results.
20
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
[LINE CHART]
The following line graph compares the performance of the Franklin Georgia
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Georgia Tax-Free Income Lehman Brothers CPI*
Fund-Class A Municipal Bond
Index*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,575 $10,000 $10,000
3/31/89 $9,548 -0.24% $9,976 0.58% $10,058
4/30/89 $9,776 2.37% $10,212 0.65% $10,123
5/31/89 $10,005 2.08% $10,425 0.57% $10,181
6/30/89 $10,143 1.36% $10,567 0.24% $10,206
7/31/89 $10,229 1.36% $10,710 0.24% $10,230
8/31/89 $10,167 -0.98% $10,605 0.16% $10,246
9/30/89 $10,113 -0.30% $10,574 0.32% $10,279
10/31/89 $10,229 1.22% $10,703 0.48% $10,329
11/30/89 $10,384 1.75% $10,890 0.24% $10,353
12/31/89 $10,491 0.82% $10,979 0.16% $10,370
1/31/90 $10,417 -0.47% $10,928 1.03% $10,477
2/28/90 $10,555 0.89% $11,025 0.47% $10,526
3/31/90 $10,549 0.03% $11,028 0.55% $10,584
4/30/90 $10,485 -0.72% $10,949 0.16% $10,601
5/31/90 $10,715 2.18% $11,187 0.23% $10,625
6/30/90 $10,809 0.88% $11,286 0.54% $10,682
7/31/90 $10,993 1.48% $11,453 0.38% $10,723
8/31/90 $10,708 -1.45% $11,287 0.92% $10,822
9/30/90 $10,693 0.06% $11,294 0.84% $10,913
10/31/90 $10,840 1.81% $11,498 0.60% $10,978
11/30/90 $11,099 2.01% $11,729 0.22% $11,002
12/31/90 $11,084 0.44% $11,781 0.00% $11,002
1/31/91 $11,295 1.34% $11,939 0.60% $11,068
2/28/91 $11,383 0.87% $12,042 0.15% $11,085
3/31/91 $11,419 0.04% $12,047 0.15% $11,102
4/30/91 $11,571 1.34% $12,209 0.15% $11,118
5/31/91 $11,650 0.89% $12,317 0.30% $11,152
6/30/91 $11,646 -0.10% $12,305 0.29% $11,184
7/31/91 $11,811 1.22% $12,455 0.15% $11,201
8/31/91 $11,935 1.32% $12,620 0.29% $11,233
9/30/91 $12,102 1.30% $12,784 0.44% $11,283
10/31/91 $12,162 0.90% $12,899 0.15% $11,299
11/30/91 $12,211 0.28% $12,935 0.29% $11,332
12/31/91 $12,440 2.15% $13,213 0.07% $11,340
1/31/92 $12,481 0.23% $13,243 0.15% $11,357
2/29/92 $12,457 0.03% $13,247 0.36% $11,398
3/31/92 $12,477 0.04% $13,253 0.51% $11,456
4/30/92 $12,598 0.89% $13,370 0.14% $11,472
5/31/92 $12,765 1.18% $13,528 0.14% $11,488
6/30/92 $12,932 1.68% $13,756 0.36% $11,530
7/31/92 $13,362 3.00% $14,168 0.21% $11,554
8/31/92 $13,210 -0.98% $14,029 0.28% $11,586
9/30/92 $13,252 0.65% $14,121 0.28% $11,619
10/31/92 $13,015 -0.98% $13,982 0.35% $11,659
11/30/92 $13,311 1.79% $14,232 0.14% $11,676
12/31/92 $13,515 1.02% $14,378 -0.07% $11,667
1/31/93 $13,626 1.16% $14,544 0.49% $11,725
2/28/93 $14,009 3.62% $15,071 0.35% $11,766
3/31/93 $13,944 -1.06% $14,911 0.35% $11,807
4/30/93 $14,104 1.01% $15,062 0.28% $11,840
5/31/93 $14,194 0.56% $15,146 0.14% $11,856
6/30/93 $14,440 1.67% $15,399 0.14% $11,873
7/31/93 $14,446 0.13% $15,419 0.00% $11,873
8/31/93 $14,694 2.08% $15,740 0.28% $11,906
9/30/93 $14,882 1.14% $15,919 0.21% $11,931
10/31/93 $14,937 0.19% $15,949 0.41% $11,980
11/30/93 $14,882 -0.88% $15,809 0.07% $11,989
12/31/93 $15,122 2.11% $16,143 0.00% $11,989
1/31/94 $15,302 1.14% $16,327 0.27% $12,021
2/28/94 $14,985 -2.59% $15,904 0.34% $12,062
3/31/94 $14,478 -4.07% $15,257 0.34% $12,103
4/30/94 $14,534 0.85% $15,386 0.14% $12,120
5/31/94 $14,629 0.87% $15,520 0.07% $12,128
6/30/94 $14,571 -0.61% $15,425 0.34% $12,170
7/31/94 $14,820 1.83% $15,708 0.27% $12,202
8/31/94 $14,877 0.35% $15,763 0.40% $12,251
9/30/94 $14,729 -1.47% $15,531 0.27% $12,284
10/31/94 $14,502 -1.78% $15,255 0.07% $12,293
11/30/94 $14,224 -1.81% $14,978 0.13% $12,309
12/31/94 $14,557 2.20% $15,308 0.00% $12,309
1/31/95 $14,944 2.86% $15,746 0.40% $12,358
2/28/95 $15,267 2.91% $16,204 0.40% $12,408
3/31/95 $15,406 1.15% $16,390 0.33% $12,448
4/30/95 $15,452 0.12% $16,410 0.33% $12,490
5/31/95 $15,806 3.19% $16,933 0.20% $12,515
6/30/95 $15,745 -0.87% $16,786 0.20% $12,540
7/31/95 $15,820 0.95% $16,946 0.00% $12,540
8/31/95 $15,976 1.27% $17,161 0.26% $12,572
9/30/95 $16,037 0.63% $17,269 0.20% $12,597
10/31/95 $16,235 1.45% $17,519 0.33% $12,639
11/30/95 $16,449 1.66% $17,810 -0.07% $12,630
12/31/95 $16,608 0.96% $17,981 -0.07% $12,621
1/31/96 $16,670 0.76% $18,118 0.59% $12,696
2/29/96 $16,621 -0.68% $17,995 0.32% $12,736
3/31/96 $16,475 -1.28% $17,764 0.52% $12,803
4/30/96 $16,481 -0.28% $17,714 0.39% $12,852
5/31/96 $16,516 -0.04% $17,707 0.19% $12,877
6/30/96 $16,680 1.09% $17,900 0.06% $12,885
7/31/96 $16,773 0.91% $18,063 0.19% $12,909
8/31/96 $16,793 -0.02% $18,060 0.19% $12,934
9/30/96 $17,000 1.40% $18,313 0.32% $12,975
10/31/96 $17,149 1.13% $18,519 0.32% $13,017
11/30/96 $17,371 1.83% $18,858 0.19% $13,041
12/31/96 $17,375 -0.42% $18,779 0.00% $13,041
1/31/97 $17,409 0.19% $18,815 0.32% $13,083
2/28/97 $17,531 0.92% $18,988 0.31% $13,124
3/31/97 $17,372 -1.33% $18,735 0.25% $13,156
4/30/97 $17,511 0.84% $18,893 0.12% $13,172
5/31/97 $17,694 1.51% $19,178 -0.06% $13,164
6/30/97 $17,848 1.07% $19,383 0.12% $13,180
7/31/97 $18,229 2.77% $19,920 0.12% $13,196
8/31/97 $18,113 -0.94% $19,733 0.19% $13,221
9/30/97 $18,299 1.19% $19,968 0.25% $13,254
10/31/97 $18,396 0.64% $20,096 0.25% $13,287
11/30/97 $18,523 0.59% $20,214 -0.06% $13,279
12/31/97 $18,743 1.46% $20,509 -0.12% $13,263
1/31/98 $18,887 1.03% $20,720 0.19% $13,288
2/28/98 $18,891 0.03% $20,727 0.19% $13,314
3/31/98 $18,925 0.09% $20,745 0.19% $13,339
4/30/98 $18,912 -0.45% $20,652 0.18% $13,363
5/31/98 $19,152 1.58% $20,978 0.18% $13,387
6/30/98 $19,210 0.39% $21,060 0.12% $13,403
7/31/98 $19,245 0.25% $21,113 0.12% $13,419
8/31/98 $19,471 1.55% $21,440 0.12% $13,435
9/30/98 $19,697 1.25% $21,708 0.12% $13,451
10/31/98 $19,651 0.00% $21,708 0.24% $13,484
11/30/98 $19,733 0.35% $21,784 0.00% $13,484
12/31/98 $19,800 0.25% $21,838 -0.06% $13,476
1/31/99 0.74% $19,947 1.19% $22,098 0.24% $13,508
2/28/99 -0.34% $19,905 -0.44% $22,001 0.12% $13,524
Total Return 99.05% 120.01% 35.24%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 to 2/28/99)
[LINE CHART]
The following line graph compares the performance of the Franklin Georgia
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Georgia Tax-Free Income Lehman Brothers Municipal CPI*
Fund-Class C Bond Index*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,897 $10,000 $10,000
5/31/95 $10,116 3.19% $10,319 0.20% $10,020
6/30/95 $10,089 -0.87% $10,229 0.20% $10,040
7/31/95 $10,140 0.95% $10,326 0.00% $10,040
8/31/95 $10,226 1.27% $10,458 0.26% $10,066
9/29/95 $10,268 0.63% $10,523 0.20% $10,086
10/31/95 $10,381 1.45% $10,676 0.33% $10,120
11/30/95 $10,520 1.66% $10,853 -0.07% $10,112
12/29/95 $10,616 0.96% $10,957 -0.07% $10,105
1/31/96 $10,651 0.76% $11,041 0.59% $10,165
2/29/96 $10,614 -0.68% $10,966 0.32% $10,198
3/29/96 $10,517 -1.28% $10,825 0.52% $10,251
4/30/96 $10,517 -0.28% $10,795 0.39% $10,291
5/31/96 $10,534 -0.04% $10,791 0.19% $10,310
6/28/96 $10,633 1.09% $10,908 0.06% $10,316
7/31/96 $10,693 0.91% $11,008 0.19% $10,336
8/30/96 $10,698 -0.02% $11,005 0.19% $10,356
9/30/96 $10,831 1.40% $11,159 0.32% $10,389
10/31/96 $10,920 1.13% $11,286 0.32% $10,422
11/29/96 $11,047 1.83% $11,492 0.19% $10,442
12/31/96 $11,054 -0.42% $11,444 0.00% $10,442
1/31/97 $11,061 0.19% $11,466 0.32% $10,475
2/28/97 $11,143 0.92% $11,571 0.31% $10,508
3/31/97 $11,039 -1.33% $11,417 0.25% $10,534
4/30/97 $11,111 0.84% $11,513 0.12% $10,547
5/31/97 $11,230 1.51% $11,687 -0.06% $10,540
6/30/97 $11,322 1.07% $11,812 0.12% $10,553
7/31/97 $11,558 2.77% $12,139 0.12% $10,565
8/31/97 $11,479 -0.94% $12,025 0.19% $10,586
9/30/97 $11,591 1.19% $12,168 0.25% $10,612
10/31/97 $11,646 0.64% $12,246 0.25% $10,639
11/30/97 $11,721 0.59% $12,318 -0.06% $10,632
12/31/97 $11,864 1.46% $12,498 -0.12% $10,619
1/31/98 $11,939 1.03% $12,627 0.19% $10,640
2/28/98 $11,945 0.03% $12,631 0.19% $10,660
3/31/98 $11,951 0.09% $12,642 0.19% $10,680
4/30/98 $11,938 -0.45% $12,585 0.18% $10,699
5/31/98 $12,083 1.58% $12,784 0.18% $10,719
6/30/98 $12,124 0.39% $12,834 0.12% $10,731
7/31/98 $12,140 0.25% $12,866 0.12% $10,744
8/31/98 $12,277 1.55% $13,065 0.12% $10,757
9/30/98 $12,413 1.25% $13,229 0.12% $10,770
10/31/98 $12,378 0.00% $13,229 0.24% $10,796
11/30/98 $12,423 0.35% $13,275 0.00% $10,796
12/31/98 $12,459 0.25% $13,308 -0.06% $10,789
1/31/99 0.78% $12,556 1.19% $13,466 0.24% $10,815
2/28/99 -0.38% $12,522 -0.44% $13,407 0.12% $10,828
Total Return 25.22% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
21
<PAGE>
CREDIT QUALITY BREAKDOWN*
Franklin Kentucky Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 61.1%
AA 8.3%
A 14.0%
BBB 15.8%
Below Investment Grade 0.8%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
Your Fund's Goal: 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
[KENTUCKY GRAPHIC]
Kentucky's employment growth continued to closely track the nation's, with
calendar 1998 non-agricultural employment growing 2.45%, compared with the 2.56%
national average. The commonwealth realized the largest employment gains in the
services, construction and financial services sectors. Most of the job creation
occurred in Kentucky's northern region, centered around Louisville and
Lexington. Further gains should come with United Parcel Services' plan to extend
its Louisville hub and add 6,000 jobs.(2)
Kentucky's debt ratios, while still relatively high, are declining. The $3
billion in tax-supported state debt occurred mainly in the form of lease
obligations, as the commonwealth retired the last of its outstanding general
obligation bonds in 1995. The State Property and Building Commission and other
state agencies authorized by the legislature primarily issued these bonds. The
enacted 1998-2000 budget projects a slowdown, with personal income growing 5% in
fiscal 1999, and 4.9% in 2000. However, commonwealth revenues are projected for
3.8% and 4.4% gains in 1999 and 2000, respectively.(3)
The outlook for Kentucky's lease obligations is positive, given the
commonwealth's improved financial position, modestly accelerating economy,
declining debt ratios and strong general creditworthiness.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Moody's Investor Service, Municipal Credit Research, 5/8/98.
3. Source: Fitch IBCA, Public Finance, 10/30/98.
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 78 of
this report.
22
<PAGE>
PORTFOLIO NOTES
Kentucky's growing economy contributed in part to a 20.5% debt issuance increase
from last year's levels, for a total of $2.9 billion. At the same time,
relatively inexpensive premiums on bond insurance resulted in 50% of the
nation's municipal debt coming to market insured. We took advantage of this to
invest in highest-quality AAA securities, which comprised 61.1% of the fund's
total long-term investments at the fund's fiscal year-end.
During the reporting period, the fund's share price, as measured by net asset
value, increased two cents, from $11.45 on February 28, 1998, to $11.47 on
February 28, 1999. At the same time, the fund's total net assets grew more than
19%. This enabled us to take advantage of relatively attractive yields resulting
from Kentucky's tax-exempt municipal bond supply, which outpaced demand.
Purchases included Henry County Water Revenue; Shelbyville Certificate of
Participation; Northern Kentucky Water Service District Revenue; and Louisville
and Jefferson County Metropolitan Sewer District Revenue. Overall, these
purchases allowed the fund to maintain diversification in a broad range of
credits, helping reduce its exposure to risk and volatility in any one sector.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. 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. The fund maintained a relatively modest 4.1% exposure to prerefunded
bonds, as of the end of the reporting period.
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
PORTFOLIO BREAKDOWN
Franklin Kentucky
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------
<S> <C>
Hospitals 24.4%
Utilities 20.1%
Housing 16.0%
Transportation 11.6%
Other Revenue 11.0%
Certificates of Participation 6.4%
Industrial 6.2%
Prerefunded 4.1%
Education 0.2%
</TABLE>
23
<PAGE>
The state's low debt burden and growing need for new infrastructure such as
highways, schools and affordable housing should sustain new borrowing
requirements. In addition, if interest rates remain low, refunding issues
resulting from lower borrowing costs could add to the supply of new issues. We
expect Kentucky bond supply and demand to remain stable going forward.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Kentucky Tax-Free Income Fund
3/1/98 - 2/28/99
DIVIDEND
--------
MONTH PER SHARE
- --------------------------------------------------------------------------------
March 5 cents
April 5 cents
May 5 cents
June 5 cents
July 5 cents
August 5 cents
September 5 cents
October 5 cents
November 5 cents
December 5 cents
January 5 cents
February 5 cents
- -------------------------------------------------------------------------------
TOTAL 60 CENTS
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
24
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.02 $11.47 $11.45
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
--------------------------------
<S> <C>
Dividend Income $0.60
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (10/21/91)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.51% +35.61% +71.25%
Average Annual Total Return(2) +1.01% + 5.36% + 6.93%
Distribution Rate(3) 4.86%
Taxable Equivalent Distribution Rate(4) 8.56%
30-Day Standardized Yield(5) 3.99%
Taxable Equivalent Yield(4) 7.03%
</TABLE>
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. The fund's manager agreed in advance to waive a portion
of its management fees, which reduces operating expenses and increases
distribution rate, yield and total return to shareholders. Without this waiver,
the funds' distribution rate and total return would have been lower, and yield
for the period would have been 3.94%. The fee waiver may be discontinued at any
time upon notice to the fund's Board of Trustees.
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 current, applicable,
maximum sales charge for that class.
3. Distribution rate is based on an annualization of the current 4.85 cent per
share monthly dividend and the maximum offering price per share of $11.98 on
February 28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Kentucky state personal income tax bracket of 43.2%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results. 25
<PAGE>
FRANKLIN KENTUCKY
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
CLASS A
1-Year +1.01%
5-Year +5.36%
Since Inception
(10/21/91)+6.93%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (10/12/91-2/28/99)
[Line Graph]
The following line graph compares the performance of the Franklin Kentucky
Tax-Free Income Fund's shares to that of the Lehman Brothers Municipal Bond
Index, and to the Consumer Price Index based on a $10,000 investment from
10/12/91 to 2/28.99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Kentucky Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class A Bond Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/12/91 $9,579 $10,000 $10,000
10/31/91 $9,588 0.55% $10,055 0.09% $10,009
11/30/91 $9,598 0.28% $10,083 0.29% $10,038
12/31/91 $9,789 2.15% $10,300 0.07% $10,045
1/31/92 $9,856 0.23% $10,324 0.15% $10,060
2/29/92 $9,866 0.03% $10,327 0.36% $10,097
3/31/92 $9,890 0.04% $10,331 0.51% $10,148
4/30/92 $9,972 0.89% $10,423 0.14% $10,162
5/31/92 $10,122 1.18% $10,546 0.14% $10,176
6/30/92 $10,263 1.68% $10,723 0.36% $10,213
7/31/92 $10,679 3.00% $11,045 0.21% $10,235
8/31/92 $10,497 -0.98% $10,937 0.28% $10,263
9/30/92 $10,522 0.65% $11,008 0.28% $10,292
10/31/92 $10,348 -0.98% $10,900 0.35% $10,328
11/30/92 $10,643 1.79% $11,095 0.14% $10,342
12/31/92 $10,798 1.02% $11,208 -0.07% $10,335
1/31/93 $10,925 1.16% $11,338 0.49% $10,386
2/28/93 $11,265 3.62% $11,749 0.35% $10,422
3/31/93 $11,188 -1.06% $11,624 0.35% $10,459
4/30/93 $11,306 1.01% $11,741 0.28% $10,488
5/31/93 $11,393 0.56% $11,807 0.14% $10,503
6/30/93 $11,626 1.67% $12,004 0.14% $10,517
7/31/93 $11,663 0.13% $12,020 0.00% $10,517
8/31/93 $11,898 2.08% $12,270 0.28% $10,547
9/30/93 $12,071 1.14% $12,410 0.21% $10,569
10/31/93 $12,150 0.19% $12,433 0.41% $10,612
11/30/93 $12,018 -0.88% $12,324 0.07% $10,620
12/31/93 $12,300 2.11% $12,584 0.00% $10,620
1/31/94 $12,435 1.14% $12,727 0.27% $10,648
2/28/94 $12,085 -2.59% $12,398 0.34% $10,685
3/31/94 $11,396 -4.07% $11,893 0.34% $10,721
4/30/94 $11,488 0.85% $11,994 0.14% $10,736
5/31/94 $11,614 0.87% $12,099 0.07% $10,743
6/30/94 $11,505 -0.61% $12,025 0.34% $10,780
7/31/94 $11,771 1.83% $12,245 0.27% $10,809
8/31/94 $11,806 0.35% $12,288 0.40% $10,852
9/30/94 $11,528 -1.47% $12,107 0.27% $10,882
10/31/94 $11,192 -1.78% $11,892 0.07% $10,889
11/30/94 $10,913 -1.81% $11,676 0.13% $10,903
12/31/94 $11,254 2.20% $11,933 0.00% $10,903
1/31/95 $11,700 2.86% $12,275 0.40% $10,947
2/28/95 $12,112 2.91% $12,632 0.40% $10,991
3/31/95 $12,240 1.15% $12,777 0.33% $11,027
4/30/95 $12,252 0.12% $12,792 0.33% $11,063
5/31/95 $12,694 3.19% $13,200 0.20% $11,086
6/30/95 $12,508 -0.87% $13,086 0.20% $11,108
7/31/95 $12,580 0.95% $13,210 0.00% $11,108
8/31/95 $12,747 1.27% $13,378 0.26% $11,137
9/30/95 $12,854 0.63% $13,462 0.20% $11,159
10/31/95 $13,081 1.45% $13,657 0.33% $11,196
11/30/95 $13,333 1.66% $13,884 -0.07% $11,188
12/31/95 $13,491 0.96% $14,017 -0.07% $11,180
1/31/96 $13,552 0.76% $14,124 0.59% $11,246
2/29/96 $13,408 -0.68% $14,028 0.32% $11,282
3/31/96 $13,215 -1.28% $13,848 0.52% $11,341
4/30/96 $13,204 -0.28% $13,809 0.39% $11,385
5/31/96 $13,217 -0.04% $13,804 0.19% $11,406
6/30/96 $13,391 1.09% $13,954 0.06% $11,413
7/31/96 $13,479 0.91% $14,081 0.19% $11,435
8/31/96 $13,480 -0.02% $14,078 0.19% $11,457
9/30/96 $13,694 1.40% $14,276 0.32% $11,493
10/31/96 $13,859 1.13% $14,437 0.32% $11,530
11/30/96 $14,100 1.83% $14,701 0.19% $11,552
12/31/96 $14,063 -0.42% $14,639 0.00% $11,552
1/31/97 $14,065 0.19% $14,667 0.32% $11,589
2/28/97 $14,193 0.92% $14,802 0.31% $11,625
3/31/97 $14,001 -1.33% $14,605 0.25% $11,654
4/30/97 $14,132 0.84% $14,728 0.12% $11,668
5/31/97 $14,328 1.51% $14,950 -0.06% $11,661
6/30/97 $14,486 1.07% $15,110 0.12% $11,675
7/31/97 $14,880 2.77% $15,529 0.12% $11,689
8/31/97 $14,776 -0.94% $15,383 0.19% $11,711
9/30/97 $14,949 1.19% $15,566 0.25% $11,741
10/31/97 $15,030 0.64% $15,665 0.25% $11,770
11/30/97 $15,152 0.59% $15,758 -0.06% $11,763
12/31/97 $15,379 1.46% $15,988 -0.12% $11,749
1/31/98 $15,513 1.03% $16,153 0.19% $11,771
2/28/98 $15,527 0.03% $16,158 0.19% $11,793
3/31/98 $15,567 0.09% $16,172 0.19% $11,816
4/30/98 $15,513 -0.45% $16,099 0.18% $11,837
5/31/98 $15,759 1.58% $16,354 0.18% $11,858
6/30/98 $15,828 0.39% $16,417 0.12% $11,873
7/31/98 $15,855 0.25% $16,458 0.12% $11,887
8/31/98 $16,077 1.55% $16,714 0.12% $11,901
9/30/98 $16,259 1.25% $16,922 0.12% $11,915
10/31/98 $16,216 0.00% $16,922 0.24% $11,944
11/30/98 $16,273 0.35% $16,982 0.00% $11,944
12/31/98 $16,315 0.25% $17,024 -0.06% $11,937
1/31/99 0.96% $16,472 1.19% $17,227 0.24% $11,965
2/28/99 -0.53% $16,403 -0.44% $17,151 0.12% $11,980
Total Return 64.03% 71.51% 19.80%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
26 Past performance is not predictive of future results.
<PAGE>
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
Your Fund's Goal: 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
[STATE MAP]
Gains in the services, manufacturing and retail areas contributed to slightly
greater economic diversity and helped alleviate Louisiana's heavy dependence on
the depressed natural resources sector, mainly oil and gas, during the 12-month
reporting period. As a result, the state's unemployment declined 0.4% from
December 1997 to December 1998.(2) At the same time, personal income levels
surpassed the U.S. at 107% of the national average through third quarter
1998.(3)
Under the current administration, Louisiana's financial picture has steadily
improved, resulting in Moody's Investors Service, a national credit rating
agency, raising the state's general obligation bond rating to A2 from A3 in
April 1998.(4) In 1998, state debt declined in accordance with a statute
limiting debt service to 6% of general state receipts by 2004. Louisiana ended
its 1997-1998 fiscal year with a $165.6 million surplus, due to increased
revenue and reductions in spending requirements. The state dedicated $12.8
million of the surplus, in addition to all of the 1996-1997 fiscal year $135
million surplus, to a three-year debt retirement plan.(5)
We expect Louisiana's economy to continue to stabilize and that the state should
maintain its disciplined debt management going forward.
CREDIT QUALITY BREAKDOWN
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
BASED ON TOTAL LONG-TERM INVESTMENTS
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 64.6%
AA 2.6%
A 8.7%
BBB 16.5%
Below Investment Grade 7.6%
</TABLE>
* Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
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: Northeast-Midwest Institute and Bureau of Labor Statistics, 2/3/99.
3. Bureau of Economic Analysis, U.S. Department of Commerce.
4. This does not indicate Moody's rating of the fund.
5. Source: Louisiana State Legislature, 1998-1999 State Budget - Fast Facts &
Budget Summary, 7/98.
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 81 of
this report.
27
<PAGE>
PORTFOLIO BREAKDOWN
FRANKLIN LOUISIANA
TAX-FREE INCOME FUND
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Education 20.0%
Utilities 16.9%
Hospitals 11.2%
Industrial 9.7%
Housing 9.4%
Other Revenue 7.8%
Prerefunded 7.7%
Sales Tax Revenue 5.7%
Health Care 5.3%
Transportation 3.3%
General Obligation 1.9%
Certificates of Participation 1.1%
</TABLE>
PORTFOLIO NOTES
Franklin Louisiana Tax-Free Income Fund's total net assets increased more than
20% during the reporting period. With $3.7 billion in issuance, a 77.2% increase
from the previous year's levels, supply outpaced demand in Louisiana's debt
market during the year under review. This enabled us to acquire the following
securities at relatively attractive yields: New Orleans General Obligation;
Louisiana Stadium and Exposition District Hotel Occupancy Tax and Stadium
Revenue; St. Charles Parish Revenue for Union Carbide Corp.; and Jefferson
Parish Hospital Service District No. 01 Hospital Revenue - West Jefferson
Medical Center. With these purchases, the fund diversified across a broad range
of sectors, helping reduce its exposure to the risk and volatility that may
affect any one area. As of February 28, 1999, 64.6% of total long-term
investments were invested in AAA-rated bonds, a reflection of the fund's high
quality.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. 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. Proceeds from the sale of prerefunded
bonds were most often used to purchase current coupon bonds, at a slight
discount, that offer call protection of approximately 10 years.
28
<PAGE>
We expect Louisiana bond supply to remain plentiful in the future, as the
state's low debt burden and growing need for new infrastructure, such as
highways, schools and affordable housing, should sustain borrowing requirements.
Also, if interest rates remain low, refunding issues resulting from lower
borrowing costs could add to the new-issue supply.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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 (29)
DIVIDEND DISTRIBUTIONS*
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
3/1/9 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
- ------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.65 cents
April 5.2 cents 4.65 cents
May 5.2 cents 4.65 cents
June 5.2 cents 4.65 cents
July 5.2 cents 4.64 cents
August 5.2 cents 4.64 cents
September 5.1 cents 4.54 cents
October 5.1 cents 4.56 cents
November 5.1 cents 4.56 cents
December 5.0 cents 4.46 cents
January 5.0 cents 4.46 cents
February 5.0 cents 4.46 cents
- ------------------------------------------------------------
TOTAL 61.5 CENTS 54.92 CENTS
</TABLE>
* 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.
29
<PAGE>
FRANKLIN LOUISIANA
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE -$0.02 $11.59 $11.61
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
--------------------------------
<S> <C>
DIVIDEND INCOME $0.6150
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.02 $11.66 $11.68
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
--------------------------------
<S> <C>
Dividend Income $0.5492
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.23% +33.03% +108.47% +135.94%
Average Annual Total Return(2) +0.71% + 4.96% + 7.16% + 7.35%
Distribution Rate(3) 4.86%
Taxable Equivalent Distribution Rate(4) 8.56%
30-Day Standardized Yield(5) 4.11%
Taxable Equivalent Yield(4) 7.24%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.61% +18.95% +28.19%
Average Annual Total Return(2) +2.55% + 5.61% + 6.42%
Distribution Rate(3) 4.41%
Taxable Equivalent Distribution Rate(4) 7.77%
30-Day Standardized Yield(5) 3.69%
Taxable Equivalent Yield(4) 6.50%
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Louisiana state personal income tax bracket of 43.2%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
30 Past performance is not predictive of future results
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
[LINE CHART]
Class A (3/1/89 to 2/28/99)
The following line graph compares the performance of the Franklin Louisiana
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin Louisiana Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond
Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,576 $10,000 $10,000
3/31/89 $9,572 -0.24% $9,976 0.58% $10,058
4/30/89 $9,764 2.37% $10,212 0.65% $10,123
5/31/89 $10,003 2.08% $10,425 0.57% $10,181
6/30/89 $10,140 1.36% $10,567 0.24% $10,206
7/31/89 $10,241 1.36% $10,710 0.24% $10,230
8/31/89 $10,171 -0.98% $10,605 0.16% $10,246
9/30/89 $10,119 -0.30% $10,574 0.32% $10,279
10/31/89 $10,211 1.22% $10,703 0.48% $10,329
11/30/89 $10,372 1.75% $10,890 0.24% $10,353
12/31/89 $10,466 0.82% $10,979 0.16% $10,370
1/31/90 $10,384 -0.47% $10,928 1.03% $10,477
2/28/90 $10,508 0.89% $11,025 0.47% $10,526
3/31/90 $10,514 0.03% $11,028 0.55% $10,584
4/30/90 $10,440 -0.72% $10,949 0.16% $10,601
5/31/90 $10,687 2.18% $11,187 0.23% $10,625
6/30/90 $10,795 0.88% $11,286 0.54% $10,682
7/31/90 $10,975 1.48% $11,453 0.38% $10,723
8/31/90 $10,724 -1.45% $11,287 0.92% $10,822
9/30/90 $10,700 0.06% $11,294 0.84% $10,913
10/31/90 $10,852 1.81% $11,498 0.60% $10,978
11/30/90 $11,119 2.01% $11,729 0.22% $11,002
12/31/90 $11,147 0.44% $11,781 0.00% $11,002
1/31/91 $11,344 1.34% $11,939 0.60% $11,068
2/28/91 $11,436 0.87% $12,042 0.15% $11,085
3/31/91 $11,474 0.04% $12,047 0.15% $11,102
4/30/91 $11,621 1.34% $12,209 0.15% $11,118
5/31/91 $11,715 0.89% $12,317 0.30% $11,152
6/30/91 $11,711 -0.10% $12,305 0.29% $11,184
7/31/91 $11,893 1.22% $12,455 0.15% $11,201
8/31/91 $12,010 1.32% $12,620 0.29% $11,233
9/30/91 $12,184 1.30% $12,784 0.44% $11,283
10/31/91 $12,236 0.90% $12,899 0.15% $11,299
11/30/91 $12,299 0.28% $12,935 0.29% $11,332
12/31/91 $12,510 2.15% $13,213 0.07% $11,340
1/31/92 $12,541 0.23% $13,243 0.15% $11,357
2/29/92 $12,539 0.03% $13,247 0.36% $11,398
3/31/92 $12,572 0.04% $13,253 0.51% $11,456
4/30/92 $12,673 0.89% $13,370 0.14% $11,472
5/31/92 $12,834 1.18% $13,528 0.14% $11,488
6/30/92 $12,995 1.68% $13,756 0.36% $11,530
7/31/92 $13,475 3.00% $14,168 0.21% $11,554
8/31/92 $13,307 -0.98% $14,029 0.28% $11,586
9/30/92 $13,329 0.65% $14,121 0.28% $11,619
10/31/92 $13,123 -0.98% $13,982 0.35% $11,659
11/30/92 $13,397 1.79% $14,232 0.14% $11,676
12/31/92 $13,612 1.02% $14,378 -0.07% $11,667
1/31/93 $13,767 1.16% $14,544 0.49% $11,725
2/28/93 $14,167 3.62% $15,071 0.35% $11,766
3/31/93 $14,091 -1.06% $14,911 0.35% $11,807
4/30/93 $14,186 1.01% $15,062 0.28% $11,840
5/31/93 $14,246 0.56% $15,146 0.14% $11,856
6/30/93 $14,517 1.67% $15,399 0.14% $11,873
7/31/93 $14,537 0.13% $15,419 0.00% $11,873
8/31/93 $14,758 2.08% $15,740 0.28% $11,906
9/30/93 $14,904 1.14% $15,919 0.21% $11,931
10/31/93 $14,924 0.19% $15,949 0.41% $11,980
11/30/93 $14,894 -0.88% $15,809 0.07% $11,989
12/31/93 $15,128 2.11% $16,143 0.00% $11,989
1/31/94 $15,248 1.14% $16,327 0.27% $12,021
2/28/94 $14,994 -2.59% $15,904 0.34% $12,062
3/31/94 $14,451 -4.07% $15,257 0.34% $12,103
4/30/94 $14,468 0.85% $15,386 0.14% $12,120
5/31/94 $14,590 0.87% $15,520 0.07% $12,128
6/30/94 $14,527 -0.61% $15,425 0.34% $12,170
7/31/94 $14,770 1.83% $15,708 0.27% $12,202
8/31/94 $14,814 0.35% $15,763 0.40% $12,251
9/30/94 $14,684 -1.47% $15,531 0.27% $12,284
10/31/94 $14,459 -1.78% $15,255 0.07% $12,293
11/30/94 $14,127 -1.81% $14,978 0.13% $12,309
12/31/94 $14,404 2.20% $15,308 0.00% $12,309
1/31/95 $14,818 2.86% $15,746 0.40% $12,358
2/28/95 $15,166 2.91% $16,204 0.40% $12,408
3/31/95 $15,240 1.15% $16,390 0.33% $12,448
4/30/95 $15,287 0.12% $16,410 0.33% $12,490
5/31/95 $15,654 3.19% $16,933 0.20% $12,515
6/30/95 $15,547 -0.87% $16,786 0.20% $12,540
7/31/95 $15,651 0.95% $16,946 0.00% $12,540
8/31/95 $15,798 1.27% $17,161 0.26% $12,572
9/30/95 $15,917 0.63% $17,269 0.20% $12,597
10/31/95 $16,122 1.45% $17,519 0.33% $12,639
11/30/95 $16,357 1.66% $17,810 -0.07% $12,630
12/31/95 $16,507 0.96% $17,981 -0.07% $12,621
1/31/96 $16,571 0.76% $18,118 0.59% $12,696
2/29/96 $16,489 -0.68% $17,995 0.32% $12,736
3/31/96 $16,349 -1.28% $17,764 0.52% $12,803
4/30/96 $16,326 -0.28% $17,714 0.39% $12,852
5/31/96 $16,375 -0.04% $17,707 0.19% $12,877
6/30/96 $16,545 1.09% $17,900 0.06% $12,885
7/31/96 $16,669 0.91% $18,063 0.19% $12,909
8/31/96 $16,720 -0.02% $18,060 0.19% $12,934
9/30/96 $16,921 1.40% $18,313 0.32% $12,975
10/31/96 $17,078 1.13% $18,519 0.32% $13,017
11/30/96 $17,342 1.83% $18,858 0.19% $13,041
12/31/96 $17,302 -0.42% $18,779 0.00% $13,041
1/31/97 $17,324 0.19% $18,815 0.32% $13,083
2/28/97 $17,468 0.92% $18,988 0.31% $13,124
3/31/97 $17,319 -1.33% $18,735 0.25% $13,156
4/30/97 $17,434 0.84% $18,893 0.12% $13,172
5/31/97 $17,628 1.51% $19,178 -0.06% $13,164
6/30/97 $17,822 1.07% $19,383 0.12% $13,180
7/31/97 $18,221 2.77% $19,920 0.12% $13,196
8/31/97 $18,117 -0.94% $19,733 0.19% $13,221
9/30/97 $18,328 1.19% $19,968 0.25% $13,254
10/31/97 $18,445 0.64% $20,096 0.25% $13,287
11/30/97 $18,562 0.59% $20,214 -0.06% $13,279
12/31/97 $18,825 1.46% $20,509 -0.12% $13,263
1/31/98 $18,959 1.03% $20,720 0.19% $13,288
2/28/98 $18,947 0.03% $20,727 0.19% $13,314
3/31/98 $18,983 0.09% $20,745 0.19% $13,339
4/30/98 $18,937 -0.45% $20,652 0.18% $13,363
5/31/98 $19,188 1.58% $20,978 0.18% $13,387
6/30/98 $19,257 0.39% $21,060 0.12% $13,403
7/31/98 $19,277 0.25% $21,113 0.12% $13,419
8/31/98 $19,531 1.55% $21,440 0.12% $13,435
9/30/98 $19,751 1.25% $21,708 0.12% $13,451
10/31/98 $19,702 0.00% $21,708 0.24% $13,484
11/30/98 $19,771 0.35% $21,784 0.00% $13,484
12/31/98 $19,840 0.25% $21,838 -0.06% $13,476
1/31/99 0.86% $20,011 1.19% $22,098 0.24% $13,508
2/28/99 -0.36% $19,963 -0.44% $22,001 0.12% $13,524
Total Return 99.63% 120.01% 35.24%
</TABLE>
[LINE CHART]
CLASS C 5/1/95 to 2/28/99.
The following line graph compares the performance of the Franklin Louisiana
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin Louisiana Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
<S> <C> <C> <C> <C> <C>
5/1/95 $9,901 $10,000 $10,000
5/31/95 $10,131 3.19% $10,319 0.20% $10,020
6/30/95 $10,066 -0.87% $10,229 0.20% $10,040
7/31/95 $10,146 0.95% $10,326 0.00% $10,040
8/31/95 $10,236 1.27% $10,458 0.26% $10,066
9/29/95 $10,298 0.63% $10,523 0.20% $10,086
10/31/95 $10,434 1.45% $10,676 0.33% $10,120
11/30/95 $10,580 1.66% $10,853 -0.07% $10,112
12/29/95 $10,680 0.96% $10,957 -0.07% $10,105
1/31/96 $10,715 0.76% $11,041 0.59% $10,165
2/29/96 $10,657 -0.68% $10,966 0.32% $10,198
3/29/96 $10,553 -1.28% $10,825 0.52% $10,251
4/30/96 $10,542 -0.28% $10,795 0.39% $10,291
5/31/96 $10,569 -0.04% $10,791 0.19% $10,310
6/28/96 $10,663 1.09% $10,908 0.06% $10,316
7/31/96 $10,748 0.91% $11,008 0.19% $10,336
8/30/96 $10,775 -0.02% $11,005 0.19% $10,356
9/30/96 $10,900 1.40% $11,159 0.32% $10,389
10/31/96 $10,994 1.13% $11,286 0.32% $10,422
11/29/96 $11,157 1.83% $11,492 0.19% $10,442
12/31/96 $11,125 -0.42% $11,444 0.00% $10,442
1/31/97 $11,143 0.19% $11,466 0.32% $10,475
2/28/97 $11,219 0.92% $11,571 0.31% $10,508
3/31/97 $11,127 -1.33% $11,417 0.25% $10,534
4/30/97 $11,196 0.84% $11,513 0.12% $10,547
5/31/97 $11,324 1.51% $11,687 -0.06% $10,540
6/30/97 $11,432 1.07% $11,812 0.12% $10,553
7/31/97 $11,693 2.77% $12,139 0.12% $10,565
8/31/97 $11,622 -0.94% $12,025 0.19% $10,586
9/30/97 $11,741 1.19% $12,168 0.25% $10,612
10/31/97 $11,811 0.64% $12,246 0.25% $10,639
11/30/97 $11,880 0.59% $12,318 -0.06% $10,632
12/31/97 $12,042 1.46% $12,498 -0.12% $10,619
1/31/98 $12,122 1.03% $12,627 0.19% $10,640
2/28/98 $12,119 0.03% $12,631 0.19% $10,660
3/31/98 $12,126 0.09% $12,642 0.19% $10,680
4/30/98 $12,091 -0.45% $12,585 0.18% $10,699
5/31/98 $12,254 1.58% $12,784 0.18% $10,719
6/30/98 $12,293 0.39% $12,834 0.12% $10,731
7/31/98 $12,299 0.25% $12,866 0.12% $10,744
8/31/98 $12,455 1.55% $13,065 0.12% $10,757
9/30/98 $12,578 1.25% $13,229 0.12% $10,770
10/31/98 $12,551 0.00% $13,229 0.24% $10,796
11/30/98 $12,590 0.35% $13,275 0.00% $10,796
12/31/98 $12,616 0.25% $13,308 -0.06% $10,789
1/31/99 0.90% $12,730 1.19% $13,466 0.24% $10,815
2/28/99 -0.40% $12,692 -0.44% $13,407 0.12% $10,828
Total Return 26.92% 34.07% 8.28%
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results 31
<PAGE>
FRANKLIN MARYLAND TAX-FREE INCOME FUND
Your Fund's Goal: 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(2)
[GRAPHIC OF STATE OF MARYLAND]
Maryland's job growth lagged the rest of the nation's for much of the 1990s. The
state's employment increased 2.0% from 1996 to 1997, compared with the 2.6%
national average. During 1998, the state registered a slow second quarter, but
improved significantly during the third.
Maryland largely absorbed the impact of federal downsizing, formerly a big
contributor to slower job growth. The increasingly diversified state economy,
which registered growth in the construction, technology, business services and
non-banking financial services sectors, tended to mitigate the federal job cuts.
It appears enough relatively well-paid federal employees remained in the state
to account for the state's high per capita personal income level -- 113% of
1997's national number. As a consequence, personal income tax receipts grew 10%
over fiscal 1997 and largely contributed to fiscal 1998's $536 million general
fund operating surplus.(3)
Although Maryland ranks among the more heavily indebted states, 10th in the
nation for fiscal 1998, the state made headway toward moderating its debt
position at the end of the reporting period, following a Capital Debt
Affordability Committee recommendation to limit total debt to 8% of revenues.
Looking forward, we foresee a stable outlook for Maryland's municipal bonds,
based on the state's conservative revenue forecasting, improved debt management
and strengthening economy.
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.
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, Municipal Credit Research, 10/20/98.
3. Source: Moody's Investors Service, Municipal Credit Research, 2/22/99.
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.
[PIE CHART]
Credit Quality Breakdown*
Franklin Maryland Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
AAA - 52.0%
AA - 16.1%
A - 23.8%
BBB - 8.1%%
* Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
32
<PAGE>
PORTFOLIO NOTES
During the reporting period, the fund's share price, as measured by net asset
value, increased two cents, from $11.64 on February 28, 1998, to $11.66 on
February 28, 1999. On the state level, Maryland municipalities took advantage of
the reporting period's low interest-rate environment to refund outstanding debt.
An outstanding bond that becomes prerefunded will be called at its first call
date. In most cases, an escrow of U.S. Treasuries backs the prerefunded bonds,
substantially increasing their price -- depending on the call date. We took
advantage of this opportunity to sell some of Franklin Maryland Tax-Free Income
Fund's prerefunded bonds, lowering them from 6.9% of total long-term investments
on February 28, 1998, to 3.6% on February 28, 1999. Our Maryland Gaithersburg
Hospital Facility bonds were one such sale.
Generally we look to sell prerefunded bonds as they approach five years to their
call date and replace them with bonds with longer call protection. This strategy
can extend the fund's income-earning potential and protect its share value.
However, because of the relatively low interest-rate environment during the
reporting period, the fund was unable to generate enough capital losses to
offset the gains realized from prerefunded bond sales. Thus, the fund
distributed long-term capital gains in June and December totaling 4.29 cents per
share. Additionally, the fund may make another capital gain distribution in June
1999.
Maryland bond supply remained comparatively light and, as a result, Maryland
bonds traded at a premium compared with the average for other states. The fund
concentrated primarily on purchasing current coupon bonds offering call
protection of around 10 years. New fund additions included Baltimore Wastewater
Project Revenue; Maryland State Community Development Authority SFMR; Maryland
State Health and Higher Education Facilities Authority Revenue - Upper
Chesapeake Hospital; and Maryland State Health and Higher Education Facilities
Authority Revenue - Howard General Hospital.
PORTFOLIO BREAKDOWN
Franklin Maryland
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Housing 19.7%
Utilities 19.1%
Hospitals 12.6%
General Obligation 10.9%
Other Revenue 10.1%
Health Care 9.1%
Education 5.9%
Certificates of Participation 5.8%
Prerefunded 3.6%
Transportation 3.0%
Industrial 0.2%
</TABLE>
33
<PAGE>
Looking forward, the low interest-rate environment will continue to put pressure
on the fund's overall income earnings. Please keep in mind that the fund can
distribute only what it earns, so that its future dividend distributions may
have to be decreased if interest rates remain at recent or lower levels. It is
important to note that we have not changed our philosophy of investing for
income and stability of share value, and we believe that on a comparative basis,
the fund should rank favorably to other investment alternatives.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Maryland Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C>
March 4.9 cents 4.35 cents
April 4.9 cents 4.36 cents
May 4.9 cents 4.36 cents
June 4.9 cents 4.36 cents
July 4.9 cents 4.36 cents
August 4.9 cents 4.36 cents
September 4.9 cents 4.36 cents
October 4.9 cents 4.36 cents
November 4.9 cents 4.36 cents
December 4.7 cents 4.16 cents
January 4.7 cents 4.16 cents
February 4.7 cents 4.16 cents
- -------------------------------------------------------------------------------
TOTAL 58.2 CENTS 51.71 CENTS
</TABLE>
*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.
34
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.02 $11.66 $11.64
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5820
Long-Term Capital Gain $0.0429
Total $0.6249
CLASS C CHANGE 2/28/99 2/28/98
- -------------------------------------------------------------------------------
Net Asset Value +$0.03 $11.75 $11.72
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5171
Long-Term Capital Gain $0.0429
Total $0.5600
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.64% +35.04% +109.90% +112.55%
Average Annual Total Return(2) +1.13% +5.28% +7.23% +7.07%
Distribution Rate(3) 4.53%
Taxable Equivalent Distribution Rate(4) 8.13%
30-Day Standardized Yield(5) 3.86%
Taxable Equivalent Yield(4) 6.93%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
Cumulative Total Return(1) +5.11% +18.50% +29.24%
Average Annual Total Return(2) +3.06% +5.45% +6.65%
Distribution Rate(3) 4.08%
Taxable Equivalent Distribution Rate(4) 7.32%
30-Day Standardized Yield(5) 3.45%
Taxable Equivalent Yield(4) 6.19%
</TABLE>
Franklin Maryland Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 4.29 cents ($0.0429) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results.
FRANKLIN MARYLAND
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Maryland state personal income tax bracket of 44.3%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
35
<PAGE>
FRANKLIN MARYLAND
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year +1.13%
5-Year +5.28%
10-Year +7.23%
Since Inception (10/3/88) +7.07%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year +3.06%
3-Year +5.45%
Since Inception (5/1/95) +6.65%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
The following line graph compares the performance of the Franklin Maryland
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Maryland Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/1/89 $9,572 10,000 10,000
3/31/89 $9,559 -0.24% 9,976 0.58% 10,058
4/28/89 $9,776 2.37% 10,212 0.65% 10,123
5/31/89 $9,974 2.08% 10,425 0.57% 10,181
6/30/89 $10,105 1.36% 10,567 0.24% 10,206
7/31/89 $10,199 1.36% 10,710 0.24% 10,230
8/31/89 $10,126 -0.98% 10,605 0.16% 10,246
9/29/89 $10,083 -0.30% 10,574 0.32% 10,279
10/31/89 $10,168 1.22% 10,703 0.48% 10,329
11/30/89 $10,323 1.75% 10,890 0.24% 10,353
12/29/89 $10,419 0.82% 10,979 0.16% 10,370
1/31/90 $10,345 -0.47% 10,928 1.03% 10,477
2/28/90 $10,462 0.89% 11,025 0.47% 10,526
3/30/90 $10,417 0.03% 11,028 0.55% 10,584
4/30/90 $10,346 -0.72% 10,949 0.16% 10,601
5/31/90 $10,582 2.18% 11,187 0.23% 10,625
6/29/90 $10,706 0.88% 11,286 0.54% 10,682
7/31/90 $10,862 1.48% 11,453 0.38% 10,723
8/31/90 $10,601 -1.45% 11,287 0.92% 10,822
9/28/90 $10,590 0.06% 11,294 0.84% 10,913
10/31/90 $10,749 1.81% 11,498 0.60% 10,978
11/30/90 $10,994 2.01% 11,729 0.22% 11,002
12/31/90 $10,983 0.44% 11,781 0.00% 11,002
1/31/91 $11,199 1.34% 11,939 0.60% 11,068
2/28/91 $11,285 0.87% 12,042 0.15% 11,085
3/29/91 $11,329 0.04% 12,047 0.15% 11,102
4/30/91 $11,472 1.34% 12,209 0.15% 11,118
5/31/91 $11,538 0.89% 12,317 0.30% 11,152
6/28/91 $11,549 -0.10% 12,305 0.29% 11,184
7/31/91 $11,683 1.22% 12,455 0.15% 11,201
8/30/91 $11,795 1.32% 12,620 0.29% 11,233
9/30/91 $11,964 1.30% 12,784 0.44% 11,283
10/31/91 $12,033 0.90% 12,899 0.15% 11,299
11/29/91 $12,067 0.28% 12,935 0.29% 11,332
12/31/91 $12,308 2.15% 13,213 0.07% 11,340
1/31/92 $12,348 0.23% 13,243 0.15% 11,357
2/28/92 $12,342 0.03% 13,247 0.36% 11,398
3/31/92 $12,360 0.04% 13,253 0.51% 11,456
4/30/92 $12,471 0.89% 13,370 0.14% 11,472
5/29/92 $12,642 1.18% 13,528 0.14% 11,488
6/30/92 $12,801 1.68% 13,756 0.36% 11,530
7/31/92 $13,200 3.00% 14,168 0.21% 11,554
8/31/92 $13,063 -0.98% 14,029 0.28% 11,586
9/30/92 $13,093 0.65% 14,121 0.28% 11,619
10/30/92 $12,881 -0.98% 13,982 0.35% 11,659
11/30/92 $13,179 1.79% 14,232 0.14% 11,676
12/31/92 $13,380 1.02% 14,378 -0.07% 11,667
1/29/93 $13,545 1.16% 14,544 0.49% 11,725
2/26/93 $13,946 3.62% 15,071 0.35% 11,766
3/31/93 $13,877 -1.06% 14,911 0.35% 11,807
4/30/93 $13,995 1.01% 15,062 0.28% 11,840
5/31/93 $14,051 0.56% 15,146 0.14% 11,856
6/30/93 $14,309 1.67% 15,399 0.14% 11,873
7/30/93 $14,351 0.13% 15,419 0.00% 11,873
8/31/93 $14,583 2.08% 15,740 0.28% 11,906
9/30/93 $14,663 1.14% 15,919 0.21% 11,931
10/29/93 $14,731 0.19% 15,949 0.41% 11,980
11/30/93 $14,683 -0.88% 15,809 0.07% 11,989
12/31/93 $15,008 2.11% 16,143 0.00% 11,989
1/31/94 $15,139 1.14% 16,327 0.27% 12,021
2/28/94 $14,867 -2.59% 15,904 0.34% 12,062
3/31/94 $14,290 -4.07% 15,257 0.34% 12,103
4/29/94 $14,305 0.85% 15,386 0.14% 12,120
5/31/94 $14,438 0.87% 15,520 0.07% 12,128
6/30/94 $14,372 -0.61% 15,425 0.34% 12,170
7/29/94 $14,627 1.83% 15,708 0.27% 12,202
8/31/94 $14,683 0.35% 15,763 0.40% 12,251
9/30/94 $14,495 -1.47% 15,531 0.27% 12,284
10/31/94 $14,212 -1.78% 15,255 0.07% 12,293
11/30/94 $13,874 -1.81% 14,978 0.13% 12,309
12/30/94 $14,246 2.20% 15,308 0.00% 12,309
1/31/95 $14,689 2.86% 15,746 0.40% 12,358
2/28/95 $15,133 2.91% 16,204 0.40% 12,408
3/31/95 $15,275 1.15% 16,390 0.33% 12,448
4/28/95 $15,291 0.12% 16,410 0.33% 12,490
5/31/95 $15,700 3.19% 16,933 0.20% 12,515
6/30/95 $15,576 -0.87% 16,786 0.20% 12,540
7/31/95 $15,790 0.95% 16,946 0.00% 12,540
8/31/95 $15,979 1.27% 17,161 0.26% 12,572
9/29/95 $16,110 0.63% 17,269 0.20% 12,597
10/31/95 $16,299 1.45% 17,519 0.33% 12,639
11/30/95 $16,547 1.66% 17,810 -0.07% 12,630
12/29/95 $16,709 0.96% 17,981 -0.07% 12,621
1/31/96 $16,770 0.76% 18,118 0.59% 12,696
2/29/96 $16,671 -0.68% 17,995 0.32% 12,736
3/29/96 $16,483 -1.28% 17,764 0.52% 12,803
4/30/96 $16,471 -0.28% 17,714 0.39% 12,852
5/31/96 $16,473 -0.04% 17,707 0.19% 12,877
6/28/96 $16,641 1.09% 17,900 0.06% 12,885
7/31/96 $16,778 0.91% 18,063 0.19% 12,909
8/30/96 $16,765 -0.02% 18,060 0.19% 12,934
9/30/96 $17,010 1.40% 18,313 0.32% 12,975
10/31/96 $17,164 1.13% 18,519 0.32% 13,017
11/29/96 $17,441 1.83% 18,858 0.19% 13,041
12/31/96 $17,368 -0.42% 18,779 0.00% 13,041
1/31/97 $17,387 0.19% 18,815 0.32% 13,083
2/28/97 $17,544 0.92% 18,988 0.31% 13,124
3/31/97 $17,329 -1.33% 18,735 0.25% 13,156
4/30/97 $17,473 0.84% 18,893 0.12% 13,172
5/31/97 $17,695 1.51% 19,178 -0.06% 13,164
6/30/97 $17,867 1.07% 19,383 0.12% 13,180
7/31/97 $18,309 2.77% 19,920 0.12% 13,196
8/31/97 $18,182 -0.94% 19,733 0.19% 13,221
9/30/97 $18,389 1.19% 19,968 0.25% 13,254
10/31/97 $18,486 0.64% 20,096 0.25% 13,287
11/30/97 $18,614 0.59% 20,214 -0.06% 13,279
12/31/97 $18,854 1.46% 20,509 -0.12% 13,263
1/31/98 $18,998 1.03% 20,720 0.19% 13,288
2/28/98 $18,996 0.03% 20,727 0.19% 13,314
3/31/98 $19,027 0.09% 20,745 0.19% 13,339
4/30/98 $19,009 -0.45% 20,652 0.18% 13,363
5/31/98 $19,271 1.58% 20,978 0.18% 13,387
6/30/98 $19,359 0.39% 21,060 0.12% 13,403
7/31/98 $19,407 0.25% 21,113 0.12% 13,419
8/31/98 $19,656 1.55% 21,440 0.12% 13,435
9/30/98 $19,856 1.25% 21,708 0.12% 13,451
10/31/98 $19,871 0.00% 21,708 0.24% 13,484
11/30/98 $19,920 0.35% 21,784 0.00% 13,484
12/31/98 $19,963 0.25% 21,838 -0.06% 13,476
1/31/99 0.83% $20,129 1.19% 22,098 0.24% 13,508
2/28/99 -0.29% $20,093 -0.44% 22,001 0.12% 13,524
Total Return 100.93% 120.01% 35.24%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following line graph compares the performance of the Franklin Maryland
Tax-Free Income Fund's Class C shares tot hat of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Maryland Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/95 $9,900 $10,000 $10,000
5/31/95 $10,167 3.19% $10,319 0.20% $10,020
6/30/95 $10,081 -0.87% $10,229 0.20% $10,040
7/31/95 $10,224 0.95% $10,326 0.00% $10,040
8/31/95 $10,340 1.27% $10,458 0.26% $10,066
9/29/95 $10,409 0.63% $10,523 0.20% $10,086
10/31/95 $10,544 1.45% $10,676 0.33% $10,120
11/30/95 $10,699 1.66% $10,853 -0.07% $10,112
12/29/95 $10,798 0.96% $10,957 -0.07% $10,105
1/31/96 $10,841 0.76% $11,041 0.59% $10,165
2/29/96 $10,781 -0.68% $10,966 0.32% $10,198
3/29/96 $10,669 -1.28% $10,825 0.52% $10,251
4/30/96 $10,647 -0.28% $10,795 0.39% $10,291
5/31/96 $10,652 -0.04% $10,791 0.19% $10,310
6/28/96 $10,745 1.09% $10,908 0.06% $10,316
7/31/96 $10,828 0.91% $11,008 0.19% $10,336
8/30/96 $10,823 -0.02% $11,005 0.19% $10,356
9/30/96 $10,965 1.40% $11,159 0.32% $10,389
10/31/96 $11,069 1.13% $11,286 0.32% $10,422
11/29/96 $11,231 1.83% $11,492 0.19% $10,442
12/31/96 $11,189 -0.42% $11,444 0.00% $10,442
1/31/97 $11,195 0.19% $11,466 0.32% $10,475
2/28/97 $11,290 0.92% $11,571 0.31% $10,508
3/31/97 $11,147 -1.33% $11,417 0.25% $10,534
4/30/97 $11,233 0.84% $11,513 0.12% $10,547
5/31/97 $11,380 1.51% $11,687 -0.06% $10,540
6/30/97 $11,485 1.07% $11,812 0.12% $10,553
7/31/97 $11,761 2.77% $12,139 0.12% $10,565
8/31/97 $11,675 -0.94% $12,025 0.19% $10,586
9/30/97 $11,801 1.19% $12,168 0.25% $10,612
10/31/97 $11,857 0.64% $12,246 0.25% $10,639
11/30/97 $11,934 0.59% $12,318 -0.06% $10,632
12/31/97 $12,091 1.46% $12,498 -0.12% $10,619
1/31/98 $12,167 1.03% $12,627 0.19% $10,640
2/28/98 $12,160 0.03% $12,631 0.19% $10,660
3/31/98 $12,184 0.09% $12,642 0.19% $10,680
4/30/98 $12,156 -0.45% $12,585 0.18% $10,699
5/31/98 $12,328 1.58% $12,784 0.18% $10,719
6/30/98 $12,378 0.39% $12,834 0.12% $10,731
7/31/98 $12,403 0.25% $12,866 0.12% $10,744
8/31/98 $12,555 1.55% $13,065 0.12% $10,757
9/30/98 $12,676 1.25% $13,229 0.12% $10,770
10/31/98 $12,679 0.00% $13,229 0.24% $10,796
11/30/98 $12,705 0.35% $13,275 0.00% $10,796
12/31/98 $12,727 0.25% $13,308 -0.06% $10,789
1/31/99 0.78% $12,826 1.19% $13,466 0.24% $10,815
2/28/99 -0.34% $12,795 -0.44% $13,407 0.12% $10,828
Total Return 27.95% 34.07% 8.28%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
36
<PAGE>
FRANKLIN MISSOURI TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Missouri Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Missouri state personal income
taxes through a portfolio consisting primarily of Missouri municipal bonds.(1)
STATE UPDATE [MISSOURI MAP GRAPHIC]
On the whole, the year under review witnessed many positive trends in Missouri's
economy. Preliminary estimates showed the state's unemployment rate at or near
record lows, job growth moved upward, and the state's inflation was practically
nonexistent. At 3.9%, the state's 1998 unemployment rate remained below the 4.4%
national average, while personal income grew 5.1%, nearly identical to the U.S.
rate. In all, 348 companies either expanded or opened new facilities in the
state. This, along with gains in the retail, services, government, insurance and
financial services industries added 34,000 new jobs to the state during the 1998
calendar year.(2)
Since the 1994-1995 fiscal year, the state's revenue collection has exceeded
estimates, creating large surpluses. State law mandates that this excess revenue
be returned to taxpayers. However, we expect that refunds will not be necessary
in fiscal 1997-1998, and that the governor's budget recommendation for future
years will remain within revenue limits.
Missouri's widely diverse, healthy economy and its tradition of prudent
financial management and low debt levels earned it an Aaa rating 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. Missouri Department of Economic Development, 1/4/99.
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 89 of
this report.
[CREDIT QUALITY BREAKDOWN* PIE CHART GRAPHIC]
CREDIT QUALITY BREAKDOWN*
Franklin Missouri Tax-Free Income Fund
Based on Total Long-Term Investments 2/28/99
<TABLE>
<S> <C>
AAA 63.1%
AA 10.0%
A 11.9%
BBB 15.0%
</TABLE>
*Quality breakdown may include
internal ratings for bonds not
rated by a national rating agency.
37
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Missouri
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Hospitals 24.3%
Certificates of Participation 12.9%
Prerefunded 12.8%
Other Revenue 11.2%
Housing 8.5%
Transportation 7.3%
Health Care 6.3%
Utilities 6.2%
Education 3.8%
General Obligation 3.6%
Industrial 2.1%
Tax Allocation 0.9%
Sales Tax Revenue 0.1%
</TABLE>
PORTFOLIO NOTES
Low interest rates during the reporting period contributed to Missouri's $5
billion strong municipal bond supply compared with $2.7 billion the previous
year. Missouri municipalities also took advantage of lower interest rates to
refund outstanding debt. An outstanding bond that becomes prerefunded will be
called at its first call date. In most cases, an escrow of U.S. Treasuries backs
the prerefunded bonds, substantially increasing their price --depending on the
call date. We took advantage of this opportunity to sell some of Franklin
Missouri Tax-Free Income Fund's prerefunded bonds, lowering them from 15.6% of
total long-term investments on February 28, 1998, to 12.8% on February 28, 1999.
Generally we look to sell prerefunded bonds as they approach five years to their
call date and replace them with bonds with at least 10 years' call protection.
The fund profited by selling many of its prerefunded securities for more than it
paid. Thus, it made long-term capital gains in June and December totaling 3.17
cents per share. Additionally, the fund may make another capital gain
distribution in June 1999.
During the reporting period, we added the following purchases to the fund's
portfolio: Greater St. Louis YMCA; Lake of the Ozarks General Hospital; St.
Louis County IDAR - Bethesda Living Centers; O Fallon - Public Facilities
Authority Leasehold Revenue; and Missouri State Health & Educational Facilities
Authority Revenue for SSM Health Care. The fund's largest asset allocation shift
occurred in the hospital sector, which jumped to 24.3% of total long-term
investments on February 28, 1999, from 12.0% one year earlier. At the same time,
the fund maintained its high quality, closing the year under review with 63.1%
of total long-term investments in AAA-rated bonds.
After trading in a narrow range, credit spreads, or the additional interest rate
paid to investors for BBB-versus AAA-rated bonds, widened near the end of the
reporting period. Previously the reward did not justify the added risk of
investing in these higher-yielding, relatively lower-rated bonds. However, with
the improved credit spreads, we will be looking for opportunities to pick up
additional yield.
Looking forward, we expect Missouri's bond supply to moderate as the state's
healthy economy reduces borrowing needs. As always, Franklin Missouri Tax-Free
Income Fund seeks to protect the fund's share value and maintain its competitive
yield.
38
<PAGE>
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
<TABLE>
<CAPTION>
DIVIDEND DISTRIBUTIONS*
Franklin Missouri Tax-Free Income Fund
3/1/98 - 2/28/99
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.63 cents
April 5.2 cents 4.64 cents
May 5.2 cents 4.64 cents
June 5.2 cents 4.64 cents
July 5.2 cents 4.62 cents
August 5.2 cents 4.62 cents
September 5.2 cents 4.62 cents
October 5.2 cents 4.59 cents
November 5.2 cents 4.59 cents
December 5.1 cents 4.49 cents
January 5.1 cents 4.49 cents
February 5.1 cents 4.49 cents
- --------------------------------------------------------------------------------
TOTAL 62.1 CENTS 55.06 CENTS
</TABLE>
*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.
39
<PAGE>
FRANKLIN MISSOURI
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.04 $12.19 $12.23
DISTRIBUTIONS
-------------
Dividend Income $0.6210
Long-Term Capital Gain $0.0317
TOTAL $0.6527
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.03 $12.24 $12.27
DISTRIBUTIONS
-------------
Dividend Income $0.5506
Long-Term Capital Gain $0.0317
TOTAL $0.5823
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Missouri state personal income tax bracket of 43.2%, based
on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.12% +35.19% +113.70% +140.55%
Average Annual Total Return(2) +0.67% +5.30% +7.43% +7.53%
Distribution Rate(3) 4.71%
Taxable Equivalent Distribution Rate(4) 8.30%
30-Day Standardized Yield(5) 3.95%
Taxable Equivalent Yield(4) 6.96%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.58% +18.88% + 29.18%
Average Annual Total Return(2) +2.58% +5.58% +6.62%
Distribution Rate(3) 4.29%
Taxable Equivalent Distribution Rate(4) 7.56%
30-Day Standardized Yield(5) 3.53%
Taxable Equivalent Yield(4) 6.22%
</TABLE>
Franklin Missouri Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 3.17 cents ($0.0317) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
40 Past performance is not predictive of future results.
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
[LINE CHART]
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin Missouri
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Date Franklin Missouri Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond Index
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/1/89 $9,578 $10,000 $10,000
3/31/89 $9,570 -0.24% $9,976 0.58% $10,058
4/30/89 $9,774 2.37% $10,212 0.65% $10,123
5/31/89 $9,989 2.08% $10,425 0.57% $10,181
6/30/89 $10,102 1.36% $10,567 0.24% $10,206
7/31/89 $10,188 1.36% $10,710 0.24% $10,230
8/31/89 $10,132 -0.98% $10,605 0.16% $10,246
9/30/89 $10,077 -0.30% $10,574 0.32% $10,279
10/31/89 $10,165 1.22% $10,703 0.48% $10,329
11/30/89 $10,311 1.75% $10,890 0.24% $10,353
12/31/89 $10,400 0.82% $10,979 0.16% $10,370
1/31/90 $10,324 -0.47% $10,928 1.03% $10,477
2/28/90 $10,463 0.89% $11,025 0.47% $10,526
3/31/90 $10,455 0.03% $11,028 0.55% $10,584
4/30/90 $10,407 -0.72% $10,949 0.16% $10,601
5/31/90 $10,638 2.18% $11,187 0.23% $10,625
6/30/90 $10,741 0.88% $11,286 0.54% $10,682
7/31/90 $10,904 1.48% $11,453 0.38% $10,723
8/31/90 $10,693 -1.45% $11,287 0.92% $10,822
9/30/90 $10,665 0.06% $11,294 0.84% $10,913
10/31/90 $10,841 1.81% $11,498 0.60% $10,978
11/30/90 $11,091 2.01% $11,729 0.22% $11,002
12/31/90 $11,093 0.44% $11,781 0.00% $11,002
1/31/91 $11,262 1.34% $11,939 0.60% $11,068
2/28/91 $11,327 0.87% $12,042 0.15% $11,085
3/31/91 $11,382 0.04% $12,047 0.15% $11,102
4/30/91 $11,544 1.34% $12,209 0.15% $11,118
5/31/91 $11,621 0.89% $12,317 0.30% $11,152
6/30/91 $11,602 -0.10% $12,305 0.29% $11,184
7/31/91 $11,788 1.22% $12,455 0.15% $11,201
8/31/91 $11,888 1.32% $12,620 0.29% $11,233
9/30/91 $12,054 1.30% $12,784 0.44% $11,283
10/31/91 $12,133 0.90% $12,899 0.15% $11,299
11/30/91 $12,191 0.28% $12,935 0.29% $11,332
12/31/91 $12,421 2.15% $13,213 0.07% $11,340
1/31/92 $12,451 0.23% $13,243 0.15% $11,357
2/29/92 $12,481 0.03% $13,247 0.36% $11,398
3/31/92 $12,512 0.04% $13,253 0.51% $11,456
4/30/92 $12,622 0.89% $13,370 0.14% $11,472
5/31/92 $12,767 1.18% $13,528 0.14% $11,488
6/30/92 $12,912 1.68% $13,756 0.36% $11,530
7/31/92 $13,358 3.00% $14,168 0.21% $11,554
8/31/92 $13,193 -0.98% $14,029 0.28% $11,586
9/30/92 $13,236 0.65% $14,121 0.28% $11,619
10/31/92 $12,998 -0.98% $13,982 0.35% $11,659
11/30/92 $13,312 1.79% $14,232 0.14% $11,676
12/31/92 $13,521 1.02% $14,378 -0.07% $11,667
1/31/93 $13,683 1.16% $14,544 0.49% $11,725
2/28/93 $14,073 3.62% $15,071 0.35% $11,766
3/31/93 $14,034 -1.06% $14,911 0.35% $11,807
4/30/93 $14,126 1.01% $15,062 0.28% $11,840
5/31/93 $14,207 0.56% $15,146 0.14% $11,856
6/30/93 $14,459 1.67% $15,399 0.14% $11,873
7/31/93 $14,529 0.13% $15,419 0.00% $11,873
8/31/93 $14,807 2.08% $15,740 0.28% $11,906
9/30/93 $15,011 1.14% $15,919 0.21% $11,931
10/31/93 $15,041 0.19% $15,949 0.41% $11,980
11/30/93 $14,961 -0.88% $15,809 0.07% $11,989
12/31/93 $15,317 2.11% $16,143 0.00% $11,989
1/31/94 $15,462 1.14% $16,327 0.27% $12,021
2/28/94 $15,127 -2.59% $15,904 0.34% $12,062
3/31/94 $14,575 -4.07% $15,257 0.34% $12,103
4/30/94 $14,619 0.85% $15,386 0.14% $12,120
5/31/94 $14,741 0.87% $15,520 0.07% $12,128
6/30/94 $14,682 -0.61% $15,425 0.34% $12,170
7/31/94 $14,909 1.83% $15,708 0.27% $12,202
8/31/94 $14,967 0.35% $15,763 0.40% $12,251
9/30/94 $14,762 -1.47% $15,531 0.27% $12,284
10/31/94 $14,517 -1.78% $15,255 0.07% $12,293
11/30/94 $14,232 -1.81% $14,978 0.13% $12,309
12/31/94 $14,540 2.20% $15,308 0.00% $12,309
1/31/95 $14,957 2.86% $15,746 0.40% $12,358
2/28/95 $15,349 2.91% $16,204 0.40% $12,408
3/31/95 $15,473 1.15% $16,390 0.33% $12,448
4/30/95 $15,531 0.12% $16,410 0.33% $12,490
5/31/95 $15,941 3.19% $16,933 0.20% $12,515
6/30/95 $15,850 -0.87% $16,786 0.20% $12,540
7/31/95 $15,936 0.95% $16,946 0.00% $12,540
8/31/95 $16,106 1.27% $17,161 0.26% $12,572
9/30/95 $16,179 0.63% $17,269 0.20% $12,597
10/31/95 $16,377 1.45% $17,519 0.33% $12,639
11/30/95 $16,633 1.66% $17,810 -0.07% $12,630
12/31/95 $16,821 0.96% $17,981 -0.07% $12,621
1/31/96 $16,982 0.76% $18,118 0.59% $12,696
2/29/96 $16,916 -0.68% $17,995 0.32% $12,736
3/31/96 $16,710 -1.28% $17,764 0.52% $12,803
4/30/96 $16,672 -0.28% $17,714 0.39% $12,852
5/31/96 $16,663 -0.04% $17,707 0.19% $12,877
6/30/96 $16,842 1.09% $17,900 0.06% $12,885
7/31/96 $16,963 0.91% $18,063 0.19% $12,909
8/31/96 $16,998 -0.02% $18,060 0.19% $12,934
9/30/96 $17,237 1.40% $18,313 0.32% $12,975
10/31/96 $17,404 1.13% $18,519 0.32% $13,017
11/30/96 $17,660 1.83% $18,858 0.19% $13,041
12/31/96 $17,610 -0.42% $18,779 0.00% $13,041
1/31/97 $17,631 0.19% $18,815 0.32% $13,083
2/28/97 $17,771 0.92% $18,988 0.31% $13,124
3/31/97 $17,597 -1.33% $18,735 0.25% $13,156
4/30/97 $17,784 0.84% $18,893 0.12% $13,172
5/31/97 $18,003 1.51% $19,178 -0.06% $13,164
6/30/97 $18,173 1.07% $19,383 0.12% $13,180
7/31/97 $18,608 2.77% $19,920 0.12% $13,196
8/31/97 $18,476 -0.94% $19,733 0.19% $13,221
9/30/97 $18,714 1.19% $19,968 0.25% $13,254
10/31/97 $18,814 0.64% $20,096 0.25% $13,287
11/30/97 $18,945 0.59% $20,214 -0.06% $13,279
12/31/97 $19,221 1.46% $20,509 -0.12% $13,263
1/31/98 $19,366 1.03% $20,720 0.19% $13,288
2/28/98 $19,448 0.03% $20,727 0.19% $13,314
3/31/98 $19,467 0.09% $20,745 0.19% $13,339
4/30/98 $19,422 -0.45% $20,652 0.18% $13,363
5/31/98 $19,682 1.58% $20,978 0.18% $13,387
6/30/98 $19,751 0.39% $21,060 0.12% $13,403
7/31/98 $19,771 0.25% $21,113 0.12% $13,419
8/31/98 $20,019 1.55% $21,440 0.12% $13,435
9/30/98 $20,251 1.25% $21,708 0.12% $13,451
10/31/98 $20,205 0.00% $21,708 0.24% $13,484
11/30/98 $20,258 0.35% $21,784 0.00% $13,484
12/31/98 $20,327 0.25% $21,838 -0.06% $13,476
1/31/99 0.91% $20,512 1.19% $22,098 0.24% $13,508
2/28/99 -0.33% $20,468 -0.44% $22,001 0.12% $13,524
Total Return 104.68% 120.01% 35.24%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95-2/28/99)
[LINE CHART]
The following line graph compares the performance of the Franklin Missouri
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Date Franklin Missouri Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,160 3.19% $10,319 0.20% $10,020
6/30/95 $10,096 -0.87% $10,229 0.20% $10,040
7/31/95 $10,146 0.95% $10,326 0.00% $10,040
8/31/95 $10,249 1.27% $10,458 0.26% $10,066
9/29/95 $10,298 0.63% $10,523 0.20% $10,086
10/31/95 $10,419 1.45% $10,676 0.33% $10,120
11/30/95 $10,576 1.66% $10,853 -0.07% $10,112
12/29/95 $10,690 0.96% $10,957 -0.07% $10,105
1/31/96 $10,787 0.76% $11,041 0.59% $10,165
2/29/96 $10,740 -0.68% $10,966 0.32% $10,198
3/29/96 $10,597 -1.28% $10,825 0.52% $10,251
4/30/96 $10,577 -0.28% $10,795 0.39% $10,291
5/31/96 $10,566 -0.04% $10,791 0.19% $10,310
6/28/96 $10,674 1.09% $10,908 0.06% $10,316
7/31/96 $10,746 0.91% $11,008 0.19% $10,336
8/30/96 $10,763 -0.02% $11,005 0.19% $10,356
9/30/96 $10,900 1.40% $11,159 0.32% $10,389
10/31/96 $11,009 1.13% $11,286 0.32% $10,422
11/29/96 $11,165 1.83% $11,492 0.19% $10,442
12/31/96 $11,109 -0.42% $11,444 0.00% $10,442
1/31/97 $11,116 0.19% $11,466 0.32% $10,475
2/28/97 $11,208 0.92% $11,571 0.31% $10,508
3/31/97 $11,099 -1.33% $11,417 0.25% $10,534
4/30/97 $11,212 0.84% $11,513 0.12% $10,547
5/31/97 $11,344 1.51% $11,687 -0.06% $10,540
6/30/97 $11,446 1.07% $11,812 0.12% $10,553
7/31/97 $11,723 2.77% $12,139 0.12% $10,565
8/31/97 $11,635 -0.94% $12,025 0.19% $10,586
9/30/97 $11,779 1.19% $12,168 0.25% $10,612
10/31/97 $11,836 0.64% $12,246 0.25% $10,639
11/30/97 $11,912 0.59% $12,318 -0.06% $10,632
12/31/97 $12,079 1.46% $12,498 -0.12% $10,619
1/31/98 $12,165 1.03% $12,627 0.19% $10,640
2/28/98 $12,211 0.03% $12,631 0.19% $10,660
3/31/98 $12,217 0.09% $12,642 0.19% $10,680
4/30/98 $12,183 -0.45% $12,585 0.18% $10,699
5/31/98 $12,340 1.58% $12,784 0.18% $10,719
6/30/98 $12,388 0.39% $12,834 0.12% $10,731
7/31/98 $12,394 0.25% $12,866 0.12% $10,744
8/31/98 $12,543 1.55% $13,065 0.12% $10,757
9/30/98 $12,672 1.25% $13,229 0.12% $10,770
10/31/98 $12,637 0.00% $13,229 0.24% $10,796
11/30/98 $12,674 0.35% $13,275 0.00% $10,796
12/31/98 $12,700 0.25% $13,308 -0.06% $10,789
1/31/99 0.86% $12,809 1.19% $13,466 0.24% $10,815
2/28/99 -0.30% $12,784 -0.44% $13,407 0.12% $10,828
Total Return 27.84% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results. 41
<PAGE>
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin North Carolina
Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 57.7%
AA 18.6%
A 14.5%
BBB 9.2%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
Your Fund's Goal: 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 GRAPHIC]
North Carolina enjoyed an enviable economic picture, compared with the rest of
the nation for the year under review. The state's economy continued its
transformation from an industrial-based to a service/ financial-based economy.
Although fallout from the Asian crisis somewhat affected traditional industries,
such as tobacco, textiles and apparel, growth in the state's construction,
banking, retail and services sectors more than made up for this decline. The
state is expected to outpace the rest of the nation in terms of economic growth
during the 1999-01 biennium, with a projected 2.9% gross state product
increase.(2)
During the reporting period, North Carolina maintained its tradition of
conservative debt management, a factor contributing to its AAA rating, the
highest rating from Standard & Poor's, a national credit rating agency.(3) Based
on its expanding economy and prudent financial management, we expect North
Carolina municipal obligations to perform well in the future.
1. For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
2. Source: North Carolina State Budget 1999-01: Summary of Recommendations.
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 94 of
this report.
42
<PAGE>
PORTFOLIO NOTES
During the reporting period, the fund's share price, as measured by net asset
value, increased five cents, from $12.11 on February 28, 1998, to $12.16 on
February 28, 1999. On the state level, North Carolina's bond issuance increased
47.6% over the reporting period. Due to the strong credit quality and demand for
the state's debt, yields remained significantly lower than national levels.
During the year under review, we found value in the insured market sector, and
made the following purchases: Charlotte General Obligation, Public Improvement
5%, New Hanover Regional Medical Center Project 5%, North Carolina Eastern
Municipal Power Agency Power System Revenue 5.375%, Sampson Area Development
Corp. 4.75% and Cumberland County Certificate of Participation Civic Center
Project 5%.
These purchases contributed to asset allocation shifts in various sectors during
the reporting period. Among the fund's more significant changes, utilities
decreased from 28.3% of total long-term investments on February 28, 1998, to
23.2% on February 28, 1999. Hospitals increased from 14.5% to 20.7% of total
long-term investments over the same period. The portfolio's AAA-rated bonds
increased from 45.6% to 57.7% of total long-term investments during the
reporting period, reflecting the fund's high quality.
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.
PORTFOLIO BREAKDOWN
Franklin North Carolina
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% of Total
Long-Term
Sector Investments
- ------ -----------
<S> <C>
Utilities 23.2%
Hospitals 20.7%
Prerefunded 18.7%
Housing 11.7%
Certificates of Participation 9.1%
Other Revenue 4.6%
Education 4.6%
Industrial 4.1%
Tax Allocation 1.4%
General Obligation 0.7%
Health Care 0.6%
Transportation 0.3%
Sales Tax Revenue 0.3%
</TABLE>
43
<PAGE>
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
We anticipate that, in the future, North Carolina's amount of debt issuance may
remain one of the nation's lowest, thereby increasing the value of the
portfolio's existing holdings.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin North Carolina Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------
<S> <C> <C>
March 5.1 cents 4.53 cents
April 5.1 cents 4.49 cents
May 5.1 cents 4.49 cents
June 5.1 cents 4.49 cents
July 5.1 cents 4.58 cents
August 5.1 cents 4.58 cents
September 5.1 cents 4.58 cents
October 5.1 cents 4.56 cents
November 5.1 cents 4.56 cents
December 5.0 cents 4.46 cents
January 5.0 cents 4.46 cents
February 5.0 cents 4.46 cents
- --------------------------------------------------------------
Total 60.9 cents 54.24 cents
</TABLE>
*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.
44
<PAGE>
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.05 $12.16 $12.11
DISTRIBUTIONS
-------------
Dividend Income $0.609
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.06 $12.24 $12.18
DISTRIBUTIONS
-------------
Dividend Income $0.5424
</TABLE>
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II): Subject to 1% initial sales charge and 1%
contingent deferred sales charge for shares redeemed within 18 months of
investment. These shares have higher annual fees and expenses than Class A
shares.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.54% +33.61% +107.41% +138.28%
Average Annual Total Return(2) +1.03% +5.05% +7.10% +7.44%
Distribution Rate(3) 4.68%
Taxable Equivalent Distribution Rate(4) 8.40%
30-Day Standardized Yield(5) 3.83%
Taxable Equivalent Yield(4) 6.87%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.02% +19.14% +28.40%
Average Annual Total Return(2) +3.01% +5.66% +6.45%
Distribution Rate(3) 4.23%
Taxable Equivalent Distribution Rate(4) 7.59%
30-Day Standardized Yield(5) 3.41%
Taxable Equivalent Yield(4) 6.12%
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and North Carolina state personal income tax bracket of 44.3%,
based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results. 45
<PAGE>
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
CLASS A
- -------
<TABLE>
<S> <C>
1-Year +1.03%
5-Year +5.05%
10-Year +7.10%
Since Inception (9/1/87) +7.44%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
[Line Chart]
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin North
Carolina Tax-Free Income Fund's Class A shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin North Carolina Tax-Free Lehman Brothers CPI
Income Fund-Class A Municipal Bond
Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/1/89 $9,574 $10,000 $10,000
3/31/89 $9,565 -0.24% $9,976 0.58% $10,058
4/30/89 $9,793 2.37% $10,212 0.65% $10,123
5/31/89 $9,995 2.08% $10,425 0.57% $10,181
6/30/89 $10,134 1.36% $10,567 0.24% $10,206
7/31/89 $10,208 1.36% $10,710 0.24% $10,230
8/31/89 $10,143 -0.98% $10,605 0.16% $10,246
9/30/89 $10,077 -0.30% $10,574 0.32% $10,279
10/31/89 $10,162 1.22% $10,703 0.48% $10,329
11/30/89 $10,314 1.75% $10,890 0.24% $10,353
12/31/89 $10,411 0.82% $10,979 0.16% $10,370
1/31/90 $10,343 -0.47% $10,928 1.03% $10,477
2/28/90 $10,469 0.89% $11,025 0.47% $10,526
3/31/90 $10,469 0.03% $11,028 0.55% $10,584
4/30/90 $10,402 -0.72% $10,949 0.16% $10,601
5/31/90 $10,640 2.18% $11,187 0.23% $10,625
6/30/90 $10,753 0.88% $11,286 0.54% $10,682
7/31/90 $10,914 1.48% $11,453 0.38% $10,723
8/31/90 $10,676 -1.45% $11,287 0.92% $10,822
9/30/90 $10,658 0.06% $11,294 0.84% $10,913
10/31/90 $10,812 1.81% $11,498 0.60% $10,978
11/30/90 $11,058 2.01% $11,729 0.22% $11,002
12/31/90 $11,070 0.44% $11,781 0.00% $11,002
1/31/91 $11,237 1.34% $11,939 0.60% $11,068
2/28/91 $11,301 0.87% $12,042 0.15% $11,085
3/31/91 $11,345 0.04% $12,047 0.15% $11,102
4/30/91 $11,494 1.34% $12,209 0.15% $11,118
5/31/91 $11,581 0.89% $12,317 0.30% $11,152
6/30/91 $11,562 -0.10% $12,305 0.29% $11,184
7/31/91 $11,724 1.22% $12,455 0.15% $11,201
8/31/91 $11,833 1.32% $12,620 0.29% $11,233
9/30/91 $11,987 1.30% $12,784 0.44% $11,283
10/31/91 $12,054 0.90% $12,899 0.15% $11,299
11/30/91 $12,100 0.28% $12,935 0.29% $11,332
12/31/91 $12,343 2.15% $13,213 0.07% $11,340
1/31/92 $12,372 0.23% $13,243 0.15% $11,357
2/29/92 $12,368 0.03% $13,247 0.36% $11,398
3/31/92 $12,386 0.04% $13,253 0.51% $11,456
4/30/92 $12,481 0.89% $13,370 0.14% $11,472
5/31/92 $12,623 1.18% $13,528 0.14% $11,488
6/30/92 $12,788 1.68% $13,756 0.36% $11,530
7/31/92 $13,249 3.00% $14,168 0.21% $11,554
8/31/92 $13,097 -0.98% $14,029 0.28% $11,586
9/30/92 $13,138 0.65% $14,121 0.28% $11,619
10/31/92 $12,972 -0.98% $13,982 0.35% $11,659
11/30/92 $13,257 1.79% $14,232 0.14% $11,676
12/31/92 $13,450 1.02% $14,378 -0.07% $11,667
1/31/93 $13,621 1.16% $14,544 0.49% $11,725
2/28/93 $14,015 3.62% $15,071 0.35% $11,766
3/31/93 $13,963 -1.06% $14,911 0.35% $11,807
4/30/93 $14,065 1.01% $15,062 0.28% $11,840
5/31/93 $14,119 0.56% $15,146 0.14% $11,856
6/30/93 $14,342 1.67% $15,399 0.14% $11,873
7/31/93 $14,349 0.13% $15,419 0.00% $11,873
8/31/93 $14,647 2.08% $15,740 0.28% $11,906
9/30/93 $14,809 1.14% $15,919 0.21% $11,931
10/31/93 $14,850 0.19% $15,949 0.41% $11,980
11/30/93 $14,770 -0.88% $15,809 0.07% $11,989
12/31/93 $15,021 2.11% $16,143 0.00% $11,989
1/31/94 $15,162 1.14% $16,327 0.27% $12,021
2/28/94 $14,856 -2.59% $15,904 0.34% $12,062
3/31/94 $14,274 -4.07% $15,257 0.34% $12,103
4/30/94 $14,354 0.85% $15,386 0.14% $12,120
5/31/94 $14,460 0.87% $15,520 0.07% $12,128
6/30/94 $14,350 -0.61% $15,425 0.34% $12,170
7/31/94 $14,610 1.83% $15,708 0.27% $12,202
8/31/94 $14,666 0.35% $15,763 0.40% $12,251
9/30/94 $14,466 -1.47% $15,531 0.27% $12,284
10/31/94 $14,187 -1.78% $15,255 0.07% $12,293
11/30/94 $13,831 -1.81% $14,978 0.13% $12,309
12/31/94 $14,161 2.20% $15,308 0.00% $12,309
1/31/95 $14,599 2.86% $15,746 0.40% $12,358
2/28/95 $15,012 2.91% $16,204 0.40% $12,408
3/31/95 $15,189 1.15% $16,390 0.33% $12,448
4/30/95 $15,207 0.12% $16,410 0.33% $12,490
5/31/95 $15,599 3.19% $16,933 0.20% $12,515
6/30/95 $15,483 -0.87% $16,786 0.20% $12,540
7/31/95 $15,556 0.95% $16,946 0.00% $12,540
8/31/95 $15,711 1.27% $17,161 0.26% $12,572
9/30/95 $15,798 0.63% $17,269 0.20% $12,597
10/31/95 $16,036 1.45% $17,519 0.33% $12,639
11/30/95 $16,288 1.66% $17,810 -0.07% $12,630
12/31/95 $16,446 0.96% $17,981 -0.07% $12,621
1/31/96 $16,520 0.76% $18,118 0.59% $12,696
2/29/96 $16,401 -0.68% $17,995 0.32% $12,736
3/31/96 $16,239 -1.28% $17,764 0.52% $12,803
4/30/96 $16,230 -0.28% $17,714 0.39% $12,852
5/31/96 $16,249 -0.04% $17,707 0.19% $12,877
6/30/96 $16,423 1.09% $17,900 0.06% $12,885
7/31/96 $16,539 0.91% $18,063 0.19% $12,909
8/31/96 $16,542 -0.02% $18,060 0.19% $12,934
9/30/96 $16,760 1.40% $18,313 0.32% $12,975
10/31/96 $16,922 1.13% $18,519 0.32% $13,017
11/30/96 $17,156 1.83% $18,858 0.19% $13,041
12/31/96 $17,116 -0.42% $18,779 0.00% $13,041
1/31/97 $17,133 0.19% $18,815 0.32% $13,083
2/28/97 $17,283 0.92% $18,988 0.31% $13,124
3/31/97 $17,123 -1.33% $18,735 0.25% $13,156
4/30/97 $17,274 0.84% $18,893 0.12% $13,172
5/31/97 $17,471 1.51% $19,178 -0.06% $13,164
6/30/97 $17,653 1.07% $19,383 0.12% $13,180
7/31/97 $18,046 2.77% $19,920 0.12% $13,196
8/31/97 $17,943 -0.94% $19,733 0.19% $13,221
9/30/97 $18,128 1.19% $19,968 0.25% $13,254
10/31/97 $18,253 0.64% $20,096 0.25% $13,287
11/30/97 $18,378 0.59% $20,214 -0.06% $13,279
12/31/97 $18,642 1.46% $20,509 -0.12% $13,263
1/31/98 $18,799 1.03% $20,720 0.19% $13,288
2/28/98 $18,802 0.03% $20,727 0.19% $13,314
3/31/98 $18,834 0.09% $20,745 0.19% $13,339
4/30/98 $18,805 -0.45% $20,652 0.18% $13,363
5/31/98 $19,057 1.58% $20,978 0.18% $13,387
6/30/98 $19,137 0.39% $21,060 0.12% $13,403
7/31/98 $19,186 0.25% $21,113 0.12% $13,419
8/31/98 $19,426 1.55% $21,440 0.12% $13,435
9/30/98 $19,666 1.25% $21,708 0.12% $13,451
10/31/98 $19,652 0.00% $21,708 0.24% $13,484
11/30/98 $19,702 0.35% $21,784 0.00% $13,484
12/31/98 $19,750 0.25% $21,838 -0.06% $13,476
1/31/99 0.90% $19,928 1.19% $22,098 0.24% $13,508
2/28/99 -0.42% $19,856 -0.44% $22,001 0.12% $13,524
Total Return 98.56% 120.01% 35.24%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
CLASS C
- -------
<TABLE>
<S> <C>
1-Year +3.01%
3-Year +5.66%
Since Inception (5/1/95) +6.45%
</TABLE>
[Line Chart]
CLASS C (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin North
Carolina Tax-Free Income Fund's Class C shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin North Carolina Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,144 3.19% $10,319 0.20% $10,020
6/30/95 $10,081 -0.87% $10,229 0.20% $10,040
7/31/95 $10,132 0.95% $10,326 0.00% $10,040
8/31/95 $10,227 1.27% $10,458 0.26% $10,066
9/29/95 $10,287 0.63% $10,523 0.20% $10,086
10/31/95 $10,436 1.45% $10,676 0.33% $10,120
11/30/95 $10,594 1.66% $10,853 -0.07% $10,112
12/29/95 $10,700 0.96% $10,957 -0.07% $10,105
1/31/96 $10,734 0.76% $11,041 0.59% $10,165
2/29/96 $10,651 -0.68% $10,966 0.32% $10,198
3/29/96 $10,543 -1.28% $10,825 0.52% $10,251
4/30/96 $10,532 -0.28% $10,795 0.39% $10,291
5/31/96 $10,540 -0.04% $10,791 0.19% $10,310
6/28/96 $10,656 1.09% $10,908 0.06% $10,316
7/31/96 $10,717 0.91% $11,008 0.19% $10,336
8/30/96 $10,714 -0.02% $11,005 0.19% $10,356
9/30/96 $10,859 1.40% $11,159 0.32% $10,389
10/31/96 $10,949 1.13% $11,286 0.32% $10,422
11/29/96 $11,104 1.83% $11,492 0.19% $10,442
12/31/96 $11,073 -0.42% $11,444 0.00% $10,442
1/31/97 $11,078 0.19% $11,466 0.32% $10,475
2/28/97 $11,168 0.92% $11,571 0.31% $10,508
3/31/97 $11,059 -1.33% $11,417 0.25% $10,534
4/30/97 $11,151 0.84% $11,513 0.12% $10,547
5/31/97 $11,282 1.51% $11,687 -0.06% $10,540
6/30/97 $11,384 1.07% $11,812 0.12% $10,553
7/31/97 $11,641 2.77% $12,139 0.12% $10,565
8/31/97 $11,560 -0.94% $12,025 0.19% $10,586
9/30/97 $11,682 1.19% $12,168 0.25% $10,612
10/31/97 $11,747 0.64% $12,246 0.25% $10,639
11/30/97 $11,832 0.59% $12,318 -0.06% $10,632
12/31/97 $11,985 1.46% $12,498 -0.12% $10,619
1/31/98 $12,090 1.03% $12,627 0.19% $10,640
2/28/98 $12,086 0.03% $12,631 0.19% $10,660
3/31/98 $12,101 0.09% $12,642 0.19% $10,680
4/30/98 $12,076 -0.45% $12,585 0.18% $10,699
5/31/98 $12,241 1.58% $12,784 0.18% $10,719
6/30/98 $12,286 0.39% $12,834 0.12% $10,731
7/31/98 $12,312 0.25% $12,866 0.12% $10,744
8/31/98 $12,460 1.55% $13,065 0.12% $10,757
9/30/98 $12,598 1.25% $13,229 0.12% $10,770
10/31/98 $12,583 0.00% $13,229 0.24% $10,796
11/30/98 $12,620 0.35% $13,275 0.00% $10,796
12/31/98 $12,645 0.25% $13,308 -0.06% $10,789
1/31/99 0.85% $12,752 1.19% $13,466 0.24% $10,815
2/28/99 -0.46% $12,707 -0.44% $13,407 0.12% $10,828
Total Return 27.07% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
46 Past performance is not predictive of future results.
<PAGE>
FRANKLIN TEXAS TAX-FREE INCOME FUND
Your Fund's Goal: 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
[TEXAS GRAPHIC]
Texas' economy was one of the strongest in the nation as of the end of the
reporting period. The state's job creation rate was second only to California's
as its growing high technology sector replaced some of the jobs lost in the
volatile oil and gas industry. In fact, since 1980, the oil and gas industries'
proportion of the state's total economy declined by half, to an estimated
12%.(2) A low business-cost environment, growing high technology sector and
favorable geographic position for international trade contributed to this
favorable economic environment.
In Texas, the sales tax is the dominant revenue source, generally accounting for
more than one-half of treasury receipts. In past years, the state maintained
solid, year-end cash surpluses. The general revenue fund account is expected to
close 1997-1998 with a $1.97 billion cash balance, more than three times last
year's projection. Additional income should come from the state's settlement of
its lawsuit against tobacco companies for the cost of treating smoking-related
illnesses, which is expected to bring in $14.5 billion of chiefly unrestricted
revenue, over 25 years.(3)
The state's Aa2 general obligation debt rating by Moody's, a national
credit-rating agency, reflected positively on Texas' expanding economy and
moderate debt burden as of February 28, 1999, and bodes well for the future.(4)
CREDIT QUALITY BREAKDOWN*
Franklin Texas Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[Pie Chart]
<TABLE>
<S> <C>
AAA 52.6%
AA 6.2%
A 5.9%
BBB 35.3%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
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.
3. Source: Fitch IBCA, Public Finance, 8/14/98.
4. 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 99 of
this report.
47
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Texas
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 26.5%
Industrial 13.2%
Education 12.0%
Health Care 11.9%
Prerefunded 11.5%
Hospitals 9.1%
Transportation 6.9%
Housing 5.5%
Other Revenue 1.5%
Sales Tax Revenue 1.1%
General Obligation 0.8%
</TABLE>
PORTFOLIO NOTES
For the year under review, Texas issued $18.4 billion worth of bonds, a
remarkable 18.4% increase from the previous reporting period. Because supply
outpaced demand during the period, the fund was able to make the following
purchases at relatively attractive yields: Waxahachie Community Development
Corp. Sales Tax Revenue; Gulf Coast Waste Disposal Authority for Energy Corp.
Project; Tyler Health Facilities Development Corp. Hospital Revenue - East Texas
Medical Center; and Tarrant County Health Facilities Development Corp. Revenue -
Bethesda Living Centers. These purchases helped maintain asset class
diversification, thus reducing the fund's exposure to risk and volatility that
may affect any one sector. In addition, overall credit quality remained high,
with AAA bonds comprising over 52% of the fund's total long-term investments as
of February 28, 1999.
As in the previous reporting period, many issuers took advantage of declining
interest rates to refinance outstanding debt. 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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
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 long-term capital gain distributions
in June and December totaling 19.73 cents per share and a short-term capital
gain distribution of 1.47 cents per share. Additionally, the fund may make
another capital gain distribution in June 1999.
48
<PAGE>
Going forward, the state's growing need for new infrastructure, such as
highways, schools and affordable housing, should sustain new borrowing
requirements. In addition, if interest rates remain low, refunding issues
resulting from lower borrowing costs could add to the new-issue supply. As
always, we continue to manage Franklin Texas Tax-Free Income Fund seeking to
protect its share value and maintain its competitive yield.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
DIVIDEND DISTRIBUTIONS*
Franklin Texas Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------
<S> <C> <C>
March 5.1 cents 4.52 cents
April 5.1 cents 4.53 cents
May 5.1 cents 4.53 cents
June 5.0 cents 4.43 cents
July 5.0 cents 4.44 cents
August 5.0 cents 4.44 cents
September 5.0 cents 4.44 cents
October 5.0 cents 4.48 cents
November 5.0 cents 4.48 cents
December 4.9 cents 4.38 cents
January 4.9 cents 4.38 cents
February 4.9 cents 4.38 cents
---------- ----------
TOTAL 60.0 cents 53.43 cents
---------- ----------
</TABLE>
*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.
49
<PAGE>
FRANKLIN TEXAS
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.26 $11.42 $11.68
DISTRIBUTIONS
-------------
Dividend Income $0.6000
Long-Term Capital Gain $0.1973
Short-Term Capital Gain $0.0147
TOTAL $0.8120
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.24 $11.57 $11.81
DISTRIBUTIONS
-------------
Dividend Income $0.5343
Long-Term Capital Gain $0.1973
Short-Term Capital Gain $0.0147
TOTAL $0.7463
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
4. Taxable equivalent distribution rate and yield assume the 1999 maximum
federal personal income tax bracket of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.86% +34.43% +109.64% +141.46%
Average Annual Total Return(2) +0.39% +5.18% +7.22% +7.56%
Distribution Rate(3) 4.88%
Taxable Equivalent Distribution Rate(4) 8.08%
30-Day Standardized Yield(5) 3.94%
Taxable Equivalent Yield(4) 6.52%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.40% +19.26% +29.07%
Average Annual Total Return(2) +2.38% +5.69% +6.62%
Distribution Rate(3) 4.39%
Taxable Equivalent Distribution Rate(4) 7.27%
30-Day Standardized Yield(5) 3.52%
Taxable Equivalent Yield(4) 5.83%
</TABLE>
Franklin Texas Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 19.73 cents ($0.1973) per share in June and December
1998. The fund hereby designates such distributions as capital gain dividends
per Internal Revenue Code Section 852 (b)(3).
50 Past performance is not predictive of future results.
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
The following line graph compares the performance of the Franklin Texas
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Texas Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond
Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/1/89 $9,575 $10,000 $10,000
3/31/89 $9,582 -0.24% $9,976 0.58% $10,058
4/30/89 $9,770 2.37% $10,212 0.65% $10,123
5/31/89 $9,987 2.08% $10,425 0.57% $10,181
6/30/89 $10,114 1.36% $10,567 0.24% $10,206
7/31/89 $10,195 1.36% $10,710 0.24% $10,230
8/31/89 $10,136 -0.98% $10,605 0.16% $10,246
9/30/89 $10,086 -0.30% $10,574 0.32% $10,279
10/31/89 $10,178 1.22% $10,703 0.48% $10,329
11/30/89 $10,337 1.75% $10,890 0.24% $10,353
12/31/89 $10,439 0.82% $10,979 0.16% $10,370
1/31/90 $10,369 -0.47% $10,928 1.03% $10,477
2/28/90 $10,463 0.89% $11,025 0.47% $10,526
3/31/90 $10,450 0.03% $11,028 0.55% $10,584
4/30/90 $10,388 -0.72% $10,949 0.16% $10,601
5/31/90 $10,612 2.18% $11,187 0.23% $10,625
6/30/90 $10,718 0.88% $11,286 0.54% $10,682
7/31/90 $10,896 1.48% $11,453 0.38% $10,723
8/31/90 $10,631 -1.45% $11,287 0.92% $10,822
9/30/90 $10,608 0.06% $11,294 0.84% $10,913
10/31/90 $10,778 1.81% $11,498 0.60% $10,978
11/30/90 $11,042 2.01% $11,729 0.22% $11,002
12/31/90 $11,070 0.44% $11,781 0.00% $11,002
1/31/91 $11,254 1.34% $11,939 0.60% $11,068
2/28/91 $11,313 0.87% $12,042 0.15% $11,085
3/31/91 $11,352 0.04% $12,047 0.15% $11,102
4/30/91 $11,519 1.34% $12,209 0.15% $11,118
5/31/91 $11,612 0.89% $12,317 0.30% $11,152
6/30/91 $11,609 -0.10% $12,305 0.29% $11,184
7/31/91 $11,767 1.22% $12,455 0.15% $11,201
8/31/91 $11,883 1.32% $12,620 0.29% $11,233
9/30/91 $12,055 1.30% $12,784 0.44% $11,283
10/31/91 $12,117 0.90% $12,899 0.15% $11,299
11/30/91 $12,169 0.28% $12,935 0.29% $11,332
12/31/91 $12,413 2.15% $13,213 0.07% $11,340
1/31/92 $12,412 0.23% $13,243 0.15% $11,357
2/29/92 $12,445 0.03% $13,247 0.36% $11,398
3/31/92 $12,478 0.04% $13,253 0.51% $11,456
4/30/92 $12,578 0.89% $13,370 0.14% $11,472
5/31/92 $12,737 1.18% $13,528 0.14% $11,488
6/30/92 $12,908 1.68% $13,756 0.36% $11,530
7/31/92 $13,332 3.00% $14,168 0.21% $11,554
8/31/92 $13,145 -0.98% $14,029 0.28% $11,586
9/30/92 $13,178 0.65% $14,121 0.28% $11,619
10/31/92 $12,976 -0.98% $13,982 0.35% $11,659
11/30/92 $13,256 1.79% $14,232 0.14% $11,676
12/31/92 $13,455 1.02% $14,378 -0.07% $11,667
1/31/93 $13,607 1.16% $14,544 0.49% $11,725
2/28/93 $14,035 3.62% $15,071 0.35% $11,766
3/31/93 $13,936 -1.06% $14,911 0.35% $11,807
4/30/93 $14,018 1.01% $15,062 0.28% $11,840
5/31/93 $14,076 0.56% $15,146 0.14% $11,856
6/30/93 $14,305 1.67% $15,399 0.14% $11,873
7/31/93 $14,326 0.13% $15,419 0.00% $11,873
8/31/93 $14,556 2.08% $15,740 0.28% $11,906
9/30/93 $14,714 1.14% $15,919 0.21% $11,931
10/31/93 $14,747 0.19% $15,949 0.41% $11,980
11/30/93 $14,793 -0.88% $15,809 0.07% $11,989
12/31/93 $15,015 2.11% $16,143 0.00% $11,989
1/31/94 $15,138 1.14% $16,327 0.27% $12,021
2/28/94 $14,918 -2.59% $15,904 0.34% $12,062
3/31/94 $14,493 -4.07% $15,257 0.34% $12,103
4/30/94 $14,563 0.85% $15,386 0.14% $12,120
5/31/94 $14,673 0.87% $15,520 0.07% $12,128
6/30/94 $14,653 -0.61% $15,425 0.34% $12,170
7/31/94 $14,841 1.83% $15,708 0.27% $12,202
8/31/94 $14,887 0.35% $15,763 0.40% $12,251
9/30/94 $14,776 -1.47% $15,531 0.27% $12,284
10/31/94 $14,624 -1.78% $15,255 0.07% $12,293
11/30/94 $14,379 -1.81% $14,978 0.13% $12,309
12/31/94 $14,599 2.20% $15,308 0.00% $12,309
1/31/95 $14,887 2.86% $15,746 0.40% $12,358
2/28/95 $15,190 2.91% $16,204 0.40% $12,408
3/31/95 $15,319 1.15% $16,390 0.33% $12,448
4/30/95 $15,368 0.12% $16,410 0.33% $12,490
5/31/95 $15,703 3.19% $16,933 0.20% $12,515
6/30/95 $15,698 -0.87% $16,786 0.20% $12,540
7/31/95 $15,788 0.95% $16,946 0.00% $12,540
8/31/95 $15,950 1.27% $17,161 0.26% $12,572
9/30/95 $16,069 0.63% $17,269 0.20% $12,597
10/31/95 $16,231 1.45% $17,519 0.33% $12,639
11/30/95 $16,423 1.66% $17,810 -0.07% $12,630
12/31/95 $16,544 0.96% $17,981 -0.07% $12,621
1/31/96 $16,638 0.76% $18,118 0.59% $12,696
2/29/96 $16,589 -0.68% $17,995 0.32% $12,736
3/31/96 $16,512 -1.28% $17,764 0.52% $12,803
4/30/96 $16,521 -0.28% $17,714 0.39% $12,852
5/31/96 $16,558 -0.04% $17,707 0.19% $12,877
6/30/96 $16,713 1.09% $17,900 0.06% $12,885
7/31/96 $16,824 0.91% $18,063 0.19% $12,909
8/31/96 $16,831 -0.02% $18,060 0.19% $12,934
9/30/96 $17,062 1.40% $18,313 0.32% $12,975
10/31/96 $17,204 1.13% $18,519 0.32% $13,017
11/30/96 $17,422 1.83% $18,858 0.19% $13,041
12/31/96 $17,398 -0.42% $18,779 0.00% $13,041
1/31/97 $17,423 0.19% $18,815 0.32% $13,083
2/28/97 $17,554 0.92% $18,988 0.31% $13,124
3/31/97 $17,409 -1.33% $18,735 0.25% $13,156
4/30/97 $17,558 0.84% $18,893 0.12% $13,172
5/31/97 $17,755 1.51% $19,178 -0.06% $13,164
6/30/97 $17,933 1.07% $19,383 0.12% $13,180
7/31/97 $18,332 2.77% $19,920 0.12% $13,196
8/31/97 $18,210 -0.94% $19,733 0.19% $13,221
9/30/97 $18,390 1.19% $19,968 0.25% $13,254
10/31/97 $18,604 0.64% $20,096 0.25% $13,287
11/30/97 $18,721 0.59% $20,214 -0.06% $13,279
12/31/97 $18,983 1.46% $20,509 -0.12% $13,263
1/31/98 $19,116 1.03% $20,720 0.19% $13,288
2/28/98 $19,119 0.03% $20,727 0.19% $13,314
3/31/98 $19,137 0.09% $20,745 0.19% $13,339
4/30/98 $19,089 -0.45% $20,652 0.18% $13,363
5/31/98 $19,338 1.58% $20,978 0.18% $13,387
6/30/98 $19,421 0.39% $21,060 0.12% $13,403
7/31/98 $19,455 0.25% $21,113 0.12% $13,419
8/31/98 $19,692 1.55% $21,440 0.12% $13,435
9/30/98 $19,897 1.25% $21,708 0.12% $13,451
10/31/98 $19,828 0.00% $21,708 0.24% $13,484
11/30/98 $19,897 0.35% $21,784 0.00% $13,484
12/31/98 $19,951 0.25% $21,838 -0.06% $13,476
1/31/99 0.87% $20,125 1.19% $22,098 0.24% $13,508
2/28/99 -0.37% $20,073 -0.44% $22,001 0.12% $13,524
Total Return 100.73% 120.01% 35.24%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The following line graph compares the performance of the Franklin Texas
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Texas Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5/1/95 $9,903 $10,000 $10,000
5/31/95 $10,121 3.19% $10,319 0.20% $10,020
6/30/95 $10,111 -0.87% $10,229 0.20% $10,040
7/31/95 $10,165 0.95% $10,326 0.00% $10,040
8/31/95 $10,290 1.27% $10,458 0.26% $10,066
9/29/95 $10,361 0.63% $10,523 0.20% $10,086
10/31/95 $10,460 1.45% $10,676 0.33% $10,120
11/30/95 $10,613 1.66% $10,853 -0.07% $10,112
12/29/95 $10,695 0.96% $10,957 -0.07% $10,105
1/31/96 $10,750 0.76% $11,041 0.59% $10,165
2/29/96 $10,704 -0.68% $10,966 0.32% $10,198
3/29/96 $10,660 -1.28% $10,825 0.52% $10,251
4/30/96 $10,660 -0.28% $10,795 0.39% $10,291
5/31/96 $10,679 -0.04% $10,791 0.19% $10,310
6/28/96 $10,782 1.09% $10,908 0.06% $10,316
7/31/96 $10,848 0.91% $11,008 0.19% $10,336
8/30/96 $10,848 -0.02% $11,005 0.19% $10,356
9/30/96 $10,989 1.40% $11,159 0.32% $10,389
10/31/96 $11,077 1.13% $11,286 0.32% $10,422
11/29/96 $11,212 1.83% $11,492 0.19% $10,442
12/31/96 $11,194 -0.42% $11,444 0.00% $10,442
1/31/97 $11,214 0.19% $11,466 0.32% $10,475
2/28/97 $11,292 0.92% $11,571 0.31% $10,508
3/31/97 $11,183 -1.33% $11,417 0.25% $10,534
4/30/97 $11,283 0.84% $11,513 0.12% $10,547
5/31/97 $11,404 1.51% $11,687 -0.06% $10,540
6/30/97 $11,512 1.07% $11,812 0.12% $10,553
7/31/97 $11,761 2.77% $12,139 0.12% $10,565
8/31/97 $11,678 -0.94% $12,025 0.19% $10,586
9/30/97 $11,787 1.19% $12,168 0.25% $10,612
10/31/97 $11,917 0.64% $12,246 0.25% $10,639
11/30/97 $11,986 0.59% $12,318 -0.06% $10,632
12/31/97 $12,157 1.46% $12,498 -0.12% $10,619
1/31/98 $12,235 1.03% $12,627 0.19% $10,640
2/28/98 $12,231 0.03% $12,631 0.19% $10,660
3/31/98 $12,236 0.09% $12,642 0.19% $10,680
4/30/98 $12,200 -0.45% $12,585 0.18% $10,699
5/31/98 $12,362 1.58% $12,784 0.18% $10,719
6/30/98 $12,398 0.39% $12,834 0.12% $10,731
7/31/98 $12,424 0.25% $12,866 0.12% $10,744
8/31/98 $12,568 1.55% $13,065 0.12% $10,757
9/30/98 $12,691 1.25% $13,229 0.12% $10,770
10/31/98 $12,642 0.00% $13,229 0.24% $10,796
11/30/98 $12,680 0.35% $13,275 0.00% $10,796
12/31/98 $12,708 0.25% $13,308 -0.06% $10,789
1/31/99 0.90% $12,822 1.19% $13,466 0.24% $10,815
2/28/99 -0.41% $12,783 -0.44% $13,407 0.12% $10,828
Total Return 27.83% 34.07% 8.28%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results. 51
<PAGE>
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
[PIE CHART]
CREDIT QUALITY BREAKDOWN*
Franklin Virginia Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
<TABLE>
<S> <C>
AAA 55.1%
AA 21.4%
A 11.7%
BBB 11.8%
</TABLE>
*Quality breakdown may include
internal ratings for bonds not rated
by a national rating agency.
Your Fund's Goal: 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
[MAP OF VIRGINIA]
Virginia's employment profile differs from the rest of the nation's, with its
higher concentration of federal and defense-related jobs. During the year under
review, growth in the business services and high technology sectors
counterbalanced the downward trend in federal government, defense and
manufacturing job losses. Virginia continues to have one of the nation's lowest
unemployment rates, with the 1998 unemployment level at a 30-year low.
Virginia has a history of conservative debt management, maintaining a low debt
level in relation to its substantial resources. The commonwealth relies
primarily on individual income taxes, supplemented by sales and use taxes,
corporate income taxes, lottery profits, insurance premiums and other sources
for its revenue. Fiscal 1998 marked the eighth consecutive year in which revenue
collections exceeded forecasts, with strong employment and wage growth, as well
as record investment returns, contributing to surpluses.
With its underlying economic strength and low general obligation debt burden,
$190 per capita, the outlook for Virginia remains bright.(2)
(1). For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2). Source: Standard & Poor's CreditWeek Municipal, 9/14/98.
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 103 of
this report.
52
<PAGE>
PORTFOLIO NOTES
During the reporting period, we took advantage of Virginia's plentiful market
supply of high quality bonds to increase your fund's percentage of AAA-rated
bonds from 51.1% of total long-term investments on February 28, 1998, to 55.1%
on February 28, 1999. At the same time, the state's bond issuance increased by
approximately 50%. However, due to the strong demand for the state's bonds,
yields remained significantly lower than national levels. We found value in the
following issues: University of Virginia Revenue 5%; Henrico County Water and
Sewer Revenue 5%; Bedford County IDA, IDR, Nekoosa Packaging Corp. 5.60%;
Goochland County IDA, IDR, Nekoosa Packaging Corp. Project Refunding 5.65%; and
Winchester IDA Educational Facilities Revenue, First Mortgage, Shenandoah
University Project 5.25%. As of February 28, 1999, one of the fund's biggest
sector allocation changes from one year earlier was a decrease from 16.2% to
11.7% of total long-term investments in housing bonds.
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
PORTFOLIO BREAKDOWN
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------------------------------------------
<S> <C>
Utilities 22.4%
Prerefunded 15.3%
Hospitals 13.9%
Industrial 12.5%
Housing 11.7%
Transportation 9.0%
Education 5.9%
Other Revenue 4.4%
Health Care 2.3%
Certificates of Participation 1.7%
General Obligation 0.8%
Sales Tax Revenue 0.1%
</TABLE>
53
<PAGE>
In spite of the appetite for Virginia municipal bonds, credit spreads, or the
yield paid to investors for project risk, widened towards the close of the year
under review. Franklin Virginia Tax-Free Income Fund was able, on occasion, to
purchase some attractively yielding, lower-rated bonds.
Looking forward, we expect that Governor Gilmore's failure to include any new
bonding authority in his 1999 budget and the state's positive financial outlook
may mean a smaller volume of Virginia debt issuance in the future, thereby
increasing the value of our existing holdings.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999, 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.
<TABLE>
<CAPTION>
DIVIDEND DISTRIBUTIONS*
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
3/1/98 - 2/28/99
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
March 5.1 cents 4.55 cents
April 5.1 cents 4.56 cents
May 5.1 cents 4.56 cents
June 5.1 cents 4.56 cents
July 5.1 cents 4.54 cents
August 5.1 cents 4.54 cents
September 5.0 cents 4.44 cents
October 5.0 cents 4.43 cents
November 5.0 cents 4.43 cents
December 4.9 cents 4.33 cents
January 4.9 cents 4.33 cents
February 4.9 cents 4.33 cents
- ----------------------------------------------------------------------------------
TOTAL 60.3 cents 53.60 cents
</TABLE>
* 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.
54
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value $0.00 $11.88 $11.88
DISTRIBUTIONS
----------------------------------
Dividend Income $0.6030
Long-Term Capital Gain $0.0262
TOTAL $0.6292
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value $0.00 $11.95 $11.95
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5360
Long-Term Capital Gain $0.0262
TOTAL $0.5622
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.40% +33.70% +110.38% +139.57%
Average Annual Total Return(2) +0.90% +5.07% +7.26% +7.49%
Distribution Rate(3) 4.69%
Taxable Equivalent Distribution Rate(4) 8.24%
30-Day Standardized Yield(5) 3.95%
Taxable Equivalent Yield(4) 6.94%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.78% +18.34% +27.89%
Average Annual Total Return(2) +2.75% +5.42% +6.37%
Distribution Rate(3) 4.27%
Taxable Equivalent Distribution Rate(4) 7.50%
30-Day Standardized Yield(5) 3.53%
Taxable Equivalent Yield(4) 6.20%
</TABLE>
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
(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 current,
applicable, maximum sales charge(s) for that class.
(3). Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4). Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Virginia state personal income tax bracket of 43.1%, based
on the federal income tax rate of 39.6%.
(5). Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
Franklin Virginia Tax-Free Income Fund paid distributions derived from long-term
capital gains of 2.62 cents ($0.0262) per share in June and December 1998. The
fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results. 55
<PAGE>
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charges, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +0.90%
5-Year +5.07%
10-Year +7.26%
Since Inception (9/1/87) +7.49%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------
<S> <C>
1-Year +2.75%
3-Year +5.42%
Since Inception (5/1/95) +6.37%
</TABLE>
The following line graph compares the performance of the Franklin Virginia
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Date Franklin Virginia Tax-Free Income Lehman Brothers CPI
Fund-Class A Municipal Bond
Index
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/1/89 $9,578 $10,000 $10,000
3/31/89 $9,562 -0.24% $9,976 0.58% $10,058
4/30/89 $9,759 2.37% $10,212 0.65% $10,123
5/31/89 $9,985 2.08% $10,425 0.57% $10,181
6/30/89 $10,119 1.36% $10,567 0.24% $10,206
7/31/89 $10,207 1.36% $10,710 0.24% $10,230
8/31/89 $10,143 -0.98% $10,605 0.16% $10,246
9/30/89 $10,089 -0.30% $10,574 0.32% $10,279
10/31/89 $10,188 1.22% $10,703 0.48% $10,329
11/30/89 $10,335 1.75% $10,890 0.24% $10,353
12/31/89 $10,425 0.82% $10,979 0.16% $10,370
1/31/90 $10,370 -0.47% $10,928 1.03% $10,477
2/28/90 $10,480 0.89% $11,025 0.47% $10,526
3/31/90 $10,474 0.03% $11,028 0.55% $10,584
4/30/90 $10,407 -0.72% $10,949 0.16% $10,601
5/31/90 $10,640 2.18% $11,187 0.23% $10,625
6/30/90 $10,733 0.88% $11,286 0.54% $10,682
7/31/90 $10,908 1.48% $11,453 0.38% $10,723
8/31/90 $10,637 -1.45% $11,287 0.92% $10,822
9/30/90 $10,619 0.06% $11,294 0.84% $10,913
10/31/90 $10,787 1.81% $11,498 0.60% $10,978
11/30/90 $11,039 2.01% $11,729 0.22% $11,002
12/31/90 $11,042 0.44% $11,781 0.00% $11,002
1/31/91 $11,223 1.34% $11,939 0.60% $11,068
2/28/91 $11,332 0.87% $12,042 0.15% $11,085
3/31/91 $11,367 0.04% $12,047 0.15% $11,102
4/30/91 $11,520 1.34% $12,209 0.15% $11,118
5/31/91 $11,598 0.89% $12,317 0.30% $11,152
6/30/91 $11,602 -0.10% $12,305 0.29% $11,184
7/31/91 $11,779 1.22% $12,455 0.15% $11,201
8/31/91 $11,891 1.32% $12,620 0.29% $11,233
9/30/91 $12,070 1.30% $12,784 0.44% $11,283
10/31/91 $12,140 0.90% $12,899 0.15% $11,299
11/30/91 $12,188 0.28% $12,935 0.29% $11,332
12/31/91 $12,426 2.15% $13,213 0.07% $11,340
1/31/92 $12,444 0.23% $13,243 0.15% $11,357
2/29/92 $12,451 0.03% $13,247 0.36% $11,398
3/31/92 $12,469 0.04% $13,253 0.51% $11,456
4/30/92 $12,578 0.89% $13,370 0.14% $11,472
5/31/92 $12,722 1.18% $13,528 0.14% $11,488
6/30/92 $12,902 1.68% $13,756 0.36% $11,530
7/31/92 $13,349 3.00% $14,168 0.21% $11,554
8/31/92 $13,217 -0.98% $14,029 0.28% $11,586
9/30/92 $13,259 0.65% $14,121 0.28% $11,619
10/31/92 $13,031 -0.98% $13,982 0.35% $11,659
11/30/92 $13,322 1.79% $14,232 0.14% $11,676
12/31/92 $13,519 1.02% $14,378 -0.07% $11,667
1/31/93 $13,681 1.16% $14,544 0.49% $11,725
2/28/93 $14,072 3.62% $15,071 0.35% $11,766
3/31/93 $14,018 -1.06% $14,911 0.35% $11,807
4/30/93 $14,122 1.01% $15,062 0.28% $11,840
5/31/93 $14,202 0.56% $15,146 0.14% $11,856
6/30/93 $14,454 1.67% $15,399 0.14% $11,873
7/31/93 $14,461 0.13% $15,419 0.00% $11,873
8/31/93 $14,728 2.08% $15,740 0.28% $11,906
9/30/93 $14,896 1.14% $15,919 0.21% $11,931
10/31/93 $14,978 0.19% $15,949 0.41% $11,980
11/30/93 $14,948 -0.88% $15,809 0.07% $11,989
12/31/93 $15,195 2.11% $16,143 0.00% $11,989
1/31/94 $15,342 1.14% $16,327 0.27% $12,021
2/28/94 $15,057 -2.59% $15,904 0.34% $12,062
3/31/94 $14,541 -4.07% $15,257 0.34% $12,103
4/30/94 $14,597 0.85% $15,386 0.14% $12,120
5/31/94 $14,680 0.87% $15,520 0.07% $12,128
6/30/94 $14,594 -0.61% $15,425 0.34% $12,170
7/31/94 $14,833 1.83% $15,708 0.27% $12,202
8/31/94 $14,904 0.35% $15,763 0.40% $12,251
9/30/94 $14,725 -1.47% $15,531 0.27% $12,284
10/31/94 $14,466 -1.78% $15,255 0.07% $12,293
11/30/94 $14,142 -1.81% $14,978 0.13% $12,309
12/31/94 $14,493 2.20% $15,308 0.00% $12,309
1/31/95 $14,927 2.86% $15,746 0.40% $12,358
2/28/95 $15,296 2.91% $16,204 0.40% $12,408
3/31/95 $15,436 1.15% $16,390 0.33% $12,448
4/30/95 $15,468 0.12% $16,410 0.33% $12,490
5/31/95 $15,842 3.19% $16,933 0.20% $12,515
6/30/95 $15,765 -0.87% $16,786 0.20% $12,540
7/31/95 $15,894 0.95% $16,946 0.00% $12,540
8/31/95 $16,053 1.27% $17,161 0.26% $12,572
9/30/95 $16,141 0.63% $17,269 0.20% $12,597
10/31/95 $16,343 1.45% $17,519 0.33% $12,639
11/30/95 $16,573 1.66% $17,810 -0.07% $12,630
12/31/95 $16,734 0.96% $17,981 -0.07% $12,621
1/31/96 $16,810 0.76% $18,118 0.59% $12,696
2/29/96 $16,730 -0.68% $17,995 0.32% $12,736
3/31/96 $16,579 -1.28% $17,764 0.52% $12,803
4/30/96 $16,585 -0.28% $17,714 0.39% $12,852
5/31/96 $16,604 -0.04% $17,707 0.19% $12,877
6/30/96 $16,770 1.09% $17,900 0.06% $12,885
7/31/96 $16,878 0.91% $18,063 0.19% $12,909
8/31/96 $16,883 -0.02% $18,060 0.19% $12,934
9/30/96 $17,095 1.40% $18,313 0.32% $12,975
10/31/96 $17,234 1.13% $18,519 0.32% $13,017
11/30/96 $17,477 1.83% $18,858 0.19% $13,041
12/31/96 $17,429 -0.42% $18,779 0.00% $13,041
1/31/97 $17,450 0.19% $18,815 0.32% $13,083
2/28/97 $17,591 0.92% $18,988 0.31% $13,124
3/31/97 $17,416 -1.33% $18,735 0.25% $13,156
4/30/97 $17,559 0.84% $18,893 0.12% $13,172
5/31/97 $17,778 1.51% $19,178 -0.06% $13,164
6/30/97 $17,926 1.07% $19,383 0.12% $13,180
7/31/97 $18,348 2.77% $19,920 0.12% $13,196
8/31/97 $18,200 -0.94% $19,733 0.19% $13,221
9/30/97 $18,405 1.19% $19,968 0.25% $13,254
10/31/97 $18,518 0.64% $20,096 0.25% $13,287
11/30/97 $18,663 0.59% $20,214 -0.06% $13,279
12/31/97 $18,912 1.46% $20,509 -0.12% $13,263
1/31/98 $19,075 1.03% $20,720 0.19% $13,288
2/28/98 $19,094 0.03% $20,727 0.19% $13,314
3/31/98 $19,127 0.09% $20,745 0.19% $13,339
4/30/98 $19,048 -0.45% $20,652 0.18% $13,363
5/31/98 $19,342 1.58% $20,978 0.18% $13,387
6/30/98 $19,437 0.39% $21,060 0.12% $13,403
7/31/98 $19,488 0.25% $21,113 0.12% $13,419
8/31/98 $19,737 1.55% $21,440 0.12% $13,435
9/30/98 $19,952 1.25% $21,708 0.12% $13,451
10/31/98 $19,902 0.00% $21,708 0.24% $13,484
11/30/98 $19,969 0.35% $21,784 0.00% $13,484
12/31/98 $20,015 0.25% $21,838 -0.06% $13,476
1/31/99 0.92% $20,199 1.19% $22,098 0.24% $13,508
2/28/99 -0.35% $20,149 -0.44% $22,001 0.12% $13,524
Total Return 101.49% 120.01% 35.24%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following line graph compares the performance of the Franklin Virginia
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Virginia Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,117 -0.87% $10,229 0.20% $10,040
7/31/95 $10,185 0.95% $10,326 0.00% $10,040
8/31/95 $10,290 1.27% $10,458 0.26% $10,066
9/29/95 $10,341 0.63% $10,523 0.20% $10,086
10/31/95 $10,464 1.45% $10,676 0.33% $10,120
11/30/95 $10,606 1.66% $10,853 -0.07% $10,112
12/29/95 $10,703 0.96% $10,957 -0.07% $10,105
1/31/96 $10,746 0.76% $11,041 0.59% $10,165
2/29/96 $10,690 -0.68% $10,966 0.32% $10,198
3/29/96 $10,599 -1.28% $10,825 0.52% $10,251
4/30/96 $10,588 -0.28% $10,795 0.39% $10,291
5/31/96 $10,595 -0.04% $10,791 0.19% $10,310
6/28/96 $10,695 1.09% $10,908 0.06% $10,316
7/31/96 $10,768 0.91% $11,008 0.19% $10,336
8/30/96 $10,757 -0.02% $11,005 0.19% $10,356
9/30/96 $10,895 1.40% $11,159 0.32% $10,389
10/31/96 $10,978 1.13% $11,286 0.32% $10,422
11/29/96 $11,127 1.83% $11,492 0.19% $10,442
12/31/96 $11,091 -0.42% $11,444 0.00% $10,442
1/31/97 $11,099 0.19% $11,466 0.32% $10,475
2/28/97 $11,183 0.92% $11,571 0.31% $10,508
3/31/97 $11,076 -1.33% $11,417 0.25% $10,534
4/30/97 $11,162 0.84% $11,513 0.12% $10,547
5/31/97 $11,296 1.51% $11,687 -0.06% $10,540
6/30/97 $11,374 1.07% $11,812 0.12% $10,553
7/31/97 $11,645 2.77% $12,139 0.12% $10,565
8/31/97 $11,546 -0.94% $12,025 0.19% $10,586
9/30/97 $11,660 1.19% $12,168 0.25% $10,612
10/31/97 $11,736 0.64% $12,246 0.25% $10,639
11/30/97 $11,821 0.59% $12,318 -0.06% $10,632
12/31/97 $11,972 1.46% $12,498 -0.12% $10,619
1/31/98 $12,069 1.03% $12,627 0.19% $10,640
2/28/98 $12,075 0.03% $12,631 0.19% $10,660
3/31/98 $12,091 0.09% $12,642 0.19% $10,680
4/30/98 $12,036 -0.45% $12,585 0.18% $10,699
5/31/98 $12,225 1.58% $12,784 0.18% $10,719
6/30/98 $12,279 0.39% $12,834 0.12% $10,731
7/31/98 $12,295 0.25% $12,866 0.12% $10,744
8/31/98 $12,445 1.55% $13,065 0.12% $10,757
9/30/98 $12,585 1.25% $13,229 0.12% $10,770
10/31/98 $12,548 0.00% $13,229 0.24% $10,796
11/30/98 $12,583 0.35% $13,275 0.00% $10,796
12/31/98 $12,606 0.25% $13,308 -0.06% $10,789
1/31/99 0.86% $12,714 1.19% $13,466 0.24% $10,815
2/28/99 -0.48% $12,666 -0.44% $13,407 0.12% $10,828
Total Return 26.66% 34.07% 8.28%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
56 Past performance is not predictive of future results.
<PAGE>
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.
57
<PAGE>
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.
58
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ALABAMA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........... $ 11.98 $ 11.73 $ 11.73 $ 11.31 $ 11.80
------------------------------------------------------------------------------
Income from investment operations:
Net investment income ....................... .62 .64 .65 .66 .66
Net realized and unrealized gains (losses) .. (.25) .36 .01 .42 (.50)
------------------------------------------------------------------------------
Total from investment operations ............. .37 1.00 .66 1.08 .16
------------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.62)(1) (.65) (.66) (.66) (.65)
Net realized gains .......................... (.05) (.10) -- -- --
------------------------------------------------------------------------------
Total distributions .......................... (.67) (.75) (.66) (.66) (.65)
------------------------------------------------------------------------------
Net asset value, end of year ................. $ 11.68 $ 11.98 $ 11.73 $ 11.73 $ 11.31
==============================================================================
Total return* ................................ 3.21% 8.79% 5.84% 9.74% 1.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............. $ 238,670 $ 216,982 $ 193,466 $ 185,981 $ 170,051
Ratios to average net assets:
Expenses .................................... .71% .72% .71% .72% .72%
Net investment income ....................... 5.23% 5.39% 5.62% 5.69% 5.88%
Portfolio turnover rate ...................... 8.67% 10.44% 15.47% 12.39% 19.85%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........... $ 12.04 $ 11.78 $ 11.77 $ 11.36
----------------------------------------------------------
Income from investment operations:
Net investment income ....................... .56 .58 .59 .49
Net realized and unrealized gains (losses) .. (.25) .36 .01 .41
----------------------------------------------------------
Total from investment operations ............. .31 .94 .60 .90
----------------------------------------------------------
Less distributions from:
Net investment income ....................... (.56)(1) (.58) (.59) (.49)
Net realized gains .......................... (.05) (.10) -- --
----------------------------------------------------------
Total distributions .......................... (.61) (.68) (.59) (.49)
----------------------------------------------------------
Net asset value, end of year ................. $ 11.74 $ 12.04 $ 11.78 $ 11.77
==========================================================
Total return* ................................ 2.62% 8.23% 5.28% 8.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............. $ 14,895 $ 9,469 $ 5,683 $ 1,662
Ratios to average net assets:
Expenses .................................... 1.27% 1.29% 1.28% 1.29%**
Net investment income ....................... 4.67% 4.80% 5.05% 5.09%**
Portfolio turnover rate ...................... 8.67% 10.44% 15.47% 12.39%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
** Annualized
*** For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(1) Includes distributions in excess of net investment income in the amount of
$.006 and $.004 for Class A and C, respectively.
See notes to financial statements.
59
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.0%
BONDS 97.3%
Alabama Building Renovation Financing Authority Revenue, 7.45%, 9/01/11 ..................... $ 1,500,000 $ 1,607,400
Alabama HFA, SFMR,
GNMA Secured, Series A, 7.50%, 10/01/10 .................................................. 490,000 511,536
GNMA Secured, Series A, 8.00%, 10/01/20 .................................................. 110,000 112,237
Series A-1, 6.50%, 4/01/17 ............................................................... 3,440,000 3,619,121
Series A-2, 6.80%, 4/01/25 ............................................................... 1,215,000 1,293,064
Series C, 7.45%, 10/01/21 ................................................................ 285,000 293,080
Series C-2, 7.75%, 4/01/22 ............................................................... 775,000 806,961
Series D-2, GNMA Secured, 5.75%, 10/01/23 ................................................ 2,000,000 2,062,260
Alabama State Docks Department Dock Facilities Revenue, MBIA Insured, 6.30%, 10/01/21 ....... 4,500,000 4,999,365
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23 ....... 2,000,000 2,139,440
Alabama Water Pollution Control Authority Revolving Fund Loan, Series B, Pre-Refunded,
7.75%, 8/15/12 ............................................................................ 3,010,000 3,200,985
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14 ........................ 2,215,000 2,475,949
Alexander City Utility Revenue, wts., Refunding, FSA Insured, 6.20%, 8/15/10 ................ 2,000,000 2,194,860
Anniston Regional Medical Center Board, Series A, AMBAC Insured, 5.25%, 6/01/18 ............. 2,545,000 2,594,628
Athens Electric Revenue, wts., MBIA Insured, 6.00%, 6/01/25 ................................. 1,000,000 1,091,350
Athens Water and Sewer Revenue, wts., AMBAC Insured, 6.10%, 8/01/18 ......................... 1,500,000 1,609,710
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue,
Merscot-Auburn LP Project, FGIC Insured, 7.30%, 1/01/12 ................................... 1,390,000 1,450,813
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11 ............................ 2,000,000 2,163,560
Baldwin County Eastern Shore Health Care Authority Hospital Revenue, 5.75%, 4/01/27 ......... 1,000,000 1,015,510
Bessemer Medical Clinic Board Revenue, Bessemer Carraway Center, Refunding, Series A,
MBIA Insured, 7.25%, 4/01/15 .............................................................. 1,000,000 1,052,310
Birmingham Airport Authority Revenue, Series A, AMBAC Insured, 7.375%, 7/01/10 .............. 500,000 526,625
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 3,534,440
7.00%, 1/01/21 ........................................................................... 1,870,000 1,981,396
5.875%, 11/15/26 ......................................................................... 2,000,000 2,013,760
Birmingham GO, Refunding, Series B, 6.25%, 4/01/16 .......................................... 1,000,000 1,085,560
Birmingham Southern College Private Educational Building Authority Tuition, Refunding,
5.35%, 12/01/19 ........................................................................... 1,000,000 1,002,170
Birmingham Special Care Facilities Financing Authority Revenue,
Health Care, Medical Center East, MBIA Insured, 7.00%, 7/01/12 ........................... 1,200,000 1,297,980
Medical Center East, Refunding, MBIA Insured, 7.25%, 7/01/15 ............................. 2,000,000 2,021,560
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 ........................................................................... 285,000 294,043
7.25%, 1/01/12 ........................................................................... 640,000 646,522
Camden IDB, PCR, Facilities Revenue, MacMillian Bloedel Project, Refunding, Series A,
7.75%, 5/01/09 ............................................................................ 3,250,000 3,458,943
Citronelle IDB, PCR, Stauffer Chemical Project, Series1982, 8.00%, 12/01/12 ................. 500,000 530,195
Coffee County PBA, Building Revenue, wts., FSA Insured, 6.10%, 9/01/16 ...................... 1,000,000 1,105,040
Colbert County Health Care Authority, Helen Keller Hospital, Refunding, 8.75%, 6/01/09 ...... 1,750,000 1,876,263
Columbia IDB, PCR, Alabama Power Co. Project, Refunding, AMBAC Insured, 6.50%, 9/01/23 ...... 5,000,000 5,161,650
Courtland IDB,
Environmental Improvement Revenue, Champion International Corp. Project, Refunding,
6.40%, 11/01/26 ........................................................................ 2,000,000 2,145,720
Solid Waste Disposal Revenue, Champion International Corp. Project, 7.75%, 1/01/20 ....... 505,000 527,579
Solid Waste Disposal Revenue, Champion International Corp. Project, Series A,
6.50%, 9/01/25 ......................................................................... 5,000,000 5,362,950
Courtland IDBR, Champion International Corp., Refunding, Series A, 7.20%, 12/01/13 .......... 4,000,000 4,378,920
Demopolis HDC, MFHR, Refunding, Series A, FSA Insured, 7.625%, 8/01/19 ...................... 1,400,000 1,452,122
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation Bond,
Series A, MBIA Insured, 5.25%, 9/01/28 .................................................... 5,500,000 5,559,510
Fairfield GO, wts., AMBAC Insured, Pre-Refunded, 6.30%, 6/01/22 ............................. 3,000,000 3,241,410
Fairfield IDB, Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 ........................................................................... 2,000,000 2,021,420
Series A, 6.70%, 12/01/24 ................................................................ 3,500,000 3,793,090
Florence GO, wts., Series A, 5.00%, 12/01/18 ................................................ 1,000,000 997,440
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22 ....................................... 1,565,000 1,609,743
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 ................................... 1,000,000 1,089,490
Gulf Shores GO, Refunding, wts., AMBAC Insured, 6.00%, 9/01/21 .............................. 1,935,000 2,112,652
Helena Utilities Board Water and Sewer Revenue, MBIA Insured, 5.75%, 9/01/25 ................ 6,000,000 6,449,520
Houston County Health Care Authority Revenue, Southeast Medical Center, MBIA Insured,
6.125%, 10/01/12 .......................................................................... 2,070,000 2,211,567
</TABLE>
60
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Huntsville Solid Waste Disposal Authority and Resource Recovery Revenue, FGIC Insured,
7.00%, 10/01/14 ............................................................................ $ 230,000 $ 244,796
Jackson IDBR, Solid Waste, Boise Cascade, Refunding, 5.70%, 12/01/27 .......................... 4,150,000 4,063,431
Jasper County Waterworks and Sewer Board Water and Sewer Revenue, AMBAC Insured, 6.15%, 6/01/14 1,000,000 1,105,440
Jefferson County Sewer Revenue, wts.,
ETM, 7.50%, 9/01/13 ........................................................................ 200,000 205,782
Refunding, Series A, FGIC Insured, 5.375%, 2/01/27 ......................................... 4,675,000 4,769,809
Series D, FGIC Insured, 5.75%, 2/01/27 ..................................................... 6,000,000 6,474,120
LCM Housing Assistance Corp. Project MFR, Section 8 Assisted Project, Refunding, Series A,
7.875%, 1/01/22 ............................................................................ 1,255,000 1,290,667
Lee County GO, wts., AMBAC Insured, 5.50%, 2/01/21 ............................................ 2,250,000 2,309,175
Macon County Limited Obligation Revenue, School wts., AMBAC Insured, 5.10%, 2/01/24 ........... 3,000,000 2,999,850
Madison GO,
School wts., MBIA Insured, Pre-Refunded, 6.25%, 2/01/14 .................................... 2,290,000 2,532,534
wts., MBIA Insured, 6.00%, 4/01/23 ......................................................... 2,000,000 2,175,020
wts., Series B, MBIA Insured, 6.25%, 2/01/15 ............................................... 1,560,000 1,719,370
Marshall County Health Care Authority Hospital Revenue,
Boaz-Albertville Medical Center, Refunding, 6.50%, 1/01/18 ................................. 10,810,000 11,460,978
Guntersville-Arab Medical Center, Refunding, 7.60%, 10/01/07 ............................... 2,530,000 2,793,221
Mcintosh IDB, Environmental Improvement Revenue, CIBA Specialty, Refunding, Series C, 5.375%,
6/01/28 .................................................................................... 3,000,000 3,033,840
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 ............................... 1,000,000 1,065,340
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09 ....................... 1,500,000 1,618,485
Mobile Housing Assistance Corp. MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21 ....... 1,340,000 1,382,384
Mobile IDB, Solid Waste Disposal Revenue, Mobile Energy Service Co. Project, Refunding, 6.95%,
1/01/20 .................................................................................... 8,000,000 4,240,000
Montgomery Baptist Medical Center Special Care Facilities Financing Authority Revenue, Baptist
Health, Series B, MBIA Insured, 5.00%, 11/15/29 ........................................... 4,500,000 4,348,980
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital and Clinic,
Refunding, AMBAC Insured, 6.00%, 3/01/26 ................................................... 6,000,000 6,543,360
Morgan County Decatur Health Care Authority Hospital Revenue, Decatur General Hospital
Refunding, Connie Lee Insured, 6.375%, 3/01/24 ............................................ 5,750,000 6,270,893
Moulton Waterworks Board Water Revenue, Series A, 6.30%, 1/01/18 .............................. 1,500,000 1,540,965
Muscle Shoals GO, Refunding, wts., MBIA Insured,
5.80%, 8/01/16 ............................................................................. 1,725,000 1,867,209
5.90%, 8/01/25 ............................................................................. 7,000,000 7,583,380
Northeast Alabama Water, Sewer and Fire Protection District Revenue, AMBAC Insured, 6.375%
5/01/22 .................................................................................... 2,000,000 2,203,220
Oneonta Utilities Board Utility Revenue,
FSA Insured, 6.90%, 11/01/24 ............................................................... 230,000 261,618
MBIA Insured, 5.50%, 11/01/23 .............................................................. 3,820,000 3,964,663
Pre-Refunded, 6.90%, 11/01/24 .............................................................. 4,000,000 4,679,480
Perdido Bay Water Sewer and Fire Protection District Water Revenue, Refunding, FSA Insured,
5.375%, 11/01/22 ........................................................................... 1,085,000 1,112,451
Phenix County IDB, Environmental Improvement Revenue, Mead Coated Board Project, Refunding,
Series A, 5.30%, 4/01/27 ................................................................... 8,300,000 8,063,533
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10 ..................................... 780,000 835,357
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 ........................................................ 600,000 628,770
sub., Puerto Rico State Infrastructure Bank, 5.00%, 7/01/28 ................................ 2,500,000 2,436,025
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ............................................................................. 5,000 5,167
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation, Refunding,
7.875%, 10/01/04 ........................................................................... 300,000 312,654
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.00%, 7/01/07 ........................................................ 355,000 364,961
Series DD, 5.00%, 7/01/28 .................................................................. 5,000,000 4,872,050
Puerto Rico Industrial Medical and Environmental PCFA, Revenue, Upjohn Co. Project,
7.50%, 12/01/23 ............................................................................ 200,000 206,686
Puerto Rico PBA Revenue, Government Facilities, Series B, 5.25%, 7/01/21 ...................... 1,850,000 1,873,403
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ......... 4,000,000 3,900,880
Russellville GO, wts., Refunding, MBIA Insured, 5.75%, 12/01/26 ............................... 2,500,000 2,668,875
Tuscaloosa County Board Education Capital Outlay, wts., Series A, AMBAC Insured, 5.50%, 2/01/27 2,375,000 2,479,928
Tuscaloosa, wts., AMBAC Insured, 6.75%, 7/01/20 ............................................ 4,925,000 5,200,800
Valley Special Care Facilities Financing Authority Revenue, Lanier Memorial Hospital, Series
A, 5.65%, 11/01/22 ......................................................................... 3,465,000 3,470,198
</TABLE>
61
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ................................................................................... $ 1,700,000 $ 1,742,381
10/01/22 ................................................................................... 2,300,000 2,307,705
Wilsonville IDB, PCR, Southern Electric Generating System, Refunding, Series C, MBIA Insured,
6.75%, 2/01/15 ............................................................................. 3,500,000 3,734,115
------------
TOTAL BONDS (COST $237,063,875) ............................................................... 246,747,368
------------
ZERO COUPON BONDS .7%
Alexander City Capital Appreciation, wts., Insured,
5/01/23 .................................................................................... 1,790,000 487,650
5/01/24 .................................................................................... 1,790,000 461,444
5/01/25 .................................................................................... 1,790,000 432,679
5/01/26 .................................................................................... 1,790,000 409,224
------------
TOTAL ZERO COUPON BONDS (COST $1,727,618) ..................................................... 1,790,997
------------
TOTAL LONG TERM INVESTMENTS (COST $238,791,493) ............................................... 248,538,365
------------
(a) SHORT TERM INVESTMENTS .3%
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.60%, 7/01/28 (COST $800,000) ........................................ 800,000 800,000
------------
TOTAL INVESTMENTS (COST $239,591,493) 98.3% ................................................... 249,338,365
OTHER ASSETS, LESS LIABILITIES 1.7% ........................................................... 4,227,106
------------
NET ASSETS 100.0% ............................................................................. $253,565,471
============
</TABLE>
See glossary of terms on page 107.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest adjustment formula and an unconditional right of
demand to receive payment of the principal balance plus accrued interest at
specified dates.
62 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.87 $ 11.59 $ 11.69 $ 11.35 $ 11.77
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .62 .64 .67 .69 .69
Net realized and unrealized gains (losses) . .05 .30 (.08) .34 (.44)
-----------------------------------------------------------------------------------
Total from investment operations ............ .67 .94 .59 1.03 .25
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.62)(1) (.65) (.69) (.69) (.67)
Net realized gains ......................... (.01) (.01) -- -- --
-----------------------------------------------------------------------------------
Total distributions ......................... (.63) (.66) (.69) (.69) (.67)
-----------------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.91 $ 11.87 $ 11.59 $ 11.69 $ 11.35
===================================================================================
Total return* ............................... 5.75% 8.37% 5.20% 9.28% 2.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 1,785,720 $ 1,650,068 $ 1,458,087 $ 1,353,541 $ 1,265,018
Ratios to average net assets:
Expenses ................................... .61% .61% .60% .60% .59%
Net investment income ...................... 5.19% 5.45% 5.78% 5.93% 6.15%
Portfolio turnover rate ..................... 7.66% 5.60% 12.00% 11.78% 14.34%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.96 $ 11.67 $ 11.76 $ 11.37
Income from investment operations:
Net investment income ...................... .55 .60 .60 .52
Net realized and unrealized gains (losses) . .06 .29 (.07) .38
----------------------------------------------------
Total from investment operations ............ .61 .89 .53 .90
----------------------------------------------------
Less distributions from:
Net investment income ...................... (.55)(1) (.59) (.62) (.51)
Net realized gains ......................... (.01) (.01) -- --
----------------------------------------------------
Total distributions ......................... (.56) (.60) (.62) (.51)
----------------------------------------------------
Net asset value, end of year ................ $ 12.01 $ 11.96 $ 11.67 $ 11.76
====================================================
Total return* ............................... 5.21% 7.80% 4.65% 8.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 82,596 $ 56,027 $ 23,556 $ 7,644
Ratios to average net assets:
Expenses ................................... 1.17% 1.17% 1.17% 1.18%**
Net investment income ...................... 4.63% 4.88% 5.17% 5.33%**
Portfolio turnover rate ..................... 7.66% 5.60% 12.00% 11.78%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
** Annualized
*** For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(1) Includes distributions in excess of net investment income in the amount of
$.0005 and $.0004 for Class A and C, respectively.
See notes to financial statements. 63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.1%
BONDS 93.6%
Alachua County Health Facilities Authority Revenue,
Santa Fe Health Care Facilities Project, Pre-Refunded, 7.60%, 11/15/13 ....................... $ 6,705,000 $7,304,226
Shands Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 ............................ 12,000,000 12,990,600
Alachua County Public Improvement Revenue, Refunding, FSA Insured, 5.375%, 8/01/17 .............. 5,755,000 5,958,842
Atlantic Beach Utilities Systems Revenue, MBIA Insured, 5.50%, 10/01/25 ......................... 2,000,000 2,086,120
Bay County Hospital System Revenue, Bay Medical Center Project, Pre-Refunded, 8.00%, 10/01/12 ... 11,205,000 13,731,615
Bay County Resource Recovery Revenue,
Series A, MBIA Insured, Pre-Refunded, 6.60%, 7/01/11 ......................................... 3,710,000 4,121,773
Series B, MBIA Insured, Pre-Refunded, 6.60%, 7/01/12 ......................................... 18,150,000 20,164,469
Bay County School Board COP, AMBAC Insured, 5.00%, 7/01/23 ...................................... 4,585,000 4,521,177
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07 ............................................................................... 525,000 579,821
6.60%, 9/01/11 ............................................................................... 675,000 744,161
Bay Medical Center Hospital Revenue, Bay Medical Center Project, Refunding, AMBAC Insured, 5.60%,
10/01/19 ..................................................................................... 13,130,000 13,815,123
Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded, 7.50%, 11/01/10 ........... 4,000,000 4,273,760
Brevard County Health Facilities Authority Revenue, Wuesthoff Memorial Hospital, Series B,
Pre-Refunded, 7.20%, 4/01/13 ................................................................. 5,000,000 5,609,400
Brevard County HFA, SFMR, Refunding, Series B, FSA Insured, 7.00%, 3/01/13 ...................... 985,000 1,039,746
Brevard County School Board COP, Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11 ............. 4,415,000 4,822,549
Broward County Educational Facilities Authority Revenue, Nova Southeastern University Project,
Refunding, Connie Lee Insured, 6.125%, 4/01/17 ............................................... 2,250,000 2,466,293
Broward County HFA,
MFHR, Cross Keys Apartments Project, Series A, 5.80%, 10/01/33 ............................... 2,000,000 2,023,440
MFHR, Cross Keys Apartments Project, Series A, 5.85%, 4/01/39 ................................ 5,895,000 5,963,913
(b)MFHR, Stirling Apartments Phase II, Series A, 5.35%, 10/01/29 ................................ 1,000,000 999,950
(b)MFHR, Stirling Apartments Phase II, Series A, 5.40%, 4/01/39 ................................. 2,000,000 1,999,900
SFMR, Refunding, Series B, 5.40%, 4/01/29 .................................................... 4,000,000 4,033,840
Broward County HFAR,
Nursing Home, Refunding, 7.40%, 8/15/10 ...................................................... 2,080,000 2,215,637
Nursing Home, Refunding, 7.50%, 8/15/20 ...................................................... 1,475,000 1,600,818
Series B, GNMA Secured, 7.55%, 3/01/15 ....................................................... 3,040,000 3,153,514
Series C, GNMA Secured, 8.00%, 3/01/21 ....................................................... 905,000 938,983
Series D, GNMA Secured, 6.90%, 6/01/09 ....................................................... 260,000 275,041
Series D, GNMA Secured, 7.375%, 6/01/21 ...................................................... 670,000 710,066
Broward County Professional Sports Facilities Tax Revenue, Civic Arena Project, Series A,
MBIA Insured,
5.75%, 9/01/21 ............................................................................... 5,000,000 5,328,150
5.625%, 9/01/28 .............................................................................. 13,745,000 14,401,461
Broward County Resource Recovery Revenue,
Broward Waste Energy Co., LP, North Project, Series 1984, 7.95%, 12/01/08 .................... 5,580,000 5,889,690
SES Waste Energy Co., LP, South Project, 7.95%, 12/01/08 ..................................... 10,140,000 10,702,770
Broward County School Board COP, Series C, AMBAC Insured, 5.375%, 7/01/17 ....................... 10,000,000 10,339,700
Cape Canaveral Hospital District Revenue COP,
AMBAC Insured, Pre-Refunded, 6.875%, 1/01/21 ................................................. 1,500,000 1,621,125
Refunding, 5.25%, 1/01/28 .................................................................... 3,500,000 3,393,600
Celebration CDD, Special Assessment,
MBIA Insured, 6.00%, 5/01/10 ................................................................. 5,500,000 6,001,765
MBIA Insured, 6.10%, 5/01/16 ................................................................. 4,000,000 4,352,240
Series A, MBIA Insured, 5.50%, 5/01/18 ....................................................... 2,000,000 2,101,520
Charlotte County Utilities Revenue, Refunding, Series A, FGIC Insured, 5.625%, 10/01/21 ......... 3,000,000 3,152,850
Citrus County PCR, Florida Power Corp., Crystal River, Refunding,
Series A, 6.625%, 1/01/27 .................................................................... 11,100,000 11,994,771
Series B, 6.35%, 2/01/22 ..................................................................... 20,400,000 22,106,256
Cityplace CDD Revenue, Capital Improvement, MBIA Insured, 5.00%, 5/01/22 ........................ 8,500,000 8,441,775
Clay County HFAR, SFM,
Multi County, GNMA Secured, 5.45%, 4/01/31 ................................................... 1,775,000 1,796,886
Series A, GNMA Secured, 8.20%, 6/01/21 ....................................................... 1,325,000 1,369,282
Series A, GNMA Secured, 7.80%, 6/01/22 ....................................................... 3,470,000 3,642,633
Series A, GNMA Secured, 7.45%, 9/01/23 ....................................................... 1,310,000 1,369,238
</TABLE>
64
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A, FHA
Insured, 6.50%, 10/01/25 ................................................................... $ 2,830,000 $ 2,989,952
Clewiston Water and Sewer Revenue, AMBAC Insured, Pre-Refunded, 7.65%, 10/01/10 ............ 1,000,000 1,046,660
Cocoa Water and Sewer Improvement Revenue, FGIC Insured, Pre-Refunded, 5.875%, 10/01/22 .... 4,000,000 4,537,200
Collier County Water and Sewer District Revenue, Sewer Assessment, East and South Naples
Project, MBIA Insured, 7.15%, 10/01/11 .................................................. 80,000 82,127
Coral Springs ID, Special Water and Sewer Project, 6.75%, 11/01/02 ......................... 2,195,000 2,233,281
Dade County Aviation Revenue, Miami International Airport, Series B, FSA Insured, 5.125%,
10/01/22 ................................................................................ 4,750,000 4,701,693
Dade County Health Facilities Authority Hospital Revenue, Catholic Health and Rehabilitation
Inc. Project, Refunding, 7.625%, 8/15/20 ................................................ 7,475,000 7,893,675
Dade County HFA,
MFMR, Hialeah Center, Series 5, GNMA Secured, Pre-Refunded, 7.875%, 12/01/32 ............ 1,930,000 2,053,752
SFMR, Refunding, Series D, FSA Insured, 6.95%, 12/15/12 ................................. 545,000 576,332
SFMR, Refunding, Series E, FNMA Insured, 7.00%, 3/01/24 ................................. 300,000 314,298
SFMR, Series A, GNMA Secured, 7.50%, 9/01/13 ............................................ 2,105,000 2,163,266
SFMR, Series A, GNMA Secured, 7.10%, 3/01/17 ............................................ 1,480,000 1,551,721
SFMR, Series B, GNMA Secured, 7.25%, 9/01/23 ............................................ 250,000 261,870
Dade County IDA, Solid Waste Disposal Revenue, Florida Power and Light Co. Project, 7.15%,
2/01/23 ................................................................................. 5,695,000 6,057,772
Dade County School Board COP, Series B, AMBAC Insured, Pre-Refunded, 5.75%, 8/01/19 ........ 14,610,000 16,394,173
Dade County School District GO, Pre-Refunded, 7.375%, 7/01/08 .............................. 5,960,000 6,163,951
Dade County Seaport Revenue, Refunding, Series 95, MBIA Insured, 5.75%, 10/01/15 ........... 4,100,000 4,450,017
Dade County Special Obligation, Courthouse Center Project, Pre-Refunded, 6.10%, 4/01/20 .... 5,000,000 5,669,050
Dade County Water and Sewer System Revenue, FGIC Insured,
5.25%, 10/01/21 ......................................................................... 5,000,000 5,101,500
5.75%, 10/01/22 ......................................................................... 8,245,000 8,850,018
5.50%, 10/01/25 ......................................................................... 35,325,000 36,718,218
5.25%, 10/01/26 ......................................................................... 12,000,000 12,213,960
Dovera CDD, Special Assessment Revenue,
7.625%, 5/01/03 ......................................................................... 220,000 233,713
7.875%, 5/01/12 ......................................................................... 715,000 760,388
Duval County HFA,
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.60%, 7/01/17 .............. 1,000,000 1,035,850
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.70%, 7/01/27 .............. 2,000,000 2,066,700
SFMR, FNMA and GNMA Secured, 5.20%, 10/01/19 ............................................ 3,000,000 2,970,330
SFMR, GNMA Secured, 5.25%, 10/01/18 ..................................................... 1,000,000 1,007,040
SFMR, GNMA Secured, 5.30%, 4/01/31 ...................................................... 1,800,000 1,811,232
SFMR, Series 1988, GNMA Secured, 8.625%, 12/01/19 ....................................... 35,000 36,357
SFMR, Series A, GNMA Secured, 7.85%, 12/01/22 ........................................... 1,980,000 2,061,259
SFMR, Series B, GNMA Secured, 7.70%, 11/01/11 ........................................... 400,000 411,936
SFMR, Series C, GNMA Secured, FGIC Insured, 7.70%, 9/01/24 .............................. 875,000 922,443
Escambia County Health Facilities Authority Health Facility Revenue, Baptist Hospital and
Baptist Manor, 5.125%, 10/01/19 ......................................................... 8,750,000 8,559,163
Pre-Refunded, 6.75%, 10/01/14 ........................................................... 3,415,000 3,835,113
Refunding, 6.75%, 10/01/14 .............................................................. 935,000 1,038,841
Escambia County HFA, SFMR, Multi-County Program,
MBIA Insured, GNMA Secured, 5.20%, 4/01/32 .............................................. 7,500,000 7,441,125
Series C, FNMA and GNMA Secured, 5.80%, 10/01/19 ........................................ 1,500,000 1,548,870
Series C, FNMA and GNMA Secured, 7.40%, 10/01/23 ........................................ 3,955,000 4,127,398
Series C, FNMA and GNMA Secured, 5.875%, 10/01/28 ....................................... 6,500,000 6,733,090
Escambia County Revenue, Series B, Sub Series 1, MBIA Insured, 7.20%, 1/01/15 .............. 2,210,000 2,276,897
Escambia County School Board COP, FSA Insured, 6.375%, 2/01/12 ............................. 1,210,000 1,284,076
Escambia County Utilities Authority Sanitary System Revenue, FSA Insured, Pre-Refunded,
6.00%, 1/01/23 .......................................................................... 2,500,000 2,751,500
First Florida Governmental Financing Commission Revenue, AMBAC Insured, 5.75%, 7/01/16 ..... 3,700,000 4,000,403
Flagler County School Board COP, FSA Insured, 5.20%, 8/01/23 ............................... 3,500,000 3,539,130
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 ................................... 3,500,000 3,703,805
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17 ............................. 4,965,000 5,224,868
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 ......................... 560,000 586,012
Homeownership Revenue, Series G-1, GNMA Secured, 8.30%, 6/01/20 ......................... 215,000 221,594
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 ......................... 2,905,000 3,051,732
MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Secured, 7.65%, 6/20/31 ... 4,000,000 4,122,920
</TABLE>
65
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Florida HFA, (cont.)
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 ....................... $ 3,445,000 $ 3,584,936
MFHR, Refunding, Series A, 6.95%, 10/01/21 ............................................. 2,900,000 3,007,329
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 ........................... 5,000,000 5,141,050
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 ......................... 2,000,000 2,057,800
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37 ......................... 1,300,000 1,395,407
SFMR, Series A, 8.60%, 7/01/16 ......................................................... 275,000 276,372
(b)Florida HFC Revenue, Homeowner Mortgage, Series 2, FSA Insured, 5.15%, 7/01/21 ......... 6,035,000 6,002,833
Florida HFC Revenue, Housing, Grand Savannah Club Apartments, Series A, FSA Insured, 5.45%,
3/01/30 ................................................................................... 3,400,000 3,461,948
Florida State Board of Education Capital Outlay, Public Education,
Refunding, Series A, 7.25%, 6/01/23 .................................................... 8,775,000 9,340,812
Series A, 5.25%, 6/01/22 .................................................................. 2,750,000 2,797,630
Series A, Pre-Refunded, 5.875%, 6/01/16 ................................................ 4,500,000 4,976,865
Series B, 5.875%, 6/01/24 .............................................................. 8,990,000 9,785,255
Series B, 5.875%, 6/01/25 .............................................................. 7,000,000 7,619,220
Series F, FGIC Insured, 5.50%, 6/01/26 ................................................. 10,000,000 10,354,100
Florida State Community Services Corp. Walton County Water and Sewer Revenue, South Walton
County Regional Utilities, 7.00%, 3/01/18 ............................................. 2,550,000 2,816,016
Florida State Correctional Privatization Commission COP, Correctional Facility Bay Project,
MBIA Insured, 6.00%, 8/01/15 ........................................................... 6,000,000 6,582,840
Florida State Department of Corrections COP,
Okeechobee Correctional Facility, AMBAC Insured, 6.25%, 3/01/15 ........................... 2,960,000 3,308,037
Florida State Department of General Services Division, Facilities Management Revenue,
Facilities Pool, Refunding, Series B, AMBAC Insured, 5.70%, 9/01/20 .................... 7,000,000 7,361,130
Florida State Department of Transportation GO, Right of Way,
Acquisition and Bridge, 5.375%, 7/01/26 ................................................ 5,000,000 5,126,050
Series A, 5.00%, 7/01/27 ............................................................... 2,045,000 2,025,573
Florida State Division Bond Finance Department General Services Revenues, Department of
Natural Resources Preservation 2000, AMBAC Insured, Pre-Refunded, 6.75%, 7/01/13 .......... 3,000,000 3,278,400
Florida State GO, Pre-Refunded, 7.375%, 7/01/19 ........................................... 3,715,000 3,842,127
Florida State Mid-Bay Bridge Authority Revenue,
ETM, Series A, 6.875%, 10/01/22 ........................................................ 6,000,000 7,441,380
Exchangeable, 6.05%, 10/01/22 .......................................................... 7,000,000 7,356,790
Exchangeable, Series A, 5.95%, 10/01/13 ................................................ 13,505,000 14,173,227
Exchangeable, Series D, 6.10%, 10/01/22 ................................................ 11,100,000 11,712,942
Series A, 8.00%, 10/01/06 .............................................................. 2,600,000 2,929,524
Series A, 7.50%, 10/01/17 .............................................................. 14,250,000 15,882,908
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 ........................................... 8,780,000 9,667,834
FGIC Insured, 5.50%, 7/01/21 ........................................................... 17,350,000 17,929,143
FGIC Insured, 5.625%, 7/01/25 .......................................................... 7,000,000 7,295,610
Pre-Refunded, 7.75%, 7/01/09 ........................................................... 2,375,000 2,459,146
Gainesville Utilities Systems Revenue,
Series A, 5.20%, 10/01/26 .............................................................. 7,590,000 7,663,775
Series B, 6.00%, 10/01/17 .............................................................. 3,500,000 3,683,365
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%, 5/01/14 . 8,675,000 9,744,281
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 7.75%, 12/01/15 ......... 2,000,000 2,094,640
Hialeah Housing Authority Revenue, Affordable Housing Program, Refunding, GNMA Secured,
5.30%, 12/20/18 ........................................................................ 1,240,000 1,272,476
Highlands County Health Facilities Authority Revenue, Adventist Health Systems, 5.25%,
11/15/20 ............................................................................... 11,000,000 10,789,680
11/15/28 ............................................................................... 3,000,000 2,907,660
Hillsborough County Aviation Authority Revenue,
Special Purpose, Delta Airlines Inc., Refunding, 7.75%, 1/01/24 ........................ 14,945,000 15,521,728
Tampa International Airport, Series A, FGIC Insured, 6.90%, 10/01/11 ................... 4,490,000 4,661,249
Tampa International Airport, Series A, FGIC Insured, Pre-Refunded, 6.90%, 10/01/11 ..... 3,510,000 3,658,789
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23 .................. 5,730,000 6,231,604
Hillsborough County Capital Improvement Revenue,
County Center Project, Second Series, Pre-Refunded, 6.625%, 7/01/12 .................... 8,300,000 9,213,830
</TABLE>
66
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Hillsborough County Capital Improvement Revenue, (cont.)
County Center Project, Second Series, Pre-Refunded, 6.75%, 7/01/22 ....................... $ 1,250,000 $ 1,392,475
Warehouse and Sheriffs Facilities Project, FSA Insured, 5.00%, 7/01/28 ................... 3,825,000 3,778,335
Hillsborough County Educational Facilities Authority Revenue, University of Tampa Project,
Asset Guaranty Insured, 5.00%, 12/01/28 ..................................................... 700,000 675,787
Hillsborough County IDAR, Colonial Penn Insurance Project, 7.35%, 8/01/13 ................... 5,300,000 5,778,908
Hillsborough County Port District Revenue, Tampa Port Authority, Pre-Refunded, 8.25%, 6/01/09 3,000,000 3,306,150
Hillsborough County School Board COP,
Master Lease Program, Series A, MBIA Insured, 5.25%, 7/01/22 ............................. 22,000,000 22,374,440
MBIA Insured, Pre-Refunded, 6.00%, 7/01/12 ............................................... 9,500,000 10,678,855
MBIA Insured, Pre-Refunded, 6.00%, 7/01/14 ............................................... 5,500,000 6,182,495
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11 ................................................................ 10,400,000 11,113,128
Series A, 7.00%, 8/01/14 ................................................................. 5,515,000 5,939,986
Series A, 6.50%, 8/01/16 ................................................................. 3,000,000 3,196,500
Series B, 6.50%, 8/01/16 ................................................................. 1,000,000 1,065,500
Indian River County Hospital District Revenue, Refunding, FSA Insured, 5.70%, 10/01/15 ...... 1,000,000 1,076,370
Indian Trace CDD, Water Management Special Benefit Assessment, MBIA Insured, 5.00%, 5/01/27 . 10,000,000 9,880,200
Jacksonville Capital Improvement Revenue, Certificates, Gator Bowl Project, 5.875%, 10/01/25 5,000,000 5,386,300
Jacksonville Electric Authority Revenue, Water and Sewer, Series B, FGIC Insured, 5.40%,
10/01/20 ................................................................................. 3,000,000 3,089,070
Jacksonville Health Facilities Authority Hospital Revenue,
Baptist Medical Center Project, Series A, MBIA Insured, Pre-Refunded, 7.30%, 6/01/19 ..... 2,500,000 2,576,025
Riverside Hospital Project, Pre-Refunded, 7.625%, 10/01/13 ............................... 8,480,000 8,871,946
Jacksonville Hospital Revenue, University Medical Center Inc. Project, Connie Lee Insured,
6.60%, 2/01/21 ........................................................................... 1,750,000 1,889,878
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20 ........................ 1,000,000 1,079,120
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 ................ 5,000,000 5,390,750
Lake County School Board COP, MBIA Insured, 5.00%, 7/01/23 .................................. 11,760,000 11,580,190
Lakeland Electric and Water Revenue,
5.50%, 10/01/26 .......................................................................... 10,700,000 11,078,031
5.625%, 10/01/36 ......................................................................... 11,670,000 12,192,116
Refunding and Improvement, Senior Series B, 5.625%, 10/01/19 ............................. 12,800,000 13,428,224
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured, 6.00%,
10/01/17 ................................................................................. 4,500,000 4,934,835
Lee County Capital Bonds, Refunding, Series A, MBIA Insured, 7.30%, 10/01/07 ................ 1,000,000 1,040,990
Lee County Hospital Board of Directors Hospital Revenue, Lee Memorial Health System,
Series A, MBIA Insured, 5.875%, 4/01/24 ................................................. 18,000,000 19,553,040
Lee County IDAR, Bonita Springs Sewer Project, Asset Guaranty, Insured,
7.20%, 11/01/11 .......................................................................... 5,000,000 5,411,600
7.25%, 11/01/20 .......................................................................... 2,000,000 2,151,440
Lee County Local Option Gas Tax Revenue, FGIC Insured, 5.75%, 10/01/20 ...................... 2,575,000 2,760,194
Lee County Solid Waste System Revenue, Series A, MBIA Insured, 7.00%,
10/01/04 ................................................................................. 1,945,000 2,135,727
10/01/05 ................................................................................. 1,175,000 1,291,748
10/01/06 ................................................................................. 1,305,000 1,431,272
10/01/11 ................................................................................. 4,600,000 5,039,116
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%,
10/01/22 ................................................................................. 4,500,000 4,830,210
10/01/27 ................................................................................. 5,900,000 6,320,021
Leesburg Hospital Revenue, Leesburg Regional Medical Center Project,
Capital Improvement, Series A, Pre-Refunded, 7.375%, 7/01/11 ............................. 1,250,000 1,416,738
Capital Improvement, Series A, Pre-Refunded, 7.50%, 7/01/21 .............................. 2,115,000 2,405,347
Refunding, Series A, 6.125%, 7/01/18 ..................................................... 7,000,000 7,460,670
Leesburg Utilities Revenue, Refunding, FGIC Insured, 7.60%, 10/01/09 ........................ 500,000 511,615
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21 ...................................... 740,000 772,752
Manatee County HFA, SFMR, Series A, GNMA Secured,
6.85%, 11/01/23 .......................................................................... 4,265,000 4,467,588
Pre-Refunded, 8.10%, 11/01/20 ............................................................ 760,000 776,971
Manatee County IDR, Manatee Hospital and Health System Inc.,
ETM, 8.25%, 3/01/01 ...................................................................... 900,000 944,415
Pre-Refunded, 9.25%, 3/01/21 ............................................................. 6,700,000 7,567,918
</TABLE>
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ..................... $5,575,000 $ 6,423,348
Martin County Consolidated Utilities System Revenue,
FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 ................................................... 3,265,000 3,684,618
Refunding, FGIC Insured, 6.00%, 10/01/24 ...................................................... 735,000 799,151
Martin County Health Facilities Authority Hospital Revenue, Martin Memorial Medical Center
Project, AMBAC Insured, 5.00%, 11/15/28 .......................................................... 1,000,000 980,210
Martin County PCR, Florida Power and Light Co. Project, Refunding, MBIA Insured, 7.30% 7/01/20 ... 14,500,000 15,382,905
Martin County Utilities System Revenue, Refunding, FGIC Insured, 5.00%, 10/01/24 ................. 2,000,000 1,977,160
Miami Beach Special Obligation, Subordinated, ETM, FGIC Insured, 7.375%, 12/01/08 ................ 2,000,000 2,090,260
Miami-Dade County HFA, MFMR, Villa Esperanza Apartments Project,
5.25%, 10/01/19 ............................................................................... 430,000 429,983
5.40%, 10/01/33 ............................................................................... 1,500,000 1,499,925
Miami Health Facilities Authority Revenue, Mercy Hospital Project, Series A, Pre-Refunded,
7.35%, 8/01/15 .................................................................................... 7,500,000 7,783,275
Miramar Wastewater Improvement Assessment Revenue,
FGIC Insured, 5.00%, 10/01/19 ................................................................. 500,000 499,340
FGIC Insured, 5.00%, 10/01/28 ................................................................. 650,000 642,057
FGIC Insured, Pre-Refunded, 6.75%, 10/01/25 ...................................................... 6,500,000 7,508,085
Refunding, MBIA Insured, 5.00%, 10/01/19 ...................................................... 5,125,000 5,118,235
Refunding, MBIA Insured, 5.00%, 10/01/25 ...................................................... 8,750,000 8,648,150
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 .......................... 5,000,000 5,308,500
North Broward Hospital District Revenue, Refunding and Improvement, MBIA Insured,
5.375%, 1/15/24 ............................................................................... 10,710,000 11,035,905
5.75%, 1/15/27 ................................................................................ 14,370,000 15,422,028
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation Group, 6.00%,
8/15/16 ....................................................................................... 2,000,000 2,128,960
8/15/24 ....................................................................................... 1,750,000 1,854,773
North Port Utilities Revenue, FGIC Insured, Pre-Refunded, 6.25%, 10/01/22 ........................ 1,500,000 1,661,355
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31, Project 2,
6.75%, 11/01/07 ............................................................................... 725,000 772,698
6.625%, 11/01/13 .............................................................................. 1,470,000 1,551,835
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series A, AMBAC Insured, 6.875%, 11/15/15 .................................. 1,000,000 1,089,430
Adventist/Sunbelt, Series A, FSA Insured, 7.00%, 11/15/14 ..................................... 3,000,000 3,124,530
Orlando Regional Healthcare, Refunding, Series A, MBIA Insured, 6.00%, 11/01/24 ............... 1,000,000 1,071,250
Orange County HFAR,
Refunding, Series A, GNMA Secured, 7.60%, 1/01/24 ............................................. 4,730,000 4,958,932
Series A, GNMA Secured, 7.75%, 11/01/12 ....................................................... 1,405,000 1,451,309
Series A, GNMA Secured, 7.375%, 9/01/24 ....................................................... 410,000 432,415
Series D, GNMA Secured, 7.80%, 10/01/22 ....................................................... 580,000 603,664
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ......................... 5,050,000 5,543,234
Orange County Sales Tax Revenue, FGIC Insured, 5.125%, 1/01/28 ................................... 2,500,000 2,507,000
Orange County Tourist Development Tax Revenue,
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10 .................................................. 3,000,000 3,240,030
Refunding, MBIA Insured, 5.125%, 10/01/20 ..................................................... 10,000,000 10,078,700
Series B, MBIA Insured, Pre-Refunded, 6.00%, 10/01/24 ......................................... 24,675,000 27,846,231
Orlando and Orange County Expressway Authority Expressway Revenue,
Junior Lien, FGIC Insured, 5.00%, 7/01/28 ..................................................... 26,025,000 25,707,495
Senior Lien, ETM, AMBAC Insured, 7.625%, 7/01/18 .............................................. 265,000 270,970
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11 ............................................................................... 2,155,000 2,300,398
6.75%, 10/01/16 ............................................................................... 2,585,000 2,774,325
Orlando Wastewater Systems Revenue, Refunding, Series C, AMBAC Insured,
5.15%, 10/01/13 ............................................................................... 3,410,000 3,524,474
5.20%, 10/01/14 ............................................................................... 2,740,000 2,822,036
Osceola County Gas Tax Revenue, Refunding and Improvement, FGIC Insured, 6.00%, 4/01/13 .......... 3,500,000 3,790,045
</TABLE>
68
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Osceola County IDA, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.75%, 7/01/10 ............................................... $ 4,634,000 $ 4,966,675
Series C, FSA Insured, 7.60%, 7/01/10 ............................................... 795,000 851,087
Pace Property Finance Authority Inc. Utility Systems Revenue, Refunding and Improvement,
AMBAC Insured, 6.125%, 9/01/07 ...................................................... 270,000 283,856
AMBAC Insured, 6.25%, 9/01/13 ....................................................... 685,000 721,387
Pre-Refunded, 6.125%, 9/01/07 ....................................................... 730,000 774,837
Pre-Refunded, 6.25%, 9/01/13 ........................................................ 1,860,000 1,979,021
Pre-Refunded, 6.125%, 9/01/17 ....................................................... 840,000 891,593
Palm Bay Utility System Capital Improvement Revenue, MBIA Insured, 5.00%, 10/01/28 ..... 3,750,000 3,704,175
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured,
6.00%, 6/01/15 ...................................................................... 5,000,000 5,474,900
Pre-Refunded, 7.25%, 6/01/11 ........................................................ 6,950,000 7,423,851
Palm Beach County Financing Authority MFR, Housing Windsor Park Apartment Project,
Series A, 5.90%, 6/01/38 ............................................................ 1,000,000 1,042,490
Palm Beach County Health Facilities Authority Retirement Community Revenue, Acts
Retirement-Life Communities, 5.125%, 11/15/29 .......................................... 3,650,000 3,484,254
Palm Beach County HFA, SFM Purchase Revenue,
Series A, GNMA Secured, 7.70%, 3/01/22 .............................................. 6,585,000 6,866,048
Series B, GNMA Secured, 7.60%, 3/01/23 .............................................. 4,580,000 4,812,389
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care Inc. Project,
6.55%, 12/01/16 ..................................................................... 1,755,000 1,874,235
6.625%, 12/01/26 .................................................................... 4,000,000 4,271,720
(c) Palm 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 6,087,109
Pensacola-Westwood Homes Development Corp. Revenue, Mortgage Loan, Refunding, FHA
Insured, 6.40%, 7/15/23 ................................................................ 985,000 1,024,725
Pinellas County HFA,
SFHR, Multi-County Program, Series A-1, 5.30%, 9/01/30 .............................. 1,500,000 1,511,565
SFHR, Multi-County Program, Series C-1, FNMA/GNMA Insured, 5.45%, 9/01/29 ........... 1,765,000 1,784,680
SFMR, Multi-County Program, Series B, GNMA Secured, 6.875%, 8/01/10 ................. 1,170,000 1,223,516
SFMR, Multi-County Program, Series B, GNMA Secured, 7.375%, 2/01/24 ................. 4,740,000 4,969,274
SFMR, Series A, GNMA Secured, 7.30%, 8/01/22 ........................................ 1,515,000 1,576,736
SFMR, Series A, GNMA Secured, 7.75%, 8/01/23 ........................................ 1,430,000 1,496,810
Pinellas County PCR, Florida Power and Light Co., Refunding, 7.20%, 12/01/14 ........... 12,200,000 13,235,780
Plantation Health Facilities Authority Revenue, Covenant Retirement Community Inc.,
Pre-Refunded,
7.625%, 12/01/12 .................................................................... 1,500,000 1,732,995
7.75%, 12/01/22 ..................................................................... 3,000,000 3,478,980
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 ..................... 2,035,000 2,133,352
Polk County IDAR, Solid Waste Disposal Facility, Tampa Electric Co. Project, 5.85%,
12/01/30 ............................................................................ 20,500,000 21,586,910
(b)Polk County School Board COP, Series A, FSA Insured, 5.00%,
1/01/24 ............................................................................. 10,000,000 9,915,000
Port Everglades Authority Port Improvement Revenue,
ETM, Series 1986, 7.50%, 11/01/06 ................................................... 575,000 672,284
Series A, Pre-Refunded, 7.50%, 9/01/12 .............................................. 18,050,000 18,805,934
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 9/0 ............................................................................ 20,640,000 20,714,717
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital Inc.,
Refunding, 8.60%, 10/01/02 .......................................................... 20,000 20,467
Series A, 6.20%, 10/01/14 ........................................................... 14,350,000 15,091,178
Santa Rosa County IDR, Refunding, Holley Navarre Water System Project, 6.75%, 5/01/24 .. 4,290,000 4,648,987
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16 ............. 6,250,000 6,558,063
Sarasota County Utilities System Revenue, FGIC Insured,
5.75%, 10/01/27 ..................................................................... 18,000,000 19,402,020
Refunding, Series A, 5.25%, 10/01/25 ................................................ 9,000,000 9,148,680
Seminole County Sales Tax Revenue, MBIA Insured, Pre-Refunded, 5.80%, 10/01/26 ......... 5,000,000 5,620,200
Seminole County School Board COP,
Series A, MBIA Insured, Pre-Refunded, 6.125%, 7/01/14 ............................... 1,150,000 1,299,592
Series B, MBIA Insured, Pre-Refunded, 6.50%, 7/01/21 ................................ 5,000,000 5,686,150
South Broward Hospital District Revenue, Refunding, MBIA Insured, 5.25%, 5/01/21 ....... 5,000,000 5,090,600
</TABLE>
69
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
South Florida Water Management District Special Obligation, Land Acquisition Bonds, AMBAC
Insured, 6.00%, 10/01/15 ................................................................. $ 1,000,000 $ 1,084,830
South Miami Florida Health Facilities Authority Hospital Revenue, Baptist Health System
Obligation Group, MBIA Insured, 5.00%, 11/15/28 ......................................... 10,000,000 9,802,100
St. John's County IDA, IDR, Professional Golf Hall of Fame Project, MBIA Insured,
5.80%, 9/01/16 ........................................................................... 4,660,000 5,044,217
St. John's County Water and Sewer Revenue, Series B-1, FGIC Insured, 7.00%, 6/01/11 ...... 2,995,000 3,048,760
St. Lucie County Solid Waste Disposal Revenue, Florida Power and Light Co. Project, 7.15%,
2/01/23 ................................................................................... 7,500,000 7,997,400
St. Lucie West Services District Capital Improvement Revenue, Lake Charles Project, 7.50%,
2/01/00 .................................................................................. 2,750,000 2,788,253
St. Petersburg Health Facilities Authority Revenue, Allegany Health System,
Series A, MBIA Insured, Pre-Refunded, 7.00%, 12/01/15 ................................. 10,500,000 11,673,165
St. Mary, Series B, Pre-Refunded, 7.75%, 12/01/15 ..................................... 8,630,000 9,104,391
Sunrise Lakes Recreation District, Phase 4,
Refunding, AMBAC Insured, 5.25%, 8/01/24 .............................................. 4,320,000 4,390,373
Series A, 6.75%, 8/01/24 .............................................................. 6,120,000 7,177,169
Series A, Pre-Refunded, 6.75%, 8/01/15 ................................................ 3,080,000 3,612,039
Sunrise Special Tax District No. 1, Refunding, 6.375%,
11/01/08 .............................................................................. 3,485,000 3,705,182
11/01/21 .............................................................................. 12,390,000 13,124,727
Sunrise Utilities System Revenue,
Refunding, AMBAC Insured, 5.20%, 10/01/22 ............................................. 2,550,000 2,613,113
Series A, AMBAC Insured, Pre-Refunded, 5.75%, 10/01/16 ................................ 1,780,000 2,001,236
Series A, AMBAC Insured, Pre-Refunded, 5.90%, 10/01/18 ................................ 4,230,000 4,796,947
Series A, AMBAC Insured, Pre-Refunded, 5.75%, 10/01/21 ................................ 3,000,000 3,372,870
Series A, AMBAC Insured, Pre-Refunded, 5.75%, 10/01/26 ................................ 10,000,000 11,208,000
Tallahassee Consolidated Utility System Revenue, Series1994, 6.20%, 10/01/19 ............. 3,400,000 3,696,480
Tallahassee Energy System Revenue,
Refunding, Series A, FSA Insured, 5.00%, 10/01/28 ..................................... 10,000,000 9,877,800
Series B, FSA Insured, 5.00%, 10/01/28 ................................................ 7,500,000 7,408,350
Tampa Allegheny Health System Revenue, St. Joseph, MBIA Insured, Pre-Refunded,
6.75%, 12/01/17 ....................................................................... 1,180,000 1,304,183
6.50%, 12/01/23 ....................................................................... 7,000,000 8,079,400
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18 .......... 2,000,000 2,184,240
Tampa-Hillsborough County Expressway Authority Revenue, AMBAC Insured, 5.00%, 7/01/22 .... 11,500,000 11,420,880
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 ....... 10,525,000 10,978,207
Tampa Sports Authority Revenue,
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.00%, 10/01/15 ............ 1,000,000 1,142,270
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.05%, 10/01/20 ............ 1,715,000 1,978,304
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.10%, 10/01/26 ............ 2,695,000 3,158,432
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.05%, 10/01/15 ........... 4,250,000 4,807,260
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.10%, 10/01/20 ........... 5,160,000 5,850,460
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.125%, 10/01/26 .......... 6,800,000 7,719,020
Tampa Water and Sewer Revenue, Sub Lien, Series A, AMBAC Insured, 7.25%, 10/01/16 ........ 1,330,000 1,333,338
Titusville Water and Sewer Revenue, Refunding, MBIA Insured, 6.20%, 10/01/14 ............. 6,000,000 6,831,000
University Community Hospital Inc. Revenue, FSA Insured, Pre-Refunded,
7.375%, 9/01/07 ....................................................................... 5,000,000 5,397,600
7.50%, 9/01/11 ........................................................................ 5,000,000 5,406,650
Venice Health Care Revenue, Bon Secours Health System Project, MBIA Insured, 5.625%,
8/15/26 .................................................................................. 6,000,000 6,288,720
Viera East CDD,
Special Assessment, 8.50%, 5/01/04 .................................................... 3,245,000 3,666,590
Special Assessment, 8.625%, 5/01/14 ................................................... 10,640,000 12,071,718
Special Assessment, ETM, 7.50%, 5/01/03 ............................................... 1,730,000 1,924,279
Special Assessment, ETM, Series B, 6.75%, 5/01/14 ..................................... 7,490,000 7,767,205
Special Assessment, Pre-Refunded, 7.50%, 5/01/12 ...................................... 5,225,000 5,921,702
Special Assessment, Refunding, 6.30%, 5/01/26 ......................................... 7,355,000 7,985,838
Special Assessment, Refunding, Series A, 6.00%, 5/01/14 ............................... 11,295,000 11,729,067
Special Assessment, Water Management, Refunding, Series A, 6.50%, 5/01/22 ............. 11,340,000 11,806,981
Special Assessment, Water Management, Series B, 6.50%, 5/01/05 ........................ 465,000 477,741
</TABLE>
70
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Viera East CDD, (cont.)
Special Assessment, Water Management, Series B, 6.50%, 5/01/22 ............................ $ 4,580,000 $ 4,703,431
Water and Sewer Revenue, 7.875%, 5/01/03 .................................................. 2,950,000 3,104,197
Water and Sewer Revenue, 6.75%, 5/01/09 ................................................... 2,850,000 2,990,477
Village CDD No. 2, Special Assessment Revenue, MBIA Insured, 5.20%, 5/01/19 .................. 1,720,000 1,754,933
Village Center CDD,
Recreational Revenue, Refunding, Series A, MBIA Insured, 5.00%, 11/01/21 .................. 5,000,000 4,966,150
Utility Revenue, Refunding, Series A, 5.00%, 10/01/23 ..................................... 5,500,000 5,453,635
Utility Revenue, Refunding, Series B, 5.00%, 10/01/23 ..................................... 1,000,000 991,570
Volusia County Educational Facility Authority Revenue, Embry-Riddle Aeronautical University,
Connie Lee Insured, 6.625%, 10/15/22 ........................................................ 500,000 547,100
Volusia County Health Facilities Authority Revenue, Hospital Facilities, Memorial Health
Systems Project, AMBAC Insured, 5.50%, 11/15/26 ............................................. 9,770,000 10,090,847
West Lake CDD, Special Assessment Revenue, MBIA Insured, 5.75%, 5/01/17 ...................... 1,970,000 2,168,812
West Palm Beach Utilities System Revenue, MBIA Insured, 5.75%, 10/01/27 ...................... 3,000,000 3,323,760
Westgate/Belvedere Homes Community RDAR, Series 1992,
6.50%, 11/01/09 ........................................................................... 410,000 431,988
6.60%, 11/01/17 ........................................................................... 1,410,000 1,486,930
-------------
TOTAL BONDS (COST $1,645,856,635) ............................................................ 1,749,181,420
-------------
ZERO COUPON BONDS 4.5%
Broward County Water and Sewer Utility Revenue, Refunding, Series A, AMBAC Insured, 10/01/08 . 3,670,000 2,455,523
Dade County Guaranteed Entitlement Revenue, Capital Appreciation, AMBAC Insured, Pre-Refunded,
8/01/18 ...................................................................................... 17,020,000 5,182,420
Florida HFC Revenue, Deferred Interest, Homeowner Mortgage,
Series 1, MBIA Insured, 7/01/17 ........................................................... 3,400,000 1,270,307
Series 2, MBIA Insured, 1/01/29 ........................................................... 51,400,000 9,941,273
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/01/25 .................................................................................. 9,845,000 2,418,128
10/01/26 .................................................................................. 2,500,000 581,624
Lakeland Electric and Water Revenue, Capital Appreciation, 10/01/14 .......................... 5,770,000 2,697,936
Miami-Dade County Special Obligation,
Sub Series B, MBIA Insured, 10/01/36 ...................................................... 5,635,000 727,252
Sub Series C, MBIA Insured, 10/01/28 ...................................................... 8,305,000 1,685,000
Subordinate Lien, Refunding, Series A, MBIA Insured, 10/01/25 ............................. 22,365,000 5,402,488
Port Everglades Authority Port Improvement Revenue,
Capital Appreciation, 9/01/10 ............................................................. 24,525,000 14,345,898
Capital Appreciation, ETM, 9/01/10 ........................................................ 25,475,000 15,240,163
Refunding, Series A, 9/01/02 .............................................................. 10,575,000 9,233,455
Refunding, Series A, 9/01/03 .............................................................. 9,075,000 7,571,816
Refunding, Series A, 9/01/04 .............................................................. 3,550,000 2,822,143
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
11/01/09 .................................................................................. 1,365,000 865,450
11/01/12 .................................................................................. 1,780,000 941,103
11/01/15 .................................................................................. 2,180,000 957,433
-------------
TOTAL ZERO COUPON BONDS (COST $61,970,788) ................................................... 84,339,412
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,707,827,423) ............................................ 1,833,520,832
-------------
(a)SHORT TERM INVESTMENTS 1.4%
Dade County Health Facilities Authority Hospital Revenue, Miami Children's Hospital Project,
Daily VRDN and Put, 3.20%, 9/01/20 ........................................................... 995,000 995,000
Dade County HFA, MFMR, Weekly VRDN and Put, 2.95%, 6/01/15 ................................... 2,245,000 2,245,000
Dade County IDA,
IDR, Dolphins Stadium Project, Series A, Weekly VRDN and Put, 2.95%, 1/01/16 .............. 800,000 800,000
PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.15%, 4/01/20 ... 1,800,000 1,800,000
Dade County Water and Sewer System Revenue, FGIC Insured, Weekly VRDN and Put,
3.00%, 10/05/22 ........................................................................... 700,000 700,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 3.15%, 5/15/18 ............................. 700,000 700,000
Jacksonville PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.15%,
5/01/29 ...................................................................................... 2,700,000 2,700,000
Manatee County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.20%,
9/01/24 ...................................................................................... 1,000,000 1,000,000
</TABLE>
71
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONT.)
<S> <C> <C>
Pinellas County Health Facilities Authority Revenue, Refunding, Pooled Hospital Loan
Program, AMBAC Insured, Daily VRDN and Put, 3.20%, 12/01/15 ............................ $ 7,600,000 $ 7,600,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 2.60%, 7/01/28 .......................................... 3,900,000 3,900,000
Putnam County Development Authority PCR, Florida Power and Light Co. Project, Refunding,
Daily VRDN and Put, 3.20%, 9/01/24 ..................................................... 1,600,000 1,600,000
St. Lucie County PCR, Florida Power and Light
Co. Project, Refunding, Daily VRDN and Put, 3.15%, 3/01/27 ............................. 1,750,000 1,750,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $25,790,000) ........................................ 25,790,000
--------------
TOTAL INVESTMENTS (COST $1,733,617,423) 99.5% .......................................... 1,859,310,832
OTHER ASSETS, LESS LIABILITIES .5% ..................................................... 9,004,819
--------------
NET ASSETS 100.0% ...................................................................... $1,868,315,651
==============
</TABLE>
See glossary of terms on page 107.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(c) See Note 6 regarding defaulted securities.
72 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN GEORGIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.12 $ 11.86 $ 11.88 $ 11.54 $ 12.00
------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .61 .63 .65 .66 .66
Net realized and unrealized gains (losses).. .01 .27 (.02) .34 (.46)
------------------------------------------------------------------
Total from investment operations ............ .62 .90 .63 1.00 .20
------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.61)(2) (.64)(1) (.65) (.66) (.66)
Net realized gains ......................... (.06) -- -- -- --
------------------------------------------------------------------
Total distributions ......................... (.67) (.64) (.65) (.66) (.66)
------------------------------------------------------------------
Net asset value, end of year ................ $ 12.07 $ 12.12 $ 11.86 $ 11.88 $ 11.54
==================================================================
Total return* ............................... 5.22% 7.75% 5.47% 8.90% 1.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 164,669 $ 149,642 $ 139,903 $ 130,380 $ 116,771
Ratios to average net assets:
Expenses ................................... .76% .76% .75% .77% .76%
Net investment income ...................... 5.00% 5.28% 5.49% 5.58% 5.76%
Portfolio turnover rate ..................... 12.84% 14.77% 17.47% 10.98% 36.17%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.19 $ 11.92 $ 11.92 $ 11.57
-----------------------------------------------------
Income from investment operations:
Net investment income ...................... .54 .57 .58 .50
Net realized and unrealized gains (losses).. .02 .27 (.01) .34
-----------------------------------------------------
Total from investment operations ............ .56 .84 .57 .84
-----------------------------------------------------
Less distributions from:
Net investment income ...................... (.54)(2) (.57) (.57) (.49)
Net realized gains ......................... (.06) -- -- --
-----------------------------------------------------
Total distributions ......................... (.60) (.57) (.57) (.49)
-----------------------------------------------------
Net asset value, end of year ................ $ 12.15 $ 12.19 $ 11.92 $ 11.92
=====================================================
Total return* ............................... 4.70% 7.19% 4.97% 7.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 17,277 $ 9,107 $ 4,484 $ 1,335
Ratios to average net assets:
Expenses ................................... 1.31% 1.32% 1.32% 1.34%**
Net investment income ...................... 4.45% 4.72% 4.87% 5.04%**
Portfolio turnover rate ..................... 12.84% 14.77% 17.47% 10.98%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
** Annualized
*** For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(1) Includes distributions in excess of net investment income in the amount of
$.001.
(2) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and C, respectively.
See notes to financial statements. 73
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.8%
Albany-Daugherty County Hospital Authority Revenue, Anticipation Certificates,
Series B, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ............................... $ 500,000 $ 540,285
Atlanta Airport Facilities Revenue, Series B, AMBAC Insured, 6.00%, 1/01/21 ............ 1,100,000 1,174,184
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 3,089,100
12/01/26 ............................................................................ 1,500,000 1,544,550
Atlanta COP, Pretrial Detention Center, MBIA Insured, Pre-Refunded, 6.25%,
12/01/11 ............................................................................ 1,000,000 1,109,490
12/01/17 ............................................................................ 3,800,000 4,216,062
Atlanta Downtown Development Authority Revenue, Underground Atlanta Project,
Refunding, 6.25%, 10/01/16 .......................................................... 2,000,000 2,147,120
Atlanta GO,
Refunding, FGIC Insured, 5.00%, 12/01/20 ............................................ 4,500,000 4,470,165
Refunding, FGIC Insured, 5.00%, 12/01/23 ............................................ 1,500,000 1,481,010
Series A, Pre-Refunded, 6.125%, 12/01/23 ............................................ 6,000,000 6,793,440
Atlanta HDC, Mortgage Revenue, Oakland City/West, Refunding, Series A, FHA
Insured, 6.375%, 3/01/23 ............................................................ 1,480,000 1,563,354
Atlanta Special Purpose Facilities Revenue, Delta Air Lines Inc. Project,
Series B, 7.90%, 12/01/18 ........................................................... 3,500,000 3,653,230
Atlanta Urban Residential Finance Authority MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18 ........................................ 1,700,000 1,799,314
Fulton Cotton Mill, 6.00%, 5/20/17 .................................................. 1,045,000 1,110,501
Fulton Cotton Mill, 6.125%, 5/20/27 ................................................. 1,575,000 1,668,665
Atlanta Water and Sewer Revenue,
FGIC Insured, 5.25%, 1/01/27 ........................................................ 1,900,000 1,917,290
Second sub. lien, FGIC Insured, 5.375%, 1/01/20 ..................................... 1,000,000 1,029,550
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 ..................................................................... 2,615,000 2,521,958
5.375%, 12/01/28 .................................................................... 2,000,000 1,932,200
Barnesville Water and Sewer Revenue, Pre-Refunded, 6.85%, 9/01/17 ...................... 1,000,000 1,076,140
Brunswick and Glynn County Development Authority Revenue, Georgia Pacific
Project, Refunding, 5.55%, 3/01/26 ................................................. 3,900,000 3,925,194
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle,
1st Series, 6.10%, 4/01/25 .......................................................... 1,000,000 1,039,330
Series 1984-1, MBIA Insured, 6.60%, 7/01/24 ......................................... 10,000,000 10,280,700
Camden County Joint Development Authority PCR, Union Carbide Corp. Project,
Refunding, 5.00%, 1/01/12 ........................................................... 1,000,000 995,250
Chatham County Hospital Authority Revenue, Memorial Medical Center, Refunding
and Improvement, Series A, AMBAC Insured, 5.70%, 1/01/19 ............................ 1,000,000 1,062,530
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 ........................................................ 2,000,000 1,958,320
Refunding, MBIA Insured, 6.90%, 8/01/18 ............................................. 1,595,000 1,723,844
Clayton County Development Authority Special Facility Revenue, Delta Air Lines
Inc. Project, Refunding, 7.625%, 1/01/20 ............................................ 1,400,000 1,461,670
Clayton County Hospital Authority Revenue, Anticipation Certificates, Southern
Regional Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 8/01/13 ................. 2,400,000 2,639,592
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23 ...... 1,000,000 1,037,870
Cobb County Kennestone Hospital Authority Revenue, ETM, Series A, MBIA Insured,
7.75%, 2/01/07 ...................................................................... 100,000 115,239
Columbia County GO, Courthouse/Detention Center Projects, 5.00%, 2/01/24 ............... 2,460,000 2,415,203
Commerce Combined Public Utility Revenue, Refunding and Improvement, AMBAC
Insured, Pre-Refunded, 7.50%, 12/01/20 .............................................. 100,000 105,276
Conyers Water and Sewer Revenue, Series A, ETM, AMBAC Insured, 6.60%, 7/01/15 .......... 1,000,000 1,097,700
Coweta County Association County Commissioners Leasing Program COP, MBIA
Insured, Pre-Refunded, 7.00%, 12/01/10 .............................................. 750,000 783,975
Dade County Water and Sewer Authority Revenue, FGIC Insured, Pre-Refunded,
7.60%, 7/01/15 ...................................................................... 300,000 310,434
DeKalb County Housing Authority SFMR, GNMA Secured, 7.70%, 2/01/24 ..................... 290,000 305,976
Douglas County Housing Authority MFHR, Millwood Park Apartments, FNMA Insured,
5.45%, 1/01/18 ...................................................................... 1,880,000 1,915,983
Downtown Smyrna Development Authority Revenue, Refunding and Improvement, 5.15%,
2/01/16 ............................................................................. 550,000 566,940
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series
A, MBIA Insured, 6.50%, 7/01/24 ..................................................... 935,000 981,114
Fulco Hospital Authority Revenue, Anticipation Certificates, Health System,
Catholic Health East, Series A, MBIA Insured, 5.00%, 11/15/28 ....................... 4,000,000 3,914,880
Fulton County Building Authority Revenue,
Human Resources and Government Facilities Program, 7.10%, 1/01/15 ................... 750,000 799,253
Judicial Center Facilities Project, Refunding, 6.50%, 1/01/15 ....................... 1,000,000 1,049,280
Fulton County Development Authority Special Facilities Revenue, Delta Airlines
Inc. Project, 5.45%, 5/01/23 ........................................................ 1,805,000 1,778,629
Fulton Dekalb Hospital Authority Revenue, Grady Memorial Hospital Project,
Series A, AMBAC Insured, Pre-Refunded, 7.25%, 1/01/20 ............................... 1,480,000 1,559,210
</TABLE>
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
Gainesville and Hall County Hospital Authority Revenue, Anticipation Certificates, Northeast
Georgia Health Care Project, Refunding,
MBIA Insured, 5.75%, 10/01/17 ................................................................ $ 210,000 $ 226,057
MBIA Insured, 6.00%, 10/01/25 ................................................................ 750,000 815,640
Series B, MBIA Insured, 7.20%, 10/01/20 ...................................................... 455,000 465,260
Georgia Municipal Electric Authority Power Revenue, Series W, 6.60%, 1/01/18 .................... 1,000,000 1,193,630
Georgia State HFAR,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17 ................................ 2,895,000 3,070,727
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23 ................................. 485,000 513,916
MF, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 ....................... 1,000,000 1,184,000
MF, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 ..................... 1,000,000 1,056,270
SFM, Series A, FHA Insured, 6.60%, 12/01/23 .................................................. 1,995,000 2,107,398
SFM, Series B, Sub Series B-2, 6.15%, 12/01/28 ............................................... 1,000,000 1,050,210
SFM, Sub Series B-2, 5.85%, 12/01/28 ......................................................... 3,000,000 3,112,050
Georgia State Residential Finance Authority Home Ownership Mortgage Revenue,
Convertible Loans, Series B, Sub Series B, 7.50%, 6/01/17 .................................... 190,000 200,974
Series B, FHA Insured, 7.00%, 12/01/12 ....................................................... 885,000 943,038
Series E, Sub Series E-1, FHA Insured, 7.50%, 6/01/17 ........................................ 310,000 327,481
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%, 10/01/23 ..... 3,300,000 3,748,536
Houston County School District Intergovernmental Contract Trust COP, MBIA Insured, Pre-Refunded,
6.00%, 3/01/14 ............................................................................... 2,000,000 2,231,600
La Grange Water and Sewer Revenue, Pre-Refunded, 7.375%, 1/01/12 ................................ 1,000,000 1,054,110
Lee County Utilities Authority Water and Sewer Revenue, FSA Insured, 5.00%, 7/01/18 ............. 1,800,000 1,760,598
Liberty County IDR, Leconte Property Inc. Project, Refunding, 7.875%, 12/01/14 .................. 850,000 910,733
Marietta Development Authority Revenue, First Mortgage, Life College Inc.,
Refunding, Series A, FSA Insured, 5.75%, 9/01/14 ............................................. 1,800,000 1,948,212
Refunding, Series A, FSA Insured, 5.80%, 9/01/19 ............................................. 1,100,000 1,179,959
Refunding, Series A, FSA Insured, 5.95%, 9/01/19 ............................................. 1,000,000 1,081,130
Series B, FSA Insured, 5.75%, 9/01/14 ........................................................ 800,000 865,872
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue,
Second Indenture, Refunding, Series A, MBIA Insured, 5.625%, 7/01/20 ......................... 2,670,000 2,833,885
Second Indenture, Series B, MBIA Insured, 5.10%, 7/01/20 ..................................... 1,000,000 1,001,630
Series A, MBIA Insured, Pre-Refunded, 6.90%, 7/01/20 ......................................... 5,930,000 6,890,067
Series L, Pre-Refunded, 7.20%, 7/01/10 ....................................................... 250,000 258,330
Monroe County Development Authority PCR,
Georgia Power Co., AMBAC Insured, 6.25%, 7/01/19 ............................................. 1,000,000 1,035,370
Georgia Power Co., Scherer Project, senior lien, First Series, 5.75%, 9/01/23 ................ 1,000,000 1,016,900
Oglethorpe Power Co., Scherer Project, Refunding, Series A, 6.80%, 1/01/12 ................... 1,500,000 1,768,920
Municipal Electric Authority, Project One, Refunding, Sub Series A, MBIA Insured, 5.375%, 1/01/19 4,820,000 4,928,595
Paulding County Water and Sewer Revenue, AMBAC Insured, 5.80%, 12/01/16 ......................... 500,000 541,165
Peachtree City Water and Sewer Authority Sewer Systems Revenue, Series A, 5.60%, 3/01/27 ........ 3,000,000 3,113,940
Pike County School District, Refunding, AMBAC Insured, 5.70%, 2/01/16 ........................... 1,000,000 1,104,610
Polk County Water Authority Water and Sewerage Revenue, Refunding, MBIA Insured, 7.00%, 12/01/15 100,000 104,074
Private Colleges and Universities Authority Revenue, Emory University Project, Series A,
5.00%, 11/01/24 .............................................................................. 2,250,000 2,227,388
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Refunding, Series R,
7.15%, 7/01/00 ............................................................................... 230,000 241,029
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ............................................................................... 15,000 15,500
7.50%, 7/01/09 ............................................................................... 5,000 5,111
Puerto Rico Electric Power Authority Revenue,
Pre-Refunded, Series O, 7.125%, 7/01/14 ...................................................... 235,000 241,728
Refunding, Series N, 7.125%, 7/01/14 ......................................................... 50,000 51,423
Refunding, Series O, 7.125%, 7/01/14 ......................................................... 165,000 169,696
Refunding, Series U, 6.00%, 7/01/14 .......................................................... 1,000,000 1,100,080
Series N, Pre-Refunded, 7.125%, 7/01/14 ...................................................... 130,000 133,722
Series T, 6.00%, 7/01/16 ..................................................................... 1,000,000 1,082,100
Richmond County Development Authority, Solid Waste Disposal Revenue, International Paper Co. ....
Project, 5.80%, 12/01/20 ..................................................................... 1,500,000 1,563,195
Savannah EDA, IDR, Hershey Foods Corp. Project, Refunding, 6.60%, 6/01/12 ....................... 1,000,000 1,087,890
Savannah Hospital Authority Revenue,
St. Joseph/Candler Health System, Refunding, FSA Insured, 5.00%, 7/01/23 ..................... 2,750,000 2,678,060
St. Joseph's Hospital Project, Pre-Refunded, 6.20%, 7/01/23 .................................. 2,000,000 2,228,000
</TABLE>
75
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
Savannah Port Authority PCR, Union Carbide Plastic Co. Inc., Refunding, 7.55%, 8/01/04 .. $ 4,600,000 $ 4,628,888
St. Mary's Housing Authority MFMR,
Cumberland Oaks Apartments, Refunding, Series A, FNMA Insured, 7.375%, 9/01/22 ....... 500,000 524,855
Pine Apartments, Series C, FNMA Insured, 7.375%, 4/01/22 ............................. 700,000 722,071
Tift County School District, MBIA Insured, 6.125%, 2/01/15 .............................. 2,330,000 2,417,445
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 ................ 3,000,000 3,043,290
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ...................................................................... 850,000 869,066
5.50%, 10/01/22 ...................................................................... 1,200,000 1,204,020
5.625%, 10/01/25 ..................................................................... 1,530,000 1,557,953
Walker, Dade and Catoosa County Hospital Authority Revenue, Anticipation Certificates,
Series A, FGIC Insured, Pre-Refunded, 7.00%, 10/01/10 ................................ 1,500,000 1,657,680
Walton County Water and Sewer Authority Revenue, Refunding and Improvement, MBIA Insured,
6.00%, 2/01/21 ....................................................................... 2,000,000 2,194,540
White County IDAR, Clark Schwebel Fiber Glass, Refunding, 6.85%, 6/01/10 ................ 1,780,000 1,912,090
------------
TOTAL LONG TERM INVESTMENTS (COST $168,485,233) ......................................... 177,862,707
------------
(a)SHORT TERM INVESTMENTS .6 %
Hapeville IDAR, Hapeville Hotel Ltd., Daily VRDN and Put, 2.70%, 11/01/15 ............... 200,000 200,000
Monroe County Development Authority PCR, Georgia Power Co., Plant Scherer, Daily VRDN and
Put, 3.15%, 9/01/29 .................................................................. 100,000 100,000
Putnam County Development Authority PCR, Georgia Power Co., Plant Branch, First Series,
Daily VRDN and Put, 3.15%, 6/01/23 ................................................... 800,000 800,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,100,000) .......................................... 1,100,000
------------
TOTAL INVESTMENTS (COST $169,585,233) 98.4% ............................................. 178,962,707
OTHER ASSETS, LESS LIABILITIES 1.6% ..................................................... 2,983,759
------------
NET ASSETS 100.0% ....................................................................... $181,946,466
============
</TABLE>
See glossary of terms on page 107.
(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.
See notes to financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.45 $ 11.05 $ 11.04 $ 10.54 $ 11.18
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .............................. .59 .61 .61 .62 .61
Net realized and unrealized gains (losses) ......... .03 .40 .01 .50 (.62)
---------- ---------- ---------- ---------- ----------
Total from investment operations .................... .62 1.01 .62 1.12 (.01)
---------- ---------- ---------- ---------- ----------
Less distributions from net investment income ....... (.60)(1) (.61) (.61) (.62) (.63)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........................ $ 11.47 $ 11.45 $ 11.05 $ 11.04 $ 10.54
========== ========== ========== ========== ==========
Total return* ....................................... 5.51% 9.38% 5.86% 10.73% .11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 64,516 $ 54,211 $ 44,289 $ 38,991 $ 32,831
Ratios to average net assets:
Expenses ........................................... .42% .35% .34% .33% .29%
Expenses excluding waiver and payments
by affiliates ................................... .81% .81% .81% .82% .80%
Net investment income .............................. 5.12% 5.40% 5.63% 5.65% 5.94%
Portfolio turnover rate ............................. 10.49% 26.61% 24.81% 31.89% 32.92%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income reinvested at the offering
price.
(1)Includes distribution in excess of net investment income in the amount of
$.004.
See notes to financial statements.
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
Ashland PCR, Ashland Oil Inc. Project, Refunding, 6.65%, 8/01/09 ................................. $ 700,000 $ 754,698
Ashland Solid Waste Revenue, Ashland Oil Inc. Project, 7.20%, 10/01/20 ........................... 1,000,000 1,080,510
Boone County PCR, Collateralized, Dayton Power and Light Co., Refunding, Series A, 6.50%, 11/15/22 710,000 771,664
Carroll County PCR, Collateralized, Kentucky Utilities Co. Project, Series B, 6.25%, 2/01/18 ..... 325,000 344,035
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%, 7/01/17 ........ 1,000,000 1,056,940
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 ........................................ 1,500,000 1,661,520
Housing Authority, Jefferson County, 6.50%, 3/01/19 ........................................... 125,000 132,980
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 ........................................... 100,000 109,292
Daviess County Hospital Revenue, Odch Inc., Series A, MBIA Insured, 6.25%,
8/01/12 ....................................................................................... 100,000 107,818
8/01/22 ....................................................................................... 210,000 225,584
Daviess County Public Improvement Corp. Revenue, First Mortgage, Court Facilities Project,
Refunding, Series A, 5.70%, 10/01/14 .......................................................... 545,000 577,373
Eastern University Revenues, Consolidated Educational Building, Series Q, AMBAC Insured,
6.40%, 5/01/08 ................................................................................ 100,000 107,373
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 2,022,640
Fulton County Industrial Building Revenue, H.I.S. Income Project, 7.50%, 2/01/10 ................. 500,000 518,725
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Section 8 Assisted Projects,
Refunding, Series A, MBIA Insured, 6.10%, 1/01/24 ............................................. 2,000,000 2,068,580
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 ........................................ 400,000 435,796
Guam Power Authority Revenue, Series A, 6.30%, 10/01/22 .......................................... 225,000 242,541
Hancock County Solid Waste Disposal Revenue, Willamette Industries Inc. Project, 6.60%, 5/01/26 .. 1,000,000 1,097,840
Henry County Water District No. 002 Water Revenue, Refunding, MBIA Insured, 4.75%, 1/01/28 ....... 1,000,000 948,820
Hopkins County Hospital Revenue, Trover Clinic Foundation Inc., MBIA Insured, 6.625%, 11/15/11 ... 125,000 134,753
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured, 5.375%, 6/01/22 ............. 2,000,000 2,057,780
Jefferson County Health Facilities Revenue,
Jewish Hospital Healthcare Services Inc., AMBAC Insured, 6.50%, 5/01/15 ....................... 750,000 813,435
Jewish Hospital Healthcare Services Inc., AMBAC Insured, 6.55%, 5/01/22 ....................... 720,000 779,494
Jewish Hospital Healthcare Services Inc., Refunding, AMBAC Insured, 5.75%, 1/01/26 ............ 2,000,000 2,148,960
University Medical Center Inc. Project, MBIA Insured, 5.50%, 7/01/17 .......................... 1,500,000 1,577,160
Jefferson County MFHR, Watterson Park Apartments Project, Series A, 6.35%, 11/15/11 .............. 1,930,000 2,051,629
Jefferson County PCR,
DuPont, Series A, 6.30%, 7/01/12 .............................................................. 450,000 493,943
Louisville Gas and Electric Co. Project, Refunding, Series A, 7.45%, 6/15/15 .................. 100,000 106,049
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport, Series B, MBIA Insured, 5.75%, 3/01/13 ....... 1,230,000 1,349,530
Special Facilities, Delta Airlines Inc. Project, Series A, 7.50%, 2/01/20 ..................... 445,000 485,896
Special Facilities, Delta Airlines Inc. Project, Series A, 7.125%, 2/01/21 .................... 325,000 351,406
Special Facilities, Delta Airlines Inc. Project, Series B, 7.25%, 2/01/22 ..................... 445,000 483,924
Kenton County Water District No. 001 Waterworks Revenue,
Refunding, FGIC Insured, 6.375%, 2/01/17 ...................................................... 155,000 168,618
Series A, MBIA Insured, 5.80%, 2/01/15 ........................................................ 500,000 541,015
Series B, FGIC Insured, 5.70%, 2/01/20 ........................................................ 500,000 531,365
Kentucky Development Finance Authority Hospital Revenue, St. Elizabeth Medical Center,
Refunding and Improvement, Series A, FGIC Insured, 6.00%, 11/01/10 ............................ 750,000 779,963
Kentucky Development Finance Authority Revenue, Sisters of Charity of Nazareth Health Corp.,
Pre-Refunded, 6.75%, 11/01/12 ................................................................. 100,000 110,007
Kentucky Economic Development Finance Authority Hospital Facilities Revenue, St. Elizabeth Medical
Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 ....................................... 625,000 670,830
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian Regional
Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ........................... 2,000,000 2,056,480
Kentucky Economic Development Finance Authority Medical Center Revenue, Ashland Hospital Corp.,
Refunding and Improvement, Series A, FSA Insured, 6.125%, 2/01/12 ............................. 500,000 541,160
Kentucky Economic Development Finance Authority Revenue, Refunding and Improvement,
Catholic Health, Series A, 5.00%, 12/01/18 .................................................... 2,000,000 1,967,800
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28 .......................................................... 1,500,000 1,575,645
Series B, 6.25%, 7/01/28 ...................................................................... 1,280,000 1,348,134
Series C, FHA Insured, 6.40%, 1/01/17 ......................................................... 1,285,000 1,368,576
SFMR, Series A, 6.60%, 7/01/11 ................................................................ 40,000 42,274
</TABLE>
78
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
Kentucky HFC Revenue, (cont.)
SFMR, Series B, 6.60%, 7/01/11 ................................................................ $ 150,000 $ 158,526
SFMR, Series D, FHA Insured, 7.45%, 1/01/23 ................................................... 90,000 94,406
Kentucky Infrastructure Authority Revenue, Revolving Fund Program,
Series J, 6.375%, 6/01/14 ..................................................................... 500,000 555,760
Wastewater Revolving Fund Program, Series D, 5.75%, 6/01/15 ................................... 300,000 316,890
Kentucky State Property and Buildings Commission Revenue, Project No. 56, 6.00%, 9/01/14 ......... 700,000 754,460
Lexington-Fayette Urban County Government Revenue, University of Kentucky Library Project,
MBIA Insured, Pre-Refunded,
6.625%, 11/01/13 .............................................................................. 500,000 578,000
6.75%, 11/01/24 ............................................................................... 750,000 871,725
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System Revenue,
Refunding, Series A, 5.00%, 5/15/22 ........................................................... 1,000,000 983,740
Refunding, Series B, MBIA Insured, 5.30%, 5/15/18 ............................................. 1,000,000 1,020,390
Series A, AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ......................................... 300,000 348,950
Series A, FGIC Insured, 5.00%, 5/15/30 ........................................................ 3,000,000 2,939,400
Series A, MBIA Insured, 5.50%, 5/15/21 ........................................................ 500,000 520,150
Louisville and Jefferson County Regional Airport Authority Airport Systems Revenue,
MBIA Insured, 5.00%, 7/01/25 .................................................................. 1,500,000 1,455,045
Madison County Utility District Revenue, Refunding, FSA Insured, 5.20%, 2/01/22 .................. 1,000,000 1,010,760
McCracken County Hospital Revenue, Mercy Health System, Refunding, Series A, MBIA Insured,
6.40%, 11/01/07 ............................................................................... 500,000 560,895
Northern Kentucky Water Service District Revenue, MBIA Insured, 4.875%, 2/01/20 .................. 1,270,000 1,236,650
Pendleton County Multi-County Lease Revenue, Kentucky Association of Counties Leasing Trust,
Series A, 6.50%, 3/01/19 ...................................................................... 1,050,000 1,135,544
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ........................................ 430,000 491,985
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, sub., Puerto Rico State
Infrastructure Bank, 5.00%, 7/01/28 ........................................................... 1,250,000 1,218,013
Puerto Rico Industrial Medical and Environmental PCFA, Revenue, American Airlines Corp., Series A,
6.45%, 12/01/25 ............................................................................... 1,480,000 1,615,450
Russell Health System Revenue,
8.10%, 7/01/15 ................................................................................ 205,000 244,885
Our Lady of Bellefonte, Refunding, 5.50%, 7/01/15 ............................................. 1,800,000 1,856,178
Pre-Refunded, 8.10%, 7/01/15 .................................................................. 145,000 183,532
Russellville Housing Authority MFR, The Field Manor Project, GNMA Secured, 5.65%, 4/20/34 ........ 1,455,000 1,496,337
Shelbyville COP, Water and Sewer Project, Refunding and Improvement, Series A, MBIA Insured,
5.15%, 7/01/18 ................................................................................ 1,000,000 1,005,900
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.625%, 10/01/25 .. 2,000,000 2,036,540
-----------
TOTAL LONG TERM INVESTMENTS (COST $60,041,733) ................................................... 63,490,666
-----------
(a)SHORT TERM INVESTMENTS .6%
Ashland PCR, Ashland Oil Inc. Project, Weekly VRDN and Put, 2.90%, 4/01/09 (COST $400,000) ....... 400,000 400,000
-----------
TOTAL INVESTMENTS (COST $60,441,733) 99.0% ....................................................... 63,890,666
OTHER ASSETS, LESS LIABILITIES 1.0% .............................................................. 624,938
-----------
NET ASSETS 100.0% ................................................................................ $64,515,604
===========
</TABLE>
See glossary of terms on page 107.
(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 accrued interest at
specific dates.
See notes to financial statements.
79
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.61 $ 11.32 $ 11.32 $ 11.03 $ 11.56
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .60 .63 .65 .66 .66
Net realized and unrealized gains (losses) . (.01) .30 -- .28 (.55)
--------------------------------------------------------------------------------
Total from investment operations ............ .59 .93 .65 .94 .11
--------------------------------------------------------------------------------
Less distributions from net investment income (.61)(1) (.64) (.65) (.65) (.64)
--------------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.59 $ 11.61 $ 11.32 $ 11.32 $ 11.03
================================================================================
Total return* ............................... 5.23% 8.46% 5.94% 8.75% 1.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 158,099 $ 134,922 $ 112,981 $ 107,461 $ 104,980
Ratios to average net assets:
Expenses ................................... .75% .76% .76% .78% .75%
Net investment income ...................... 5.14% 5.50% 5.76% 5.89% 5.98%
Portfolio turnover rate ..................... 14.99% 15.26% 13.68% 5.23% 32.28%
CLASS C
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.68 $ 11.37 $ 11.37 $ 11.01
-----------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .54 .57 .58 .49
Net realized and unrealized gains (losses) . (.01) .32 -- .35
-----------------------------------------------------------------
Total from investment operations ............ .53 .89 .58 .84
-----------------------------------------------------------------
Less distributions from net investment income (.55)(1) (.58) (.58) (.48)
-----------------------------------------------------------------
Net asset value, end of year ................ $ 11.66 $ 11.68 $ 11.37 $ 11.37
-----------------------------------------------------------------
Total return* ............................... 4.61% 8.02% 5.27% 7.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 9,982 $ 4,469 $ 3,004 $ 1,438
Ratios to average net assets:
Expenses ................................... 1.31% 1.32% 1.33% 1.35%**
Net investment income ...................... 4.58% 4.95% 5.29% 5.27%**
Portfolio turnover rate ..................... 14.99% 15.26% 13.68% 5.23%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(1)Includes distributions in excess of net investment income in the amount of
$.0006 and $.0004 for Class A and C, respectively.
See notes to financial statements.
80
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.6%
BONDS 96.2%
Ascension Parish Sales and Use Tax, Gravity Drainage District No 1, Pre-Refunded, 7.25%,
12/01/06 ....................................................................................... $ 300,000 $ 313,584
12/01/07 ....................................................................................... 300,000 313,584
12/01/08 ....................................................................................... 200,000 209,056
Bastrop PCR, International Paper Co. Project, Refunding, 6.90%, 3/01/07 ........................... 500,000 539,970
Baton Rouge Public Improvement Sales and Use Tax Revenue, AMBAC Insured, 7.00%, 8/01/08 ........... 150,000 155,388
Bossier City Public Improvement Sales and Use Tax Revenue,
FGIC Insured, 5.00%, 12/01/19 .................................................................. 1,145,000 1,121,745
Refunding, FGIC Insured, 5.00%, 12/01/21 ....................................................... 1,875,000 1,825,163
Refunding, FGIC Insured, 5.00%, 12/01/22 ....................................................... 1,515,000 1,473,837
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding,
Series A, 7.75%, 6/01/12 ....................................................................... 645,000 683,403
Series B, 6.875%, 11/01/12 ..................................................................... 785,000 834,824
Calcasieu Parish Public Trust Authority SFMR, Series A, 6.40%, 4/01/32 ............................ 285,000 300,342
De Soto Parish Environmental Improvement Revenue, International Paper Co. Project,
5.60%, 11/01/22 ................................................................................ 2,250,000 2,256,975
Series A, 7.70%, 11/01/18 ...................................................................... 1,500,000 1,723,290
Series A, 5.65%, 12/01/21 ...................................................................... 1,000,000 1,012,760
Denham Spring Livingston Housing and Mortgage Finance Authority SFHR, ETM, Series A,
7.20%, 8/01/10 ................................................................................. 1,380,000 1,637,522
East Baton Rouge Mortgage Finance Authority, SFM Purchase,
Refunding, Series A, 6.10%, 10/01/29 ........................................................... 990,000 1,043,510
Series A, GNMA Secured, 7.875%, 8/01/23 ........................................................ 665,000 693,628
Series F, GNMA Secured, 7.875%, 12/01/21 ....................................................... 880,000 930,477
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18 ........................... 750,000 805,298
Ernest N. Morial New Orleans Exhibit Hall Authority Special Tax, MBIA Insured, 5.00%, 7/15/27 ..... 1,000,000 967,560
Hammond Tangipahoa Home Mortgage Authority Revenue, University Facilities Inc. Project, MBIA
Insured, 5.375%, 7/15/15 ....................................................................... 1,090,000 1,116,476
Jefferson Parish Hospital Service District No. 1 Hospital Revenue, West Jefferson Medical
Center, Series A, FSA Insured, 5.00%, 1/01/21 .................................................. 3,000,000 2,906,820
Jefferson Parish School Board Sales and Use Tax Revenue, ETM, Series A, 7.35%, 2/01/03 ............ 500,000 510,450
Jefferson Sales Tax District Special Sales Tax Revenue, Refunding, FSA Insured, 5.00%, 12/01/22 ... 3,000,000 2,938,500
Lafayette Parish Consolidated School District No. 1, FGIC Insured, Pre-Refunded, 7.70%, 3/01/07 ... 400,000 404,000
Lafayette Public Trust Financing Authority SFMR,
ETM, Series A, 7.20%, 4/01/11 .................................................................. 30,000 30,091
Refunding, Series A, 8.50%, 11/15/12 ........................................................... 230,719 238,778
Lafourche Parish Home Mortgage Authority SFMR, ETM, 7.40%, 7/01/10 ................................ 95,000 111,908
Lake Charles Harbor and Terminal District Port Facilities Revenue, Occidental Petroleum Corp.,
Refunding, 7.20%, 12/01/20 ..................................................................... 3,000,000 3,304,890
Lake Charles Nonprofit HDC, Section 8 Assisted Mortgage Revenue, Chateau Project, Refunding,
Series A, FSA Insured, 7.875%, 2/15/25 ......................................................... 750,000 791,685
Leesville IDBR, Wal-Mart Stores Inc. Project, Refunding, 7.10%, 3/01/11 ........................... 1,750,000 1,831,445
Louisiana HFA, Mortgage Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 ........................................... 2,795,000 2,829,546
MF Westview Project, FHA Insured, 7.80%, 4/01/30 ............................................... 750,000 782,453
Louisiana Public Facilities Authority Hospital Revenue,
Franciscan Missionaries, Refunding, Series A, 5.00%, 7/01/25 ................................... 3,000,000 2,914,260
Franciscan Missionaries, Series C, MBIA Insured, 5.00%, 7/01/19 ................................ 4,250,000 4,128,238
Louisiana Health Systems Corp. Project, Refunding, FSA Insured, 5.00%, 10/01/22 ................ 1,000,000 967,680
Pendleton Memorial Methodist, Refunding, 5.25%, 6/01/28 ........................................ 5,000,000 4,732,700
Women's Hospital Foundation Project, Refunding, FSA Insured, 5.60%, 10/01/19 ................... 1,500,000 1,547,310
Louisiana Public Facilities Authority Lease Revenue, Orleans Parish School Board Project,
FSA Insured, 5.65%, 6/15/11 .................................................................... 1,230,000 1,307,502
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C, MBIA Insured, 6.50%, 5/15/22 ............... 930,000 1,005,553
Centenary College Project, 5.90%, 2/01/17 ...................................................... 1,000,000 1,028,650
Dillard University Project, Refunding, AMBAC Insured, 5.00%, 2/01/18 ........................... 2,000,000 1,971,060
Jefferson Parish East Bank Office, Refunding, FGIC Insured, 7.70%, 8/01/10 ..................... 200,000 206,554
Loyola University Project, Refunding, MBIA Insured, 5.625%, 10/01/16 ........................... 1,000,000 1,066,050
MF Housing, One Lakeshore, Refunding, Series A, GNMA Secured, 6.40%, 7/20/20 ................... 1,900,000 2,011,891
MFHR, Pontchartrain Apartments, Series A, GNMA Secured, 8.375%, 7/20/23 ........................ 61,145 63,811
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Louisiana Public Facilities Authority Revenue, (cont.)
Mortgage Purchase, HFA, 6.05%, 1/01/26 ................................................................ $ 1,200,000 $ 1,258,415
SFM Purchase, Series C, 8.45%, 12/01/12 ............................................................ 1,129,189 1,201,253
Student Loan, Series A, Sub Series 3, 7.00%, 9/01/06 ............................................... 955,000 1,009,836
Tulane University, AMBAC Insured, 6.05%, 10/01/25 .................................................. 5,500,000 6,079,370
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17 .................... 1,000,000 1,019,400
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/27 .................... 6,015,000 6,092,472
Louisiana Stadium and Exposition District Hotel Occupancy Tax and Stadium Revenue,
FGIC Insured, Series A, Pre-Refunded, 6.00%, 7/01/16 ............................................... 3,000,000 3,356,790
Refunding, Series B, FGIC Insured, 5.00%, 7/01/26 .................................................. 3,500,000 3,418,205
Louisiana State Gas and Fuels Tax Revenue, Series A, 7.25%, 11/15/04 .................................. 500,000 521,970
Louisiana State Offshore Terminal Authority Deepwater Port Revenue,
Loop Inc., First Stage, Refunding, Series B, 7.20%, 9/01/08 ........................................ 1,000,000 1,085,140
Series E, 7.60%, 9/01/10 ........................................................................... 480,000 512,856
Series E, Pre-Refunded, 7.60%, 9/01/10 ............................................................. 520,000 561,850
Louisiana State University Agricultural and Mechanical College University Revenues,
Auxiliary, MBIA Insured, 5.50%, 7/01/26 ............................................................ 1,500,000 1,547,355
Louisiana State University Eunice Project, MBIA Insured, 5.00%, 6/01/18 ............................ 1,025,000 1,007,514
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12 ........................................... 1,050,000 1,150,421
Natchitoches Parish GO, Consolidated School District No. 7,
Pre-Refunded, 8.30%, 3/01/10 ....................................................................... 125,000 126,250
Series B, Pre-Refunded, 7.50%, 3/01/09 ............................................................. 230,000 239,375
Series B, Pre-Refunded, 7.50%, 3/01/10 ............................................................. 235,000 244,579
New Orleans Aviation Board Revenue, Series B-1, AMBAC Insured, 5.45%, 10/01/27 ........................ 1,200,000 1,227,060
New Orleans GO,
Drain Systems, AMBAC Insured, 5.00%, 12/01/18 ...................................................... 1,000,000 997,440
Public Improvement, Series A, AMBAC Insured, 5.125%, 12/01/27 ...................................... 1,000,000 991,740
Public Improvement, Series A, FGIC Insured, Pre-Refunded, 5.50%, 12/01/21 .......................... 1,290,000 1,413,195
Refunding, AMBAC Insured, 6.00%, 9/01/21 ........................................................... 2,000,000 2,066,220
New Roads Electric System Revenue, 7.00%, 7/01/17 ..................................................... 1,000,000 1,067,630
Office Facility Corp. Capital Facilities Bonds, 7.75%, 12/01/10 ....................................... 1,600,000 1,752,832
Orleans Levee District GO, Levee Improvement, FSA Insured, 5.95%, 11/01/14 ............................ 910,000 1,007,296
Orleans Parish Parishwide School District GO,
AMBAC Insured, 5.375%, 9/01/21 ..................................................................... 2,000,000 2,033,100
Refunding, Series B, 5.50%, 9/01/20 ................................................................ 1,000,000 1,039,530
Series A, 5.125%, 9/01/22 .......................................................................... 1,000,000 1,003,930
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18 ................................. 1,950,000 1,984,710
Ouachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional Medical Center,
Refunding, FSA Insured, 5.75%, 5/15/21 ............................................................. 2,500,000 2,696,975
Puerto Rico Commonwealth GO, Series 1990, Pre-Refunded, 7.70%, 7/01/20 ................................ 500,000 538,920
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................................... 120,000 123,996
7.75%, 7/01/08 ..................................................................................... 50,000 51,123
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14 .................... 560,000 575,938
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series B, GNMA Secured, 7.65%, 10/15/22 ............................................................ 110,000 115,337
Series C, GNMA Secured, 6.85%, 10/15/23 ............................................................ 650,000 685,276
Rapides Parish GO, Consolidated School District No. 52, Pineville, Pre-Refunded, 8.40%,
3/01/03 ............................................................................................ 75,000 75,000
Rapides Parish Housing and Mortgage Finance Authority Revenue, SFM Purchase, ETM,
FHA Insured, 7.25%, 8/01/10 ........................................................................ 1,370,000 1,558,622
Shreveport Airport System Revenue, Series A, FSA Insured, 5.375%, 1/01/28 ............................. 1,000,000 1,015,930
Shreveport Airport Systems Revenue, Passenger Facility Charge, Series B, FSA Insured,
5.375%, 1/01/24 .................................................................................... 2,000,000 2,031,860
Shreveport Certificates of Indebtedness, Refunding, Series A, AMBAC Insured, 5.00%, 10/01/16 .......... 1,000,000 995,330
Shreveport Water and Sewer Revenue, Series A, FGIC Insured, 5.95%, 12/01/14 ........................... 3,500,000 3,777,900
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26 ................ 2,000,000 2,130,120
St. Bernard Parish Home Mortgage Authority Revenue SFMR, ETM, Series A, FGIC Insured,
7.50%, 9/01/10 ..................................................................................... 435,000 522,809
St. Bernard Parish Home Mortgage Authority SFMR, Refunding, Series A, 8.00%, 3/25/12 .................. 597,855 641,547
St. Charles Parish PCR, Louisiana Power and Light Co. Project, 7.50%, 6/01/21 ......................... 2,500,000 2,686,700
St. Charles Parish PCR, Union Carbide Corp. Project, Refunding, 5.10%, 1/01/12 ........................ 3,000,000 2,985,840
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 ..................................................................................... $1,500,000 $1,590,030
Series A, 7.00%, 12/01/22 .......................................................................... 750,000 815,993
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ....................... 2,500,000 2,479,650
St. John's Baptist Parish Sales Tax District, 7.30%,
12/01/08 ........................................................................................... 430,000 451,840
12/01/09 ........................................................................................... 275,000 288,467
St. Mary's Public Trust Financing Authority SFMR, Refunding, Series A, 7.625%, 3/25/12 ................ 118,738 122,293
St. Tammany's Public Trust Financing Authority SFMR, ETM, Series A, 7.20%,
7/01/10 ............................................................................................ 165,000 193,586
7/01/11 ............................................................................................ 50,000 60,130
State Colleges and Universities Lease Revenue, University of Southwestern Louisiana,
Cajundome, MBIA Insured, 5.65%, 9/01/26 ............................................................ 4,080,000 4,366,783
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding, AMBAC Insured, 6.25%,
2/01/24 ............................................................................................ 5,500,000 5,957,270
Ville Platte Utilities Revenue, Pre-Refunded, 7.80%, 5/01/02 .......................................... 205,000 208,575
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ........ 3,000,000 3,033,150
West Feliciana Parish PCR, Gulf State Utility Co. Project,
7.70%, 12/01/14 .................................................................................... 6,500,000 7,162,220
Refunding, 8.00%, 12/01/24 ......................................................................... 5,000,000 5,223,650
------------
TOTAL BONDS (COST $153,438,884) ....................................................................... 161,770,811
------------
ZERO COUPON BONDS 1.4%
Shreveport Water and Sewer Revenue, Refunding, Series B, FGIC Insured,12/01/11 (COST $2,054,418) ...... 5,000,000 2,305,400
------------
TOTAL LONG TERM INVESTMENTS (COST $155,493,302) ....................................................... 164,076,211
------------
(a)SHORT TERM INVESTMENTS .8%
De Soto Parish PCR, Central Louisiana Electric Co., Refunding, Weekly VRDN and Put, 2.95%, 7/01/18 .... 100,000 100,000
Lake Charles Harbor and Terminal District Revenue Updates, Reynolds Metal Company Project,
Weekly VRDN and Put, 2.90%, 5/01/06 ................................................................ 400,000 400,000
Louisiana Public Facilities Authority Hospital Revenue, Willis Knighton Medical Center Weekly
VRDN and Put, 3.10%, 9/01/27 ....................................................................... 100,000 100,000
Louisiana Public Facilities Authority Revenue, Kenner Hotel, Ltd., Daily VRDN and Put, 3.15%, 12/01/15 100,000 100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.60%, 7/01/28 ................................................................ 700,000 700,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,400,000) ........................................................ 1,400,000
------------
TOTAL INVESTMENTS (COST $156,893,302) 98.4% ........................................................... 165,476,211
OTHER ASSETS, LESS LIABILITIES 1.6% ................................................................... 2,605,332
------------
NET ASSETS 100.0% ..................................................................................... $168,081,543
============
</TABLE>
See glossary of terms on page 107.
(a) Variable rate demand notes (VRDN) 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.
83
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MARYLAND TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.64 $ 11.33 $ 11.38 $ 10.92 $ 11.36
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ...................... .58 .59 .61 .62 .63
Net realized and unrealized gains (losses) . .06 .32 (.03) .47 (.45)
----------- ----------- ----------- ----------- -----------
Total from investment operations ............ .64 .91 .58 1.09 .18
----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ...................... (.58)(2) (.60)(1) (.63) (.63) (.62)
Net realized gains ......................... (.04) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total distributions ......................... (.62) (.60) (.63) (.63) (.62)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ................ $ 11.66 $ 11.64 $ 11.33 $ 11.38 $ 10.92
----------- ----------- ----------- ----------- -----------
Total return* ............................... 5.64% 8.27% 5.24% 10.18% 1.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 253,014 $ 213,005 $ 185,234 $ 175,078 $ 153,145
Ratios to average net assets:
Expenses ................................... .74% .74% .73% .74% .73%
Net investment income ...................... 4.91% 5.20% 5.42% 5.56% 5.86%
Portfolio turnover rate ..................... 6.02% 3.19% 12.71% 8.11% 20.30%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 11.72 $ 11.40 $ 11.44 $ 10.93
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .................... .51 .54 .55 .47
Net realized and unrealized gains (losses) .07 .31 (.03) .51
---------- ---------- ---------- ----------
Total from investment operations .......... .58 .85 .52 .98
---------- ---------- ---------- ----------
Less distributions from:
Net investment income .................... (.51)(2) (.53) (.56) (.47)
Net realized gains ....................... (.04) -- -- --
---------- ---------- ---------- ----------
Total distributions ....................... (.55) (.53) (.56) (.47)
---------- ---------- ---------- ----------
Net asset value, end of year .............. $ 11.75 $ 11.72 $ 11.40 $ 11.44
---------- ---------- ---------- ----------
Total return* ............................. 5.11% 7.70% 4.68% 9.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 16,826 $ 10,515 $ 5,084 $ 913
Ratios to average net assets:
Expenses ................................. 1.29% 1.30% 1.27% 1.31%**
Net investment income .................... 4.35% 4.63% 4.78% 4.95%**
Portfolio turnover rate ................... 6.02% 3.19% 12.71% 8.11%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(1) Includes distributions in excess of net investment income in the amount of
$.005.
(2) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and C, respectively.
84 See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 94.8%
Anne Arundel County GO, Second Issue, 7.75%, 3/15/08 ............................................... $ 200,000 $ 204,420
Anne Arundel County Mortgage Revenue, Refunding, Series, A, MBIA Insured, 6.00%, 1/01/26 ........... 1,650,000 1,732,962
Anne Arundel County PCR, Baltimore Gas and Electric Co. Project, Refunding, 6.00%, 4/01/24 ......... 9,500,000 10,188,370
Baltimore Consolidated Public Improvement, Series A, FGIC Insured, 5.30%,
10/15/15 ....................................................................................... 1,470,000 1,532,990
10/15/17 ....................................................................................... 1,500,000 1,549,125
Baltimore Convention Center Revenue, FGIC Insured, Pre-Refunded, 6.15%, 9/01/19 .................... 4,250,000 4,752,223
Baltimore COP,
Emergency Telecommunication Phase II, Series A, MBIA Insured, 5.00%, 10/01/17 .................. 2,000,000 2,012,160
Refunding, Series C, MBIA Insured, 7.25%, 4/01/16 .............................................. 545,000 574,337
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 .................................... 90,000 92,582
Baltimore County Mortgage Revenue, Old Orchard Apartments Project, Refunding, Series A,
MBIA Insured,
7.00%, 7/01/16 ................................................................................. 1,000,000 1,090,120
7.125%, 1/01/27 ................................................................................ 3,000,000 3,283,170
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A,
6.75%, 8/01/02 ................................................................................. 1,010,000 1,085,689
7.00%, 8/01/11 ................................................................................. 3,225,000 3,553,466
Baltimore GO, Series B, 7.15%, 10/15/08 ............................................................ 1,000,000 1,234,040
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 .............. 1,850,000 2,024,363
Baltimore Project Revenue, Wastewater Project, Refunding, Series B, FGIC Insured, 5.00%,
7/01/18 ........................................................................................ 1,000,000 1,000,790
7/01/28 ........................................................................................ 4,000,000 3,963,240
Baltimore Revenue, Wastewater Project, Refunding, Series A, FGIC Insured,
5.80%, 7/01/15 ................................................................................. 5,000,000 5,408,350
5.50%, 7/01/26 ................................................................................. 3,150,000 3,285,072
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09 ............................. 350,000 368,011
Frederick County EDR, Manekin Frederick Project, Refunding, Series A, 7.50%, 12/01/14 .............. 500,000 523,325
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding and
Improvement, FSA Insured, 6.00%, 9/01/21 ....................................................... 8,000,000 8,689,920
Harford County Mortgage Revenue, Greenbrier V Apartments Project, Refunding, FHA Insured,
6.50%, 11/01/26 ................................................................................ 3,000,000 3,250,140
Howard County Mortgage Revenue, Normandy Woods III Apartments Project, Refunding, Series A,
6.10%, 7/01/25 ................................................................................. 2,000,000 2,125,460
Kent County College Revenue, Washington College Project, Pre-Refunded, 7.70%, 7/01/18 .............. 300,000 308,886
Maryland Environmental Services COP, Water and Waste Facilities, Series A, 6.70%, 6/01/11 .......... 1,900,000 2,026,293
Maryland Local Government Insurance Trust Capitalization Program, Series A, 7.125%, 8/01/09 .... 650,000 690,885
Maryland State CDA,
Department of Economics and Community Development, MFHR, Series A, 7.375%, 5/15/26 ............. 155,000 156,550
Department of Housing and Community Development, Infrastructure Financing, Series A,
AMBAC Insured, Pre-Refunded, 7.25%, 6/01/09 ........................................................ 130,000 133,938
Department of Housing and Community Development, MFHR, Series A, 7.50%, 5/15/31 ................ 30,000 30,813
Department of Housing and Community Development, MFHR Mortgage, Series A, 7.80%, 5/15/32 ....... 985,000 1,032,241
Department of Housing and Community Development, MFHR Mortgage, Series A, 6.85%, 5/15/33 ....... 1,800,000 1,913,580
Department of Housing and Community Development, MFHR Mortgage, Series D, 7.70%, 5/15/20 ....... 1,000,000 1,056,440
Department of Housing and Community Development, MFHR Mortgage, Series E, 7.10%, 5/15/28 ....... 675,000 711,443
Department of Housing and Community Development, Residential, Series D, 5.25%, 9/01/29 ......... 5,000,000 4,962,400
Department of Housing and Community Development, Series B, 5.35%, 9/01/30 ...................... 3,000,000 3,017,340
Department of Housing and Community Development, SF Program, 1st Series, 7.40%, 4/01/17 ........ 140,000 143,088
Department of Housing and Community Development, SF Program, 2nd Series, 7.60%, 4/01/23 ........ 510,000 534,602
Department of Housing and Community Development, SF Program, 3rd Series, 7.375%, 4/01/26 ....... 300,000 306,795
Department of Housing and Community Development, SF Program, 3rd Series, 7.25%, 4/01/27 ........ 1,435,000 1,500,565
Department of Housing and Community Development, SF Program, 4th Series, 7.375%, 4/01/10 ....... 995,000 1,035,566
Department of Housing and Community Development, SF Program, 4th Series, 7.45%, 4/01/32 ........ 940,000 981,689
Department of Housing and Community Development, SF Program, 5th Series, 6.85%, 4/01/11 ........ 1,955,000 2,053,591
Department of Housing and Community Development, SFHR Program, First Series, 7.30%, 4/01/17 .... 1,000,000 1,047,660
Maryland State EDC, Lease Revenue, Hilton Street Facilities, Series A, 7.00%, 1/01/10 .............. 1,000,000 1,095,590
Maryland State Energy Financing Administration Solid Waste Disposal Revenue,
Limited Obligation, Wheelabrator Water Projects, 6.45%, 12/01/16 ............................... 3,000,000 3,278,580
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Medical Center, FSA Insured, 5.10%, 7/01/18 ....................................... 3,375,000 3,392,078
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/28 ...................................... 2,000,000 2,010,960
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Maryland State Health and Higher Educational Facilities Authority Revenue, (cont.)
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/33 ...................................... $ 5,190,000 $ 5,196,280
Charity Obligation Group, Series A, 5.00%, 11/01/19 ............................................ 1,515,000 1,499,502
Charity Obligation Group, Series A, 5.00%, 11/01/29 ............................................ 2,250,000 2,194,718
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/12 ....................................... 1,000,000 1,090,690
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/22 ....................................... 250,000 272,673
Doctors Community Hospital, Refunding, 5.75%, 7/01/13 .......................................... 3,000,000 3,053,790
Francis Scott Key Facility, junior lien, Refunding, 5.625%, 7/01/25 ............................ 2,520,000 2,596,079
Franklin Square Hospital, MBIA Insured, Pre-Refunded, 7.50%, 7/01/19 ........................... 150,000 155,195
Helix Health Issue, ETM, 5.00%, 7/01/27 ........................................................ 11,000,000 10,802,990
Johns Hopkins Medical Institutions, Parking Facilities, AMBAC Insured, 5.50%, 7/01/26 .......... 9,750,000 10,138,635
Johns Hopkins Medicine, Howard County Hospital, General Hospital Acquisition Issue,
MBIA Insured, 5.00%, 7/01/29 ................................................................. 2,250,000 2,211,885
Johns Hopkins Medicine, MBIA Insured, 5.00%, 7/01/19 ........................................... 3,000,000 2,988,420
Johns Hopkins University, Refunding, 5.625%, 7/01/17 ........................................... 1,150,000 1,221,645
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 ............................................ 1,700,000 1,840,794
Mercy Medical Center Project, Refunding, FSA Insured, 5.75%, 7/01/26 ........................... 1,500,000 1,593,270
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.375%, 1/01/28 ............................. 9,440,000 9,667,315
Maryland State Industrial Development Financing Authority EDR, FSA Insured, Pre-Refunded,
7.10%, 7/01/18 ................................................................................. 1,350,000 1,485,756
Maryland State Industrial Development Financing Authority Revenue,
American Center Physics Headquarters, 6.625%, 1/01/17 .......................................... 6,000,000 6,478,320
Maryland State Stadium Authority Lease Revenue, Convention Center Expansion, AMBAC Insured,
5.875%, 12/15/14 ............................................................................... 4,655,000 5,074,276
Maryland State Stadium Authority Sports Facilities Lease Revenue,
AMBAC Insured, 5.75%, 3/01/22 .................................................................. 5,000,000 5,308,900
AMBAC Insured, 5.80%, 3/01/26 .................................................................. 2,045,000 2,171,095
Series D, 7.60%, 12/15/19 ...................................................................... 500,000 523,475
Maryland State Transportation Facilities Authority Revenue, Refunding, Series 1992,
5.75%, 7/01/13 ................................................................................. 5,400,000 5,563,998
Maryland Water Quality Financing Administration Revenue, Revolving Loan Fund, Series A,
6.55%, 9/01/14 ................................................................................. 1,000,000 1,078,540
Montgomery County Housing Opportunities Commission MFHR, Series B, 6.00%, 7/01/37 ................. 2,500,000 2,638,575
Montgomery County Housing Opportunities Commission MFMR, Series A,
7.25%, 7/01/11 ................................................................................. 430,000 456,875
7.00%, 7/01/23 ................................................................................. 2,410,000 2,564,626
Montgomery County Housing Opportunities Commission SFMR, Series A,
6.80%, 7/01/17 ................................................................................. 1,940,000 2,028,833
7.50%, 7/01/17 ................................................................................. 445,000 464,362
7.625%, 7/01/17 ................................................................................ 90,000 91,225
Montgomery County Revenue Authority Golf Course System Revenue, Series A, 6.125%, 10/01/22 ........ 1,000,000 1,058,980
Northeast Solid Waste Disposal Authority Revenue, Montgomery County Resources Recreation
Project, Series A,
6.20%, 7/01/10 ................................................................................. 3,100,000 3,361,175
6.30%, 7/01/16 ................................................................................. 6,000,000 6,413,520
Ocean City GO, Refunding, MBIA Insured, 5.75%,
3/15/12 ........................................................................................ 1,880,000 2,039,650
3/15/13 ........................................................................................ 1,120,000 1,209,802
3/15/14 ........................................................................................ 1,180,000 1,274,058
Prince George's County COP, Real Estate Acquisition Program II, MBIA Insured, 6.00%, 9/15/14 ...... 2,050,000 2,252,356
Prince George's County GO, Consolidated Public Improvement, MBIA Insured, 5.00%, 4/15/18 .......... 2,100,000 2,105,208
Prince George's County Hospital Revenue, Dimensions Health Corp., Pre-Refunded, 7.00%, 7/01/22 .... 1,000,000 1,123,430
Prince George's County Housing Authority MFHR, Emerson House Project, Series A, 7.00%, 4/15/19 .... 5,500,000 5,946,930
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 3,045,377
Prince George's County IDA, Lease Revenue, Upper Marlboro Justice Center Project,
MBIA Insured, 5.80%, 6/30/14 ................................................................... 2,750,000 2,945,498
Prince George's County Parking Authority Revenue, Justice Center Facilities Project,
Refunding, 6.45%, 5/01/05 ...................................................................... 500,000 543,680
Prince George's County PCR, Refunding, Potomac Electric Project,
6.00%, 9/01/22 ................................................................................. 1,200,000 1,277,748
6.375%, 1/15/23 ................................................................................ 2,975,000 3,219,724
Puerto Rico Commonwealth GO,
5.50%, 7/01/17 ................................................................................. 4,050,000 4,257,764
5.40%, 7/01/25 ................................................................................. 1,950,000 2,026,595
Public Improvement, Refunding, 5.75%, 7/01/17 .................................................. 3,000,000 3,245,370
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.50%, 7/01/26 ... 6,900,000 7,248,656
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Electric Power Authority Revenue, Series AA, MBIA Insured, 5.375%, 7/01/27 ............ $ 3,000,000 $ 3,096,990
Rockville Mortgage Revenue, Summit Apartments Project, Refunding, Series A, MBIA Insured,
5.70%, 1/01/26 ................................................................................. 1,145,000 1,191,463
University of Maryland Auxiliary Facilities System and Tuition Revenue, Series A, 5.60%, 4/01/16 .. 1,000,000 1,051,640
Virgin Islands PFA Revenue, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 .......................................... 1,700,000 1,718,784
Refunding, Series A, 5.50%, 10/01/14 ........................................................... 3,300,000 3,379,397
Washington Suburban Sanitary District GO, General Construction, 5.25%, 6/01/19 .................... 1,330,000 1,353,966
------------
TOTAL LONG TERM INVESTMENTS (COST $241,637,414) ................................................... 255,786,396
------------
(a)SHORT TERM INVESTMENTS 4.0%
Community Development Administration MF Development Revenue,
Avalon Lea Apartments Project, Refunding, FNMA Insured, Weekly VRDN and Put, 2.90%, 6/15/26 .... 2,200,000 2,200,000
Avalon Ridge Apartments Project, Refunding, FNMA Insured, Weekly VRDN and Put, 2.90%, 6/15/26 .. 2,600,000 2,600,000
Maryland State Health and Higher Educational Facilities Authority Revenue,
Catholic Health Initiatives, Series B, Weekly VRDN and Put, 3.00%, 12/01/15 .................... 3,300,000 3,300,000
Pooled Loan Program, Series A, Weekly VRDN and Put, 2.95%, 4/01/35 ............................. 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, 2.60%, 7/01/28 ............................................. 2,600,000 2,600,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $10,900,000) ................................................... 10,900,000
------------
TOTAL INVESTMENTS (COST $252,537,414) 98.8% ....................................................... 266,686,396
OTHER ASSETS, LESS LIABILITIES 1.2% ............................................................... 3,153,081
------------
NET ASSETS 100.0% ................................................................................. $269,839,477
============
</TABLE>
See Glossary of terms on page 107.
(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.
See notes to financial statements. 87
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MISSOURI TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 12.23 $ 11.83 $ 11.94 $ 11.44 $ 11.94
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ........................ .61 .64 .65 .65 .65
Net realized and unrealized gains (losses) ... -- .44 (.07) .49 (.50)
----------- ----------- ----------- ----------- -----------
Total from investment operations .............. .61 1.08 .58 1.14 .15
----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ........................ (.62) (.64) (.65) (.64) (.65)
Net realized gains ........................... (.03) (.04) (.04) -- --
----------- ----------- ----------- ----------- -----------
Total distributions ........................... (.65) (.68) (.69) (.64) (.65)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year .................. $ 12.19 $ 12.23 $ 11.83 $ 11.94 $ 11.44
=========== =========== =========== =========== ===========
Total return* ................................. 5.12% 9.43% 5.06% 10.23% 1.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 386,948 $ 308,045 $ 269,564 $ 247,522 $ 227,442
Ratios to average net assets:
Expenses ..................................... .70% .71% .70% .71% .70%
Net investment income ........................ 4.99% 5.32% 5.56% 5.58% 5.75%
Portfolio turnover rate ....................... 15.21% 14.30% 21.81% 18.27% 19.84%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 12.27 $ 11.85 $ 11.97 $ 11.47
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .................... .54 .58 .57 .48
Net realized and unrealized gains (losses) .01 .45 (.07) .50
---------- ---------- ---------- ----------
Total from investment operations .......... .55 1.03 .50 .98
---------- ---------- ---------- ----------
Less distributions from:
Net investment income .................... (.55) (.57) (.58) (.48)
Net realized gains ....................... (.03) (.04) (.04) --
---------- ---------- ---------- ----------
Total distributions ....................... (.58) (.61) (.62) (.48)
---------- ---------- ---------- ----------
Net asset value, end of year .............. $ 12.24 $ 12.27 $ 11.85 $ 11.97
========== ========== ========== ==========
Total return* ............................. 4.58% 8.96% 4.32% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 20,396 $ 10,045 $ 4,295 $ 1,325
Ratios to average net assets:
Expenses ................................. 1.25% 1.27% 1.27% 1.27%**
Net investment income .................... 4.44% 4.75% 4.92% 4.94%**
Portfolio turnover rate ................... 15.21% 14.30% 21.81% 18.27%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
88 See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.4%
Audrain County Hospital Revenue, Audrain Medical Center Project, Refunding,
AMBAC Insured, 7.35%, 11/01/08 .................................................................. $ 500,000 $ 549,780
Bi State Development Agency Missouri Illinois Metropolitan District,
St. Clair County Metrolink Extension, Series A, MBIA Insured, 5.00%, 7/01/28 .................... 11,500,000 11,290,815
Term Facilities Revenue, American Commercial Lines Inc., Pre-Refunded, 7.75%, 6/01/10 ........... 3,000,000 3,249,570
Cape Girardeau County IDA, Solid Waste Disposal Revenue, Procter and Gamble Paper Products,
5.30%, 5/15/28 .................................................................................. 6,875,000 6,885,931
Fenton Public Facility Authority Leasehold Revenue, 5.25%, 1/01/18 ................................. 2,250,000 2,239,178
Guam Airport Authority Revenue,
Series A, 6.50%, 10/01/23 ....................................................................... 1,075,000 1,171,202
Series B, 6.60%, 10/01/10 ....................................................................... 500,000 548,520
Series B, 6.70%, 10/01/23 ....................................................................... 4,000,000 4,390,560
Hannibal IDA, Health Facilities, 5.75%, 3/01/22 .................................................... 1,800,000 1,925,082
Hazelwood IDA, MFHR, Lakes Apartments Project, Refunding, Series A, 6.10%, 9/20/26 ................. 1,745,000 1,831,151
Jackson County IDAR, St. Joseph's Health Center Corp., MBIA Insured, 6.50%, 7/01/19 ................ 3,000,000 3,245,700
Jackson County Public Building Corp. Leasehold Revenue, Capital Improvement Projects,
MBIA Insured, 5.70%, 12/01/17 ................................................................... 1,595,000 1,697,846
Jefferson County GO, Reorganized School District No. R-3, AMBAC Insured, 7.00%, 3/01/09 ............ 370,000 389,333
Kansas City Airport Revenue, General Improvement, Series B, FSA Insured, Pre-Refunded,
6.875%, 9/01/12 ................................................................................. 605,000 701,389
Kansas City IDA, MFHR,
Hilltop Village Apartments Project, Refunding, Series A, 5.70%, 10/01/17 ........................ 1,030,000 1,055,915
Hilltop Village Apartments Project, Refunding, Series A, 5.80%, 10/01/27 ........................ 1,555,000 1,596,099
Mews Apartments Project, Series A, 6.30%, 7/01/20 ............................................... 3,345,000 3,562,927
Kansas City IDAR, Ewing Marion Kauffman, Series B, 5.70%, 4/01/27
Kansas City Land Clearance RDA Lease Revenue, Municipal Auditorium.................................. 11,100,000 11,640,792
and Muehlebach Hotel, Series A, FSA Insured, 5.90%, 12/01/18........................................ 5,000,000 5,422,100
Kansas City MAC Revenue, Leasehold Improvement,
Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 .................................. 7,790,000 8,571,259
Truman Medical Center, Series A, Pre-Refunded, 7.00%, 11/01/11 .................................. 1,665,000 1,813,951
Kansas City Tax Increment Financing Commission Tax Increment Revenue, Briarcliff West Project,
Series B, 7.00%, 11/01/14 ....................................................................... 3,525,000 3,674,249
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 ................................................................... 4,535,000 5,275,203
Pre-Refunded, 6.40%, 12/01/25 ................................................................... 7,000,000 8,211,840
Refunding, 5.25%, 12/01/14 ...................................................................... 1,000,000 999,920
Refunding, 5.25%, 12/01/26 ...................................................................... 1,000,000 985,540
Lee's Summit IDAR, John Knox Village Project,
6.55%, 8/15/10 .................................................................................. 1,000,000 1,085,780
6.625%, 8/15/13 ................................................................................. 2,000,000 2,176,240
Missouri School Board Association COP, Pooled Finance Program,
Series A-3, BIG Insured, 7.875%, 3/01/06 ........................................................ 5,000 5,071
Series A-5, BIG Insured, 7.375%, 3/01/06 ........................................................ 130,000 132,350
Missouri School Board Association Lease COP,
Fox C-6 School District, FSA Insured, 5.75%, 3/01/16 ............................................ 6,150,000 6,613,649
Republic R-3 School District Project, Refunding, FSA Insured, 6.00%, 3/01/16 .................... 2,220,000 2,404,082
Missouri State Development Finance Board Recreation Facilities Revenue, YMCA Greater
Saint Louis Project, Series A, 5.40%, 9/01/18 ................................................... 7,420,000 7,613,959
Missouri State Environmental Improvement and Energy Resources Authority
Environmental Improvement Revenue, Union Electric Co. Project, Series A, 7.40%, 5/01/20 ......... 2,390,000 2,535,240
Missouri State Environmental Improvement and Energy Resources Authority PCR,
National Rural Association, Electric Project, Series G-6, AMBAC Insured, 5.85%, 2/01/13 ......... 2,100,000 2,280,621
Thomas Hill Electric Cooperative, 5.50%, 12/01/11 ............................................... 2,000,000 2,139,520
Missouri State Environmental Improvement and Energy Resources Authority Water PCR,
Revolving Fund Program, PCR, Kansas City Project, Series A, 5.75%, 1/01/16 ...................... 1,000,000 1,061,310
Series A, 7.00%, 10/01/10 ....................................................................... 940,000 1,004,070
Series A, 6.55%, 7/01/14 ........................................................................ 4,500,000 4,894,470
Series A, FSA Insured, 6.05%, 7/01/16 ........................................................... 1,000,000 1,091,900
Series B, 7.125%, 12/01/10 ...................................................................... 430,000 462,310
Series B, 5.80%, 1/01/15 ........................................................................ 1,000,000 1,067,900
Series B, 7.20%, 7/01/16 ........................................................................ 2,000,000 2,288,780
Missouri State HDC,
MFHR, FHA Insured, 8.50%, 12/01/29 .............................................................. 135,000 137,487
Series B, GNMA Secured, 6.40%, 12/01/24 ......................................................... 2,190,000 2,292,295
</TABLE>
89
<PAGE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Missouri State HDC, (cont.)
SFMR, Homeowner Loan, Series D, GNMA Secured, 6.125%, 3/01/28 ............................ $ 1,755,000 $ 1,835,906
SFMR, Series A, GNMA Secured, 7.625%, 2/01/22 ............................................ 270,000 279,172
SFMR, Series B, GNMA Secured, 6.10%, 9/01/14 ............................................. 1,775,000 1,871,116
SFMR, Series B, GNMA Secured, 7.625%, 6/01/21 ............................................ 235,000 240,546
SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 ............................................. 1,235,000 1,286,351
SFMR, Series B, GNMA Secured, 6.45%, 9/01/27 ............................................. 1,675,000 1,776,204
SFMR, Series B-2, 5.50%, 3/01/25 ......................................................... 2,070,000 2,100,201
SFMR, Series C, GNMA Secured, 6.90%, 7/01/18 ............................................. 1,345,000 1,416,850
SFMR, Series D-2, FNMA/GNMA Insured, 5.40%, 9/01/28 ...................................... 2,350,000 2,368,730
Missouri State Health and Educational Facilities Authority Educational Facilities Revenue,
Washington University, 5.00%, 11/15/37 ................................................... 3,000,000 2,934,450
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
BJC Health System, MBIA Insured, 5.00%, 5/15/38 .......................................... 5,000,000 4,776,800
Children's Mercy Hospital, 5.30%, 5/15/28 ................................................ 12,420,000 12,273,444
Freeman Health Systems Project, 5.25%, 2/15/28 ........................................... 2,750,000 2,678,088
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 ................................... 5,000,000 5,373,200
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 ................................... 700,000 764,554
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14 ................................... 1,990,000 2,202,154
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22 ................................... 1,100,000 1,175,988
Heartland Health, Refunding and Improvement, 8.125%, 10/01/10 ............................ 865,000 904,738
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 .......................... 2,745,000 2,977,364
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 .............................. 4,000,000 4,367,200
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 .............................. 3,250,000 3,533,400
Lake of the Ozarks General Hospital, 6.25%, 2/15/11 ...................................... 410,000 446,088
Lake of the Ozarks General Hospital, FSA Insured, 5.10%, 2/15/18 ......................... 2,000,000 2,011,620
Lake of the Ozarks General Hospital, FSA Insured, 5.125%, 2/15/24 ........................ 3,500,000 3,487,680
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21 ........................... 330,000 358,961
Lake of the Ozarks General Hospital, Refunding, Pre-Refunded, 6.25%, 2/15/11 ............. 840,000 966,428
Lake of the Ozarks General Hospital, Refunding, Pre-Refunded, 6.50%, 2/15/21 ............. 670,000 780,919
Lutheran Senior Services, Refunding, 5.875%, 2/01/23 ..................................... 2,600,000 2,687,646
Lutheran Senior Services, Series A, 6.375%, 2/01/27 ...................................... 4,000,000 4,287,360
Park Lane Medical Center, Series A, 4.70%, 1/01/04 ....................................... 1,900,000 1,961,978
Park Lane Medical Center, Series A, 5.60%, 1/01/15 ....................................... 10,300,000 10,717,253
SSM Health Care, Refunding, Series AA, MBIA Insured, 6.25%, 6/01/16 ...................... 795,000 862,845
SSM Health Care, Series AA, MBIA Insured, Pre-Refunded, 6.25%, 6/01/16 ................... 205,000 225,799
Missouri State Health and Educational Facilities Authority Revenue, SSM Health Care,
Refunding, Series A, MBIA Insured, 5.00%,
6/01/18 .................................................................................. 7,310,000 7,282,588
6/01/22 .................................................................................. 5,000,000 4,938,700
Missouri State Western College Revenue, Student Housing, Pre-Refunded, 8.00%, 10/01/16 ....... 5,000,000 5,647,900
Moberly Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, Pre-Refunded, 7.50%,
8/01/15 .................................................................................. 1,000,000 1,077,950
North Kansas City Hospital Revenue, AMBAC Insured, 5.00%, 11/15/28 ........................... 4,300,000 4,221,353
Northeast State University Recreational Facility Revenue, Campus Recreational Center Project,
AMBAC Insured, 5.80%, 6/01/15 ................................................................ 1,000,000 1,064,410
Northwest Educational Facilities Authority Leasehold Revenue, Jefferson County, FSA Insured,
5.70%, 3/01/15 ........................................................................... 5,200,000 5,482,776
O Fallon Public Facilities Authority Leasehold Revenue,
Refunding, AMBAC Insured, 5.10%, 9/01/18 ................................................. 2,000,000 1,992,660
Series A, AMBAC Insured, 5.40%, 2/01/17 .................................................. 1,575,000 1,626,062
Phelps County Hospital Revenue, Regional Medical Center, Refunding, Connie Lee Insured, 6.00%,
5/15/13 .................................................................................. 5,000,000 5,334,950
Poplar Bluff Public Building Corp. Leasehold Revenue, Series A, MBIA Insured, Pre-Refunded,
5.50%, 9/01/12 ........................................................................... 2,820,000 3,116,241
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ............................................................. 40,000 49,564
Puerto Rico Commonwealth GO,
5.00%, 7/01/27 ........................................................................... 2,000,000 1,964,180
Public Improvement, 5.00%, 7/01/28 ....................................................... 4,000,000 3,927,240
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, 5.00%,
7/01/38 .................................................................................. 5,000,000 4,857,300
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ............................................................................ 50,000 51,665
7.75%, 7/01/08 ............................................................................ 475,000 485,669
</TABLE>
90
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14 ....................................................... $ 1,110,000 $ 1,141,591
Refunding, Series O, 7.125%, 7/01/14 ....................................................... 280,000 287,969
Series DD, 5.00%, 7/01/28 .................................................................. 2,470,000 2,406,793
Series X, 6.00%, 7/01/15 ................................................................... 2,375,000 2,573,455
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................ 320,000 332,486
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ................ 1,265,000 1,333,652
Puerto Rico Industrial Medical and Environmental PCFA, Revenue, Upjohn Co. Project, 7.50%,
12/01/23 .................................................................................. 300,000 310,029
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Industrial Revenue, Guaynabo Municipal Government, 5.625%, 7/01/22 .... 2,500,000 2,577,550
Puerto Rico Port Authority Revenue, Special Facilities, American Airlines, Series A, 6.25%,
6/01/26 ........................................................................................ 2,500,000 2,692,400
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ......... 1,865,000 1,818,785
Raymore GO, FSA Insured, 6.00%, 3/01/14 ....................................................... 1,000,000 1,061,030
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 ............................................................................ 3,000,000 2,946,000
5.70%, 8/15/28 ............................................................................. 5,250,000 5,154,293
Springfield Waterworks Revenue, Series A, Pre-Refunded, 5.60%, 5/01/23 ........................ 2,000,000 2,184,500
St. Charles County Community College, Pre-Refunded, 7.25%, 3/01/06 ............................ 500,000 515,000
St. Charles County IDA, MFHR, Ashwood Apartments Project, Series A, FSA Insured, 5.60%,
4/01/30 .................................................................................... 1,000,000 1,018,970
St. Charles Public Facility Authority Leasehold Revenue, Refunding, AMBAC Insured, 5.80%,
2/01/10 .................................................................................... 3,000,000 3,219,600
St. Louis Airport Revenue, Lambert-St. Louis International Airport, Refunding and Improvement,
FGIC Insured, 6.125%, 7/01/15 .............................................................. 2,000,000 2,138,240
St. Louis County Housing Authority MFHR, Kensington Square Apartments Project, Refunding,
6.55%, 3/01/14 ............................................................................. 1,000,000 1,062,550
6.65%, 3/01/20 ............................................................................. 2,750,000 2,964,005
St. Louis County IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.40%, 4/01/14 ............... 1,000,000 1,076,080
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19 ............... 1,000,000 1,066,000
Health Facilities Revenue, Mother of Perpetual Help, 6.40%, 8/01/35 ........................ 1,895,000 2,086,376
MFHR, South Summit Apartments, Refunding, Series A, 6.10%, 4/20/32 ......................... 1,250,000 1,326,513
St. Louis County IDAR, Bethesda Living Centers, Series B, 5.85%, 8/15/28 ...................... 1,500,000 1,503,660
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 .............................. 20,000 20,419
St. Louis County Regional Convention and Sports Complex Authority Revenue, Convention and
Sports Project, Refunding, Series B, 5.75%, 8/15/21 ............................................ 5,565,000 5,697,057
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue, Anheuser-Busch Project,
5.875%, 11/01/26 ........................................................................... 1,000,000 1,063,710
St. Louis Land Clearance RDA, Kiel Site Lease, Refunding, Series A, MBIA Insured, 5.125%,
7/01/21 .................................................................................... 1,625,000 1,637,204
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center Improvement, Series A, AMBAC Insured, 6.00%, 2/15/19 ................... 5,370,000 5,874,189
Refunding, Series A, 6.00%, 7/15/13 ........................................................ 10,000,000 10,450,200
St. Louis Parking Facilities Revenue,
Marquette Building Facilities, Series A, MBIA Insured, 5.25%, 12/15/23 ..................... 1,000,000 1,019,080
Pre-Refunded, 6.625%, 12/15/21 ............................................................. 470,000 527,157
St. Louis Regional Convention and Sports Complex Authority Revenue,
Convention and Sports Facilities, Refunding, Series C, AMBAC Insured, 5.625%, 8/15/21 ...... 4,725,000 4,982,985
Series C, 7.75%, 8/15/01 ................................................................... 1,640,000 1,739,610
Series C, 7.90%, 8/15/21 ................................................................... 555,000 609,212
Series C, Pre-Refunded, 7.90%, 8/15/21 ..................................................... 10,345,000 12,112,340
Taney County IDA, Hospital Revenue, The Skaggs Community Hospital Association,
5.30%, 5/15/18 ............................................................................. 3,000,000 2,974,770
Taney County Reorganization School District No. R-V GO, Direct Deposit Program,
5.80%, 3/01/17 ............................................................................. 2,585,000 2,812,170
University of Missouri Health Facilities Revenue,
Health System, Refunding, Series A , AMBAC Insured, 5.60%, 11/01/26 ........................ 5,000,000 5,262,500
Series A, AMBAC Insured, 5.125%, 11/01/28 .................................................. 5,000,000 4,965,700
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27 ........................... 4,000,000 4,255,120
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ............................................................................ 2,500,000 2,556,075
5.50%, 10/01/22 ............................................................................ 2,500,000 2,508,375
Webb City School District No. R-VII Facilities Group Leasehold Revenue, Refunding and
Improvement, FSA Insured, 5.625%, 8/01/16 .................................................. 1,115,000 1,171,740
</TABLE>
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project,
Refunding, 5.50%, 11/15/12 ............................................................... $ 1,000,000 $ 1,016,090
Refunding, 5.60%, 11/15/17 ............................................................... 1,700,000 1,701,190
Refunding, 5.65%, 11/15/22 ............................................................... 1,500,000 1,501,050
Series A, Pre-Refunded, 8.625%, 9/15/20 .................................................. 1,935,000 2,094,115
------------
TOTAL LONG TERM INVESTMENTS (COST $375,017,737) ............................................. 396,614,712
------------
(a)SHORT TERM INVESTMENTS .7%
Kansas City IDA, Hospital Revenue, Research Health Services System, MBIA Insured, Daily VRDN
and Put,
3.25%, 10/15/14 .......................................................................... 1,300,000 1,300,000
3.25%, 10/15/15 .......................................................................... 1,300,000 1,300,000
Missouri Higher Education Loan Authority Student Loan Revenue, Refunding, Series A, Weekly
VRDN and Put, 3.10%, 6/01/17 ................................................................. 300,000 300,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,900,000) .............................................. 2,900,000
------------
TOTAL INVESTMENTS (COST $377,917,737) 98.1% ................................................. 399,514,712
OTHER ASSETS, LESS LIABILITIES 1.9% ......................................................... 7,829,107
------------
NET ASSETS 100.0% ........................................................................... $407,343,819
------------
</TABLE>
See glossary of terms on page 107.
(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.
See notes to financial statements.
92
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND YEAR ENDED FEBRUARY 28,
----------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 12.11 $11.73 $ 11.75 $ 11.37 $11.92
----------------------------------------------------------------
Income from investment operations:
Net investment income ......................................... .60 .62 .64 .64 .65
Net realized and unrealized gains (losses) .................... .06 .38 (.03) .39 (.55)
----------------------------------------------------------------
Total from investment operations ............................... .66 1.00 .61 1.03 .10
----------------------------------------------------------------
Less distributions from net investment income .................. (.61) (.62) (.63) (.65)(1) (.65)
----------------------------------------------------------------
Net asset value, end of year ................................... $ 12.16 $ 12.11 $ 11.73 $ 11.75 $ 11.37
================================================================
Total return* .................................................. 5.54% 8.78% 5.38% 9.28% 1.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 349,419 $ 297,406 $ 260,979 $ 247,031 $ 216,263
Ratios to average net assets:
Expenses ...................................................... .70% .70% .70% .71% .70%
Net investment income ......................................... 4.95% 5.24% 5.47% 5.52% 5.75%
Portfolio turnover rate ........................................ 5.44% 9.95% 9.98% 25.19% 25.05%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C>
Net asset value, beginning of year ............................. $ 12.18 $ 11.79 $ 11.80 $ 11.41
-------------------------------------------------------
Income from investment operations:
Net investment income ......................................... .54 .56 .57 .49
Net realized and unrealized gains (losses) .................... .06 .39 (.02) .38
-------------------------------------------------------
Total from investment operations ............................... .60 .95 .55 .87
-------------------------------------------------------
Less distributions from net investment income .................. (.54) (.56) (.56) (.48)
-------------------------------------------------------
Net asset value, end of year ................................... $ 12.24 $ 12.18 $ 11.79 $ 11.80
=======================================================
Total return* .................................................. 5.02% 8.22% 4.83% 7.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 38,171 $ 20,043 $ 9,607 $ 2,430
Ratios to average net assets:
Expenses ...................................................... 1.25% 1.26% 1.26% 1.28%**
Net investment income ......................................... 4.40% 4.69% 4.85% 4.90%**
Portfolio turnover rate ........................................ 5.44% 9.95% 9.98% 25.19%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
** Annualized
*** For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(1)Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
93
<PAGE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.3%
<S> <C> <C>
Appalachian State University Revenue, Teachers College Utility System,
MBIA Insured, Pre-Refunded, 6.10%, 5/15/13 ..............................................................$1,075,000 $1,210,998
Refunding, MBIA Insured, 5.00%, 5/15/24 ................................................................. 4,410,000 4,329,077
Asheville COP, Series A, MBIA Insured, 5.125%, 6/01/18 .................................................... 1,000,000 1,009,850
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 .............................................. 4,000,000 4,282,360
Buncombe County Metropolitan Sewage District System Revenue, Series B, 6.75%, 7/01/16 ..................... 10,000 10,863
Centennial Authority Hotel Tax Revenue, Arena Project, FSA Insured, 5.125%, 9/01/19 ....................... 5,115,000 5,166,713
Charlotte COP, Convention Facility Project, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11 .................. 2,250,000 2,501,393
Charlotte GO,
Public Improvements, Series A, 5.00%, 2/01/22 ........................................................... 2,190,000 2,213,827
Water and Sewer, Pre-Refunded, 5.90%, 2/01/18 ........................................................... 1,000,000 1,112,250
Water and Sewer, Pre-Refunded, 5.60%, 5/01/20 ........................................................... 5,980,000 6,680,258
Charlotte-Mecklenberg Hospital Authority Health Care System Revenue,
5.90%, 1/15/16 .......................................................................................... 3,465,000 3,701,278
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 .................................................. 8,000,000 7,888,160
Pre-Refunded, 5.90%, 1/15/16 ............................................................................ 1,535,000 1,731,910
Refunding, Series 1992, 6.25%, 1/01/20 .................................................................. 2,620,000 2,780,711
Refunding, Series 1992, Pre-Refunded, 6.25%, 1/01/20 .................................................... 1,000,000 1,090,080
Coastal Solid Waste Disposal System Authority Revenue,
Regional Solid Waste Management, Refunding, 6.50%, 6/01/08 .............................................. 3,100,000 3,357,238
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 1,511,089
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 .......................................................................................... 1,475,000 1,591,053
6.125%, 6/01/21 ......................................................................................... 2,180,000 2,394,163
Concord Utilities Systems Revenue, Series A, MBIA Insured, 5.00%, 12/01/22 ................................ 2,000,000 1,969,780
Cumberland County COP, Civic Center Project,
Refunding, AMBAC Insured, 5.00%, 12/01/18 ............................................................... 3,000,000 2,944,410
Refunding, AMBAC Insured, 5.00%, 12/01/24 ............................................................... 2,760,000 2,708,830
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/19 .................................................. 3,500,000 4,031,615
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/24 .................................................. 3,765,000 4,336,866
Cumberland County Hospital Facility System Revenue, MBIA Insured, 6.00%, 10/01/21 ......................... 2,500,000 2,594,525
Dare County COP, Series B, MBIA Insured, 5.00%, 5/01/19 ................................................... 400,000 394,476
Davidson County COP, MBIA Insured, 5.00%, 6/01/18 ......................................................... 600,000 584,046
Davie County GO, North Carolina Water, Unlimited Tax, Pre-Refunded, 7.10%,
4/01/10 ................................................................................................. 350,000 371,102
4/01/11 ................................................................................................. 250,000 265,073
Duplin County COP, Social Service Administrative Building,
Solid Waste Project, FGIC Insured, 6.75%, 9/01/12 ........................................................ 2,000,000 2,162,600
Durham COP, Series 1991, 6.875%, 4/01/09 .................................................................. 1,650,000 1,774,344
Durham County COP,
Hospital and Office Facilities Project, Pre-Refunded, 6.00%, 5/01/14 .................................... 3,000,000 3,370,230
Hospital and Office Facilities Project, Pre-Refunded, 6.00%, 5/01/17 .................................... 3,200,000 3,594,912
Jail Facilities and Computer Equipment Project, Pre-Refunded, 6.625%, 5/01/14 ........................... 3,000,000 3,255,570
Fayetteville Public Works Commission Revenue,
FSA Insured, 5.125%, 3/01/17 ............................................................................ 2,500,000 2,540,075
FSA Insured, 5.125%, 3/01/24 ............................................................................ 2,000,000 2,021,040
Series A, FSA Insured, 6.00%, 3/01/16 ................................................................... 2,000,000 2,121,660
Forsyth County COP, 5.00%, 10/01/18 ....................................................................... 1,000,000 982,930
Gaston COP, Police Station Project, FGIC Insured, 5.70%, 8/01/15 .......................................... 1,500,000 1,603,155
Gaston County COP, Public Facilities Project, MBIA Insured, 5.25%, 12/01/16 ............................... 1,000,000 1,038,570
Gaston County Industrial Facilities and PCFA Revenue, Duke Power Co. Project, 7.70%, 10/01/12 ............. 750,000 787,470
Gastonia Combined Utilities System Revenue, MBIA Insured, Pre-Refunded, 6.10%, 5/01/19 .................... 2,200,000 2,476,738
Greensboro COP, Coliseum Arena Expansion Project, 6.75%, 12/01/09 ......................................... 1,610,000 1,739,605
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24 ....................... 1,320,000 1,393,405
Greenville COP, Public Facilities and Equipment Project, 5.00%, 6/01/20 ................................... 800,000 784,544
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 .................................................. 1,000,000 1,086,310
Halifax County Industrial Facilities and PCFA Revenue, Champion International
Corporate Project, 5.45%, 11/01/33 ....................................................................... 4,000,000 3,896,400
Halifax County Insured Facility PCR, Solid Waste Disposal,
Champion International Corp., 8.15%, 11/01/19 ........................................................... 400,000 417,916
</TABLE>
94
<PAGE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Haywood County Industrial Facilities and PCFA,
Environmental Improvement Revenue, Champion International Project, 6.25%, 9/01/25 ........... $ 2,000,000 $ 2,118,780
Solid Waste Disposal Revenue, Champion International, 8.10%, 11/01/09 ....................... 195,000 203,816
Solid Waste Disposal Revenue, Champion International, Pre-Refunded, 8.10%, 11/01/09 ......... 5,000 5,265
Highpoint Special Obligation Sales Tax Revenue, Solid Waste Management Project, 7.15%, 7/01/01 . 1,165,000 1,179,621
Kinston Enterprise System Revenue, Combined Enterprise System, FSA Insured, 5.70%, 4/01/21 ..... 1,700,000 1,815,311
Kinston Housing Authority Mortgage Revenue, Kinston Towers Project, Refunding, 6.75%, 12/01/18 . 3,155,000 3,331,459
Martin County Industrial Facilities and PCFA Revenue,
Pollution Control, Weyerhaeuser Co. Project, Refunding, 6.375%, 1/01/10 ..................... 3,000,000 3,204,480
Solid Waste, Weyerhaeuser Co. Project, 5.65%, 12/01/23 ...................................... 2,000,000 2,028,900
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 ...................................... 4,000,000 4,214,840
Mooresville Grade School District COP, AMBAC Insured, 6.35%, 10/01/14 .......................... 1,000,000 1,088,280
(b)New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
MBIA Insured, 5.00%, 10/01/28
4,000,000 3,897,360
New Hanover County Industrial Facilities and PCFA Revenue, Refunding, 6.70%, 7/01/19 ........... 1,000,000 1,075,750
North Carolina Central University Revenue, Student Fee, O'Kelley/Riddick, AMBAC Insured, 5.00%,
4/01/18 ..................................................................................... 500,000 492,725
4/01/23 ..................................................................................... 650,000 638,365
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, MBIA Insured, 5.375%, 1/01/24 .................................................... 9,300,000 9,510,087
Refunding, Series A, 6.50%, 1/01/17 ......................................................... 9,000,000 9,546,930
Refunding, Series A, 6.50%, 1/01/18 ......................................................... 3,000,000 3,413,640
Refunding, Series B, 6.00%, 1/01/14 ......................................................... 3,000,000 3,123,660
Series B, MBIA Insured, 5.875%, 1/01/21 ..................................................... 5,000,000 5,426,150
North Carolina Educational Facilities Finance Agency Revenue, High Point College Project, 7.10%,
12/01/07 .................................................................................... 190,000 197,993
12/01/08 .................................................................................... 205,000 213,549
12/01/09 .................................................................................... 220,000 228,991
North Carolina HFA,
Home Ownership, Series 2-B, 5.10%, 7/01/17 .................................................. 1,450,000 1,457,990
MF, Mortgage Loan Resolution, Refunding, Series H, 6.05%, 7/01/28 ........................... 2,500,000 2,654,150
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20 ...................................... 3,000,000 3,132,000
MF, Refunding, Series J, 5.45%, 7/01/17 ..................................................... 2,175,000 2,226,548
MFR, Refunding, Series B, 6.90%, 7/01/24 .................................................... 2,925,000 3,142,796
Refunding, Series F, 6.70%, 1/01/27 ......................................................... 4,855,000 5,263,500
SF, Refunding, Series DD, 6.20%, 9/01/27 .................................................... 2,965,000 3,097,802
SF, Series JJ, 6.45%, 9/01/27 ............................................................... 4,805,000 5,069,659
SFMR, Series H, Pre-Refunded, 8.05%, 3/01/19 ................................................ 40,000 40,749
SFMR, Series J, 7.40%, 3/01/22 .............................................................. 160,000 165,352
SFMR, Series M, 7.85%, 9/01/28 .............................................................. 310,000 320,754
SFR, Refunding, Series S, 6.95%, 3/01/17 .................................................... 2,550,000 2,708,687
SFR, Series AA, 6.25%, 3/01/17 .............................................................. 935,000 992,269
SFR, Series RR, 5.85%, 9/01/28 .............................................................. 3,000,000 3,122,010
SFR, Series X, 6.65%, 9/01/19 ............................................................... 2,135,000 2,270,637
North Carolina Medical Care Commission Health Care Facilities Revenue,
Duke University Health Systems Project, Series B, 5.00%, 6/01/28 ............................ 5,000,000 4,828,300
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/18 ................... 1,500,000 1,476,030
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/24 ................... 5,500,000 5,375,535
Stanley Memorial Hospital Project, Pre-Refunded, 7.80%, 10/01/19 ............................ 1,250,000 1,309,388
North Carolina Medical Care Commission Health System Revenue, Catholic Health East Project,
Series C, AMBAC Insured, 5.00%,
11/15/18 .................................................................................... 2,500,000 2,447,675
11/15/28 .................................................................................... 4,850,000 4,696,546
North Carolina Medical Care Commission Hospital Revenue,
Annie Penn Memorial Hospital Project, Pre-Refunded, 7.50%, 8/15/21 .......................... 4,700,000 5,293,140
Annie Penn Memorial Hospital Project, Refunding, 5.25%, 1/01/12 ............................. 1,940,000 1,954,201
Annie Penn Memorial Hospital Project, Refunding, 5.375%, 1/01/22 ............................ 1,920,000 1,906,118
Duke University Hospital Project, Series C, 5.25%, 6/01/26 .................................. 1,500,000 1,493,415
Halifax Memorial Hospital Project, Pre-Refunded, 6.75%, 8/15/24 ............................. 3,500,000 3,910,445
Halifax Regional Medical Center Project, 5.00%, 8/15/18 ..................................... 1,500,000 1,426,530
</TABLE>
95
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
North Carolina Medical Care Commission Hospital Revenue, (cont.)
Halifax Regional Medical Center Project, 5.00%, 8/15/24 ..................................... $ 2,800,000 $ 2,623,908
Mission St. Joseph's Health System Project, MBIA Insured, 5.125%, 10/01/28 .................. 5,000,000 4,921,200
North Carolina Baptist Hospitals Project, Refunding, Series A, 6.00%, 6/01/22 ............... 4,830,000 5,111,589
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ....................................... 2,780,000 2,737,299
Roanoke-Chowan Hospital Project, Pre-Refunded, 7.75%, 10/01/19 .............................. 3,000,000 3,140,790
Transylvania Community Hospital Inc. Project, Refunding, 5.75%, 10/01/19 .................... 1,090,000 1,114,209
Wake County Hospital System Project, MBIA Insured, 5.375%, 10/01/26 ......................... 10,500,000 10,767,855
Wayne Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.00%, 10/01/21 ............... 1,000,000 1,083,250
Wilson Memorial Hospital Project, Refunding, AMBAC Insured, 5.625%, 11/01/18 ................ 5,000,000 5,300,050
Wyne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 ................... 2,205,000 2,152,433
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue,
Refunding, 6.25%, 1/01/17 ................................................................... 6,820,000 7,221,084
Series A, MBIA Insured, 5.125%, 1/01/17 ..................................................... 1,000,000 1,005,300
Series A, MBIA Insured, 5.00%, 1/01/20 ...................................................... 2,000,000 1,961,800
North Carolina State Education Assistance Authority Revenue, Guaranteed,
Student Loan, Subordinated Lien,
Series A, 6.05%, 7/01/10 .................................................................... 3,310,000 3,461,499
Series A, 6.30%, 7/01/15 .................................................................... 1,500,000 1,583,280
Series C, 6.35%, 7/01/16 .................................................................... 4,500,000 4,738,860
Northampton County Insured Facility PCR, Solid Waste Disposal,
Champion International Corp., 8.05%, 11/01/04 ................................................. 400,000 417,712
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15 .................. 2,000,000 2,172,240
Pender County COP, Pre-Refunded, 7.70%, 6/01/11 ................................................. 1,195,000 1,327,203
Person County COP, Law Enforcement Center Project, Series 1991, MBIA Insured, 7.125%, 6/01/11 ... 2,165,000 2,343,894
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12 ................................................................. 750,000 803,115
MBIA Insured, 5.85%, 4/01/17 ................................................................. 5,055,000 5,539,926
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ................................................................. 8,050,000 9,210,408
Series 1990, Pre-Refunded, 7.25%, 7/01/10 .................................................... 500,000 535,675
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 .......................................................... 1,250,000 1,309,938
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ............................................................................... 100,000 102,246
7.50%, 7/01/09 ............................................................................... 25,000 25,555
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14 ......................................................... 160,000 164,554
Refunding, Series O, 7.125%, 7/01/14 ......................................................... 850,000 874,191
Series P, Pre-Refunded, 7.00%, 7/01/21 ....................................................... 1,000,000 1,099,530
Series T, Pre-Refunded, 6.375%, 7/01/24 ...................................................... 1,000,000 1,142,050
Series X, 6.125%, 7/01/21 .................................................................... 5,000,000 5,711,700
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................. 365,000 379,242
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ................. 2,205,000 2,324,665
Puerto Rico Industrial Medical and Environmental
PCFA Revenue, Upjohn Co. Project, 7.50%, 12/01/23 ............................................. 300,000 310,029
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ........... 1,000,000 975,220
Puerto Rico Telephone Authority Revenue, Refunding, Series L,
6.00%, 1/01/12 ............................................................................... 1,885,000 1,995,876
6.125%, 1/01/22 .............................................................................. 1,490,000 1,575,601
Raeford HDC Revenue, First Lien, Yadkin Trail, Refunding, Series A, 6.00%, 7/15/22 .............. 1,420,000 1,473,122
Robeson County GO, Refunding, 7.20%,
6/01/10 ...................................................................................... 110,000 113,161
6/01/11 ...................................................................................... 115,000 118,313
6/01/12 ...................................................................................... 120,000 123,440
Robeson County Industrial Facilities and PCFA Revenue, Campbell Soup Co. Project,
Refunding 6.40%, 12/01/06 ..................................................................... 1,750,000 1,993,460
Rutherford County COP, Public Facilities Project, FGIC Insured, 6.25%, 6/01/23 .................. 1,850,000 2,020,700
Sampson Area Development Corp. Installment Payment Revenue, MBIA Insured, 4.75%, 6/01/24 ........ 1,900,000 1,806,044
Scotland County COP, Jail/Courthouse Project, FSA Insured, 6.75%, 3/01/11 ....................... 1,000,000 1,068,900
Stokes County COP, MBIA Insured, 7.00%, 3/01/06 ................................................. 1,000,000 1,077,050
University of North Carolina at Chapel Hill Revenue, Parking System, Series A, 5.70%, 5/15/27 ... 3,000,000 3,128,370
</TABLE>
96
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
University of North Carolina at Charlotte Revenue, Student Activity Center, MBIA Insured, 5.50%,
6/01/16 ..................................................................................... $ 1,000,000 $ 1,047,810
6/01/21 ..................................................................................... 3,500,000 3,643,150
University of North Carolina at Greensboro Revenue, Student Facilities System,
Series B, MBIA Insured, 5.45%, 4/01/23 ...................................................... 1,000,000 1,036,850
Series C, AMBAC Insured, 5.30%, 4/01/23 ..................................................... 3,785,000 3,898,057
University of North Carolina at Wilmington Revenue, Student Union System,
AMBAC Insured, Pre-Refunded, 6.90%, 1/01/07 ................................................... 250,000 262,777
Virgin Islands PFA Revenue, Senior Lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ............................................................................. 2,000,000 2,022,100
5.625%, 10/01/25 ............................................................................ 1,575,000 1,603,774
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Co., 6.90%, 4/01/09 10,000,000 10,509,400
Wilmington COP, AMBAC Insured, 5.20%, 11/01/17 ................................................. 1,500,000 1,523,940
Winston-Salem SFMR, 8.00%, 9/01/07 ............................................................. 290,000 303,310
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 ......................... 2,250,000 2,381,647
------------
TOTAL LONG TERM INVESTMENTS (COST $360,019,289) 380,969,997
------------
(a)SHORT TERM INVESTMENTS 1.3%
North Carolina Educational Facilities Finance Agency Revenue,
Belmont Abbey College, Weekly VRDN and Put,2.85%, 6/01/18 ........................................... 1,745,000 1,745,000
North Carolina Medical Care Commission Hospital Revenue,
Angel Medical Center Inc. Project, Weekly VRDN and Put, 2.85%, 10/01/16 ........................... 700,000 700,000
Pooled Financing Project, ACES, Series B, Daily VRDN and Put, 3.20%, 10/01/13 ..................... 500,000 500,000
Vadese General Hospital Inc. Project, Refunding, Weekly VRDN and Put, 2.85%, 10/01/16 ............. 300,000 300,000
North Carolina Medical Care Commission Revenue, Carol Woods Project, Daily VRDN and Put 3.20%, 4/01/21 800,000 800,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 2.60%, 7/01/28 .............................................................. 1,100,000 1,100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $5,145,000) ....................................................... 5,145,000
------------
TOTAL INVESTMENTS (COST $365,164,289) 99.6% .......................................................... 386,114,997
OTHER ASSETS, LESS LIABILITIES .4% ................................................................... 1,474,844
------------
NET ASSETS 100.0% .................................................................................... $387,589,841
============
</TABLE>
See glossary of terms on page 107.
(a)Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b)Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
97
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN TEXAS TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------------------
CLASS A 1999 1998 1997 1996*** 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $ 11.68 $ 11.37 $ 11.58 $ 11.25 $ 11.72
------------------------------------------------------------
Income from investment operations:
Net investment income .............................................. .60 .62 .66 .67 .68
Net realized and unrealized gains (losses) ......................... (.05) .36 -- .34 (.49)
------------------------------------------------------------
Total from investment operations .................................... .55 .98 .66 1.01 .19
------------------------------------------------------------
Less distributions from:
Net investment income .............................................. (.60)(2) (.63) (.67) (.68) (.66)
In excess of net investment income ................................. -- (.01) -- -- --
Net realized gains ................................................. (.21) (.03) (.20) -- --
------------------------------------------------------------
Total distributions ................................................. (.81) (.67) (.87) (.68) (.66)
------------------------------------------------------------
Net asset value, end of year ........................................ $ 11.42 $ 11.68 $ 11.37 $ 11.58 $ 11.25
============================================================
Total return* ....................................................... 4.86% 8.91% 5.91% 9.15% 1.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................... $127,739 $ 130,578 $126,612 $129,702 $130,684
Ratios to average net assets:
Expenses ........................................................... .77% .76% .75% .76% .73%
Net investment income .............................................. 5.17% 5.44% 5.70% 5.86% 6.05%
Portfolio turnover rate ............................................. 25.26% 34.52% 35.57% 18.38% 6.36%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C>
Net asset value, beginning of year ....................................... $ 11.81 $ 11.49 $ 11.68 $ 11.27
------------------------------------------------
Income from investment operations:
Net investment income ................................................... .53 .58 .60 .51
Net realized and unrealized gains (losses) .............................. (.03) .35 .02 .40
------------------------------------------------
Total from investment operations ......................................... .50 .93 .62 .91
------------------------------------------------
Less distributions from:
Net investment income .................................................... (.53)(2) (.58)(1) (.61) (.50)
Net realized gains ....................................................... (.21) (.03) (.20) -
------------------------------------------------
Total distributions ...................................................... (.74) (.61) (.81) (.50)
------------------------------------------------
Net asset value, end of year ............................................. $ 11.57 $ 1.81 $ 11.49 $ 11.68
================================================
Total return* ............................................................ 4.40% 8.31% 5.48% 8.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $ 5,229 $2,076 $740 $79
Ratios to average net assets:
Expenses ................................................................ 1.33% 1.33% 1.32% 1.33%**
Net investment income ................................................... 4.61% 4.79% 5.03% 5.23%**
Portfolio turnover rate 25.26% 34.52% 35.57% 18.38%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to
May 1, 1994, dividends from net investment income were reinvested at the
offering price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(1)Includes distributions in excess of net investment income in the amount of
$.001.
(2)Includes distributions in excess of net investment income in the amount of
$.0005 and $.0003 for Class A and Class C, respectively.
See notes to financial statements
98
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 100.4%
<S> <C> <C>
Aldine ISD, Series A, 5.00%, 2/15/22 ............................................................... $3,000,000 $2,947,650
Alliance Airport Authority Special Facilities Revenue, American Airlines Inc.
Project, 7.00%, 12/01/11 ....................................................................... 2,250,000 2,646,788
Austin Utility System Revenue,
Refunding, MBIA Insured, 5.50%, 5/15/14 ........................................................ 1,325,000 1,382,068
Series A, AMBAC Insured, 6.75%, 11/15/07 ....................................................... 800,000 868,152
Series A, Pre-Refunded, 8.00%, 11/15/16 ........................................................ 50,000 54,832
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word
Health Services, ETM, Refunding, FSA Insured, Pre-Refunded,
6.00%, 11/15/15 ................................................................................ 3,000,000 3,414,450
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24 ............................................. 100,000 105,204
Bexar Metropolitan Water District Waterworks Systems Revenue,
Refunding, MBIA Insured, 6.35%, 5/01/25 ......................................................... 1,890,000 2,101,661
Brazos Higher Education Authority Revenue, Student Loan Inc.,
Refunding, Series A-2, 6.80%, 12/01/04 .......................................................... 825,000 885,514
Brazos River Authority PCR, Texas Utilities Electric Co. Project, Collateralized,
Refunding, Series C, 5.55%, 6/01/30 ............................................................. 3,000,000 2,925,840
Series A, 7.875%, 3/01/21 ....................................................................... 500,000 541,395
Brazos River Authority Revenue, Houston Light and Power Co. Project,
Collateralized, Refunding, Series A, 7.625%, 5/01/19 ........................................... 100,000 103,184
Cameron County HFC, Collateralized Mortgage Obligation,
Refunding, Series B, FGIC Insured, 7.85%, 3/01/24 ................................................ 80,000 84,176
Castleberry ISD, Refunding, 6.00%, 8/15/25 ......................................................... 2,000,000 2,213,380
Cimarron MUD, Waterworks and Sewer System, Combined Tax and Revenue,
Asset Guaranteed, 7.50%, 3/01/15 ................................................................. 2,275,000 2,352,760
Clint ISD, GO,
7.00%, 3/01/15 ................................................................................... 3,425,000 3,425,000
Pre-Refunded, 7.00%, 3/01/15 ..................................................................... 575,000 575,000
Comal County Health Facilities Development Corp. Revenue, McKenna Memorial Hospital,
Refunding, FHA Insured, 7.375%, 1/15/21 .......................................................... 1,750,000 1,855,928
Coppell ISD, Refunding, 6.50%, 8/15/26 ............................................................. 1,500,000 1,531,680
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11 ........................ 890,000 945,376
Dallas Civic Center Convention Complex Revenue, senior lien, AMBAC Insured,
Pre-Refunded, 7.00%, 1/01/10 ..................................................................... 2,000,000 2,126,420
Dallas-Fort Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines Inc., 8.00%, 11/01/24 .......................................................... 1,000,000 1,076,580
American Airlines Inc., Refunding, 6.00%, 11/01/14 ............................................... 2,000,000 2,115,980
Delta Airlines Inc., 7.625%, 11/01/21 ............................................................ 2,000,000 2,175,700
Dallas-Fort Worth Regional Airport Revenue, Joint Dallas- Fort Worth
International, Refunding, MBIA Insured, 5.75%, 11/01/24 ......................................... 1,000,000 1,044,090
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 .................................................... 110,000 115,116
Dallas Housing Corp. Capital Projects Revenue, Section Eight,
Assisted Projects, Refunding, 7.70%, 8/01/05 ..................................................... 500,000 520,290
Denison Hospital Authority Revenue, Texoma Medical Center Inc. Project, 7.00%, 8/15/14 ............. 1,250,000 1,370,075
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ............................................ 425,000 457,636
Fort Worth HFC,
HMR, Refunding, Series A, 8.50%, 10/01/11 ........................................................ 750,000 805,020
SFMR, GNMA Secured, 8.25%, 12/01/11 .............................................................. 25,000 25,733
Gonzales County Hospital District GO, Refunding, MBIA Insured, 7.65%, 2/15/07 ...................... 100,000 101,937
Gulf Coast Waste Disposal Authority PCR, Union Carbide Corp., 7.45%, 8/01/04 ....................... 1,200,000 1,203,912
Gulf Coast Waste Disposal Authority Revenue,
Champion international Corp., Series A, 6.875%, 12/01/28 ....................................... 1,000,000 1,086,520
(b)Energy Corp, Project, 5.70%, 4/01/32 ........................................................ 3,000,000 2,982,150
Gulf Coast Water Authority Texas Water Systems Contract Revenue,
La Marque Project, Series D, AMBAC Insured, 5.00%, 8/15/22 ..................................... 1,020,000 999,274
Harris County Health Facilities Development Corp. Hospital Revenue,
Memorial Hospital System Project, AMBAC Insured, Pre-Refunded,7.00%, 6/01/12 .................... 225,000 231,651
Harris County Health Facilities Development Corp. Revenue,
Hermann Hospital Project, FSA Insured, Pre-Refunded, 7.00%, 10/01/14 ............................. 750,000 828,840
Harrison County Health Facilities Development Corp. Hospital Revenue,
Marshall Regional Medical Center Project, 5.50%, 1/01/18 ......................................... 1,750,000 1,804,618
Laredo Airport COP, Limited Tax, AMBAC Insured, 7.00%, 8/01/09 ..................................... 200,000 202,670
Leon County PCR, Nucor Corp. Project, Refunding, Series A, 7.375%, 8/01/09 ......................... 2,000,000 2,171,580
Lower Colorado River Authority Revenue, Refunding, Series B, AMBAC Insured, 7.00%, 1/01/11 ......... 205,000 219,194
Lower Neches Valley Authority IDC Revenue, Mobil Oil Refunding Corp., Refunding, 5.55% 3/01/33 ..... 1,500,000 1,528,440
Matagorda County Navigation District No. 1 PCR, Central Power and Light Co. Project,
Collateralized, 7.50%, 12/15/14 .................................................................. 1,200,000 1,266,000
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 ................................................ 1,500,000 1,569,105
Matagorda County Navigation District No. 1 Revenue, Houston Light and Power Co.,
Refunding, Series C, FGIC Insured, 7.125%, 7/01/19 ............................................... 1,500,000 1,547,370
Mesquite Health Facilities Development Corp. Revenue, Retirement Facility,
Christian Care Centers Inc., Refunding, Series A, 6.40%,
2/15/16 .......................................................................................... 1,000,000 1,068,370
2/15/20 .......................................................................................... 2,000,000 2,133,140
</TABLE>
99
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Montgomery County Texas GO, Library,
FGIC Insured, Pre-Refunded, 6.75%, 9/01/10 ................................................... $ 280,000 $ 308,235
FGIC Insured, Pre-Refunded, 6.75%, 9/01/11 ................................................... 295,000 324,748
Refunding, FGIC Insured, 6.75%, 9/01/10 ...................................................... 495,000 539,491
Refunding, FGIC Insured, 6.75%, 9/01/11 ...................................................... 530,000 577,636
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial Home Project,
Refunding, 6.30%, 2/15/15 .................................................................... 1,530,000 1,634,499
Refunding, 6.375%, 2/15/20 ................................................................... 2,785,000 2,994,014
Series A, 5.375%, 2/15/14 .................................................................... 500,000 503,070
Series A, 5.375%, 2/15/25 .................................................................... 1,750,000 1,727,040
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project,
Refunding, 5.60%, 1/01/27 ........................................................................ 6,000,000 5,842,800
Port Corpus Christi IDC Revenue, Valero, Refunding, Series C, 5.40%, 4/01/18 .................... 2,000,000 1,978,780
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.65%, 12/01/22 .... 2,000,000 2,063,720
Red River Authority PCR, West Texas Utilities Co. Project, Oklahoma Central Power
and Light Co., Refunding, MBIA Insured,
6.00%, 6/01/20 .................................................................................. 7,000,000 7,670,810
Sabine River Authority PCR,
Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%, 4/01/18 ..................... 5,000,000 5,501,800
Texas Utilities Electric Co. Project, Collateralized, Refunding,
FGIC Insured, 6.55%, 10/01/22 ............................................................... 1,200,000 1,306,284
Socorro ISD, GO, 5.00%, 8/15/21 ................................................................. 1,000,000 986,690
Tarrant County Health Facilities Development Corp. Health Systems Revenue,
Harris Methodist Health, ETM, FGIC Insured, 6.00%, 9/01/24 ...................................... 4,000,000 4,341,880
Tarrant County Health Facilities Development Corp. Revenue,
Bethesda Living Centers, Series C, 5.75%,
8/15/18 ...................................................................................... 1,570,000 1,550,061
8/15/28 ...................................................................................... 3,900,000 3,797,352
Texas City IDC, Marine Terminal Revenue, ARCO Pipe Line Co. Project,
Refunding, 7.375%, 10/01/20 ...................................................................... 500,000 649,330
Texas Housing Agency Residential Development Mortgage Revenue, Series A, 7.60%, 7/01/16 ......... 1,410,000 1,462,805
Texas State Department of Housing and Community Affairs HMR,
Refunding, Series A, GNMA Secured, 6.95%, 7/01/23 ................................................ 1,535,000 1,639,656
Texas State GO, Veterans Housing Assistance Fund I, Refunding, 6.15%, 12/01/25 .................. 1,000,000 1,048,080
Texas State Higher Education Coordinating Board College Student Loan Revenue,
senior lien, 7.70%, 10/01/25 ..................................................................... 1,105,000 1,163,001
Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge, 7.00%, 1/01/07 .............. 25,000 25,367
Texas Water Development Board Revenue, State Revolving Fund, senior lien,
Series A, 5.75%, 7/15/16 ......................................................................... 3,275,000 3,438,979
Texas Water Resources Finance Authority Revenue, 7.625%, 8/15/08 ................................ 755,000 767,148
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 .................................. 2,000,000 2,089,740
Travis County HFC, SFMR, GNMA Secured, 8.20%, 4/01/22 ........................................... 55,000 56,695
(b)Tyler Health Facilities Development Corp. Hospital Revenue,
East Texas Medical Center Project, Series D, FSA Insured, 5.375%, 11/01/27 ...................... 5,000,000 4,967,050
University of Texas Revenues, Financing System, Refunding,
Series A, 7.00%, 8/15/07 ..................................................................... 665,000 724,318
Series B, 6.75%, 8/15/13 ..................................................................... 1,300,000 1,399,866
Van Alstyne ISD, GO, Refunding, 5.95%, 8/15/29 .................................................. 1,885,000 2,092,086
Waco Health Facilities Development Corp. Hospital Revenue,
Hillcrest Baptist Medical Center Project, MBIA Insured, 7.125%, 9/01/14 ......................... 500,000 533,610
Waxahachie Community Development Corp. Sales Tax Revenue, MBIA Insured, 5.20%, 8/01/19 .......... 1,500,000 1,511,024
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 1,085,700
Wylie ISD, GO,
7.00%, 8/15/24 ............................................................................... 550,000 661,825
Pre-Refunded, 7.00%, 8/15/24 ................................................................. 450,000 557,302
Ysleta ISD, GO, AMBAC Insured, Pre-Refunded, 7.10%, 8/15/05 ..................................... 200,000 203,675
-----------
TOTAL LONG TERM INVESTMENTS (COST $126,033,563) ................................................. 133,463,616
-----------
</TABLE>
100
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
(a) SHORT TERM INVESTMENTS 4.7%
<S> <C> <C>
Brazos River Harbor Naval District Brazoria County Revenue,
Dow Chemical Company Project, Refunding, Series A, Daily VRDN
and Put, 3.20%, 8/01/22 ...................................................... $ 200,000 $ 200,000
Harris County IDC, PCR, Daily VRDN and Put, 3.25%, 3/01/24 ..................... 2,700,000 2,700,000
Lone Star Airport Improvement Authority Revenue, Multiple Mode, Series A-1,
Daily VRDN and Put, 3.35%, 12/01/14 ............................................ 500,000 500,000
Lubbock Health Facilities Development Corp. Revenue, St. Joseph Health System,
Daily VRDN and Put, 3.25%, 7/01/13 ........................................... 200,000 200,000
North Central Health Facility Development Corp. Revenue,
DATES, Hospital Presbyterian Medical Center, Series D, MBIA Insured, Daily
VRDN and Put, 3.35%, 12/01/15 ............................................. 400,000 400,000
Hospital Presbyterian Medical Center, DATES, Series C, MBIA Insured, Daily
VRDN and Put, 3.35%, 12/01/15 ............................................. 300,000 300,000
Port Arthur Navigation District IDC, American Petrofina Inc., Daily VRDN and
Put, 3.20%, 5/01/03 .......................................................... 100,000 100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, 2.60%, 7/01/28 ........................... 1,900,000 1,900,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $6,300,000) ................................. 6,300,000
-------------
TOTAL INVESTMENTS (COST $132,333,563) 105.1% ................................... 139,763,616
OTHER ASSETS, LESS LIABILITIES (5.1%) .......................................... (6,795,622)
-------------
NET ASSETS 100.0% .............................................................. $ 132,967,994
=============
</TABLE>
See glossary of terms on page 107.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
101
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------------------------------
CLASS A ..................................... 1999 1998 1997 1996*** 1995
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 11.88 $ 11.65 $ 11.72 $ 11.33 $ 11.82
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .60 .62 .65 .66 .66
Net realized and unrealized gains (losses) . .03 .35 (.07) .38 (.50)
-------------------------------------------------------------------------------
Total from investment operations ............ .63 .97 .58 1.04 .16
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.60)(1) (.64) (.64) (.65) (.65)
Net realized gains ......................... (.03) (.10) (.01) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.63) (.74) (.65) (.65) (.65)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.88 $ 11.88 $ 11.65 $ 11.72 $ 11.33
-------------------------------------------------------------------------------
Total return* ............................... 5.40% 8.53% 5.15% 9.41% 1.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 379,670 $ 332,199 $ 287,172 $ 271,396 $ 255,965
Ratios to average net assets:
Expenses ................................... .68% .69% .69% .69% .69%
Net investment income ...................... 4.98% 5.29% 5.56% 5.66% 5.86%
Portfolio turnover rate ..................... 8.90% 12.90% 19.25% 12.72% 21.73%
CLASS C
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.95 $ 11.71 $ 11.77 $ 11.35
-----------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .57 .58 .49
Net realized and unrealized gains (losses) .03 .34 (.05) .41
-----------------------------------------------------------
Total from investment operations ............ .56 .91 .53 .90
-----------------------------------------------------------
Less distributions from:
Net investment income ...................... (.53)(1) (.57) (.58) (.48)
Net realized gains ......................... (.03) (.10) (.01) --
-----------------------------------------------------------
Total distributions ......................... (.56) (.67) (.59) (.48)
-----------------------------------------------------------
Net asset value, end of year ................ $ 11.95 $ 11.95 $ 11.71 $ 11.77
-----------------------------------------------------------
Total return* ............................... 4.78% 7.97% 4.61% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 22,796 $ 13,186 $ 6,674 $ 2,050
Ratios to average net assets:
Expenses ................................... 1.24% 1.25% 1.25% 1.26%**
Net investment income ...................... 4.42% 4.72% 4.94% 5.06%**
Portfolio turnover rate ..................... 8.90% 12.90% 19.25% 12.72%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
**Annualized
***For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(1)Includes distributions in excess of net investment income in the amount of
$.0005 and $.0004 for Class A and C, respectively.
See notes to financial statements.
102
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.5%
<S> <C> <C>
Abingdon IDA, Hospital Facilities Revenue, Johnston Memorial Hospital,
Refunding, 5.375%, 7/01/28 ............................................................... $ 5,000,000 $ 5,035,450
Albermarle County IDAR,
Martha Jefferson Hospital, Refunding, 5.875%, 10/01/13 ................................. 5,000,000 5,256,750
University of Virginia Health Services Foundation, Pre-Refunded, 6.50%, 10/01/22 ....... 1,125,000 1,251,360
Arlington County GO, Pre-Refunded, 6.00%, 8/01/13 ...................................... 2,085,000 2,346,855
Arlington County IDA, Hospital Facility Revenue, Arlington Hospital, Series A,
Pre-Refunded, 7.125%, 9/01/21 ........................................................... 2,000,000 2,213,500
Augusta County IDAR, Augusta Hospital Corp. Project,
AMBAC Insured, Pre-Refunded, 6.625%, 9/01/12 ........................................... 1,000,000 1,094,890
Pre-Refunded, 7.00%, 9/01/21 ........................................................... 2,000,000 2,205,040
Augusta County Virginia Service Authority Water and Sewer Revenue, MBIA Insured,
5.00%, 11/01/24 ......................................................................... 2,400,000 2,355,600
Bedford County GO, Series A, FGIC Insured, 5.35%, 12/15/17.................................. 1,250,000 1,288,300
Bedford County IDA, IDR, Nekoosa Packaging Corp. Project,Refunding,5.60%, 12/01/25.......... 11,000,000 11,044,000
Blacksburg Polytechnic Institute Sanitation Authority Sewer System Revenue, 6.25%, 11/01/12. 1,230,000 1,305,116
Bristol GO, MBIA Insured, 5.25%, 4/01/16 ................................................... 1,025,000 1,055,350
Chesapeake Hospital Authority Facilities Revenue, Chesapeake General Hospital,
8.20%, 7/01/05 .......................................................................... 2,500,000 2,676,275
Chesapeake IDA,
Nursing Home Revenue, Sentara Life Care Corp. Project, 8.00%, 11/01/17 ................. 225,000 230,180
Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured, 6.00%, 6/01/12 . 3,940,000 4,320,092
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 6.65%, 9/01/18 ..... 5,000,000 5,555,050
Danville COP, Social Services, Pre-Refunded, 7.625%, 4/01/13 ............................... 2,000,000 2,205,340
Danville GO, Series 1991, Pre-Refunded, 6.75%,
2/01/10 ................................................................................ 655,000 707,524
2/01/11 ................................................................................ 705,000 761,534
Danville IDA,
Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded,
6.50%, 10/01/24 ...................................................................... 5,000,000 5,713,150
Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 .................. 500,000 549,150
Fairfax County EDA, Parking Revenue, Huntington Metrorail, Pre-Refunded, 7.00%, 9/01/10 .... 1,000,000 1,073,330
Fairfax County IDAR, Health Care, Inova Health System Project,
6.00%, 8/15/26 ......................................................................... 5,000,000 5,465,250
Refunding, Series A, 5.00%, 8/15/25 .................................................... 5,000,000 4,857,000
Fairfax County Redevelopment and Housing Authority MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27 .................................. 4,700,000 5,074,402
Paul Spring Center, Refunding, Series A, FHA Insured, 5.90%, 6/15/17 ................... 1,000,000 1,069,920
Paul Spring Center, Refunding, Series A, FHA Insured, 6.00%, 12/15/28 .................. 1,000,000 1,067,010
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 ................................ 6,500,000 7,088,380
Frederick County IDA, Lease Revenue, Government Complex Facilities Project, MBIA
Insured, 6.50%, 12/01/09 ................................................................ 2,040,000 2,289,186
Fredericksburg IDA, Hospital Facilities Revenue, Medicorp Health System Obligation,
Refunding, AMBAC Insured, 5.25%,
6/15/16 ................................................................................ 1,860,000 1,901,385
6/15/23 ................................................................................ 10,000,000 10,134,100
Front Royal and Warren County IDAR, Mortgage, Heritage Hall No. 13, Refunding,
FHA Insured, 8.25%, 7/15/05 ............................................................. 20,000 20,293
Goochland County IDA, IDR, Nekoosa Packaging Corp., Refunding, 5.65%, 12/01/25 ............. 5,500,000 5,537,015
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 .................................................. 830,000 902,916
Series A, 6.50%, 10/01/23 .............................................................. 1,000,000 1,089,490
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric Cooperative
Project, 6.50%, 12/01/12 ................................................................ 3,000,000 3,227,130
Hampton Redevelopment and Housing Authority Senior Living Association Revenue,
Refunding, Series A, GNMA Secured, 6.00%, 1/20/26 ....................................... 1,060,000 1,118,099
Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16 ....... 1,500,000 1,607,355
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA
Insured, 5.00%, 7/01/28 ................................................................. 10,000,000 9,803,200
Hanover County IDA, Hospital Revenue, Bon Secours Health Systems Projects, MBIA
Insured, 5.50%, 8/15/25 ................................................................. 1,000,000 1,030,610
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26 ................ 4,175,000 4,243,136
Henrico County IDAR, Solid Waste, Browning-Ferris Industries, South Atlantic
Inc., Series A, 5.875%, 3/01/17 ......................................................... 1,000,000 1,056,090
Henrico County Water and Sewer Revenue, Refunding, 5.00%, 5/01/28 .......................... 2,400,000 2,367,192
Henry County IDA, Hospital Revenue, Memorial Hospital of Martinsville and Henry,
Refunding, 6.00%, 1/01/27 ............................................................... 1,250,000 1,325,200
Leesburg Utilities System Revenue, Refunding, MBIA Insured, 5.125%, 7/01/22 ................ 3,750,000 3,778,163
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured, 5.80%,
6/01/20 ................................................................................ 2,000,000 2,153,280
6/01/26 ................................................................................ 3,000,000 3,228,210
</TABLE>
103
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (cont.)
<S> <C> <C>
Loudoun County Sanitation Authority Water and Sewer Revenue,
Refunding, FGIC Insured, 5.125%, 1/01/26 ................................................ $3,795,000 $3,810,711
Refunding, FGIC Insured, 5.125%, 1/01/30 ................................................ 5,250,000 5,271,735
Series 96, FGIC Insured, 5.25%, 1/01/26 ................................................. 6,500,000 6,614,400
Series 96, FGIC Insured, 5.25%, 1/01/30 ................................................. 1,000,000 1,017,600
Lynchburg IDA, Healthcare Facilities Revenue, Centra Health, Refunding, 5.20%, 1/01/28 ..... 9,000,000 8,854,020
Lynchburg Redevelopment and Housing Authority Revenue, Waldon Pond III, Refunding, Series A,
GNMA Secured, 6.20%, 7/20/27 ............................................................ 1,000,000 1,078,860
Manassas IDA, Hospital Revenue, Prince William Hospital, Pre-Refunded, 8.125%, 4/01/19 ..... 500,000 511,945
Mecklenburg County IDAR, Exempt Facility, Series A, 7.35%, 5/01/08 ......................... 4,500,000 4,773,555
Medical College Hospital Authority Revenue, MBIA Insured, 5.125%, 7/01/23 .................. 4,250,000 4,246,770
Metropolitan Washington D.C. Airports Authority General Airport Revenue,
Series A, 7.60%, 10/01/14 ............................................................... 1,000,000 1,065,460
Series A, 5.375%, 10/01/23 .............................................................. 3,985,000 4,057,248
Series B, 5.75%, 10/01/20 ............................................................... 6,000,000 6,277,080
Newport News IDA, Mortgage Revenue, Mennowood Communities Inc., Series A, GNMA Secured,
6.25%, 8/01/36 .......................................................................... 2,990,000 3,175,530
Newport News Redevelopment and Housing Authority Revenue, Refunding, Series A, GNMA
Secured, 5.85%, 12/20/30 ................................................................ 1,250,000 1,290,288
Norfolk GO, MBIA Insured, Pre-Refunded, 5.75%, 6/01/14 ..................................... 2,075,000 2,302,109
Norfolk IDAR,
Children's Hospital of the Kings' Daughters Inc., Series A, 8.375%, 6/01/12 ............. 50,000 50,990
Children's Hospital of the Kings' Group Inc., AMBAC Insured, Pre-Refunded, 7.00%, 6/01/11 3,000,000 3,290,340
Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26 ................. 4,000,000 4,057,720
Medical Center Hospital Project, Series A, 7.00%, 11/01/07 .............................. 20,000 20,042
Norfolk Parking System Revenue, MBIA Insured,
5.55%, 2/01/27 ....................................................................... 4,475,000 4,700,988
(b)5.00%, 2/01/29 ....................................................................... 2,000,000 1,978,460
Norfolk Water Revenue,
AMBAC Insured, 5.375%, 11/01/23 ......................................................... 1,500,000 1,532,280
MBIA Insured, 5.875%, 11/01/20 .......................................................... 7,000,000 7,588,980
MBIA Insured, 5.90%, 11/01/25 ........................................................... 5,900,000 6,401,205
Refunding, FSA Insured, 5.125%, 11/01/28 ................................................ 2,000,000 1,986,280
Northern Virginia Transportation District Commission Commuter Rail Revenue, Railway
Express Project, FSA Insured, Pre-Refunded, 7.00%, 7/01/05 .............................. 360,000 384,527
Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 7/15/11 .................. 1,000,000 1,074,320
Peninsula Ports Authority Coal Terminal Revenue, Coal Terminal Association Project,
Refunding, 7.375%, 6/01/20 .............................................................. 5,480,000 5,989,202
Peninsula Ports Authority Health Care Facilities Revenue, Bon Secours Health System,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/23 ....................................... 1,500,000 1,525,305
Peninsula Ports Authority Health System Revenue, Riverside Health System Project,
Series A, Pre-Refunded, 6.625%, 7/01/18 ................................................. 6,000,000 6,660,600
Peninsula Ports Authority Hospital Facility Revenue, Whittaker Memorial Hospital
Project, Refunding, FHA Insured, 8.70%, 8/01/23 ......................................... 50,000 50,859
Portsmouth GO, FGIC Insured, 5.25%, 8/01/21 ................................................ 1,000,000 1,019,290
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 .................................................. 1,000,000 1,081,700
Series Y, Pre-Refunded, 6.00%, 7/01/22 .................................................. 2,000,000 2,281,060
Puerto Rico Commonwealth IDC, General Purpose Revenue, Series B, 5.375%, 7/01/16 ........... 2,800,000 2,918,132
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 .......................................................................... 100,000 103,330
7.75%, 7/01/08 .......................................................................... 350,000 357,861
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Z, 5.25%, 7/01/21 ..................................................... 1,500,000 1,512,735
Series P, Pre-Refunded, 7.00%, 7/01/21 .................................................. 1,500,000 1,649,295
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 .............................................. 2,055,000 2,135,186
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 20,000 24,403
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ............ 160,000 167,763
Puerto Rico Industrial Medical and Environmental PCFA, Revenue, Upjohn Co. Project,
7.50%, 12/01/23 ......................................................................... 250,000 258,358
Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 1/01/22 .............. 5,000,000 5,287,250
Richmond Metropolitan Authority Expressway Revenue,
Refunding, Series B, FGIC Insured, 6.25%, 7/15/22 ....................................... 5,000,000 5,388,900
Series A, FGIC Insured, Pre-Refunded, 6.375%, 7/15/16 ................................... 2,500,000 2,766,525
Richmond Public Utility Revenue, Refunding, Series A, 5.125%, 1/15/28 ...................... 4,395,000 4,332,811
</TABLE>
104
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (cont.)
<S> <C> <C>
Russell County IDA, PCR, Appalachian Power Co. Project, Series H, MBIA Insured, 5.00%, 11/01/21 .. $ 5,000,000 $ 4,919,750
South Boston IDAR, Halifax Community Hospital Inc. Project, Pre-Refunded, 7.375%, 9/01/11 ........ 4,250,000 4,723,493
Spotsylvania County Water and Sewer System Revenue GO, MBIA Insured,
5.25%, 6/01/22 ................................................................................ 5,500,000 5,617,590
5.40%, 6/01/27 ................................................................................ 8,800,000 9,064,528
Staunton IDA, Facilities Revenue, Mary Baldwin College, Series B, Pre-Refunded, 8.00%, 11/01/17 895,000 987,820
Tazewell County IDA, Lease Revenue, Courthouse Project, MBIA Insured,
5.25%, 1/01/17 ................................................................................ 1,250,000 1,279,788
5.30%, 1/01/27 ................................................................................ 500,000 510,720
University of Virginia Revenue, General, Series A, 5.00%, 6/01/24 ................................ 8,000,000 7,886,480
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ...................................................................................... 1,500,000 1,526,940
10/01/18 ...................................................................................... 1,500,000 1,516,575
Virginia College Building Authority Educational Facilities Revenue,
Marymount University Project, Pre-Refunded 7.00%, 7/01/22 ..................................... 1,750,000 1,963,063
Twenty-first Century College Program, 5.25%, 8/01/16 .......................................... 1,000,000 1,024,580
Washington and Lee University, 5.75%, 1/01/19 ................................................. 50,000 52,973
Washington and Lee University, Pre-Refunded, 5.75%, 1/01/19 ................................... 2,295,000 2,528,838
Washington and Lee University Project, Refunding, Pre-Refunded, 5.80%, 1/01/24 ................ 3,500,000 3,864,280
Virginia Polytechnic Institute Revenue, Dormitory and Dining Hall, BIG Insured, 7.00%, 6/01/09 ... 900,000 924,597
Virginia Port Authority Revenue, MBIA Insured, 5.50%, 7/01/24 .................................... 4,250,000 4,384,851
Virginia State HDA,
Commonwealth Mortgage, Series A, 7.10%, 1/01/17 ............................................... 1,000,000 1,053,040
Commonwealth Mortgage, Series A, 7.15%, 1/01/33 ............................................... 4,440,000 4,681,223
Commonwealth Mortgage, Series A, Sub Series A-1, 8.10%, 1/01/17 ............................... 5,000 5,062
Commonwealth Mortgage, Series B, Sub Series B-3, 7.375%, 7/01/17 .............................. 45,000 46,444
Commonwealth Mortgage, Series B, Sub Series B-4, 6.55%, 1/01/27 ............................... 2,000,000 2,082,640
Commonwealth Mortgage, Series C, Sub Series C-3, 6.00%, 1/01/17 ............................... 2,000,000 2,101,820
Commonwealth Mortgage, Series D, Sub Series D-1, 6.40%, 7/01/17 ............................... 4,215,000 4,516,371
Commonwealth Mortgage, Series D, Sub Series D-2, 7.35%, 7/01/17 ............................... 155,000 157,106
Commonwealth Mortgage, Series H, Sub Series H-2, 6.55%, 1/01/17 ............................... 1,000,000 1,064,000
MF Housing, Series C, 5.30%, 11/01/16 ......................................................... 2,830,000 2,891,581
MF Housing, Series C, 5.30%, 11/01/17 ......................................................... 2,980,000 3,036,948
MF Housing, Series F, 7.10%, 5/01/13 .......................................................... 9,000,000 9,541,618
MF Housing, Series H, 5.55%, 5/01/15 .......................................................... 2,000,000 2,060,260
Virginia State Resources Authority Sewer System Revenue, Harrisonburg Rockingham Region,
Series A, Pre-Refunded, 6.00%, 5/01/22 ........................................................ 1,000,000 1,089,910
Virginia State Resources Authority Water and Sewer System Revenue,
Pooled Loan Program, ETM, Series A, 7.35%, 11/01/16 ........................................... 45,000 45,696
Pooled Loan Program, ETM, Series A, 7.45%, 11/01/16 ........................................... 10,000 10,156
Pooled Loan Program, Series A, Pre-Refunded, 7.35%, 11/01/16 .................................. 190,000 199,150
Pooled Loan Program, Series A, Pre-Refunded, 7.85%, 11/01/17 .................................. 100,000 102,764
Rapidan Service Authority, Refunding, 5.30%, 10/01/18 ......................................... 1,610,000 1,636,002
Virginia State Resources Authority Water System Revenue, Refunding, Series A, 6.125%, 4/01/19 .... 1,000,000 1,037,160
Virginia State Transportation Board Transportation Contract Revenue, U.S. Route 28 Project,
Refunding, 6.50%, 4/01/18 ..................................................................... 9,000,000 9,668,520
Washington County IDA,
College Facilities Revenue, Emory and Henry College Project, 6.375%, 4/01/23 .................. 3,295,000 3,457,674
Hospital Facilities Revenue, First Mortgage, Johnston Memorial Hospital, Pre-Refunded
7.00%, 7/01/22 ............................................................................. 3,000,000 3,365,250
West Point IDA, Solid Waste Disposal Revenue, Chesapeake Corp. Project, Refunding, Series B,
6.25%, 3/01/19 ................................................................................ 5,450,000 5,793,132
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University Project,
Asset Guaranty Insured, Refunding, 6.80%, 10/01/24 ............................................ 2,000,000 2,225,360
MBIA Insured, 5.25%, 10/01/28 ................................................................. 7,000,000 7,090,650
------------
TOTAL LONG TERM INVESTMENTS (COST $373,765,543) .................................................. 396,338,259
============
</TABLE>
105
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)Short Term Investments .9%
Alexander IDAR, Resource Recovery, Alexandria Arlington Waste Energy Facilities, Daily
VRDN and Put, 3.20%, 12/01/16 ..................................................... $ 400,000 $ 400,000
Hopewell IDAR, Exempt Facility-Hadson Power 13, Series A, Daily VRDN and Put,
3.40%, 4/01/15 .................................................................... 100,000 100,000
Petersburg Hospital Authority Revenue, Hospital Facility, Southside Regional,
Daily VRDN and Put, 3.30%, 7/01/17 ................................................ 300,000 300,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.40%, 12/01/15 .............................................. 100,000 100,000
Richmond BAN Revenue, Weekly VRDN and Put, 2.95%, 6/30/01 ............................ 1,230,000 1,230,000
Roanoke IDA Hospital Revenue, Carilion Health System, Series B, Daily VRDN and
Put, 3.30%, 7/01/27 ............................................................... 1,100,000 1,100,000
Southampton County IDAR, Various Exempt Facilities, Hadson Power, 11-A, Daily
VRDN and Put, 3.40%, 4/01/15 ...................................................... 400,000 400,000
------------
TOTAL SHORT TERM INVESTMENTS ($3,630,000) ............................................ 3,630,000
------------
TOTAL INVESTMENTS (COST $377,395,543) 99.4% .......................................... 399,968,259
OTHER ASSETS, LESS LIABILITIES .6% ................................................... 2,497,079
------------
NET ASSETS 100.0% .................................................................... $402,465,338
============
</TABLE>
See glossary of terms on page 107.
(a)Variable rate demand notes (VRDNs) are tax-exempt obligations which contain a
floating or variable rate adjustment formula and an unconditional right of
demand to receive payment of the principal balance plus accrued interest at
specified dates.
(b)Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
106
<PAGE>
FRANKLIN
TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
GLOSSARY OF TERMS
- --------------------------------------------------------------------------------
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipator Notes
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
DATES - Demand Adjustable Tax-Exempt Securities
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance (some of the securities shown as FSA
Insured were originally 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
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority/Agency Revenue
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
ISD - Independent School District
LP - Limited Partnership
MAC - Municipal Assistance Corporation
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
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency Revenue
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
VRDN - Variable Rate Demand Notes
107
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost ...................................................... $ 239,591,493 $ 1,733,617,423 $ 169,585,233 $ 60,441,733
=====================================================================
Value ..................................................... 249,338,365 1,859,310,832 178,962,707 63,890,666
Cash ....................................................... 453,849 2,937,764 909,151 97,700
Receivables:
Capital shares sold ....................................... 599,658 2,737,845 307,653 4,883
Interest .................................................. 4,179,533 30,917,500 2,548,605 903,493
---------------------------------------------------------------------
Total assets .............................................. 254,571,405 1,895,903,941 182,728,116 64,896,742
---------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................... -- 19,026,081 -- --
Capital shares redeemed ................................... 173,771 2,620,703 187,629 201,385
Affiliates ................................................ 172,958 1,091,345 136,264 32,062
Shareholders .............................................. 379,198 2,831,171 238,312 74,870
Distributions to shareholders .............................. 268,322 1,943,819 208,863 67,858
Other liabilities .......................................... 11,685 75,171 10,582 4,963
---------------------------------------------------------------------
Total liabilities .......................................... 1,005,934 27,588,290 781,650 381,138
---------------------------------------------------------------------
Net assets, at value ...................................... $ 253,565,471 $ 1,868,315,651 $ 181,946,466 $ 64,515,604
=====================================================================
Net assets consist of:
Accumulated distributions in excess of net
investment income ........................................ $ (118,337) $ (1,446,933) $ (69,534) $ (19,790)
Net unrealized appreciation ................................ 9,746,872 125,693,409 9,377,474 3,448,933
Accumulated net realized gain (loss) ....................... 157,462 130,672 25,857 (842,587)
Capital shares ............................................. 243,779,474 1,743,938,503 172,612,669 61,929,048
---------------------------------------------------------------------
Net assets, at value ...................................... $ 253,565,471 $ 1,868,315,651 $ 181,946,466 $ 64,515,604
=====================================================================
CLASS A:
Net assets, at value ....................................... $ 238,670,394 $ 1,785,719,850 $ 164,669,052 $ 64,515,604
=====================================================================
Shares outstanding ......................................... 20,428,832 149,957,856 13,640,887 5,622,682
=====================================================================
Net asset value per share* ................................. $ 11.68 $ 11.91 $ 12.07 $ 11.47
=====================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ....................... $ 12.20 $ 12.44 $ 12.61 $ 11.98
=====================================================================
CLASS C:
Net assets, at value ....................................... $ 14,895,077 $ 82,595,801 $ 17,277,414 --
=====================================================================
Shares outstanding ......................................... 1,268,242 6,879,584 1,422,594 --
=====================================================================
Net asset value per share* ................................. $ 11.74 $ 12.01 $ 12.15 --
=====================================================================
Maximum offering price per share
(net asset value per share / 99.00%) ....................... $ 11.86 $ 12.13 $ 12.27 --
=====================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
108
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (cont.)
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
LOUISIANA TAX-FREE MARYLAND TAX-FREE MISSOURI TAX-FREE NORTH CAROLINA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost .................................... $ 156,893,302 $ 252,537,414 $ 377,917,737 $ 365,164,289
---------------------------------------------------------------------------
Value ................................... 165,476,211 266,686,396 399,514,712 386,114,997
Cash ..................................... 305,781 249,157 6,058,078 289,929
Receivables:
Capital shares sold ..................... 193,094 250,439 940,376 525,872
Interest ................................ 2,673,199 3,706,195 5,850,968 5,895,624
---------------------------------------------------------------------------
Total assets .............................. 168,648,285 270,892,187 412,364,134 392,826,422
---------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ......... -- -- 3,476,279 3,937,636
Capital shares redeemed ................. 64,529 155,328 224,167 228,736
Affiliates .............................. 118,507 187,716 259,392 268,786
Shareholders ............................ 196,422 431,179 632,906 395,566
Distributions to shareholders ............ 175,419 263,307 406,193 388,343
Other liabilities ........................ 11,865 15,180 21,378 17,514
---------------------------------------------------------------------------
Total liabilities ......................... 566,742 1,052,710 5,020,315 5,236,581
---------------------------------------------------------------------------
Net assets, at value ..................... $ 168,081,543 $ 269,839,477 $ 407,343,819 $ 387,589,841
---------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ...... $ -- $ -- $ 291,898 $ 84,190
Accumulated distributions in excess of net
investment income ..................... (8,082) (132,235) -- --
Net unrealized appreciation .............. 8,582,909 14,148,982 21,596,975 20,950,708
Accumulated net realized gain (loss) ..... (965,535) 720,738 467,053 (547,047)
Capital shares ........................... 160,472,251 255,101,992 384,987,893 367,101,990
---------------------------------------------------------------------------
Net assets, at value ..................... $ 168,081,543 $ 269,839,477 $ 407,343,819 $ 387,589,841
---------------------------------------------------------------------------
CLASS A:
Net assets, at value ..................... $ 158,099,404 $ 253,013,935 $ 386,947,824 $ 349,418,706
---------------------------------------------------------------------------
Shares outstanding ....................... 13,646,332 21,707,475 31,744,185 28,736,778
---------------------------------------------------------------------------
Net asset value per share* ............... $ 11.59 $ 11.66 $ 12.19 $ 12.16
---------------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 95.75%) ..... $ 12.10 $ 12.18 $ 12.73 $ 12.70
---------------------------------------------------------------------------
CLASS C:
Net assets, at value ..................... $ 9,982,139 $ 16,825,542 $ 20,395,995 $ 38,171,135
---------------------------------------------------------------------------
Shares outstanding ....................... 856,418 1,432,197 1,666,913 3,119,698
---------------------------------------------------------------------------
Net asset value per share* ............... $ 11.66 $ 11.75 $ 12.24 $ 12.24
---------------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 99.00%) ..... $ 11.78 $ 11.87 $ 12.36 $ 12.36
---------------------------------------------------------------------------
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
109
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (cont.)
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND
----------------------------------
Assets:
Investments in securities:
<S> <C> <C>
Cost ................................................................. $ 132,333,563 $ 377,395,543
----------------------------------
Value ................................................................ 139,763,616 399,968,259
Cash .................................................................. 24,642 110,911
Receivables:
Capital shares sold .................................................. 36,132 652,072
Interest ............................................................. 1,831,209 5,745,538
----------------------------------
Total assets ......................................................... 141,655,599 406,476,780
----------------------------------
Liabilities:
Payables:
Investment securities purchased ...................................... 8,029,248 1,985,682
Capital shares redeemed .............................................. 206,802 739,184
Affiliates ........................................................... 95,044 263,947
Shareholders ......................................................... 207,824 597,830
Distributions to shareholders ......................................... 140,294 406,789
Other liabilities ..................................................... 8,393 18,010
----------------------------------
Total liabilities .................................................... 8,687,605 4,011,442
----------------------------------
Net assets, at value ................................................. $ 132,967,994 $ 402,465,338
----------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income .......... $ (129,623) $ (17,990)
Net unrealized appreciation ........................................... 7,430,053 22,572,716
Accumulated net realized gain (loss) .................................. 456,980 (11,611)
Capital shares ........................................................ 125,210,584 379,922,223
----------------------------------
Net assets, at value .................................................. $ 132,967,994 $ 402,465,338
----------------------------------
CLASS A:
Net assets, at value ................................................. $ 127,738,892 $ 379,669,732
----------------------------------
Shares outstanding .................................................... 11,183,309 31,970,839
----------------------------------
Net asset value per share* ............................................ $ 11.42 $ 11.88
----------------------------------
Maximum offering price per share (net asset value per share / 95.75%).. $ 11.93 $ 12.41
----------------------------------
CLASS C:
Net assets, at value .................................................. $ 5,229,102 $ 22,795,606
----------------------------------
Shares outstanding .................................................... 452,098 1,906,852
----------------------------------
Net asset value per share* ............................................ $ 11.57 $ 11.95
----------------------------------
Maximum offering price per share (net asset value per share / 99.00%).. $ 11.69 $ 12.07
----------------------------------
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
110
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C>
Interest ..................................... $ 14,252,165 $102,651,131 $ 9,886,345 $ 3,317,212
Expenses:
Management fees (Note 3) ..................... 1,332,672 8,253,117 990,149 377,311
Distribution fees (Note 3)
Class A ..................................... 209,832 1,569,714 152,350 59,866
Class C ..................................... 78,435 443,736 86,811 --
Transfer agent fees (Note 3) ................. 92,147 547,300 80,455 23,451
Custodian fees ............................... 2,396 17,681 1,720 596
Reports to shareholders ...................... 27,561 193,208 25,678 8,419
Registration and filing fees ................. 10,023 68,561 6,728 3,019
Professional fees ............................ 8,267 41,903 4,988 2,386
Trustees' fees and expenses .................. 2,256 15,436 1,651 645
Other ........................................ 17,879 70,887 16,873 9,321
------------------------------------------------------------------------
Total expenses .............................. 1,781,468 11,221,543 1,367,403 485,014
Expenses waived/paid by affiliate (Note 3) .. -- -- -- (234,025)
------------------------------------------------------------------------
Net expenses ............................ 1,781,468 11,221,543 1,367,403 250,989
------------------------------------------------------------------------
Net investment income .................. 12,470,697 91,429,588 8,518,942 3,066,223
------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments .......... 818,129 2,085,930 628,282 77,954
Net unrealized appreciation (depreciation) on
investments .............................. (5,618,719) 5,208,364 (506,735) 73,621
------------------------------------------------------------------------
Net realized and unrealized gain (loss) ....... (4,800,590) 7,294,294 121,547 151,575
------------------------------------------------------------------------
Net increase in net assets resulting from
operations ................................. $ 7,670,107 $98,723,882 $ 8,640,489 $ 3,217,798
========================================================================
</TABLE>
See notes to financial statements.
111
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN NORTH CAROLINA
LOUISIANA TAX-FREE MARYLAND TAX-FREE MISSOURI TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest ............................. $ 9,140,227 $ 13,945,587 $ 20,143,987 $ 19,706,684
---------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ............. 908,906 1,369,242 1,860,465 1,834,435
Distribution fees (Note 3)
Class A ............................. 132,654 228,527 333,608 308,798
Class C ............................. 49,091 91,261 98,494 192,150
Transfer agent fees (Note 3) ......... 55,112 119,957 161,190 145,708
Custodian fees ....................... 1,559 2,477 3,497 3,526
Reports to shareholders .............. 18,799 39,758 58,596 42,973
Registration and filing fees ......... 7,033 11,514 14,296 13,437
Professional fees .................... 4,591 6,009 9,168 8,889
Trustees' fees and expenses .......... 1,485 2,289 3,265 3,171
Other ................................ 24,111 19,278 22,023 25,756
---------------------------------------------------------------------------
Total expenses ...................... 1,203,341 1,890,312 2,564,602 2,578,843
---------------------------------------------------------------------------
Net investment income ........... 7,936,886 12,055,275 17,579,385 17,127,841
---------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments .. 488,946 1,358,390 490,267 832,636
Net unrealized appreciation
(depreciation) on investments ..... (690,249) (76,966) (605,052) 413,367
---------------------------------------------------------------------------
Net realized and unrealized
gain (loss).......................... (201,303) 1,281,424 (114,785) 1,246,003
---------------------------------------------------------------------------
Net increase in net assets resulting
from operations ..................... $ 7,735,583 $ 13,336,699 $ 17,464,600 $ 18,373,844
===========================================================================
</TABLE>
112 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND
--------------------------------
<S> <C> <C>
Investment income:
Interest ................................................... $ 7,846,303 $21,347,613
--------------------------------
Expenses:
Management fees (Note 3) ................................... 786,294 1,958,381
Distribution fees (Note 3)
Class A ................................................... 111,678 333,635
Class C ................................................... 22,659 114,347
Transfer agent fees (Note 3) ............................... 59,127 157,671
Custodian fees ............................................. 1,375 3,812
Reports to shareholders .................................... 17,347 50,204
Registration and filing fees ............................... 22,510 15,948
Professional fees .......................................... 4,082 9,690
Trustees' fees and expenses ................................ 1,316 3,458
Other ...................................................... 13,809 23,349
--------------------------------
Total expenses ............................................ 1,040,197 2,670,495
--------------------------------
Net investment income ................................. 6,806,106 18,677,118
--------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ........................ 1,167,854 267,647
Net unrealized appreciation (depreciation) on investments.. (1,644,556) 703,456
--------------------------------
Net realized and unrealized gain (loss) ..................... (476,702) 971,103
--------------------------------
Net increase in net assets resulting from operations ........ $ 6,329,404 $19,648,221
================================
</TABLE>
See notes to financial statements. 113
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 12,470,697 $ 11,383,019 $ 91,429,588 $ 86,115,157
Net realized gain from investments ....... 818,129 1,367,201 2,085,930 3,659,832
Net unrealized appreciation (depreciation)
on investments ......................... (5,618,719) 5,167,385 5,208,364 37,696,255
----------------------------------------------------------------------------
Net increase in net assets resulting
from operations ........................ 7,670,107 17,917,605 98,723,882 127,471,244
Distributions to shareholders from:
Net investment income:
Class A ................................. (11,939,099) (11,265,935) (88,302,683) (85,826,824)
Class C ................................. (559,627) (367,384) (3,126,905) (1,948,786)
In excess of net investment income:
Class A ................................. (113,035) -- (71,693) (1,333,610)
Class C ................................. (5,302) -- (2,539) (39,091)
Net realized gains:
Class A ................................. (917,072) (1,673,585) (1,175,768) --
Class C ................................. (51,296) (63,191) (52,335) --
----------------------------------------------------------------------------
Total distributions to shareholders ....... (13,585,431) (13,370,095) (92,731,923) (89,148,311)
Capital share transactions: (Note 2)
Class A ................................. 27,324,497 19,138,051 129,875,026 154,783,628
Class C ................................. 5,704,773 3,617,627 26,353,188 31,346,278
----------------------------------------------------------------------------
Total capital share transactions .......... 33,029,270 22,755,678 156,228,214 186,129,906
Net increase in net assets .............. 27,113,946 27,303,188 162,220,173 224,452,839
Net assets:
Beginning of year ......................... 226,451,525 199,148,337 1,706,095,478 1,481,642,639
----------------------------------------------------------------------------
End of year ............................... $253,565,471 $226,451,525 $1,868,315,651 $1,706,095,478
----------------------------------------------------------------------------
Undistributed net investment income
(accumulated distributions in excess
of net investment income) included in
net assets:
End of year .............................. $ (118,337) $ 28,029 $ (1,446,933) $ (1,372,701)
============================================================================
</TABLE>
114 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ..................... $ 8,518,942 $ 7,829,673 $ 3,066,223 $ 2,613,916
Net realized gain from investments ........ 628,282 1,121,637 77,954 224,890
Net unrealized appreciation (depreciation)
on investments ......................... (506,735) 2,137,360 73,621 1,505,198
----------------------------------------------------------------------------
Net increase in net assets resulting
from operations ......................... 8,640,489 11,088,670 3,217,798 4,344,004
Distributions to shareholders from:
Net investment income:
Class A .................................. (7,931,954) (7,567,564) (3,089,344) (2,620,364)
Class C .................................. (586,988) (284,878) -- --
In excess of net investment income:
Class A .................................. (51,167) (21,182) (19,790) --
Class C .................................. (3,786) -- -- --
Net realized gains:
Class A .................................. (739,309) -- -- --
Class C .................................. (67,075) -- -- --
----------------------------------------------------------------------------
Total distributions to shareholders ........ (9,380,279) (7,873,624) (3,109,134) (2,620,364)
Capital share transactions: (Note 2)
Class A .................................. 15,711,376 6,663,292 10,196,210 8,198,426
Class C .................................. 8,225,919 4,483,272 -- --
----------------------------------------------------------------------------
Total capital share transactions ........... 23,937,295 11,146,564 10,196,210 8,198,426
Net increase in net assets ............... 23,197,505 14,361,610 10,304,874 9,922,066
Net assets:
Beginning of year .......................... 158,748,961 144,387,351 54,210,730 44,288,664
----------------------------------------------------------------------------
End of year ................................ $ 181,946,466 $ 158,748,961 $ 64,515,604 $ 54,210,730
----------------------------------------------------------------------------
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
End of year ............................... $ (69,534) $ (14,581) $ (19,790) $ 23,121
============================================================================
</TABLE>
See notes to financial statements. 115
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 7,936,886 $ 6,898,866 $ 12,055,275 $ 10,725,033
Net realized gain from investments ....... 488,946 999,780 1,358,390 545,277
Net unrealized appreciation (depreciation)
on investments ......................... (690,249) 2,382,871 (76,966) 5,243,088
----------------------------------------------------------------------------
Net increase in net assets resulting
from operations ........................ 7,735,583 10,281,517 13,336,699 16,513,398
Distributions to shareholders from:
Net investment income:
Class A ................................. (7,761,641) (6,832,628) (11,448,258) (10,413,553)
Class C ................................. (350,878) (185,379) (607,017) (352,414)
In excess of net investment income:
Class A ................................. (7,732) -- (84,177) (45,566)
Class C ................................. (350) -- (4,463) --
Net realized gains:
Class A ................................. -- -- (871,879) --
Class C ................................. -- -- (56,008) --
----------------------------------------------------------------------------
Total distributions to shareholders ....... (8,120,601) (7,018,007) (13,071,802) (10,811,533)
Capital share transactions: (Note 2)
Class A ................................. 23,548,340 18,779,995 39,756,722 22,298,675
Class C ................................. 5,527,638 1,361,804 6,298,607 5,199,913
----------------------------------------------------------------------------
Total capital share transactions .......... 29,075,978 20,141,799 46,055,329 27,498,588
Net increase in net assets .............. 28,690,960 23,405,309 46,320,226 33,200,453
Net assets:
Beginning of year ......................... 139,390,583 115,985,274 223,519,251 190,318,798
End of year ............................... $ 168,081,543 $ 139,390,583 $ 269,839,477 $ 223,519,251
----------------------------------------------------------------------------
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
End of year .............................. $ (8,082) $ 175,633 $ (132,235) $ (43,595)
============================================================================
</TABLE>
116 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 17,579,385 $ 15,507,424 $ 17,127,841 $ 15,161,836
----------------------------------------------------------------------------
Net realized gain from investments ....... 490,267 1,728,020 832,636 1,738,033
Net unrealized appreciation (depreciation)
on investments ......................... (605,052) 9,244,449 413,367 7,658,995
----------------------------------------------------------------------------
Net increase in net assets resulting
from operations ........................ 17,464,600 26,479,893 18,373,844 24,558,864
Distributions to shareholders from:
Net investment income:
Class A ................................. (17,097,301) (15,241,932) (15,908,188) (14,484,337)
Class C ................................. (677,489) (326,894) (1,292,262) (658,410)
Net realized gains:
Class A ................................. (848,423) (1,036,132) -- --
Class C ................................. (35,015) (28,341) -- --
----------------------------------------------------------------------------
Total distributions to shareholders ....... (18,658,228) (16,633,299) (17,200,450) (15,142,747)
Capital share transactions: (Note 2)
Class A ................................. 80,047,632 28,895,509 50,945,959 27,492,884
Class C ................................. 10,400,259 5,488,123 18,021,556 9,954,454
----------------------------------------------------------------------------
Total capital share transactions .......... 90,447,891 34,383,632 68,967,515 37,447,338
Net increase in net assets .............. 89,254,263 44,230,226 70,140,909 46,863,455
Net assets:
Beginning of year ......................... 318,089,556 273,859,330 317,448,932 270,585,477
----------------------------------------------------------------------------
End of year ............................... $ 407,343,819 $ 318,089,556 $ 387,589,841 $ 317,448,932
============================================================================
Undistributed net investment income
included in net assets:
End of year .............................. $ 291,898 $ 487,303 $ 84,190 $ 156,799
============================================================================
</TABLE>
See notes to financial statements. 117
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 6,806,106 $ 7,003,510 $ 18,677,118 $ 16,760,495
Net realized gain from investments ....... 1,167,854 1,689,323 267,647 2,402,402
Net unrealized appreciation (depreciation)
on investments ......................... (1,644,556) 2,206,546 703,456 6,947,724
----------------------------------------------------------------------------
Net increase in net assets resulting
from operations ........................ 6,329,404 10,899,379 19,648,221 26,110,621
Distributions to shareholders from:
Net investment income:
Class A ................................. (6,648,209) (6,995,404) (18,091,651) (16,626,624)
Class C ................................. (157,897) (60,074) (779,882) (473,087)
In excess of net investment income:
Class A ................................. (6,115) (123,177) (17,247) --
Class C ................................. (145) (186) (743) --
Net realized gains:
Class A ................................. (2,340,989) (344,573) (789,058) (2,622,841)
Class C ................................. (58,681) (3,045) (38,432) (87,981)
----------------------------------------------------------------------------
Total distributions to shareholders ....... (9,212,036) (7,526,459) (19,717,013) (19,810,533)
Capital share transactions: (Note 2)
Class A ................................. (25,786) 628,778 47,531,270 38,943,306
Class C ................................. 3,223,143 1,299,563 9,617,382 6,296,146
----------------------------------------------------------------------------
Total capital share transactions .......... 3,197,357 1,928,341 57,148,652 45,239,452
Net increase in net assets ................. 314,725 5,301,261 57,079,860 51,539,540
Net assets:
Beginning of year ......................... 132,653,269 127,352,008 345,385,478 293,845,938
----------------------------------------------------------------------------
End of year ............................... $ 132,967,994 $ 132,653,269 $ 402,465,338 $ 345,385,478
----------------------------------------------------------------------------
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
End of year .............................. $ (129,623) $ (123,363) $ (17,990) $ 194,415
============================================================================
</TABLE>
118 See notes to financial statements.
<PAGE>
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
objective is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
sale or reported bid and asked prices, information with respect to bond and note
transactions, quotations from bond dealers, market transactions in comparable
securities, and various relationships between securities are used to determine
the value of the security. The Trust may utilize a pricing service, bank or
broker/dealer experienced in such matters to perform any of the pricing
functions under procedures approved by the Board of Trustees. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially 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 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 for the Franklin Kentucky Tax-Free Income Fund, offer two
classes of shares: Class A and Class C. Each class of shares differs by their
initial sales load, distribution fees, voting rights on matters affecting a
single class and the exchange privilege of each class.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively.
119
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At February 28, 1999, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
1999
<S> <C> <C> <C> <C>
Shares sold ................................................... 3,928,750 $ 46,288,384 27,102,249 $ 322,736,020
Shares issued in reinvestment of distributions ................ 497,017 5,847,857 2,172,745 25,852,864
Shares redeemed ............................................... (2,107,060) (24,811,744) (18,386,112) (218,713,858)
---------------------------------------------------------------
Net increase .................................................. 2,318,707 $ 27,324,497 10,888,882 $ 129,875,026
===============================================================
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 C SHARES:
1999
Shares sold ................................................... 572,980 $ 6,785,441 3,192,922 $ 38,333,343
Shares issued in reinvestment of distributions ................ 27,698 327,338 142,767 1,712,748
Shares redeemed ............................................... (119,184) (1,408,006) (1,141,979) (13,692,903)
---------------------------------------------------------------
Net increase .................................................. 481,494 $ 5,704,773 2,193,710 $ 26,353,188
===============================================================
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
===============================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Shares sold ................................................... 2,585,504 $ 31,326,826 1,245,441 $ 14,308,425
Shares issued in reinvestment of distributions ................ 368,092 4,460,541 117,256 1,347,644
Shares redeemed ............................................... (1,656,003) (20,075,991) (474,917) (5,459,859)
---------------------------------------------------------------
Net increase .................................................. 1,297,593 $ 15,711,376 887,780 $ 10,196,210
===============================================================
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 C SHARES:
1999
Shares sold ................................................... 929,760 $ 11,327,791
Shares issued in reinvestment of distributions ................ 35,188 428,887
Shares redeemed ............................................... (289,533) (3,530,759)
------------------------------
Net increase .................................................. 675,415 $ 8,225,919
==============================
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
==============================
</TABLE>
120
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Shares sold .................................................... 3,221,007 $ 37,387,696 4,888,050 $ 57,057,592
Shares issued in reinvestment of distributions ................. 306,021 3,551,482 564,968 6,597,373
Shares redeemed ................................................ (1,499,172) (17,390,838) (2,046,845) (23,898,243)
----------------------------------------------------------------
Net increase ................................................... 2,027,856 $ 23,548,340 3,406,173 $ 39,756,722
=================================================================
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 C SHARES:
1999
Shares sold .................................................... 536,583 $ 6,261,123 747,540 $ 8,797,704
Shares issued in reinvestment of distributions ................. 16,406 191,580 38,241 450,176
Shares redeemed ................................................ (79,281) (925,065) (250,371) (2,949,273)
----------------------------------------------------------------
Net increase ................................................... 473,708 $ 5,527,638 535,410 $ 6,298,607
=================================================================
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
=================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Shares sold .................................................... 8,870,628 $ 108,367,210 6,146,411 $ 74,796,684
Shares issued in reinvestment of distributions ................. 712,755 8,699,355 654,741 7,962,453
Shares redeemed ................................................ (3,032,017) (37,018,933) (2,617,169) (31,813,178)
----------------------------------------------------------------
Net increase ................................................... 6,551,366 $ 80,047,632 4,183,983 $ 50,945,959
================================================================
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 C SHARES:
1999
Shares sold .................................................... 904,387 $ 11,088,809 1,597,185 $ 19,527,930
Shares issued in reinvestment of distributions ................. 41,559 509,208 68,045 832,816
Shares redeemed ................................................ (97,734) (1,197,758) (190,827) (2,339,190)
-----------------------------------------------------------------
Net increase ................................................... 848,212 $ 10,400,259 1,474,403 $ 18,021,556
=================================================================
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
================================================================
</TABLE>
121
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Shares sold ....................................... 1,063,854 $ 12,279,433 6,206,679 $ 73,827,181
Shares issued in reinvestment of distributions .... 369,534 4,258,680 791,873 9,417,456
Shares redeemed ................................... (1,433,300) (16,563,899) (3,001,436) (35,713,367)
------------------------------------------------------------------
Net increase (decrease) ........................... 88 $ (25,786) 3,997,116 $ 47,531,270
==================================================================
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 C SHARES:
1999
Shares sold ....................................... 324,935 $ 3,790,151 916,509 $ 10,970,899
Shares issued in reinvestment of distributions .... 12,858 149,890 41,576 497,850
Shares redeemed ................................... (61,489) (716,898) (154,863) (1,851,367)
-------------------------------------------------------------------
Net increase ...................................... 276,304 $ 3,223,143 803,222 $ 9,617,382
===================================================================
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 Funds are also officers or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin/Templeton Investor Services, Inc. (Investor Services),
and Franklin Templeton Services, Inc. (FT Services), the Funds' investment
manager, principal underwriter, 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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH-END NET ASSETS
------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
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 A and Class C, respectively, for costs incurred in
marketing the Fund's shares.
122
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Distributors received (paid) net commissions from (on) sales of the Funds
shares, and received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid) ............. $(63,518) $(582,368) $(119,203) $10,329 $(76,609)
Contingent deferred sales charges ........... $ 3,487 $ 35,807 $ 11,492 $ -- $ 3,048
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions received (paid) ............. $(79,654) $(209,521) $(208,870) $(21,445) $(61,565)
Contingent deferred sales charges ........... $ 10,749 $ 5,859 $ 14,317 $ 1,125 $ 10,724
</TABLE>
The Funds paid transfer agent fees of $1,442,118 of which $1,156,051 was paid to
Investor Services.
4. INCOME TAXES
At February 28, 1999, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA NORTH CAROLINA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------
<S> <C> <C> <C>
Capital loss carryovers expiring in:
2003 $450,595 $965,535 $357,415
2004 65,389 -- --
2005 294,278 -- 187,812
-----------------------------------------------------
$810,262 $965,535 $545,227
=====================================================
</TABLE>
At February 28, 1999, Franklin Kentucky Tax-Free Income Fund and Franklin
Virginia Tax-Free Income Fund have deferred capital loss occurring subsequent to
October 31, 1998 of $32,325 and $11,635, respectively. For tax purposes, such
losses will be reflected in the year ending February 29, 2000.
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
At February 28, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
Investments at cost .................... $239,591,493 $1,733,617,423 $169,585,233 $60,441,733 $156,893,302
=========================================================================================
Unrealized appreciation ................ $ 13,653,915 $ 129,880,295 $ 9,538,820 $ 3,514,113 $ 8,707,100
Unrealized depreciation ................ (3,907,043) (4,186,886) (161,346) (65,180) (124,191)
-----------------------------------------------------------------------------------------
Net unrealized appreciation ............ $ 9,746,872 $ 125,693,409 $ 9,377,474 $ 3,448,933 $ 8,582,909
=========================================================================================
</TABLE>
123
<PAGE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Investments at cost .................... $252,537,414 $377,918,414 $365,166,109 $132,333,563 $377,395,543
------------------------------------------------------------------------------------------
Unrealized appreciation ................ $ 14,221,824 $ 21,991,800 $ 21,292,215 $ 7,733,433 $ 22,841,856
Unrealized depreciation ................ (72,842) (395,502) (343,327) (303,380) (269,140)
------------------------------------------------------------------------------------------
Net unrealized appreciation ............ $ 14,148,982 $ 21,596,298 $ 20,948,888 $ 7,430,053 $ 22,572,716
------------------------------------------------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 28,1999 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases .............................. $50,507,349 $289,098,467 $43,563,894 $18,856,615 $51,146,054
Sales .................................. $20,412,935 $133,138,077 $21,540,685 $ 6,146,966 $23,017,326
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases .............................. $48,017,428 $131,026,568 $87,122,334 $33,075,902 $82,664,315
Sales .................................. $14,482,995 $ 52,921,989 $18,645,238 $37,731,603 $32,940,682
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
At February 28, 1999, the Franklin Florida Tax-Free Income Fund held defaulted
securities with a value aggregating $11,934,000 representing .64% 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.
124
<PAGE>
FRANKLIN TAX-FREE TRUST
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE FRANKLIN TAX-FREE TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the ten funds included in
the report, which are part of the Franklin Tax-Free Trust, (hereafter referred
to as the "Trust") at February 28, 1999, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 2, 1999
125
<PAGE>
FRANKLIN TAX-FREE TRUST
TAX INFORMATION
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Trust hereby
designates the following amounts as capital gain dividends for the fiscal year
ended February 28, 1999.
<TABLE>
<S> <C>
Franklin Alabama Tax-Free Income Fund ............................. $ 817,379
Franklin Florida Tax-Free Income Fund ............................. 1,358,775
Franklin Georgia Tax-Free Income Fund ............................. 628,282
Franklin Maryland Tax-Free Income Fund ............................ 1,358,390
Franklin Missouri Tax-Free Income Fund ............................ 489,903
Franklin Texas Tax-Free Income Fund ............................... 1,087,712
Franklin Virginia Tax-Free Income Fund ............................ 279,282
</TABLE>
Under Section 852 (b)(5)(A) of the Internal Revenue Code, the Trust hereby
designates 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1999.
126
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's annual report for the 12
months ended February 28, 1999.
The year under review was challenging for the global and domestic bond markets.
Rarely have we witnessed the magnitude of volatility that we experienced over
the past year, which was due to a number of different factors, ranging from the
global financial crisis that impacted regions in Asia, Latin America and eastern
Europe, to the liquidity crisis created by the concerns and uncertainties
associated with a number of hedge funds' investment activities in third quarter
1998. Although certain market segments, such as the corporate high yield and
mortgage areas, were hit the hardest, the municipal bond market also faced some
challenges. The four-year declining interest-rate trend continued in 1998 as
many regions around the world experienced slowing and, in certain cases,
recession- or even depression-like economies. These regions had a direct impact
on the U.S. economy through fewer purchases of American goods, reducing U.S.
export levels. Throughout the same period, the American consumer boosted the
domestic economy at much higher-than-anticipated levels. With global and
domestic inflation virtually nonexistent, the Federal Reserve Board's (the
Fed's) monetary policy panel, the Federal Open Market Committee, three times
made quarter-point cuts to the federal funds target rate, lowering it to 4.75%
on November 17, 1998. The Fed hoped to stimulate global economic growth and
instill confidence in the financial markets. The 30-year Treasury bond followed
suit, dropping from 5.92% on February 28, 1998, to 5.57% on February 28, 1999.
As interest rates declined, municipal bond issuers increased their refinancing
activity of outstanding, higher interest-rate debt. In addition, many
municipalities were in excellent fiscal condition due to the strong national
economy, which gave them greater confidence to borrow money for new projects.
These two conditions led to a surge in 1998's new-issue supply with total volume
closely matching 1993's record $293 billion. Although demand from individual
investors was relatively stable, at
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ....................................................... 1
Special Feature:
A Word About
Municipal Bond Insurance ................................................. 4
Fund Reports
Franklin Arizona
Tax-Free Income Fund ................................................... 6
Franklin Colorado
Tax-Free Income Fund ................................................... 11
Franklin Connecticut
Tax-Free Income Fund ................................................... 16
Franklin Federal
Intermediate-Term
Tax-Free Income Fund ................................................... 21
Franklin High Yield
Tax-Free Income Fund ................................................... 25
Franklin Indiana
Tax-Free Income Fund ................................................... 31
Franklin Michigan
Tax-Free Income Fund ................................................... 36
Franklin New Jersey
Tax-Free Income Fund ................................................... 41
Franklin Oregon
Tax-Free Income Fund ................................................... 46
Franklin Pennsylvania
Tax-Free Income Fund ................................................... 51
Franklin Puerto Rico
Tax-Free Income Fund ................................................... 56
Municipal Bond Ratings ................................................... 61
Financial Highlights &
Statement of Investments ................................................. 63
Financial Statements ..................................................... 135
Notes to Financial Statements ............................................ 147
Independent Auditors' Report ............................................. 153
Tax Information .......................................................... 154
</TABLE>
FUND CATEGORY
[PYRAMID GRAPHIC]
<PAGE>
times, the municipal bond market had difficulty absorbing this huge bond supply,
which caused the municipal bond market to underperform the Treasury bond market
during the past year. To put it in perspective, in October 1998 an investor
could purchase a 30-year, AAA municipal bond yielding approximately 105% of the
yield on a comparable Treasury bond versus the historical average of
approximately 89%. The last time we saw such attractive municipal market
valuations was 1985 or 1986.
The prevalence of bond insurance was another trend affecting municipal bond
market fundamentals. The increasingly higher percentages of AAA-insured
municipal bond issues coming to market over the past four years seems to have
finally peaked at approximately 50% in 1998, compared with 37% in 1994. One of
the impacts on the market from having so many new bonds insured has been fewer
and fewer uninsured bonds. With investors continuing to demand higher yields in
a falling interest-rate environment, municipal bond market credit spreads, or
the additional interest rate paid to investors for AAA- versus BBB-rated bonds,
were extremely narrow. This condition abruptly changed in July 1998 when a large
health care organization, with a substantial amount of insured debt outstanding,
filed for bankruptcy. In large part, this significant event prompted municipal
bond insurers to reevaluate their business models and use a less aggressive
strategy in certain market sectors, particularly health care. The market impact
has been a widening of credit spreads in the lower-quality, or high yield,
market segment.
Franklin's municipal bond portfolio managers and research analysts certainly
welcome the widening credit spreads, as we have focused on purchasing
AAA-insured securities for the most part, over the past few years. We felt we
weren't getting the appropriate reward of higher interest rates, to take on the
additional credit risk of many lower-quality bonds. As a result, many of our
investment-grade portfolios have a record-high percentage of their net assets
invested in AAA bonds at the funds' fiscal year-end. We believe this puts us in
an excellent position to take advantage of portfolio management opportunities,
as we are now seeing lower-quality securities with the appropriate risk/reward
relationship. Our team of research analysts will continue to seek out these
opportunities and work closely with the portfolio managers in making their
recommendations.
2
<PAGE>
Looking forward, we anticipate supply pressures to moderate in 1999. Already,
municipal new issuance for the first six weeks of the year was down about 18%,
compared with the same period last calendar year.* We also expect mid-1998's
improved municipal bond demand to continue. Under such circumstances, the
municipal bond market would be well-positioned in 1999.
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 portfolios. Generally, a taxable investment would need to offer a higher
yield, called the taxable equivalent yield, to match the yield on a tax-free
investment. 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,
/s/ Charles B. Johnson
- ----------------------
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Thomas J. Kenny
- ----------------------
Thomas J. Kenny
Director
Franklin Municipal Bond Department
WHAT DOES "TAXABLE EQUIVALENT" MEAN FOR YOU?
For yield and distribution rate, the taxable equivalent is the amount a taxable
investment would have to earn to match a tax-free investment such as municipal
bonds.+ You can find your fund's taxable equivalent distribution rate and yield
in the Performance Summary that follows your fund's report.
+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.
*Source: The Bond Buyer, February 18, 1999.
3
<PAGE>
A WORD ABOUT MUNICIPAL BOND INSURANCE
[SPECIAL FEATURE LOGO]
Municipal bond insurers guarantee the timely payment of interest and principal
on insured bond issues, providing bond investors with additional protection
against the potential of the issuer's payment default. Moody's and Standard &
Poor's assign the four principal municipal bond insurers -- MBIA, AMBAC, FGIC
and FSA -- their highest rating, AAA, based on their ability to pay claims. This
is important, as once a bond is insured it no longer carries the underlying
security's rating, but the insurer's rating. In 1998, the four primary municipal
bond insurers comprised more than 98% of the market, with MBIA controlling the
largest share, 35.4%.
Municipal bond insurers often work with bond reinsurers to enhance their ability
to generate new business. By purchasing portions of insured bond portfolios from
the insurers, bond reinsurers assume a portion of the risk, freeing up the
insurers' capital and enabling them to insure additional municipal bond issues.
The added capital provided by the reinsurers, in turn, increases the overall
size of the insured municipal bond market.
Currently, many municipal bond issuers favor the use of bond insurance. In 1998,
municipal bond insurers covered 50.8% of the new-issue municipal bond market,
involving 5,825 new issues valued at $145 billion. For issuers, obtaining bond
insurance can often lower their borrowing costs as it often improves their
credit rating,
4
<PAGE>
which more than makes up for the cost of the insurance. In addition, the four
primary, AAA-rated bond insurers presently charge issuers comparatively
inexpensive insurance premiums, due to the extremely competitive environment for
municipal bond insurance. Bond insurance also enables issuers to market their
bonds to a larger pool of potential buyers. For example, insured municipal bond
funds purchase primarily, if not exclusively, insured bonds.
Low-cost municipal bond insurance benefits investors beyond the credit
protection it provides against payment default. As insured bonds appeal to a
wider variety of investors, insurance can lead to improved liquidity, allowing
investors to more easily buy and sell bonds.
[PIE CHART]
INSURERS' MARKET SHARE*
12/31/98
<TABLE>
<S> <C>
MBIA 35.4%
FSA 22.0%
GFIC 21.5%
AMBAC 19.6%
Other 1.5%
</TABLE>
[BAR GRAPH]
INSURED MUNICIPAL BOND ISSUES*
As a % of Municipal Bond Market
<TABLE>
<S> <C>
1993 37.0%
1994 37.0%
1995 43.0%
1996 46.0%
1997 49.0%
1998 50.8%
</TABLE>
*Source: The Bond Buyer, 1999.
5
<PAGE>
FRANKLIN ARIZONA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Arizona Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 50.2%
AA 17.2%
A 14.6%
BBB 18.0%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Arizona Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Arizona state personal income
taxes through a portfolio consisting primarily of Arizona municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE
[ARIZONA STATE GRAPHIC]
Fueled by solid economic gains, high income tax receipts and stringent borrowing
practices, Arizona achieved tremendous growth during the year under review. This
was accomplished despite the state's lower-than-average income levels and
reduced corporate and personal income tax rates.(2) Unemployment levels remained
below the nation's while efforts to shift away from the traditional pillars of
mining, agriculture and real estate were successful. The state generated its
fourth consecutive operating surplus as ongoing diversification efforts
increased the activities of the services and manufacturing sectors. With exports
accounting for more than 100,000 jobs, and high-technology goods making up some
80% of the total, Arizona, like many states, faced vulnerabilities as a result
of the Asian economic crisis. However, the state's ample $291 million budget
stabilization fund could counter a cyclical downturn. In addition, the state
intends to increase maximum contribution levels to this "rainy day" fund to
7.1%, from 5.6% of general fund revenues, in fiscal 1999.(2)
The state predicts some general fund depletion in fiscal 1999, in part due to
increased spending as a result of "Students FIRST." This legislation, upheld by
the Arizona Supreme Court, mandated centralization of various aspects of the
school system. Although not allowed to issue general obligation (GO) debt, which
helps to explain the low overall debt levels and Standard & Poor's high ratings
on the state's revenue bonds, certain districts will be allowed to vote in
support of property tax increases that may ultimately help fund special GO
issues. Regardless, as one of the fastest-growing economies in the nation,
Arizona looks well-positioned to handle the increased burden.
(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, August 10, 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 64 of
this report.
6
<PAGE>
PORTFOLIO NOTES
The supply of Arizona bonds in 1998 was very strong at $4.18 billion, an
increase of 35.6% from 1997. Fifty-eight percent of Arizona bonds were insured,
compared with 47.5% in 1997, as bond insurance was comparatively inexpensive
during the 12 months under review. The large supply of insured bonds, which
typically garner the highest investment rating, enabled the fund to maintain
approximately 50% of the portfolio in AAA-rated securities at the end of the
reporting period.
We focused on purchasing insured and high quality bonds during the 12 months
under review, as a result of the tight credit spreads, the difference in the
interest rates of lower- and higher-quality issues. Such purchases included
Chandler Hospital District, Gilbert School District #41, Mesa General Obligation
and Mohave County United School District #1.
We also found value in the hospital sector during the reporting period. We felt
the bonds were cheap relative to other market sectors. Hospitals increased from
11.8% of total long-term investments on February 28, 1998, to 16.7% on February
28, 1999. Significant purchases included Maricopa County Industrial Development
Authority Catholic Healthcare West Project, Arizona Health Facilities Authority
Hospital System Revenue - Northern Arizona Healthcare Systems and Maricopa
County Industrial Development Authority for the Mayo Clinic Hospital.
Asset growth was steady during the fund's fiscal year -- the fund's total net
assets increased 7%, from $824.8 million on February 28, 1998, to $884.9 million
at the end of the reporting period. However, due to the low interest-rate
environment, it was difficult for the fund to generate enough capital losses to
offset the gains realized from prerefunded bond sales. Thus, the fund made
distributions totaling 4.81 cents per share in long-term capital gains and 0.19
cents per share in short-term capital gains in June and December. In addition,
we were forced to invest proceeds from sales as well as new money in securities
that carried a lower interest rate than those bonds we sold. As a result, the
dividend decreased in March 1998, and the fund may make another capital gain
distribution in June 1999.
PORTFOLIO BREAKDOWN
Franklin Arizona
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 30.2%
Hospitals 16.7%
Prerefunded 13.2%
Education 9.2%
Industrial 6.8%
Housing 6.6%
General Obligation 4.6%
Transportation 4.4%
Other Revenue 4.3%
Certificates of Participation 2.7%
Miscellaneous 0.8%
Sales Tax 0.5%
</TABLE>
7
<PAGE>
Going forward, we expect the Arizona bond supply to remain stable in 1999. This,
combined with strong demand for the state's bonds, should continue to make
Arizona municipal securities attractive investments for investors seeking
tax-free income. We will continue our strategy of protecting share value and
maintaining the fund's competitive yield.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.0 cents 4.44 cents
April 5.0 cents 4.47 cents
May 5.0 cents 4.47 cents
June 5.0 cents 4.47 cents
July 5.0 cents 4.46 cents
August 5.0 cents 4.46 cents
September 4.8 cents 4.26 cents
October 4.8 cents 4.23 cents
November 4.8 cents 4.23 cents
December 4.8 cents 4.23 cents
January 4.8 cents 4.23 cents
February 4.8 cents 4.23 cents
- --------------------------------------------------------------------------------
TOTAL 58.8 CENTS 52.18 CENTS
</TABLE>
*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.
8
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.06 $11.38 $11.44
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5880
Long-Term Capital Gain $0.0481
Short-Term Capital Gain $0.0019
Total $0.6380
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
Net Asset Value -$0.06 $11.45 $11.51
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5218
Long-Term Capital Gain $0.0481
Short-Term Capital Gain $0.0019
Total $0.5718
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.17% +33.16% +107.43% +133.44%
Average Annual Total Return(2) +0.68% +4.99% +7.10% +7.25%
Distribution Rate(3) 4.79%
Taxable Equivalent Distribution Rate(4) 8.35%
30-Day Standardized Yield(5) 3.87%
Taxable Equivalent Yield(4) 6.75%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------------
Cumulative Total Return(1) +4.54% +18.06% +27.03%
Average Annual Total Return(2) +2.47% +5.35% +6.17%
Distribution Rate(3) 4.40%
Taxable Equivalent Distribution Rate(4) 7.67%
30-Day Standardized Yield(5) 3.45%
Taxable Equivalent Yield(4) 6.01%
</TABLE>
Franklin Arizona Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 4.81 cents ($0.0481) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results.
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Arizona state personal income tax bracket of 42.6%, based
on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
9
<PAGE>
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +0.68%
5-Year +4.99%
10-Year +7.10%
Since Inception (9/1/87) +7.25%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------
<S> <C>
1-Year +2.47%
3-Year +5.35%
Since Inception (5/1/95) +6.17%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89--2/28/99)
The following line graph compares the performance of the Franklin Arizona
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Fund No. 0126 Inception 9/1/87
- -------------------------------------------------------------------------------
Date Franklin Arizona Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class A Index
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,575 $10,000 $10,000
3/31/89 $9,551 -0.24% $9,976 0.58% $10,058
4/30/89 $9,769 2.37% $10,212 0.65% $10,123
5/31/89 $9,979 2.08% $10,425 0.57% $10,181
6/30/89 $10,105 1.36% $10,567 0.24% $10,206
7/31/89 $10,194 1.36% $10,710 0.24% $10,230
8/31/89 $10,122 -0.98% $10,605 0.16% $10,246
9/30/89 $10,068 -0.30% $10,574 0.32% $10,279
10/31/89 $10,159 1.22% $10,703 0.48% $10,329
11/30/89 $10,308 1.75% $10,890 0.24% $10,353
12/31/89 $10,390 0.82% $10,979 0.16% $10,370
1/31/90 $10,316 -0.47% $10,928 1.03% $10,477
2/28/90 $10,438 0.89% $11,025 0.47% $10,526
3/31/90 $10,442 0.03% $11,028 0.55% $10,584
4/30/90 $10,386 -0.72% $10,949 0.16% $10,601
5/31/90 $10,601 2.18% $11,187 0.23% $10,625
6/30/90 $10,707 0.88% $11,286 0.54% $10,682
7/31/90 $10,884 1.48% $11,453 0.38% $10,723
8/31/90 $10,601 -1.45% $11,287 0.92% $10,822
9/30/90 $10,595 0.06% $11,294 0.84% $10,913
10/31/90 $10,755 1.81% $11,498 0.60% $10,978
11/30/90 $10,989 2.01% $11,729 0.22% $11,002
12/31/90 $10,993 0.44% $11,781 0.00% $11,002
1/31/91 $11,188 1.34% $11,939 0.60% $11,068
2/28/91 $11,298 0.87% $12,042 0.15% $11,085
3/31/91 $11,324 0.04% $12,047 0.15% $11,102
4/30/91 $11,479 1.34% $12,209 0.15% $11,118
5/31/91 $11,559 0.89% $12,317 0.30% $11,152
6/30/91 $11,538 -0.10% $12,305 0.29% $11,184
7/31/91 $11,713 1.22% $12,455 0.15% $11,201
8/31/91 $11,835 1.32% $12,620 0.29% $11,233
9/30/91 $12,001 1.30% $12,784 0.44% $11,283
10/31/91 $12,068 0.90% $12,899 0.15% $11,299
11/30/91 $12,113 0.28% $12,935 0.29% $11,332
12/31/91 $12,339 2.15% $13,213 0.07% $11,340
1/31/92 $12,384 0.23% $13,243 0.15% $11,357
2/29/92 $12,379 0.03% $13,247 0.36% $11,398
3/31/92 $12,386 0.04% $13,253 0.51% $11,456
4/30/92 $12,485 0.89% $13,370 0.14% $11,472
5/31/92 $12,642 1.18% $13,528 0.14% $11,488
6/30/92 $12,800 1.68% $13,756 0.36% $11,530
7/31/92 $13,263 3.00% $14,168 0.21% $11,554
8/31/92 $13,118 -0.98% $14,029 0.28% $11,586
9/30/92 $13,219 0.65% $14,121 0.28% $11,619
10/31/92 $13,072 -0.98% $13,982 0.35% $11,659
11/30/92 $13,377 1.79% $14,232 0.14% $11,676
12/31/92 $13,552 1.02% $14,378 -0.07% $11,667
1/31/93 $13,728 1.16% $14,544 0.49% $11,725
2/28/93 $14,062 3.62% $15,071 0.35% $11,766
3/31/93 $13,984 -1.06% $14,911 0.35% $11,807
4/30/93 $14,064 1.01% $15,062 0.28% $11,840
5/31/93 $14,145 0.56% $15,146 0.14% $11,856
6/30/93 $14,375 1.67% $15,399 0.14% $11,873
7/31/93 $14,370 0.13% $15,419 0.00% $11,873
8/31/93 $14,651 2.08% $15,740 0.28% $11,906
9/30/93 $14,808 1.14% $15,919 0.21% $11,931
10/31/93 $14,851 0.19% $15,949 0.41% $11,980
11/30/93 $14,782 -0.88% $15,809 0.07% $11,989
12/31/93 $15,068 2.11% $16,143 0.00% $11,989
1/31/94 $15,215 1.14% $16,327 0.27% $12,021
2/28/94 $14,900 -2.59% $15,904 0.34% $12,062
3/31/94 $14,416 -4.07% $15,257 0.34% $12,103
4/30/94 $14,485 0.85% $15,386 0.14% $12,120
5/31/94 $14,554 0.87% $15,520 0.07% $12,128
6/30/94 $14,518 -0.61% $15,425 0.34% $12,170
7/31/94 $14,745 1.83% $15,708 0.27% $12,202
8/31/94 $14,802 0.35% $15,763 0.40% $12,251
9/30/94 $14,660 -1.47% $15,531 0.27% $12,284
10/31/94 $14,450 -1.78% $15,255 0.07% $12,293
11/30/94 $14,188 -1.81% $14,978 0.13% $12,309
12/31/94 $14,461 2.20% $15,308 0.00% $12,309
1/31/95 $14,776 2.86% $15,746 0.40% $12,358
2/28/95 $15,146 2.91% $16,204 0.40% $12,408
3/31/95 $15,302 1.15% $16,390 0.33% $12,448
4/30/95 $15,348 0.12% $16,410 0.33% $12,490
5/31/95 $15,725 3.19% $16,933 0.20% $12,515
6/30/95 $15,620 -0.87% $16,786 0.20% $12,540
7/31/95 $15,723 0.95% $16,946 0.00% $12,540
8/31/95 $15,883 1.27% $17,161 0.26% $12,572
9/30/95 $15,958 0.63% $17,269 0.20% $12,597
10/31/95 $16,175 1.45% $17,519 0.33% $12,639
11/30/95 $16,422 1.66% $17,810 -0.07% $12,630
12/31/95 $16,574 0.96% $17,981 -0.07% $12,621
1/31/96 $16,652 0.76% $18,118 0.59% $12,696
2/29/96 $16,541 -0.68% $17,995 0.32% $12,736
3/31/96 $16,358 -1.28% $17,764 0.52% $12,803
4/30/96 $16,334 -0.28% $17,714 0.39% $12,852
5/31/96 $16,354 -0.04% $17,707 0.19% $12,877
6/30/96 $16,553 1.09% $17,900 0.06% $12,885
7/31/96 $16,663 0.91% $18,063 0.19% $12,909
8/31/96 $16,676 -0.02% $18,060 0.19% $12,934
9/30/96 $16,905 1.40% $18,313 0.32% $12,975
10/31/96 $17,060 1.13% $18,519 0.32% $13,017
11/30/96 $17,306 1.83% $18,858 0.19% $13,041
12/31/96 $17,264 -0.42% $18,779 0.00% $13,041
1/31/97 $17,298 0.19% $18,815 0.32% $13,083
2/28/97 $17,439 0.92% $18,988 0.31% $13,124
3/31/97 $17,240 -1.33% $18,735 0.25% $13,156
4/30/97 $17,384 0.84% $18,893 0.12% $13,172
5/31/97 $17,590 1.51% $19,178 -0.06% $13,164
6/30/97 $17,753 1.07% $19,383 0.12% $13,180
7/31/97 $18,167 2.77% $19,920 0.12% $13,196
8/31/97 $18,043 -0.94% $19,733 0.19% $13,221
9/30/97 $18,237 1.19% $19,968 0.25% $13,254
10/31/97 $18,337 0.64% $20,096 0.25% $13,287
11/30/97 $18,453 0.59% $20,214 -0.06% $13,279
12/31/97 $18,691 1.46% $20,509 -0.12% $13,263
1/31/98 $18,841 1.03% $20,720 0.19% $13,288
2/28/98 $18,860 0.03% $20,727 0.19% $13,314
3/31/98 $18,860 0.09% $20,745 0.19% $13,339
4/30/98 $18,827 -0.45% $20,652 0.18% $13,363
5/31/98 $19,060 1.58% $20,978 0.18% $13,387
6/30/98 $19,117 0.39% $21,060 0.12% $13,403
7/31/98 $19,168 0.25% $21,113 0.12% $13,419
8/31/98 $19,405 1.55% $21,440 0.12% $13,435
9/30/98 $19,640 1.25% $21,708 0.12% $13,451
10/31/98 $19,619 0.00% $21,708 0.24% $13,484
11/30/98 $19,684 0.35% $21,784 0.00% $13,484
12/31/98 $19,707 0.25% $21,838 -0.06% $13,476
1/31/99 $19,912 1.19% $22,098 0.24% $13,508
2/28/99 $19,862 -0.44% $22,001 0.12% $13,524
Total Return 98.62% 120.01% 35.24%
- -------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95--2/28/99)
The following line graph compares the performance of the Franklin Arizona
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Date Franklin Arizona Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,902 $10,000 $10,000
5/31/95 $10,155 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,142 0.95% $10,326 0.00% $10,040
8/31/95 $10,249 1.27% $10,458 0.26% $10,066
9/29/95 $10,301 0.63% $10,523 0.20% $10,086
10/31/95 $10,426 1.45% $10,676 0.33% $10,120
11/30/95 $10,588 1.66% $10,853 -0.07% $10,112
12/29/95 $10,671 0.96% $10,957 -0.07% $10,105
1/31/96 $10,724 0.76% $11,041 0.59% $10,165
2/29/96 $10,638 -0.68% $10,966 0.32% $10,198
3/29/96 $10,527 -1.28% $10,825 0.52% $10,251
4/30/96 $10,507 -0.28% $10,795 0.39% $10,291
5/31/96 $10,515 -0.04% $10,791 0.19% $10,310
6/28/96 $10,627 1.09% $10,908 0.06% $10,316
7/31/96 $10,701 0.91% $11,008 0.19% $10,336
8/30/96 $10,704 -0.02% $11,005 0.19% $10,356
9/30/96 $10,844 1.40% $11,159 0.32% $10,389
10/31/96 $10,947 1.13% $11,286 0.32% $10,422
11/29/96 $11,098 1.83% $11,492 0.19% $10,442
12/31/96 $11,065 -0.42% $11,444 0.00% $10,442
1/31/97 $11,072 0.19% $11,466 0.32% $10,475
2/28/97 $11,158 0.92% $11,571 0.31% $10,508
3/31/97 $11,039 -1.33% $11,417 0.25% $10,534
4/30/97 $11,126 0.84% $11,513 0.12% $10,547
5/31/97 $11,252 1.51% $11,687 -0.06% $10,540
6/30/97 $11,339 1.07% $11,812 0.12% $10,553
7/31/97 $11,598 2.77% $12,139 0.12% $10,565
8/31/97 $11,524 -0.94% $12,025 0.19% $10,586
9/30/97 $11,642 1.19% $12,168 0.25% $10,612
10/31/97 $11,700 0.64% $12,246 0.25% $10,639
11/30/97 $11,768 0.59% $12,318 -0.06% $10,632
12/31/97 $11,912 1.46% $12,498 -0.12% $10,619
1/31/98 $12,012 1.03% $12,627 0.19% $10,640
2/28/98 $12,018 0.03% $12,631 0.19% $10,660
3/31/98 $12,013 0.09% $12,642 0.19% $10,680
4/30/98 $11,975 -0.45% $12,585 0.18% $10,699
5/31/98 $12,117 1.58% $12,784 0.18% $10,719
6/30/98 $12,159 0.39% $12,834 0.12% $10,731
7/31/98 $12,174 0.25% $12,866 0.12% $10,744
8/31/98 $12,329 1.55% $13,065 0.12% $10,757
9/30/98 $12,482 1.25% $13,229 0.12% $10,770
10/31/98 $12,452 0.00% $13,229 0.24% $10,796
11/30/98 $12,487 0.35% $13,275 0.00% $10,796
12/31/98 $12,495 0.25% $13,308 -0.06% $10,789
1/31/99 $12,617 1.19% $13,466 0.24% $10,815
2/28/99 $12,579 -0.44% $13,407 0.12% $10,828
Total Return 25.79% 34.07% 8.28%
- -----------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
10
<PAGE>
FRANKLIN COLORADO TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Colorado Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Colorado state personal income
taxes through a portfolio consisting primarily of Colorado municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE
[COLORADO STATE GRAPHIC]
Colorado finds itself the envy of most of the nation, with a booming and diverse
economy, exceptionally low debt, and a unique, actively practiced tax rebate
policy. Employment growth continued unabated for the year under review, rising
approximately 3.9%, while the 3.1% unemployment rate remained below the national
average. The state continued to outpace the nation in population, retail trade,
personal income and employment.(2) Further resiliency came from the sector
makeup among services, trade, government and manufacturing, which provided a
considerable buffer against a cyclical downturn. Proving this point, the
previous military base closures, which resulted in the loss of some 7,000 jobs,
were absorbed with no noticeable consequences. Adding another layer against
economic shock, the state's general fund held approximately $1.26 billion as of
year-end 1998.
Colorado avoids issuing debt whenever possible. Preferring the pay-as-you-go
method to traditional debt financing, the state constitution prohibits the
issuance of general obligation (GO) bond issues. As a result, the state's debt
ratios, at $158 per capita in 1997, were among the nation's lowest. The taxpayer
bill of rights (TABOR), enacted in 1992, further underscores prudent fiscal
control. TABOR restricts state expenditures to inflation and population growth,
with any additional annual revenues rebated back to the populace. Projections
for 1999 show continued general fund income tax growth above 6.0%.(3)
CREDIT QUALITY BREAKDOWN*
Franklin Colorado Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 64.7%
AA 8.0%
A 14.0%
BBB 13.3%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency
(1) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2) Source: Moody's Investors Service, Municipal Credit Research, April 22,
1998.
(3) Source: Standard & Poor's CreditWeek Municipal, August 24, 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 70 of
this report.
11
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Colorado
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------
<S> <C>
Hospitals 17.7%
Utilities 13.4%
Transportation 12.0%
Housing 11.5%
Education 10.5%
Prerefunded 8.2%
Certificates of Participation 7.5%
Health Care 6.0%
General Obligation 3.9%
Sales Tax 3.8%
Industrial 3.0%
Other Revenue 2.1%
Tax Allocation 0.4%
</TABLE>
PORTFOLIO NOTES
Franklin Colorado Tax-Free Income Fund enjoyed healthy performance for the
12 months under review. The 1998 Colorado bond supply was $3.21 billion, down
36.7% from 1997. However, 55% of the Colorado bond market was insured in 1998.
The fund took advantage of the tight credit spreads and the market's abundance
of insurance to increase the percentage of high-quality bonds in the portfolio.
AAA- rated securities increased to 64.7% of the portfolio's total long-term
investments on February 28, 1999, compared with 63.1% on February 28, 1998. Some
of our high-grade purchases included Auraria Higher Education Certificates of
Participation, Englewood Civic Center Project Certificates of Participation and
Jefferson County School District #R-1.
During the one-year period, we attempted to maintain diversification by making
purchases in a number of different industries. We found value in the hospital
sector in particular, which we felt was inexpensive relative to other sectors.
The large bond supply temporarily pushed down the price, and we were able to
take advantage of the situation. During the reporting period, hospitals
increased from 12.9% of total long-term investments on February 28, 1998, to
17.7% at the end of the reporting period. Significant purchases in this sector
included Colorado Health Facilities Authority Revenue for Parkview Medical
Center Inc. Project, Colorado Health Facilities Authority Revenue for Kaiser
Permanente and Colorado Health Facilities Authority Revenue for National
Benevolent Association.
We also participated in the $255 million Denver City and County School District
issue, which was the state's largest voted school district deal ever. As a
result of the TABOR, all new issues must be approved by taxpayers, and the size
of this deal indicates strong voter support.
The fund's Class A share price, as measured by net asset value, decreased six
cents, from $12.11 on February 28, 1998, to $12.05 on February 28, 1999.
However, due to the low interest-rate environment, it was difficult for the fund
to generate enough capital losses to offset the gains realized from prerefunded
bond sales. Thus, the fund made distributions totaling 7.4 cents per share in
long-term capital gains and 0.2 cents per share in short-term capital gains in
June and December. As a result, the dividend decreased in June 1998, and the
fund may make another capital gain distribution in June 1999.
12
<PAGE>
Looking forward, the 1999 municipal bond supply is expected to remain
approximately the same as in 1998. This coupled with strong demand for Colorado
bonds should continue to make Colorado municipals attractive investments for
investors seeking income. Please keep in mind that the fund can distribute only
what it earns, so it is probable that dividend payments will remain suppressed
while interest rates stay down.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Colorado Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.61 cents
April 5.2 cents 4.64 cents
May 5.2 cents 4.64 cents
June 5.0 cents 4.44 cents
July 5.0 cents 4.42 cents
August 5.0 cents 4.42 cents
September 5.0 cents 4.42 cents
October 5.0 cents 4.43 cents
November 5.0 cents 4.43 cents
December 5.0 cents 4.43 cents
January 5.0 cents 4.43 cents
February 5.0 cents 4.43 cents
- --------------------------------------------------------------------------------
TOTAL 60.6 CENTS 53.74 CENTS
</TABLE>
*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.
13
<PAGE>
FRANKLIN COLORADO
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which
affects subsequent performance. Past expense reductions by the fund's manager
increased the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Colorado state personal income tax bracket of 42.6%, based
on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.06 $12.05 $12.11
DISTRIBUTIONS
----------------------------------
Dividend Income $0.606
Long-Term Capital Gain $0.074
Short-Term Capital Gain $0.002
Total $0.682
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
Net Asset Value -$0.06 $12.11 $12.17
DISTRIBUTIONS
----------------------------------
Dividend Income $0.5374
Long-Term Capital Gain $0.0740
Short-Term Capital Gain $0.0020
Total $0.6134
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.24% +34.47% +112.18% +141.22%
Average Annual Total Return(2) +0.75% +5.18% +7.34% +7.55%
Distribution Rate(3) 4.72%
Taxable Equivalent Distribution Rate(4) 8.23%
30-Day Standardized Yield(5) 3.95%
Taxable Equivalent Yield(4) 6.88%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------------
Cumulative Total Return(1) +4.63% +18.99% +29.20%
Average Annual Total Return(2) +2.62% +5.61% +6.62%
Distribution Rate(3) 4.30%
Taxable Equivalent Distribution Rate(4) 7.49%
30-Day Standardized Yield(5) 3.53%
Taxable Equivalent Yield(4) 6.15%
</TABLE>
Franklin Colorado Tax-Free Income Fund paid distributions derived from long-term
capital gains totaling 7.4 cents ($0.074) per share in June and December 1998.
The fund hereby designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results.
14
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89--2/28/99)
The following line graph compares the performance of the Franklin Colorado
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Franklin Colorado Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class A Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,573 $10,000 $10,000
3/31/89 $9,539 -0.24% $9,976 0.58% $10,058
4/30/89 $9,725 2.37% $10,212 0.65% $10,123
5/31/89 $9,940 2.08% $10,425 0.57% $10,181
6/30/89 $10,073 1.36% $10,567 0.24% $10,206
7/31/89 $10,159 1.36% $10,710 0.24% $10,230
8/31/89 $10,106 -0.98% $10,605 0.16% $10,246
9/30/89 $10,052 -0.30% $10,574 0.32% $10,279
10/31/89 $10,140 1.22% $10,703 0.48% $10,329
11/30/89 $10,277 1.75% $10,890 0.24% $10,353
12/31/89 $10,366 0.82% $10,979 0.16% $10,370
1/31/90 $10,301 -0.47% $10,928 1.03% $10,477
2/28/90 $10,440 0.89% $11,025 0.47% $10,526
3/31/90 $10,433 0.03% $11,028 0.55% $10,584
4/30/90 $10,357 -0.72% $10,949 0.16% $10,601
5/31/90 $10,578 2.18% $11,187 0.23% $10,625
6/30/90 $10,700 0.88% $11,286 0.54% $10,682
7/31/90 $10,874 1.48% $11,453 0.38% $10,723
8/31/90 $10,605 -1.45% $11,287 0.92% $10,822
9/30/90 $10,598 0.06% $11,294 0.84% $10,913
10/31/90 $10,733 1.81% $11,498 0.60% $10,978
11/30/90 $10,982 2.01% $11,729 0.22% $11,002
12/31/90 $10,965 0.44% $11,781 0.00% $11,002
1/31/91 $11,113 1.34% $11,939 0.60% $11,068
2/28/91 $11,210 0.87% $12,042 0.15% $11,085
3/31/91 $11,255 0.04% $12,047 0.15% $11,102
4/30/91 $11,416 1.34% $12,209 0.15% $11,118
5/31/91 $11,515 0.89% $12,317 0.30% $11,152
6/30/91 $11,519 -0.10% $12,305 0.29% $11,184
7/31/91 $11,694 1.22% $12,455 0.15% $11,201
8/31/91 $11,795 1.32% $12,620 0.29% $11,233
9/30/91 $11,950 1.30% $12,784 0.44% $11,283
10/31/91 $12,008 0.90% $12,899 0.15% $11,299
11/30/91 $12,066 0.28% $12,935 0.29% $11,332
12/31/91 $12,319 2.15% $13,213 0.07% $11,340
1/31/92 $12,316 0.23% $13,243 0.15% $11,357
2/29/92 $12,336 0.03% $13,247 0.36% $11,398
3/31/92 $12,368 0.04% $13,253 0.51% $11,456
4/30/92 $12,478 0.89% $13,370 0.14% $11,472
5/31/92 $12,657 1.18% $13,528 0.14% $11,488
6/30/92 $12,827 1.68% $13,756 0.36% $11,530
7/31/92 $13,308 3.00% $14,168 0.21% $11,554
8/31/92 $13,168 -0.98% $14,029 0.28% $11,586
9/30/92 $13,202 0.65% $14,121 0.28% $11,619
10/31/92 $12,979 -0.98% $13,982 0.35% $11,659
11/30/92 $13,329 1.79% $14,232 0.14% $11,676
12/31/92 $13,528 1.02% $14,378 -0.07% $11,667
1/31/93 $13,680 1.16% $14,544 0.49% $11,725
2/28/93 $14,143 3.62% $15,071 0.35% $11,766
3/31/93 $14,058 -1.06% $14,911 0.35% $11,807
4/30/93 $14,164 1.01% $15,062 0.28% $11,840
5/31/93 $14,235 0.56% $15,146 0.14% $11,856
6/30/93 $14,453 1.67% $15,399 0.14% $11,873
7/31/93 $14,485 0.13% $15,419 0.00% $11,873
8/31/93 $14,775 2.08% $15,740 0.28% $11,906
9/30/93 $14,956 1.14% $15,919 0.21% $11,931
10/31/93 $15,014 0.19% $15,949 0.41% $11,980
11/30/93 $14,973 -0.88% $15,809 0.07% $11,989
12/31/93 $15,254 2.11% $16,143 0.00% $11,989
1/31/94 $15,411 1.14% $16,327 0.27% $12,021
2/28/94 $15,089 -2.59% $15,904 0.34% $12,062
3/31/94 $14,488 -4.07% $15,257 0.34% $12,103
4/30/94 $14,519 0.85% $15,386 0.14% $12,120
5/31/94 $14,615 0.87% $15,520 0.07% $12,128
6/30/94 $14,518 -0.61% $15,425 0.34% $12,170
7/31/94 $14,795 1.83% $15,708 0.27% $12,202
8/31/94 $14,828 0.35% $15,763 0.40% $12,251
9/30/94 $14,639 -1.47% $15,531 0.27% $12,284
10/31/94 $14,396 -1.78% $15,255 0.07% $12,293
11/30/94 $14,128 -1.81% $14,978 0.13% $12,309
12/31/94 $14,425 2.20% $15,308 0.00% $12,309
1/31/95 $14,870 2.86% $15,746 0.40% $12,358
2/28/95 $15,251 2.91% $16,204 0.40% $12,408
3/31/95 $15,378 1.15% $16,390 0.33% $12,448
4/30/95 $15,425 0.12% $16,410 0.33% $12,490
5/31/95 $15,824 3.19% $16,933 0.20% $12,515
6/30/95 $15,722 -0.87% $16,786 0.20% $12,540
7/31/95 $15,811 0.95% $16,946 0.00% $12,540
8/31/95 $16,039 1.27% $17,161 0.26% $12,572
9/30/95 $16,114 0.63% $17,269 0.20% $12,597
10/31/95 $16,329 1.45% $17,519 0.33% $12,639
11/30/95 $16,587 1.66% $17,810 -0.07% $12,630
12/31/95 $16,748 0.96% $17,981 -0.07% $12,621
1/31/96 $16,826 0.76% $18,118 0.59% $12,696
2/29/96 $16,790 -0.68% $17,995 0.32% $12,736
3/31/96 $16,642 -1.28% $17,764 0.52% $12,803
4/30/96 $16,634 -0.28% $17,714 0.39% $12,852
5/31/96 $16,641 -0.04% $17,707 0.19% $12,877
6/30/96 $16,793 1.09% $17,900 0.06% $12,885
7/31/96 $16,916 0.91% $18,063 0.19% $12,909
8/31/96 $16,922 -0.02% $18,060 0.19% $12,934
9/30/96 $17,149 1.40% $18,313 0.32% $12,975
10/31/96 $17,317 1.13% $18,519 0.32% $13,017
11/30/96 $17,575 1.83% $18,858 0.19% $13,041
12/31/96 $17,538 -0.42% $18,779 0.00% $13,041
1/31/97 $17,561 0.19% $18,815 0.32% $13,083
2/28/97 $17,702 0.92% $18,988 0.31% $13,124
3/31/97 $17,499 -1.33% $18,735 0.25% $13,156
4/30/97 $17,643 0.84% $18,893 0.12% $13,172
5/31/97 $17,847 1.51% $19,178 -0.06% $13,164
6/30/97 $18,037 1.07% $19,383 0.12% $13,180
7/31/97 $18,488 2.77% $19,920 0.12% $13,196
8/31/97 $18,327 -0.94% $19,733 0.19% $13,221
9/30/97 $18,577 1.19% $19,968 0.25% $13,254
10/31/97 $18,689 0.64% $20,096 0.25% $13,287
11/30/97 $18,817 0.59% $20,214 -0.06% $13,279
12/31/97 $19,094 1.46% $20,509 -0.12% $13,263
1/31/98 $19,286 1.03% $20,720 0.19% $13,288
2/28/98 $19,273 0.03% $20,727 0.19% $13,314
3/31/98 $19,308 0.09% $20,745 0.19% $13,339
4/30/98 $19,247 -0.45% $20,652 0.18% $13,363
5/31/98 $19,539 1.58% $20,978 0.18% $13,387
6/30/98 $19,619 0.39% $21,060 0.12% $13,403
7/31/98 $19,651 0.25% $21,113 0.12% $13,419
8/31/98 $19,896 1.55% $21,440 0.12% $13,435
9/30/98 $20,126 1.25% $21,708 0.12% $13,451
10/31/98 $20,077 0.00% $21,708 0.24% $13,484
11/30/98 $20,159 0.35% $21,784 0.00% $13,484
12/31/98 $20,187 0.25% $21,838 -0.06% $13,476
1/31/99 $20,371 1.19% $22,098 0.24% $13,508
2/28/99 $20,311 -0.44% $22,001 0.12% $13,524
Total Return 103.11% 120.01% 35.24%
- --------------------------------------------------------------------------------
</TABLE>
CLASS C (3/1/89--2/28/99)
The following line graph compares the performance of the Franklin Colorado
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Date Franklin Colorado Lehman Brothers CPI
Tax-Free Municipal Bond
Income Fund- Index
Class C
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,143 3.19% $10,319 0.20% $10,020
6/30/95 $10,082 -0.87% $10,229 0.20% $10,040
7/31/95 $10,133 0.95% $10,326 0.00% $10,040
8/31/95 $10,273 1.27% $10,458 0.26% $10,066
9/29/95 $10,316 0.63% $10,523 0.20% $10,086
10/31/95 $10,457 1.45% $10,676 0.33% $10,120
11/30/95 $10,617 1.66% $10,853 -0.07% $10,112
12/29/95 $10,714 0.96% $10,957 -0.07% $10,105
1/31/96 $10,758 0.76% $11,041 0.59% $10,165
2/29/96 $10,730 -0.68% $10,966 0.32% $10,198
3/29/96 $10,630 -1.28% $10,825 0.52% $10,251
4/30/96 $10,621 -0.28% $10,795 0.39% $10,291
5/31/96 $10,620 -0.04% $10,791 0.19% $10,310
6/28/96 $10,720 1.09% $10,908 0.06% $10,316
7/31/96 $10,785 0.91% $11,008 0.19% $10,336
8/30/96 $10,794 -0.02% $11,005 0.19% $10,356
9/30/96 $10,933 1.40% $11,159 0.32% $10,389
10/31/96 $11,035 1.13% $11,286 0.32% $10,422
11/29/96 $11,194 1.83% $11,492 0.19% $10,442
12/31/96 $11,165 -0.42% $11,444 0.00% $10,442
1/31/97 $11,174 0.19% $11,466 0.32% $10,475
2/28/97 $11,259 0.92% $11,571 0.31% $10,508
3/31/97 $11,125 -1.33% $11,417 0.25% $10,534
4/30/97 $11,210 0.84% $11,513 0.12% $10,547
5/31/97 $11,334 1.51% $11,687 -0.06% $10,540
6/30/97 $11,458 1.07% $11,812 0.12% $10,553
7/31/97 $11,729 2.77% $12,139 0.12% $10,565
8/31/97 $11,631 -0.94% $12,025 0.19% $10,586
9/30/97 $11,774 1.19% $12,168 0.25% $10,612
10/31/97 $11,839 0.64% $12,246 0.25% $10,639
11/30/97 $11,924 0.59% $12,318 -0.06% $10,632
12/31/97 $12,093 1.46% $12,498 -0.12% $10,619
1/31/98 $12,209 1.03% $12,627 0.19% $10,640
2/28/98 $12,204 0.03% $12,631 0.19% $10,660
3/31/98 $12,211 0.09% $12,642 0.19% $10,680
4/30/98 $12,167 -0.45% $12,585 0.18% $10,699
5/31/98 $12,345 1.58% $12,784 0.18% $10,719
6/30/98 $12,389 0.39% $12,834 0.12% $10,731
7/31/98 $12,414 0.25% $12,866 0.12% $10,744
8/31/98 $12,562 1.55% $13,065 0.12% $10,757
9/30/98 $12,700 1.25% $13,229 0.12% $10,770
10/31/98 $12,663 0.00% $13,229 0.24% $10,796
11/30/98 $12,709 0.35% $13,275 0.00% $10,796
12/31/98 $12,721 0.25% $13,308 -0.06% $10,789
1/31/99 $12,830 1.19% $13,466 0.24% $10,815
2/28/99 $12,785 -0.44% $13,407 0.12% $10,828
Total Return 27.85% 34.07% 8.28%
- -----------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
15
<PAGE>
CREDIT QUALITY BREAKDOWN*
Franklin Connecticut Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 29.0%
AA 22.5%
A 16.5%
BBB 32.0%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: 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)
- --------------------------------------------------------------------------------
STATE UPDATE(2)
[CONNECTICUT STATE GRAPHIC]
Connecticut's economy during the year under review can be compared to a
tortoise, slow but steady. Deeply affected by the recession of the early '90s,
the state is undergoing an economic recovery that, while slower than much of the
nation's, appears to be solid and enduring. Employment grew 1.1% in the 12
months ended September 1998. Although this was less than half of the national
increase during the same period, Connecticut's unemployment rate stood at 3.9%
in September 1998, down from 4.9% in September 1997 and below the national rate
of 4.6%. Gains in construction, financial services, real estate and other
services propelled the growth. The expansion of two casinos, run by the Pequot
and Mohegan Indians, significantly added to the growth in the construction and
services sectors.
Connecticut is a wealthy state with per capita personal income at 142% of the
national average as of December 1998, the highest of any state. Personal income
per capita rose a strong 6.1% in 1997, higher than the national average of 4.8%.
However, the state's collective growth in personal income remains below the
national average, owing to a weak employment growth rate, low unemployment and a
slowly diminishing population. In what may be a sign that the population
declines are over, Connecticut recorded 0.1% population increase in 1997, the
first since 1990.
(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.
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, December 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 75 of
this report.
16
<PAGE>
Although Connecticut is one the nation's wealthiest states, it also carries a
heavy debt load. Debt ratios are among the country's highest, with a per capita
debt of $3,135 compared with the median state debt of $446. Recently, the state
announced that it is negotiating to move the New England Patriots football team
to Hartford and build a new stadium and practice facilities. If successful, this
would add approximately $375 million to the state's already burgeoning debt
level.
Reflecting the state's high level of wealth and positive economic outlook going
forward, Standard and Poor's, a national credit rating agency, recently upgraded
the state's rating to AA.(3)
PORTFOLIO NOTES
In 1998, Connecticut's new bond issuance increased to $3.9 billion, 14.2% higher
than 1997. The state's low issuance level kept demand strong and yields low
compared with national levels. During this time of limited diversification
choices, the fund purchased Puerto Rico issues, which enjoy tax-free exemption
in a number of states. Puerto Rico securities are in general highly liquid and
well-received in the marketplace. When opportunities allowed, the fund sold
Puerto Rico bonds and bought attractively priced state issues. The fund's total
net assets grew, from $212.3 million on February 28, 1998, to $268.5 million on
February 28, 1999. In addition, the fund's Class A share price, as measured by
net asset value, increased four cents, from $11.23, to $11.27, during the same
period.
More than 50% of the municipal debt brought to market nationally in 1998 was
insured, which generally raises the issue's rating to AAA, as once insured, a
security carries the insurer's credit rating. Partially due to the number of
insured issues, the majority of the fund's purchases had bond insurance,
maintaining the percentage of the portfolio's AAA-rated bonds. As of February
28, 1999, AAA-rated bonds comprised 29.0% of the fund's total long-term
investments.
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.
(3) This does not indicate Standard and Poor's rating of the fund.
PORTFOLIO BREAKDOWN
Franklin Connecticut
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------
<S> <C>
Hospitals 22.9%
Prerefunded 20.9%
Housing 16.5%
Utilities 12.2%
Education 11.7%
General Obligation 5.5%
Health Care 4.9%
Other Revenue 3.8%
Industrial 0.9%
Transportation 0.7%
</TABLE>
17
<PAGE>
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
On February 28, 1999, prerefunded bonds comprised 20.9% of the fund's total
long-term investments, compared with 19.9% a year earlier.
Franklin Connecticut Tax-Free Income Fund maintained sector diversity with
purchases in a wide range of industries. The fund's most recent purchases were
Puerto Rico Commonwealth General Obligation, Puerto Rico Commonwealth Highway
and Transportation Authority Revenue, Connecticut State Health and Educational
Facilities Authority Revenue - Trinity College, Connecticut State Health and
Educational Facilities Authority Revenue - Quinnipiac College and Connecticut
State Health and Educational Facilities Authority Revenue - Hebrew Home and
Hospital. Going forward, we will continue to follow our strategy of investing
for income, price stability and tax efficiency.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Connecticut Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.9 cents 4.37 cents
April 4.9 cents 4.38 cents
May 4.9 cents 4.38 cents
June 4.8 cents 4.28 cents
July 4.8 cents 4.30 cents
August 4.8 cents 4.30 cents
September 4.8 cents 4.30 cents
October 4.8 cents 4.26 cents
November 4.8 cents 4.26 cents
December 4.8 cents 4.26 cents
January 4.8 cents 4.26 cents
February 4.8 cents 4.26 cents
- --------------------------------------------------------------------------------
TOTAL 57.9 CENTS 51.61 CENTS
</TABLE>
*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
18
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.04 $11.27 $11.23
DISTRIBUTIONS
-----------------------------------
Dividend Income $0.579
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
Net Asset Value +$0.04 $11.30 $11.26
DISTRIBUTIONS
-----------------------------------
Dividend Income $0.5161
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.62% +32.54% +100.57% +104.92%
Average Annual Total Return(2) +1.12% +4.88% +6.74% +6.70%
Distribution Rate(3) 4.74%
Taxable Equivalent Distribution Rate(4) 8.22%
30-Day Standardized Yield(5) 3.81%
Taxable Equivalent Yield(4) 6.61%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------------------------------------------------------------------------------------
Cumulative Total Return(1) +5.02% +19.24% +28.13%
Average Annual Total Return(2) +3.02% +5.69% +6.40%
Distribution Rate(3) 4.33%
Taxable Equivalent Distribution Rate(4) 7.51%
30-Day Standardized Yield(5) 3.38%
Taxable Equivalent Yield(4) 5.86%
</TABLE>
FRANKLIN CONNECTICUT
TAX-FREE INCOME FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Connecticut state personal income tax bracket of 42.3%,
based on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
19
<PAGE>
FRANKLIN CONNECTICUT
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +1.12%
5-Year +4.88%
10-Year +6.74%
Since Inception (10/3/88) +6.70%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------
<S> <C>
1-Year +3.02%
3-Year +5.69%
Since Inception (5/1/95) +6.40%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89--2/28/99)
The following line graph compares the performance of the Franklin Connecticut
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Date Franklin Connecticut Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond Index
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,576 10,000 10,000
3/31/89 $9,554 -0.24% 9,976 0.58% 10,058
4/28/89 $9,779 2.37% 10,212 0.65% 10,123
5/31/89 $9,977 2.08% 10,425 0.57% 10,181
6/30/89 $10,089 1.36% 10,567 0.24% 10,206
7/31/89 $10,183 1.36% 10,710 0.24% 10,230
8/31/89 $10,112 -0.98% 10,605 0.16% 10,246
9/29/89 $10,060 -0.30% 10,574 0.32% 10,279
10/31/89 $10,126 1.22% 10,703 0.48% 10,329
11/30/89 $10,281 1.75% 10,890 0.24% 10,353
12/29/89 $10,377 0.82% 10,979 0.16% 10,370
1/31/90 $10,304 -0.47% 10,928 1.03% 10,477
2/28/90 $10,431 0.89% 11,025 0.47% 10,526
3/30/90 $10,408 0.03% 11,028 0.55% 10,584
4/30/90 $10,334 -0.72% 10,949 0.16% 10,601
5/31/90 $10,565 2.18% 11,187 0.23% 10,625
6/29/90 $10,665 0.88% 11,286 0.54% 10,682
7/31/90 $10,827 1.48% 11,453 0.38% 10,723
8/31/90 $10,554 -1.45% 11,287 0.92% 10,822
9/28/90 $10,520 0.06% 11,294 0.84% 10,913
10/31/90 $10,653 1.81% 11,498 0.60% 10,978
11/30/90 $10,903 2.01% 11,729 0.22% 11,002
12/31/90 $10,889 0.44% 11,781 0.00% 11,002
1/31/91 $11,067 1.34% 11,939 0.60% 11,068
2/28/91 $11,128 0.87% 12,042 0.15% 11,085
3/29/91 $11,168 0.04% 12,047 0.15% 11,102
4/30/91 $11,306 1.34% 12,209 0.15% 11,118
5/31/91 $11,390 0.89% 12,317 0.30% 11,152
6/28/91 $11,244 -0.10% 12,305 0.29% 11,184
7/31/91 $11,406 1.22% 12,455 0.15% 11,201
8/30/91 $11,547 1.32% 12,620 0.29% 11,233
9/30/91 $11,711 1.30% 12,784 0.44% 11,283
10/31/91 $11,786 0.90% 12,899 0.15% 11,299
11/29/91 $11,839 0.28% 12,935 0.29% 11,332
12/31/91 $12,062 2.15% 13,213 0.07% 11,340
1/31/92 $12,070 0.23% 13,243 0.15% 11,357
2/28/92 $12,052 0.03% 13,247 0.36% 11,398
3/31/92 $12,068 0.04% 13,253 0.51% 11,456
4/30/92 $12,153 0.89% 13,370 0.14% 11,472
5/29/92 $12,332 1.18% 13,528 0.14% 11,488
6/30/92 $12,477 1.68% 13,756 0.36% 11,530
7/31/92 $12,881 3.00% 14,168 0.21% 11,554
8/31/92 $12,720 -0.98% 14,029 0.28% 11,586
9/30/92 $12,748 0.65% 14,121 0.28% 11,619
10/30/92 $12,549 -0.98% 13,982 0.35% 11,659
11/30/92 $12,840 1.79% 14,232 0.14% 11,676
12/31/92 $13,048 1.02% 14,378 -0.07% 11,667
1/29/93 $13,221 1.16% 14,544 0.49% 11,725
2/26/93 $13,613 3.62% 15,071 0.35% 11,766
3/31/93 $13,543 -1.06% 14,911 0.35% 11,807
4/30/93 $13,644 1.01% 15,062 0.28% 11,840
5/31/93 $13,697 0.56% 15,146 0.14% 11,856
6/30/93 $13,937 1.67% 15,399 0.14% 11,873
7/30/93 $13,940 0.13% 15,419 0.00% 11,873
8/31/93 $14,244 2.08% 15,740 0.28% 11,906
9/30/93 $14,411 1.14% 15,919 0.21% 11,931
10/29/93 $14,450 0.19% 15,949 0.41% 11,980
11/30/93 $14,388 -0.88% 15,809 0.07% 11,989
12/31/93 $14,656 2.11% 16,143 0.00% 11,989
1/31/94 $14,786 1.14% 16,327 0.27% 12,021
2/28/94 $14,479 -2.59% 15,904 0.34% 12,062
3/31/94 $13,963 -4.07% 15,257 0.34% 12,103
4/29/94 $13,951 0.85% 15,386 0.14% 12,120
5/31/94 $14,083 0.87% 15,520 0.07% 12,128
6/30/94 $13,992 -0.61% 15,425 0.34% 12,170
7/29/94 $14,243 1.83% 15,708 0.27% 12,202
8/31/94 $14,271 0.35% 15,763 0.40% 12,251
9/30/94 $14,100 -1.47% 15,531 0.27% 12,284
10/31/94 $13,834 -1.78% 15,255 0.07% 12,293
11/30/94 $13,488 -1.81% 14,978 0.13% 12,309
12/30/94 $13,866 2.20% 15,308 0.00% 12,309
1/31/95 $14,220 2.86% 15,746 0.40% 12,358
2/28/95 $14,534 2.91% 16,204 0.40% 12,408
3/31/95 $14,631 1.15% 16,390 0.33% 12,448
4/28/95 $14,687 0.12% 16,410 0.33% 12,490
5/31/95 $15,033 3.19% 16,933 0.20% 12,515
6/30/95 $14,910 -0.87% 16,786 0.20% 12,540
7/31/95 $14,995 0.95% 16,946 0.00% 12,540
8/31/95 $15,193 1.27% 17,161 0.26% 12,572
9/29/95 $15,321 0.63% 17,269 0.20% 12,597
10/31/95 $15,506 1.45% 17,519 0.33% 12,639
11/30/95 $15,708 1.66% 17,810 -0.07% 12,630
12/29/95 $15,853 0.96% 17,981 -0.07% 12,621
1/31/96 $15,928 0.76% 18,118 0.59% 12,696
2/29/96 $15,844 -0.68% 17,995 0.32% 12,736
3/29/96 $15,703 -1.28% 17,764 0.52% 12,803
4/30/96 $15,720 -0.28% 17,714 0.39% 12,852
5/31/96 $15,752 -0.04% 17,707 0.19% 12,877
6/28/96 $15,916 1.09% 17,900 0.06% 12,885
7/31/96 $16,023 0.91% 18,063 0.19% 12,909
8/30/96 $16,069 -0.02% 18,060 0.19% 12,934
9/30/96 $16,236 1.40% 18,313 0.32% 12,975
10/31/96 $16,359 1.13% 18,519 0.32% 13,017
11/29/96 $16,573 1.83% 18,858 0.19% 13,041
12/31/96 $16,561 -0.42% 18,779 0.00% 13,041
1/31/97 $16,594 0.19% 18,815 0.32% 13,083
2/28/97 $16,719 0.92% 18,988 0.31% 13,124
3/31/97 $16,584 -1.33% 18,735 0.25% 13,156
4/30/97 $16,695 0.84% 18,893 0.12% 13,172
5/31/97 $16,914 1.51% 19,178 -0.06% 13,164
6/30/97 $17,069 1.07% 19,383 0.12% 13,180
7/31/97 $17,460 2.77% 19,920 0.12% 13,196
8/31/97 $17,350 -0.94% 19,733 0.19% 13,221
9/30/97 $17,539 1.19% 19,968 0.25% 13,254
10/31/97 $17,619 0.64% 20,096 0.25% 13,287
11/30/97 $17,746 0.59% 20,214 -0.06% 13,279
12/31/97 $17,969 1.46% 20,509 -0.12% 13,263
1/31/98 $18,113 1.03% 20,720 0.19% 13,288
2/28/98 $18,162 0.03% 20,727 0.19% 13,314
3/31/98 $18,176 0.09% 20,745 0.19% 13,339
4/30/98 $18,191 -0.45% 20,652 0.18% 13,363
5/31/98 $18,418 1.58% 20,978 0.18% 13,387
6/30/98 $18,496 0.39% 21,060 0.12% 13,403
7/31/98 $18,559 0.25% 21,113 0.12% 13,419
8/31/98 $18,754 1.55% 21,440 0.12% 13,435
9/30/98 $18,934 1.25% 21,708 0.12% 13,451
10/31/98 $18,913 0.00% 21,708 0.24% 13,484
11/30/98 $18,977 0.35% 21,784 0.00% 13,484
12/31/98 $19,041 0.25% 21,838 -0.06% 13,476
1/31/99 $19,241 1.19% 22,098 0.24% 13,508
2/28/99 $19,206 -0.44% 22,001 0.12% 13,524
Total Return 92.06% 120.01% 35.24%
- ---------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95--2/28/99)
The following line graph compares the performance of the Franklin Connecticut
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Date Franklin Lehman Brothers CPI
Connecticut Municipal
Tax-Free Income Bond Index
Fund-Class C
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,898 $10,000 $10,000
5/31/95 $10,125 3.19% $10,319 0.20% $10,020
6/30/95 $10,045 -0.87% $10,229 0.20% $10,040
7/31/95 $10,097 0.95% $10,326 0.00% $10,040
8/31/95 $10,234 1.27% $10,458 0.26% $10,066
9/29/95 $10,323 0.63% $10,523 0.20% $10,086
10/31/95 $10,442 1.45% $10,676 0.33% $10,120
11/30/95 $10,572 1.66% $10,853 -0.07% $10,112
12/29/95 $10,644 0.96% $10,957 -0.07% $10,105
1/31/96 $10,689 0.76% $11,041 0.59% $10,165
2/29/96 $10,618 -0.68% $10,966 0.32% $10,198
3/29/96 $10,523 -1.28% $10,825 0.52% $10,251
4/30/96 $10,539 -0.28% $10,795 0.39% $10,291
5/31/96 $10,555 -0.04% $10,791 0.19% $10,310
6/28/96 $10,631 1.09% $10,908 0.06% $10,316
7/31/96 $10,708 0.91% $11,008 0.19% $10,336
8/30/96 $10,754 -0.02% $11,005 0.19% $10,356
9/30/96 $10,861 1.40% $11,159 0.32% $10,389
10/31/96 $10,938 1.13% $11,286 0.32% $10,422
11/29/96 $11,076 1.83% $11,492 0.19% $10,442
12/31/96 $11,053 -0.42% $11,444 0.00% $10,442
1/31/97 $11,069 0.19% $11,466 0.32% $10,475
2/28/97 $11,157 0.92% $11,571 0.31% $10,508
3/31/97 $11,061 -1.33% $11,417 0.25% $10,534
4/30/97 $11,130 0.84% $11,513 0.12% $10,547
5/31/97 $11,271 1.51% $11,687 -0.06% $10,540
6/30/97 $11,379 1.07% $11,812 0.12% $10,553
7/31/97 $11,623 2.77% $12,139 0.12% $10,565
8/31/97 $11,545 -0.94% $12,025 0.19% $10,586
9/30/97 $11,675 1.19% $12,168 0.25% $10,612
10/31/97 $11,712 0.64% $12,246 0.25% $10,639
11/30/97 $11,801 0.59% $12,318 -0.06% $10,632
12/31/97 $11,944 1.46% $12,498 -0.12% $10,619
1/31/98 $12,034 1.03% $12,627 0.19% $10,640
2/28/98 $12,060 0.03% $12,631 0.19% $10,660
3/31/98 $12,064 0.09% $12,642 0.19% $10,680
4/30/98 $12,068 -0.45% $12,585 0.18% $10,699
5/31/98 $12,213 1.58% $12,784 0.18% $10,719
6/30/98 $12,259 0.39% $12,834 0.12% $10,731
7/31/98 $12,295 0.25% $12,866 0.12% $10,744
8/31/98 $12,419 1.55% $13,065 0.12% $10,757
9/30/98 $12,532 1.25% $13,229 0.12% $10,770
10/31/98 $12,512 0.00% $13,229 0.24% $10,796
11/30/98 $12,548 0.35% $13,275 0.00% $10,796
12/31/98 $12,585 0.25% $13,308 -0.06% $10,789
1/31/99 $12,711 1.19% $13,466 0.24% $10,815
2/28/99 $12,682 -0.44% $13,407 0.12% $10,828
Total Return 26.82% 34.07% 8.28%
- --------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
20
<PAGE>
FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Federal Intermediate-Term Tax-Free Income Fund seeks
to provide high, current income exempt from regular federal income tax through a
portfolio of municipal bonds with an average weighted maturity (the time in
which a debt must be repaid) between three and 10 years.(1)
- --------------------------------------------------------------------------------
PORTFOLIO NOTES
During the 12 months under review, the U.S. economy remained a bastion of
growth. Concurrently, interest rates declined, unusual in a time of such heady
economic expansion. The yield on the 30-year Treasury bond declined from 5.92%
on February 28, 1998, to a low of 4.70% on October 5, 1998. However, toward the
end of the reporting period, interest rates crept back up, reflecting the
economy's continuing strength.
In general, most municipalities' fiscal health remained robust, due to
increasing tax revenues and payrolls. New municipal bond supply was extremely
strong in 1998, $284 billion, more than 28.5% greater than 1997's new issuance
supply. Insured bonds, typically rated AAA, reached a record 50.8% of all new
issues for the year. Throughout much of the reporting period, yield spreads, the
interest-rate difference between AAA- and BBB-rated securities, narrowed, as
investors purchased lower quality issues to earn additional yields. However, in
a sign that the trend may be changing, yield spreads began to widen late in the
reporting period. The fund was very selective in each issue purchased during the
reporting period. Utilizing our extensive research capabilities, we were able to
add some lower-rated securities to capture additional yield without compromising
the fund's overall credit quality.
CREDIT QUALITY BREAKDOWN*
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
AAA - 14.6%
AA - 12.6%
A - 20.3%
BBB - 50.4%
Below Investment Grade - 2.1%
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
(1) For investors subject to the federal or state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments than a fund with broader diversification.
You 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.
21
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Federal Intermediate-Term
Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 4.4 cents
April 4.4 cents
May 4.4 cents
June 4.4 cents
July 4.4 cents
August 4.4 cents
September 4.4 cents
October 4.4 cents
November 4.4 cents
December 4.2 cents
January 4.2 cents
February 4.2 cents
- -----------------------------
TOTAL 52.2 CENTS
</TABLE>
*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.
PORTFOLIO BREAKDOWN
Franklin Federal Intermediate-Term
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------------------------
<S> <C>
Utilities 20.4%
Hospitals 13.1%
Industrial 11.0%
Transportation 8.9%
Housing 8.7%
General Obligation 6.3%
Other Revenue 6.1%
Special Assessment 5.7%
Health Care 5.2%
Education 5.0%
Prerefunded 3.4%
Certificates of Participation 3.3%
Marks-Roos 1.7%
Tax Allocation 1.2%
</TABLE>
Franklin Federal Intermediate-Term Tax-Free Income Fund's Class A share price,
as measured by net asset value, increased five cents, from $11.25 on February
28, 1998, to $11.30 on February 28, 1999. In addition, the fund's total net
assets increased by approximately $56.1 million during the reporting period,
from $139.5 million to $195.6 million. We invested new money and proceeds from
sold securities in current coupon bonds as they became available.
Due to the number of insured bonds, the fund's overall quality improved slightly
during the 12 months under review. As of February 28, 1999, AAA-rated bonds
comprised 14.6% of the fund's total long-term investments, compared with 13.7% a
year earlier. However, the fund purchased bonds with different credit qualities
and maturities as the fund looked for value in a declining interest-rate
environment. We purchased bonds in a variety of sectors, maintaining the fund's
strong diversification and an average maturity of approximately nine years.
Significant purchases included Port Saint Lucie, FL Special Assessment Revenue;
Adams County Schools, CO Certificate of Participation; Virgin Islands Water and
Power Authority Water System Revenue; and New York City Metropolitan
Transportation Authority Commuter Facilities Revenue. Going forward, we will
continue to follow our strategy of investing for income, price stability and tax
efficiency.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
22
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.05 $11.30 $11.25
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.522
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (9/23/92)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.17% +34.07% +53.82%
Average Annual Total Return(2) +2.80% +5.56% +6.54%
Distribution Rate(3) 4.31%
Taxable Equivalent Distribution Rate(4) 7.14%
30-Day Standardized Yield(5) 3.80%
Taxable Equivalent Yield(4) 6.29%
</TABLE>
FRANKLIN FEDERAL
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the maximum 2.25% initial sales charge. 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 3.80%.
The fee waiver may be discontinued at any time upon notification to the fund's
Board of Trustees.
- --------------------------------------------------------------------------------
(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 applicable, maximum
sales charge.
(3) Distribution rate is based on an annualization of the current 4.15 cent per
share monthly dividend and the maximum offering price of $11.56 on February 28,
1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
23
<PAGE>
FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ----------------------------------
<S> <C>
1-Year +2.80%
5-Year +5.56%
Since Inception (9/23/92) +6.54%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the applicable, maximum sales
charge, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (9/23/92 - 2/28/99)
The following line graph compares the performance of the Franklin Federal
Intermediate-Term Tax-Free Income Fund's shares to that of the Lehman Brothers
Municipal Bond Index, and to the Consumer Price Index based on a $10,000
investment from 9/23/92 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin Federal Lehman Brothers CPI
Intermediate-Term Municipal Bond
Tax-Free Income Index
Fund-Class A
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/23/92 $ 9,775 $10,000 $10,000
9/30/92 $ 9,785 0.19% $10,019 0.07% $10,007
10/31/92 $ 9,746 -1.02% $ 9,917 0.35% $10,042
11/30/92 $ 9,932 1.83% $10,099 0.14% $10,056
12/31/92 $10,010 1.16% $10,216 -0.07% $10,049
1/31/93 $10,094 1.69% $10,388 0.49% $10,098
2/28/93 $10,395 3.66% $10,769 0.35% $10,133
3/31/93 $10,420 -1.46% $10,611 0.35% $10,169
4/30/93 $10,496 0.95% $10,712 0.28% $10,197
5/31/93 $10,531 0.35% $10,750 0.14% $10,211
6/30/93 $10,687 1.97% $10,962 0.14% $10,226
7/31/93 $10,744 0.25% $10,989 0.00% $10,226
8/31/93 $10,931 2.07% $11,216 0.28% $10,254
9/30/93 $11,038 1.23% $11,354 0.21% $10,276
10/31/93 $11,105 0.16% $11,373 0.41% $10,318
11/30/93 $11,040 -0.82% $11,279 0.07% $10,325
12/31/93 $11,280 2.13% $11,520 0.00% $10,325
1/31/94 $11,408 1.23% $11,661 0.27% $10,353
2/28/94 $11,205 -2.74% $11,342 0.34% $10,388
3/31/94 $10,855 -3.82% $10,908 0.34% $10,424
4/30/94 $10,912 1.10% $11,028 0.14% $10,438
5/31/94 $11,000 0.80% $11,117 0.07% $10,445
6/30/94 $10,972 -0.43% $11,069 0.34% $10,481
7/31/94 $11,124 1.68% $11,255 0.27% $10,509
8/31/94 $11,203 0.39% $11,299 0.40% $10,551
9/30/94 $11,111 -1.35% $11,146 0.27% $10,580
10/31/94 $10,965 -1.46% $10,983 0.07% $10,587
11/30/94 $10,820 -1.89% $10,776 0.13% $10,601
12/31/94 $10,975 1.80% $10,970 0.00% $10,601
1/31/95 $11,229 2.59% $11,254 0.40% $10,643
2/28/95 $11,440 2.83% $11,572 0.40% $10,686
3/31/95 $11,543 1.35% $11,729 0.33% $10,721
4/30/95 $11,570 0.12% $11,743 0.33% $10,757
5/31/95 $11,862 3.17% $12,115 0.20% $10,778
6/30/95 $11,801 -0.62% $12,040 0.20% $10,800
7/31/95 $11,907 1.47% $12,217 0.00% $10,800
8/31/95 $12,070 1.36% $12,383 0.26% $10,828
9/30/95 $12,178 0.64% $12,462 0.20% $10,849
10/31/95 $12,319 1.15% $12,606 0.33% $10,885
11/30/95 $12,473 1.34% $12,774 -0.07% $10,878
12/31/95 $12,560 0.61% $12,852 -0.07% $10,870
1/31/96 $12,635 1.01% $12,982 0.59% $10,934
2/29/96 $12,573 -0.41% $12,929 0.32% $10,969
3/31/96 $12,477 -1.24% $12,769 0.52% $11,026
4/30/96 $12,472 -0.35% $12,724 0.39% $11,069
5/31/96 $12,455 -0.28% $12,688 0.19% $11,090
6/30/96 $12,579 0.95% $12,809 0.06% $11,097
7/31/96 $12,656 0.96% $12,932 0.19% $11,118
8/31/96 $12,663 0.00% $12,932 0.19% $11,139
9/30/96 $12,788 1.03% $13,065 0.32% $11,175
10/31/96 $12,925 1.26% $13,230 0.32% $11,210
11/30/96 $13,099 2.02% $13,497 0.19% $11,232
12/31/96 $13,094 -0.45% $13,436 0.00% $11,232
1/31/97 $13,102 0.39% $13,489 0.32% $11,268
2/28/97 $13,217 0.94% $13,615 0.31% $11,303
3/31/97 $13,091 -1.34% $13,433 0.25% $11,331
4/30/97 $13,195 0.74% $13,532 0.12% $11,344
5/31/97 $13,276 1.42% $13,724 -0.06% $11,338
6/30/97 $13,430 1.10% $13,875 0.12% $11,351
7/31/97 $13,732 2.81% $14,265 0.12% $11,365
8/31/97 $13,665 -0.97% $14,127 0.19% $11,386
9/30/97 $13,772 1.27% $14,306 0.25% $11,415
10/31/97 $13,842 0.53% $14,382 0.25% $11,443
11/30/97 $13,925 0.46% $14,448 -0.06% $11,437
12/31/97 $14,105 1.58% $14,677 -0.12% $11,423
1/31/98 $14,274 1.11% $14,840 0.19% $11,445
2/28/98 $14,279 -0.01% $14,838 0.19% $11,466
3/31/98 $14,284 -0.07% $14,828 0.19% $11,488
4/30/98 $14,263 -0.55% $14,746 0.18% $11,509
5/31/98 $14,448 1.70% $14,997 0.18% $11,530
6/30/98 $14,491 0.37% $15,052 0.12% $11,543
7/31/98 $14,535 0.16% $15,076 0.12% $11,557
8/31/98 $14,696 1.74% $15,339 0.12% $11,571
9/30/98 $14,844 1.49% $15,567 0.12% $11,585
10/31/98 $14,836 0.04% $15,573 0.24% $11,613
11/30/98 $14,881 0.30% $15,620 0.00% $11,613
12/31/98 $14,923 0.31% $15,669 -0.06% $11,606
1/31/99 $15,098 1.53% $15,908 0.24% $11,634
2/28/99 $15,036 -0.90% $15,765 0.12% $11,648
Total Return 50.36% 57.65% 16.48%
- -----------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
24
<PAGE>
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: 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.
- --------------------------------------------------------------------------------
PORTFOLIO NOTES
The high yield municipal bond market was especially challenging during the year
under review. For the first time in a number of years, the average national high
yield fund, according to Lipper, underperformed the average national investment
grade fund. As mentioned in the Shareholder Letter, credit spreads finally
widened after narrowing for a number of years, due in part to the aggressive
strategy of the municipal bond insurers and investors demanding higher yields in
a declining interest-rate environment. As credit spreads widened, the weakness
of high yield bonds dampened the performance of Franklin High Yield Tax-Free
Income Fund. As a result, the fund's Class A share price, as measured by net
asset value, decreased 19 cents, from $11.68 on February 28, 1998, to $11.49 on
February 28, 1999.
Health care and project finance-related bond issuers were the most volatile over
the 12-month period. In health care financing, and hospitals specifically, the
market was especially volatile. The two main catalysts to the health care
sector's problems continue to be an extremely competitive environment and a
declining reimbursement system to health care providers. Many higher quality
health care systems received downgrades from the rating agencies, while some
lower quality borrowers defaulted
CREDIT QUALITY BREAKDOWN*
Franklin High Yield Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
AAA - 26.2%
AA - 2.6%
A - 10.8%
BBB - 22.0%
Below Investment Grade - 38.4%
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
(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.
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 86 of
this report.
25
<PAGE>
PORTFOLIO BREAKDOWN
Franklin High Yield
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------------------------
<S> <C>
Utilities 31.3%
Prerefunded 13.2%
Hospitals 10.1%
Transportation 9.1%
General Obligation 7.6%
Special Assessment 7.0%
Industrial 6.5%
Health Care 4.9%
Housing 3.6%
Other Revenue 2.8%
Mello-Roos 1.2%
Certificates of Participation 1.2%
Education 1.1%
Tax Allocation 0.3%
Marks-Roos 0.1%
</TABLE>
on their bond obligations or filed for bankruptcy protection. Moody's, a
national credit rating agency, downgraded 54 hospitals and health systems with
$10.7 billion of par amount outstanding during the past year. Although the fund
avoided many of the worst situations, some of its health care holdings did face
pressures, resulting in a decline in market value.
The project finance sector, where bond repayment depends on the income produced
by a public project, also faced a number of challenges during the period under
review. One holding, a resource recovery or waste-to-energy project, experienced
a significant decline in market value after the owner was forced to take an
accounting write-off for its equity investment in the project. Although the
project is having some difficulties, there are sufficient reserves and
company-guaranteed support to prevent default for three or more years. While
these situations dampened the fund's performance during the year under review,
the prevailing market conditions provided our portfolio management team with
some excellent investment opportunities. With approximately 26% of the fund in
AAA holdings, we believe we are well positioned to take advantage of buying
opportunities in market sectors that were heavily impacted.
On a positive note, the fund benefited from many investments in other market
sectors made over the past few years. We acquired large holdings, such as New
York City and Washington, D.C. general obligation bonds, when investors were
extremely nervous about these issuers' prospects. These holdings were among the
market's best performers. Similarly, the fund took advantage of utility sector
weakness during the past three years with the threat of deregulation in the
utility industry. This provided some excellent investment opportunities in such
issuers as Tucson Electric Power Company Project PCR; Public Service Co. of New
Hampshire Project; Sam Rayburn Municipal Power Agency Supply System Revenue
(TX); Iberville Parish (LA) PCR Entergy Gulf States Inc. Project, and others
where we felt we were receiving superior income and potential total return
before the market fully understood the specific situation.
At times, the market tends to "paint issuers with the same broad brush" without
differentiating among them. These opportunities can provide significant returns
to those who have the ability to find value and are willing to take a contrarian
approach when
26
<PAGE>
appropriate. This strategy is one that we strive for and will continue to employ
in the future. It has served the fund's investors well in the past, and we hope
to attain similar results going forward.
However, in the generally declining interest-rate environment over the past
several years, many municipalities prerefunded their higher yielding outstanding
debt. The fund has profited by selling many of its prerefunded securities for
more than it paid, which may make a capital gain distribution necessary in June
1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin High Yield Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------------------------------
MONTH CLASS A CLASS B** CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.6 cents -- 5.04 cents
April 5.6 cents -- 5.04 cents
May 5.6 cents -- 5.04 cents
June 5.5 cents -- 4.94 cents
July 5.5 cents -- 4.95 cents
August 5.5 cents -- 4.95 cents
September 5.4 cents -- 4.85 cents
October 5.4 cents -- 4.87 cents
November 5.4 cents -- 4.87 cents
December 5.4 cents -- 4.87 cents
January 5.4 cents 3.91 cents 4.87 cents
February 5.4 cents 4.87 cents 4.87 cents
- --------------------------------------------------------------------------------
TOTAL 65.7 CENTS 8.78 CENTS 59.16 CENTS
</TABLE>
*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.
**January 1, 1999, the fund began offering Class B shares to investors. See the
prospectus for details.
27
<PAGE>
FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.19 $11.49 $11.68
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.6570
Long-Term Capital Gain $0.0156
TOTAL $0.6726
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 2/28/99 1/1/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.01 $11.52 $11.51
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.0878
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.18 $11.57 $11.75
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5916
Long-Term Capital Gain $0.0156
TOTAL $0.6072
</TABLE>
Franklin High Yield Tax-Free Income Fund paid distributions derived from
long-term capital gains of 1.56 cents ($0.0156) per share in December 1998. The
fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance is not predictive of future results.
28
<PAGE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/18/86)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +4.21% +40.57% +122.45% +184.76%
Average Annual Total Return(2) -0.23% +6.12% +7.85% +8.06%
Distribution Rate(3) 5.40%
Taxable Equivalent Distribution Rate(4) 8.94%
30-Day Standardized Yield(5) 4.71%
Taxable Equivalent Yield(4) 7.80%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +0.96%
Aggregate Annual Total Return(2) -3.04%
Distribution Rate(3) 5.04%
Taxable Equivalent Distribution Rate(4) 8.34%
30-Day Standardized Yield(5) 4.56%
Taxable Equivalent Yield(4) 7.55%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +3.69% +21.48% +32.74%
Average Annual Total Return(2) +1.67% +6.35% +7.39%
Distribution Rate(3) 4.92%
Taxable Equivalent Distribution Rate(4) 8.15%
30-Day Standardized Yield(5) 4.32%
Taxable Equivalent Yield(4) 7.15%
</TABLE>
(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 current, applicable,
maximum sales charge(s) for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception; therefore, average annual total returns are not provided.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
29
<PAGE>
FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ----------------------------------
<S> <C>
1-Year -0.23%
5-Year +6.12%
10-Year +7.85%
Since Inception (3/18/86) +8.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ----------------------------------
<S> <C>
1-Year +1.67%
3-Year +6.35%
Since Inception (5/1/95) +7.39%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin High Yield
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin High Yield Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond
Index
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $ 9,572 $10,000 $10,000
3/31/89 $ 9,586 -0.24% $ 9,976 0.58% $10,058
4/30/89 $ 9,783 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,945 2.08% $10,425 0.57% $10,181
6/30/89 $10,081 1.36% $10,567 0.24% $10,206
7/31/89 $10,142 1.36% $10,710 0.24% $10,230
8/31/89 $10,118 -0.98% $10,605 0.16% $10,246
9/30/89 $10,085 -0.30% $10,574 0.32% $10,279
10/31/89 $10,176 1.22% $10,703 0.48% $10,329
11/30/89 $10,297 1.75% $10,890 0.24% $10,353
12/31/89 $10,370 0.82% $10,979 0.16% $10,370
1/31/90 $10,311 -0.47% $10,928 1.03% $10,477
2/28/90 $10,449 0.89% $11,025 0.47% $10,526
3/31/90 $10,439 0.03% $11,028 0.55% $10,584
4/30/90 $10,359 -0.72% $10,949 0.16% $10,601
5/31/90 $10,580 2.18% $11,187 0.23% $10,625
6/30/90 $10,702 0.88% $11,286 0.54% $10,682
7/31/90 $10,855 1.48% $11,453 0.38% $10,723
8/31/90 $10,660 -1.45% $11,287 0.92% $10,822
9/30/90 $10,649 0.06% $11,294 0.84% $10,913
10/31/90 $10,743 1.81% $11,498 0.60% $10,978
11/30/90 $10,921 2.01% $11,729 0.22% $11,002
12/31/90 $10,900 0.44% $11,781 0.00% $11,002
1/31/91 $11,039 1.34% $11,939 0.60% $11,068
2/28/91 $11,081 0.87% $12,042 0.15% $11,085
3/31/91 $11,135 0.04% $12,047 0.15% $11,102
4/30/91 $11,298 1.34% $12,209 0.15% $11,118
5/31/91 $11,396 0.89% $12,317 0.30% $11,152
6/30/91 $11,441 -0.10% $12,305 0.29% $11,184
7/31/91 $11,596 1.22% $12,455 0.15% $11,201
8/31/91 $11,718 1.32% $12,620 0.29% $11,233
9/30/91 $11,886 1.30% $12,784 0.44% $11,283
10/31/91 $11,966 0.90% $12,899 0.15% $11,299
11/30/91 $12,011 0.28% $12,935 0.29% $11,332
12/31/91 $12,251 2.15% $13,213 0.07% $11,340
1/31/92 $12,217 0.23% $13,243 0.15% $11,357
2/29/92 $12,205 0.03% $13,247 0.36% $11,398
3/31/92 $12,264 0.04% $13,253 0.51% $11,456
4/30/92 $12,392 0.89% $13,370 0.14% $11,472
5/31/92 $12,581 1.18% $13,528 0.14% $11,488
6/30/92 $12,766 1.68% $13,756 0.36% $11,530
7/31/92 $13,203 3.00% $14,168 0.21% $11,554
8/31/92 $13,004 -0.98% $14,029 0.28% $11,586
9/30/92 $13,023 0.65% $14,121 0.28% $11,619
10/31/92 $12,846 -0.98% $13,982 0.35% $11,659
11/30/92 $13,158 1.79% $14,232 0.14% $11,676
12/31/92 $13,361 1.02% $14,378 -0.07% $11,667
1/31/93 $13,541 1.16% $14,544 0.49% $11,725
2/28/93 $13,934 3.62% $15,071 0.35% $11,766
3/31/93 $13,890 -1.06% $14,911 0.35% $11,807
4/30/93 $13,985 1.01% $15,062 0.28% $11,840
5/31/93 $14,067 0.56% $15,146 0.14% $11,856
6/30/93 $14,317 1.67% $15,399 0.14% $11,873
7/31/93 $14,336 0.13% $15,419 0.00% $11,873
8/31/93 $14,640 2.08% $15,740 0.28% $11,906
9/30/93 $14,801 1.14% $15,919 0.21% $11,931
10/31/93 $14,832 0.19% $15,949 0.41% $11,980
11/30/93 $14,890 -0.88% $15,809 0.07% $11,989
12/31/93 $15,134 2.11% $16,143 0.00% $11,989
1/31/94 $15,299 1.14% $16,327 0.27% $12,021
2/28/94 $15,130 -2.59% $15,904 0.34% $12,062
3/31/94 $14,677 -4.07% $15,257 0.34% $12,103
4/30/94 $14,693 0.85% $15,386 0.14% $12,120
5/31/94 $14,777 0.87% $15,520 0.07% $12,128
6/30/94 $14,807 -0.61% $15,425 0.34% $12,170
7/31/94 $15,003 1.83% $15,708 0.27% $12,202
8/31/94 $15,047 0.35% $15,763 0.40% $12,251
9/30/94 $14,937 -1.47% $15,531 0.27% $12,284
10/31/94 $14,783 -1.78% $15,255 0.07% $12,293
11/30/94 $14,546 -1.81% $14,978 0.13% $12,309
12/31/94 $14,746 2.20% $15,308 0.00% $12,309
1/31/95 $15,104 2.86% $15,746 0.40% $12,358
2/28/95 $15,479 2.91% $16,204 0.40% $12,408
3/31/95 $15,682 1.15% $16,390 0.33% $12,448
4/30/95 $15,756 0.12% $16,410 0.33% $12,490
5/31/95 $16,137 3.19% $16,933 0.20% $12,515
6/30/95 $16,152 -0.87% $16,786 0.20% $12,540
7/31/95 $16,257 0.95% $16,946 0.00% $12,540
8/31/95 $16,423 1.27% $17,161 0.26% $12,572
9/30/95 $16,558 0.63% $17,269 0.20% $12,597
10/31/95 $16,770 1.45% $17,519 0.33% $12,639
11/30/95 $16,983 1.66% $17,810 -0.07% $12,630
12/31/95 $17,151 0.96% $17,981 -0.07% $12,621
1/31/96 $17,244 0.76% $18,118 0.59% $12,696
2/29/96 $17,230 -0.68% $17,995 0.32% $12,736
3/31/96 $17,063 -1.28% $17,764 0.52% $12,803
4/30/96 $17,080 -0.28% $17,714 0.39% $12,852
5/31/96 $17,112 -0.04% $17,707 0.19% $12,877
6/30/96 $17,286 1.09% $17,900 0.06% $12,885
7/31/96 $17,414 0.91% $18,063 0.19% $12,909
8/31/96 $17,478 -0.02% $18,060 0.19% $12,934
9/30/96 $17,719 1.40% $18,313 0.32% $12,975
10/31/96 $17,945 1.13% $18,519 0.32% $13,017
11/30/96 $18,220 1.83% $18,858 0.19% $13,041
12/31/96 $18,206 -0.42% $18,779 0.00% $13,041
1/31/97 $18,257 0.19% $18,815 0.32% $13,083
2/28/97 $18,421 0.92% $18,988 0.31% $13,124
3/31/97 $18,274 -1.33% $18,735 0.25% $13,156
4/30/97 $18,419 0.84% $18,893 0.12% $13,172
5/31/97 $18,647 1.51% $19,178 -0.06% $13,164
6/30/97 $18,875 1.07% $19,383 0.12% $13,180
7/31/97 $19,358 2.77% $19,920 0.12% $13,196
8/31/97 $19,251 -0.94% $19,733 0.19% $13,221
9/30/97 $19,569 1.19% $19,968 0.25% $13,254
10/31/97 $19,701 0.64% $20,096 0.25% $13,287
11/30/97 $19,833 0.59% $20,214 -0.06% $13,279
12/31/97 $20,138 1.46% $20,509 -0.12% $13,263
1/31/98 $20,358 1.03% $20,720 0.19% $13,288
2/28/98 $20,404 0.03% $20,727 0.19% $13,314
3/31/98 $20,415 0.09% $20,745 0.19% $13,339
4/30/98 $20,407 -0.45% $20,652 0.18% $13,363
5/31/98 $20,665 1.58% $20,978 0.18% $13,387
6/30/98 $20,763 0.39% $21,060 0.12% $13,403
7/31/98 $20,789 0.25% $21,113 0.12% $13,419
8/31/98 $21,031 1.55% $21,440 0.12% $13,435
9/30/98 $21,164 1.25% $21,708 0.12% $13,451
10/31/98 $21,135 0.00% $21,708 0.24% $13,484
11/30/98 $21,070 0.35% $21,784 0.00% $13,484
12/31/98 $21,106 0.25% $21,838 -0.06% $13,476
1/31/99 $21,279 1.19% $22,098 0.24% $13,508
2/28/99 $21,292 -0.44% $22,001 0.12% $13,524
Total Return 112.92% 120.01% 35.24%
- -------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin High Yield
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin High Yield Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $ 9,899 $10,000 $10,000
5/31/95 $10,138 3.19% $10,319 0.20% $10,020
6/30/95 $10,152 -0.87% $10,229 0.20% $10,040
7/31/95 $10,221 0.95% $10,326 0.00% $10,040
8/31/95 $10,319 1.27% $10,458 0.26% $10,066
9/29/95 $10,399 0.63% $10,523 0.20% $10,086
10/31/95 $10,525 1.45% $10,676 0.33% $10,120
11/30/95 $10,662 1.66% $10,853 -0.07% $10,112
12/29/95 $10,762 0.96% $10,957 -0.07% $10,105
1/31/96 $10,814 0.76% $11,041 0.59% $10,165
2/29/96 $10,800 -0.68% $10,966 0.32% $10,198
3/29/96 $10,692 -1.28% $10,825 0.52% $10,251
4/30/96 $10,697 -0.28% $10,795 0.39% $10,291
5/31/96 $10,712 -0.04% $10,791 0.19% $10,310
6/28/96 $10,816 1.09% $10,908 0.06% $10,316
7/31/96 $10,890 0.91% $11,008 0.19% $10,336
8/30/96 $10,925 -0.02% $11,005 0.19% $10,356
9/30/96 $11,070 1.40% $11,159 0.32% $10,389
10/31/96 $11,205 1.13% $11,286 0.32% $10,422
11/29/96 $11,371 1.83% $11,492 0.19% $10,442
12/31/96 $11,357 -0.42% $11,444 0.00% $10,442
1/31/97 $11,392 0.19% $11,466 0.32% $10,475
2/28/97 $11,489 0.92% $11,571 0.31% $10,508
3/31/97 $11,392 -1.33% $11,417 0.25% $10,534
4/30/97 $11,476 0.84% $11,513 0.12% $10,547
5/31/97 $11,611 1.51% $11,687 -0.06% $10,540
6/30/97 $11,747 1.07% $11,812 0.12% $10,553
7/31/97 $12,040 2.77% $12,139 0.12% $10,565
8/31/97 $11,969 -0.94% $12,025 0.19% $10,586
9/30/97 $12,170 1.19% $12,168 0.25% $10,612
10/31/97 $12,235 0.64% $12,246 0.25% $10,639
11/30/97 $12,311 0.59% $12,318 -0.06% $10,632
12/31/97 $12,504 1.46% $12,498 -0.12% $10,619
1/31/98 $12,634 1.03% $12,627 0.19% $10,640
2/28/98 $12,657 0.03% $12,631 0.19% $10,660
3/31/98 $12,657 0.09% $12,642 0.19% $10,680
4/30/98 $12,646 -0.45% $12,585 0.18% $10,699
5/31/98 $12,799 1.58% $12,784 0.18% $10,719
6/30/98 $12,853 0.39% $12,834 0.12% $10,731
7/31/98 $12,874 0.25% $12,866 0.12% $10,744
8/31/98 $13,006 1.55% $13,065 0.12% $10,757
9/30/98 $13,082 1.25% $13,229 0.12% $10,770
10/31/98 $13,069 0.00% $13,229 0.24% $10,796
11/30/98 $13,023 0.35% $13,275 0.00% $10,796
12/31/98 $13,028 0.25% $13,308 -0.06% $10,789
1/31/99 $13,139 1.19% $13,466 0.24% $10,815
2/28/99 $13,140 -0.44% $13,407 0.12% $10,828
Total Return 31.40% 34.07% 8.28%
- -----------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
30
<PAGE>
FRANKLIN INDIANA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Indiana Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Indiana state personal income
taxes through a portfolio consisting primarily of Indiana municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE(2)
[MAP OF INDIANA]
Indiana's manufacturing sector continued to be a powerful economic force in the
state during the year under review. Unlike most states, which have seen a
gradual shift away from manufacturing to trade and services, manufacturing
industries made up almost 25% of Indiana's employment. Among the state's largest
employers were vehicle manufacturing companies as well as those in the steel
industry. In 1998, the state's moderate labor costs, low utility rates and
affordable cost of living tended to attract such companies.
The state is a primary beneficiary of the continued U.S. economic expansion, as
manufacturing is generally highly dependent on economic cycles. The unemployment
rate was 2.7% in October 1998, well below the national rate of 4.3%. In
addition, median household income per capita grew and the state's poverty rate
declined faster than the national average during the reporting period.
However, Indiana's strong manufacturing sector also exposed the state to
economic risks that more diversified states might not face. Auto manufacturing
and steel are highly cyclical and export oriented. If the Canadian economy
weakens, it could have a negative effect on the state, as Canada is Indiana's
primary trading partner. Furthermore, the Asian crisis dealt Indiana a double
blow, however moderate. First, Asian economies recently were importing less than
they did before the crisis and second, they exported cheaper steel and other raw
materials to many of Indiana's trading partners.
CREDIT QUALITY BREAKDOWN*
Franklin Indiana Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 48.3%
AA 8.4%
A 19.2%
BBB 24.1%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
(1) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2) Source: Moody's, January 1999.
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 110 of
this report.
31
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Indiana
Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 5.3 cents
April 5.3 cents
May 5.3 cents
June 5.3 cents
July 5.3 cents
August 5.3 cents
September 5.2 cents
October 5.2 cents
November 5.2 cents
December 5.1 cents
January 5.1 cents
February 5.1 cents
- -----------------------------
TOTAL 62.7 CENTS
</TABLE>
*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.
A growing payroll allowed Indiana to improve its financial position. In fiscal
1998, Indiana had combined reserve balances of $2.06 billion. Debt ratios were
among the nation's lowest, with debt per capita, at $213, ranked 40th
nationally. Reflecting these positive trends, Standard and Poor's, a national
credit rating agency, assigned Indiana an AA+ rating.(3) These trends should
continue into 1999, making the outlook for the Hoosier State rather upbeat.
PORTFOLIO NOTES
The improving national and state environments favorably affected Franklin
Indiana Tax-Free Income Fund's performance over the reporting period. The value
of many of the portfolio's bonds increased, as interest rates generally declined
in 1998. Lower interest rates led to higher municipal bond supply as issuers
took advantage of the rate environment to issue new or refunded debt.
Nationally, issuance in 1998 topped $284 billion, far outpacing the $220 billion
issued in 1997.
Partially because of the fund's robust performance during the period, total net
assets increased 8%, from $54.6 million on February 28, 1998, to approximately
$59.0 million at the end of the reporting period, giving the fund an
increasingly stable and diversified asset base. Such diversification helped
reduce the fund's exposure to risk and volatility that may affect any one
sector. In addition, the fund's superior credit quality, with 75% of the fund
rated A or higher, further increased the fund's stability.
The fund was able to take advantage of Franklin's size during the reporting
period to structure and control issues to fit the portfolio's needs. In managing
more than $50 billion in municipal assets, Franklin has a distinct advantage
over its competitors in locating value. Consequently, the fund was able to use
the entire fund group's buying power to find and control new issues. Many
dealers, underwriters and issuers know and trust Franklin and will come to us to
help them structure and price new issues, giving Franklin Indiana Tax-Free
Income Fund more leverage in defining the marketplace. Recent fund purchases
included Indiana State Educational Facilities Authority Revenue Valparaiso
University and Indiana Health Facility Financing Authority Hospital Revenue --
Sisters of St. Francis Health.
(3) This does not indicate Standard and Poor's rating of the fund.
32
<PAGE>
We continue to follow our strategy of investing for income, price stability and
tax efficiency. The fund should perform well into the next reporting period,
aided by stable interest rates and an ample supply of new bonds. However, the
fund's new investments in the current, historically low interest-rate
environment has increased pressure on the dividend payment. Additionally, the
fund may make another capital gain distribution in June 1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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 Indiana Tax-Free Income Fund was closed to new investors after the
close of business on January 12, 1999, when Franklin Tax-Free Trust's board of
trustees approved a proposal to merge Franklin Indiana Tax-Free Income Fund into
Franklin Federal Tax-Free Income Fund, subject to shareholder approval. If the
merger is approved, existing shareholders would benefit from the lower expenses
of the larger Franklin Federal Tax-Free Income Fund. The investment goal of
Franklin Indiana Tax-Free Income Fund is to seek a high level of current income
exempt from federal and Indiana state income taxes by investing in Indiana
municipal securities. Although Franklin Federal Tax-Free Income Fund's
investment goal is similar, it seeks income exempt only from federal income tax
by investing in municipal securities throughout the nation.
PORTFOLIO BREAKDOWN
Franklin Indiana
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ---------------------------------------------
<S> <C>
Education 25.1%
Hospitals 15.0%
Industrial 12.1%
General Obligation 11.6%
Prerefunded 9.7%
Housing 6.3%
Sales Tax 5.1%
Certificates of Participation 4.8%
Utilities 4.5%
Health Care 3.0%
Transportation 2.7%
Tax Assessment 0.1%
</TABLE>
33
<PAGE>
FRANKLIN INDIANA
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
- --------------------------------------------------------------------------------
(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 current, applicable,
maximum sales charge.
(3) Distribution rate is based on an annualization of the current 5.1 cent per
share monthly dividend and the maximum offering price of $12.56 on February 28,
1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Indiana state personal income tax bracket of 42.3%, based
on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.04 $12.03 $12.07
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.6270
Long-Term Capital Gain $0.0013
Short-Term Capital Gain $0.0320
TOTAL $0.6603
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.25% +32.92% +112.31% +141.93%
Average Annual Total Return(2) +0.74% +4.95% +7.35% +7.58%
Distribution Rate(3) 4.87%
Taxable Equivalent Distribution Rate(4) 8.43%
30-Day Standardized Yield(5) 3.89%
Taxable Equivalent Yield(4) 6.74%
</TABLE>
Franklin Indiana Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.13 cents ($0.0013) per share in June 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance is not predictive of future results.
34
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge, fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin Indiana
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
Date Franklin Indiana Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond Index
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $ 9,571 $10,000 $10,000
3/31/89 $ 9,583 -0.24% $ 9,976 0.58% $10,058
4/30/89 $ 9,752 2.37% $10,212 0.65% $10,123
5/31/89 $ 9,967 2.08% $10,425 0.57% $10,181
6/30/89 $10,109 1.36% $10,567 0.24% $10,206
7/31/89 $10,206 1.36% $10,710 0.24% $10,230
8/31/89 $10,162 -0.98% $10,605 0.16% $10,246
9/30/89 $10,127 -0.30% $10,574 0.32% $10,279
10/31/89 $10,224 1.22% $10,703 0.48% $10,329
11/30/89 $10,371 1.75% $10,890 0.24% $10,353
12/31/89 $10,499 0.82% $10,979 0.16% $10,370
1/31/90 $10,434 -0.47% $10,928 1.03% $10,477
2/28/90 $10,544 0.89% $11,025 0.47% $10,526
3/31/90 $10,537 0.03% $11,028 0.55% $10,584
4/30/90 $10,471 -0.72% $10,949 0.16% $10,601
5/31/90 $10,734 2.18% $11,187 0.23% $10,625
6/30/90 $10,859 0.88% $11,286 0.54% $10,682
7/31/90 $11,025 1.48% $11,453 0.38% $10,723
8/31/90 $10,757 -1.45% $11,287 0.92% $10,822
9/30/90 $10,752 0.06% $11,294 0.84% $10,913
10/31/90 $10,901 1.81% $11,498 0.60% $10,978
11/30/90 $11,122 2.01% $11,729 0.22% $11,002
12/31/90 $11,127 0.44% $11,781 0.00% $11,002
1/31/91 $11,330 1.34% $11,939 0.60% $11,068
2/28/91 $11,398 0.87% $12,042 0.15% $11,085
3/31/91 $11,446 0.04% $12,047 0.15% $11,102
4/30/91 $11,599 1.34% $12,209 0.15% $11,118
5/31/91 $11,679 0.89% $12,317 0.30% $11,152
6/30/91 $11,674 -0.10% $12,305 0.29% $11,184
7/31/91 $11,842 1.22% $12,455 0.15% $11,201
8/31/91 $11,967 1.32% $12,620 0.29% $11,233
9/30/91 $12,136 1.30% $12,784 0.44% $11,283
10/31/91 $12,197 0.90% $12,899 0.15% $11,299
11/30/91 $12,257 0.28% $12,935 0.29% $11,332
12/31/91 $12,485 2.15% $13,213 0.07% $11,340
1/31/92 $12,502 0.23% $13,243 0.15% $11,357
2/29/92 $12,502 0.03% $13,247 0.36% $11,398
3/31/92 $12,536 0.04% $13,253 0.51% $11,456
4/30/92 $12,650 0.89% $13,370 0.14% $11,472
5/31/92 $12,890 1.18% $13,528 0.14% $11,488
6/30/92 $13,051 1.68% $13,756 0.36% $11,530
7/31/92 $13,501 3.00% $14,168 0.21% $11,554
8/31/92 $13,350 -0.98% $14,029 0.28% $11,586
9/30/92 $13,385 0.65% $14,121 0.28% $11,619
10/31/92 $13,186 -0.98% $13,982 0.35% $11,659
11/30/92 $13,481 1.79% $14,232 0.14% $11,676
12/31/92 $13,694 1.02% $14,378 -0.07% $11,667
1/31/93 $13,861 1.16% $14,544 0.49% $11,725
2/28/93 $14,312 3.62% $15,071 0.35% $11,766
3/31/93 $14,224 -1.06% $14,911 0.35% $11,807
4/30/93 $14,366 1.01% $15,062 0.28% $11,840
5/31/93 $14,435 0.56% $15,146 0.14% $11,856
6/30/93 $14,675 1.67% $15,399 0.14% $11,873
7/31/93 $14,672 0.13% $15,419 0.00% $11,873
8/31/93 $14,951 2.08% $15,740 0.28% $11,906
9/30/93 $15,133 1.14% $15,919 0.21% $11,931
10/31/93 $15,201 0.19% $15,949 0.41% $11,980
11/30/93 $15,170 -0.88% $15,809 0.07% $11,989
12/31/93 $15,453 2.11% $16,143 0.00% $11,989
1/31/94 $15,598 1.14% $16,327 0.27% $12,021
2/28/94 $15,275 -2.59% $15,904 0.34% $12,062
3/31/94 $14,707 -4.07% $15,257 0.34% $12,103
4/30/94 $14,765 0.85% $15,386 0.14% $12,120
5/31/94 $14,848 0.87% $15,520 0.07% $12,128
6/30/94 $14,815 -0.61% $15,425 0.34% $12,170
7/31/94 $15,055 1.83% $15,708 0.27% $12,202
8/31/94 $15,088 0.35% $15,763 0.40% $12,251
9/30/94 $14,898 -1.47% $15,531 0.27% $12,284
10/31/94 $14,680 -1.78% $15,255 0.07% $12,293
11/30/94 $14,397 -1.81% $14,978 0.13% $12,309
12/31/94 $14,683 2.20% $15,308 0.00% $12,309
1/31/95 $15,024 2.86% $15,746 0.40% $12,358
2/28/95 $15,366 2.91% $16,204 0.40% $12,408
3/31/95 $15,495 1.15% $16,390 0.33% $12,448
4/30/95 $15,528 0.12% $16,410 0.33% $12,490
5/31/95 $15,875 3.19% $16,933 0.20% $12,515
6/30/95 $15,827 -0.87% $16,786 0.20% $12,540
7/31/95 $15,903 0.95% $16,946 0.00% $12,540
8/31/95 $16,090 1.27% $17,161 0.26% $12,572
9/30/95 $16,166 0.63% $17,269 0.20% $12,597
10/31/95 $16,354 1.45% $17,519 0.33% $12,639
11/30/95 $16,558 1.66% $17,810 -0.07% $12,630
12/31/95 $16,762 0.96% $17,981 -0.07% $12,621
1/31/96 $16,840 0.76% $18,118 0.59% $12,696
2/29/96 $16,776 -0.68% $17,995 0.32% $12,736
3/31/96 $16,640 -1.28% $17,764 0.52% $12,803
4/30/96 $16,619 -0.28% $17,714 0.39% $12,852
5/31/96 $16,640 -0.04% $17,707 0.19% $12,877
6/30/96 $16,807 1.09% $17,900 0.06% $12,885
7/31/96 $16,916 0.91% $18,063 0.19% $12,909
8/31/96 $16,937 -0.02% $18,060 0.19% $12,934
9/30/96 $17,150 1.40% $18,313 0.32% $12,975
10/31/96 $17,320 1.13% $18,519 0.32% $13,017
11/30/96 $17,624 1.83% $18,858 0.19% $13,041
12/31/96 $17,602 -0.42% $18,779 0.00% $13,041
1/31/97 $17,624 0.19% $18,815 0.32% $13,083
2/28/97 $17,767 0.92% $18,988 0.31% $13,124
3/31/97 $17,608 -1.33% $18,735 0.25% $13,156
4/30/97 $17,737 0.84% $18,893 0.12% $13,172
5/31/97 $17,943 1.51% $19,178 -0.06% $13,164
6/30/97 $18,119 1.07% $19,383 0.12% $13,180
7/31/97 $18,496 2.77% $19,920 0.12% $13,196
8/31/97 $18,411 -0.94% $19,733 0.19% $13,221
9/30/97 $18,603 1.19% $19,968 0.25% $13,254
10/31/97 $18,719 0.64% $20,096 0.25% $13,287
11/30/97 $18,867 0.59% $20,214 -0.06% $13,279
12/31/97 $19,096 1.46% $20,509 -0.12% $13,263
1/31/98 $19,245 1.03% $20,720 0.19% $13,288
2/28/98 $19,283 0.03% $20,727 0.19% $13,314
3/31/98 $19,304 0.09% $20,745 0.19% $13,339
4/30/98 $19,292 -0.45% $20,652 0.18% $13,363
5/31/98 $19,491 1.58% $20,978 0.18% $13,387
6/30/98 $19,582 0.39% $21,060 0.12% $13,403
7/31/98 $19,636 0.25% $21,113 0.12% $13,419
8/31/98 $19,886 1.55% $21,440 0.12% $13,435
9/30/98 $20,087 1.25% $21,708 0.12% $13,451
10/31/98 $20,024 0.00% $21,708 0.24% $13,484
11/30/98 $20,110 0.35% $21,784 0.00% $13,484
12/31/98 $20,162 0.25% $21,838 -0.06% $13,476
1/31/99 $20,366 1.19% $22,098 0.24% $13,508
2/28/99 $20,321 -0.44% $22,001 0.12% $13,524
Total Return 103.21% 120.01% 35.24%
- -------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
35
<PAGE>
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Michigan Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 52.9%
AA 23.4%
A 4.9%
BBB 18.8%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Michigan Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Michigan state personal income
taxes through a portfolio consisting primarily of Michigan municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE
[MAP OF MICHIGAN]
Perhaps no other state has benefited more than Michigan from the nation's
prolonged economic expansion. Since July 1996, the state's unemployment rate has
been lower than the U.S. average, in contrast to the prior 15-year period, when
Michigan's rate was higher than the national average. Personal income grew 4.6%
in 1997, extending a period of strong growth that began with the end of the
recession in the early '90s. While the state is still dependent on the cyclical
auto industry, corporate restructuring and reinvestment improved the auto
companies' competitive positions, which should make them less vulnerable to
economic cycles than in the past.(2)
As a result of the healthy economic environment, the state was able to improve
its financial situation significantly. Spending in recent years was below
revenue levels, eliminating the state's once sizable deficit and allowing
Michigan to build up a large surplus. At the same time, the government went
through a period of downsizing and cost reduction and control. Furthermore,
these factors enabled the state to introduce substantial tax cuts.(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.
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, November 1998.
(3) Source: Moody's, November 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 113 of
this report.
36
<PAGE>
With record low unemployment, strong personal income growth, solid financial
operations and an auto industry less susceptible to economic cycles, Michigan is
hitting on all cylinders. Reflecting the state's healthy economy, Moody's, a
national credit rating agency, rated Michigan's general obligation debt Aa1.(4)
PORTFOLIO NOTES
During the reporting period, the fund's total net assets experienced remarkable
growth of 84%, from $9.3 million on February 28, 1998, to $17.1 million on
February 28, 1999. The fund diligently sought to buy municipal securities with
the best relative value consistent with the goal of providing long-term,
tax-exempt income to shareholders. The fund purchased current coupon bonds with
at least 10-year call protection in an attempt to protect the fund's long-term
income stream. As a result, our disciplined investment approach helped protect
the fund's share value and maintain a competitive yield. The fund's share price,
as measured by net asset value, increased seven cents, from $11.02 on February
28, 1998, to $11.09 on February 28, 1999. However, due to 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, the fund made distributions of
0.47 cents per share in long-term capital gains and 1.78 cents per share in
short-term capital gains in June.
The fund found value in and purchased several bonds including Michigan State
Building Authority Revenue; Kent County Building Authority General Obligation;
Detroit Water Supply System Revenue; Michigan State Hospital Financing Authority
Revenue for the Hospital - Charity Obligation Group and Oakland County Economic
Development Corp. for the Cranbrook Educational Community. These purchases
maintained diversification in a broad range of sectors, which helped reduce the
fund's exposure to risk and volatility that may affect any one sector.
We are closely monitoring the supply of Michigan tax-exempt municipal bonds. For
1998, the state issued a total of $9.9 billion, a remarkable 67.2% increase from
1997. Because supply outpaced demand during the period, the purchases mentioned
above were acquired at relatively attractive yields. 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. In addition, if
interest rates remain low,
DIVIDEND DISTRIBUTIONS*
Franklin Michigan
Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 4.8 cents
April 4.8 cents
May 4.8 cents
June 4.8 cents
July 4.8 cents
August 4.8 cents
September 4.8 cents
October 4.8 cents
November 4.8 cents
December 4.7 cents
January 4.7 cents
February 4.7 cents
- -----------------------------
TOTAL 57.3 CENTS
</TABLE>
*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.
(4) This does not indicate Moody's rating of the fund.
37
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Michigan
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ----------------------------------
<S> <C>
Hospitals 28.4%
Education 20.3%
Utilities 10.7%
Prerefunded 9.7%
Other Revenue 8.0%
Transportation 6.1%
Industrial 6.0%
Housing 5.4%
General Obligation 4.8%
Tax Allocation 0.6%
</TABLE>
refunding issues resulting from lower borrowing costs available to issuers could
add to the supply of new issues. Going forward, we will continue to follow our
strategy of investing for income, price stability and tax efficiency.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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 Tax-Free Income Fund was closed to new investors after the
close of business on January 12, 1999, when Franklin Tax-Free Trust's board of
trustees approved a proposal to merge the Franklin Michigan Tax-Free Income Fund
into Franklin Michigan Insured Tax-Free Income Fund, subject to shareholder
approval. The board of trustees believes this proposed merger would benefit
shareholders. The investment goal of both funds is to seek a high level of
current income exempt from federal and Michigan state income taxes; however,
Franklin Michigan Insured Tax-Free Income Fund invests primarily in insured
municipal securities from the state of Michigan.(5)
(5) 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.
38
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.07 $11.09 $11.02
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5730
Long-Term Capital Gain $0.0047
Short-Term Capital Gain $0.0178
TOTAL $0.5955
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
CLASS A 1-YEAR (7/1/96)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +6.15% +25.80%
Average Annual Total Return(2) +1.63% +7.25%
Distribution Rate(3) 4.56%
Taxable Equivalent Distribution Rate(4) 7.90%
30-Day Standardized Yield(5) 4.55%
Taxable Equivalent Yield(4) 7.88%
</TABLE>
FRANKLIN MICHIGAN
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the maximum 4.25% initial sales charge. 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 3.76%.
The fee waiver may be discontinued at any time upon notice to the fund's Board
of Trustees.
- --------------------------------------------------------------------------------
(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 applicable, maximum
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 $11.58 on February 28,
1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Michigan state personal income tax bracket of 42.3%, based
on the federal income tax rate of 39.6%.
(5). Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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 Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.47 cents ($0.0047) per share in June 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance is not predictive of future results.
39
<PAGE>
FRANKLIN MICHIGAN
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +1.63%
Since Inception (7/1/96) +7.25%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the applicable, maximum sales
charge, fund expenses, account fees and reinvested distributions. Performance of
the fund's shares exceeded the rate of inflation as measured by the Consumer
Price Index (CPI).
CLASS A (7/1/96 - 2/28/99)
The following line graph compares the performance of the Franklin Michigan
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
7/1/96 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Date Franklin Michigan Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal Bond
Index
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7/1/96 $9,579 $10,000 $10,000
7/31/96 $9,703 0.91% $10,091 0.19% $10,019
8/31/96 $9,655 -0.02% $10,089 0.19% $10,038
9/30/96 $9,856 1.40% $10,230 0.32% $10,070
10/31/96 $9,933 1.13% $10,346 0.32% $10,102
11/30/96 $10,101 1.83% $10,535 0.19% $10,122
12/31/96 $10,058 -0.42% $10,491 0.00% $10,122
1/31/97 $10,053 0.19% $10,511 0.32% $10,154
2/28/97 $10,155 0.92% $10,608 0.31% $10,185
3/31/97 $9,996 -1.33% $10,466 0.25% $10,211
4/30/97 $10,112 0.84% $10,554 0.12% $10,223
5/31/97 $10,278 1.51% $10,714 -0.06% $10,217
6/30/97 $10,404 1.07% $10,828 0.12% $10,229
7/31/97 $10,720 2.77% $11,128 0.12% $10,242
8/31/97 $10,608 -0.94% $11,024 0.19% $10,261
9/30/97 $10,746 1.19% $11,155 0.25% $10,287
10/31/97 $10,825 0.64% $11,226 0.25% $10,312
11/30/97 $10,924 0.59% $11,293 -0.06% $10,306
12/31/97 $11,135 1.46% $11,457 -0.12% $10,294
1/31/98 $11,235 1.03% $11,575 0.19% $10,313
2/28/98 $11,335 0.03% $11,579 0.19% $10,333
3/31/98 $11,343 0.09% $11,589 0.19% $10,353
4/30/98 $11,331 -0.45% $11,537 0.18% $10,371
5/31/98 $11,516 1.58% $11,719 0.18% $10,390
6/30/98 $11,579 0.39% $11,765 0.12% $10,402
7/31/98 $11,608 0.25% $11,795 0.12% $10,415
8/31/98 $11,775 1.55% $11,977 0.12% $10,427
9/30/98 $11,953 1.25% $12,127 0.12% $10,440
10/31/98 $11,897 0.00% $12,127 0.24% $10,465
11/30/98 $11,949 0.35% $12,170 0.00% $10,465
12/31/98 $11,978 0.25% $12,200 -0.06% $10,459
1/31/99 $12,115 1.19% $12,345 0.24% $10,484
2/28/99 $12,050 -0.44% $12,291 0.12% $10,496
Total Return 20.50% 22.91% 4.96%
- -----------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
40
<PAGE>
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin New Jersey Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and New Jersey state personal
income taxes through a portfolio consisting primarily of New Jersey municipal
bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE(2)
[MAP OF NEW JERSEY]
During the year under review, everything came up roses in the Garden State. The
well-diversified economy expanded beyond expectations during 1998, showing gains
of 2.3% after a 2% increase in 1997. The state's employment growth was the
region's strongest, with virtually every sector except for manufacturing
recording job gains. Unemployment continued to decline, falling to 4.8% in 1998.
Due to these factors, Moody's, a national credit rating agency, assigned New
Jersey an Aa1 rating.
New Jersey enjoyed income per capita of $32,654, second only to Connecticut. The
state's central location, modern transportation and state-of-the-art port
facilities make it an ideal location for many corporate headquarters and
international business offices. Furthermore, due to its proximity to New York
City, many professionals working in New York reside in New Jersey. As a result
of the state's growing number of citizens with incomes more than $100,000,
income tax collections have surged recently, even outpacing the state's overall
impressive economic performance.
Somewhat surprisingly, tax-supported debt has ballooned in the past few years,
growing faster than increases in population and personal income. At the end of
1998, net tax-supported debt was approximately $12.8 billion, the fourth highest
in the nation. However, a significant portion of the increase was due to the
state's emphasis on improving its transportation infrastructure and renovating
office buildings, which should support economic growth going forward. In
addition, New Jersey's debt levels remain affordable, due to its strong,
well-diversified economy.
CREDIT QUALITY BREAKDOWN*
Franklin New Jersey Tax-Free
Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 73.0%
AA 7.0%
A 5.7%
BBB 13.1%
Below Investment Grade 1.2%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
(1) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2) Source: Moody's, January 1999. 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 116 of
this report.
41
<PAGE>
PORTFOLIO BREAKDOWN
Franklin New Jersey
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ---------------------------------------------
<S> <C>
Hospitals 15.9%
Utilities 15.8%
Prerefunded 15.0%
Education 12.9%
Transportation 12.8%
Housing 10.2%
Other Revenue 6.8%
General Obligation 3.5%
Health Care 3.1%
Certificates of Participation 2.9%
Industrial 1.1%
</TABLE>
New Jersey's large and broad-based economy, high levels of personal income and
strong financial operations make the outlook for 1999 quite encouraging.
PORTFOLIO NOTES
More than 50% of the municipal debt brought to market nationally in 1998 was
insured, as was the majority of the fund's purchases. Most insured bonds carry
an AAA rating, thus the percentage of the fund's AAA-rated securities increased
during the period. As of February 28, 1999, AAA-rated bonds comprised 73.0% of
the fund's total long-term investments, compared with 67.4% a year earlier.
New Jersey's 1998 issuance was 3.7% less than 1997's, which was a very strong
year. There continued to be large demand for the state's bonds, and yields
remained significantly higher compared with national yield levels. In spite of
the strong appetite for New Jersey's securities, credit spreads, the interest
rate difference between higher- and lower-quality issues, did widen toward the
close of the calendar year. Prior to the fourth quarter of 1998, speculative
bond yields were not high enough to compensate for the greater risk. We did not
buy the higher-risk issues, as we did not see the reward for the added risk the
projects involved.
Franklin New Jersey Tax-Free Income Fund's Class A share price, as measured by
net asset value, increased four cents, from $11.92 on February 28, 1998, to
$11.96 on February 28, 1999. The fund was able to purchase some attractively
yielding bonds across a variety of industries, thus maintaining the fund's
diversification. The fund's composition changed slightly during the period.
Hospitals, comprising 15.9% of total long-term investments, was the largest
sector holding, followed by utilities, which made up 15.8% of the portfolio.
During the period, Franklin New Jersey Tax-Free Income Fund purchased Rutgers
State University, New Brunswick Parking Authority Revenue, Moorestown Township
School District, New Jersey Health Care Facility Financing Authority Revenue St.
Barnabas Health and Hudson County Improvement Authority Solid Waste Systems
Revenue - Koppers Site Project.
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.
42
<PAGE>
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. Our strategy aims to capture the
bond's premium, increase the fund's call protection and protect its share value.
Going forward, we believe New Jersey municipal securities will continue to be
attractive investments for individuals seeking tax-free income. However, due to
the low interest- rate environment, it may be difficult to generate enough
capital losses to offset the gains realized from prerefunded bond sales. Thus,
the fund may make a capital gain distribution in June 1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin New Jersey Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
---------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.62 cents
April 5.2 cents 4.64 cents
May 5.2 cents 4.64 cents
June 5.2 cents 4.64 cents
July 5.2 cents 4.64 cents
August 5.2 cents 4.64 cents
September 5.1 cents 4.54 cents
October 5.1 cents 4.52 cents
November 5.1 cents 4.52 cents
December 5.1 cents 4.52 cents
January 5.1 cents 4.52 cents
February 5.1 cents 4.52 cents
- --------------------------------------------------------------------------------
TOTAL 61.8 CENTS 54.96 CENTS
</TABLE>
*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.
43
<PAGE>
FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
- --------------------------------------------------------------------------------
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and New Jersey state personal income tax bracket of 43.4%,
based on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.04 $11.96 $11.92
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.6180
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$0.05 $12.03 $11.98
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5496
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (5/12/88)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.63% +33.19% +107.84% +126.59%
Average Annual Total Return(2) +1.13% +4.99% +7.12% +7.44%
Distribution Rate(3) 4.80%
Taxable Equivalent Distribution Rate(4) 8.49%
30-Day Standardized Yield(5) 3.83%
Taxable Equivalent Yield(4) 6.77%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.09% +18.50% +28.00%
Average Annual Total Return(2) +3.06% +5.46% +6.39%
Distribution Rate(3) 4.38%
Taxable Equivalent Distribution Rate(4) 7.75%
30-Day Standardized Yield(5) 3.40%
Taxable Equivalent Yield(4) 6.01%
</TABLE>
Past performance is not predictive of future results.
44
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin New Jersey
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Date Franklin New Jersey Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond
Index
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,572 $10,000 $10,000
3/31/89 $9,568 -0.24% $9,976 0.58% $10,058
4/30/89 $9,802 2.37% $10,212 0.65% $10,123
5/31/89 $10,009 2.08% $10,425 0.57% $10,181
6/30/89 $10,135 1.36% $10,567 0.24% $10,206
7/31/89 $10,205 1.36% $10,710 0.24% $10,230
8/31/89 $10,106 -0.98% $10,605 0.16% $10,246
9/30/89 $10,035 -0.30% $10,574 0.32% $10,279
10/31/89 $10,201 1.22% $10,703 0.48% $10,329
11/30/89 $10,350 1.75% $10,890 0.24% $10,353
12/31/89 $10,412 0.82% $10,979 0.16% $10,370
1/31/90 $10,330 -0.47% $10,928 1.03% $10,477
2/28/90 $10,452 0.89% $11,025 0.47% $10,526
3/31/90 $10,437 0.03% $11,028 0.55% $10,584
4/30/90 $10,363 -0.72% $10,949 0.16% $10,601
5/31/90 $10,576 2.18% $11,187 0.23% $10,625
6/30/90 $10,691 0.88% $11,286 0.54% $10,682
7/31/90 $10,887 1.48% $11,453 0.38% $10,723
8/31/90 $10,609 -1.45% $11,287 0.92% $10,822
9/30/90 $10,624 0.06% $11,294 0.84% $10,913
10/31/90 $10,824 1.81% $11,498 0.60% $10,978
11/30/90 $11,073 2.01% $11,729 0.22% $11,002
12/31/90 $11,096 0.44% $11,781 0.00% $11,002
1/31/91 $11,275 1.34% $11,939 0.60% $11,068
2/28/91 $11,403 0.87% $12,042 0.15% $11,085
3/31/91 $11,437 0.04% $12,047 0.15% $11,102
4/30/91 $11,577 1.34% $12,209 0.15% $11,118
5/31/91 $11,675 0.89% $12,317 0.30% $11,152
6/30/91 $11,683 -0.10% $12,305 0.29% $11,184
7/31/91 $11,865 1.22% $12,455 0.15% $11,201
8/31/91 $11,971 1.32% $12,620 0.29% $11,233
9/30/91 $12,132 1.30% $12,784 0.44% $11,283
10/31/91 $12,206 0.90% $12,899 0.15% $11,299
11/30/91 $12,259 0.28% $12,935 0.29% $11,332
12/31/91 $12,478 2.15% $13,213 0.07% $11,340
1/31/92 $12,509 0.23% $13,243 0.15% $11,357
2/29/92 $12,518 0.03% $13,247 0.36% $11,398
3/31/92 $12,538 0.04% $13,253 0.51% $11,456
4/30/92 $12,649 0.89% $13,370 0.14% $11,472
5/31/92 $12,805 1.18% $13,528 0.14% $11,488
6/30/92 $12,985 1.68% $13,756 0.36% $11,530
7/31/92 $13,442 3.00% $14,168 0.21% $11,554
8/31/92 $13,278 -0.98% $14,029 0.28% $11,586
9/30/92 $13,288 0.65% $14,121 0.28% $11,619
10/31/92 $13,134 -0.98% $13,982 0.35% $11,659
11/30/92 $13,436 1.79% $14,232 0.14% $11,676
12/31/92 $13,604 1.02% $14,378 -0.07% $11,667
1/31/93 $13,732 1.16% $14,544 0.49% $11,725
2/28/93 $14,134 3.62% $15,071 0.35% $11,766
3/31/93 $14,047 -1.06% $14,911 0.35% $11,807
4/30/93 $14,141 1.01% $15,062 0.28% $11,840
5/31/93 $14,211 0.56% $15,146 0.14% $11,856
6/30/93 $14,450 1.67% $15,399 0.14% $11,873
7/31/93 $14,470 0.13% $15,419 0.00% $11,873
8/31/93 $14,734 2.08% $15,740 0.28% $11,906
9/30/93 $14,876 1.14% $15,919 0.21% $11,931
10/31/93 $14,920 0.19% $15,949 0.41% $11,980
11/30/93 $14,854 -0.88% $15,809 0.07% $11,989
12/31/93 $15,098 2.11% $16,143 0.00% $11,989
1/31/94 $15,231 1.14% $16,327 0.27% $12,021
2/28/94 $14,924 -2.59% $15,904 0.34% $12,062
3/31/94 $14,374 -4.07% $15,257 0.34% $12,103
4/30/94 $14,419 0.85% $15,386 0.14% $12,120
5/31/94 $14,527 0.87% $15,520 0.07% $12,128
6/30/94 $14,430 -0.61% $15,425 0.34% $12,170
7/31/94 $14,669 1.83% $15,708 0.27% $12,202
8/31/94 $14,727 0.35% $15,763 0.40% $12,251
9/30/94 $14,536 -1.47% $15,531 0.27% $12,284
10/31/94 $14,278 -1.78% $15,255 0.07% $12,293
11/30/94 $13,981 -1.81% $14,978 0.13% $12,309
12/31/94 $14,315 2.20% $15,308 0.00% $12,309
1/31/95 $14,730 2.86% $15,746 0.40% $12,358
2/28/95 $15,094 2.91% $16,204 0.40% $12,408
3/31/95 $15,232 1.15% $16,390 0.33% $12,448
4/30/95 $15,262 0.12% $16,410 0.33% $12,490
5/31/95 $15,659 3.19% $16,933 0.20% $12,515
6/30/95 $15,567 -0.87% $16,786 0.20% $12,540
7/31/95 $15,653 0.95% $16,946 0.00% $12,540
8/31/95 $15,822 1.27% $17,161 0.26% $12,572
9/30/95 $15,923 0.63% $17,269 0.20% $12,597
10/31/95 $16,148 1.45% $17,519 0.33% $12,639
11/30/95 $16,389 1.66% $17,810 -0.07% $12,630
12/31/95 $16,547 0.96% $17,981 -0.07% $12,621
1/31/96 $16,622 0.76% $18,118 0.59% $12,696
2/29/96 $16,513 -0.68% $17,995 0.32% $12,736
3/31/96 $16,333 -1.28% $17,764 0.52% $12,803
4/30/96 $16,309 -0.28% $17,714 0.39% $12,852
5/31/96 $16,314 -0.04% $17,707 0.19% $12,877
6/30/96 $16,493 1.09% $17,900 0.06% $12,885
7/31/96 $16,628 0.91% $18,063 0.19% $12,909
8/31/96 $16,604 -0.02% $18,060 0.19% $12,934
9/30/96 $16,843 1.40% $18,313 0.32% $12,975
10/31/96 $16,995 1.13% $18,519 0.32% $13,017
11/30/96 $17,266 1.83% $18,858 0.19% $13,041
12/31/96 $17,213 -0.42% $18,779 0.00% $13,041
1/31/97 $17,219 0.19% $18,815 0.32% $13,083
2/28/97 $17,358 0.92% $18,988 0.31% $13,124
3/31/97 $17,199 -1.33% $18,735 0.25% $13,156
4/30/97 $17,341 0.84% $18,893 0.12% $13,172
5/31/97 $17,528 1.51% $19,178 -0.06% $13,164
6/30/97 $17,686 1.07% $19,383 0.12% $13,180
7/31/97 $18,118 2.77% $19,920 0.12% $13,196
8/31/97 $17,971 -0.94% $19,733 0.19% $13,221
9/30/97 $18,174 1.19% $19,968 0.25% $13,254
10/31/97 $18,286 0.64% $20,096 0.25% $13,287
11/30/97 $18,413 0.59% $20,214 -0.06% $13,279
12/31/97 $18,650 1.46% $20,509 -0.12% $13,263
1/31/98 $18,810 1.03% $20,720 0.19% $13,288
2/28/98 $18,813 0.03% $20,727 0.19% $13,314
3/31/98 $18,847 0.09% $20,745 0.19% $13,339
4/30/98 $18,803 -0.45% $20,652 0.18% $13,363
5/31/98 $19,061 1.58% $20,978 0.18% $13,387
6/30/98 $19,160 0.39% $21,060 0.12% $13,403
7/31/98 $19,195 0.25% $21,113 0.12% $13,419
8/31/98 $19,441 1.55% $21,440 0.12% $13,435
9/30/98 $19,637 1.25% $21,708 0.12% $13,451
10/31/98 $19,687 0.00% $21,708 0.24% $13,484
11/30/98 $19,722 0.35% $21,784 0.00% $13,484
12/31/98 $19,789 0.25% $21,838 -0.06% $13,476
1/31/99 $19,955 1.19% $22,098 0.24% $13,508
2/28/99 $19,896 -0.44% $22,001 0.12% $13,524
Total Return 98.96% 120.01% 35.24%
- ------------------------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin New Jersey
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Date Franklin New Jersey Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,904 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,098 -0.87% $10,229 0.20% $10,040
7/31/95 $10,157 0.95% $10,326 0.00% $10,040
8/31/95 $10,261 1.27% $10,458 0.26% $10,066
9/29/95 $10,330 0.63% $10,523 0.20% $10,086
10/31/95 $10,470 1.45% $10,676 0.33% $10,120
11/30/95 $10,620 1.66% $10,853 -0.07% $10,112
12/29/95 $10,717 0.96% $10,957 -0.07% $10,105
1/31/96 $10,769 0.76% $11,041 0.59% $10,165
2/29/96 $10,684 -0.68% $10,966 0.32% $10,198
3/29/96 $10,565 -1.28% $10,825 0.52% $10,251
4/30/96 $10,544 -0.28% $10,795 0.39% $10,291
5/31/96 $10,551 -0.04% $10,791 0.19% $10,310
6/28/96 $10,661 1.09% $10,908 0.06% $10,316
7/31/96 $10,744 0.91% $11,008 0.19% $10,336
8/30/96 $10,715 -0.02% $11,005 0.19% $10,356
9/30/96 $10,864 1.40% $11,159 0.32% $10,389
10/31/96 $10,955 1.13% $11,286 0.32% $10,422
11/29/96 $11,122 1.83% $11,492 0.19% $10,442
12/31/96 $11,080 -0.42% $11,444 0.00% $10,442
1/31/97 $11,079 0.19% $11,466 0.32% $10,475
2/28/97 $11,172 0.92% $11,571 0.31% $10,508
3/31/97 $11,066 -1.33% $11,417 0.25% $10,534
4/30/97 $11,151 0.84% $11,513 0.12% $10,547
5/31/97 $11,266 1.51% $11,687 -0.06% $10,540
6/30/97 $11,361 1.07% $11,812 0.12% $10,553
7/31/97 $11,634 2.77% $12,139 0.12% $10,565
8/31/97 $11,545 -0.94% $12,025 0.19% $10,586
9/30/97 $11,660 1.19% $12,168 0.25% $10,612
10/31/97 $11,726 0.64% $12,246 0.25% $10,639
11/30/97 $11,802 0.59% $12,318 -0.06% $10,632
12/31/97 $11,958 1.46% $12,498 -0.12% $10,619
1/31/98 $12,044 1.03% $12,627 0.19% $10,640
2/28/98 $12,050 0.03% $12,631 0.19% $10,660
3/31/98 $12,066 0.09% $12,642 0.19% $10,680
4/30/98 $12,022 -0.45% $12,585 0.18% $10,699
5/31/98 $12,191 1.58% $12,784 0.18% $10,719
6/30/98 $12,238 0.39% $12,834 0.12% $10,731
7/31/98 $12,255 0.25% $12,866 0.12% $10,744
8/31/98 $12,415 1.55% $13,065 0.12% $10,757
9/30/98 $12,534 1.25% $13,229 0.12% $10,770
10/31/98 $12,560 0.00% $13,229 0.24% $10,796
11/30/98 $12,576 0.35% $13,275 0.00% $10,796
12/31/98 $12,613 0.25% $13,308 -0.06% $10,789
1/31/99 $12,713 1.19% $13,466 0.24% $10,815
2/28/99 $12,677 -0.44% $13,407 0.12% $10,828
Total Return 26.77% 34.07% 8.28%
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
45
<PAGE>
FRANKLIN OREGON TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Oregon Tax-Free Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 48.3%
AA 20.7%
A 18.0%
BBB 13.0%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Oregon Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Oregon state personal income
taxes through a portfolio consisting primarily of Oregon municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE
[MAP OF OREGON]
Oregon's economic expansion continued throughout the year under review, although
at a reduced pace, despite shocks from the Asian crisis on the state's
agriculture and timber sectors. More than half of merchandise exports were
destined for Asia, and new industries, particularly high-technology
semiconductor manufacturers, experienced setbacks. As a result, projections for
Oregon and other Pacific states allow for future growth, but at a tempered gait
below that of the nation.
Measure 5 created obstacles for the taxing arm of state and local governments.
The measure, a property tax limitation plan, required the state to indemnify
school districts for budgetary shortfalls. As a result, Oregon now finances some
40% of K-12 education, up from approximately 33% prior to Measure 5 taking
effect.(2) The state funded the increase by cutting other programs and continued
reliance on lottery revenues.
Oregon achieved solid credit ratings mainly due to sound spending practices, low
overall debt levels and general revenues that exceeded expectations.
Underscoring the state's fiscal conservatism is the so-called "2% kicker," a
direct tax-rebate initiative that takes effect when revenue growth exceeds
budget levels by more than 2%. While financially beneficial to individuals and
corporations, the "kicker" places a strain on the state's ability to add
substantially to its reserves. Balanced against this, the state
(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) Moody's Investor's Service, Municipal Credit Research, February 22, 1999.
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 121 of
this report.
46
<PAGE>
often issues general obligation (GO) debt for self-supporting projects, in
themselves a significant proportion of total state debt. So, while these types
of GO issues carry Oregon's full faith and credit, the state is somewhat
insulated because many of the projects are able to pay the debt costs without
outside assistance.
Oregon's economy continues to diversify, particularly in high technology and
international trade. Manageable debt levels, conservative finances and a growing
population base afford the state a relatively high Aa2 rating from Moody's, a
national credit rating agency.(3)
PORTFOLIO NOTES
The improving national and state environments favorably affected Franklin Oregon
Tax-Free Income Fund's performance over the reporting period. The value of many
of the portfolio's bonds increased, as interest rates generally declined.
However, the fund's Class A share price, as measured by net asset value,
decreased three cents, from $11.86 on February 28, 1998, to $11.83 on February
28, 1999, as a result of the volatility during the 12 months under review. Lower
interest rates led to higher municipal supply as issuers took advantage of the
rate environment to issue new or refunded debt. Nationally, issuance in 1998
topped $284 billion, far outpacing the $220 billion issued in 1997.
The fund's total net assets increased 17%, from $443.0 million on February 28,
1998, to approximately $516.6 million at the end of the reporting period, giving
the fund an increasingly stable and diversified asset base. Such diversification
helped reduce the fund's exposure to risk and volatility that may affect any one
sector. In addition, the fund's superior credit quality, with 69% of the fund's
securities rated AA or higher, further increased the fund's stability. The
fund's asset allocation did not change significantly in the year under review.
The hospital sector remained the fund's largest weighting, at 17.5% of total
long-term investments, followed by prerefunded securities, at 16.6%. Recent fund
purchases included Marion County Certificate of Participation -- Courthouse
Square Project and Portland International Airport Revenue.
PORTFOLIO BREAKDOWN
Franklin Oregon
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ---------------------------------------------
<S> <C>
Hospitals 17.5%
Prerefunded 16.6%
Housing 15.2%
Certificates of Participation 10.5%
Utilities 9.1%
Industrial 8.9%
General Obligation 8.0%
Transportation 7.8%
Education 3.0%
Tax Allocation 1.1%
Health Care 1.0%
Other Revenue 1.0%
Special Assessment 0.2%
Sales Tax Revenue 0.1%
</TABLE>
(3) This does not indicate Moody's rating of the fund.
47
<PAGE>
The fund should perform well into the next reporting period, aided by stable
interest rates and ample supply of new bonds. We will continue to follow our
fiscally responsible strategy of investing for income, price stability and tax
efficiency. However, the fund's substantial new investments in the current,
historically low interest-rate environment increased pressure on the dividend
payment. If interest rates stay in the same range, it is likely that there will
be further pressure on the dividend payment in the next reporting period.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Oregon Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 5.2 cents 4.64 cents
April 5.2 cents 4.65 cents
May 5.2 cents 4.65 cents
June 5.2 cents 4.65 cents
July 5.2 cents 4.63 cents
August 5.2 cents 4.63 cents
September 5.1 cents 4.53 cents
October 5.1 cents 4.54 cents
November 5.1 cents 4.54 cents
December 5.0 cents 4.44 cents
January 5.0 cents 4.44 cents
February 5.0 cents 4.44 cents
- --------------------------------------------------------------------------------
TOTAL 61.5 CENTS 54.78 CENTS
</TABLE>
*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.
48
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98 - 2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.03 $11.83 $11.86
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.615
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.01 $11.91 $11.92
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5478
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.12% +32.39% +102.72% +125.66%
Average Annual Total Return(2) +0.62% +4.86% +6.86% +6.93%
Distribution Rate(3) 4.71%
Taxable Equivalent Distribution Rate(4) 8.57%
30-Day Standardized Yield(5) 3.86%
Taxable Equivalent Yield(4) 7.02%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.59% +17.77% +27.07%
Average Annual Total Return(2) +2.55% +5.24% +6.18%
Distribution Rate(3) 4.27%
Taxable Equivalent Distribution Rate(4) 7.77%
30-Day Standardized Yield(5) 3.44%
Taxable Equivalent Yield(4) 6.26%
</TABLE>
FRANKLIN OREGON
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior
to July 1, 1994, fund shares were offered at a lower initial sales charge; thus
actual total returns may differ. Effective May 1, 1994, the fund eliminated the
sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
- --------------------------------------------------------------------------------
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Oregon state personal income tax bracket of 45.0%, based on
the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
49
<PAGE>
FRANKLIN OREGON
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year +0.62%
5-Year +4.86%
10-Year +6.86%
Since Inception (9/1/87) +6.93%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------
<S> <C>
1-Year +2.55%
3-Year +5.24%
Since Inception (5/1/95) +6.18%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the
current, applicable, maximum sales charge(s), fund expenses, account fees and
reinvested distributions. Performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin Oregon
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Date Franklin Oregon Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond
Index
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,578 $10,000 $10,000
3/31/89 $9,549 -0.24% $9,976 0.58% $10,058
4/30/89 $9,750 2.37% $10,212 0.65% $10,123
5/31/89 $9,980 2.08% $10,425 0.57% $10,181
6/30/89 $10,110 1.36% $10,567 0.24% $10,206
7/31/89 $10,175 1.36% $10,710 0.24% $10,230
8/31/89 $10,108 -0.98% $10,605 0.16% $10,246
9/30/89 $10,041 -0.30% $10,574 0.32% $10,279
10/31/89 $10,126 1.22% $10,703 0.48% $10,329
11/30/89 $10,259 1.75% $10,890 0.24% $10,353
12/31/89 $10,345 0.82% $10,979 0.16% $10,370
1/31/90 $10,276 -0.47% $10,928 1.03% $10,477
2/28/90 $10,382 0.89% $11,025 0.47% $10,526
3/31/90 $10,381 0.03% $11,028 0.55% $10,584
4/30/90 $10,282 -0.72% $10,949 0.16% $10,601
5/31/90 $10,509 2.18% $11,187 0.23% $10,625
6/30/90 $10,628 0.88% $11,286 0.54% $10,682
7/31/90 $10,798 1.48% $11,453 0.38% $10,723
8/31/90 $10,554 -1.45% $11,287 0.92% $10,822
9/30/90 $10,533 0.06% $11,294 0.84% $10,913
10/31/90 $10,695 1.81% $11,498 0.60% $10,978
11/30/90 $10,930 2.01% $11,729 0.22% $11,002
12/31/90 $10,919 0.44% $11,781 0.00% $11,002
1/31/91 $11,095 1.34% $11,939 0.60% $11,068
2/28/91 $11,229 0.87% $12,042 0.15% $11,085
3/31/91 $11,281 0.04% $12,047 0.15% $11,102
4/30/91 $11,427 1.34% $12,209 0.15% $11,118
5/31/91 $11,522 0.89% $12,317 0.30% $11,152
6/30/91 $11,521 -0.10% $12,305 0.29% $11,184
7/31/91 $11,660 1.22% $12,455 0.15% $11,201
8/31/91 $11,788 1.32% $12,620 0.29% $11,233
9/30/91 $11,950 1.30% $12,784 0.44% $11,283
10/31/91 $12,025 0.90% $12,899 0.15% $11,299
11/30/91 $12,068 0.28% $12,935 0.29% $11,332
12/31/91 $12,298 2.15% $13,213 0.07% $11,340
1/31/92 $12,330 0.23% $13,243 0.15% $11,357
2/29/92 $12,325 0.03% $13,247 0.36% $11,398
3/31/92 $12,364 0.04% $13,253 0.51% $11,456
4/30/92 $12,448 0.89% $13,370 0.14% $11,472
5/31/92 $12,578 1.18% $13,528 0.14% $11,488
6/30/92 $12,754 1.68% $13,756 0.36% $11,530
7/31/92 $13,171 3.00% $14,168 0.21% $11,554
8/31/92 $12,994 -0.98% $14,029 0.28% $11,586
9/30/92 $13,023 0.65% $14,121 0.28% $11,619
10/31/92 $12,854 -0.98% $13,982 0.35% $11,659
11/30/92 $13,139 1.79% $14,232 0.14% $11,676
12/31/92 $13,344 1.02% $14,378 -0.07% $11,667
1/31/93 $13,503 1.16% $14,544 0.49% $11,725
2/28/93 $13,910 3.62% $15,071 0.35% $11,766
3/31/93 $13,833 -1.06% $14,911 0.35% $11,807
4/30/93 $13,934 1.01% $15,062 0.28% $11,840
5/31/93 $14,000 0.56% $15,146 0.14% $11,856
6/30/93 $14,174 1.67% $15,399 0.14% $11,873
7/31/93 $14,204 0.13% $15,419 0.00% $11,873
8/31/93 $14,417 2.08% $15,740 0.28% $11,906
9/30/93 $14,605 1.14% $15,919 0.21% $11,931
10/31/93 $14,658 0.19% $15,949 0.41% $11,980
11/30/93 $14,565 -0.88% $15,809 0.07% $11,989
12/31/93 $14,801 2.11% $16,143 0.00% $11,989
1/31/94 $14,940 1.14% $16,327 0.27% $12,021
2/28/94 $14,654 -2.59% $15,904 0.34% $12,062
3/31/94 $14,128 -4.07% $15,257 0.34% $12,103
4/30/94 $14,166 0.85% $15,386 0.14% $12,120
5/31/94 $14,256 0.87% $15,520 0.07% $12,128
6/30/94 $14,181 -0.61% $15,425 0.34% $12,170
7/31/94 $14,412 1.83% $15,708 0.27% $12,202
8/31/94 $14,465 0.35% $15,763 0.40% $12,251
9/30/94 $14,273 -1.47% $15,531 0.27% $12,284
10/31/94 $14,002 -1.78% $15,255 0.07% $12,293
11/30/94 $13,718 -1.81% $14,978 0.13% $12,309
12/31/94 $14,074 2.20% $15,308 0.00% $12,309
1/31/95 $14,470 2.86% $15,746 0.40% $12,358
2/28/95 $14,856 2.91% $16,204 0.40% $12,408
3/31/95 $14,991 1.15% $16,390 0.33% $12,448
4/30/95 $15,019 0.12% $16,410 0.33% $12,490
5/31/95 $15,397 3.19% $16,933 0.20% $12,515
6/30/95 $15,278 -0.87% $16,786 0.20% $12,540
7/31/95 $15,375 0.95% $16,946 0.00% $12,540
8/31/95 $15,568 1.27% $17,161 0.26% $12,572
9/30/95 $15,653 0.63% $17,269 0.20% $12,597
10/31/95 $15,861 1.45% $17,519 0.33% $12,639
11/30/95 $16,084 1.66% $17,810 -0.07% $12,630
12/31/95 $16,197 0.96% $17,981 -0.07% $12,621
1/31/96 $16,297 0.76% $18,118 0.59% $12,696
2/29/96 $16,216 -0.68% $17,995 0.32% $12,736
3/31/96 $16,051 -1.28% $17,764 0.52% $12,803
4/30/96 $16,054 -0.28% $17,714 0.39% $12,852
5/31/96 $16,070 -0.04% $17,707 0.19% $12,877
6/30/96 $16,244 1.09% $17,900 0.06% $12,885
7/31/96 $16,346 0.91% $18,063 0.19% $12,909
8/31/96 $16,363 -0.02% $18,060 0.19% $12,934
9/30/96 $16,553 1.40% $18,313 0.32% $12,975
10/31/96 $16,686 1.13% $18,519 0.32% $13,017
11/30/96 $16,906 1.83% $18,858 0.19% $13,041
12/31/96 $16,895 -0.42% $18,779 0.00% $13,041
1/31/97 $16,912 0.19% $18,815 0.32% $13,083
2/28/97 $17,047 0.92% $18,988 0.31% $13,124
3/31/97 $16,917 -1.33% $18,735 0.25% $13,156
4/30/97 $17,039 0.84% $18,893 0.12% $13,172
5/31/97 $17,221 1.51% $19,178 -0.06% $13,164
6/30/97 $17,358 1.07% $19,383 0.12% $13,180
7/31/97 $17,737 2.77% $19,920 0.12% $13,196
8/31/97 $17,680 -0.94% $19,733 0.19% $13,221
9/30/97 $17,849 1.19% $19,968 0.25% $13,254
10/31/97 $17,944 0.64% $20,096 0.25% $13,287
11/30/97 $18,070 0.59% $20,214 -0.06% $13,279
12/31/97 $18,288 1.46% $20,509 -0.12% $13,263
1/31/98 $18,430 1.03% $20,720 0.19% $13,288
2/28/98 $18,448 0.03% $20,727 0.19% $13,314
3/31/98 $18,451 0.09% $20,745 0.19% $13,339
4/30/98 $18,439 -0.45% $20,652 0.18% $13,363
5/31/98 $18,662 1.58% $20,978 0.18% $13,387
6/30/98 $18,728 0.39% $21,060 0.12% $13,403
7/31/98 $18,763 0.25% $21,113 0.12% $13,419
8/31/98 $19,005 1.55% $21,440 0.12% $13,435
9/30/98 $19,199 1.25% $21,708 0.12% $13,451
10/31/98 $19,152 0.00% $21,708 0.24% $13,484
11/30/98 $19,234 0.35% $21,784 0.00% $13,484
12/31/98 $19,283 0.25% $21,838 -0.06% $13,476
1/31/99 $19,462 1.19% $22,098 0.24% $13,508
2/28/99 $19,417 -0.44% $22,001 0.12% $13,524
Total Return 94.17% 120.01% 35.24%
- ---------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin Oregon
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Date Franklin Oregon Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,903 $10,000 $10,000
5/31/95 $10,162 3.19% $10,319 0.20% $10,020
6/30/95 $10,079 -0.87% $10,229 0.20% $10,040
7/31/95 $10,138 0.95% $10,326 0.00% $10,040
8/31/95 $10,268 1.27% $10,458 0.26% $10,066
9/29/95 $10,318 0.63% $10,523 0.20% $10,086
10/31/95 $10,450 1.45% $10,676 0.33% $10,120
11/30/95 $10,590 1.66% $10,853 -0.07% $10,112
12/29/95 $10,668 0.96% $10,957 -0.07% $10,105
1/31/96 $10,729 0.76% $11,041 0.59% $10,165
2/29/96 $10,670 -0.68% $10,966 0.32% $10,198
3/29/96 $10,560 -1.28% $10,825 0.52% $10,251
4/30/96 $10,547 -0.28% $10,795 0.39% $10,291
5/31/96 $10,562 -0.04% $10,791 0.19% $10,310
6/28/96 $10,671 1.09% $10,908 0.06% $10,316
7/31/96 $10,733 0.91% $11,008 0.19% $10,336
8/30/96 $10,739 -0.02% $11,005 0.19% $10,356
9/30/96 $10,858 1.40% $11,159 0.32% $10,389
10/31/96 $10,940 1.13% $11,286 0.32% $10,422
11/29/96 $11,089 1.83% $11,492 0.19% $10,442
12/31/96 $11,067 -0.42% $11,444 0.00% $10,442
1/31/97 $11,082 0.19% $11,466 0.32% $10,475
2/28/97 $11,165 0.92% $11,571 0.31% $10,508
3/31/97 $11,073 -1.33% $11,417 0.25% $10,534
4/30/97 $11,147 0.84% $11,513 0.12% $10,547
5/31/97 $11,261 1.51% $11,687 -0.06% $10,540
6/30/97 $11,345 1.07% $11,812 0.12% $10,553
7/31/97 $11,586 2.77% $12,139 0.12% $10,565
8/31/97 $11,553 -0.94% $12,025 0.19% $10,586
9/30/97 $11,658 1.19% $12,168 0.25% $10,612
10/31/97 $11,714 0.64% $12,246 0.25% $10,639
11/30/97 $11,780 0.59% $12,318 -0.06% $10,632
12/31/97 $11,926 1.46% $12,498 -0.12% $10,619
1/31/98 $12,013 1.03% $12,627 0.19% $10,640
2/28/98 $12,019 0.03% $12,631 0.19% $10,660
3/31/98 $12,015 0.09% $12,642 0.19% $10,680
4/30/98 $11,991 -0.45% $12,585 0.18% $10,699
5/31/98 $12,140 1.58% $12,784 0.18% $10,719
6/30/98 $12,177 0.39% $12,834 0.12% $10,731
7/31/98 $12,194 0.25% $12,866 0.12% $10,744
8/31/98 $12,345 1.55% $13,065 0.12% $10,757
9/30/98 $12,464 1.25% $13,229 0.12% $10,770
10/31/98 $12,428 0.00% $13,229 0.24% $10,796
11/30/98 $12,475 0.35% $13,275 0.00% $10,796
12/31/98 $12,501 0.25% $13,308 -0.06% $10,789
1/31/99 $12,611 1.19% $13,466 0.24% $10,815
2/28/99 $12,584 -0.44% $13,407 0.12% $10,828
Total Return 25.84% 34.07% 8.28%
- ----------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
50
<PAGE>
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Pennsylvania Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and Pennsylvania state personal
income taxes through a portfolio consisting primarily of Pennsylvania municipal
bonds.(1)
- --------------------------------------------------------------------------------
COMMONWEALTH UPDATE
[MAP OF PENNSYLVANIA]
Pennsylvania's economy rode the wave of the U.S. economic expansion to new
heights during the year under review. A perennial laggard to the nation, the
commonwealth's economy showed steady if not eye-popping growth, as it
diversified its economic base. Services accounted for approximately 14.5% of
employment, while the once all-important manufacturing sector accounted for 17%
of employment as of August 1998.(2) The mix of service and manufacturing jobs
more closely resembled that of the U.S., which should reduce Pennsylvania's
vulnerability to a cyclical recession. However, the shift to service jobs, which
tend to pay less than manufacturing jobs, caused personal income to grow more
slowly than the nation's.
Employment growth also trailed the national average. In 1997, total employment
increased 1.7%, compared with the national average of 2.5%, but was a good deal
stronger than the 0.9% annual growth the commonwealth experienced from 1990 to
1996. In 1998, job growth slowed to gains of slightly more than 1%, compared
with the U.S. average of 2.5%.(2)
CREDIT QUALITY BREAKDOWN*
Franklin Pennsylvania Tax-Free
Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 60.3%
AA 10.1%
A 8.8%
BBB 20.8%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
(1) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable. The fund's shares are free from Pennsylvania personal property tax and
income is free from Philadelphia School Investment Net Income Tax.
(2) Source: Fitch IBCA, 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 126 of
this report.
51
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Pennsylvania
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ----------------------------------
<S> <C>
Prerefunded 19.6%
Utilities 17.0%
Hospitals 15.8%
Education 14.7%
Housing 8.9%
General Obligation 5.9%
Health Care 5.9%
Industrial 4.5%
Other Revenue 4.4%
Transportation 2.4%
Miscellaneous 0.9%
</TABLE>
Nevertheless, Pennsylvania boasted a strong financial condition as a result of
its sound fiscal management and greater-than-expected revenues. 1997 marked the
seventh consecutive year the commonwealth recorded a budget surplus. Earlier in
the decade, Pennsylvania eliminated its $1 billion accumulated deficit, and debt
levels, only slightly higher than the national average, continue to decline.(3)
Partially as a result of these factors, Moody's, a national credit rating
agency, assigned an Aa3 rating.(4)
PORTFOLIO NOTES
More than 50% of the municipal debt brought to market nationally in 1998 was
insured, as was the majority of the fund's purchases. Most insured bonds carry
an AAA rating, thus the percentage of AAA-rated securities in the fund increased
during the period. As of February 28, 1999, AAA-rated bonds comprised 60.3% of
the fund's total long-term investments, compared with 57.2% a year earlier.
We maintained our strategy of lowering risk by diversifying across a number of
sectors. The fund's asset allocation changed slightly over the reporting period.
On February 28, 1999, prerefunded securities comprised the largest portion of
the fund's total long-term investments, at 19.6%, followed by utilities, which
made up 17.0%. Recent purchases included Philadelphia General Obligation, Butler
Area School District, Philadelphia Parking Authority Airport Revenue, Allegheny
County IDLER Environmental Improvement - USX Corp and Montgomery County IDA
Retirement Community - ACT Retirement-Life Communities.
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
(3) Source: Moody's, December 1998.
(4) This does not indicate Moody's rating of the fund.
52
<PAGE>
rapidly to the stated call price. Our strategy aims to capture the bond's
premium, increase the fund's call protection and protect its share value.
Going forward, we believe Pennsylvania municipal securities will continue to be
attractive investments for individuals seeking tax-free income. However, due to
the low interest-rate environment, it may be difficult for the fund to generate
enough capital losses to offset the gains realized from prerefunded bond sales.
Thus, the fund may make a capital gain distribution in June 1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Pennsylvania Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.7 cents 4.18 cents
April 4.7 cents 4.21 cents
May 4.7 cents 4.21 cents
June 4.7 cents 4.21 cents
July 4.7 cents 4.20 cents
August 4.7 cents 4.20 cents
September 4.6 cents 4.10 cents
October 4.6 cents 4.11 cents
November 4.6 cents 4.11 cents
December 4.5 cents 4.01 cents
January 4.5 cents 4.01 cents
February 4.5 cents 4.01 cents
TOTAL 55.5 CENTS 49.56 CENTS
</TABLE>
*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.
53
<PAGE>
FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
- --------------------------------------------------------------------------------
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
combined federal and Pennsylvania state personal income tax bracket of 41.3%,
based on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.04 $10.52 $10.56
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.5550
Long-Term Capital Gain $0.0137
TOTAL $0.5687
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$0.04 $10.57 $10.61
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS
---------------------------------
<S> <C>
Dividend Income $0.4956
Long-Term Capital Gain $0.0137
TOTAL $0.5093
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (12/1/86)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) +5.11% +34.83% +110.70% +132.85%
Average Annual Total Return(2) +0.63% +5.24% +7.27% +6.77%
Distribution Rate(3) 4.80%
Taxable Equivalent Distribution Rate(4) 8.18%
30-Day Standardized Yield(5) 4.03%
Taxable Equivalent Yield(4) 6.86%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.50% +18.86% +28.03%
Average Annual Total Return(2) +2.44% +5.56% +6.39%
Distribution Rate(3) 4.37%
Taxable Equivalent Distribution Rate(4) 7.44%
30-Day Standardized Yield(5) 3.61%
Taxable Equivalent Yield(4) 6.15%
</TABLE>
Franklin Pennsylvania Tax-Free Income Fund paid distributions derived from
long-term capital gains of 1.37 cents ($0.0137) per share in December 1998. The
fund hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
54
<PAGE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
CLASS A (3/1/89 - 2/28/99)
The following line graph compares the performance of the Franklin Pennsylvania
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Date Franklin Pennsylvania Lehman CPI
Tax-Free Income Brothers
Fund-Class A Municipal
Bond
Index
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,577 $10,000 $10,000
3/31/89 $9,568 -0.24% $9,976 0.58% $10,058
4/30/89 $9,801 2.37% $10,212 0.65% $10,123
5/31/89 $10,015 2.08% $10,425 0.57% $10,181
6/30/89 $10,138 1.36% $10,567 0.24% $10,206
7/31/89 $10,211 1.36% $10,710 0.24% $10,230
8/31/89 $10,159 -0.98% $10,605 0.16% $10,246
9/30/89 $10,117 -0.30% $10,574 0.32% $10,279
10/31/89 $10,201 1.22% $10,703 0.48% $10,329
11/30/89 $10,339 1.75% $10,890 0.24% $10,353
12/31/89 $10,445 0.82% $10,979 0.16% $10,370
1/31/90 $10,370 -0.47% $10,928 1.03% $10,477
2/28/90 $10,456 0.89% $11,025 0.47% $10,526
3/31/90 $10,456 0.03% $11,028 0.55% $10,584
4/30/90 $10,358 -0.72% $10,949 0.16% $10,601
5/31/90 $10,599 2.18% $11,187 0.23% $10,625
6/30/90 $10,677 0.88% $11,286 0.54% $10,682
7/31/90 $10,844 1.48% $11,453 0.38% $10,723
8/31/90 $10,542 -1.45% $11,287 0.92% $10,822
9/30/90 $10,474 0.06% $11,294 0.84% $10,913
10/31/90 $10,645 1.81% $11,498 0.60% $10,978
11/30/90 $10,873 2.01% $11,729 0.22% $11,002
12/31/90 $10,850 0.44% $11,781 0.00% $11,002
1/31/91 $11,023 1.34% $11,939 0.60% $11,068
2/28/91 $11,093 0.87% $12,042 0.15% $11,085
3/31/91 $11,140 0.04% $12,047 0.15% $11,102
4/30/91 $11,316 1.34% $12,209 0.15% $11,118
5/31/91 $11,405 0.89% $12,317 0.30% $11,152
6/30/91 $11,436 -0.10% $12,305 0.29% $11,184
7/31/91 $11,610 1.22% $12,455 0.15% $11,201
8/31/91 $11,736 1.32% $12,620 0.29% $11,233
9/30/91 $11,912 1.30% $12,784 0.44% $11,283
10/31/91 $11,992 0.90% $12,899 0.15% $11,299
11/30/91 $12,059 0.28% $12,935 0.29% $11,332
12/31/91 $12,312 2.15% $13,213 0.07% $11,340
1/31/92 $12,331 0.23% $13,243 0.15% $11,357
2/29/92 $12,325 0.03% $13,247 0.36% $11,398
3/31/92 $12,356 0.04% $13,253 0.51% $11,456
4/30/92 $12,476 0.89% $13,370 0.14% $11,472
5/31/92 $12,621 1.18% $13,528 0.14% $11,488
6/30/92 $12,829 1.68% $13,756 0.36% $11,530
7/31/92 $13,269 3.00% $14,168 0.21% $11,554
8/31/92 $13,144 -0.98% $14,029 0.28% $11,586
9/30/92 $13,199 0.65% $14,121 0.28% $11,619
10/31/92 $13,060 -0.98% $13,982 0.35% $11,659
11/30/92 $13,338 1.79% $14,232 0.14% $11,676
12/31/92 $13,500 1.02% $14,378 -0.07% $11,667
1/31/93 $13,689 1.16% $14,544 0.49% $11,725
2/28/93 $14,079 3.62% $15,071 0.35% $11,766
3/31/93 $14,029 -1.06% $14,911 0.35% $11,807
4/30/93 $14,113 1.01% $15,062 0.28% $11,840
5/31/93 $14,198 0.56% $15,146 0.14% $11,856
6/30/93 $14,419 1.67% $15,399 0.14% $11,873
7/31/93 $14,410 0.13% $15,419 0.00% $11,873
8/31/93 $14,688 2.08% $15,740 0.28% $11,906
9/30/93 $14,857 1.14% $15,919 0.21% $11,931
10/31/93 $14,902 0.19% $15,949 0.41% $11,980
11/30/93 $14,851 -0.88% $15,809 0.07% $11,989
12/31/93 $15,076 2.11% $16,143 0.00% $11,989
1/31/94 $15,204 1.14% $16,327 0.27% $12,021
2/28/94 $14,951 -2.59% $15,904 0.34% $12,062
3/31/94 $14,526 -4.07% $15,257 0.34% $12,103
4/30/94 $14,542 0.85% $15,386 0.14% $12,120
5/31/94 $14,644 0.87% $15,520 0.07% $12,128
6/30/94 $14,616 -0.61% $15,425 0.34% $12,170
7/31/94 $14,834 1.83% $15,708 0.27% $12,202
8/31/94 $14,879 0.35% $15,763 0.40% $12,251
9/30/94 $14,735 -1.47% $15,531 0.27% $12,284
10/31/94 $14,544 -1.78% $15,255 0.07% $12,293
11/30/94 $14,281 -1.81% $14,978 0.13% $12,309
12/31/94 $14,579 2.20% $15,308 0.00% $12,309
1/31/95 $14,924 2.86% $15,746 0.40% $12,358
2/28/95 $15,285 2.91% $16,204 0.40% $12,408
3/31/95 $15,423 1.15% $16,390 0.33% $12,448
4/30/95 $15,456 0.12% $16,410 0.33% $12,490
5/31/95 $15,824 3.19% $16,933 0.20% $12,515
6/30/95 $15,766 -0.87% $16,786 0.20% $12,540
7/31/95 $15,861 0.95% $16,946 0.00% $12,540
8/31/95 $16,004 1.27% $17,161 0.26% $12,572
9/30/95 $16,100 0.63% $17,269 0.20% $12,597
10/31/95 $16,274 1.45% $17,519 0.33% $12,639
11/30/95 $16,513 1.66% $17,810 -0.07% $12,630
12/31/95 $16,674 0.96% $17,981 -0.07% $12,621
1/31/96 $16,756 0.76% $18,118 0.59% $12,696
2/29/96 $16,680 -0.68% $17,995 0.32% $12,736
3/31/96 $16,539 -1.28% $17,764 0.52% $12,803
4/30/96 $16,526 -0.28% $17,714 0.39% $12,852
5/31/96 $16,561 -0.04% $17,707 0.19% $12,877
6/30/96 $16,724 1.09% $17,900 0.06% $12,885
7/31/96 $16,839 0.91% $18,063 0.19% $12,909
8/31/96 $16,838 -0.02% $18,060 0.19% $12,934
9/30/96 $17,052 1.40% $18,313 0.32% $12,975
10/31/96 $17,201 1.13% $18,519 0.32% $13,017
11/30/96 $17,434 1.83% $18,858 0.19% $13,041
12/31/96 $17,417 -0.42% $18,779 0.00% $13,041
1/31/97 $17,468 0.19% $18,815 0.32% $13,083
2/28/97 $17,602 0.92% $18,988 0.31% $13,124
3/31/97 $17,432 -1.33% $18,735 0.25% $13,156
4/30/97 $17,586 0.84% $18,893 0.12% $13,172
5/31/97 $17,791 1.51% $19,178 -0.06% $13,164
6/30/97 $17,967 1.07% $19,383 0.12% $13,180
7/31/97 $18,383 2.77% $19,920 0.12% $13,196
8/31/97 $18,261 -0.94% $19,733 0.19% $13,221
9/30/97 $18,450 1.19% $19,968 0.25% $13,254
10/31/97 $18,570 0.64% $20,096 0.25% $13,287
11/30/97 $18,708 0.59% $20,214 -0.06% $13,279
12/31/97 $18,982 1.46% $20,509 -0.12% $13,263
1/31/98 $19,176 1.03% $20,720 0.19% $13,288
2/28/98 $19,172 0.03% $20,727 0.19% $13,314
3/31/98 $19,184 0.09% $20,745 0.19% $13,339
4/30/98 $19,160 -0.45% $20,652 0.18% $13,363
5/31/98 $19,375 1.58% $20,978 0.18% $13,387
6/30/98 $19,480 0.39% $21,060 0.12% $13,403
7/31/98 $19,511 0.25% $21,113 0.12% $13,419
8/31/98 $19,729 1.55% $21,440 0.12% $13,435
9/30/98 $19,945 1.25% $21,708 0.12% $13,451
10/31/98 $19,900 0.00% $21,708 0.24% $13,484
11/30/98 $19,987 0.35% $21,784 0.00% $13,484
12/31/98 $20,022 0.25% $21,838 -0.06% $13,476
1/31/99 $20,202 1.19% $22,098 0.24% $13,508
2/28/99 $20,180 -0.44% $22,001 0.12% $13,524
Total Return 101.80% 120.01% 35.24%
- ------------------------------------------------------------------------
</TABLE>
CLASS C (5/1/95 - 2/28/99)
The following line graph compares the performance of the Franklin Pennsylvania
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95 to 2/28/99.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Date Franklin Pennsylvania Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $ 9,903 $10,000 $10,000
5/31/95 $10,140 3.19% $10,319 0.20% $10,020
6/30/95 $10,098 -0.87% $10,229 0.20% $10,040
7/31/95 $10,154 0.95% $10,326 0.00% $10,040
8/31/95 $10,241 1.27% $10,458 0.26% $10,066
9/29/95 $10,307 0.63% $10,523 0.20% $10,086
10/31/95 $10,413 1.45% $10,676 0.33% $10,120
11/30/95 $10,550 1.66% $10,853 -0.07% $10,112
12/29/95 $10,658 0.96% $10,957 -0.07% $10,105
1/31/96 $10,705 0.76% $11,041 0.59% $10,165
2/29/96 $10,651 -0.68% $10,966 0.32% $10,198
3/29/96 $10,557 -1.28% $10,825 0.52% $10,251
4/30/96 $10,543 -0.28% $10,795 0.39% $10,291
5/31/96 $10,571 -0.04% $10,791 0.19% $10,310
6/28/96 $10,659 1.09% $10,908 0.06% $10,316
7/31/96 $10,737 0.91% $11,008 0.19% $10,336
8/30/96 $10,721 -0.02% $11,005 0.19% $10,356
9/30/96 $10,852 1.40% $11,159 0.32% $10,389
10/31/96 $10,951 1.13% $11,286 0.32% $10,422
11/29/96 $11,092 1.83% $11,492 0.19% $10,442
12/31/96 $11,075 -0.42% $11,444 0.00% $10,442
1/31/97 $11,102 0.19% $11,466 0.32% $10,475
2/28/97 $11,182 0.92% $11,571 0.31% $10,508
3/31/97 $11,069 -1.33% $11,417 0.25% $10,534
4/30/97 $11,161 0.84% $11,513 0.12% $10,547
5/31/97 $11,286 1.51% $11,687 -0.06% $10,540
6/30/97 $11,391 1.07% $11,812 0.12% $10,553
7/31/97 $11,649 2.77% $12,139 0.12% $10,565
8/31/97 $11,567 -0.94% $12,025 0.19% $10,586
9/30/97 $11,680 1.19% $12,168 0.25% $10,612
10/31/97 $11,750 0.64% $12,246 0.25% $10,639
11/30/97 $11,843 0.59% $12,318 -0.06% $10,632
12/31/97 $12,010 1.46% $12,498 -0.12% $10,619
1/31/98 $12,115 1.03% $12,627 0.19% $10,640
2/28/98 $12,118 0.03% $12,631 0.19% $10,660
3/31/98 $12,120 0.09% $12,642 0.19% $10,680
4/30/98 $12,087 -0.45% $12,585 0.18% $10,699
5/31/98 $12,228 1.58% $12,784 0.18% $10,719
6/30/98 $12,288 0.39% $12,834 0.12% $10,731
7/31/98 $12,291 0.25% $12,866 0.12% $10,744
8/31/98 $12,433 1.55% $13,065 0.12% $10,757
9/30/98 $12,551 1.25% $13,229 0.12% $10,770
10/31/98 $12,529 0.00% $13,229 0.24% $10,796
11/30/98 $12,578 0.35% $13,275 0.00% $10,796
12/31/98 $12,594 0.25% $13,308 -0.06% $10,789
1/31/99 $12,701 1.19% $13,466 0.24% $10,815
2/28/99 $12,678 -0.44% $13,407 0.12% $10,828
Total Return 26.78% 34.07% 8.28%
- --------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
55
<PAGE>
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Puerto Rico Tax-Free
Income Fund
Based on Total Long-Term Investments
2/28/99
[PIE CHART]
<TABLE>
<S> <C>
AAA 47.0%
AA 1.9%
A 8.8
BBB 42.3%
</TABLE>
* Quality breakdown may include internal ratings for bonds not rated by a
national rating agency.
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Puerto Rico Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and many states' personal
income taxes through a portfolio consisting primarily of Puerto Rico municipal
bonds.(1)
- --------------------------------------------------------------------------------
COMMONWEALTH UPDATE
[MAP OF PUERTO RICO GRAPHIC]
Continued spending in excess of tax-supported revenue streams are reason in part
for Puerto Rico's high overall debt levels and moderate credit ratings during
the year under review. The commonwealth continued to progress with the phaseout
of Section 936 of the IRS Code, a plan which afforded U.S. corporations in
Puerto Rico meaningful tax advantages over their mainland counterparts. The
10-year plan, initiated in 1996, could serve to weaken this moderately
diversified, island economy. The debt burden, at 46% of tax-supported debt, is
well ahead of the 1.9% U.S. median and the 10.7% rate sported by Hawaii, the
next highest contender. Total tax-supported debt through fiscal 1998 stood at a
staggering $15.6 billion, which is more than that of all but three U.S. states.
Moody's, a national credit rating agency, recently gave Puerto Rico its Baa1
rating with a near-term "stable" outlook.(2)
In 1998, Puerto Rico focused on expanding its economy, notably tourism and
general infrastructure. These efforts yielded gains so far, with hotel
reservations up 7% in fiscal 1998, while investment in highways, mass transit,
sewage and electric utilities continued at significant levels.(2) Not without
irony, further economic stimulus should come from the rebuilding effort spurred
by Hurricane Georges. In response to one of the century's most destructive
storms, FEMA aid and insurance payments introduced approximately $3 billion of
new monies into the commonwealth.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Moody's Investors Service, Municipal Credit Research, November 23,
1998. 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 132 of
this report.
56
<PAGE>
PORTFOLIO NOTES
Puerto Rico's municipal bond supply was extremely strong in 1998, reaching
approximately $5 billion, an increase of 38% over 1997's level of $3.7 billion.
This large supply was due to refundings of existing bonds as well as new bond
issuance. We took advantage of the large supply to purchase bonds at what we
felt were attractive levels. Purchases during the period included Virgin Islands
Water and Power Authority Water System Revenue, Puerto Rico Industrial Tourist
Educational Medical and Environmental Control Facilities Financing Authority
Hospital Revenue Mennonite General Hospital and Puerto Rico Industrial Tourist
Educational Medical and Environmental Control Facilities Financing Authority
Industrial Revenue Guaynabo Municipal Government.
Franklin Puerto Rico Tax-Free Income Fund's Class A share price, as measured by
net asset value, increased two cents, from $11.86 on February 28, 1998, to
$11.88 on February 28, 1999. Prerefunded securities, which increased to 19.4% of
the fund's total long-term investments on February 28, 1999, from 9.7% a year
ago, was the fund's heaviest weighting. In a declining interest-rate
environment, such as existed for much of the reporting period, issuers often
prerefunded their existing bonds. 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.
Going forward, the fund should continue to do well. We expect the new issue bond
supply to be much more moderate in 1999. We will continue our fiscally
responsible strategy of investing for income and share price stability. However,
please keep in
PORTFOLIO BREAKDOWN
Franklin Puerto Rico
Tax-Free Income Fund
2/28/99
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Prerefunded 19.4%
Transportation 16.2%
Utilities 15.2%
Other Revenue 13.6%
Hospitals 10.8%
Education 7.6%
Housing 7.4%
General Obligation 7.0%
Industrial 2.8%
</TABLE>
57
<PAGE>
mind that the fund can distribute only what it earns, so dividend payments may
continue to be lower than in the past, if interest rates remain at current or
lower levels. Additionally, the fund may not be able to generate enough capital
losses to offset gains realized from prerefunded bond sales. Thus, the fund may
make a capital gain distribution in June 1999.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of February 28, 1999. 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.
DIVIDEND DISTRIBUTIONS*
Franklin Puerto Rico Tax-Free Income Fund
3/1/98 - 2/28/99
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------
MONTH CLASS A CLASS C
- ----- --------- ----------
<S> <C> <C>
March 5.1 cents 4.52 cents
April 5.1 cents 4.55 cents
May 5.1 cents 4.55 cents
June 5.1 cents 4.55 cents
July 5.1 cents 4.54 cents
August 5.1 cents 4.54 cents
September 5.0 cents 4.44 cents
October 5.0 cents 4.45 cents
November 5.0 cents 4.45 cents
December 4.9 cents 4.35 cents
January 4.9 cents 4.35 cents
February 4.9 cents 4.35 cents
---------- -----------
TOTAL 60.3 CENTS 53.64 CENTS
</TABLE>
* 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.
58
<PAGE>
PERFORMANCE SUMMARY AS OF 2/28/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION (3/1/98-2/28/99)
<TABLE>
<CAPTION>
CLASS A CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.02 $11.88 $11.86
DISTRIBUTIONS
-------------
Dividend Income $0.6030
Long-Term Capital Gain $0.0301
Short-Term Capital Gain $0.0077
Total $0.6408
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 2/28/99 2/28/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$0.02 $11.89 $11.87
DISTRIBUTIONS
-------------
Dividend Income $0.5364
Long-Term Capital Gain $0.0301
Short-Term Capital Gain $0.0077
Total $0.5742
</TABLE>
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.68% +34.65% +107.89% +186.69%
Average Annual Total Return(2) +1.16% +5.20% +7.12% +7.53%
Distribution Rate(3) 4.59%
Taxable Equivalent Distribution Rate(4) 7.60%
30-Day Standardized Yield(5) 3.80%
Taxable Equivalent Yield(4) 6.29%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.09% +19.62% +28.26%
Average Annual Total Return(2) +3.04% +5.79% +6.44%
72
Distribution Rate(3) 4.18%
Taxable Equivalent Distribution Rate(4) 6.92%
30-Day Standardized Yield(5) 3.37%
Taxable Equivalent Yield(4) 5.58%
</TABLE>
Franklin Puerto Rico Tax-Free Income Fund paid distributions derived from
long-term capital gains totaling 3.01 cents ($0.0301) per share in June and
December 1998. The fund hereby designates such distributions as capital gain
dividends per Internal Revenue Code Section 852 (b)(3).
FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. Past expense reductions by the fund's manager increased
the fund's total returns.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
- --------------------------------------------------------------------------------
(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 current, applicable,
maximum sales charge(s) for that class.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price per share on February
28, 1999.
(4) Taxable equivalent distribution rate and yield assume the 1999 maximum
federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended February 28, 1999. Bond prices, and thus
the fund's share price, generally move in the opposite direction from interest
rates. 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.
- --------------------------------------------------------------------------------
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
59
<PAGE>
FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the fund in composition, does not pay
management fees or expenses and includes reinvested dividends. One cannot invest
directly in an index. Total return represents the change in value of an
investment over the periods shown. It includes the current, applicable, maximum
sales charge(s), fund expenses, account fees and reinvested distributions.
Performance of the fund's shares exceeded the rate of inflation as measured by
the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year +1.16%
5-Year +5.20%
10-Year +7.12%
Since Inception (4/3/85) +7.53%
</TABLE>
The following line graph compares the performance of the Franklin Puerto Rico
Tax-Free Income Fund's Class A shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
3/1/89 to 2/28/99.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Date Franklin Puerto Rico Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class A Index
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/1/89 $9,573 $10,000 $10,000
3/31/89 $9,547 -0.24% $9,976 0.58% $10,058
4/30/89 $9,777 2.37% $10,212 0.65% $10,123
5/31/89 $9,980 2.08% $10,425 0.57% $10,181
6/30/89 $10,111 1.36% $10,567 0.24% $10,206
7/31/89 $10,214 1.36% $10,710 0.24% $10,230
8/31/89 $10,158 -0.98% $10,605 0.16% $10,246
9/30/89 $10,092 -0.30% $10,574 0.32% $10,279
10/31/89 $10,168 1.22% $10,703 0.48% $10,329
11/30/89 $10,310 1.75% $10,890 0.24% $10,353
12/31/89 $10,406 0.82% $10,979 0.16% $10,370
1/31/90 $10,339 -0.47% $10,928 1.03% $10,477
2/28/90 $10,455 0.89% $11,025 0.47% $10,526
3/31/90 $10,445 0.03% $11,028 0.55% $10,584
4/30/90 $10,386 -0.72% $10,949 0.16% $10,601
5/31/90 $10,602 2.18% $11,187 0.23% $10,625
6/30/90 $10,701 0.88% $11,286 0.54% $10,682
7/31/90 $10,871 1.48% $11,453 0.38% $10,723
8/31/90 $10,660 -1.45% $11,287 0.92% $10,822
9/30/90 $10,610 0.06% $11,294 0.84% $10,913
10/31/90 $10,762 1.81% $11,498 0.60% $10,978
11/30/90 $11,007 2.01% $11,729 0.22% $11,002
12/31/90 $10,965 0.44% $11,781 0.00% $11,002
1/31/91 $11,151 1.34% $11,939 0.60% $11,068
2/28/91 $11,264 0.87% $12,042 0.15% $11,085
3/31/91 $11,306 0.04% $12,047 0.15% $11,102
4/30/91 $11,463 1.34% $12,209 0.15% $11,118
5/31/91 $11,547 0.89% $12,317 0.30% $11,152
6/30/91 $11,558 -0.10% $12,305 0.29% $11,184
7/31/91 $11,707 1.22% $12,455 0.15% $11,201
8/31/91 $11,814 1.32% $12,620 0.29% $11,233
9/30/91 $11,965 1.30% $12,784 0.44% $11,283
10/31/91 $12,052 0.90% $12,899 0.15% $11,299
11/30/91 $12,117 0.28% $12,935 0.29% $11,332
12/31/91 $12,311 2.15% $13,213 0.07% $11,340
1/31/92 $12,329 0.23% $13,243 0.15% $11,357
2/29/92 $12,326 0.03% $13,247 0.36% $11,398
3/31/92 $12,367 0.04% $13,253 0.51% $11,456
4/30/92 $12,463 0.89% $13,370 0.14% $11,472
5/31/92 $12,617 1.18% $13,528 0.14% $11,488
6/30/92 $12,805 1.68% $13,756 0.36% $11,530
7/31/92 $13,188 3.00% $14,168 0.21% $11,554
8/31/92 $13,072 -0.98% $14,029 0.28% $11,586
9/30/92 $13,092 0.65% $14,121 0.28% $11,619
10/31/92 $12,929 -0.98% $13,982 0.35% $11,659
11/30/92 $13,204 1.79% $14,232 0.14% $11,676
12/31/92 $13,410 1.02% $14,378 -0.07% $11,667
1/31/93 $13,560 1.16% $14,544 0.49% $11,725
2/28/93 $13,910 3.62% $15,071 0.35% $11,766
3/31/93 $13,813 -1.06% $14,911 0.35% $11,807
4/30/93 $13,916 1.01% $15,062 0.28% $11,840
5/31/93 $14,009 0.56% $15,146 0.14% $11,856
6/30/93 $14,198 1.67% $15,399 0.14% $11,873
7/31/93 $14,196 0.13% $15,419 0.00% $11,873
8/31/93 $14,447 2.08% $15,740 0.28% $11,906
9/30/93 $14,638 1.14% $15,919 0.21% $11,931
10/31/93 $14,670 0.19% $15,949 0.41% $11,980
11/30/93 $14,630 -0.88% $15,809 0.07% $11,989
12/31/93 $14,885 2.11% $16,143 0.00% $11,989
1/31/94 $15,018 1.14% $16,327 0.27% $12,021
2/28/94 $14,765 -2.59% $15,904 0.34% $12,062
3/31/94 $14,248 -4.07% $15,257 0.34% $12,103
4/30/94 $14,320 0.85% $15,386 0.14% $12,120
5/31/94 $14,417 0.87% $15,520 0.07% $12,128
6/30/94 $14,323 -0.61% $15,425 0.34% $12,170
7/31/94 $14,549 1.83% $15,708 0.27% $12,202
8/31/94 $14,622 0.35% $15,763 0.40% $12,251
9/30/94 $14,451 -1.47% $15,531 0.27% $12,284
10/31/94 $14,200 -1.78% $15,255 0.07% $12,293
11/30/94 $13,925 -1.81% $14,978 0.13% $12,309
12/31/94 $14,247 2.20% $15,308 0.00% $12,309
1/31/95 $14,585 2.86% $15,746 0.40% $12,358
2/28/95 $15,004 2.91% $16,204 0.40% $12,408
3/31/95 $15,093 1.15% $16,390 0.33% $12,448
4/30/95 $15,168 0.12% $16,410 0.33% $12,490
5/31/95 $15,567 3.19% $16,933 0.20% $12,515
6/30/95 $15,385 -0.87% $16,786 0.20% $12,540
7/31/95 $15,500 0.95% $16,946 0.00% $12,540
8/31/95 $15,671 1.27% $17,161 0.26% $12,572
9/30/95 $15,773 0.63% $17,269 0.20% $12,597
10/31/95 $15,986 1.45% $17,519 0.33% $12,639
11/30/95 $16,186 1.66% $17,810 -0.07% $12,630
12/31/95 $16,318 0.96% $17,981 -0.07% $12,621
1/31/96 $16,422 0.76% $18,118 0.59% $12,696
2/29/96 $16,303 -0.68% $17,995 0.32% $12,736
3/31/96 $16,198 -1.28% $17,764 0.52% $12,803
4/30/96 $16,205 -0.28% $17,714 0.39% $12,852
5/31/96 $16,211 -0.04% $17,707 0.19% $12,877
6/30/96 $16,418 1.09% $17,900 0.06% $12,885
7/31/96 $16,524 0.91% $18,063 0.19% $12,909
8/31/96 $16,543 -0.02% $18,060 0.19% $12,934
9/30/96 $16,781 1.40% $18,313 0.32% $12,975
10/31/96 $16,932 1.13% $18,519 0.32% $13,017
11/30/96 $17,187 1.83% $18,858 0.19% $13,041
12/31/96 $17,140 -0.42% $18,779 0.00% $13,041
1/31/97 $17,146 0.19% $18,815 0.32% $13,083
2/28/97 $17,286 0.92% $18,988 0.31% $13,124
3/31/97 $17,111 -1.33% $18,735 0.25% $13,156
4/30/97 $17,253 0.84% $18,893 0.12% $13,172
5/31/97 $17,502 1.51% $19,178 -0.06% $13,164
6/30/97 $17,646 1.07% $19,383 0.12% $13,180
7/31/97 $18,077 2.77% $19,920 0.12% $13,196
8/31/97 $17,971 -0.94% $19,733 0.19% $13,221
9/30/97 $18,173 1.19% $19,968 0.25% $13,254
10/31/97 $18,268 0.64% $20,096 0.25% $13,287
11/30/97 $18,410 0.59% $20,214 -0.06% $13,279
12/31/97 $18,647 1.46% $20,509 -0.12% $13,263
1/31/98 $18,774 1.03% $20,720 0.19% $13,288
2/28/98 $18,807 0.03% $20,727 0.19% $13,314
3/31/98 $18,872 0.09% $20,745 0.19% $13,339
4/30/98 $18,841 -0.45% $20,652 0.18% $13,363
5/31/98 $19,099 1.58% $20,978 0.18% $13,387
6/30/98 $19,163 0.39% $21,060 0.12% $13,403
7/31/98 $19,197 0.25% $21,113 0.12% $13,419
8/31/98 $19,426 1.55% $21,440 0.12% $13,435
9/30/98 $19,654 1.25% $21,708 0.12% $13,451
10/31/98 $19,621 0.00% $21,708 0.24% $13,484
11/30/98 $19,687 0.35% $21,784 0.00% $13,484
12/31/98 $19,716 0.25% $21,838 -0.06% $13,476
1/31/99 $19,913 1.19% $22,098 0.24% $13,508
2/28/99 $19,902 -0.44% $22,001 0.12% $13,524
Total Return 99.02% 120.01% 35.24%
- ---------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/28/99
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year +3.04%
3-Year +5.79%
Since Inception (5/1/95) +6.44%
</TABLE>
The following line graph compares the performance of the Franklin Puerto Rico
Tax-Free Income Fund's Class C shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
5/1/95to 2/28/99.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Date Franklin Puerto Rico Lehman Brothers CPI
Tax-Free Income Municipal Bond
Fund-Class C Index
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $ 9,904 $10,000 $10,000
5/31/95 $10,155 3.19% $10,319 0.20% $10,020
6/30/95 $10,031 -0.87% $10,229 0.20% $10,040
7/31/95 $10,110 0.95% $10,326 0.00% $10,040
8/31/95 $10,216 1.27% $10,458 0.26% $10,066
9/29/95 $10,277 0.63% $10,523 0.20% $10,086
10/31/95 $10,410 1.45% $10,676 0.33% $10,120
11/30/95 $10,543 1.66% $10,853 -0.07% $10,112
12/29/95 $10,615 0.96% $10,957 -0.07% $10,105
1/31/96 $10,686 0.76% $11,041 0.59% $10,165
2/29/96 $10,603 -0.68% $10,966 0.32% $10,198
3/29/96 $10,521 -1.28% $10,825 0.52% $10,251
4/30/96 $10,530 -0.28% $10,795 0.39% $10,291
5/31/96 $10,520 -0.04% $10,791 0.19% $10,310
6/28/96 $10,648 1.09% $10,908 0.06% $10,316
7/31/96 $10,712 0.91% $11,008 0.19% $10,336
8/30/96 $10,730 -0.02% $11,005 0.19% $10,356
9/30/96 $10,870 1.40% $11,159 0.32% $10,389
10/31/96 $10,962 1.13% $11,286 0.32% $10,422
11/29/96 $11,112 1.83% $11,492 0.19% $10,442
12/31/96 $11,076 -0.42% $11,444 0.00% $10,442
1/31/97 $11,084 0.19% $11,466 0.32% $10,475
2/28/97 $11,169 0.92% $11,571 0.31% $10,508
3/31/97 $11,031 -1.33% $11,417 0.25% $10,534
4/30/97 $11,127 0.84% $11,513 0.12% $10,547
5/31/97 $11,282 1.51% $11,687 -0.06% $10,540
6/30/97 $11,370 1.07% $11,812 0.12% $10,553
7/31/97 $11,642 2.77% $12,139 0.12% $10,565
8/31/97 $11,569 -0.94% $12,025 0.19% $10,586
9/30/97 $11,693 1.19% $12,168 0.25% $10,612
10/31/97 $11,749 0.64% $12,246 0.25% $10,639
11/30/97 $11,825 0.59% $12,318 -0.06% $10,632
12/31/97 $11,981 1.46% $12,498 -0.12% $10,619
1/31/98 $12,057 1.03% $12,627 0.19% $10,640
2/28/98 $12,072 0.03% $12,631 0.19% $10,660
3/31/98 $12,118 0.09% $12,642 0.19% $10,680
4/30/98 $12,093 -0.45% $12,585 0.18% $10,699
5/31/98 $12,242 1.58% $12,784 0.18% $10,719
6/30/98 $12,278 0.39% $12,834 0.12% $10,731
7/31/98 $12,294 0.25% $12,866 0.12% $10,744
8/31/98 $12,445 1.55% $13,065 0.12% $10,757
9/30/98 $12,574 1.25% $13,229 0.12% $10,770
10/31/98 $12,548 0.00% $13,229 0.24% $10,796
11/30/98 $12,594 0.35% $13,275 0.00% $10,796
12/31/98 $12,607 0.25% $13,308 -0.06% $10,789
1/31/99 $12,717 1.19% $13,466 0.24% $10,815
2/28/99 $12,702 -0.44% $13,407 0.12% $10,828
Total Return 27.02% 34.07% 8.28%
- -----------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
60
<PAGE>
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.
61
<PAGE>
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.
62
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN ARIZONA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- --------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.44 $ 11.24 $ 11.34 $ 11.11 $ 11.58
----------- ----------- ------------ ------------ ------------
Income from investment operations:
Net investment income ...................... .59 .61 .62 .64 .65
Net realized and unrealized gains (losses) . (.01) .29 (.04) .36 (.48)
----------- ----------- ------------ ------------ ------------
Total from investment operations ............ .58 .90 .58 1.00 .17
----------- ----------- ------------ ------------ -------------
Less distributions from:
Net investment income ...................... (.59)(2) (.61) (.63) (.65) (.64)
In excess of net investment income ......... -- (.01) -- -- --
Net realized gains ......................... (.05) (.08) (.05) (.12) --
----------- ----------- ------------ ------------ ------------
Total distributions ......................... (.64) (.70) (.68) (.77) (.64)
----------- ----------- ------------ ------------ ------------
Net asset value, end of year ................ $ 11.38 $ 11.44 $ 11.24 $ 11.34 $ 11.11
============ ============ ============ ============ ============
Total return* ............................... 5.17% 8.23% 5.33% 9.24% 1.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 861,020 $ 810,250 $ 752,335 $ 750,797 $ 720,801
Ratios to average net assets:
Expenses ................................... .63% .63% .62% .62% .60%
Net investment income ...................... 5.11% 5.40% 5.59% 5.67% 5.86%
Portfolio turnover rate ..................... 14.11% 20.02% 16.57% 25.12% 18.65%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.51 $ 11.30 $ 11.38 $ 11.15
----------- ----------- ----------- ------------
Income from investment operations:
Net investment income ...................... .52 .56 .57 .49
Net realized and unrealized gains (losses) . (.01) .29 (.03) .34
----------- ----------- ----------- ------------
Total from investment operations ............ .51 .85 .54 .83
----------- ----------- ----------- ------------
Less distributions from:
Net investment income ...................... (.52)(3) (.56) (.57) (.48)
Net realized gains ......................... (.05) (.08) (.05) (.12)
----------- ----------- ----------- ------------
Total distributions ......................... (.57) (.64) (.62) (.60)
----------- ----------- ----------- ------------
Net asset value, end of year ................ $ 11.45 $ 11.51 $ 11.30 $ 11.38
=========== =========== =========== ============
Total return* ............................... 4.54% 7.67% 4.89% 7.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 23,871 $ 14,537 $ 5,486 $ 1,892
Ratios to average net assets:
Expenses ................................... 1.19% 1.19% 1.19% 1.20%**
Net investment income ...................... 4.55% 4.82% 5.01% 5.05%**
Portfolio turnover rate ..................... 14.11% 20.02% 16.57% 25.12%
</TABLE>
* Total return does not reflect sales commissions or the contingent
deferred sales charge, and is not annualized for periods less than one
year. Prior to May 1, 1994, dividends from net investment income were
reinvested at the offering price.
** Annualized
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(2) Includes distributions in excess of net investment income in the amount
of $.002.
(3) Includes distributions in excess of net investment income in the amount
of $.001.
See notes to financial statements.
63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------- ----------- -----------
<S> <C> <C>
(a) LONG TERM INVESTMENTS 98.9%
Apache Junction Water Utilities Community, 5.80%, 7/01/17 ...................................... $ 1,200,000 $ 1,294,296
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05 ............................................................... 10,000,000 10,559,500
Series B, MBIA Insured, 7.00%, 3/01/03 ....................................................... 1,000,000 1,076,310
Series B, MBIA Insured, 7.35%, 9/01/04 ....................................................... 1,000,000 1,032,840
Series B, MBIA Insured, 7.00%, 3/01/05 ....................................................... 1,000,000 1,076,310
Series B, MBIA Insured, 7.375%, 9/01/05 ...................................................... 775,000 800,079
Sub Series, 6.625%, 9/01/05 .................................................................. 1,000,000 1,071,210
Arizona Health Facilities Authority Hospital System Revenue,
Northern Arizona Healthcare System, AMBAC Insured, 5.00%, 10/01/23 ........................... 1,500,000 1,479,060
Northern Arizona Healthcare System, Refunding, AMBAC Insured, 4.75%, 10/01/30 ................ 2,000,000 1,887,660
Phoenix Baptist Hospital, ETM, MBIA Insured, 6.25%, 9/01/11 .................................. 2,000,000 2,172,300
Arizona Health Facilities Authority Revenue, Arizona Voluntary Hospital,
Hospital Federal Pooled Loan Revenue, Series B, FGIC Insured, Pre-Refunded, 7.75%, 10/01/07 .. 770,000 787,002
Series B, FGIC Insured, 7.25%, 10/01/13 ...................................................... 5,000,000 5,150,450
Arizona State COP,
FSA Insured, 6.625%, 9/01/08 ................................................................. 5,000,000 5,367,050
Refunding, Series B, AMBAC Insured, 6.25%, 9/01/10 ........................................... 5,000,000 5,409,600
Arizona State Municipal Financing Program COP,
Dysart School, ETM, Series 22, BIG Insured, 7.875%, 8/01/05 .................................. 1,350,000 1,647,459
ETM, Series 20, BIG Insured, 7.625%, 8/01/06 ................................................. 3,250,000 3,790,248
Peoria School, ETM, Series 19, BIG Insured, 7.75%, 8/01/04 ................................... 500,000 594,410
Series 25, BIG Insured, 7.875%, 8/01/14 ...................................................... 500,000 673,320
Series 29, BIG Insured, Pre-Refunded, 7.125%, 8/01/14 ........................................ 2,500,000 2,566,900
Arizona State Wastewater Management Authority Wastewater Financial Assistance Revenue,
6.80%, 7/01/11 ............................................................................... 4,000,000 4,397,120
Series A, AMBAC Insured, 5.625%, 7/01/15 ..................................................... 1,000,000 1,078,540
Arizona Water Infrastructure Financial Authority Revenue, Water Quality Financial Assistance,
Series A, 5.00%, 7/01/17 ..................................................................... 1,670,000 1,669,883
Bullhead City Municipal Property Corp., Municipal Facilities Revenue, MBIA Insured,
Pre-Refunded, 7.20%, 7/01/09 ................................................................. 2,125,000 2,175,108
Casa Grande Excise Tax Revenue, 6.20%, 4/01/15 ................................................. 930,000 1,022,024
Casa Grande IDA,
IDR, Frito Lay/PepsiCo, 6.65%, 12/01/14 ...................................................... 500,000 552,435
PCR, Frito Lay/PepsiCo, 6.60%, 12/01/10 ...................................................... 1,800,000 1,986,354
Chandler GO, FGIC Insured,
Pre-Refunded, 6.80%, 7/01/13 ................................................................. 1,750,000 2,010,698
Pre-Refunded, 6.85%, 7/01/14 ................................................................. 1,625,000 1,870,960
Refunding, 7.00%, 7/01/12 .................................................................... 1,000,000 1,075,090
Chandler IDA, MFHR, Hacienda Apartments Project, Refunding, Series A, GNMA Secured,
6.05%, 7/20/30 ............................................................................... 4,055,000 4,246,558
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 ................ 1,250,000 1,439,200
Chandler Water and Sewer Revenue, Refunding, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 6,715,000 7,219,229
6.25%, 7/01/13 ............................................................................... 2,165,000 2,352,467
5.25%, 7/01/15 ............................................................................... 2,270,000 2,342,935
Coconino County Flagstaff USD, No. 1, AMBAC Insured, 6.20%, 7/01/06 ............................ 1,095,000 1,139,928
Coconino County PCR,
Arizona Public Service Co., Refunding, Series A, MBIA Insured, 5.875%, 8/15/28 ............... 5,275,000 5,606,903
Nevada Power Co., 6.375%, 10/01/36 ........................................................... 3,500,000 3,790,640
Nevada Power Co., Refunding, Series E, 5.35%, 10/01/22 ....................................... 7,265,000 7,206,953
Nevada Power Co., Series B, 5.80%, 11/01/32 .................................................. 6,500,000 6,593,210
Eloy Municipal Property Corp. Facilities Revenue, 7.80%, 7/01/09 ............................... 1,475,000 1,542,245
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ....................................... 45,900,000 45,003,573
Gilbert ID No. 11, FGIC Insured, 7.60%, 1/01/05 ................................................ 1,500,000 1,549,875
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 ...................................................................................... 1,500,000 1,678,890
7/01/22 ...................................................................................... 3,250,000 3,612,895
Glendale IDA,
Educational Facilities Revenue, American Graduate School International, Connie Lee Insured,
Pre-Refunded, 7.00%, 7/01/14 ................................................................. 1,000,000 1,177,030
Educational Facilities Revenue, American Graduate School International, Connie Lee Insured,
Pre-Refunded, 7.125%, 7/01/20 ................................................................ 1,250,000 1,479,963
Educational Facilities Revenue, American Graduate School International, Refunding,
Connie Lee Insured, 5.875%, 7/01/15 ........................................................ 2,200,000 2,401,322
</TABLE>
64
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------- ---------- ----------
<S> <C> <C>
(a) LONG TERM INVESTMENTS (CONT.)
Glendale IDA, (cont.)
Midwestern University, Series A, 6.00%, 5/15/16 .......................................... $ 455,000 $ 499,599
Midwestern University, Series A, 5.375%, 5/15/28 ......................................... 15,000,000 14,835,150
Midwestern University, Series A, Connie Lee Insured, 6.00%, 5/15/26 ...................... 340,000 377,536
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/16 ............................ 1,485,000 1,691,445
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/26 ............................ 1,660,000 1,890,773
Glendale Municipal Property Corp., Refunding, MBIA Insured, 7.00%, 7/01/09 ................... 2,400,000 2,448,696
Guam Power Authority Revenue, Series A, 6.30%,
10/01/12 ................................................................................. 3,630,000 3,928,059
10/01/22 ................................................................................. 4,000,000 4,311,840
Lake Havasu City Wastewater COP, FGIC Insured, 7.00%, 6/01/05 ................................ 2,700,000 2,894,292
Marana Municipal Property Corp. Municipal Facilities Revenue, Refunding, MBIA Insured,
5.25%, 7/01/22 ........................................................................... 1,170,000 1,190,920
Maricopa County COP, 6.00%, 6/01/04 .......................................................... 8,000,000 8,444,480
Maricopa County GO,
Hospital District No. 1, AMBAC Insured, 5.00%, 6/01/21 .................................. 2,000,000 1,970,800
School District No. 4, Mesa Unified, FGIC Insured, Pre-Refunded, 5.65%, 7/01/11 ......... 1,500,000 1,669,350
School District No. 4, Mesa Unified, FGIC Insured, Pre-Refunded, 5.70%, 7/01/12 ......... 2,000,000 2,231,360
School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 ....... 3,500,000 3,831,765
School District No. 8, Osborn, School Improvement Project, Series B, Pre-Refunded,
7.10%, 7/01/05 .......................................................................... 500,000 511,545
School District No. 8, Osborn, School Improvement Project, Series B, Pre-Refunded,
7.15%, 7/01/07 .......................................................................... 1,075,000 1,099,994
School District No. 8, Osborn, School Improvement Project, Series B, Pre-Refunded,
7.20%, 7/01/09 .......................................................................... 1,885,000 1,929,128
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ........ 6,300,000 6,919,353
School District No. 11, Peoria Unified, Refunding, MBIA Insured, 7.00%, 7/01/10 ......... 2,800,000 3,014,144
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 ....... 2,000,000 2,152,340
School District No. 98, Fountain Hills Unified, 6.625%, 7/01/10 ......................... 475,000 507,956
School District No. 98, Fountain Hills Unified, Pre-Refunded, 6.625%, 7/01/10 ........... 825,000 890,678
UHSD No. 210, Series A, Pre-Refunded, 5.70%, 7/01/15 .................................... 500,000 552,440
UHSD No. 210, Series B, Pre-Refunded, 5.50%, 7/01/17 .................................... 9,050,000 9,941,787
USD No. 41, Gilbert, 6.25%, 7/01/15 ..................................................... 2,000,000 2,167,320
USD No. 41, Gilbert, Project of 1993, Series F, FSA Insured, 5.125%, 7/01/18 ............ 2,555,000 2,565,169
USD No. 65, Littleton School Improvement, Series B, FGIC Insured, 6.40%, 7/01/14 ........ 1,175,000 1,295,402
USD No. 66, Roosevelt Elementary Project, Series B, FGIC Insured, 5.25%, 7/01/17 ........ 2,500,000 2,549,700
USD No. 69, Paradise Valley, Series A, Pre-Refunded, 7.10%, 7/01/05 ..................... 1,000,000 1,155,970
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 6.00%, 7/01/13 ........................ 1,600,000 1,799,232
USD No. 89, Dysart, Refunding and Improvement, FGIC Insured, 6.70%, 7/01/05 ............. 240,000 251,292
USD No. 89, Dysart, Refunding and Improvement, FGIC Insured, 6.75%, 7/01/06 ............. 1,760,000 1,844,638
USD No. 214, Tolleson GO, FGIC Insured, Pre-Refunded, 5.75%, 7/01/14 .................... 1,000,000 1,110,630
Maricopa County Hospital Revenue, Sun Health Corp., Refunding,
5.80%, 4/01/08 .......................................................................... 3,870,000 4,169,615
5.90%, 4/01/09 .......................................................................... 2,120,000 2,292,186
6.125%, 4/01/18 ......................................................................... 15,650,000 16,824,533
Maricopa County IDA,
(b) Health Facilities Revenue, Catholic Healthcare West Project, Refunding, Series A,
5.00%, 7/01/16 .......................................................................... 6,000,000 5,870,340
Health Facilities Revenue, Catholic Healthcare West Project, Refunding, Series A,
5.00%, 7/01/21 .......................................................................... 17,600,000 16,890,016
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13 1,445,000 1,563,158
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13 ................... 1,305,000 1,421,732
Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 ........................ 30,000,000 29,751,900
Hospital Facility Revenue, Samaritan Health
Service Hospital, Refunding, Series A, MBIA Insured, 7.00%, 12/01/16 .................... 1,890,000 2,369,663
Hospital Facility Revenue, Samaritan Hospital Health Services, Refunding, Series A,
MBIA Insured, 7.00%, 12/01/13 ........................................................... 17,800,000 19,106,698
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ..................................... 5,000,000 5,369,400
MFHR, Madera Pointe Apartments Project, Refunding, FSA Insured, 5.90%, 6/01/26 .......... 2,105,000 2,227,700
MFHR, National Health Facilities II Project, Series A, FSA Insured, 5.10%, 1/01/33 ...... 12,500,000 12,419,250
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ......... 1,235,000 1,251,710
Water System Revenue, Improvement, Chaparral Water Co., Series A, AMBAC Insured,
5.40%, 12/01/22 ......................................................................... 1,000,000 1,021,180
Maricopa County IDAR,
Mercy Health System, Series A, MBIA Insured, Pre-Refunded, 7.125%, 7/01/07 .............. 1,585,000 1,630,585
SFMR, GNMA Secured, 8.00%, 9/01/09 ...................................................... 685,000 704,570
Maricopa County Stadium District Revenue, MBIA Insured, 5.75%, 7/01/16 ....................... 3,000,000 3,223,920
Mesa Arizona IDAR, Lutheran Health Systems, Refunding, Series A-1, MBIA Insured,
5.00%, 1/01/19 .......................................................................... 6,000,000 5,947,440
</TABLE>
65
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------- ----------- -----------
<S> <C> <C>
(a) LONG TERM INVESTMENTS (CONT.)
Mesa GO, FGIC Insured, 5.00%, 7/01/18 .......................................................... $ 1,000,000 $ 991,370
Mesa Utility System Revenue, FGIC Insured, 5.375%, 7/01/17 ..................................... 15,500,000 16,026,535
Mohave County Hospital District No. 1, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ................................................................. 1,500,000 1,621,350
Pre-Refunded, 8.375%, 6/01/15 ................................................................ 6,350,000 6,848,920
Mohave County IDA,
Health Care Revenue, Refunding, GNMA Secured, 6.375%, 11/01/31 ............................... 1,585,000 1,730,868
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21 ..................... 1,500,000 1,558,440
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26 ..................... 4,675,000 5,047,457
Hospital Systems Revenue, Medical Environments Inc., Phoenix Hospital and Medical Center,
ETM, 5.80%, 7/01/99 .......................................................................... 1,595,000 1,609,610
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 .......................................... 4,100,000 4,462,563
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 ................................ 10,000,000 10,398,000
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 ................................ 5,000,000 5,199,000
Mohave County USD No. 1, Lake Havasu, 5.00%, 7/01/14 ........................................... 1,075,000 1,090,727
Navajo County PCR, Arizona Public Service Co., Series A,
MBIA Insured, 5.875%, 8/15/28 ................................................................ 3,000,000 3,188,760
Refunding, 5.875%, 8/15/28 ................................................................... 54,500,000 56,492,509
Nogales Municipal Development Authority Inc. Municipal Facilities Revenue, Refunding,
MBIA Insured, 7.20%, 6/01/08 ................................................................. 6,350,000 6,831,076
Northern Arizona University System Revenue,
Pre-Refunded, 7.50%, 6/01/06 ................................................................. 3,700,000 3,740,367
Refunding, FGIC Insured, 6.40%, 6/01/07 ...................................................... 2,750,000 2,956,388
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.40%, 3/15/28 ..................................................................... 8,885,000 8,665,274
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured,
5.55%, 7/01/17 ............................................................................... 1,150,000 1,230,512
5.75%, 7/01/17 ............................................................................... 1,000,000 1,087,710
5.375%, 7/01/26 .............................................................................. 1,000,000 1,022,500
Peoria Municipal Development Authority Water and Sewer Revenue, Refunding, FGIC Insured,
6.625%, 7/01/06 .............................................................................. 1,000,000 1,043,160
Phoenix Airport Revenue, MBIA Insured,
Refunding, Series B, 6.20%, 7/01/10 .......................................................... 700,000 772,429
Refunding, Series C, 6.30%, 7/01/10 .......................................................... 1,680,000 1,844,858
Refunding, Series C, 6.40%, 7/01/11 .......................................................... 1,785,000 1,964,053
Refunding, Series C, 6.40%, 7/01/12 .......................................................... 570,000 631,754
Series D, 6.30%, 7/01/10 ..................................................................... 1,800,000 1,976,634
Series D, 6.40%, 7/01/11 ..................................................................... 3,825,000 4,208,686
Series D, 6.40%, 7/01/12 ..................................................................... 820,000 908,839
Phoenix Civic Improvement Corp. Airport Terminal Excise Tax Revenue, Refunding, senior lien,
5.00%, 7/01/14 ............................................................................... 1,245,000 1,245,909
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, MBIA Insured,
Pre-Refunded, 6.90%, 7/01/21 ................................................................. 1,000,000 1,161,900
Phoenix Civic Improvement Corp. Water System Revenue,
junior lien, MBIA Insured, 5.375%, 7/01/22 ................................................... 8,130,000 8,312,762
Pre-Refunded, 5.95%, 7/01/15 ................................................................. 1,090,000 1,223,776
Pre-Refunded, 5.95%, 7/01/16 ................................................................. 3,665,000 4,114,805
Pre-Refunded, 6.00%, 7/01/19 ................................................................. 3,000,000 3,377,640
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14 ............................................. 4,300,000 4,654,277
Phoenix GO,
5.25%, 7/01/20 ............................................................................... 2,000,000 2,043,040
Refunding, 6.375%, 7/01/13 ................................................................... 5,000,000 5,467,000
Refunding, Series A, 5.50%, 7/01/15 .......................................................... 5,000,000 5,280,100
Refunding, Series A, 5.00%, 7/01/19 .......................................................... 3,500,000 3,508,260
(b) Series 1999, 4.75%, 7/01/23 .............................................................. 2,000,000 1,935,420
Series B, 5.25%, 7/01/15 ..................................................................... 2,775,000 2,867,824
Phoenix HFC, Mortgage Revenue,
Project A, Refunding, MBIA Insured, 6.50%, 7/01/24 ........................................... 2,750,000 2,880,020
Section 8 Project, Refunding, Series A, MBIA Insured, 6.90%, 1/01/23 ......................... 1,750,000 1,836,870
Section 8 Project, Refunding, Series A, MBIA Insured, 7.25%, 1/01/23 ......................... 2,260,000 2,338,490
Phoenix IDA,
Hospital Revenue, Refunding, Series B, Connie Lee Insured, 5.75%, 12/01/16 ................... 3,500,000 3,806,950
SFMR, FNMA Insured, 6.30%, 12/01/12 .......................................................... 755,000 802,233
SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 ...................................... 2,000,000 2,012,320
Phoenix Municipal Housing Revenue, Fillmore Gardens Project, Refunding, 6.30%, 6/01/09 ......... 1,500,000 1,616,985
</TABLE>
66
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------- ----------- ----------
<S> <C> <C>
(a) LONG TERM INVESTMENTS (CONT.)
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03 .......................................................................... $ 1,000,000 $ 1,120,730
Refunding, 6.60%, 7/01/07 .................................................................... 5,000,000 5,468,900
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 66,476
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital, MBIA Insured,
6.75%, 7/01/10 ............................................................................... 2,250,000 2,419,785
MFR, Series A, 6.00%, 12/01/21 ............................................................... 2,720,000 2,875,938
SFMR, GNMA Secured, 6.40%, 11/01/09 .......................................................... 795,000 841,142
SFMR, GNMA Secured, 8.125%, 9/01/20 .......................................................... 1,115,000 1,138,382
SFMR, GNMA Secured, 6.75%, 11/01/27 .......................................................... 3,555,000 3,779,285
SFMR, Refunding, Series A, 7.625%, 2/01/12 ................................................... 2,975,000 3,104,085
SFMR, Refunding, Series A, 6.50%, 2/01/17 .................................................... 705,000 745,122
Pima County IDAR,
MFHR, Housing Ria Nova and Villa Projects, GNMA Secured, 5.20%, 12/20/31 ..................... 2,370,000 2,355,022
Refunding, Series A, MBIA Insured, 5.625%, 4/01/14 ........................................... 2,250,000 2,415,465
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ............................. 1,410,000 1,514,975
Pima County USD, Tucson Project No. 1, FGIC Insured, 5.875%, 7/01/14 ........................... 21,000,000 22,715,490
Pinal County USD No. 43, Apache Junction Improvement,
FGIC Insured, Pre-Refunded, 7.15%, 7/01/05 ................................................... 500,000 510,790
FGIC Insured, Pre-Refunded, 7.20%, 7/01/07 ................................................... 700,000 716,506
Series A, FGIC Insured, 5.85%, 7/01/15 ....................................................... 2,500,000 2,716,775
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ................................................................. 75,000 92,932
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.50%, 7/01/23 ................................................................. 4,850,000 5,548,061
Public Improvement, 5.00%, 7/01/28 ........................................................... 10,000,000 9,818,100
Public Improvement, Refunding, 5.375%, 7/01/25 ............................................... 1,975,000 2,035,652
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y,
5.00%, 7/01/36 ............................................................................... 9,000,000 8,954,100
Puerto Rico Commonwealth IDC, General Purpose Revenue, Series B, 5.375%, 7/01/16 ............... 2,800,000 2,918,132
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ............................................................................... 1,550,000 1,584,813
7.50%, 7/01/09 ............................................................................... 335,000 342,440
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.00%, 7/01/07 .......................................................... 745,000 765,905
Refunding, Series N, 7.125%, 7/01/14 ......................................................... 2,205,000 2,267,754
Refunding, Series O, 7.125%, 7/01/14 ......................................................... 1,510,000 1,552,975
Series X, 6.125%, 7/01/21 .................................................................... 25,720,000 29,380,985
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................................... 1,215,000 1,262,409
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 ..... 40,000 48,806
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ................ 490,000 513,775
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Hospital Revenue,
Dr. Pila Hospital, Refunding, 5.875%, 8/01/12 ................................................ 5,225,000 5,637,462
Hospital Auxilio Mutuo Obligation, Series A, 6.25%, 7/01/24 .................................. 1,950,000 2,162,726
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 .......... 6,000,000 5,851,320
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Refunding, Series A, 5.75%, 1/01/13 .......................................................... 2,435,000 2,607,666
Refunding, Series A, 5.00%, 1/01/20 .......................................................... 7,500,000 7,480,200
Series A, 6.00%, 1/01/31 ..................................................................... 4,600,000 4,753,732
Series A, MBIA Insured, 6.00%, 1/01/31 ....................................................... 1,845,000 1,902,712
Series C, 6.20%, 1/01/12 ..................................................................... 5,925,000 6,354,326
Series C, 6.25%, 1/01/19 ..................................................................... 9,975,000 10,713,749
Series D, 6.25%, 1/01/27 ..................................................................... 4,890,000 5,250,784
San Luis Municipal Property Corp. Municipal Facilities Revenue, 8.125%, 7/01/19 ................ 3,160,000 3,242,602
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ......................... 8,000,000 8,707,440
Scottsdale IDA Hospital Revenue, Scottsdale Memorial Hospital, Refunding, Series A,
AMBAC Insured, 5.70%, 9/01/15 ................................................................ 1,250,000 1,298,575
9/01/18 ...................................................................................... 4,045,000 4,202,189
</TABLE>
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------- ----------- ------------
<S> <C> <C>
(a) LONG TERM INVESTMENTS (CONT.)
Sedona Sewer Sales Tax Revenue, Refunding,
6.75%, 7/01/07 ............................................................................. $ 3,800,000 $ 4,261,396
7.00%, 7/01/12 ............................................................................. 5,000,000 5,463,850
Tucson Airport Authority Revenue, MBIA Insured,
Series A, 6.875%, 6/01/20 .................................................................. 1,090,000 1,145,732
Series B, 7.125%, 6/01/15 .................................................................. 1,175,000 1,244,525
Series B, 7.25%, 6/01/20 ................................................................... 1,125,000 1,192,545
Tucson GO, Series A, 5.375%, 7/01/20 ......................................................... 1,800,000 1,857,762
Tucson IDA, MFR,
La Entrada, Refunding, 7.40%, 7/01/26 ...................................................... 1,830,000 1,933,340
Los Portales Apartments, Refunding, 5.90%, 12/20/31 ........................................ 2,000,000 2,103,100
Tucson Water Revenue, Refunding,
FGIC Insured, 5.00%, 7/01/19 ............................................................... 2,100,000 2,083,977
FGIC Insured, 5.125%, 7/01/20 .............................................................. 4,000,000 4,014,520
FGIC Insured, 5.125%, 7/01/21 .............................................................. 9,030,000 9,056,639
MBIA Insured, 7.00%, 7/01/10 ............................................................... 2,250,000 2,304,428
University of Arizona System Revenue,
6.25%, 6/01/11 ............................................................................. 1,000,000 1,129,300
6.35%, 6/01/14 ............................................................................. 1,300,000 1,474,200
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ................................................................................... 2,500,000 2,562,325
10/01/22 ................................................................................... 3,750,000 3,762,563
Virgin Islands Water and Power Authority Electric System Revenue, Refunding,
5.30%, 7/01/18 2,475,000 2,471,832
Virgin Islands Water and Power Authority
Water System Revenue, Refunding, 5.50%, 7/01/17 1,500,000 1,477,755
Yavapai County GO, USD No. 22 Humboldt, Project of 1995, Series B, MBIA Insured,
5.60%, 7/01/14 ............................................................................. 1,825,000 1,957,459
Yavapai County IDA,
Hospital Facility Revenue, Yavapai Regional Medical Center, Series A, FSA Insured,
5.125%, 12/01/13 ........................................................................... 2,000,000 2,053,600
IDR, Citizens Utilities Co. Project, 5.45%, 6/01/33 ........................................ 6,000,000 6,079,380
Yuma County GO,
Elementary School District No. 1, MBIA Insured, 5.50%, 7/01/14 ............................. 2,000,000 2,132,640
Elementary School District No. 1, Series A, MBIA Insured, 5.75%, 7/01/14 ................... 1,500,000 1,628,625
Yuma IDA,
Hospital Revenue, Regency Apartments, Refunding, Series A, GNMA Secured, 5.50%, 12/20/32 ... 2,000,000 2,027,540
Hospital Revenue, Yuma Regional Medical Center, Refunding, MBIA Insured, 5.50%, 8/01/17 .... 4,000,000 4,203,720
MFHR, Alexandrite Sands Apartments Project, FHA Insured, 7.60%, 12/01/15 ................... 1,000,000 1,036,060
MFHR, Alexandrite Sands Apartments Project, FHA Insured, 7.70%, 12/01/29 ................... 2,000,000 2,094,520
-----------
TOTAL LONG TERM INVESTMENTS (COST $825,524,466) ............................................. 875,335,864
-----------
(a) SHORT TERM INVESTMENTS .7%
Apache County IDA, IDR, Tucson Electric Power Co. Project, Springerville Project,
Series A, Weekly VRDN and Put, 3.00%, 12/15/18 ............................................. 3,000,000 3,000,000
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Service Hospital,
Series B, 2, MBIA Insured, Daily VRDN and Put, 3.25%, 12/01/08 ............................. 1,600,000 1,600,000
Maricopa County PCC, PCR, Arizona Public Service Co., Refunding,
Series A, Daily VRDN and Put, 3.20%, 5/01/29 ............................................... 250,000 250,000
Series D, Daily VRDN and Put, 3.10%, 5/01/29 ............................................... 500,000 500,000
Pinal County IDA,,
DATES, Magma-Copper/Newmont Mining Corp., Daily VRDN and Put, 3.20%, 12/01/09 .............. 200,000 200,000
Magma-Copper/Newmont Mining Corp., Daily VRDN and Put, 3.20%, 12/01/09 ..................... 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $5,750,000) .............................................. 5,750,000
------------
TOTAL INVESTMENTS (COST $831,274,466) 99.6% ................................................. 881,085,864
OTHER ASSETS, LESS LIABILITIES .4% .......................................................... 3,805,022
------------
NET ASSETS 100.0% ........................................................................... $884,890,886
============
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal
balance plus accrued interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
68
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN COLORADO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- --------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.11 $ 11.80 $ 11.84 $ 11.38 $ 11.94
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ...................... .60 .63 .66 .67 .67
Net realized and unrealized gains (losses) . .02 .39 (.04) .45 (.57)
----------- ----------- ----------- ----------- -----------
Total from investment operations ............ .62 1.02 .62 1.12 .10
----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ...................... (.60) (.64) (.66) (.66) (.66)
Net realized gains ......................... (.08) (.07) -- -- --
----------- ----------- ----------- ----------- -----------
Total distributions ......................... (.68) (.71) (.66) (.66) (.66)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ................ $ 12.05 $ 12.11 $ 11.80 $ 11.84 $ 11.38
=========== =========== =========== =========== ===========
Total return* ............................... 5.24% 8.86% 5.44% 10.12% 1.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 301,381 $ 266,599 $ 236,609 $ 215,609 $ 194,564
Ratios to average net assets:
Expenses ................................... .70% .71% .71% .71% .70%
Net investment income ...................... 4.93% 5.28% 5.59% 5.73% 5.94%
Portfolio turnover rate ..................... 12.60% 22.97% 14.13% 17.58% 28.83%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 12.17 $ 11.84 $ 11.87 $ 11.40
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............................. .54 .57 .59 .50
Net realized and unrealized gains (losses) ........ .02 .40 (.02) .46
---------- ---------- ---------- ----------
Total from investment operations ................... .56 .97 .57 .96
---------- ---------- ---------- ----------
Less distributions from:
Net investment income ............................. (.54) (.57) (.60) (.49)
Net realized gains ................................ (.08) (.07) -- --
---------- ---------- ---------- ----------
Total distributions ................................ (.62) (.64) (.60) (.49)
---------- ---------- ---------- ----------
Net asset value, end of year ....................... $ 12.11 $ 12.17 $ 11.84 $ 11.87
============ ========== ========== ==========
Total return* ...................................... 4.63% 8.39% 4.93% 8.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 21,899 $ 10,855 $ 5,654 $ 1,656
Ratios to average net assets:
Expenses .......................................... 1.26% 1.27% 1.28% 1.29%**
Net investment income ............................. 4.38% 4.72% 4.99% 5.12%**
Portfolio turnover rate ............................ 12.60% 22.97% 14.13% 17.58%
</TABLE>
* Total return does not reflect sales commissions or the contingent
deferred sales charge, and is not annualized for periods less than one
year. Prior to May 1, 1994, dividends from net investment income were
reinvested at the offering price.
** Annualized
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
See notes to financial statements.
69
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------- ----------- -----------
<S> <C> <C>
(a) LONG TERM INVESTMENTS 97.7%
Adams County PCR, Public Service Co. of Colorado Project,
Refunding, AMBAC Insured, 5.10%, 1/01/19 ..................................................... $ 3,500,000 $ 3,482,465
Series A, Pre-Refunded, 7.375%, 11/01/09 ..................................................... 770,000 770,639
Adams County School No.12 GO, FGIC Insured, 5.40%, 12/15/14 ...................................... 1,000,000 1,051,910
Arapahoe County Capital Improvements Transportation Fund Highway Revenue,
Vehicle Registration, Series A, MBIA Insured,
6.15%, 8/31/26 ................................................................................ 8,000,000 8,882,320
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 .................................... 805,000 883,214
Arapahoe County School District No. 2, Refunding, MBIA Insured, 5.70%, 6/01/19 ................... 2,200,000 2,346,256
Arvada IDR, Wanco Inc. Project,
5.25%, 12/01/07 .............................................................................. 100,000 101,816
5.80%, 12/01/17 .............................................................................. 480,000 489,178
Arvada MFHR, Springwood Community Project, Refunding, 6.35%, 8/20/16 ............................. 1,000,000 1,052,900
Auraria Higher Education Center Colorado COP, Administrative Office Facility Project,
AMBAC Insured, 5.125%, 5/01/18 ............................................................... 1,000,000 1,003,920
Aurora COP, Refunding, 6.25%, 12/01/09 ........................................................... 2,850,000 3,117,302
Bayfield School District No. 10, MBIA Insured, Pre-Refunded, 6.65%, 6/01/15 ...................... 1,000,000 1,148,050
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.50%, 12/01/12 .............................................................................. 1,000,000 1,024,370
5.80%, 12/01/13 .............................................................................. 2,000,000 2,060,760
5.60%, 12/01/17 .............................................................................. 3,385,000 3,447,623
5.875%, 12/01/20 ............................................................................. 1,285,000 1,326,197
Pre-Refunded, 8.20%, 12/01/20 ................................................................ 3,000,000 3,272,610
Boulder GO, Refunding, 7.20%, 8/15/13 ............................................................ 1,250,000 1,280,788
Boulder, Larimer and Weld Counties GO, Vrain Valley School District RE1J, Series A, FGIC Insured,
5.00%, 12/15/18 .............................................................................. 1,000,000 997,430
12/15/22 ..................................................................................... 7,000,000 6,951,350
Castle Pines Metropolitan District GO, Refunding and Improvement, FSA Insured,
5.25%, 12/01/15 .............................................................................. 1,900,000 1,964,277
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 ............................. 1,615,000 1,661,254
Boulder Community Hospital, Refunding, Series B, MBIA Insured, 5.875%, 10/01/23 .............. 1,500,000 1,605,630
Catholic Health Initiatives, Series A, 5.00%, 12/01/28 ....................................... 1,800,000 1,743,012
Children's Hospital Association Project, MBIA Insured, 5.25%, 10/01/26 ....................... 1,000,000 1,015,000
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 .......................... 954,000 1,022,135
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 ................ 6,570,000 7,099,936
Covenant Retirement Communities, 6.75%, 12/01/15 ............................................. 1,750,000 1,952,685
Covenant Retirement Communities, 6.75%, 12/01/25 ............................................. 4,950,000 5,514,251
Kaiser Permanente, Series A, 5.35%, 11/01/16 ................................................. 8,000,000 8,067,040
Mercy Medical Center Durango, 6.20%, 11/15/15 ................................................ 1,250,000 1,341,463
National Benevolent Association, Refunding, Series A, 5.20%, 1/01/18 ......................... 700,000 685,958
National Benevolent Association, Refunding, Series A, 5.25%, 1/01/27 ......................... 1,180,000 1,149,603
National Benevolent Association, Series B, 5.25%, 2/01/18 .................................... 750,000 739,358
National Benevolent Association, Series B, 5.25%, 2/01/28 .................................... 2,500,000 2,434,600
Oakbrook Manor, Series A, GNMA Secured, 7.25%, 4/01/11 ....................................... 375,000 389,359
Oakbrook Manor, Series A, GNMA Secured, 7.625%, 4/01/26 ...................................... 885,000 910,346
Parkview Medical Center Inc. Project, 5.25%, 9/01/18 ......................................... 1,660,000 1,630,203
Parkview Medical Center Inc. Project, 5.30%, 9/01/25 ......................................... 1,615,000 1,581,247
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21 ............................ 1,000,000 1,114,140
Sisters of Charity Leavenworth, 5.125%, 12/01/18 ............................................. 1,000,000 1,003,480
Colorado HFA,
GO, Series A, 7.50%, 5/01/29 ................................................................. 1,000,000 1,046,630
MF, Series A, 6.80%, 8/01/14 ................................................................. 3,550,000 3,750,540
MF, Series A, 6.85%, 8/01/24 ................................................................. 5,790,000 6,111,113
MF, Series A, 6.875%, 8/01/30 ................................................................ 2,300,000 2,427,121
MF, Series A-2, 6.00%, 10/01/28 .............................................................. 1,000,000 1,054,060
MF, Series A-2, FHA Insured, 5.45%, 10/01/29 ................................................. 1,000,000 1,005,540
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23 ............................ 4,000,000 4,100,040
SF Program, Series A-1, 8.00%, 8/01/17 ....................................................... 145,000 148,945
SF Program, Series A-2, 7.70%, 2/01/23 ....................................................... 445,000 464,411
SF Program, Series A-3, 7.90%, 8/01/21 ....................................................... 165,000 170,567
</TABLE>
70
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------- ---------- -----------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Colorado HFA, (cont.)
SF Program, Series C-2, 7.375%, 8/01/10 .................................................... $ 815,000 $ 847,127
SF Program, Series C-2, 7.85%, 2/01/21 ..................................................... 125,000 128,243
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series A,
MBIA Insured,
5.25%, 9/01/18 ............................................................................. 3,795,000 3,856,213
5.00%, 9/01/21 ............................................................................. 2,000,000 1,960,300
Colorado Springs Airport Revenue, Series A, MBIA Insured, 5.25%, 1/01/22 ....................... 2,500,000 2,554,525
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%,
12/15/15 ................................................................................... 5,575,000 6,165,393
12/15/24 ................................................................................... 10,955,000 12,067,590
Colorado Springs Utilities Revenue,
Refunding and Improvement, Series A, 5.25%, 11/15/22 ....................................... 2,000,000 2,023,520
Refunding and Improvement, Series A, 5.375%, 11/15/26 ...................................... 3,340,000 3,401,256
Series A, 5.75%, 11/15/23 .................................................................. 1,450,000 1,518,672
Series A, Pre-Refunded, 6.10%, 11/15/24 .................................................... 9,000,000 10,156,950
System Improvement, Subordinate Lien, Series A, 5.00%, 11/15/27 ............................ 5,000,000 4,880,500
Colorado State Board of Agriculture COP, MBIA Insured, 5.35%, 5/01/18 .......................... 1,000,000 1,025,840
Colorado State Board of Agriculture State University Revenue, Refunding,
5.125%, 3/01/17 ............................................................................ 1,000,000 1,014,750
Colorado State Board of
Community Colleges and Occupational Education Revenue, Red Rocks Community
College Project, AMBAC Insured, Pre-Refunded,
6.00%, 11/01/19 ............................................................................ 1,090,000 1,179,871
Colorado Water Resource and Power Authority Drinking Water Revenue,
Series A, 5.30%, 9/01/18 ...................................................................... 875,000 885,535
Colorado Water Resource and Power Development Authority, Stagecoach Project,
Pre-Refunded, 8.00%, 11/01/17 .............................................................. 65,000 67,107
Colorado Water Resource and Power Development Authority Clean Water Revenue, Series A,
6.15%, 9/01/11 ............................................................................. 1,765,000 1,892,574
6.30%, 9/01/14 ............................................................................. 1,000,000 1,084,890
5.80%, 9/01/17 ............................................................................. 2,000,000 2,153,120
Colorado Water Resource and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured, 6.70%, 11/01/12 .................................................... 750,000 827,685
Denver City and County Airport Revenue,
Series A, 5.60%, 11/15/20 .................................................................. 3,200,000 3,349,952
Series A, 7.50%, 11/15/23 .................................................................. 3,315,000 3,806,979
Series A, 8.50%, 11/15/23 .................................................................. 3,645,000 3,945,093
Series A, Pre-Refunded, 7.50%, 11/15/12 .................................................... 3,000,000 3,448,620
Series A, Pre-Refunded, 7.50%, 11/15/23 .................................................... 685,000 816,993
Series A, Pre-Refunded, 8.50%, 11/15/23 .................................................... 355,000 391,022
Series D, 7.75%, 11/15/13 .................................................................. 1,000,000 1,265,650
Series E, MBIA Insured, 5.50%, 11/15/25 .................................................... 3,750,000 3,875,325
Denver City and County IDR, University of Denver Project, 7.50%, 3/01/11 ....................... 1,880,000 2,006,317
Denver City and County MFHR, The Boston Lofts Project, Series A, 5.75%, 10/01/27 ............... 1,500,000 1,540,590
Denver City and County Revenue,
Children's Hospital Association Project, FGIC Insured, 6.00%, 10/01/15 ..................... 3,150,000 3,389,337
St. Anthony's Hospital, Sisters of Charity Health Care System, Series A, MBIA Insured,
Pre-Refunded, 7.75%, 5/01/14 ............................................................... 150,000 152,630
Denver City and County School District No.1 GO, FGIC Insured, 5.00%, 12/01/23 .................. 6,475,000 6,393,027
Denver City and County Special Facilities Airport Revenue, United Airlines Inc. Project,
Series A, 6.875%, 10/01/32 ................................................................ 2,000,000 2,150,780
Donala Water and Sanitary District GO, Improvement, Series B, 6.50%, 12/01/14 .................. 995,000 1,052,481
Douglas County MFR, Housing Mortgage, Parker Hilltop Project, FHA Insured, 5.45%, 8/01/28 ...... 2,000,000 2,023,640
Douglas County School District No. 1 GO, Douglas and Elbert Counties, Improvement, Series A,
MBIA Insured, 6.50%, 12/15/16 .............................................................. 230,000 257,446
Pre-Refunded, 6.50%, 12/15/16 .............................................................. 2,000,000 2,288,340
Englewood COP, Civic Center Project, MBIA Insured, 5.10%,
6/01/18 .................................................................................... 2,000,000 1,975,700
6/01/23 .................................................................................... 3,200,000 3,151,584
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ........................ 5,000,000 5,310,600
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17 .............................. 1,570,000 1,619,455
Frisco Fire Protection District, Refunding and Improvement, 7.20%, 12/01/05 .................... 250,000 257,658
Greeley MFR, Housing Mortgage, Creek Stone Project, FHA Insured, 5.95%, 7/01/28 ................ 1,000,000 1,038,200
</TABLE>
71
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------- ------------ ------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 .................................................... $ 400,000 $ 435,140
Series A, 6.50%, 10/01/23 ................................................................ 800,000 871,592
Guam Power Authority Revenue, Series A, 6.375%, 10/01/08 ..................................... 1,000,000 1,086,310
Jefferson County District Wide Sales Tax Revenue, Local ID, MBIA Insured,
6.30%, 6/01/22 .......................................................................... 7,450,000 7,933,133
Jefferson County GO, School District No R-001, Series A, FGIC Insured,
5.00%, 12/15/17 ......................................................................... 5,000,000 4,999,600
Jefferson County SFMR, Refunding, Series A, MBIA Insured,
8.875%, 10/01/13 ........................................................................ 280,000 296,181
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25 .......................................................................... 1,235,000 1,335,418
6.70%, 10/01/36 .......................................................................... 3,025,000 3,261,767
Larimer County COP, School District No. R1, Poudre, MBIA Insured,
5.65%, 12/01/16 .......................................................................... 2,300,000 2,461,782
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08 .......................................................................... 1,000,000 1,077,580
6.20%, 12/01/10 .......................................................................... 935,000 1,010,754
Left Hand Water District Revenue, MBIA Insured, 5.70%, 11/15/15 .............................. 1,400,000 1,500,674
Logan County SFMR, Refunding, Series A, 8.50%, 11/01/11 ...................................... 235,000 246,962
Metex Metropolitan District GO, Refunding, Series A, MBIA Insured,
5.80%, 12/01/16 ............................................................................. 500,000 542,355
Montrose County COP, 6.35%, 6/15/06 .......................................................... 1,850,000 2,021,088
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.75%, 6/01/23 .............................................................................. 3,000,000 3,187,710
Municipal Subdistrict of Northern Colorado Water Conservancy District Revenue, Series G,
5.25%, 12/01/15 ......................................................................... 2,000,000 2,084,960
Platte River Power Authority Revenue, Refunding, Series D-2, MBIA Insured,
5.375%, 6/01/17 ......................................................................... 5,490,000 5,742,650
Postsecondary Educational Facilities Authority Revenue,
Auraria Foundation Project, FSA Insured, 6.00%, 9/01/15 .................................. 1,000,000 1,090,120
University of Denver Project, Refunding and Improvement, MBIA Insured,
5.375%, 3/01/18 ......................................................................... 2,500,000 2,581,875
Pueblo County, MBIA Insured, 6.00%, 6/01/16 .................................................. 4,395,000 4,742,029
Pueblo County COP, Public Parking, 6.90%, 7/01/15 ............................................ 510,000 534,531
Pueblo County School District No. 70 GO, Pueblo Rural, AMBAC Insured, Pre-Refunded,
6.40%, 12/01/14 ......................................................................... 1,000,000 1,132,980
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding, AMBAC Insured,
6.10%, 12/01/15 ......................................................................... 1,000,000 1,087,300
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ............................................................ 55,000 68,150
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
5.00%, 7/01/38 .......................................................................... 7,000,000 6,800,220
Puerto Rico Electric Power Authority Revenue, Refunding, Series N, 7.125%, 7/01/14 ........... 155,000 159,411
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Industrial Revenue,
Guaynabo Municipal Government, 5.625%, 7/01/22 ............................................... 1,335,000 1,376,412
Regional Transportation District Sales Tax Revenue, FGIC Insured, 6.25%, 11/01/12 ............ 160,000 173,408
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11 ...................................... 435,000 452,491
Stonegate Village Metropolitan District, Refunding and Improvement, Series A, FSA Insured,
5.60%, 12/01/25 ......................................................................... 4,500,000 4,731,525
Summit County SFMR, Series A, 7.50%, 12/01/11 ................................................ 135,000 140,415
Summit County Sports Facilities Revenue, Keystone Resorts Project, Ralston Purina Co.,
Refunding, 7.875%, 9/01/08 .............................................................. 2,750,000 3,348,840
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 .......................................................................... 1,000,000 1,013,030
5.25%, 11/15/22 .......................................................................... 4,000,000 4,071,840
University of Northern Colorado Authority Facilities System Revenue, MBIA Insured,
5.60%, 6/01/24 .......................................................................... 2,000,000 2,109,120
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 .......................................................................... 2,500,000 2,556,075
5.50%, 10/01/22 .......................................................................... 2,500,000 2,508,375
Westminster City Sales and Use Tax Revenue,
Refunding and Improvement, FGIC Insured, 7.00%, 12/01/08 ................................. 2,000,000 2,123,160
Storm Project, Refunding and Improvement, Series A, 5.60%, 12/01/16 ...................... 1,500,000 1,594,515
Westminster COP, Ice Centre Project, AMBAC Insured, 5.40%, 1/15/23 ........................... 4,400,000 4,483,020
Widefield Water and Sanitary District Water and Sewage Revenue, Refunding and Improvement,
Series A, MBIA Insured, 5.70%, 12/01/16 ................................................. 2,000,000 2,163,540
-----------
TOTAL LONG TERM INVESTMENTS (COST $297,658,251) ............................................. 315,932,160
-----------
</TABLE>
72
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------- ------------ ------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS .8%
Colorado Health Facilities Authority Revenue,
Catholic Health Initiatives, Series B, Weekly VRDN and Put, 3.00%, 12/01/25 ........ $ 1,600,000 $ 1,600,000
North Colorado Medical Center, Weekly VRDN and Put, 3.00%, 5/15/20 ................. 1,100,000 1,100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,700,000) ........................................ 2,700,000
------------
TOTAL INVESTMENTS (COST $300,358,251) 98.5% ........................................... 318,632,160
OTHER ASSETS, LESS LIABILITIES 1.5% ................................................... 4,647,905
------------
NET ASSETS 100.0% ..................................................................... $323,280,065
------------
</TABLE>
See glossary of terms on page 134.
(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.
See notes to financial statements.
73
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
CLASS A 1999 1998 1997 1996(1) 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.23 $ 10.92 $ 10.96 $ 10.64 $ 11.23
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .58 .60 .61 .62 .62
Net realized and unrealized gains (losses) . .04 .32 (.02) .32 (.60)
-------------------------------------------------------------------------------
Total from investment operations ............ .62 .92 .59 .94 .02
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.58)(2) (.60) (.63) (.62) (.61)
In excess of net investment income ......... -- (.01) -- -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.58) (.61) (.63) (.62) (.61)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.27 $ 11.23 $ 10.92 $ 10.96 $ 10.64
-------------------------------------------------------------------------------
Total return* ............................... 5.62% 8.62% 5.52% 9.04% .37%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $245,016 $203,643 $183,649 $167,045 $155,623
Ratios to average net assets:
Expenses ................................... .72% .73% .72% .73% .71%
Net investment income ...................... 5.08% 5.41% 5.62% 5.70% 5.83%
Portfolio turnover rate ..................... 5.87% 18.54% 14.53% 3.88% 75.72%
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.26 $ 10.94 $ 10.97 $ 10.65
------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .52 .55 .60 .47
Net realized and unrealized gains (losses) . .03 .31 (.07) .31
------------------------------------------------------------
Total from investment operations ............ .55 .86 .53 .78
------------------------------------------------------------
Less distributions from net investment income (.51)(2) (.54) (.56) (.46)
------------------------------------------------------------
Net asset value, end of year ................ $ 11.30 $ 11.26 $ 10.94 $ 10.97
------------------------------------------------------------
Total return* ............................... 5.02% 8.08% 5.03% 7.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 23,443 $ 8,636 $ 4,149 $ 1,656
Ratios to average net assets:
Expenses ................................... 1.28% 1.29% 1.29% 1.30%**
Net investment income ...................... 4.53% 4.85% 5.01% 5.12%**
Portfolio turnover rate ..................... 5.87% 18.54% 14.53% 3.88%
</TABLE>
(*) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. 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 C.
(2) Includes distributions in excess of net investment income in the amount of
$.002.
See notes to financial statements.
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.7%
Bridgeport GO,
Series A, 7.25%, 6/01/00 ........................................................... $ 300,000 $ 312,663
Series B, 7.55%, 11/15/00 .......................................................... 1,375,000 1,453,403
Series B, Pre-Refunded, 7.75%, 11/15/10 ............................................ 3,750,000 4,094,325
Unlimited Tax, ETM, Series A, 7.30%, 3/01/99 ....................................... 750,000 750,000
Connecticut State Development Authority First Mortgage Revenue, Health Care Project,
Church Homes Inc., Refunding, 5.80%, 4/01/21 ....................................... 1,000,000 1,022,150
Elim Park Baptist Home, Refunding, Series A, 5.375%, 12/01/18 ...................... 1,100,000 1,088,692
Connecticut State Development Authority PCR, New England Power Co., 7.25%, 10/15/15 ... 750,000 784,260
Connecticut State Development Authority Revenue, Life Care Facilities, Seabury Project,
Refunding, Asset Guaranty, 5.00%, 9/01/21 .......................................... 3,840,000 3,758,784
Connecticut State Development Authority Solid Waste Disposal Facilities Revenue, Pfizer
Inc. Project, 7.00%, 7/01/25 ....................................................... 2,000,000 2,289,580
Connecticut State Development Authority Water Facility Revenue, Bridgeport
Hydraulic Co. Project, 6.15%, 4/01/35 ............................................... 1,000,000 1,082,080
6.00%, 9/01/36 ..................................................................... 10,000,000 10,670,700
Refunding, 7.25%, 6/01/20 .......................................................... 1,000,000 1,055,630
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14 ..................... 2,000,000 2,234,720
Capital Assets, ETM, Series B, 7.00%, 1/01/00 ...................................... 635,000 655,314
Capital Assets, Series C, MBIA Insured, 7.00%, 1/01/20 ............................. 1,265,000 1,354,448
Capital Assets, Series C, MBIA Insured,Pre-Refunded, 7.00%, 1/01/20 ................ 200,000 216,590
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%, 7/01/25 ......... 1,500,000 1,741,710
Greenwich Hospital, Series A, MBIA Insured, 5.75%, 7/01/16 ......................... 1,000,000 1,083,160
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ......................... 2,500,000 2,674,375
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ........................ 1,300,000 1,456,546
Hartford University, Series D, 6.80%, 7/01/22 ...................................... 5,000,000 5,278,200
Hebrew Home and Hospital, Series A, 7.00%, 8/01/30 ................................. 1,170,000 1,183,022
Hebrew Home and Hospital, Series B, FHA Insured, 5.15%, 8/01/28 .................... 3,800,000 3,726,470
Hospital for Special Care, Refunding, Series B, 5.375%, 7/01/17 .................... 7,205,000 7,252,697
Hospital for Special Care, Refunding, Series B, 5.50%, 7/01/27 ..................... 17,000,000 17,118,490
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 .......................... 500,000 620,620
New Britain Memorial Hospital, Series A, Pre-Refunded, 7.75%, 7/01/22 .............. 1,000,000 1,146,740
New Horizons Village Project, 7.30%, 11/01/16 ...................................... 2,905,000 3,377,847
Quinnipiac College, Series E, FSA Insured, 4.75%, 7/01/24 .......................... 2,000,000 1,925,720
Quinnipiac College, Refunding, Series E, FSA Insured, 4.75%, 7/01/28 ............... 2,500,000 2,400,500
Quinnipiac College, Series C, Pre-Refunded, 7.75%, 7/01/20 ......................... 960,000 1,034,026
Sacred Heart University, Refunding, Series C, 6.50%, 7/01/16 ....................... 1,000,000 1,137,350
Sacred Heart University, Refunding, Asset Guaranty, Series E, 5.00%, 7/01/28 ....... 7,000,000 6,851,880
Sacred Heart University, Series C, 6.625%, 7/01/26 ................................. 7,000,000 8,077,370
Sacred Heart University, Series D, Pre-Refunded, 6.20%, 7/01/27 .................... 1,700,000 1,967,308
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ........................... 4,615,000 4,702,039
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 .......................... 3,510,000 3,680,024
St. Mary's Hospital, Series C, Pre-Refunded, 7.375%, 7/01/20 ....................... 1,000,000 1,072,960
Taft School, Series A, Pre-Refunded, 7.375%, 7/01/20 ............................... 1,000,000 1,072,280
Taft School, Series C, Pre-Refunded, 6.00%, 7/01/16 ................................ 2,500,000 2,690,375
Taft School, Series C, Pre-Refunded, 5.75%, 7/01/26 ................................ 3,325,000 3,563,635
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 ........................... 2,200,000 2,381,258
Trinity College, Series F, MBIA Insured, 5.00%, 7/01/28 ............................ 2,000,000 1,984,640
Veterans Memorial Medical Center, Series A, MBIA Insured, 5.50%, 7/01/26 ........... 4,210,000 4,377,811
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 ...................... 8,000,000 8,292,080
Yale New Haven Hospital, Refunding, Series H, MBIA Insured, 5.70%, 7/01/25 ......... 4,500,000 4,797,855
Yale New Haven Hospital, Series F, MBIA Insured, Pre-Refunded, 7.10%, 7/01/25 ...... 7,000,000 7,485,940
Connecticut State HFA, Housing Mortgage Finance Program,
Series B, 6.75%, 11/15/23 .......................................................... 14,705,000 16,006,098
Series C-1, 6.60%, 11/15/23 ........................................................ 500,000 537,465
Series C-2, 6.25%, 11/15/18 ........................................................ 1,500,000 1,627,395
Series C-2, 6.70%, 11/15/22 ........................................................ 3,765,000 4,004,266
Series E, 6.30%, 5/15/17 ........................................................... 3,670,000 3,951,562
Sub Series B-1, 6.30%, 5/15/25 ..................................................... 700,000 748,881
Sub Series B-1, 5.30%, 11/15/28 .................................................... 1,700,000 1,715,589
Sub Series C-2, 5.85%, 11/15/28 .................................................... 1,495,000 1,560,122
Sub Series D-1, 5.55%, 11/15/28 .................................................... 1,000,000 1,023,410
</TABLE>
75
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Connecticut State HFA, Housing Mortgage Finance Program, (cont.)
Sub Series E-1, 5.125%, 5/15/21 ..................................................... $ 1,255,000 $ 1,257,460
Sub Series E-2, 5.20%, 11/15/21 ..................................................... 1,840,000 1,847,342
Sub Series G-1, 6.20%, 11/15/16 ..................................................... 1,335,000 1,393,980
Sub Series G-1, 5.20%, 11/15/28 ..................................................... 5,960,000 6,001,124
Connecticut State Higher Education Supplemental Loan Authority, Series A,
7.00%, 11/15/05 ..................................................................... 755,000 798,360
7.20%, 11/15/10 ..................................................................... 230,000 242,979
7.50%, 11/15/10 ..................................................................... 375,000 385,181
Connecticut State Resource Recovery Authority Revenue, Bridgeport Resco Ltd. Partnership
Project, Series A, 7.625%, 1/01/09 .................................................. 835,000 856,009
East Haven Bank Qualified GO, Pre-Refunded, 7.00%, 9/15/07 ............................. 200,000 207,156
Eastern Connecticut Resource Recovery Authority Solid Waste Revenue, Wheelabrator
Lisbon Project, Series A, 5.50%, 1/01/15 ............................................ 8,000,000 8,026,960
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 ............................................. 200,000 241,674
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ..................................................................... 250,000 274,260
6.70%, 10/01/23 ..................................................................... 1,300,000 1,426,932
Guam Power Authority Revenue, Series A, 6.75%, 10/01/24 ................................ 5,500,000 6,132,225
New Haven GO, Series A, Pre-Refunded, 7.40%, 3/01/12 ................................... 4,545,000 5,119,761
Plainfield GO,
Series 1988, 7.30%, 9/01/10 ......................................................... 150,000 164,849
Series 1991, 7.25%, 9/01/05 ......................................................... 335,000 367,766
Series 1991, 7.30%, 9/01/07 ......................................................... 335,000 368,162
Series 1991, 7.30%, 9/01/09 ......................................................... 335,000 368,162
Puerto Rico Commonwealth GO, Public Improvement, 5.00%, 7/01/28 ........................ 5,000,000 4,909,050
(b) Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
5.00%, 7/01/38 ...................................................................... 4,210,000 4,089,847
Puerto Rico Electric Power Authority Revenue,
Series P, Pre-Refunded, 7.00%, 7/01/21 .............................................. 2,450,000 2,693,849
Series T, Pre-Refunded, 6.375%, 7/01/24 ............................................. 5,000,000 5,710,250
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ........ 775,000 817,059
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities,
Guaynabo Warehouse, Series A,
5.15%, 7/01/19 ...................................................................... 4,845,000 4,808,469
Puerto Rico Municipal Finance Agency GO, Series A, 6.50%, 7/01/19 ...................... 5,000,000 5,588,350
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12 .............................. 1,130,000 1,235,418
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ............................................................................ 2,500,000 2,562,325
10/01/22 ............................................................................ 2,500,000 2,508,375
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 ........................................................... 1,500,000 1,498,080
Refunding, 5.30%, 7/01/21 ........................................................... 1,000,000 992,160
Series A, Pre-Refunded, 7.40%, 7/01/11 .............................................. 6,065,000 6,616,305
Waterbury GO, Pre-Refunded,
7.25%, 3/01/03 ...................................................................... 785,000 857,479
7.25%, 3/01/04 ...................................................................... 785,000 857,479
7.50%, 3/01/07 ...................................................................... 780,000 855,746
TOTAL LONG TERM INVESTMENTS (COST $247,013,211) ........................................ 262,233,638
------------
(a) SHORT TERM INVESTMENTS 1.2%
Connecticut State Health and Educational Facilities Authority Revenue, Yale University,
Series T-1, Weekly VRDN and Put,
2.85%, 7/01/29 ...................................................................... 2,900,000 2,900,000
Connecticut State Special Tax Obligation Revenue, Weekly VRDN and Put, 2.70%, 12/01/10 . 400,000 400,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $3,300,000) ......................................... 3,300,000
------------
TOTAL INVESTMENTS (COST $250,313,211) 98.9% ............................................ 265,533,638
OTHER ASSETS, LESS LIABILITIES 1.1% .................................................... 2,925,407
------------
NET ASSETS 100.0% ...................................................................... $268,459,045
------------
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.25 $ 10.94 $ 10.95 $ 10.48 $ 10.80
------------------------------------------------------------------
Income from investment operations:
Net investment income ............................. .51 .53 .55 .55 .54
Net realized and unrealized gains (losses) ........ .06 .33 (.01) .47 (.33)
------------------------------------------------------------------
Total from investment operations ................... .57 .86 .54 1.02 .21
------------------------------------------------------------------
Less distributions from net investment income ...... (.52) (.55) (.55) (.55) (.53)
------------------------------------------------------------------
Net asset value, end of year ....................... $ 11.30 $ 11.25 $ 10.94 $ 10.95 $ 10.48
------------------------------------------------------------------
Total return* ...................................... 5.17% 8.02% 5.12% 9.93% (.20%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $195,598 $139,545 $104,715 $85,967 $73,977
Ratios to average net assets:
Expenses .......................................... .75% .75% .68% .65% .56%
Expenses excluding waiver and payments by affiliate .78% .82% .84% .85% .84%
Net investment income ............................. 4.53% 4.83% 5.16% 5.12% 5.25%
Portfolio turnover rate ............................ 16.57% 23.32% 22.54% 3.35% 38.46%
</TABLE>
(*) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
See notes to financial statements.
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
BONDS 97.1%
ALABAMA .6%
Morgan County Decatur Health Care Authority Hospital Revenue, Refunding, Connie Lee
Insured, 5.80%, 3/01/04 .................................................................... $1,000,000 $ 1,084,050
-----------
ALASKA .3%
Alaska State HFC, Collateral, Veteran's Mortgage Program, First Series, 5.80%, 6/01/04 ...... 445,000 470,232
Anchorage Parking Authority Revenue, 5th Avenue Garage Lease Project, Refunding, 6.50%,
12/01/02 ................................................................................... 170,000 182,187
-----------
652,419
-----------
ARIZONA 1.0%
Maricopa County COP, 5.625%, 6/01/00 ........................................................ 640,000 652,461
Maricopa County GO, School District No. 40, Glendale Improvement, 6.10%, 7/01/08 ............ 1,000,000 1,099,950
Mohave County IDA, Hospital Systems Revenue, Medical Environments Inc., Phoenix Hospital
and Medical Center, Refunding, ETM, 6.00%, 7/01/00 ......................................... 200,000 207,212
Phoenix HFC, Mortgage Revenue, Project A, Refunding, MBIA Insured, 6.00%, 7/01/02 ........... 40,000 41,782
-----------
2,001,405
-----------
CALIFORNIA 7.4%
ABAG Finance Corp. COP, ABAG XXVI, Series B, 6.30%, 10/01/02 ................................ 100,000 107,765
Bakersfield PFA Revenue, Refunding, Series A, 5.80%, 9/15/05 ................................ 3,000,000 3,198,120
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Refunding, Series B, 5.90%, 6/01/03 ........................................................ 1,500,000 1,610,130
California Statewide CDA Revenue, COP, Health Facilities, Barton Memorial Hospital,
Refunding, Series B, 6.40%, 12/01/05 ....................................................... 300,000 322,338
California Statewide Communities Development Corp. COP, Pacific Homes, Series A, 5.90%,
4/01/09 .................................................................................... 1,000,000 1,077,210
Coastside County Water District 1915 Act GO, Crystal Springs Project, Refunding,
5.10%, 9/02/03 ........................................................................... 500,000 513,115
5.30%, 9/02/05 ........................................................................... 625,000 633,200
Fresno Joint Powers Financing Authority Local Agency Revenue, Refunding, Series A, 6.00%,
9/02/01 .................................................................................. 1,000,000 1,029,110
Los Angeles County Transport Commission COP, Series B, 5.90%, 7/01/00 ....................... 100,000 103,570
San Diego Port Facilities Revenue, National Steel and Shipbuilding Co., Refunding, 6.60%,
12/01/02 ................................................................................. 100,000 104,975
San Francisco City and County RDA, Mortgage Revenue, Refunding, Series A, MBIA Insured,
6.125%, 7/01/02 .......................................................................... 50,000 50,377
San Francisco Downtown Parking Corp. Parking Revenue, 6.25%, 4/01/04 ........................ 200,000 222,174
San Joaquin County COP, General Hospital Project, 5.90%, 9/01/03 ............................ 200,000 215,576
San Ramon Valley USD, COP, Measure A, Capital Project, Series A, 5.95%, 10/01/01 ............ 1,535,000 1,570,305
Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1,
5.00%, 9/02/06 ........................................................................... 465,000 468,469
5.25%, 9/02/11 ........................................................................... 1,000,000 999,090
Snowline Joint USD, COP, ETM,
5.60%, 7/01/01 ........................................................................... 260,000 273,281
5.70%, 7/01/02 ........................................................................... 275,000 293,835
5.80%, 7/01/03 ........................................................................... 290,000 315,340
Solano County COP, Justice Facility and Public Building Project, Refunding, 5.875%, 10/01/05 400,000 421,292
Southern California Rapid Transit District Revenue, Special Benefit AD A2, 6.00%, 9/01/02 ... 100,000 106,798
Susanville PFA Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 ........................................................................... 25,000 26,398
6.00%, 9/01/03 ........................................................................... 100,000 105,810
Tahoe City PUD, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 ................... 500,000 523,950
Tuolumne County COP, Multiple Facilities Project, 6.00%, 6/01/99 ............................ 100,000 100,680
14,392,908
-----------
COLORADO 3.9%
Adams County School No 12 COP, Adams Twelve Five Star Schools, MBIA Insured, 4.90%, 12/15/13 2,400,000 2,379,912
Denver City and County Airport Revenue,
Series A, 7.00%, 11/15/99 ................................................................ 3,000,000 3,071,760
Series C, 6.25%, 11/15/00 ................................................................ 335,000 348,085
Montrose County COP, 6.20%, 6/15/03 ......................................................... 1,500,000 1,609,680
Summit County Recreational Facilities Revenue, Copper Mountain, Mandatory put, 10/01/99,
Refunding, 5.90%, 4/01/17 .................................................................. 255,000 258,374
-----------
7,667,811
-----------
</TABLE>
78
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS
BONDS (CONT.)
CONNECTICUT 3.9%
Connecticut State Health and Educational Facilities Authority Revenue, Sacred Heart
University, Refunding, Series C, 6.00%, 7/01/05 ............................................. $ 560,000 $ 608,339
Connecticut State HFA, Housing Mortgage Finance Program, Series C-2, 6.00%, 11/15/10 ......... 2,000,000 2,151,980
Stamford Housing Authority MFR, Fairfield Apartments Project, 4.75%, 12/01/28 ................ 5,000,000 4,957,150
-----------
7,717,469
-----------
FLORIDA 7.9%
Alachua County Health Facilities Authority Revenue, Santa Fe Health Systems Project,
Pre-Refunded, 6.875%, 11/15/02 .............................................................. 100,000 104,852
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.50%, 5/01/04 .... 1,240,000 1,375,693
Meadow Pointe II CDD, Capital Improvement Revenue,
6.00%, 7/01/01 ............................................................................ 1,750,000 1,772,138
Series A, 5.25%, 8/01/03 .................................................................. 2,445,000 2,414,633
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 ...................... 1,000,000 1,061,700
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31,
Program 1, Refunding, 6.60%, 11/01/03 ..................................................... 405,000 432,998
Program 2, Refunding, 6.60%, 11/01/03 ..................................................... 320,000 342,122
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care Inc. Project,
6.20%, 12/01/08 ........................................................................... 275,000 293,406
6.30%, 12/01/09 ........................................................................... 580,000 619,771
(c) Palm Beach County Solid Waste IDR, Okeelanta Power and Light Co. Project, Series A,
6.375%, 2/15/07 ........................................................................... 1,400,000 1,092,000
Pembroke Pines Special Assessment, No. 9, 5.75%, 11/01/05 .................................... 785,000 839,950
Port Saint Lucie Special Assessment Revenue, Utility Service Area No. 3 and 4-A, MBIA
Insured, 5.00%, 10/01/13 .................................................................... 5,000,000 5,136,300
-----------
15,485,563
-----------
GEORGIA 2.9%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.30%, 12/01/13 ... 1,020,000 1,021,683
Fulton County Development Authority Special Facilities Revenue, Delta Airlines Inc. Project,
Refunding, 6.85%, 11/01/07 .................................................................. 100,000 108,200
Macon-Bibb County Urban Development Authority Revenue, MF Housing, Refunding, Series
A, MBIA Insured, 5.00%, 1/01/07 ............................................................. 1,290,000 1,326,081
Wayne County Development Authority PCR, ITT Rayonier Inc. Project, Refunding, 6.10%, 11/01/07 3,105,000 3,308,781
-----------
5,764,745
-----------
HAWAII 2.8%
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Kaiser Permanente, Series A, 5.10%, 3/01/14 ............................................... 5,000,000 4,963,750
Kapi'Olani Health Obligation, 5.60%, 7/01/06 ................................................. 500,000 537,850
-----------
5,501,600
-----------
ILLINOIS 3.1%
Chicago O'Hare International Airport Special Facilities Revenue, United Air Lines Project,
Refunding, Series A, 5.35%, 9/01/16 ......................................................... 2,000,000 1,993,240
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 ........ 850,000 907,596
Illinois HDA Revenue, Homeowner Mortgage, Sub Series A-1, 6.10%, 2/01/05 ..................... 360,000 383,821
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 .................................................. 425,000 458,040
Victory Health Services, Series A, 5.25%, 8/15/09 ......................................... 1,170,000 1,204,211
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center, 5.75%, 7/01/06 ........................................................... 1,000,000 1,070,840
-----------
6,017,748
-----------
INDIANA 3.1%
Franklin EDR, Hoover Universal Inc. Project, Johnson Controls, Refunding, 6.10%, 12/01/04 .... 2,000,000 2,179,240
Indianapolis Local Public Improvement Bond, Refunding, Series D, 6.10%, 2/01/02 .............. 100,000 106,562
Sullivan PCR, Indiana-Michigan Power Co. Project, Refunding, Series C, 5.95%, 5/01/09 ........ 3,500,000 3,685,535
-----------
5,971,337
-----------
IOWA .1%
Iowa State Financial Authority Hospital Facilities Revenue, Trinity Regional Hospital Project,
Refunding, ETM, 6.50%, 7/01/00 .............................................................. 200,000 206,028
-----------
KANSAS .8%
Kansas State Development Finance Authority Hospital Revenue, Susan B. Allen Memorial
Hospital, Series Z, 4.70%, 12/15/09 ......................................................... 1,635,000 1,622,607
-----------
</TABLE>
79
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
KENTUCKY 1.4%
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project, Series
A, 6.75%, 2/01/02 ........................................................................ $ 100,000 $ 106,182
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement,
5.70%, 10/01/10 ......................................................................... 1,000,000 1,052,850
5.75%, 10/01/11 ......................................................................... 1,500,000 1,579,080
----------
2,738,112
----------
LOUISIANA 3.1%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series B, 6.375%,
11/01/02 ................................................................................ 15,000 15,789
Louisiana Public Facilities Authority Revenue, Student Loan, Refunding, Series A-1,
6.20%, 3/01/01 .......................................................................... 80,000 83,030
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, First Stage, Loop Inc.,
Refunding, Series B, 6.20%, 9/01/03 ....................................................... 100,000 107,605
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ............... 6,000,000 5,951,160
----------
6,157,584
----------
MARYLAND .1%
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding,
Series A, 6.75%, 8/01/02 .................................................................. 160,000 171,990
----------
MASSACHUSETTS 4.5%
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Ogden Haverhill
Project, Refunding, Series A,
4.95%, 12/01/06 ......................................................................... 2,500,000 2,541,625
5.15%, 12/01/07 ......................................................................... 2,000,000 2,006,120
5.20%, 12/01/08 ......................................................................... 2,000,000 2,006,360
Massachusetts State Industrial Finance Agency Revenue, Youville Senior Care, Series D,
5.50%, 10/01/12 ......................................................................... 1,745,000 1,795,692
New England Educational Loan Marketing Corp. Student Loan Revenue, Refunding, Series
B, 5.60%, 6/01/02 ....................................................................... 415,000 432,679
----------
8,782,476
----------
MICHIGAN 1.2%
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial
Hospital, Refunding, Series B,
5.30%, 11/01/07 ......................................................................... 815,000 839,466
5.625%, 11/01/14 ........................................................................ 350,000 356,293
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ........................................... 1,000,000 1,110,830
----------
2,306,589
----------
MINNESOTA .1%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund, Series 91-5A,
7.20%, 12/01/04 ............................................................................ 200,000 216,504
----------
MISSISSIPPI .4%
Mississippi Development Bank Special Obligation, Oktibbeha County Hospital Revenue
Project, Refunding, 5.65%, 7/01/06 ........................................................ 725,000 765,847
----------
MISSOURI 3.2%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue, Refunding, 5.00%, 12/01/08 3,000,000 2,976,960
Missouri State Health and Educational Facilities Authority Health Facilities Revenue, Park
Lane Medical Center, Series A, 4.70%, 1/01/04 ............................................. 1,200,000 1,239,144
Taney County IDA, Hospital Revenue, The Skaggs Community Hospital Association, 5.10%,
5/15/10 .................................................................................. 1,420,000 1,442,933
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Refunding, 5.00%, 11/15/04 560,000 571,928
----------
6,230,965
----------
NEBRASKA .8%
Omaha Stadium Facilities Corp. Lease Revenue, Rosenblatt Stadium Project, Series A,
4.90%, 11/01/13 .......................................................................... 1,100,000 1,107,711
Wayne State College Revenue, Student Fees and Facilities, Refunding, MBIA Insured,
5.05%, 7/01/10 ........................................................................... 365,000 372,132
----------
1,479,843
----------
NEVADA 1.9%
Clark County Nevada PCR, Nevada Power Co. Project, Refunding, Series D, 5.30%, 10/01/11 .... 1,500,000 1,512,585
Sparks RDA, Tax Allocation Revenue, Refunding, Asset Guaranty, 5.15%, 1/15/08 .............. 2,110,000 2,199,844
----------
3,712,429
----------
</TABLE>
80
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW HAMPSHIRE 2.3%
New Hampshire Higher Education and Health Facilities Authority Revenue, New Hampshire
Catholic Charities, Refunding, Series A,
5.10%, 8/01/04 ........................................................................... $1,385,000 $ 1,404,529
New Hampshire State Business Finance Authority PCR, United Illumination, Mandatory put,
2/01/04, Refunding, Series A,
4.55%, 7/01/27 ........................................................................... 3,000,000 2,984,250
-----------
4,388,779
-----------
NEW JERSEY 1.1%
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding, Series 1,
5.90%, 1/01/15 ........................................................................... 1,000,000 995,830
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 ................. 70,000 73,403
New Jersey Health Care Facilities Financing Authority Revenue, Monmouth Medical Center,
Refunding, ETM, Series C, FSA Insured,
5.80%, 7/01/04 .......................................................................... 1,000,000 1,098,110
-----------
2,167,343
-----------
NEW YORK 10.1%
Metropolitan Transportation Authority Commuter Facilities Revenue, Services Contract,
Refunding, Series R, 5.50%, 7/01/11 ..................................................... 2,215,000 2,368,721
New York City GO,
ETM, Series B, 6.25%, 10/01/01 ........................................................ 25,000 26,712
Pre-Refunded, 6.50%, 8/01/04 .......................................................... 105,000 115,726
Refunding, Series H, 5.90%, 8/01/09 ................................................... 500,000 555,695
Refunding, Series J, 6.00%, 8/01/08 ................................................... 3,000,000 3,370,830
Series B, 6.25%, 10/01/01 ............................................................. 75,000 79,925
Series C, 6.50%, 8/01/04 .............................................................. 410,000 449,389
Series C, 6.50%, 8/01/07 .............................................................. 1,515,000 1,647,850
Series C, Pre-Refunded, 6.50%, 8/01/07 ................................................ 335,000 369,220
Series H, 7.00%, 2/01/05 .............................................................. 30,000 32,911
Series H, Pre-Refunded, 7.00%, 2/01/05 ................................................ 220,000 243,463
Series J, 6.00%, 2/15/04 .............................................................. 1,000,000 1,087,580
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.00%, 2/15/06 ..... 2,500,000 2,664,950
New York City IDA, Civic Facility Revenue, New York Blood Center Inc. Project, ETM,
6.80%, 5/01/02 ........................................................................ 90,000 95,311
New York State Dormitory Authority Revenue, Mental Health Services Facilities Improvement,
Refunding, Series D, 5.60%, 2/15/07 ..................................................... 140,000 152,044
New York State HFAR, Health Facilities, New York City, Refunding, Series A, 5.90%, 5/01/05 1,000,000 1,084,040
New York State Tollway Authority Service Contract Revenue, Local Highway and Bridge,
5.75%, 4/01/08 ........................................................................ 500,000 547,040
5.75%, 4/01/09 ........................................................................ 1,150,000 1,248,659
Pre-Refunded, 5.90%, 4/01/08 ............................................................. 1,000,000 1,120,180
Oneida-Herkimer Solid Waste Management Authority Solid Waste Systems Revenue, Refunding,
ETM, 6.20%, 4/01/00 ..................................................................... 100,000 103,150
Port Authority of New York and New Jersey Special Obligation Revenue, 3rd Installment,
7.00%, 10/01/07 .......................................................................... 1,000,000 1,161,550
Ulster County Resource Recovery Agency Solid Waste System Revenue, 5.90%, 3/01/07 ........ 1,100,000 1,171,225
-----------
19,696,171
-----------
OHIO .9%
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services,
Refunding,
5.25%, 7/01/08 ........................................................................ 575,000 572,027
5.40%, 7/01/10 ........................................................................ 775,000 768,467
5.50%, 7/01/11 ........................................................................ 500,000 497,745
-----------
1,838,239
-----------
OKLAHOMA 1.5%
Jackson County Memorial Hospital Authority Revenue, Jackson County Memorial Hospital
Project, Refunding, 6.75%, 8/01/04 ...................................................... 1,775,000 1,878,358
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
5.75%, 8/15/06 ......................................................................... 1,000,000 1,039,210
-----------
2,917,568
-----------
OREGON 1.1%
Clackamas County Hospital Facilities Authority Revenue, Willamette View Inc. Project,
Refunding, 6.00%, 11/01/06 .............................................................. 500,000 522,720
Hillsborough Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ........... 1,000,000 1,057,110
Port Umpqua PCR, International Paper Co. Project, Refunding, Series A, 5.05%, 6/01/09 .... 500,000 517,355
-----------
2,097,185
-----------
</TABLE>
81
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS
BONDS (CONT.)
PENNSYLVANIA 3.1%
Cambria County Hospital Development Authority Revenue, Conemaugh Valley Memorial Hospital,
Refunding and Improvement,
Series B, Connie Lee Insured, 5.90%, 7/01/03 ................................................. $ 100,000 $ 108,758
Chartiers Valley Industrial and Commercial Development Authority Revenue, First Mortgage,
Asbury Place Project, 6.25%, 2/01/06 ........................................................ 270,000 285,306
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding, 5.40%, 7/01/07 1,135,000 1,154,704
Northeastern Hospital and Educational Authority College Revenue, Kings College Project,
Refunding, Series B, 5.60%, 7/15/03 ......................................................... 410,000 430,492
Philadelphia Gas Works Revenue,
First Series C, FSA Insured, 5.00%, 7/01/13 ............................................... 1,680,000 1,707,451
Refunding, Series A, 5.70%, 7/01/00 ....................................................... 300,000 307,137
Refunding, Series A, 5.80%, 7/01/01 ....................................................... 300,000 312,819
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc.,
Pre-Refunded, 6.50%, 1/01/10 ................................................................ 1,685,000 1,732,399
-----------
6,039,066
-----------
SOUTH CAROLINA .5%
Charleston County Resource Recovery Revenue, Foster Wheeler Charleston, Refunding, AMBAC
Insured, 5.25%, 1/01/10 .................................................................... 1,000,000 1,055,750
-----------
SOUTH DAKOTA .5%
South Dakota HDA Revenue, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ................... 990,000 1,057,082
TENNESSEE .9%
Memphis-Shelby County Airport Authority Special Facilities and Project Revenue, Federal
Express Corp., Refunding, 5.35%, 9/01/12 .................................................... 1,000,000 1,041,030
Metropolitan Government of Nashville and Davidson County IDBR, Osco Treatment Inc.,
Refunding and Improvement, 6.00%, 5/01/03 ................................................... 750,000 783,810
-----------
1,824,840
-----------
TEXAS 4.0%
Abilene Higher Educational Facilities Corp.,
ETM, 5.90%, 10/01/05 ...................................................................... 65,000 72,277
Higher Education Revenue, Abilene Christian, Refunding and Improvement, 5.90%, 10/01/05 ... 720,000 781,078
Houston Airport System Revenue, sub. lien, Series B, 4.80%, 7/01/13 .......................... 2,000,000 1,971,360
Houston ISD, Refunding, 5.50%, 8/15/09 ....................................................... 1,000,000 1,044,400
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial Home Project,
Refunding, Series C, 6.10%, 2/15/06 ......................................................... 400,000 431,144
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.35%, 11/01/10 . 2,500,000 2,559,550
Travis County GO, Refunding, 5.00%, 3/01/11 .................................................. 1,000,000 1,029,110
-----------
7,888,919
-----------
US TERRITORIES 6.3%
District of Columbia GO,
ETM, Series A, 5.875%, 6/01/05 ............................................................ 30,000 32,992
Refunding, Series A, 5.875%, 6/01/05 ...................................................... 670,000 719,989
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Q, 5.90%, 7/01/01 ....................................................... 100,000 105,223
Series T, 6.00%, 7/01/04 .................................................................. 1,345,000 1,476,904
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.30%, 10/01/11 5,000,000 5,082,050
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.00%, 7/01/03 ............................................................................ 500,000 509,505
4.875%, 7/01/06 ........................................................................... 2,000,000 2,007,820
5.00%, 7/01/09 ............................................................................ 2,400,000 2,394,096
-----------
12,328,579
-----------
UTAH .5%
Salt Lake County College Revenue, Westminster College Project, 5.50%, 10/01/12 ............... 340,000 347,344
Utah State HFA, SFM, Refunding, 5.85%, 7/01/08 ............................................... 575,000 614,129
-----------
961,473
-----------
VIRGINIA 4.8%
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 5.85%, 9/01/04 ....... 2,800,000 3,028,872
Virginia State GO, 5.00%, 6/01/09 ............................................................ 1,000,000 1,061,640
</TABLE>
82
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
VIRGINIA (CONT.)
Virginia State HDA,
Commonwealth Mortgage, Sub Series C-7, 5.60%, 1/01/03 ................................. $ 1,695,000 $ 1,776,157
Commonwealth Mortgage, Sub Series C-7, 5.70%, 1/01/04 ................................. 1,475,000 1,554,680
MF Housing, Series B, 5.15%, 11/01/12 ................................................. 1,905,000 1,938,311
------------
9,359,660
------------
WASHINGTON 3.6%
(b) Grant County PUD No. 2, Priest Rapids Hydroelectric Revenue, Second Series, Series A,
MBIA Insured, 5.00%, 1/01/14 ............................................................ 1,095,000 1,075,805
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ............. 600,000 645,192
Spokane Downtown Foundation Parking Revenue, River Park Square Project, Asset Guaranty
Insured, 5.00%, 8/01/08 ................................................................. 3,000,000 3,095,340
Washington State Public Power Supply System Revenue,
Nuclear Project No. 1, Refunding, Series A, AMBAC Insured, 5.70%, 7/01/09 ............. 1,000,000 1,092,510
Nuclear Project No. 2, Refunding, Series A, 5.375%, 7/01/10 ........................... 1,000,000 1,040,110
------------
6,948,957
------------
WEST VIRGINIA .8%
West Virginia Public Energy Authority Energy Revenue, Morgantown Association Project,
Series A, 5.05%, 7/01/08 ............................................................... 1,500,000 1,535,595
------------
WISCONSIN .6%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 .................................. 1,000,000 1,078,230
-----------
TOTAL BONDS .............................................................................. 189,831,465
------------
(d) ZERO COUPON BONDS 1.1%
CALIFORNIA
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien,
Refunding, Series A, 1/15/17 ............................................................ 3,000,000 2,101,590
------------
TOTAL LONG TERM INVESTMENTS (COST $184,761,831) .......................................... 191,933,055
------------
(a) SHORT TERM INVESTMENTS 1.3%
Hawaii State Housing Finance and Development Corp. Revenue, Rental Housing System,
Series A, Weekly VRDN and Put,
3.00%, 7/01/24 ........................................................................... 300,000 300,000
Irvine 1915 Act, AD No. 93, Daily VRDN and Put, 2.75%, 9/02/23 ........................... 1,200,000 1,200,000
Lake Charles Harbor and Terminal District Revenue Updates, Reynolds Metal Company Project,
Weekly VRDN and Put, 2.20%, 5/01/06 ..................................................... 100,000 100,000
North Carolina Medical Care Commission Revenue, Carol Woods Project, Daily VRDN and
Put, 3.00%, 4/01/21 ..................................................................... 700,000 700,000
Perry County PCR, Leaf River Forest Project, Refunding, Daily VRDN and Put, 3.20%, 3/01/02 300,000 300,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,600,000) ........................................... 2,600,000
------------
TOTAL INVESTMENTS (COST $187,361,831) 99.5% .............................................. 194,533,055
OTHER ASSETS, LESS LIABILITIES .5% ....................................................... 1,065,313
------------
NET ASSETS 100.0% ........................................................................ $195,598,368
------------
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(c) See Note 6 regarding defaulted securities.
(d) Zero coupon/step-up bonds. The current effective yield may vary. The
original accretion rate will remain constant.
See notes to financial statements.
83
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
CLASS A 1999(2) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 11.68 $ 11.21 $ 11.19 $ 10.74 $ 11.25
------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .66 .69 .71 .74 .74
Net realized and unrealized gains (losses) .......... (.18) .47 .04 .45 (.51)
------------------------------------------------------------------------
Total from investment operations ..................... .48 1.16 .75 1.19 .23
------------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (.65) (.68) (.73)(1) (.74) (.74)
In excess of net investment income .................. -- (.01) -- -- --
Net realized gains .................................. (.02) -- -- -- --
------------------------------------------------------------------------
Total distributions .................................. (.67) (.69) (.73) (.74 (.74)
------------------------------------------------------------------------
Net asset value, end of year ......................... $ 11.49 $ 11.68 $ 11.21 $ 11.19 $ 10.74
------------------------------------------------------------------------
Total return* ........................................ 4.21% 10.64% 7.01% 11.35 2.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $5,988,204 $5,742,939 $4,505,258 $3,787,147 $3,287,270
Ratios to average net assets:
Expenses ............................................ .62% .61% .62% .61 .60%
Net investment income ............................... 5.64% 5.98% 6.41% 6.68 6.92%
Portfolio turnover rate .............................. 18.55% 15.84% 6.98% 9.23 15.89%
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $11.51
-------
Income from investment operations-net investment
income ............................................. .11
Less distributions from net investment income ........ (.10)
-------
Net asset value, end of period ....................... $11.52
-------
Total return* ........................................ .96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $15,487 Ratios
to average net assets:
Expenses ............................................ 1.18%**
Net investment income ............................... 5.06%**
Portfolio turnover rate .............................. 18.55%
</TABLE>
(*) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
(**) Annualized.
(1) Includes distributions in excess of net investment income in
the amount of $.008.
(2) For the period January 1, 1999 (effective date) to February 28, 1999 for
Class B.
84
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
CLASS C 1999 1998 1997 1996(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 11.75 $ 11.26 $ 11.24 $ 10.81
--------------------------------------------------------------
Income from investment operations:
Net investment income .................... .60 .63 .66 .56
Net realized and unrealized gains (losses) (.18) .48 .03 .42
--------------------------------------------------------------
Total from investment operations .......... .42 1.11 .69 .98
--------------------------------------------------------------
Less distributions from:
Net investment income .................... (.59) (.62) (.67)(2) (.55)
Net realized gains ....................... (.02) -- -- --
--------------------------------------------------------------
Total distributions ....................... (.61) (.62) (.67) (.55)
--------------------------------------------------------------
Net asset value, end of year .............. $ 11.56 $ 11.75 $ 11.26 $ 11.24
--------------------------------------------------------------
Total return* ............................. 3.69% 10.15% 6.36% 9.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $631,974 $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 ................... 18.55% 15.84% 6.98% 9.23%
</TABLE>
(*) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
(**) Annualized
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(2) Includes distributions in excess of net investment income in the amount of
$.003.
See notes to financial statements.
85
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.1%
BONDS 94.6%
ALABAMA 1.2%
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., Boise Cascade
Corp., 6.45%, 12/01/23 .................................................................... $20,400,000 $ 21,822,288
Jefferson County Sewer Revenue, wts., Series D, FGIC Insured, 5.75%,
2/01/22 ............................................................................... 7,500,000 8,097,825
2/01/27 ............................................................................... 18,535,000 19,999,636
Marshall County Health Care Authority Hospital Revenue, Boaz-Albertville Medical Center,
Refunding, 6.20%, 1/01/08 ................................................................. 3,300,000 3,455,364
Mcintosh IDB, Environmental Improvement Revenue, CIBA Specialty, Refunding, Series
C, 5.375%, 6/01/28 ....................................................................... 3,000,000 3,033,840
Mobile IDB, Solid Waste Disposal Revenue, Mobile Energy Service Co. Project, Refunding,
6.95%, 1/01/20 ............................................................................ 46,500,000 24,645,000
------------
81,053,953
------------
ALASKA .9%
Alaska Industrial Development and Export Authority Power Revenue, Upper Lynn Canal
Regional Power,
5.70%, 1/01/12 .......................................................................... 2,000,000 2,024,000
5.80%, 1/01/18 .......................................................................... 1,245,000 1,254,848
5.875%, 1/01/32 ......................................................................... 3,600,000 3,621,132
Alaska Industrial Development and Export Authority Revenue, American President Lines
Project, Refunding, 8.00%, 11/01/09 ...................................................... 4,000,000 4,158,640
Alaska Industrial Development and Export Authority, Revolving Fund, Series A, 6.20%, 4/01/10 815,000 874,283
Alaska State HFC,
Refunding, Series A, 6.10%, 12/01/37 .................................................... 22,000,000 23,109,020
Refunding, Series A, MBIA Insured, 6.00%, 12/01/15 ...................................... 3,655,000 3,886,435
Refunding, Series A, MBIA Insured, 5.875%, 12/01/24 ..................................... 5,000,000 5,212,850
Refunding, Series A, MBIA Insured, 5.875%, 12/01/30 ..................................... 12,475,000 12,961,775
Series A, MBIA Insured, 5.85%, 12/01/15 ................................................. 4,670,000 4,887,389
------------
61,990,372
------------
ARIZONA 5.3%
Apache County IDA, PCR, Tucson Electric Power Co. Project,
Series A, 5.85%, 3/01/28 ................................................................ 49,150,000 48,810,374
Series B, 5.875%, 3/01/33 ............................................................... 54,450,000 54,251,258
Series C, 5.85%, 3/01/26 ................................................................ 16,500,000 16,389,120
Arizona Health Facilities Authority Revenue, Bethesda Foundation Project, Series A,
6.375%, 8/15/15 ......................................................................... 400,000 423,608
6.40%, 8/15/27 .......................................................................... 3,000,000 3,158,700
Coconino County PCR, Tucson Electric Power Navajo, Refunding,
Series A, 7.125%, 10/01/32 .............................................................. 21,125,000 23,603,596
Series B, 7.00%, 10/01/32 ............................................................... 7,500,000 8,371,275
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ................................... 4,000,000 3,921,880
Gilbert Water Resources Municipal Property Corp. Water and Wastewater System Revenue,
sub. lien, 6.875%,
4/01/14 ................................................................................. 1,000,000 1,024,700
4/01/16 ................................................................................. 1,000,000 1,035,940
Maricopa County PCC, PCR, Public Service Co. of Colorado,
Palo Verde, Refunding, Series A, 6.375%, 8/15/23 ........................................ 8,500,000 8,999,375
Refunding, Series A, 5.75%, 11/01/22 .................................................... 20,150,000 20,235,033
Maricopa County Rural Road ID, 8.625%, 7/01/07 ............................................. 4,000,000 4,334,520
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25 ................................................................ 3,990,000 3,980,105
Series B, 6.00%, 9/01/29 ................................................................ 94,690,000 94,452,328
Series C, 6.00%, 9/01/29 ................................................................ 37,000,000 36,907,130
Red Hawk Canyon Community Facility Revenue, 7.625%, 6/01/05 ................................ 14,810,000 15,451,569
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Series A, 6.00%, 1/01/31 .................................................................. 5,000,000 5,167,100
------------
350,517,611
------------
ARKANSAS .4%
Baxter County IDR, Aeroquip/Trinova Corp. Project, Refunding, 5.80%, 10/01/13 .............. 2,400,000 2,589,192
Conway Hospital Revenue, Refunding, 8.375%, 7/01/11 ........................................ 1,000,000 1,069,640
Independence County PCR,
Arkansas Power and Light Co. Project, Refunding, 6.25%, 1/01/21 ......................... 5,000,000 5,337,000
Mississippi Power and Light Co. Project, Series A, 9.00%, 7/01/13 ....................... 4,275,000 4,341,733
</TABLE>
86
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ARKANSAS (CONT.)
Independence County PCR, (cont.)
Mississippi Power and Light Co. Project, Series B, 9.00%, 7/01/13 .................... $ 1,185,000 $ 1,203,498
Mississippi Power and Light Co. Project, Series C, 9.50%, 7/01/14 .................... 200,000 203,436
Jefferson County PCR, Entergy Arkansas Inc. Project, Refunding, 5.60%, 10/01/17 ......... 12,150,000 12,387,654
North Little Rock Health Facilities Board Health Care Revenue, Baptist Health Facility,
Series A, MBIA Insured, 5.50%, 12/01/21 ............................................... 700,000 730,534
-----------
27,862,687
-----------
CALIFORNIA 7.4%
Adelanto Water Authority Revenue, sub. lien, Water Systems Acquisition Project, Series A,
7.50%, 9/01/28 ....................................................................... 21,330,000 23,214,719
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 ...... 12,950,000 14,069,528
Antioch 1915 Act, AD No. 27, Lone Tree,
Series C, 7.70%, 9/02/17 ............................................................. 11,030,000 11,360,900
Series D, 7.30%, 9/02/13 ............................................................. 4,315,000 4,444,450
Antioch PFA, Reassessment Revenue, sub. lien, Series B, 5.85%, 9/02/15 .................. 7,000,000 6,948,830
Arroyo Grande Hospital System COP, Vista Hospital Systems,
Refunding, Series A, 9.50%, 7/01/20 .................................................. 22,515,000 25,400,973
Series A, 8.375%, 7/01/06 ............................................................ 2,500,000 2,671,625
Avenal PFA Revenue, Refunding,
7.00%, 9/02/10 ....................................................................... 1,660,000 1,694,594
7.25%, 9/02/27 ....................................................................... 3,665,000 3,792,872
Azusa RDA, Tax Allocation, Merged Area Project, Refunding, Series A, 6.75%, 8/01/23 ..... 2,850,000 3,086,208
Beaumont PFA Revenue, Sewer Enterprise Project, Series A, Pre-Refunded, 6.90%, 9/01/23 .. 4,575,000 5,617,231
Benicia 1915 Act, Fleetside Industrial Park Assessment, Refunding,
5.25%, 9/02/99 ....................................................................... 180,000 180,655
5.50%, 9/02/00 ....................................................................... 195,000 197,906
5.65%, 9/02/01 ....................................................................... 205,000 209,490
5.80%, 9/02/02 ....................................................................... 215,000 221,429
5.90%, 9/02/03 ....................................................................... 225,000 232,614
6.00%, 9/02/04 ....................................................................... 240,000 248,057
6.10%, 9/02/05 ....................................................................... 255,000 263,428
6.20%, 9/02/06 ....................................................................... 270,000 278,918
6.30%, 9/02/07 ....................................................................... 290,000 299,605
6.40%, 9/02/08 ....................................................................... 305,000 314,989
6.50%, 9/02/09 ....................................................................... 325,000 335,657
6.60%, 9/02/10 ....................................................................... 340,000 351,091
6.70%, 9/02/11 ....................................................................... 365,000 377,009
6.80%, 9/02/12 ....................................................................... 245,000 253,119
California Educational Facilities Authority Revenue, Pooled College and University
Financing, Series B, 6.125%, 6/01/09 ................................................... 3,000,000 3,239,520
California Health Facilities Financing Authority Revenue, Summit Medical Center,
Series A, Pre-Refunded, 7.50%, 5/01/09 ............................................... 4,370,000 4,489,083
Series A, Pre-Refunded, 7.60%, 5/01/15 ............................................... 2,155,000 2,214,069
Series B, Pre-Refunded, 7.50%, 5/01/09 ............................................... 5,255,000 5,398,199
California HFAR, MFHR, Series A, AMBAC Insured, 6.05%, 8/01/27 .......................... 2,000,000 2,134,340
California Special Districts Association Finance Corp., COP, Series V, 7.50%, 5/01/13 ... 820,000 890,061
California State GO, 5.75%, 3/01/19 ..................................................... 310,000 332,534
California Statewide CDA, California State University Northridge, Refunding, AMBAC
Insured, 6.00%, 4/01/26 ............................................................... 2,500,000 2,741,700
Capistrano USD, CFD,
Special Tax No. 9, 6.60%, 9/01/05 .................................................... 285,000 324,404
Special Tax No. 9, 6.70%, 9/01/06 .................................................... 280,000 319,864
Special Tax No. 9, 6.80%, 9/01/07 .................................................... 325,000 372,606
Special Tax No. 9, 6.90%, 9/01/08 .................................................... 260,000 299,153
Special Tax No. 9, 7.00%, 9/01/18 .................................................... 1,000,000 1,154,710
Contra Costa County PFA Revenue, Refunding,
6.625%, 9/02/10 ...................................................................... 2,300,000 2,374,612
6.875%, 9/02/16 ...................................................................... 2,610,000 2,695,138
</TABLE>
87
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 ............................... $ 7,955,000 $ 9,698,497
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ...................... 8,820,000 12,307,340
Vista Hospital System, Refunding, Series B, 8.375%, 7/01/06 ........................... 11,100,000 11,862,015
Vista Hospital System, Refunding, Series B, 9.50%, 7/01/20 ............................ 10,885,000 12,280,239
Eden Township Hospital District Health Facilities Revenue COP, Insured Eden Hospital
Health Services Corp., Refunding,
5.85%, 7/01/18 ........................................................................ 4,845,000 5,133,907
Emeryville RDA, MFHR, Emery Bay Apartments II,
Refunding, Series A, 5.85%, 10/01/28 .................................................. 15,125,000 15,308,164
sub. lien, Refunding, Series B, 6.35%, 10/01/28 ....................................... 3,555,000 3,580,525
sub. lien, Refunding, Series C, 7.875%, 10/01/28 ...................................... 2,095,000 2,113,038
Foothill/Eastern Corridor Agency, Toll Road Revenue, senior lien, Series A, 6.50%, 1/01/32 37,675,000 42,140,241
Gateway Improvement Authority Revenue, Marin City CFD, Series A, Pre-Refunded,
7.75%, 9/01/25 ........................................................................ 4,500,000 5,454,180
Hawthorne CRDA, Hawthorne Plaza Project, Refunding, 8.50%, 7/01/20 ....................... 4,175,000 4,380,619
Hesperia PFA Revenue, Series B, 7.375%, 10/01/23 ......................................... 6,365,000 6,737,225
Irvine 1915 Act, AD No. 96, Group One, 5.75%, 9/02/22 .................................... 1,000,000 1,010,780
Lake Elsinore 1915 Act, AD No. 9, Series A, 7.90%, 9/02/24 ............................... 6,000,000 6,352,560
Long Beach Special Tax, CFD No. 2, 7.50%, 9/01/11 ........................................ 3,065,000 3,082,379
Los Angeles County CFD No. 4 Special Tax, Improvement Area B, Series A, 9.25%, 9/01/22 ... 29,500,000 30,708,615
Los Angeles MFR, Refunding,
Series J-1A, 7.125%, 1/01/24 .......................................................... 175,000 180,651
Series J-1B, 7.125%, 1/01/24 .......................................................... 675,000 696,796
Series J-1C, 7.125%, 1/01/24 .......................................................... 1,435,000 1,481,336
Series J-2A, 8.50%, 1/01/24 ........................................................... 955,000 983,621
Series J-2B, 8.50%, 1/01/24 ........................................................... 3,330,000 3,429,800
Series J-2C, 8.50%, 1/01/24 ........................................................... 7,090,000 7,302,487
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
Facilities Sub-Lease, Continental Airlines, 9.00%, 8/01/08 ............................ 1,800,000 1,850,112
Facilities Sub-Lease, Continental Airlines, 9.00%, 8/01/17 ............................ 7,595,000 7,806,445
Facilities Sub-Lease, International Airport, Refunding, 6.35%, 11/01/25 ............... 25,000,000 27,217,500
United Airlines, International Airport, Refunding, 6.875%, 11/15/12 ................... 9,500,000 10,394,140
Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ........................ 2,335,000 2,613,846
Orinda 1915 Act, AD No. 9, Oak Springs, 8.25%, 9/02/19 ................................... 2,834,000 2,934,579
Palmdale Special Tax CFD, No. 9 Ritter Ranch Project, Series A, 8.50%, 9/01/24 ........... 23,500,000 21,150,000
Perris PFA, Local Agency Revenue, Series B,
7.125%, 8/15/15 ....................................................................... 2,035,000 2,143,018
7.25%, 8/15/23 ........................................................................ 4,095,000 4,322,232
Riverside County COP, Airforce Village Project West Inc., Series A, 8.125%,
6/15/07 ............................................................................... 7,160,000 7,708,742
6/15/12 ............................................................................... 5,290,000 5,687,226
Roseville Special Tax, North Central CFD No. 1,
8.60%, 11/01/17 ....................................................................... 12,000,000 13,197,120
5.75%, 9/01/23 ........................................................................ 3,000,000 3,031,650
San Bernardino County Finance Authority Revenue, Public Improvement, AD, Refunding,
Series A,
6.00%, 9/02/01 ........................................................................ 1,450,000 1,486,192
6.50%, 9/02/04 ........................................................................ 1,285,000 1,317,626
7.00%, 9/02/17 ........................................................................ 2,720,000 2,787,293
San Francisco Downtown Parking Corp. Parking Revenue,
6.55%, 4/01/12 ........................................................................ 1,800,000 1,985,184
6.65%, 4/01/18 ........................................................................ 2,150,000 2,366,398
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, 5.00%, 1/01/33 ....... 5,930,000 5,732,531
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 ........................... 1,500,000 1,546,695
San Luis Obispo COP, Vista Hospital System Inc., 8.375%, 7/01/29 ......................... 22,000,000 23,674,420
San Ramon 1915 Act, Fostoria Parkway Reassessment District No. 9,
6.30%, 9/02/03 ........................................................................ 185,000 192,911
6.80%, 9/02/15 ........................................................................ 680,000 710,185
Santa Margarita/Dana Point Authority Revenue, ID 3, 3A, 4, and 4A, Refunding,
Series B, MBIA Insured, 5.75%, 8/01/20 ................................................ 3,000,000 3,214,860
</TABLE>
88
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Santa Rosa 1915 Act, Fountain Grove Parkway Extension Assessment, Pre-Refunded,
7.40%, 9/02/13 ........................................................................ $ 3,340,000 $ 3,440,200
7.625%, 9/02/19 ....................................................................... 3,450,000 3,553,500
South San Francisco RDA Tax Allocation, Gateway Redevelopment Project, Pre-Refunded,
7.60%, 9/01/18 ......................................................................... 2,000,000 2,134,680
Vallejo Special Tax, CFD No. 198, 8.90%, 8/01/21 ......................................... 7,500,000 8,233,800
------------
493,703,990
------------
COLORADO 2.5%
Adams County PCR, Public Service Co. of Colorado Project, Refunding, AMBAC Insured,
5.10%, 1/01/19 ........................................................................ 6,750,000 6,716,183
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 ................... 2,485,000 2,700,375
Arvada MFHR, Springwood Community Project, 6.45%, 2/20/26 ................................ 3,000,000 3,161,520
Auraria Higher Education Center, Parking Facilities Revenue, Pre-Refunded,
7.75%, 4/01/09 ........................................................................ 3,450,000 3,612,978
7.875%, 4/01/12 ....................................................................... 1,600,000 1,677,696
Colorado Health Facilities Authority Revenue,
Beneficial Living System Inc., Series A, 10.125%, 10/01/20 ............................ 12,300,000 13,198,392
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.45%,
7/01/08 .............................................................................. 1,135,000 1,137,372
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.75%,
7/01/20 .............................................................................. 3,000,000 2,956,260
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.875%,
7/01/28 .............................................................................. 5,290,000 5,313,382
Colorado HFA,
SF Program, Series A-2, 9.25%, 8/01/01 ................................................ 105,000 108,949
SF Program, Series A-2, 9.375%, 8/01/02 ............................................... 240,000 251,321
SF Program, Series B-1, 8.70%, 8/01/01 ................................................ 175,000 180,619
SFMR, Series B-3, 9.75%, 8/01/02 ...................................................... 230,000 235,886
SFMR, Series C, 9.20%, 8/01/02 ........................................................ 385,000 400,138
SFMR, Series C, 9.075%, 8/01/03 ....................................................... 640,000 673,286
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series A, MBIA
Insured, 5.00%, 9/01/21 ................................................................ 9,000,000 8,821,350
Colorado Springs Utilities Revenue, Series A, Pre-Refunded, 6.10%, 11/15/24 .............. 3,735,000 4,215,134
Denver City and County Airport Revenue,
Series A, 8.25%, 11/15/12 ............................................................. 5,350,000 5,764,251
Series A, 8.50%, 11/15/23 ............................................................. 29,060,000 31,452,510
Series A, 8.00%, 11/15/25 ............................................................. 135,000 145,024
Series A, MBIA Insured, 5.50%, 11/15/25 ............................................... 8,830,000 9,103,730
Series A, Pre-Refunded, 8.25%, 11/15/12 ............................................... 490,000 537,716
Series A, Pre-Refunded, 8.50%, 11/15/23 ............................................... 2,740,000 3,018,028
Series A, Pre-Refunded, 8.00%, 11/15/25 ............................................... 10,000 10,933
Series D, 7.75%, 11/15/13 ............................................................. 500,000 632,825
Series D, 7.75%, 11/15/21 ............................................................. 3,425,000 3,751,642
Series D, Pre-Refunded, 7.75%, 11/15/21 ............................................... 765,000 859,822
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ............................ 2,305,000 2,485,228
Eagle County Sports and Housing Facilities Revenue, Vail Associate Project, Refunding,
6.95%, 8/01/19 ........................................................................ 41,200,000 46,004,332
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17 ........................ 2,000,000 2,063,000
Stonegate Village Metropolitan District, Refunding and Improvement, Series A, FSA Insured,
5.60%, 12/01/25 ....................................................................... 4,640,000 4,878,728
(e)Villages Castle Rock Metropolitan District No. 4, Refunding, 8.50%, 6/01/31 ............ 3,000,000 1,804,740
------------
167,873,350
------------
CONNECTICUT 2.2%
Connecticut State Development Authority First Mortgage Revenue, East Hill Gladeview
Health Project 86, Pre-Refunded,
9.75%, 12/15/16 ....................................................................... 2,600,000 2,853,422
Connecticut State Development Authority PCR,
Connecticut Light and Power, Refunding, Series B, 5.95%, 9/01/28 ...................... 21,750,000 21,851,355
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 ...................... 74,975,000 75,319,885
Western Massachusetts Electric Co., Refunding, Series A, 5.85%, 9/01/28 ............... 12,500,000 12,557,500
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic
Co. Project, 6.15%, 4/01/35 ............................................................. 3,000,000 3,246,240
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Refunding, Series C, 6.50%, 7/01/16 .......................... 2,000,000 2,274,700
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/11 ......................... 2,400,000 2,532,096
</TABLE>
89
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CONNECTICUT (CONT.)
Connecticut State HFA, Housing Mortgage Finance Program,
Series C-1, 6.30%, 11/15/17 .......................................................... $19,995,000 $ 21,727,567
Sub Series F-1, 6.00%, 5/15/17 ....................................................... 3,500,000 3,746,715
------------
146,109,480
------------
FLORIDA 6.8%
Alachua County Health Facilities Authority Revenue, Shands Teaching Hospital, Series A,
MBIA Insured, 5.80%, 12/01/26 .......................................................... 2,990,000 3,236,825
Brooks of Bonita Springs CDD, Capital Improvement Revenue,
Series A, 6.20%, 5/01/19 ............................................................. 11,200,000 11,147,808
Series B, 5.65%, 5/01/06 ............................................................. 2,850,000 2,820,075
Broward County Resource Recovery Revenue, Broward Waste Energy Co., LP, North Project,
Series 1984, 7.95%, 12/01/08 ........................................................... 18,160,000 19,167,880
Capron Trails CDD,
9.375%, 12/01/01 ..................................................................... 1,100,000 1,165,043
9.50%, 12/01/10 ...................................................................... 5,795,000 6,134,587
Championsgate CDD, Capital Improvement Revenue,
Series A, 6.25%, 5/01/20 ............................................................. 2,835,000 2,798,712
Series B, 5.70%, 5/01/05 ............................................................. 1,520,000 1,511,306
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 ....................................................................... 1,800,000 1,918,674
8.625%, 9/01/11 ...................................................................... 10,565,000 11,588,220
Florida State Board of Education Capital Outlay, Public Education, Series B, 5.875%,
6/01/24 .............................................................................. 7,000,000 7,619,220
6/01/25 .............................................................................. 2,000,000 2,176,920
Gateway Services District Water Management Benefit Tax Revenue, Second Assessment Area,
Phase One, 8.00%, 5/01/20 .............................................................. 4,010,000 4,311,993
Heritage Harbor CDD, Special Assessment Revenue,
Series A, 6.70%, 5/01/19 ............................................................. 1,895,000 1,905,062
Series B, 6.00%, 5/01/03 ............................................................. 2,750,000 2,767,793
Heritage Isles CDD, Special Assessment Revenue, Series A, 5.75%, 5/01/05 ................ 2,000,000 2,013,200
Heritage Palms CDD, Capital Improvement Revenue, 5.40%, 11/01/03 ........................ 5,140,000 5,118,720
Highlands County Health Facilities Authority Revenue, Adventist Health Systems, 5.25%,
11/15/28 ............................................................................. 10,000,000 9,692,200
Indian Trace CDD,
Water and Sewer Revenue, Expansion, 6.875%, 4/01/10 .................................. 10,400,000 10,896,392
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/05 ............ 9,065,000 10,101,492
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/11 ............ 12,760,000 14,328,842
Lakeland Retirement Community Revenue, First Mortgage, Carpenters Home, Refunding,
Series A, 6.75%, 1/01/19 ............................................................... 15,345,000 15,326,433
Lakewood Ranch CDD 2, Benefit Special Assessment,
6.25%, 5/01/18 ....................................................................... 11,970,000 11,811,038
Series A, 8.125%, 5/01/17 ............................................................ 10,245,000 11,265,914
Series B, 8.125%, 5/01/17 ............................................................ 4,565,000 5,019,902
Lakewood Ranch CDD 3, Special Assessment Revenue, 7.625%, 5/01/18 ....................... 8,245,000 8,872,609
Manatee County IDR, Manatee Hospital and Health System Inc., Pre-Refunded, 9.25%, 3/01/21 6,500,000 7,342,010
Meadow Pointe CDD, Capital Improvement Revenue, 6.875%, 7/01/99 ......................... 7,870,000 7,909,665
Meadow Pointe II CDD, Capital Improvement Revenue,
Series A, 5.25%, 8/01/03 ............................................................. 1,000,000 987,580
Series B, 5.50%, 8/01/05 ............................................................. 3,675,000 3,626,086
Mount Dora County Club CDD, Special Assessment Revenue,
6.75%, 5/01/03 ....................................................................... 340,000 341,214
7.125%, 5/01/05 ...................................................................... 3,490,000 3,539,733
7.75%, 5/01/13 ....................................................................... 2,090,000 2,152,825
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01 ....................... 5,940,000 6,014,785
North Broward Hospital District Revenue, Refunding and Improvement, MBIA Insured,
5.75%, 1/15/27 ....................................................................... 20,000,000 21,464,200
North Springs ID,
Special Assessment Revenue, Parkland Isles Project, Series A, 7.00%, 5/01/19 ......... 1,300,000 1,369,862
Special Assessment Revenue, Parkland Isles Project, Series B, 6.25%, 5/01/05 ......... 3,785,000 3,887,574
Water Management, Series A, Pre-Refunded, 8.20%, 5/01/24 ............................. 1,940,000 2,097,858
Water Management, Series B, 8.30%, 5/01/24 ........................................... 1,705,000 2,084,942
</TABLE>
90
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FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 .......................................................................... $ 2,925,000 $ 2,971,361
Series A, 7.125%, 5/01/00 ............................................................... 390,000 393,069
Series B, 7.60%, 5/01/17 ................................................................ 1,575,000 1,637,354
Orlando Special Assessment Revenue, Conroy Road Interchange Project, Series A,
5.80%, 5/01/26 .......................................................................... 3,250,000 3,249,708
Palm Beach County Health Facilities Authority Revenue, Abbey del Ray South Project,
Refunding, 8.25%, 10/01/15 ................................................................ 6,000,000 6,541,800
(c) Palm Beach County Solid Waste IDR, Okeelanta Power and Light Co. Project, Series A,
6.85%, 2/15/21 .......................................................................... 27,000,000 21,060,000
Pelican Marsh CDD, Special Assessment Revenue,
ETM, Series A, 8.25%, 5/01/99 ........................................................... 215,000 216,817
ETM, Series A, 8.25%, 5/01/00 ........................................................... 230,000 243,255
ETM, Series A, 8.25%, 5/01/01 ........................................................... 250,000 275,315
ETM, Series A, 8.25%, 5/01/02 ........................................................... 270,000 307,608
ETM, Series A, 8.25%, 5/01/03 ........................................................... 295,000 346,303
ETM, Series A, 8.25%, 5/01/04 ........................................................... 315,000 380,107
Refunding, Series A, 5.00%, 5/01/11 ..................................................... 7,220,000 7,451,906
Refunding, Series A, 5.50%, 5/01/16 ..................................................... 4,370,000 4,506,956
Refunding, Series B, 5.25%, 5/01/09 ..................................................... 325,000 335,309
Series A, Pre-Refunded, 8.25%, 5/01/16 .................................................. 6,590,000 7,891,986
Series C, 7.00%, 5/01/19 ................................................................ 13,460,000 13,852,359
Series D, 6.95%, 5/01/19 ................................................................ 8,185,000 8,424,166
Pembroke Pines Capital Improvement Revenue, AMBAC Insured, 5.95%, 10/01/20 ................. 1,225,000 1,323,245
Piney-Z CDD, Capital Improvement Revenue,
Series A, 7.25%, 5/01/19 ................................................................ 995,000 1,013,457
Series B, 6.50%, 5/01/02 ................................................................ 6,320,000 6,321,074
Port Orange Lease Finance Corp. Recreation Facilities Lease Revenue, Pre-Refunded, 8.75%,
10/01/12 ................................................................................ 2,230,000 2,347,320
Reserve CDD,
Capital Improvement Revenue, Stormwater Management, 8.25%, 5/01/14 ...................... 4,395,000 4,659,140
Utility Revenue, Stormwater Management, Refunding, Series A, 6.625%, 12/01/22 ........... 4,400,000 4,386,360
River Ridge CDD, Capital Improvement Revenue, 5.75%, 5/01/08 ............................... 4,000,000 3,952,080
Riverwood Community Development Revenue, Special AD, Series A,
6.75%, 5/01/04 .......................................................................... 3,320,000 3,457,116
7.75%, 5/01/14 .......................................................................... 1,265,000 1,333,753
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital Inc., Refunding,
8.60%, 10/01/02 ......................................................................... 195,000 199,551
St. Lucie West Services District Capital Improvement Revenue,
Cascades Project, 6.10%, 5/01/18 ........................................................ 2,560,000 2,548,301
Lake Charles Project, 6.375%, 8/01/02 ................................................... 3,135,000 3,140,079
St. Lucie West Services District Revenue, Port St. Lucie, Refunding,
7.875%, 5/01/20 ......................................................................... 19,785,000 20,922,044
8.25%, 12/01/23 ......................................................................... 22,715,000 24,374,785
St. Lucie West Services District Water Management Benefit Tax, 7.70%, 5/01/25 .............. 4,945,000 5,161,443
Stoneybrook CDD, Capital Improvement Revenue,
Series A, 6.10%, 5/01/19 ................................................................ 830,000 834,150
Series B, 5.70%, 5/01/08 ................................................................ 2,610,000 2,622,711
Sumter County IDAR, Little Sumter Utility Co. Project,
6.75%, 10/01/27 ......................................................................... 2,950,000 2,952,478
7.25%, 10/01/27 ......................................................................... 4,200,000 4,270,644
Tampa Revenue, Aquarium Inc. Project, Pre-Refunded, 7.55%, 5/01/12 ......................... 9,300,000 10,553,826
Village CDD No. 1, Capital Improvement Revenue,
6.75%, 5/01/02 .......................................................................... 60,000 62,003
8.40%, 5/01/12 .......................................................................... 945,000 1,005,849
8.00%, 5/01/15 .......................................................................... 2,895,000 3,048,927
Village Center CDD, Recreational Revenue,
Sub Series B, 8.25%, 1/01/17 ............................................................ 2,700,000 2,871,396
Sub Series C, 7.375%, 1/01/19 ........................................................... 2,640,000 2,650,322
Westchase East CDD, Capital Improvement Revenue, 6.10%, 5/01/20 ............................ 6,200,000 6,204,092
------------
449,836,719
------------
</TABLE>
91
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
GEORGIA .7%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.375%,
12/01/28 ........................................................................... $ 1,470,000 $ 1,420,167
Chatham County Hospital Authority Revenue, Memorial Medical Center, Refunding and
Improvement, Series A, AMBAC Insured,
5.70%, 1/01/19 ..................................................................... 10,000,000 10,625,300
Forsyth County Hospital Authority Revenue, Anticipation Certificate, Georgia
Baptist Health Care System Project,
6.25%, 10/01/18 .................................................................... 6,000,000 5,926,320
6.375%, 10/01/28 ................................................................... 9,000,000 8,899,020
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Second Indenture,
Refunding, Series A, MBIA Insured,
5.625%, 7/01/20 .................................................................... 15,000,000 15,920,700
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 ............................... 1,270,000 1,381,760
------------
44,173,267
------------
HAWAII .2%
Hawaii State Department of Transportation Special Facilities Revenue, Continental
Airlines Inc., 9.70%, 6/01/20 ...................................................... 6,500,000 6,942,065
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 ......................... 4,640,000 4,891,117
Hawaiian Home Lands Department Revenue, Pre-Refunded, 7.60%, 7/01/08 .................. 1,315,000 1,458,690
------------
13,291,872
------------
IDAHO .4%
Nez Perce County PCR, Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 .............. 22,360,000 23,868,853
------------
ILLINOIS 4.8%
Alton Hospital Facilities Revenue, St. Anthony's Health Center Project,
Pre-Refunded, 8.375%, 9/01/14 ...................................................... 8,655,000 9,052,178
Aurora MFR, Fox Valley Two-Oxford Limited Development, Refunding, Series A, GNMA
Secured, 6.125%, 2/20/32 ........................................................... 5,635,000 5,928,753
Bryant PCR, Central Illinois Light Co. Project, Refunding, MBIA Insured,
5.90%, 8/01/23 ..................................................................... 11,000,000 11,623,150
Chicago O'Hare International Airport Special Facilities Revenue,
American Airlines Inc. Project, 8.20%, 12/01/24 .................................... 7,830,000 9,310,340
United Airlines Inc. Project, Series A, 8.85%, 5/01/18 ............................. 14,840,000 16,268,944
United Airlines Inc. Project, Series B, 8.85%, 5/01/18 ............................. 3,540,000 3,880,867
Chicago Wastewater Transmission Revenue, MBIA Insured, Pre-Refunded, 6.375%, 1/01/24 .. 4,780,000 5,467,412
Cook County GO, Refunding, Series A, MBIA Insured, 5.625%, 11/15/22 ................... 22,875,000 23,938,230
Illinois Development Finance Authority Hospital Revenue, Adventist Health System,
Sunbelt Obligation,
5.65%, 11/15/24 .................................................................... 10,000,000 9,945,400
5.50%, 11/15/29 .................................................................... 10,000,000 9,654,500
Illinois Development Finance Authority PCR, Commonwealth Edison Co. Project,
Refunding, Series 1991, 7.25%, 6/01/11 ............................................. 7,000,000 7,524,790
Illinois Development Finance Authority Revenue, Provena Health, Series A, MBIA Insured,
5.50%, 5/15/21 ..................................................................... 10,500,000 10,826,970
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ............................................................... 2,330,000 2,561,159
Pre-Refunded, 7.25%, 5/15/22 ....................................................... 7,000,000 9,037,420
Illinois Health Facilities Authority Revenue,
Northwestern Medical Center, Pre-Refunded, 6.625%, 11/15/25 ........................ 6,500,000 7,519,395
Rush Presbyterian Hospital, Refunding, Series A, MBIA Insured, 6.25%, 11/15/20 ..... 9,000,000 10,011,510
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 ..................... 2,000,000 2,254,320
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 .............. 3,370,000 3,655,102
Servantcor, Series B, Pre-Refunded, 7.875%, 8/15/19 ................................ 3,000,000 3,123,990
St. Elizabeth's Hospital, 6.25%, 7/01/16 ........................................... 1,215,000 1,304,521
St. Elizabeth's Hospital, 6.375%, 7/01/26 .......................................... 6,695,000 7,222,231
Thorek Hospital and Medical Center, Refunding, 5.25%, 8/15/18 ...................... 5,125,000 4,913,953
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 ..................... 8,595,000 8,233,666
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue,
McCormick Place Convention Center,
5.75%, 7/01/06 ..................................................................... 1,650,000 1,766,886
6.25%, 7/01/17 ..................................................................... 11,000,000 11,881,430
7.00%, 7/01/26 ..................................................................... 7,500,000 9,178,575
Robbins Resource Recovery Revenue,
Series A, 8.375%, 10/15/10 ......................................................... 10,000,000 5,500,000
Series A, 8.375%, 10/15/16 ......................................................... 145,175,000 79,846,250
Series B, 8.375%, 10/15/16 ......................................................... 47,200,000 25,960,000
Sterling First Mortgage Revenue, Hoosier Care Project, Series A, 9.75%, 8/01/19 ....... 1,275,000 1,324,445
------------
318,716,387
------------
</TABLE>
92
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
INDIANA .4%
Crawfordsville Industrial EDR, Kroger Co., Refunding, 7.70%, 11/01/12 .................... $ 5,000,000 $ 5,631,750
Duneland School Building Corp. First Mortgage, MBIA Insured, 5.50%, 8/01/17 .............. 4,060,000 4,223,090
Goshen Industrial Revenue, Greencroft Hospital Association Inc., Refunding, 5.75%,
8/15/19 .............................................................................. 3,000,000 2,946,840
8/15/28 .............................................................................. 5,000,000 4,861,650
Indiana Health Facility Financing Authority Hospital Revenue,
Hancock Memorial Hospital Project, Series 1990, Pre-Refunded, 8.30%, 8/15/20 ............ 3,000,000 3,267,810
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17 ..................... 1,500,000 1,446,240
White River Elementary Building Corp. First Mortgage, AMBAC Insured, 5.00%, 7/15/16 ..... 1,000,000 1,001,600
------------
23,378,980
------------
KANSAS .1%
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 ............... 5,730,000 6,538,675
------------
KENTUCKY .8%
Adair County Public Hospital Corp. Revenue, Refunding and Improvement,
5.40%, 1/01/12 ....................................................................... 460,000 465,000
5.70%, 1/01/19 ....................................................................... 1,100,000 1,107,854
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project,
8.10%, 12/01/15 ...................................................................... 11,000,000 11,498,300
Series A, 7.50%, 2/01/20 ............................................................. 11,230,000 12,262,037
Series B, 7.25%, 2/01/22 ............................................................. 3,595,000 3,909,455
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ......... 7,835,000 8,056,260
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 ............ 830,000 922,570
Russell Health System Revenue,
8.10%, 7/01/15 ....................................................................... 3,230,000 3,858,429
Franciscan Health Center, Series B, 8.10%, 7/01/01 ................................... 1,100,000 1,185,217
Our Lady of Bellefonte, Refunding, 5.50%, 7/01/15 .................................... 1,000,000 1,031,210
Pre-Refunded, 8.10%, 7/01/15 ......................................................... 4,270,000 5,404,710
Stanford Health Facilities Revenue, Beverly Project, Refunding, 10.375%, 11/01/09 ....... 900,000 988,119
------------
50,689,161
------------
LOUISIANA 2.5%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series A, 7.75%,
6/01/12 .............................................................................. 1,565,000 1,658,180
Iberville Parish PCR, Entergy Gulf States Inc. Project, Refunding, 5.70%, 1/01/14 ....... 15,500,000 15,678,870
Lake Charles Harbor and Terminal District Port Facilities Revenue, Trunkline Co. Project,
Refunding, 7.75%, 8/15/22 .............................................................. 35,000,000 39,593,400
Louisiana Public Facilities Authority Revenue, Xavier University of Louisiana Project,
Refunding, MBIA Insured, 5.25%, 9/01/17 ................................................ 5,000,000 5,097,000
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding, 6.70%, 3/01/13 .. 4,850,000 5,182,322
St. Charles Parish PCR, Louisiana Power and Light Co. Project,
8.25%, 6/01/14 ....................................................................... 25,500,000 26,494,500
8.00%, 12/01/14 ...................................................................... 13,525,000 14,254,674
St. Tammany Public Trust Financing Authority Revenue, Christwood Project, Refunding,
5.70%, 11/15/28 ...................................................................... 4,000,000 3,844,840
West Feliciana Parish PCR,
Gulf State Utility Co. Project, Refunding, 8.00%, 12/01/24 ........................... 17,200,000 17,969,356
Gulf State Utility Co. Project, Series D, 5.80%, 12/01/15 ............................ 4,000,000 4,066,520
Gulf State Utility Co. Project, Series D, 5.80%, 4/01/16 ............................. 19,600,000 19,887,532
Series A, 7.50%, 5/01/15 ............................................................. 8,740,000 9,641,181
------------
163,368,375
------------
MAINE .6%
Maine State Finance Authority Solid Waste Disposal Revenue, Boise Cascade Corp. Project,
7.90%, 6/01/15 ....................................................................... 5,000,000 5,283,800
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 .................... 4,800,000 5,222,880
Skowhegan PCR, S.D. Warren Co.,
Series A, 6.65%, 10/15/15 ............................................................ 24,570,000 26,226,509
Series B, 6.65%, 10/15/15 ............................................................ 4,940,000 5,273,055
------------
42,006,244
------------
</TABLE>
93
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MARYLAND .6%
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding
and Improvement,
Series B, 8.50%, 9/01/03 ............................................................ $ 4,510,000 $ 5,288,742
Series B, 8.50%, 9/01/07 ............................................................ 5,340,000 6,692,302
Series B, Pre-Refunded, 8.50%, 9/01/22 .............................................. 3,550,000 4,179,060
Series C, Pre-Refunded, 6.00%, 9/01/21 .............................................. 5,000,000 5,431,200
Maryland State CDA, Department of Housing and Community Development, Series A,
5.875%, 7/01/16 ..................................................................... 3,975,000 4,182,217
Takoma Park Hospital Facilities Revenue, Washington Adventist Hospital Project,
Series B, 8.50%,
9/01/03 ............................................................................. 4,700,000 5,511,549
9/01/07 ............................................................................. 6,975,000 8,741,349
40,026,419
MASSACHUSETTS 1.9%
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Refunding, Series C, 5.00%, 3/01/24 ................................................. 5,000,000 4,964,700
Series A, 7.00%, 3/01/21 ............................................................ 2,000,000 2,502,040
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue,
Series A, 6.75%, 7/01/11 ............................................................ 4,435,000 4,760,662
Series B, 6.75%, 7/01/17 ............................................................ 3,170,000 3,390,632
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ..................... 5,000,000 5,398,500
Framingham Union Hospital, Pre-Refunded, 8.50%, 7/01/10 ............................. 1,910,000 2,075,731
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ................. 9,000,000 9,145,530
Saint Memorial Medical Center, Refunding, Series A, 5.75%, 10/01/06 ................. 3,250,000 3,258,645
Saint Memorial Medical Center, Refunding, Series A, 6.00%, 10/01/23 ................. 5,735,000 5,750,083
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Semass Project,
Series A, 9.00%, 7/01/15 ............................................................ 15,490,000 17,247,960
Series B, 9.25%, 7/01/15 ............................................................ 20,470,000 22,855,983
Massachusetts State Industrial Finance Agency Revenue, Cape Cod Health Systems,
Pre-Refunded, 8.50%, 11/15/20 ......................................................... 4,500,000 4,972,500
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Series A, MBIA Insured, 5.00%, 1/01/37 .............................................. 38,500,000 37,105,530
Sub Series B, MBIA Insured, 5.25%, 1/01/29 .......................................... 1,625,000 1,629,826
125,058,322
MICHIGAN 2.2%
Cadillac Local Development Finance Authority Tax Increment Revenue, Refunding, 8.50%,
3/01/10 ............................................................................. 5,720,000 6,194,932
Detroit GO,
City School District, Series A, AMBAC Insured, Pre-Refunded, 5.85%, 5/01/16 ......... 5,175,000 5,860,998
Refunding, Series B, 6.375%, 4/01/07 ................................................ 7,535,000 8,370,104
Refunding, Series B, 6.25%, 4/01/08 ................................................. 3,000,000 3,312,690
Series A, Pre-Refunded, 6.80%, 4/01/15 .............................................. 5,160,000 6,003,402
Dickinson County Memorial Hospital System Revenue, 8.125%, 11/01/24 .................... 4,250,000 4,882,060
Garden City Hospital Financing Authority Hospital Revenue, Refunding,
5.625%, 9/01/10 ..................................................................... 2,000,000 1,987,960
5.75%, 9/01/17 ...................................................................... 1,000,000 993,030
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist
Hospital, Refunding, MBIA Insured,
5.50%, 5/15/28 ....................................................................... 4,180,000 4,320,991
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System,
Series A, MBIA Insured, Pre-Refunded,
6.125%, 1/15/21 ..................................................................... 11,770,000 13,475,826
Michigan Higher Education Facilities Authority Revenue, Limited Obligation,
Calvin College Project, 5.55%, 6/01/17 .............................................. 1,000,000 1,002,230
Michigan State Hospital Finance Authority Revenue,
Detroit Medical Center Obligation Group, Refunding, Series A, 6.25%, 8/15/13 ........ 4,250,000 4,330,963
Detroit Medical Center Obligation Group, Refunding, Series A, 6.50%, 8/15/18 ........ 11,500,000 11,871,450
Genesys Regional Medical Center, Refunding, Series A, 5.50%, 10/01/27 ............... 16,500,000 15,834,390
Mercy Health Services, Series Q, AMBAC Insured, 5.75%, 8/15/16 ...................... 9,310,000 10,008,343
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 ..................... 4,750,000 4,832,603
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 ........................ 4,000,000 4,035,120
Sinai Hospital, Refunding, 6.625%, 1/01/16 .......................................... 2,990,000 3,139,291
Sinai Hospital, Refunding, 6.70%, 1/01/26 ........................................... 7,250,000 7,648,968
</TABLE>
94
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN (CONT.)
<S> <C> <C>
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 $ 8,642,634
Muskegon Hospital Finance Authority Hospital Revenue,
Muskegon General Hospital, Refunding, Series A, 8.25%, 2/15/11 .................................. 3,500,000 3,737,055
Tawas City Hospital Finance Authority, Tawas St. Joseph's Hospital Project,
Refunding, Series A, 5.60%, 2/15/13 .......................................................... 2,395,000 2,388,031
Series A, 5.75%, 2/15/23 ..................................................................... 4,125,000 4,131,476
Wayne County Downriver Systems Sewer Disposal Revenue, Series A, 7.00%, 11/01/13 ................ 1,900,000 2,082,096
Wayne County GO,
IDA, Building Authority, Pre-Refunded, 8.00%, 3/01/17 ........................................ 4,500,000 5,138,190
South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 ............................ 2,640,000 2,791,166
Wyandotte Tax Increment Finance Authority Central Development Area Project, Pre-Refunded,
7.875%,
6/01/09 ...................................................................................... 500,000 510,870
6/01/10 ...................................................................................... 500,000 510,870
------------
148,037,739
------------
MINNESOTA 2.3%
Burnsville Solid Waste Revenue, Freeway Transfer Inc. Project, 9.00%,
10/01/00 ..................................................................................... 245,000 258,607
4/01/10 ...................................................................................... 1,500,000 1,602,675
Duluth Commercial Development Revenue, Duluth Radisson Hotel Project, Refunding,
8.00%, 12/01/15 ...... 5,000,000 4,251,050
International Falls PCR, Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/22 ................ 10,500,000 10,257,555
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06 .................... 2,200,000 2,193,070
Minneapolis CDA, Supported Development Revenue, Limited Tax,
Series 2, 8.40%, 12/01/12 .................................................................... 2,785,000 2,867,909
Series 3-A, 8.375%, 12/01/19 ................................................................. 600,000 649,128
Minneapolis Revenue, Walker Methodist Senior Services, Series A,
5.875%, 11/15/18 ............................................................................. 2,500,000 2,523,975
6.00%, 11/15/28 .................................................................................. 4,750,000 4,825,383
Minnesota Agriculture and Economic Development Board Revenue, Health Care
System, Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26
23,380,000 24,997,662
Minnesota State HFA, Rental Housing, Refunding, Series D,
MBIA Insured, 5.95%, 2/01/18 .................................................................... 3,330,000 3,505,558
Northfield First Mortgage
Nursing Home Revenue, Minnesota Odd Fellows Home Project, 8.75%, 10/01/03
880,000 899,149
Northwest Multi-County RDAR, Government Housing, 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 4,239,424
Rochester Health
Care Facilities Revenue, Mayo Foundation, Series A, 5.50%, 11/15/27 ............................. 15,000,000 15,649,200
Roseville MFHR, Rosepointe I Project, Refunding, Series C, 8.00%,
12/01/29 ........................................................................................ 3,445,000 3,733,312
(e) South Central Multi-County Housing and RDAR, Pooled Housing, 8.00%, 2/01/25 ................. 10,000,000 6,000,000
St. Cloud IDR, Nahan Printing, 9.75%, 6/01/20 ................................................... 5,785,000 6,276,609
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 .......................................... 1,345,000 1,471,820
St. Paul Port Authority Commercial Development, Theole Printing Project, 9.00%,
10/01/21 .............. 570,000 596,214
St. Paul Port Authority IDR,
Brown and Bigelow Co., Series 1979-2, 7.50%, 10/01/09 ........................................ 40,000 40,398
SDA Enterprises, Series K, 10.25%, 10/01/10 .................................................. 1,095,000 1,085,714
Series A-I, 8.50%, 12/01/01 .................................................................. 665,000 660,983
Series A-I, 9.00%, 12/01/02 .................................................................. 260,000 262,543
Series A-I, 9.00%, 12/01/12 .................................................................. 4,300,000 4,069,864
Series A-II, 8.50%, 12/01/01 ................................................................. 650,000 646,074
Series A-II, 9.00%, 12/01/02 ................................................................. 255,000 257,494
Series A-II, 9.00%, 12/01/12 ................................................................. 4,235,000 4,008,343
Series A-III, 8.50%, 12/01/01 ................................................................ 680,000 675,893
Series A-III, 9.00%, 12/01/02 ................................................................ 265,000 267,592
Series A-III, 9.00%, 12/01/12 ................................................................ 4,430,000 4,192,906
Series A-IV, 8.50%, 12/01/01 ................................................................. 525,000 521,829
Series A-IV, 9.00%, 12/01/02 ................................................................. 205,000 207,005
Series A-IV, 9.00%, 12/01/12 ................................................................. 3,375,000 3,194,370
Series C, 10.00%, 12/01/01 ................................................................... 860,000 872,470
Series C, 10.00%, 12/01/02 ................................................................... 715,000 725,368
</TABLE>
95
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MINNESOTA (CONT.)
<S> <C> <C>
St. Paul Port Authority IDR, (cont.)
Series C, 10.00%, 12/01/06 ....................................................... $ 2,930,000 $ 2,903,747
Series C, 9.875%, 12/01/08 ....................................................... 3,100,000 3,057,189
Series F, 10.25%, 10/01/99 ....................................................... 65,000 65,168
Series F, 8.00%, 9/01/00 ......................................................... 25,000 24,931
Series F, 10.25%, 10/01/00 ....................................................... 70,000 70,657
Series F, 8.00%, 9/01/01 ......................................................... 25,000 24,991
Series F, 10.25%, 10/01/01 ....................................................... 80,000 80,799
Series F, 8.00%, 9/01/02 ......................................................... 25,000 25,060
Series F, 10.25%, 10/01/02 ....................................................... 90,000 90,647
Series F, 8.00%, 9/01/19 ......................................................... 1,025,000 870,338
Series I, 10.75%, 12/01/00 ....................................................... 15,000 15,219
Series I, 10.75%, 12/01/01 ....................................................... 15,000 15,331
Series I, 10.75%, 12/01/02 ....................................................... 15,000 15,331
Series J, 9.50%, 12/01/01 ........................................................ 80,000 81,342
Series J, 9.50%, 12/01/02 ........................................................ 95,000 96,535
Series J, 9.50%, 12/01/11 ........................................................ 1,325,000 1,304,529
Series L, 9.50%, 12/01/01 ........................................................ 40,000 40,671
Series L, 9.75%, 12/01/01 ........................................................ 25,000 25,416
Series L, 9.50%, 12/01/02 ........................................................ 45,000 45,727
Series L, 9.75%, 12/01/02 ........................................................ 30,000 30,478
Series L, 9.50%, 12/01/14 ........................................................ 1,025,000 1,007,524
Series L, 9.75%, 12/01/14 ........................................................ 1,530,000 1,509,284
Series N, 10.00%, 12/01/01 ....................................................... 65,000 66,046
Series N, 10.75%, 10/01/02 ....................................................... 1,300,000 1,313,182
Series N, 10.00%, 12/01/02 ....................................................... 65,000 66,024
Series N, 10.00%, 12/01/14 ....................................................... 1,405,000 1,392,847
Series S, 9.625%, 12/01/01 ....................................................... 55,000 55,065
Series S, 9.625%, 12/01/02 ....................................................... 60,000 60,043
Series S, 9.625%, 12/01/14 ....................................................... 1,280,000 1,270,950
Series T, 9.625%, 12/01/01 ....................................................... 30,000 30,502
Series T, 9.625%, 12/01/02 ....................................................... 35,000 35,562
Series T, 9.625%, 12/01/14 ....................................................... 910,000 903,566
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 .......................................................................... 5,040,000 5,120,086
6/01/26 .......................................................................... 10,660,000 10,829,387
------------
155,421,570
------------
MISSISSIPPI 1.3%
Claiborne County PCR,
Middle South Energy Inc. Project, Series A, 9.50%, 12/01/13 ...................... 8,515,000 8,828,863
Middle South Energy Inc. Project, Series B, 8.25%, 6/01/14 ....................... 9,750,000 10,118,453
Systems Energy Resources Inc., Refunding, 7.30%, 5/01/25 ......................... 2,500,000 2,621,225
Systems Energy Resources Inc., Refunding, 6.20%, 2/01/26 ......................... 33,295,000 34,327,145
Corinth and Alcorn County Hospital Revenue, Magnolia Regional Health Center Project,
Refunding, Series A, 5.50%, 10/01/21 ............................................. 4,000,000 3,943,840
Series B, 5.50%, 10/01/21 ........................................................ 1,000,000 985,960
Lowndes County Hospital Revenue, Golden Triangle Medical Center, 8.50%, 2/01/10 ..... 4,035,000 4,239,090
Mississippi Business Finance Corp. PCR, Systems Energy Resources Inc. Project, 5.875%,
4/01/22 .......................................................................... 23,400,000 23,372,388
------------
88,436,964
------------
MISSOURI 1.4%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 .................................................... 1,000,000 1,163,220
Pre-Refunded, 6.40%, 12/01/25 .................................................... 3,000,000 3,519,360
Refunding, 5.25%, 12/01/20 ....................................................... 12,280,000 12,200,303
Refunding, 5.25%, 12/01/26 ....................................................... 8,875,000 8,746,668
Marshall IDA, Hospital Revenue, John Fitzgibbon Memorial Hospital, Pre-Refunded,
10.00%, 5/01/20 .................................................................. 8,600,000 9,421,214
</TABLE>
96
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MISSOURI (CONT.)
<S> <C> <C>
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Heartland Health, Refunding and Improvement,
8.125%, 10/01/10 ..................................................................... $ 7,300,000 $ 7,635,362
Newton County IDA, Health Facilities Revenue, Beverly Enterprises, 10.375%, 11/01/08 .... 1,320,000 1,397,075
Perry County GO, Perry Memorial Hospital, Pre-Refunded, 9.125%, 6/01/11 ................. 1,600,000 1,743,296
St. Louis County IDA, Kiel Center, Refunding,
7.625%, 12/01/09 ..................................................................... 8,000,000 8,732,000
7.75%, 12/01/13 ...................................................................... 5,175,000 5,651,721
7.875%, 12/01/24 ..................................................................... 6,000,000 6,556,380
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 .............. 8,640,000 9,452,851
Refunding, Series A, 6.00%, 7/15/13 .................................................. 14,250,000 14,891,535
-----------
91,110,985
-----------
MONTANA .3%
Montana State Board of Housing SFM,
Senior Bonds, Series B-2, 8.90%, 10/01/00 ............................................ 125,000 127,579
Series A, FHA Insured, 8.275%, 10/01/03 .............................................. 405,000 423,970
Montana State Board of Investments Resource Recovery Revenue, Yellowstone Energy Project,
7.00%, 12/31/19 ...................................................................... 20,770,000 20,090,198
-----------
20,641,747
-----------
NEBRASKA .5%
Douglas County Hospital Authority No. 1 Revenue, Alegent Health, Immanuel Medical Center,
Refunding, 5.25%, 9/01/21 ............................................................ 3,670,000 3,720,242
Kearney IDR, Great Platte River Road, 6.75%,
1/01/23 .............................................................................. 9,000,000 8,831,700
1/01/28 .............................................................................. 6,500,000 6,338,215
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1,
Series A, MBIA Insured, 5.375%, 6/01/19 .............................................. 5,465,000 5,605,232
Nebraska Investment Finance Authority Health Facilities Revenue, Children's Healthcare
Services, AMBAC Insured, 5.50%, 8/15/27 .............................................. 8,000,000 8,354,480
Scotts Bluff County Hospital Authority No. 1 Hospital Revenue,
Regional West, 6.375%, 12/15/08 ...................................................... 1,145,000 1,240,676
Regional West Medical Center, Pre-Refunded, 6.375%, 12/15/08 ......................... 955,000 1,062,781
-----------
35,153,326
-----------
NEVADA 3.4%
Clark County IDR,
Nevada Power Co. Project, Refunding, Series C, 5.50%, 10/01/30 ....................... 38,400,000 37,279,104
Nevada Power Co. Project, Series A, 5.60%, 10/01/30 .................................. 23,900,000 23,550,582
Nevada Power Co. Project, Series A, 5.90%, 11/01/32 .................................. 9,325,000 9,413,308
Southwest Gas Corp., Series A, 6.50%, 12/01/33 ....................................... 13,775,000 14,848,761
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17 ............................. 7,550,000 7,790,770
Henderson Local ID,
No. 2, 9.50%, 8/01/11 ................................................................ 5,725,000 5,917,990
No. T-1, Series A, 8.50%, 8/01/13 .................................................... 22,870,000 24,567,183
No. T-4, Series A, 8.50%, 11/01/12 ................................................... 9,120,000 9,480,149
No. T-4, Series B, 7.30%, 11/01/12 ................................................... 4,630,000 4,783,253
No. T-10, 7.50%, 8/01/15 ............................................................. 7,275,000 7,520,895
No. T-12, Series A, 7.375%, 8/01/18 .................................................. 49,995,000 49,811,518
Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A,
6.10%, 6/15/14 ....................................................................... 3,500,000 3,676,855
Las Vegas Local Improvement Bond Special Assessment,
ID No. 404, 5.85%, 11/01/09 .......................................................... 3,395,000 3,472,712
ID No. 707, 6.60%, 6/01/05 ........................................................... 1,000,000 1,035,430
ID No. 707, 6.70%, 6/01/06 ........................................................... 1,235,000 1,279,052
ID No. 707, 6.80%, 6/01/07 ........................................................... 1,805,000 1,869,818
ID No. 707, 7.10%, 6/01/16 ........................................................... 8,000,000 8,293,040
Las Vegas Special Assessment ID No. 505, Elkhorn Springs, 8.00%, 9/15/13 ................ 7,615,000 7,796,770
Nevada Housing Division, SF Program, Subordinated,
FI/GML, Series A, 9.30%, 10/01/00 .................................................... 80,000 81,966
FI/GML, Series A-1, 8.75%, 10/01/04 .................................................. 220,000 232,632
FI/GML, Series A-2, 9.375%, 10/01/00 ................................................. 85,000 87,182
</TABLE>
97
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEVADA (CONT.)
<S> <C> <C>
Nevada Housing Division, SF Program, Subordinated, (cont.)
FI/GML, Series A-2, 8.65%, 10/01/01 ................................................... $ 240,000 $ 245,018
FI/GML, Series A-3, 9.20%, 10/01/00 ................................................... 115,000 117,640
FI/GML, Series B, 9.50%, 10/01/01 ..................................................... 175,000 181,309
FI/GML, Series B-1, 7.90%, 10/01/05 ................................................... 575,000 602,474
FI/GML, Series C-1, 7.55%, 10/01/05 ................................................... 715,000 754,218
Series B-2, 9.65%, 10/01/02 ........................................................... 145,000 149,765
Series C-1, 9.60%, 10/01/02 ........................................................... 215,000 216,926
------------
225,056,320
------------
NEW HAMPSHIRE 2.6%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Hillcrest Terrace, 7.50%, 7/01/24 ..................................................... 18,750,000 20,172,375
Hospital Littleton Hospital Association, Series B, 5.90%, 5/01/28 ..................... 2,000,000 1,988,780
Kendal at Hanover Project, Pre-Refunded, 8.00%, 10/01/19 .............................. 9,290,000 9,736,385
New Hampshire Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 ................. 1,300,000 1,330,368
New Hampshire State Business Finance Authority PCR,
Connecticut Light and Power Co., Refunding, Series A, 5.85%, 12/01/22 ................. 21,000,000 21,047,670
Public Service Co. of New Hampshire, Refunding, Series D, 6.00%, 5/01/21 .............. 28,000,000 28,526,120
Public Service Co. of New Hampshire, Refunding, Series E, 6.00%, 5/01/21 .............. 21,800,000 22,209,622
United Illuminating Co., Refunding, Series A, 5.875%, 10/01/33 ........................ 3,000,000 3,064,560
New Hampshire State IDAR, Pollution Control,
Connecticut Light and Power Co., 5.90%, 11/01/16 ...................................... 5,400,000 5,484,888
Connecticut Light and Power Co., 5.90%, 8/01/18 ....................................... 8,000,000 8,111,600
Public Service Co. of New Hampshire Project, Series A, 7.65%, 5/01/21 ................. 10,970,000 11,594,522
Public Service Co. of New Hampshire Project, Series C, 7.65%, 5/01/21 ................. 34,635,000 36,606,771
------------
169,873,661
------------
NEW JERSEY .4%
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 .............................................................. 2,180,000 2,169,776
Series 1, 6.00%, 1/01/29 .............................................................. 5,000,000 4,904,250
Series 2, 6.125%, 1/01/19 ............................................................. 2,125,000 2,110,083
Series 2, 6.125%, 1/01/29 ............................................................. 5,105,000 4,995,038
New Jersey EDA Revenue, First Mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 ......... 1,500,000 1,490,055
New Jersey Health Care Facilities Financing Authority Revenue, Lutheran Home, Series A,
8.40%, 7/01/19 ........................................................................ 2,100,000 2,154,768
New Jersey State Housing and Mortgage Finance Agency MFHR, Refunding, Series A,
AMBAC Insured,
6.00%, 11/01/14 ....................................................................... 3,000,000 3,204,990
6.05%, 11/01/20 ....................................................................... 5,500,000 5,863,715
------------
26,892,675
------------
NEW MEXICO 4.2%
Farmington PCR,
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.30%, 12/01/16 29,045,000 30,754,298
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 5.80%, 4/01/22 22,000,000 22,324,280
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.40%, 8/15/23 58,250,000 61,030,273
Public Service Co. of New Mexico, San Juan Project, Refunding, Series B, 6.30%, 12/01/16 14,500,000 15,353,325
Public Service Co. of New Mexico, San Juan Project, Refunding, Series B, 5.80%, 4/01/22 19,500,000 19,787,430
Public Service Co. of New Mexico, San Juan Project, Refunding, Series C, 5.80%, 4/01/22 13,900,000 14,104,886
Public Service Co. of New Mexico, San Juan Project, Refunding, Series D, 6.375%, 4/01/22 64,125,000 68,366,869
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 .................................. 37,000,000 40,904,240
New Mexico Mortgage Finance Authority SFM Program,
Refunding, Series A-1, 7.90%, 7/01/04 ................................................. 820,000 855,178
Series A, 9.50%, 9/01/00 .............................................................. 170,000 172,385
Series A, 9.10%, 9/01/03 .............................................................. 720,000 759,859
Series A, FHA Insured, 8.80%, 9/01/01 ................................................. 195,000 200,376
</TABLE>
98
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW MEXICO (CONT.)
<S> <C> <C>
New Mexico Mortgage Finance Authority SFM Program, (cont.)
Series B, 9.30%, 9/01/00 ............................................................... $ 60,000 $ 60,835
Sub Series A, 9.55%, 9/01/02 ........................................................... 575,000 591,704
Rio Rancho Water and Wastewater Revenue, Series A, FSA Insured, Pre-Refunded, 5.90%, 5/15/15 3,620,000 3,930,777
------------
279,196,715
------------
NEW YORK 12.2%
Long Island Power Authority Electric System Revenue, Series A, FSA Insured, 5.25%, 12/01/26 50,470,000 50,892,434
Metropolitan Transportation Authority Commuter Facilities Revenue,
Series 8, 5.50%, 7/01/21 ............................................................... 16,775,000 17,520,481
Series A, 5.625%, 7/01/27 .............................................................. 12,880,000 13,575,391
Series R, 5.50%, 7/01/17 ............................................................... 2,000,000 2,096,980
Service Contract, Refunding, Series 1, 5.70%, 7/01/24 .................................. 10,000,000 10,499,300
Metropolitan Transportation Authority Service Contract Revenue,
Commuter Facilities, Refunding, Series 5, 6.50%, 7/01/16 ............................... 3,860,000 4,126,494
Commuter Facilities, Refunding, Series N, 6.80%, 7/01/04 ............................... 3,330,000 3,688,075
Commuter Facilities, Refunding, Series N, 6.90%, 7/01/05 ............................... 3,050,000 3,383,365
Transit Facilities, Refunding, Series N, 6.80%, 7/01/04 ................................ 2,330,000 2,580,545
Transit Facilities, Refunding, Series N, 6.90%, 7/01/05 ................................ 2,470,000 2,739,971
Transit Facilities, Refunding, Series N, 7.125%, 7/01/09 ............................... 7,830,000 8,706,412
Transit Facilities, Refunding, Series P, 5.75%, 7/01/15 ................................ 6,065,000 6,407,733
Metropolitan Transportation Authority Transit Facilities Revenue,
Series A, MBIA Insured, 5.875%, 7/01/27 ................................................ 22,700,000 24,981,350
Service Contract, Refunding, Series R, 5.50%, 7/01/17 .................................. 5,000,000 5,250,100
New York City GO,
Refunding, Series F, 6.00%, 8/01/11 .................................................... 10,000,000 11,057,200
Refunding, Series F, 5.25%, 8/01/15 .................................................... 20,580,000 20,938,298
Refunding, Series F, 5.375%, 8/01/19 ................................................... 41,250,000 41,912,063
Refunding, Series H, 6.25%, 8/01/15 .................................................... 25,000,000 27,945,500
Refunding, Series H, 6.125%, 8/01/25 ................................................... 5,600,000 6,158,096
Refunding, Series J, 6.00%, 8/01/21 .................................................... 10,000,000 10,925,300
Series A, 6.125%, 8/01/06 .............................................................. 10,190,000 11,262,701
Series A, 6.25%, 8/01/08 ............................................................... 10,000,000 11,087,000
Series A, 7.25%, 3/15/20 ............................................................... 120,000 125,710
Series A, 6.25%, 8/01/21 ............................................................... 845,000 903,516
Series A, Pre-Refunded, 7.25%, 3/15/20 ................................................. 210,000 221,621
Series B, 6.75%, 10/01/15 .............................................................. 30,000 32,914
Series B, 7.00%, 2/01/18 ............................................................... 4,090,000 4,454,910
Series B, 7.00%, 2/01/19 ............................................................... 4,850,000 5,277,091
Series B, 7.00%, 2/01/20 ............................................................... 4,980,000 5,417,144
Series B, 6.00%, 8/15/26 ............................................................... 4,355,000 4,733,406
Series B, Pre-Refunded, 6.75%, 10/01/15 ................................................ 70,000 78,012
Series B, Pre-Refunded, 7.00%, 2/01/19 ................................................. 150,000 165,777
Series B, Pre-Refunded, 7.00%, 2/01/20 ................................................. 765,000 845,463
Series B, Pre-Refunded, 6.00%, 8/15/26 ................................................. 645,000 732,352
Series B, Sub Series B-1, Pre-Refunded, 7.00%, 8/15/16 ................................. 17,070,000 19,829,024
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ................................. 5,000,000 5,869,050
Series C, 5.375%, 11/15/27 ............................................................. 7,450,000 7,573,670
Series C, 5.50%, 11/15/37 .............................................................. 2,000,000 2,094,240
Series C, Pre-Refunded, 7.25%, 8/15/24 ................................................. 7,905,000 8,604,751
Series C, Sub Series C-1, 7.00%, 8/01/16 ............................................... 15,000 16,516
Series C, Sub Series C-1, 7.00%, 8/01/17 ............................................... 150,000 165,264
Series C, Sub Series C-1, 7.50%, 8/01/21 ............................................... 135,000 150,543
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/16 ................................. 40,000 44,790
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/17 ................................. 220,000 246,345
Series C, Sub Series C-1, Pre-Refunded, 7.50%, 8/01/21 ................................. 300,000 340,692
Series D, 6.00%, 2/15/10 ............................................................... 9,445,000 10,285,699
</TABLE>
99
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
<S> <C> <C>
New York City GO, (cont.)
Series D, 7.625%, 2/01/13 ............................................................. $ 70,000 $ 77,533
Series D, 7.625%, 2/01/14 ............................................................. 170,000 188,246
Series D, 7.50%, 2/01/18 .............................................................. 50,000 55,139
Series D, Pre-Refunded, 6.00%, 2/15/10 ................................................ 2,155,000 2,404,247
Series D, Pre-Refunded, 7.70%, 2/01/11 ................................................ 150,000 168,875
Series D, Pre-Refunded, 7.625%, 2/01/13 ............................................... 330,000 370,844
Series D, Pre-Refunded, 7.625%, 2/01/14 ............................................... 680,000 764,164
Series D, Pre-Refunded, 7.50%, 2/01/18 ................................................ 335,000 375,317
Series D, Pre-Refunded, 7.50%, 2/01/19 ................................................ 330,000 369,716
Series E, 6.25%, 2/15/07 .............................................................. 4,960,000 5,520,728
Series E, 7.50%, 2/01/18 .............................................................. 45,000 49,625
Series E, Pre-Refunded, 6.25%, 2/15/07 ................................................ 5,040,000 5,703,466
Series E, Pre-Refunded, 7.50%, 2/01/18 ................................................ 480,000 537,768
Series F, 7.625%, 2/01/13 ............................................................. 45,000 49,843
Series F, 7.625%, 2/01/15 ............................................................. 30,000 33,194
Series F, 7.50%, 2/01/21 .............................................................. 110,000 121,146
Series F, Pre-Refunded, 7.625%, 2/01/13 ............................................... 310,000 348,369
Series F, Pre-Refunded, 7.625%, 2/01/14 ............................................... 275,000 309,037
Series F, Pre-Refunded, 7.50%, 2/01/21 ................................................ 575,000 644,201
Series F, Pre-Refunded, 6.625%, 2/15/25 ............................................... 8,625,000 9,881,231
Series G, 5.75%, 8/01/10 .............................................................. 505,000 543,981
Series G, 6.125%, 10/15/11 ............................................................ 20,480,000 23,083,213
Series G, 6.20%, 10/15/14 ............................................................. 10,000,000 11,187,100
Series G, 7.50%, 2/01/22 .............................................................. 60,000 66,062
Series G, Pre-Refunded, 5.75%, 8/01/10 ................................................ 1,290,000 1,424,392
Series H, 7.20%, 2/01/14 .............................................................. 625,000 684,875
Series H, 7.20%, 2/01/15 .............................................................. 1,375,000 1,505,529
Series H, 7.00%, 2/01/19 .............................................................. 750,000 816,263
Series H, 7.00%, 2/01/20 .............................................................. 80,000 87,045
Series H, 7.00%, 2/01/22 .............................................................. 10,000 10,875
Series H, Pre-Refunded, 7.00%, 2/01/19 ................................................ 1,495,000 1,654,442
Series H, Pre-Refunded, 7.00%, 2/01/20 ................................................ 200,000 221,036
Series H, Pre-Refunded, 7.00%, 2/01/22 ................................................ 25,000 27,630
Series I, 6.25%, 4/15/17 .............................................................. 24,935,000 27,634,214
Series I, 6.25%, 4/15/27 .............................................................. 9,600,000 10,611,840
Series I, Pre-Refunded, 6.25%, 4/15/17 ................................................ 435,000 498,880
Series I, Pre-Refunded, 6.25%, 4/15/27 ................................................ 13,320,000 15,276,042
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.30%, 2/15/20 ..... 8,885,000 9,337,691
New York City IDA,
Civic Facility Revenue, Amboy Properties Corp. Project, 9.625%, 6/01/15 ............... 6,370,000 6,796,280
IDR, La Guardia Association LP Project, Refunding, 6.00%, 11/01/28 .................... 7,500,000 7,555,575
New York State Dormitory Authority Revenue,
City University System, Third General, Series 2, 6.00%, 7/01/26 ....................... 6,100,000 6,645,340
City University System, Third General, Series 2, Pre-Refunded, 6.00%, 7/01/26 ......... 15,750,000 17,914,365
City University System Consolidated, Series 1, 5.375%, 7/01/24 ........................ 5,500,000 5,560,335
Mental Health Services Facilities, Refunding, Series B, 5.625%, 2/15/21 ............... 8,360,000 8,859,594
Mental Health Services Facilities, Series A, 6.00%, 8/15/17 ........................... 11,240,000 12,315,780
Mental Health Services Facilities, Series A, 5.75%, 2/15/27 ........................... 5,000,000 5,355,800
Second Hospital, St. Agnes Hospital, Series A, 5.30%, 2/15/19 ......................... 4,250,000 4,299,173
Second Hospital, St. Clare's Hospital, Series B, 5.40%, 2/15/25 ....................... 6,500,000 6,569,420
State University Educational Facilities, 5.50%, 5/15/26 ............................... 6,055,000 6,257,540
State University Educational Facilities, Pre-Refunded, 6.00%, 5/15/18 ................. 5,000,000 5,678,250
State University Educational Facilities, Refunding, 5.125%, 5/15/27 ................... 3,755,000 3,718,764
New York State Environmental Facilities Corp. Special Obligation PCR, State Water Revenue,
New York Municipal Water, Refunding, Series A, 5.875%, 6/15/14 ........................ 5,000,000 5,364,500
</TABLE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
<S> <C> <C>
New York State HFA, Service Contract Obligation Revenue, Series A,
6.00%, 3/15/26 ......................................................................... $ 4,975,000 $ 5,411,606
Pre-Refunded, 7.80%, 9/15/10 ........................................................... 6,850,000 7,442,799
Pre-Refunded, 7.80%, 9/15/20 ........................................................... 9,715,000 10,555,736
Pre-Refunded, 6.50%, 3/15/25 ........................................................... 10,000,000 11,610,500
New York State HFAR, Refunding, Series A, 5.90%, 11/01/05 ................................. 12,515,000 13,640,599
New York State Medical Care Facilities Finance Agency Revenue,
Hospital and Nursing, Series B, 6.95%, 2/15/32 ......................................... 3,305,000 3,596,699
Hospital and Nursing, Series B, Pre-Refunded, 6.95%, 2/15/32 ........................... 695,000 776,850
Montefiore Medical Center, Insured Mortgage, Series A, AMBAC Insured, FHA Guaranteed,
5.75%, 2/15/25 ......................................................................... 6,175,000 6,600,828
New York State Mortgage Agency Revenue, Homeowners Mortgage,
Series 59, 6.10%, 10/01/15 ............................................................. 2,000,000 2,118,860
Series 59, 6.15%, 10/01/17 ............................................................. 2,750,000 2,917,310
Series 61, 5.80%, 10/01/16 ............................................................. 7,100,000 7,412,897
New York State Urban Development Corp., Corporate Purpose, sub. lien, Refunding,
5.50%, 7/01/22 ......................................................................... 7,975,000 8,262,738
New York State Urban Development Corp. Revenue, Correctional Capital Facilities,
Series 6, 5.375%, 1/01/25 .............................................................. 5,750,000 5,811,928
Series 7, 5.70%, 1/01/27 ............................................................... 22,750,000 24,117,958
Onondaga County IDA, Solid Waste Disposal Facility Revenue, Solvay Paperboard LLC Project,
Refunding, 6.80%, 11/01/14 ............................................................. 5,000,000 5,082,700
7.00%, 11/01/30 ........................................................................ 7,000,000 7,116,200
Port Authority of New York and New Jersey Revenue, Special Obligation Revenue, Consolidated,
102nd Series, MBIA Insured, 5.75%, 10/15/23 ............................................. 5,000,000 5,293,400
Port Authority of New York and New Jersey Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ....................................................... 1,000,000 1,060,110
3rd Installment, 7.00%, 10/01/07 ....................................................... 8,000,000 9,292,400
4th Installment, Special Project, 6.75%, 10/01/11 ...................................... 925,000 1,030,043
5th Installment, 6.75%, 10/01/19 ....................................................... 17,500,000 19,405,575
Continental Airlines Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ................ 10,000,000 10,879,400
Continental Airport Project, Eastern Project, La Guardia, 9.125%, 12/01/15 ............. 27,650,000 30,138,777
Warren and Washington Counties IDAR, Adirondack Resource Recovery Project, Refunding,
Series A, 7.90%, 12/15/07 .............................................................. 1,150,000 1,187,398
------------
812,241,115
------------
NORTH CAROLINA .8%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 .............................. 2,500,000 2,676,475
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series B, 6.00%, 1/01/14 .................................................... 16,000,000 16,659,520
Series G, 5.875%, 1/01/21 .............................................................. 20,000,000 21,704,600
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16 ................................................................................ 2,880,000 3,052,973
9/01/17 ................................................................................ 1,915,000 2,030,015
University of North Carolina at Chapel Hill Hospital Revenue, 5.25%, 2/15/26 .............. 6,570,000 6,579,067
------------
52,702,650
------------
NORTH DAKOTA .4%
Mercer County PCR, Basin Electric Power Corp., Refunding, Second Series, AMBAC Insured,
6.05%, 1/01/19 ......................................................................... 24,655,000 27,133,814
------------
OHIO 5.6%
Cleveland Airport Special Revenue, Continental Airlines Inc. Project,
9.00%, 12/01/19 ........................................................................ 21,235,000 22,546,898
(b) Refunding, 5.70%, 12/01/19 ......................................................... 11,520,000 11,098,483
Cuyahoga County Hospital Revenue, University Hospitals Health System, Refunding, Series B,
MBIA Insured, 5.50%, 1/15/16 ........................................................... 10,065,000 10,531,311
Dayton Special Facilities Revenue, Emery Air Freight Corp., Emery Worldwide Air Inc.,
Refunding,
Series A, 5.625%, 2/01/18 .............................................................. 5,000,000 5,116,450
Series C, 6.05%, 10/01/09 .............................................................. 7,500,000 8,108,475
Series E, 6.05%, 10/01/09 .............................................................. 4,000,000 4,324,520
Elyria GO, FGIC Insured, 5.40%, 12/01/22 .................................................. 2,785,000 2,851,005
</TABLE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OHIO (CONT.)
<S> <C> <C>
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services,
Refunding, 5.50%, 7/01/17 ............................................................ $ 3,100,000 $ 3,064,505
Refunding, 5.50%, 7/01/21 ............................................................ 4,700,000 4,610,794
Series A, 6.625%, 7/01/13 ............................................................ 1,000,000 1,094,740
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding, Series B,
MBIA Insured,
5.50%, 9/01/27 ....................................................................... 17,885,000 18,578,759
Lucas County Health Facilities Revenue, Presbyterian Retirement Services, Refunding,
Series A, 6.625%, 7/01/14 ............................................................ 1,000,000 1,081,090
6.75%, 7/01/20 ....................................................................... 2,000,000 2,165,280
Montgomery County Health Systems Revenue,
Franciscan at Saint Leonard, Refunding, 5.50%, 7/01/18 ............................... 3,630,000 3,650,292
Franciscan Medical Center-Dayton, Refunding, 5.50%, 7/01/18 .......................... 1,900,000 1,909,082
Refunding, Series B, 8.10%, 7/01/01 .................................................. 800,000 850,160
Refunding, Series B-1, 8.10%, 7/01/01 ................................................ 700,000 754,075
Refunding, Series B-1, 8.10%, 7/01/18 ................................................ 1,955,000 2,342,031
Series B-1, Pre-Refunded, 8.10%, 7/01/18 ............................................. 4,345,000 5,499,640
Series B-2, 8.10%, 7/01/18 ........................................................... 1,995,000 2,369,621
Series B-2, Pre-Refunded, 8.10%, 7/01/18 ............................................. 4,505,000 5,702,159
St. Leonard, Series B, 8.10%, 7/01/18 ................................................ 3,100,000 3,745,606
St. Leonard, Series B, Pre-Refunded, 8.10%, 7/01/18 .................................. 6,500,000 8,227,310
Muskingum County Hospital Facilities Revenue, Franciscan Sisters, Refunding, Connie Lee
Insured, 5.375%, 2/15/12 ............................................................. 1,200,000 1,260,492
Oak Hills Local School District GO, MBIA Insured, 5.45%, 12/01/21 ....................... 4,925,000 5,113,135
Ohio State Air Quality Development Authority Revenue,
Dayton Power and Light Co. Project, Refunding, 6.10%, 9/01/30 ........................ 17,900,000 19,281,701
PCR, Toledo Edison, Series B, Refunding, 8.00%, 5/15/19 .............................. 5,265,000 5,544,098
Pollution Control, Cleveland Electric, Refunding, Series A, 6.10%, 8/01/20 ........... 10,400,000 10,616,216
Pollution Control, Cleveland Electric, Refunding, Series B, 6.00%, 8/01/20 ........... 39,760,000 40,590,586
Pollution Control, Toledo Edison, Refunding, Series A, 6.10%, 8/01/27 ................ 5,000,000 5,103,950
Ohio State HFA, Retirement Rental Housing Revenue, Beverly Enterprises Project, 10.375%,
4/01/09 .............................................................................. 9,500,000 9,815,970
Ohio State Solid Waste Disposal Revenue, USG Corp. Project, 5.65%, 3/01/33 .............. 7,000,000 6,989,430
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc., 9.00%, 6/01/21 ......... 16,650,000 18,485,163
Ohio State Water Development Authority PCR, Facilities Revenue,
Cleveland Electric, Refunding, Series A, 6.10%, 8/01/20 .............................. 18,000,000 18,374,220
Cleveland Electric, Refunding, Series A, 8.00%, 10/01/23 ............................. 27,700,000 31,726,472
Toledo Edison, Series A, 8.00%, 5/15/19 .............................................. 6,200,000 6,528,662
Ohio State Water Development Authority Revenue, Fresh Water Service, AMBAC Insured, 5.90%,
12/01/21 ............................................................................. 9,250,000 10,008,500
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
Project 1, 7.00%, 4/01/04 ............................................................ 5,240,000 5,634,153
Project 1, 7.25%, 4/01/09 ............................................................ 5,385,000 5,876,543
Project 1, 7.375%, 4/01/14 ........................................................... 8,200,000 8,955,138
Project 1, 7.50%, 4/01/19 ............................................................ 14,365,000 15,699,509
Series 1, 9.125%, 9/15/01 ............................................................ 735,000 810,124
Series 1, 9.125%, 9/15/13 ............................................................ 5,875,000 6,475,484
Toledo-Lucas County Port Authority Development Revenue, Northwest Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 .............................................. 1,125,000 1,222,808
Series B, 9.00%, 11/15/08 ............................................................ 980,000 1,007,763
Series D, 8.25%, 5/15/20 ............................................................. 2,920,000 3,115,815
Willoughby IDR, Presbyterian Retirement Services, Refunding, Series A, 6.875%, 7/01/16 .. 1,500,000 1,568,055
------------
370,026,273
------------
OKLAHOMA .3%
Tulsa County Municipal Airport Revenue, American Airlines Inc., 7.375%,
12/01/20 12,845,000 13,714,607 Valley View Hospital Authority Revenue, Valley
View Regional Medical Center, Refunding, 6.00%, 8/15/14 4,000,000 4,166,680
Washington County Medical Authority Revenue, Bartlesville, Jane Phillips
Hospital, Series A, Pre-Refunded, 8.50%, 11/01/10 ....................................... 2,385,000 2,453,163
------------
20,334,450
------------
</TABLE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
OREGON .2%
Northern Wasco County Peoples Utilities District Electric Revenue, FGIC Insured, 5.625%,
12/01/22 ................................................................................. $ 2,500,000 $ 2,640,175
Oregon State Department of Administrative Services COP,
Series A, MBIA Insured, 5.50%, 11/01/20 .................................................. 5,585,000 5,821,860
Series C, MBIA Insured, 5.75%, 5/01/17 ................................................... 4,665,000 5,028,450
-----------
13,490,485
-----------
PENNSYLVANIA 4.5%
Allegheny County Hospital Development Authority Revenue,
Allegheny Valley Health Facilities Management Co., 7.50%, 8/01/13 ........................ 9,100,000 8,073,611
Allegheny Valley Hospital, 7.75%, 8/01/20 ................................................ 2,100,000 1,857,219
Bucks County IDA, Environmental Improvement Revenue, USX Corp. Project, Refunding, 5.60%,
3/01/33 .................................................................................. 4,125,000 4,131,683
Chartiers Valley Industrial and Commercial Development Authority Revenue, Asbury Health Center
Project, Refunding, 7.40%, 12/01/15 ...................................................... 5,250,000 5,727,645
Delaware River Port Authority Pennsylvania and New Jersey Revenue, Series 1995, FGIC Insured,
5.50%, 1/01/26 ........................................................................... 20,750,000 21,921,338
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center,
10.375%, 7/01/11 ......................................................................... 650,000 716,651
Refunding, 10.375%, 7/01/11 .............................................................. 2,900,000 3,197,366
Gettysburg IDA Health Facilities Revenue, Encore Nursing Center, Refunding, 10.375%, 7/01/11 3,000,000 3,307,620
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding, Series A, MBIA
Insured, 6.15%, 8/01/29 ................................................................... 4,000,000 4,370,040
Monroeville Hospital Authority Hospital Revenue, Forbes Health Systems, Refunding,
5.75%, 10/01/05 .......................................................................... 1,000,000 899,510
7.00%, 10/01/13 .......................................................................... 8,825,000 8,194,101
6.25%, 10/01/15 .......................................................................... 4,545,000 4,083,228
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 1,811,788
First Mortgage, Holy Redeemer Long-Term Care, Series A, Pre-Refunded, 8.00%, 6/01/22 ..... 3,500,000 3,967,355
St. Joseph's University, Pre-Refunded, 8.30%, 6/01/10 .................................... 5,000,000 5,397,950
United Hospital, Series A, Pre-Refunded, 8.375%, 11/01/11 ................................ 200,000 210,962
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/12 ................................. 3,560,000 3,665,056
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/13 ................................. 750,000 772,133
United Hospital, Series A, Pre-Refunded, 7.50%, 11/01/14 ................................. 600,000 617,706
United Hospital, Series B, Pre-Refunded, 7.50%, 11/01/14 ................................. 3,940,000 4,056,269
United Hospital, Series B, Pre-Refunded, 7.50%, 11/01/15 ................................. 1,600,000 1,647,216
Montgomery County IDA, Retirement Community Revenue, Act Retirement-Life Communities,
5.25%, 11/15/28 ......................................................................... 2,500,000 2,415,925
Montgomery County IDAR,
Hill School Project, MBIA Insured, 5.35%, 8/15/27 ........................................ 8,885,000 9,072,385
Resource Recovery, 7.50%, 1/01/12 ........................................................ 10,000,000 10,578,400
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
5.75%, 9/01/99 ........................................................................... 1,750,000 1,766,975
6.25%, 9/01/04 ........................................................................... 5,000,000 5,314,300
6.60%, 9/01/09 ........................................................................... 16,000,000 17,476,800
6.70%, 9/01/14 ........................................................................... 20,760,000 22,722,443
6.75%, 9/01/19 ........................................................................... 15,800,000 17,331,020
Pennsylvania EDA, Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%,
12/01/15 ................................................................................. 10,000,000 11,061,600
Pennsylvania State Higher Educational Facilities Authority Revenue,
Health Services, Allegheny Delaware Valley Obligated Group, Series A, MBIA Insured, 5.875%,
11/15/16 ................................................................................. 15,000,000 15,380,850
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ................. 1,200,000 1,224,000
Pennsylvania State Pooled Finance Authority Lease Revenue, Capital Improvement, Series B,
MBIA Insured, Pre-Refunded, 8.00%, 11/01/09 ............................................... 1,825,000 1,837,812
Philadelphia Gas Works Revenue, Series A, 6.375%, 7/01/26 ................................... 2,850,000 3,129,671
Philadelphia GO, Refunding, Series B, 6.00%, 5/15/05 ........................................ 3,080,000 3,328,063
Philadelphia IDA, Health Care Facility Revenue, Pauls Run, Series A,
5.85%, 5/15/13 ........................................................................... 2,200,000 2,217,754
5.75%, 5/15/18 ........................................................................... 1,500,000 1,482,690
5.875%, 5/15/28 .......................................................................... 2,500,000 2,491,100
</TABLE>
103
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
<S> <C> <C>
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ........................................................... $ 3,500,000 $ 3,705,765
Sub Series C, 8.625%, 11/15/16 ................................................................ 2,210,000 2,415,486
Sub Series D, 6.25%, 7/15/13 .................................................................. 3,000,000 3,200,940
Philadelphia Water and Sewer Revenue, ETM, Series 10, 7.35%, 9/01/04 ............................. 14,235,000 16,115,871
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc., Pre-Refunded,
6.50%, 1/01/10 ................................................................................ 28,870,000 29,682,113
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital Project,
Series A, MBIA Insured, 5.75%, 7/01/16 ........................................................ 8,130,000 8,666,905
South Wayne County Water and Sewer Authority Revenue, Refunding, 8.20%, 4/15/13 .................. 8,350,000 8,715,563
Washington County IDA, PCR, West Pennsylvania Power Co., Series G, AMBAC Insured, 6.05%, 4/01/14 . 5,025,000 5,508,807
------------
295,469,685
------------
RHODE ISLAND .3%
Rhode Island Housing and Mortgage Finance Corp. Revenue, Homeownership Opportunity, Series 17-A,
6.25%, 4/01/17 ................................................................................ 5,000,000 5,251,650
Rhode Island State Health and Educational Building Corp. Revenue,
Hospital Financing Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 .................... 5,000,000 5,400,100
Landmark Medical Center, 5.875%, 10/01/19 ..................................................... 6,000,000 6,328,740
West Warwick GO, Series A,
7.00%, 8/15/02 ................................................................................ 145,000 155,312
7.30%, 7/15/08 ................................................................................ 915,000 1,023,958
------------
18,159,760
------------
SOUTH CAROLINA 1.0%
Charleston County Hospital Facilities First Mortgage Revenue, Sandpiper Village Inc., 8.00%,
11/01/13 ...................................................................................... 3,535,000 3,548,468
Piedmont Municipal Power Agency Electric Revenue, Refunding,
6.60%, 1/01/21 ................................................................................ 8,770,000 8,819,989
Series A, AMBAC Insured, 6.55%, 1/01/16 ....................................................... 9,500,000 9,552,345
South Carolina Jobs EDA, Health Facilities Revenue, 1st Mortgage Lutheran Homes, Refunding,
5.65%, 5/01/18 ................................................................................ 3,200,000 3,162,848
5.70%, 5/01/26 ................................................................................ 4,235,000 4,148,691
South Carolina Public Service Authority Revenue, Refunding, Series A, MBIA Insured, 5.75%,
1/01/22 ....................................................................................... 32,500,000 34,867,300
------------
64,099,641
------------
SOUTH DAKOTA .2%
South Dakota HDA Revenue, Homeownership Mortgage, Series A, 6.125%, 5/01/17 ...................... 5,000,000 5,273,600
South Dakota Health and Educational Facilities Authority Revenue,
5.50%, 8/01/22 ................................................................................ 7,100,000 7,375,551
Prairie Lakes Health Care, Pre-Refunded, 7.25%, 4/01/22 ....................................... 2,480,000 2,842,824
Prairie Lakes Health Care, Refunding, 7.25%, 4/01/22 .......................................... 1,020,000 1,114,401
------------
16,606,376
------------
TENNESSEE .5%
Jackson Hospital Revenue, Jackson-Madison County General Hospital, AMBAC
Insured, 5.00%, 4/01/28 ........................................................................ 2,000,000 1,934,460
Johnson City Health and Educational Facilities Board Revenue, Pine Oaks Assisted Project,
Mortgage Revenue, Series A, GNMA Secured, 5.90%, 6/20/37 ....................................... 2,620,000 2,715,918
Johnson City Health and Educational Revenue, Medical Center Hospital, Refunding and Improvement,
MBIA Insured, 5.125%, 7/01/25 .................................................................. 10,650,000 10,430,717
Knox County Health, Educational and Housing Facilities Board MFHR, East Towne Village Project,
GNMA Secured, 8.20%, 7/01/28 ................................................................... 3,050,000 3,139,182
Memphis-Shelby County Airport Authority Special Facilities and Project Revenue, Federal Express
Corp., 7.875%, 9/01/09 ......................................................................... 6,000,000 6,624,840
Metropolitan Government of Nashville and Davidson County GO, Public Improvements, 5.875%, 5/15/26 5,000,000 5,500,050
Shelby County Health and Education Housing Facility Revenue, Beverly Enterprise, 10.125%, 12/01/11 2,800,000 3,019,716
Tennessee HDA, Mortgage Finance, Series A, 6.90%, 7/01/25 ........................................ 200,000 217,304
------------
33,582,187
------------
TEXAS 3.0%
Alliance Airport Authority Special Facilities Revenue, 7.50%, 12/01/29 ........................... 10,000,000 10,692,500
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health Services,
ETM, Refunding, FSA Insured, 6.00%, 11/15/15 ................................................... 8,750,000 9,958,813
Coppell Special Assessment, Gateway Project, 8.70%, 3/01/12 ...................................... 4,355,000 4,514,872
</TABLE>
104
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
<S> <C> <C>
Copperas Cove Health Facilities Development Corp. Hospital Revenue, First Mortgage, Metroplex
Health, Series B,
9.125%, 12/01/19 ................................................................................ $ 5,328,000 $ 5,614,540
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ............................................ 4,050,000 4,361,000
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 16,274,569
5.50%, 6/01/24 .................................................................................. 12,000,000 12,524,400
Harris County Health Facilities Development Corp. Special Facilities Revenue, Medical Center Project,
MBIA Insured, 6.00%, 5/15/20 .................................................................... 7,000,000 7,663,600
Lower Neches Valley Authority IDC Revenue, Mobil Oil Refunding Corp., Refunding, 5.55%, 3/01/33 .... 2,500,000 2,547,400
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project, Refunding,
5.60%, 1/01/27 .................................................................................. 8,640,000 8,413,632
Series A, 5.60%, 4/01/18 ........................................................................ 4,500,000 4,442,670
Nueces River Authority Water Supply Revenue, Facilities, Corpus Christi Lake Project, FSA Insured,
5.50%, 3/01/27 .................................................................................. 7,500,000 7,866,975
Port Corpus Christi IDC Revenue, Valero, Refunding, Series C, 5.40%, 4/01/18 ....................... 5,000,000 4,946,950
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.65%, 12/01/22 ....... 5,000,000 5,159,300
Red River Authority PCR, West Texas Utilities Co. Project, Oklahoma Central Power and Light Co.,
Refunding, MBIA Insured, 6.00%, 6/01/20 ......................................................... 8,000,000 8,766,640
Sabine River Authority PCR, Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%, 4/01/18 7,000,000 7,702,520
Sam Rayburn Municipal Power Agency Supply System Revenue, Refunding, Series A, 6.50%, 10/01/08 ..... 380,000 397,833
Series A, 6.75%, 10/01/14 ....................................................................... 12,990,000 13,719,778
Series A, 6.25%, 10/01/17 ....................................................................... 4,795,000 4,908,546
Series B, 5.75%, 10/01/08 ....................................................................... 1,315,000 1,327,545
Series B, 6.125%, 10/01/13 ...................................................................... 5,150,000 5,276,330
Series B, 5.50%, 10/01/20 ....................................................................... 11,255,000 11,100,581
San Antonio Electric and Gas Revenue, Series 95, MBIA Insured, 5.375%, 2/01/18 ..................... 6,000,000 6,138,240
Texas State GO, Veterans Housing Assistance Fund I, Refunding, 6.15%, 12/01/25 ..................... 7,430,000 7,787,234
Texas Water Development Board Revenue, State Revolving Fund, 6.00%, 7/15/13 ........................ 4,000,000 4,294,480
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 ..................................... 8,750,000 9,142,613
Travis County Health Facilities Development Corp. Hospital Revenue, Charity Obligation Group,
Series A, 5.375%, 11/01/28 ...................................................................... 11,685,000 11,779,882
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical Center Project,
Series B, FSA Insured, 5.60%, 11/01/27 ........................................................... 3,450,000 3,627,951
------------
200,951,394
------------
U.S. TERRITORIES 4.5%
American Samoa EDA, Executive Office Building Revenue, 10.125%, 9/01/08 ............................ 2,175,000 2,246,275
District of Columbia GO,
ETM, Series A, 5.875%, 6/01/05 .................................................................. 595,000 654,339
ETM, Series A, 6.00%, 6/01/07 ................................................................... 870,000 971,686
Refunding, Series A, 5.875%, 6/01/05 ............................................................ 7,205,000 7,742,565
Refunding, Series A, 6.00%, 6/01/07 ............................................................. 10,905,000 11,887,104
Refunding, Series B, 5.25%, 6/01/26 ............................................................. 59,315,000 58,464,423
Series A, 5.25%, 6/01/27 ........................................................................ 16,225,000 15,988,602
Series A, Pre-Refunded, 6.375%, 6/01/11 ......................................................... 22,770,000 26,248,345
Series A, Pre-Refunded, 6.375%, 6/01/16 ......................................................... 27,230,000 31,389,655
Series E, 6.00%, 6/01/11 ........................................................................ 5,000,000 5,379,300
District of Columbia Hospital Revenue,
Medlantic Healthcare Group, ETM, Refunding, Series A, MBIA Insured, 5.70%, 8/15/08 .............. 6,500,000 7,134,335
Medlantic Healthcare Group, ETM, Refunding, Series A, MBIA Insured, 5.875%, 8/15/19 ............. 8,850,000 9,669,068
Washington Hospital Center Corp., Series A, Pre-Refunded, 7.00%, 8/15/05 ........................ 2,000,000 2,166,940
Washington Hospital Center Corp., Series A, Pre-Refunded, 9.00%, 1/01/08 ........................ 12,430,000 13,850,749
Washington Hospital Center Corp., Series A, Pre-Refunded, 8.75%, 1/01/15 ........................ 3,750,000 4,165,725
Washington Hospital Center Corp., Series A, Pre-Refunded, 7.125%, 8/15/19 ....................... 4,500,000 5,058,450
District of Columbia Redevelopment Land Agency Washington D.C. Sports Arena Special Tax Revenue,
5.625%, 11/01/10 ................................................................................ 1,050,000 1,092,305
District of Columbia Revenue, Carnegie Endowment Revenue, 5.75%, 11/15/26 .......................... 5,410,000 5,659,131
Northern Mariana Islands Commonwealth Ports Authority Airport Revenue, senior lien, Series A,
6.25%, 3/15/28 .................................................................................. 15,000,000 15,099,300
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.40%, 3/15/28 .... 9,090,000 8,865,204
</TABLE>
105
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
U.S. TERRITORIES (CONT.)
<S> <C> <C>
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.75%, 7/01/08 ................................................................................. $ 700,000 $ 715,722
Virgin Islands PFA Revenue,
Matching Fund Loan Notes, Refunding, Series A, 7.25%, 10/01/18 .................................. 14,000,000 15,997,940
sub. lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/01 ................................ 1,600,000 1,650,256
sub. lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/02 ................................ 1,840,000 1,905,026
sub. lien, Fund Loan Notes, Refunding, Series D, 5.50%, 10/01/03 ................................ 1,895,000 1,974,931
sub. lien, Fund Loan Notes, Refunding, Series E, 5.75%, 10/01/13 ................................ 15,000,000 15,670,350
sub. lien, Fund Loan Notes, Refunding, Series E, 5.875%, 10/01/18 ............................... 9,000,000 9,324,810
sub. lien, Fund Loan Notes, Refunding, Series E, 6.00%, 10/01/22 ................................ 15,000,000 15,661,350
Virgin Islands Water and Power Authority Electric System Revenue, Series A, Pre-Refunded, 7.40%,
7/01/11 ......................................................................................... 380,000 414,542
Virgin Islands Water and Power Authority Water System Revenue, Series B, 7.60%, 1/01/12 ............ 4,000,000 4,575,120
------------
301,623,548
------------
UTAH .7%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 .......................................... 2,000,000 2,172,340
Carbon County Solid Waste Disposal Revenue, Laidlaw Environmental Services, Refunding, Series A,
7.45%, 7/01/17 .................................................................................. 2,500,000 2,768,625
Davis County Solid Waste Management Energy Recovery Revenue, Special Services District, Pre-Refunded,
6.125%, 6/15/09 ................................................................................. 16,800,000 18,650,688
Tooele County PCR, Laidlaw Environmental, Refunding, Series A, 7.55%, 7/01/27 ...................... 3,500,000 3,898,755
Utah Assessed Municipal Power Systems Revenue, San Juan Project, 6.375%, 6/01/22 ................... 11,000,000 12,515,140
Utah State HFA, SFM,
Series A, 9.625%, 7/01/00 ....................................................................... 5,000 5,106
Series A-2, 9.625%, 7/01/02 ..................................................................... 20,000 20,631
Series A-2, 9.45%, 7/01/03 ...................................................................... 40,000 41,481
Series B, 9.50%, 7/01/00 ........................................................................ 15,000 15,322
Series B, 9.25%, 7/01/01 ........................................................................ 25,000 25,570
Series B-2, 9.50%, 7/01/02 ...................................................................... 10,000 10,303
Series B-2, 9.45%, 7/01/03 ...................................................................... 70,000 72,983
Series C-1, 9.375%, 7/01/00 ..................................................................... 20,000 20,363
Series C-2, 9.05%, 7/01/03 ...................................................................... 115,000 120,383
Series D-2, 9.00%, 7/01/03 ...................................................................... 230,000 240,757
Series E, 9.50%, 7/01/00 ........................................................................ 10,000 10,197
Series E-1, 8.70%, 7/01/03 ...................................................................... 280,000 294,064
Series F, 9.60%, 7/01/00 ........................................................................ 5,000 5,105
Series G-2, 9.30%, 7/01/00 ...................................................................... 10,000 10,104
Sub Series B-2, 8.70%, 7/01/04 .................................................................. 445,000 468,567
Sub Series D, 8.45%, 7/01/04 .................................................................... 215,000 224,228
Weber County Municipal Building Authority Lease Revenue, Refunding, MBIA Insured, 5.75%, 12/15/19 .. 5,000,000 5,375,050
------------
46,965,762
------------
VIRGINIA .4%
Hanover County IDA Hospital Revenue, Memorial Regional Medical Center Project, MBIA Insured, 5.50%,
8/15/25 .......................................................................................... 14,725,000 15,175,732
Virginia State HDA, Commonwealth Mortgage, Series D, Sub Series D-3, 6.125%, 1/01/19 ............... 9,715,000 10,194,824
------------
25,370,556
------------
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 2,969,812
Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Series C, Pre-Refunded,
8.00%, 7/01/17 ................................................................................... 5,000,000 5,398,250
------------
8,368,062
------------
WEST VIRGINIA .3%
West Virginia State Hospital Finance Authority Hospital Revenue, Logan General Hospital Project,
Refunding and Improvement, 7.25%, 7/01/20 ....................................................... 15,000,000 14,625,000
West Virginia State Water Development Authority Revenue, Solid Waste Management, Series C, 8.125%,
8/01/15 ......................................................................................... 2,355,000 2,496,182
------------
17,121,182
------------
WISCONSIN 1.1%
Wisconsin Central District Tax Revenue, Junior Dedicated, Series B, 5.75%, 12/15/27 ................ 12,840,000 14,377,847
Wisconsin Housing and EDA, Homeownership Revenue, Series C, 6.15%, 9/01/17 ......................... 2,355,000 2,476,235
</TABLE>
106
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WISCONSIN (CONT.)
<S> <C> <C>
Wisconsin State Health and Educational Facilities Authority Revenue,
Clement Manor, Refunding, 5.75%, 8/15/24 ............................................... $ 4,000,000 $ 3,875,280
Felician Health Care, Series A, AMBAC Insured, Pre-Refunded, 7.00%, 1/01/15 ............ 5,000,000 5,257,450
Franciscan Health System Inc. Project, Pre-Refunded, 8.375%, 3/01/05 ................... 6,000,000 6,414,720
Franciscan Health System Inc. Project, Pre-Refunded, 8.50%, 3/01/20 .................... 6,000,000 6,421,980
Franciscan Skemp Medical Center Inc. Project, 6.25%, 11/15/20 .......................... 9,510,000 10,275,840
Sisters Sorrowful Mother, Series A, MBIA Insured, 5.90%, 8/15/24 ....................... 22,055,000 23,959,890
--------------
73,059,242
--------------
WYOMING .2%
Sweetwater County PCR, Idaho Power Co. Project, Refunding, Series A, 6.05%, 7/15/26 ....... 10,500,000 11,299,575
Teton County Hospital District Hospital Revenue, Refunding and Improvement, 5.80%, 12/01/17 1,265,000 1,318,266
Wyoming CDA, Housing Revenue, Series 1, 6.15%, 6/01/17 .................................... 1,000,000 1,069,860
--------------
13,687,701
--------------
TOTAL BONDS ............................................................................... 6,280,880,302
--------------
(d)ZERO COUPON BONDS 3.5%
CALIFORNIA 3.1%
San Francisco City and County RDA, Lease Revenue, George R. Moscone Center,
7/01/09 ................................................................................ 3,750,000 2,309,250
7/01/10 ................................................................................ 4,500,000 2,614,905
7/01/12 ................................................................................ 4,500,000 2,311,920
7/01/13 ................................................................................ 4,250,000 2,048,245
7/01/14 ................................................................................ 2,250,000 1,015,223
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
junior lien, ETM, 1/01/04 .............................................................. 7,400,000 6,155,690
junior lien, ETM, 1/01/05 .............................................................. 8,000,000 6,369,280
junior lien, ETM, 1/01/06 .............................................................. 9,000,000 6,844,590
junior lien, ETM, 1/01/07 .............................................................. 9,400,000 6,789,338
junior lien, ETM, 1/01/08 .............................................................. 10,400,000 7,174,648
junior lien, ETM, 1/01/09 .............................................................. 21,900,000 14,416,551
junior lien, ETM, 1/01/10 .............................................................. 15,000,000 9,196,200
junior lien, ETM, 1/01/12 .............................................................. 30,100,000 16,711,821
junior lien, ETM, 1/01/24 .............................................................. 52,700,000 15,056,917
junior lien, ETM, 1/01/25 .............................................................. 45,200,000 12,279,032
junior lien, ETM, 1/01/26 .............................................................. 131,900,000 34,068,451
junior lien, ETM, 1/01/27 .............................................................. 139,100,000 34,815,339
senior lien, Refunding, Series A, 1/15/23 .............................................. 20,000,000 13,992,600
senior lien, Refunding, Series A, 1/15/24 .............................................. 20,000,000 13,756,000
--------------
207,926,000
--------------
FLORIDA .2%
Miami-Dade County Special Obligation,
Capital Appreciation, Series B, MBIA Insured, 10/01/28 ................................. 11,860,000 2,420,863
Capital Appreciation, Series B, MBIA Insured, 10/01/29 ................................. 20,000,000 3,862,000
Capital Appreciation, Series B, MBIA Insured, 10/01/32 ................................. 7,780,000 1,255,225
Capital Appreciation, Series B, MBIA Insured, 10/01/33 ................................. 2,000,000 305,160
Capital Appreciation, Series B, MBIA Insured, 10/01/35 ................................. 6,765,000 923,152
sub. lien, Series B, MBIA Insured, 10/01/34 ............................................ 3,895,000 562,049
--------------
9,328,449
--------------
NEBRASKA .1%
Kearney IDR, Great Platte River Road, Capital Appreciation, zero cpn. to 1/01/06, 7.00%
thereafter,
1/01/11 ................................................................................ 4,255,000 2,691,670
1/01/17 ................................................................................ 8,895,000 5,648,147
--------------
8,339,817
--------------
NEW YORK
MAC for City of Troy, Capital Appreciation, Series C, MBIA Insured,
7/15/21 ................................................................................. 428,010 136,064
1/15/22 ................................................................................. 649,658 200,855
--------------
336,919
--------------
</TABLE>
107
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
(d)ZERO COUPON BONDS (CONT.)
<S> <C> <C>
OHIO .1%
Akron COP, Akron Municipal Baseball Stadium Project, Capital Appreciation, zero cpn. to 12/01/01,
6.30% thereafter, 12/01/05 ........................................................................ $ 1,700,000 $ 1,582,904
6.40% thereafter, 12/01/06 ........................................................................ 1,685,000 1,588,972
6.50% thereafter, 12/01/07 ........................................................................ 1,750,000 1,662,220
6.90% thereafter, 12/01/16 ........................................................................ 2,500,000 2,430,525
--------------
7,264,621
--------------
TOTAL ZERO COUPON BONDS ........................................................................... 233,195,806
--------------
TOTAL LONG TERM INVESTMENTS (COST $6,183,878,766) ................................................. 6,514,076,108
--------------
(a)SHORT TERM INVESTMENTS .6%
Arkansas State Development Finance Authority Higher Education, Capital Asset,
Series A, FGIC Insured, Weekly VRDN and Put, 3.00%, 12/01/15 ...................................... 600,000 600,000
Ashland PCR, Ashland Oil Inc. Project, Weekly VRDN and Put, 2.90%, 4/01/09 ........................ 600,000 600,000
Connecticut State Health and Educational Facilities Authority
Revenue, Yale University, Series T-1, Weekly VRDN and Put, 2.85%, 7/01/29 ......................... 100,000 100,000
Fort Wayne Hospital Authority Hospital Revenue, Parkview Memorial Hospital, Series D, Weekly
VRDN and Put, 3.00%, 1/01/16 .................................................................. 600,000 600,000
Hawaii State Housing Finance and Development Corp. Revenue, Rental Housing System, Series A, Weekly
VRDN and Put, 3.00%, 7/01/24 .................................................................. 500,000 500,000
Indiana State Development Financing Authority Revenue, Bayer Corp. Project, Refunding, Daily
VRDN and Put, 3.25%, 3/01/09 .................................................................. 6,150,000 6,150,000
New York City GO, Unlimited, Series B, Sub Series B-4, Daily VRDN and Put, 3.15%, 8/15/23 ......... 5,350,000 5,350,000
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Series C, FGIC Insured, Daily VRDN and Put, 3.15%, 6/15/23 .................................... 2,000,000 2,000,000
Series G, FGIC Insured, Daily VRDN and Put, 3.20%, 6/15/24 .................................... 3,700,000 3,700,000
Putnam County Development Authority PCR, Georgia Power Co., Plant Branch, First Series, Daily
VRDN and Put, 3.15%, 6/01/23 .................................................................. 1,900,000 1,900,000
West Jefferson IDB, PCR, Alabama Power Co. Project, Refunding, Daily VRDN and Put, 3.15%, 6/01/28 . 15,000,000 15,000,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $36,500,000) ................................................... 36,500,000
--------------
TOTAL INVESTMENTS (COST $6,220,378,766) 98.7% ..................................................... 6,550,576,108
OTHER ASSETS, LESS LIABILITIES 1.3% ............................................................... 85,089,565
--------------
NET ASSETS 100.0% ................................................................................. $6,635,665,673
--------------
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(c) See Note 6 regarding defaulted securities.
(d) Zero coupon/step-up bonds. The current effective yield may vary. The
original accretion rate will remain constant.
(e) The bond pays interest based upon the issuer's ability to pay, which may be
less than the stated interest rate.
See notes to financial statements.
108
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN INDIANA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.07 $ 11.77 $ 11.76 $ 11.40 $ 12.01
----------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .62 .65 .66 .67 .66
Net realized and unrealized gains (losses) . -- .32 .01 .35 (.61)
----------------------------------------------------------------------
Total from investment operations ............ .62 .97 .67 1.02 .05
----------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.63) (.65) (.66) (.66) (.66)
Net realized gains ......................... (.03) (.02) -- -- --
----------------------------------------------------------------------
Total distributions ......................... (.66) (.67) (.66) (.66) (.66)
----------------------------------------------------------------------
Net asset value, end of year ................ $ 12.03 $ 12.07 $ 11.77 $ 11.76 $ 11.40
----------------------------------------------------------------------
Total return* ............................... 5.25% 8.52% 5.91% 9.20% .58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 59,014 $ 54,643 $ 51,137 $ 48,949 $ 46,583
Ratios to average net assets:
Expenses ................................... .82% .82% .82% .80% .81%
Net investment income ...................... 5.12% 5.45% 5.69% 5.80% 5.84%
Portfolio turnover rate ..................... 18.79% 24.08% 23.54% 10.56% 26.49%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
See notes to financial statements.
109
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INDIANA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
(a)LONG TERM INVESTMENTS 98.0%
<S> <C> <C>
Beech Grove EDR, Westvaco Corp., 8.75%, 7/01/10 .................................................. $ 50,000 $ 50,811
Carmel EDR, Cool Creek Association, Refunding, 6.50%, 9/01/15 .................................... 1,000,000 1,074,290
Clarke County Hospital Association, First Mortgage, MBIA Insured, Pre-Refunded, 7.50%, 9/01/07 ... 250,000 255,000
Cloverdale Multi-School Building Corp. First Mortgage, MBIA Insured, 5.35%, 1/15/23 .............. 1,200,000 1,220,700
Crown Point Industrial Redevelopment District Lake County Tax Increment, 8.10%, 2/01/07 .......... 50,000 50,154
Duneland School Building Corp. First Mortgage, MBIA Insured, 5.50%, 8/01/17 ...................... 1,000,000 1,040,170
Eastern Hancock Middle School Building Corp. First Mortgage, Pre-Refunded, 6.00%, 1/15/21 ........ 1,000,000 1,129,940
Elkhart County Hospital Authority Revenue, Goshen Hospital Association Inc. Project, 7.35%, 7/01/12 1,750,000 1,883,473
Elwood Middle School Building Corp. First Mortgage, Refunding, 7.30%, 1/01/08 .................... 500,000 533,935
Fort Wayne Hospital Authority Hospital Revenue, Parkview Memorial Hospital, Series A, FGIC Insured,
Pre-Refunded, 6.50%, 11/15/12 ................................................................. 1,000,000 1,043,950
Hammond Industrial Sewer and Solid Waste Disposal Revenue, American Maize-Products Co., Project A,
8.00%, 12/01/24 ............................................................................... 3,000,000 3,497,610
Hammond IPC Revenue, Stauffer Chemical Project, Guaranteed by Imperial Chemical, Series 1982,
8.00%, 11/01/12 ............................................................................... 300,000 317,130
Hammond Multi-School Building Corp. First Mortgage, Refunding, Series A, 6.20%, 7/10/15 .......... 1,500,000 1,587,600
Indiana Bond Bank Special Program,
Series A, 8.375%, 2/01/18 ..................................................................... 130,000 132,388
Series A, 7.50%, 2/01/20 ...................................................................... 250,000 263,445
Series B, 6.20%, 2/01/23 ...................................................................... 3,500,000 3,762,605
Series C, 8.00%, 8/01/11 ...................................................................... 20,000 20,211
Indiana Health Facility Financing Authority Hospital Revenue,
Hancock Memorial Hospital Health Services, 6.125%, 8/15/17 .................................... 2,000,000 2,112,220
Jackson County Schneck Memorial Hospital, Pre-Refunded, 7.50%, 2/15/22 ........................ 1,835,000 2,063,825
Jackson County Schneck Memorial Hospital, Refunding, 5.25%, 2/15/22 ........................... 1,200,000 1,165,692
Methodist Hospital Inc., 6.75%, 9/15/09 ....................................................... 1,280,000 1,387,520
(b)Sisters of St. Francis Health, Series A, MBIA Insured, 5.00%, 11/01/29 ........................ 1,000,000 959,090
St. Anthony's Medical Center/Home Inc., Series A, 7.00%, 10/01/17 ............................. 1,000,000 1,077,990
Indiana Health Facility Financing Authority Revenue, Greenwood Village South Project, Refunding,
5.625%, 5/15/28 ............................................................................... 1,750,000 1,719,060
Indiana State Development Financing Authority Environmental Revenue, 6.25%, 7/15/30 .............. 2,000,000 2,141,200
Indiana State Educational Facilities Authority Revenue,
DePauw University Project, Refunding, 5.30%, 7/01/16 .......................................... 600,000 610,182
Valparaiso University, AMBAC Insured, 5.125%, 10/01/23 ........................................ 2,015,000 1,985,823
Indiana State HFA, SFMR,
6.10%, 7/01/22 ................................................................................ 1,000,000 1,053,960
Series A, GNMA Secured, 8.125%, 7/01/06 ....................................................... 30,000 31,043
Series F-2, GNMA Secured, 7.75%, 7/01/22 ...................................................... 330,000 345,916
Indiana State Office Building Commission Correctional Facilities Program Revenue, Pre-Refunded,
6.375%, 7/01/16 ............................................................................... 1,000,000 1,094,110
Indianapolis Airport Authority, Indianapolis International Airport Revenue, 6.50%, 11/15/31 ...... 1,460,000 1,575,574
Indianapolis Industrial Gas Utility Revenue, Distribution System, Refunding, Series A, AMBAC
Insured, 5.00%, 8/15/24 ....................................................................... 1,000,000 973,300
Indianapolis Local Public Improvement Bond, Series D, 6.75%, 2/01/20 ............................. 2,300,000 2,566,202
Jasper County EDR, Georgia-Pacific Corp. Project, 5.625%, 12/01/27 ............................... 1,000,000 1,002,700
Jasper County PCR, Northern Indiana Public Service Co., Refunding, MBIA Insured, 7.10%, 7/01/17 .. 500,000 540,640
Lake Central Industrial Multi-School Building Corp. First Mortgage, Refunding, MBIA Insured,
6.50%, 1/15/14 ................................................................................ 2,100,000 2,287,929
Madison County Authority Anderson Hospital Revenue, Refunding, Series A, BIG Insured,
8.00%, 1/01/14 ................................................................................ 95,000 97,080
Marion County Convention and Recreational Facilities Authority Excise Tax Revenue, Lease Rental,
Series A, AMBAC Insured, 7.00%, 6/01/21 ....................................................... 250,000 269,995
Subordinated Lien, Series A, MBIA Insured, 5.00%, 6/01/27 ..................................... 2,750,000 2,660,928
Monroe County MFHR, Country View, Series A, GNMA Secured, 5.75%, 4/01/33 ......................... 1,100,000 1,117,061
Muncies Edit Building Corp. First Mortgage, Series A, AMBAC Insured, 6.60%, 12/01/17 ............. 2,000,000 2,220,800
New Albany Floyd County School Building Corp. Revenue, First Mortgage, MBIA Insured, 5.375%,
1/15/18 ....................................................................................... 1,500,000 1,546,920
New Prairie Unified School Building Corp. Revenue, First Mortgage, Refunding, 5.80%, 7/05/11 ..... 1,520,000 1,644,534
Penn-Harris-Madison Multi-School Building Corp. First Mortgage, FSA Insured, 5.90%, 7/15/14 ...... 1,000,000 1,100,310
Princeton PCR, Refunding, Public Service Co. of Indiana Project, Series C, MBIA Insured, 7.375%,
3/15/12 ....................................................................................... 250,000 263,830
Rochester Community Multi-School Building Corp. Revenue, First Mortgage, AMBAC Insured, 5.20%,
1/15/18 ....................................................................................... 1,000,000 1,011,530
Steuben County Metropolitan School District COP, 6.90%, 1/01/08 .................................. 500,000 526,030
Sullivan Industrial PCR, Hoosier Energy, Merom Project, Refunding, 7.10%, 4/01/19 ................ 750,000 799,737
-----------
TOTAL LONG TERM INVESTMENTS (COST $54,130,869) ................................................... 57,816,143
-----------
</TABLE>
110
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INDIANA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
(a)SHORT TERM INVESTMENTS 2.5%
<S> <C> <C>
Fort Wayne Hospital Authority Hospital Revenue, Parkview Memorial Hospital,
Series B, Weekly VRDN and Put, 3.00%, 1/01/16 ............................................. $ 100,000 $ 100,000
Series D, Weekly VRDN and Put, 3.00%, 1/01/16 ............................................. 800,000 800,000
Indiana Health Facility Financing Authority Revenue, St. Anthony Medical Center Project, Weekly
VRDN and Put, 3.50%, 12/01/14 ............................................................. 500,000 500,000
Princeton PCR, PSI Energy Inc. Project, Refunding, Daily VRDN and Put, 3.20%, 4/01/22 ........ 100,000 100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,500,000) ............................................... 1,500,000
------------
TOTAL INVESTMENTS (COST $55,630,869) 100.5% .................................................. 59,316,143
OTHER ASSETS, LESS LIABILITIES (.5%) ......................................................... (302,320)
------------
NET ASSETS 100.0% ............................................................................ $ 59,013,823
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
111
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------
1999 1998 1997(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.02 $ 10.42 $ 10.00
---------------------------------------
Income from investment operations:
Net investment income ............................. .54 .51 .30
Net realized and unrealized gains ................. .12 .67 .32
---------------------------------------
Total from investment operations ................... .66 1.18 .62
---------------------------------------
Less distributions from:
Net investment income ............................. (.57) (.58) (.20)
Net realized gains ................................ (.02) -- --
---------------------------------------
Total distributions ................................ (.59) (.58) (.20)
---------------------------------------
Net asset value, end of year ....................... $ 11.09 $ 11.02 $ 10.42
=======================================
Total return* ...................................... 6.15% 11.62% 6.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 17,117 $ 9,268 $ 3,884
Ratios to average net assets:
Expenses .......................................... .25% .25% .34%**
Expenses excluding waiver and payments by affiliate .94% 1.01% 1.21%**
Net investment income ............................. 5.03% 5.39% 4.90%**
Portfolio turnover rate ............................ 16.00% 51.81% 42.83%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
** Annualized
(1) For the period July 1, 1996 (effective date) to February 28, 1997.
See notes to financial statements.
112
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 95.5%
<S> <C> <C>
Avondale School District, AMBAC Insured, 5.75%, 5/01/22 .......................................... $ 150,000 $ 167,012
Caledonia Community Schools, MBIA Insured, Pre-Refunded, 5.85%, 5/01/22 .......................... 100,000 106,805
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%, 5/01/19 ................ 250,000 277,800
Central Michigan University Revenue, FGIC Insured, 5.00%, 10/01/27 ............................... 500,000 480,155
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial Hospital,
Refunding, Series B, 5.625%, 11/01/14 ......................................................... 650,000 661,687
Dearborn EDC Hospital Revenue, Oakwood Obligation Group, Series A, FGIC Insured, 5.75%, 11/15/15 . 100,000 107,793
Detroit Local Development Finance Authority, Refunding, Series A, 5.375%, 5/01/21 ................ 100,000 101,439
Detroit Sewage Disposal Revenue, Series A, MBIA Insured, 5.50%, 7/01/20 .......................... 215,000 224,103
Detroit Water Supply System Revenue, Series A, MBIA Insured, 5.00%, 7/01/27 ...................... 750,000 728,918
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 ............................. 500,000 503,435
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, MBIA Insured, 5.75%, 2/15/25 ... 100,000 106,214
Ferris State University Revenue, AMBAC Insured, Pre-Refunded, 5.90%, 10/01/26 .................... 240,000 271,171
Gogebic-Iron Wastewater Authority Wastewater Treatment System Revenue, Refunding, MBIA Insured,
6.05%, 1/01/25 ................................................................................ 500,000 535,600
Greenville Public School Building GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/19 ................. 160,000 176,202
Grosse-Ile Township School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ............... 150,000 169,590
Huron Valley School District GO, FGIC Insured, Pre-Refunded,
5.875%, 5/01/16 ............................................................................... 100,000 112,200
5.75%, 5/01/22 ................................................................................ 100,000 111,341
Jenison Public Schools, Refunding, FGIC Insured, 5.75%, 5/01/16 .................................. 130,000 138,701
Kalamazoo Downtown Development, Refunding, 5.35%, 4/01/18 ........................................ 200,000 205,784
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist Hospital,
Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 ...................................... 225,000 241,763
Refunding, MBIA Insured, 5.25%, 5/15/18 ....................................................... 250,000 253,790
Kenowa Hills Public Schools, MBIA Insured, 5.875%, 5/01/21 ....................................... 275,000 292,375
Kent County Building Authority GO, 5.00%, 6/01/26 ................................................ 600,000 579,186
Lakeview Community Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 ........................ 100,000 106,693
Lincoln Consolidated School District,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/21 .................................................... 130,000 144,841
Refunding, FGIC Insured, 5.85%, 5/01/21 ....................................................... 10,000 10,862
Lincoln Park School District, Refunding, FGIC Insured, 5.00%, 5/01/26 ............................ 400,000 390,676
Michigan Higher Education Facilities Authority Revenue, Limited Obligation, Calvin College Project,
5.55%, 6/01/17 ................................................................................ 840,000 841,873
Michigan Municipal Bond Authority Revenue, Local Government Loan Program Revenue Sharing, 5.20%,
11/01/19 ...................................................................................... 330,000 323,832
Michigan State Building Authority Revenue, Facilities Program, Refunding, Series 1, 4.75%, 10/15/21 500,000 474,715
Michigan State HDA,
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 ............................... 200,000 213,388
SFMR, Refunding, Series B, 6.20%, 6/01/27 ..................................................... 75,000 79,471
SFMR, Refunding, Series E, 6.20%, 12/01/27 .................................................... 310,000 324,263
SFMR, Series D, 5.95%, 12/01/16 ............................................................... 250,000 262,998
Michigan State Hospital Finance Authority Revenue,
Mercy Health Services, Series U, 5.75%, 8/15/26 ............................................... 300,000 313,521
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/26 .................... 500,000 485,455
Presbyterian Villages Obligation Group, 6.375%, 1/01/15 ....................................... 225,000 241,718
Presbyterian Villages Obligation Group, 6.375%, 1/01/25 ....................................... 1,250,000 1,333,046
Sparrow Obligation Group, MBIA Insured, 5.90%, 11/15/26 ....................................... 100,000 108,257
Michigan State Hospital Financing Authority Revenue, Hospital-Charity Obligation Group, Series A,
5.125%, 11/01/29 .............................................................................. 800,000 778,840
Michigan State Strategic Fund Limited Obligation Revenue,
Hope Network Project, Refunding, Series B, 5.125%, 9/01/13 .................................... 600,000 611,754
Worthington Armstrong Venture, 5.75%, 10/01/22 ................................................ 350,000 368,613
Michigan State Trunk Line, Refunding, Series A, MBIA Insured, 5.00%, 11/01/26 .................... 500,000 489,690
Oakland County EDC, Limited Obligation Revenue, Cranbrook Educational Community, Refunding, 5.00%,
11/01/17 ...................................................................................... 500,000 496,965
Oakridge Public Schools GO, FSA Insured, 5.125%, 5/01/28 ......................................... 500,000 497,340
Ottawa County GO, Holland Township Water Supply, Refunding, 5.15%, 8/01/18 ....................... 280,000 284,371
Wayne Charter County Airport Revenue, Detroit Metro Airport, Series A, MBIA Insured, 5.25%,
12/01/18 ...................................................................................... 500,000 504,325
Zeeland Public Schools GO, Series B, MBIA Insured, Pre-Refunded, 6.05%, 5/01/19 .................. 100,000 112,347
-----------
TOTAL LONG TERM INVESTMENTS (COST $15,734,216) ................................................... 16,352,918
-----------
</TABLE>
113
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
(a)SHORT TERM INVESTMENTS 3.0%
<S> <C> <C>
Delta County EDC, Environmental Improvement Revenue, Mead Escanaba Paper
Project, Refunding, Series C, Daily VRDN and Put, 3.10%, 12/01/23 . $ 100,000 $ 100,000
Michigan State Strategic Fund Limited Obligation Revenue, Detroit
Edison Co., Reserve 1, Refunding, Daily VRDN and Put, 3.15%, 9/01/30 300,000 300,000
Midland County EDC, Limited Obligation Revenue, Dow Chemical Co. ..
Project, Refunding, Series B, Daily VRDN and Put, 2.20%, 12/01/15 . 100,000 100,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $500,000) ...................... 500,000
-----------
TOTAL INVESTMENTS (COST $16,234,216) 98.5% ........................ 16,852,918
OTHER ASSETS, LESS LIABILITIES 1.5% ............................... 264,500
-----------
NET ASSETS 100.0% ................................................. $17,117,418
===========
</TABLE>
See glossary of terms on page 134.
(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.
See notes to financial statements.
114
<PAGE>
<TABLE>
<CAPTION>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------
CLASS A 1998 1997 19961 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.92 $ 11.61 $ 11.68 $ 11.28 $ 11.82
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .61 .63 .64 .65 .66
Net realized and unrealized gains (losses) . .05 .32 (.06) .39 (.55)
-----------------------------------------------------------------------------
Total from investment operations ............ .66 .95 .58 1.04 .11
-----------------------------------------------------------------------------
Less distributions from net investment income (.62) (.64) (.65) (.64) (.65)
-----------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.96 $ 11.92 $ 11.61 $ 11.68 $ 11.28
=============================================================================
Total return* ............................... 5.63% 8.37% 5.13% 9.43% 1.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 681,818 $ 636,929 $ 574,691 $ 564,864 $ 533,937
Ratios to average net assets:
Expenses ................................... .65% .66% .64% .65% .63%
Net investment income ...................... 5.06% 5.34% 5.58% 5.65% 5.86%
Portfolio turnover rate ..................... 5.43% 12.77% 8.87% 12.04% 31.05%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.98 $ 11.66 $ 11.72 $ 11.30
-----------------------------------------------------------
Income from investment operations:
Net investment income ...................... .54 .56 .57 .49
Net realized and unrealized gains (losses) . .06 .33 (.05) .40
-----------------------------------------------------------
Total from investment operations ............ .60 .89 .52 .89
-----------------------------------------------------------
Less distributions from net investment income (.55) (.57) (.58) (.47)
-----------------------------------------------------------
Net asset value, end of year ................ $ 12.03 $ 11.98 $ 11.66 $ 11.72
===========================================================
Total return* ............................... 5.09% 7.84% 4.57% 8.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 48,715 $ 28,139 $ 13,095 $ 4,542
Ratios to average net assets:
Expenses ................................... 1.21% 1.21% 1.21% 1.23%**
Net investment income ...................... 4.50% 4.77% 5.01% 5.15%**
Portfolio turnover rate ..................... 5.43% 12.77% 8.87% 12.04%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
** Annualized
1 For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
See notes to financial statements.
115
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
(a)LONG TERM INVESTMENTS 99.2%
<S> <C> <C>
BONDS 99.2%
Aberdeen Township, Refunding, FGIC Insured, 5.70%, 2/01/22 .......................................... $ 4,100,000 $ 4,378,144
Allamuchy Town Board of Education COP, MBIA Insured, 6.00%, 11/01/14................................. 1,000,000 1,100,270
Atlantic City Municipal Utilities Authority Revenue, Water
System, Pre-Refunded, 7.75%, 5/01/17 ................................................................ 2,000,000 2,141,340
Atlantic County Improvement Authority Luxury Tax Revenue, Convention Center Project, ETM, MBIA
Insured, 7.40%, 7/01/16 ............................................................................. 9,500,000 12,211,775
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 ................................................................................... 2,000,000 2,032,720
7.125%, 3/01/16 ................................................................................... 6,600,000 6,728,568
Bedminister Township Board of Education COP, Pre-Refunded, 7.125%, 9/01/10........................... 2,000,000 2,179,880
Bergen County Utility Authority Solid Waste System Revenue,
Series A, FGIC Insured, 6.25%, 6/15/11 1,325,000 1,433,067 Camden County
Improvement Authority Health System Revenue, Catholic Health East, Series B,
AMBAC Insured, 5.00%, 11/15/28 ...................................................................... 11,600,000 11,440,152
Camden County Municipal Utilities Authority Sewer Revenue, Refunding, FGIC Insured,
5.20%, 7/15/15 ................................................................................... 5,000,000 5,145,050
5.25%, 7/15/16 ................................................................................... 2,005,000 2,072,929
5.125%, 7/15/17 .................................................................................. 4,560,000 4,620,101
5.25%, 7/15/17 ................................................................................... 2,425,000 2,497,168
Cape May County IPC, Financing Authority Revenue, Refunding, Atlantic City Electric Co., Series A,
MBIA Insured, 6.80%, 3/01/21 ..................................................................... 5,400,000 6,721,272
Carteret Board of Education COP, MBIA Insured, 6.25%, 4/15/19 ....................................... 2,750,000 3,032,068
Church Street Corp. Keansburg Elderly Housing Mortgage Revenue,
Refunding, 5.625%, 3/01/11 1,890,000 1,962,387 Delaware River and Bay Authority Revenue, FGIC
Insured, 5.25%, 1/01/26 .......................................................................... 10,200,000 10,415,934
Delaware River Port Authority Pennsylvania and New Jersey Revenue, Series 1995, FGIC Insured,
5.50%, 1/01/26 ................................................................................... 24,000,000 25,354,794
Essex County Improvement Authority Revenue,
MBIA Insured, Pre-Refunded, 6.00%, 12/01/17 ...................................................... 2,510,000 2,767,677
Utilities System, Orange Franchise, Series A, MBIA Insured, 5.375%, 7/01/18 ...................... 1,400,000 1,444,982
Evesham Municipal Utilities Authority Revenue, Series B, MBIA Insured, 7.00%, 7/01/10 ............... 3,000,000 3,127,320
Freehold Township Board of Education, FSA Insured, 5.40%, 7/15/28 ................................... 1,080,000 1,109,171
Gloucester County Improvement Authority Revenue, Justice Complex Lease Project, Pre-Refunded,
7.50%, 12/15/10 .................................................................................. 1,000,000 1,044,680
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue, SES Gloucester Co. ...
LP Project, Series B, 8.375%, 7/01/10 ............................................................ 275,000 275,982
Hamilton Township Board of Education COP, Series B, FSA Insured, 7.00%, 12/15/15 .................... 4,670,000 5,053,500
Highland Park School District GO, Refunding, MBIA
Insured, 5.125%, 2/15/25 7,120,000 7,157,878 Howell Township GO, Refunding,
FGIC Insured, 6.80%, 1/01/14 1,750,000 1,911,928 Hudson County Improvement
Authorities Facilities Lease Revenue, Hudson County Lease Project, FGIC
Insured, Pre-Refunded, 6.00%, 12/01/25 .............................................................. 2,000,000 2,205,320
Hudson County Improvement Authority Solid Waste Systems Revenue, Koppers Site Project, Series
A, 6.125%, 1/01/29 .............................................................................. 6,510,000 6,365,478
Mercer County Improvement Authority Revenue, Library Systems, Series A, Pre-Refunded, 6.00%, 12/01/14 2,500,000 2,789,950
Middlesex County COP,
MBIA Insured, 5.30%, 6/15/29 ..................................................................... 5,000,000 5,123,400
MBIA Insured, Pre-Refunded, 6.00%, 8/15/14 ....................................................... 1,500,000 1,660,050
MBIA Insured, Pre-Refunded, 6.125%, 2/15/19 ...................................................... 2,300,000 2,558,267
Refunding, MBIA Insured, 5.00%, 2/15/19 .......................................................... 4,250,000 4,233,935
Middlesex County Improvement Authority Revenue, Guaranteed Educational Services, Commission Project,
Pre-Refunded, 6.00%, 9/15/14 ..................................................................... 2,000,000 2,255,520
Middlesex County Utilities Authority Sewer Revenue, Refunding, Series A, FGIC Insured,
5.375%, 9/15/15 .................................................................................. 2,100,000 2,185,176
5.125%, 12/01/16 ................................................................................. 9,000,000 9,181,980
Middletown Township GO, Board of Education, MBIA Insured, 5.85%,
8/01/24 .......................................................................................... 4,295,000 4,597,755
8/01/25 .......................................................................................... 4,300,000 4,603,107
Moorestown Township School District, FGIC Insured, 5.00%, 1/01/26 ................................... 1,000,000 991,170
Mount Olive Township, Board of Education, FGIC Insured, 5.25%,
1/15/22 .......................................................................................... 2,550,000 2,594,192
1/15/23 .......................................................................................... 2,690,000 2,733,121
New Brunswick Parking Authority Revenue, City GTD Parking, FGIC Insured, 5.00%, 1/01/29 ............. 2,000,000 1,981,480
New Jersey EDA Revenue,
Educational Testing Service, Refunding, Series A, MBIA Insured, 4.75%, 5/15/25 ................... 3,500,000 3,362,870
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%, 1/01/16 .............. 2,500,000 2,602,950
St. Barnabas Project, Series A, MBIA Insured, 5.375%, 7/01/27 .................................... 4,375,000 4,473,875
New Jersey EDA,
Auto Parking Revenue, Blair Development Co., FGIC Insured, 5.60%, 10/15/26 ....................... 2,000,000 2,113,000
EDR, School Revenue, Blair Academy, 1995 Project, Series N, 6.90%, 12/01/11 ...................... 3,545,000 3,806,656
</TABLE>
116
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
(a)LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
BONDS (CONT.)
New Jersey EDA, (cont.)
EDR, School Revenue, Blair Academy, 1995 Project, Series P, 6.90%, 12/01/11 .................. $ 395,000 $ 424,155
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10 ............... 6,370,000 6,694,615
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04 ............... 3,245,000 3,397,937
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07 ............... 2,720,000 2,866,499
Market Transition Facilities Revenue, senior lien, Series A, MBIA Insured, 5.875%, 7/01/11 ... 3,000,000 3,279,510
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series A, AMBAC Insured,
6.25%, 8/01/24 ............................................................................... 8,200,000 9,036,974
PCR, Jersey Central Power and Light, 7.10%, 7/01/15 .......................................... 550,000 596,998
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 ........................ 1,640,000 1,696,285
State Lease Revenue, Liberty State Park Lease Rental, Refunding, AMBAC Insured, 5.75%, 3/15/20 4,605,000 4,936,468
State Lease Revenue, Liberty State Park Lease Rental, Refunding, AMBAC Insured, 5.75%, 3/15/22 3,315,000 3,553,614
Terminal Revenue, GATX Terminals Corp. Project, 6.65%, 9/01/22 ............................... 7,440,000 7,999,042
Water Facilities Revenue, Hackensack Water Co. Project, Refunding, Series A, MBIA Insured,
5.80%, 3/01/24 ........................................................................... 1,000,000 1,061,260
Water Facilities Revenue, Middlesex Water Co. Project, 7.25%, 7/01/21 ........................ 6,000,000 6,457,380
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11 ....................................... 2,500,000 2,730,175
Atlantic Health Systems, Series A, 5.00%, 7/01/27 ............................................ 5,500,000 5,425,750
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 ........................ 6,000,000 5,920,320
Beth Israel Hospital Association Passaic, 7.80%, 7/01/04 ..................................... 2,720,000 2,800,893
Beth Israel Hospital Association Passaic, Refunding, 7.875%, 7/01/07 ......................... 1,000,000 1,029,570
Cathedral Health Service, Pre-Refunded, 7.25%, 2/15/21 ....................................... 2,020,000 2,203,315
Cathedral Health Services, Refunding, MBIA Insured, 5.25%, 8/01/21 ........................... 5,000,000 5,078,650
Cathedral Health, Series A, FHA Insured, Pre-Refunded, 7.25%, 2/15/10 ........................ 9,330,000 10,176,698
Christian Health Care Center, Refunding, Series A, 5.50%, 7/01/18 ............................ 1,200,000 1,198,488
Clara Maas Medical Center, Series B, Pre-Refunded, 7.30%, 7/01/09 ............................ 1,000,000 1,033,810
Clara Maas Medical Center, Series B, Pre-Refunded, 7.25%, 7/01/19 ............................ 2,435,000 2,516,938
East Orange General Hospital, Series B, 7.75%, 7/01/20 ....................................... 5,445,000 5,733,585
Elizabeth General Medical Center, Series C, 7.375%, 7/01/15 .................................. 4,890,000 5,163,596
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 .............................................. 5,150,000 5,351,829
Hackensack Medical Center, FGIC Insured, Pre-Refunded, 6.25%, 7/01/21 ........................ 2,400,000 2,554,464
Hackensack University Medical Center, Refunding, Series B, MBIA Insured, 5.20%, 1/01/28 ...... 5,000,000 5,061,050
Holy Name Hospital, 6.00%, 7/01/25 ........................................................... 3,000,000 3,148,080
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 ............................................ 4,380,000 4,445,963
Holy Name Hospital, Series B, AMBAC Insured, Pre-Refunded, 7.00%, 7/01/08 .................... 2,000,000 2,136,260
Jersey Shore Medical Center, Refunding, AMBAC Insured, 5.875%, 7/01/24 ....................... 2,500,000 2,635,650
JFK Medical Center/Hartwyck, Refunding, MBIA Insured, 5.00%, 7/01/25 ......................... 7,855,000 7,752,571
John F. Kennedy Health Systems, Obligation Group Revenue, FGIC Insured, 5.70%, 7/01/25 ....... 5,000,000 5,276,950
Medical Center at Princeton Obligation Group, AMBAC Insured, 5.00%, 7/01/28 .................. 7,000,000 6,946,240
Monmouth Medical Center, Series C, FSA Insured,Pre-Refunded, 6.25%, 7/01/16 .................. 4,900,000 5,566,694
Monmouth Medical Center, Series C, FSA Insured,Pre-Refunded, 6.25%, 7/01/24 .................. 8,250,000 9,372,495
Morristown Memorial Hospital, Series C, Pre-Refunded, 7.125%, 7/01/08 ........................ 1,800,000 1,859,832
New Jersey Geriatric Center of Workmen's Circle Inc., Series A, FHA Mortgage Insured, 8.00%,
2/01/28 .................................................................................. 125,000 128,185
Newcomb Medical Center, Series A, 7.875%, 7/01/03 ............................................ 2,590,000 2,722,168
Pascack Valley Hospital Association, 5.125%, 7/01/28 ......................................... 6,000,000 5,673,780
Pascack Valley Hospital, Pre-Refunded, 6.90%, 7/01/21 ........................................ 3,565,000 3,903,461
Riverview Medical Center, 5.875%, 7/01/16 .................................................... 10,000,000 10,737,900
Shoreline Behavioral Health, MBIA Insured, 5.50%, 7/01/27 .................................... 1,500,000 1,564,740
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 .................................. 2,000,000 1,973,000
St. Barnabas Health, Refunding, Series B, MBIA Insured, 5.00%, 7/01/24 ....................... 16,000,000 15,795,200
St. Joseph's Hospital and Medical Center, Refunding, 5.75%, 7/01/16 .......................... 2,050,000 2,198,092
St. Joseph's Hospital and Medical Center, Refunding, 6.00%, 7/01/26 .......................... 1,000,000 1,090,050
Wayne General Hospital, Series B, Pre-Refunded, 5.75%, 8/01/11 ............................... 1,720,000 1,829,633
Wayne General Hospital, Series B, Pre-Refunded, 5.875%, 8/01/18 .............................. 1,000,000 1,054,220
New Jersey State Building Authority Revenue, Refunding, 5.00%, 6/15/15 .......................... 5,000,000 5,063,850
New Jersey State Educational Facilities Authority Revenue,
Jersey State College, Series D, MBIA Insured, 6.125%, 7/01/22 ................................ 2,000,000 2,145,980
New Jersey Institute of Technology Revenue, Refunding, Series A, MBIA Insured, 6.00%,
7/01/24 .................................................................................. 1,455,000 1,579,504
New Jersey Institute of Technology, Series 95-E, MBIA Insured, 5.375%, 7/01/25 ............... 2,500,000 2,561,325
New Jersey Institute of Technology, Series A, MBIA Insured, 6.00%, 7/01/15 ................... 4,000,000 4,366,160
</TABLE>
117
<PAGE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
(a)LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
BONDS (CONT.)
New Jersey State Educational Facilities Authority Revenue, (cont.)
Princeton University, Series C, 5.25%, 7/01/25 ................................................. $ 2,760,000 $ 2,805,816
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 ......................................... 3,000,000 3,238,530
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 ......................................... 9,810,000 10,655,524
Seton Hall University Project, Refunding, Series E,MBIA Insured, 5.60%, 7/01/16 ................ 1,765,000 1,882,867
Seton Hall University Project, Series C, BIG Insured, 6.85%, 7/01/19 ........................... 445,000 459,476
Seton Hall University Project, Series C, BIG Insured, Pre-Refunded, 6.85%, 7/01/19 ............. 555,000 573,054
Seton Hall University Project, Series D, 7.00%, 7/01/21 ........................................ 4,400,000 4,653,176
St. Peters College, Series B, 5.50%, 7/01/27 ................................................... 2,000,000 2,014,940
Stevens Institute of Technology, Series I, 5.00%, 7/01/18 ...................................... 1,100,000 1,091,849
Stevens Institute of Technology, Series I, 5.00%, 7/01/28 ...................................... 1,575,000 1,551,060
Trenton State College, Series A, MBIA Insured, 5.10%, 7/01/21 .................................. 3,600,000 3,610,332
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/19 ................................ 4,780,000 5,174,589
Trenton State College, Series B, AMBAC Insured, 6.125%, 7/01/24 ................................ 7,845,000 8,481,073
New Jersey State Highway Authority Garden State Parkway, Senior Parkway Revenue,
6.20%, 1/01/10 ................................................................................. 5,000,000 5,698,800
6.25%, 1/01/14 ................................................................................. 2,500,000 2,683,750
6.00%, 1/01/16 ................................................................................. 2,900,000 3,033,690
New Jersey State Housing and Mortgage Finance Agency MFHR,
Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 .................................... 2,170,000 2,258,059
Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ............................................ 5,000,000 5,341,650
Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ............................................ 12,500,000 13,326,625
Regency Park Project, Series H, 7.70%, 11/01/30 ................................................ 450,000 465,345
Series A, AMBAC Insured, 5.55%, 5/01/27 ........................................................ 2,000,000 2,041,800
New Jersey State Housing and Mortgage Finance Agency Revenue,
Home Buyer, Series B, MBIA Insured, 7.90%, 10/01/22 ............................................ 485,000 500,399
Home Buyer, Series D, MBIA Insured, 7.70%, 10/01/29 ............................................ 2,340,000 2,409,077
Home Buyer, Series J, MBIA Insured, 6.20%, 10/01/25 ............................................ 4,980,000 5,265,454
Home Buyer, Series N, MBIA Insured, 6.35%, 10/01/27 ............................................ 4,000,000 4,247,800
Home Buyer, Series U, MBIA Insured, 5.85%, 4/01/29 ............................................. 12,000,000 12,498,960
Section 8, Refunding, Series 1, 6.70%, 11/01/28 ................................................ 2,885,000 3,098,144
Section 8, Refunding, Series A, 6.95%, 11/01/13 ................................................ 12,400,000 13,328,884
New Jersey State Sports and Exposition Authority Convention Center Luxury Tax, Series A,
MBIA Insured,
6.60%, 7/01/15 ................................................................................. 8,000,000 8,758,080
6.25%, 7/01/20 ................................................................................. 6,800,000 7,322,444
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 ......................................... 3,250,000 3,554,948
North Brunswick Township Board of Education GO, Refunding, FGIC Insured, 5.00%, 2/01/15 ........... 2,000,000 2,022,860
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.40%, 3/15/28 ... 2,000,000 1,950,540
Ocean Township Municipal Utilities Authority Revenue, Refunding, MBIA Insured, 5.80%, 12/01/18 .... 7,400,000 7,855,470
Orange Township GO, Municipal Utility and Lease, Refunding, Series C, MBIA Insured, 5.10%, 12/01/17 3,035,000 3,072,361
Piscataway Township School District COP, MBIA Insured, Pre-Refunded, 7.50%, 6/15/09 ............... 1,000,000 1,012,790
(b)Plainfield Board Education, FSA Insured, 5.00%, 8/01/26 ......................................... 5,000,000 4,933,600
Port Authority of New York and New Jersey Revenue, Consolidated 74th Series, 6.75%, 8/01/26 ....... 1,000,000 1,076,440
Port Authority of New York and New Jersey Revenue,
Consolidated 67th Series, 6.875%, 1/01/25 ...................................................... 2,500,000 2,588,200
Consolidated 67th Series, AMBAC Insured, 6.875%, 1/01/25 ....................................... 750,000 778,785
Consolidated 71st Series, 6.50%, 1/15/26 ....................................................... 2,500,000 2,643,700
Consolidated 72nd Series, Pre-Refunded, 7.35%, 10/01/27 ........................................ 7,000,000 7,909,930
Consolidated 84th Series, 6.00%, 1/15/28 ....................................................... 1,125,000 1,193,681
Consolidated 94th Series, 6.00%, 12/01/16 ...................................................... 2,000,000 2,161,480
Consolidated 94th Series, 6.00%, 6/01/17 ....................................................... 5,000,000 5,403,700
Consolidated, 109th Series, FGIC Insured, 5.375%, 7/15/22 ...................................... 4,645,000 4,790,017
Delta Air Lines Special Project, Series 1, 6.95%, 6/01/08 ...................................... 5,000,000 5,433,050
Special Obligation Revenue, Consolidated, 102nd Series, MBIA Insured, 5.75%, 10/15/23 .......... 5,000,000 5,293,400
Port Authority of New York and New Jersey Special Obligation Revenue,
4th Installment, Special Project, 6.75%, 10/01/11 .............................................. 2,500,000 2,783,900
John F. Kennedy International Air Terminal, MBIA Insured, 5.75%, 12/01/22 ...................... 8,000,000 8,569,040
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ......................................... 3,000,000 3,432,450
</TABLE>
118
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
(a)LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
BONDS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Q, Pre-Refunded,
8.00%, 7/01/18 ............................................................................. $ 8,000,000 $ 8,653,600
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A,
7.90%, 7/01/07 ............................................................................. 120,000 123,996
7.75%, 7/01/08 ............................................................................. 1,350,000 1,380,321
7.50%, 7/01/09 ............................................................................. 100,000 102,221
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation, Refunding,
7.875%, 10/01/04 ........................................................................... 1,000,000 1,042,180
Puerto Rico Electric Power Authority Revenue,
Refunding, Series N, 7.125%, 7/01/14 ....................................................... 2,355,000 2,422,023
Series T, 6.00%, 7/01/16 ................................................................... 11,535,000 12,482,024
Series X, 6.00%, 7/01/15 ................................................................... 2,000,000 2,167,120
Series X, 6.125%, 7/01/21 .................................................................. 5,000,000 5,711,700
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ................................................. 4,185,000 4,348,299
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 ... 125,000 152,519
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ............... 660,000 692,020
Rutgers State University, Series A,
6.50%, 5/01/18 ............................................................................. 4,250,000 4,566,158
5.00%, 5/01/23 ............................................................................. 3,255,000 3,227,723
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 5,655,300
South Brunswick Township Board of Education GO, Refunding, Series AA, FGIC
Insured, 5.50%, 8/01/24 ....................................................................... 1,720,000 1,790,365
Stony Brook Regional Sewerage
Authority Revenue, Series A, Pre-Refunded, 7.40%, 12/01/09 .................................... 1,000,000 1,052,030
Union County Improvement Authority Revenue, Plainfield Board of Education, FGIC
Insured, 5.85%, 8/01/26 ....................................................................... 5,000,000 5,407,550
Union County Utilities Authority Solid Waste Revenue, sub. leased, Ogden Martin, Series A,
AMBAC Insured, 5.35%, 6/01/23 .............................................................. 3,000,000 3,047,910
University of Medicine and Dentistry COP, Series A, MBIA Insured, 5.00%, 9/01/22 .............. 1,700,000 1,672,307
University of Medicine and Dentistry Revenue, Series C, Pre-Refunded, 7.20%,
12/01/09 ................................................................................... 750,000 787,928
12/01/19 ................................................................................... 725,000 761,663
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ................................................................................... 2,500,000 2,544,900
10/01/18 ................................................................................... 3,045,000 3,078,647
10/01/22 ................................................................................... 2,000,000 2,006,700
Warren Hills Regional School District COP, BIG Insured, Pre-Refunded, 7.375%, 12/15/09 ........ 1,200,000 1,214,940
------------
TOTAL BONDS ................................................................................... 724,311,573
------------
ZERO COUPON BONDS
(d)Middlesex County COP, MBIA Insured, zero cpn., 6/15/24 ...................................... 1,000,000 272,420
------------
TOTAL LONG TERM INVESTMENTS (COST $678,154,419) ............................................... 724,583,993
------------
(a)SHORT TERM INVESTMENTS .3%
New Jersey EDA, EDR, Dow Chemical, El Dorado Term 1984B, Refunding, Daily VRDN
and Put, 2.80%, 5/01/03 ....................................................................... 600,000 600,000
New Jersey State Turnpike Authority
Revenue, Series D, Weekly VRDN and Put, 1.95%, 1/01/18 ........................................ 800,000 800,000
Port Authority of New York and New Jersey Special Obligation Revenue, Versatile Structure,
Series 2, Daily VRDN and Put, 3.15%, 5/01/19 ............................................... 400,000 400,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly
VRDN and Put, 2.20%, 12/01/15 ................................................................. 400,000 400,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,200,000) ................................................ 2,200,000
------------
TOTAL INVESTMENTS (COST $680,354,419) 99.5% ................................................... 726,783,993
OTHER ASSETS, LESS LIABILITIES .5% ............................................................ 3,749,196
------------
NET ASSETS 100.0% ............................................................................. $730,533,189
============
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(d) Zero coupon/step-up bonds. The current effective yield may vary. The
original accretion rate will remain constant.
See notes to financial statements.
119
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN OREGON TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------
CLASS A 1999 1998 1997 19961 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.86 $ 11.55 $ 11.60 $ 11.22 $ 11.70
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .62 .63 .63 .63
Net realized and unrealized gains (losses) . (.01) .31 (.05) .38 (.49)
-----------------------------------------------------------------------------
Total from investment operations ............ .58 .93 .58 1.01 .14
-----------------------------------------------------------------------------
Less distributions from net investment income (.61) (.62) (.63) (.63) (.62)
-----------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.83 $ 11.86 $ 11.55 $ 11.60 $ 11.22
-----------------------------------------------------------------------------
Total return* ............................... 5.12% 8.21% 5.13% 9.19% 1.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 483,664 $ 427,022 $ 384,003 $ 375,415 $ 349,458
Ratios to average net assets:
Expenses ................................... .67% .67% .66% .66% .65%
Net investment income ...................... 5.00% 5.33% 5.52% 5.51% 5.71%
Portfolio turnover rate ..................... 10.65% 12.18% 4.47% 6.52% 26.44%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.92 $ 11.61 $ 11.65 $ 11.23
-------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .56 .56 .47
Net realized and unrealized gains (losses) . -- .31 (.04) .41
-------------------------------------------------------------
Total from investment operations ............ .53 .87 .52 .88
-------------------------------------------------------------
Less distributions from net investment income (.55) (.56) (.56) (.46)
-------------------------------------------------------------
Net asset value, end of year ................ $ 11.90 $ 11.92 $ 11.61 $ 11.65
-------------------------------------------------------------
Total return* ............................... 4.59% 7.66% 4.59% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 32,962 $ 15,946 $ 7,100 $ 2,044
Ratios to average net assets:
Expenses ................................... 1.23% 1.22% 1.23% 1.24%**
Net investment income ...................... 4.44% 4.74% 4.93% 4.87%**
Portfolio turnover rate ..................... 10.65% 12.18% 4.47% 6.52%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior
to May 1, 1994, dividends from net investment income were reinvested at the
offering price.
** Annualized
1 For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
See notes to financial statements.
120
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 102.3%
<S> <C> <C>
Albany Water Revenue, Second Lien, Pre-Refunded, 7.25%, 8/01/09 .................................. $ 1,000,000 $ 1,017,390
Bay Area Health District Hospital Facility Authority, Health Facilities Revenue, Evergreen
Court Project, 7.25%, 10/01/14 ................................................................ 2,000,000 2,127,960
Bend Urban Renewal Agency Tax Revenue, Series A, Pre-Refunded,
6.85%, 9/01/06 ................................................................................ 600,000 600,000
7.00%, 9/01/11 ................................................................................ 750,000 750,000
Benton County Hospital Facilities Authority Revenue, Samaritan Health Services Project, Refunding,
5.20%, 10/01/17 ............................................................................... 4,000,000 4,006,720
5.125%, 10/01/28 .............................................................................. 4,500,000 4,435,740
Benton County Hospital Facilities Authority, Good Samaritan Hospital, Corvallis, Pre-Refunded,
6.25%, 10/01/09 ............................................................................... 1,125,000 1,234,103
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.80%,
6/01/12 .......................................................................................... 1,000,000 1,115,500
Clackamas Community College District, MBIA Insured,
Pre-Refunded, 5.80%, 6/01/26 ..................................................................... 1,000,000 1,115,500
Clackamas County Health Facilities Authority Hospital Revenue, Adventist Health, Refunding,
Series A, MBIA Insured, 6.35%, 3/01/09 ........................................................ 4,945,000 5,318,397
Clackamas County Hospital Facilities Authority Revenue,
Gross Willamette Falls, Refunding, 5.75%, 4/01/15 ............................................. 2,250,000 2,322,383
Jennings Lodge Project, GNMA Secured, 7.50%, 10/20/31 ......................................... 2,990,000 3,151,251
Kaiser Permanente, Series A, 6.50%, 4/01/11 ................................................... 1,635,000 1,739,002
Kaiser Permanente, Series A, 5.375%, 4/01/14 .................................................. 2,500,000 2,588,725
Kaiser Permanente, Series A, 6.25%, 4/01/21 ................................................... 4,950,000 5,213,093
Sisters of Providence Project, 8.125%, 10/01/07 ............................................... 110,000 111,412
Willamette View Inc. Project, Refunding, 6.10%, 11/01/12 ...................................... 500,000 521,045
Willamette View Inc. Project, Refunding, 6.30%, 11/01/21 ...................................... 1,500,000 1,565,745
Clackamas County USD No. 115, AMBAC Insured, Pre-Refunded, 6.15%, 6/01/14 ........................ 4,000,000 4,518,760
Clairmont Water District Revenue, 6.50%, 2/01/12 ................................................. 1,125,000 1,158,840
Deschutes County Hospital Facilities Authority Hospital Revenue, St. Charles Medical Center,
6.00%, 1/01/13 ................................................................................ 3,000,000 3,221,040
Douglas County Hospital Facilities Authority Revenue, Catholic Health Facilities, Series B, MBIA
Insured, 6.00%, 11/15/15 ...................................................................... 1,950,000 2,143,343
Emerald People's Utility District Electric System Revenue, AMBAC Insured, Series B, Pre-Refunded,
7.30%, 11/01/11 ............................................................................... 500,000 514,275
Eugene Electric Utility System Revenue,
Pre-Refunded, 6.65%, 8/01/10 .................................................................. 655,000 703,070
Pre-Refunded, 6.70%, 8/01/11 .................................................................. 700,000 752,171
Pre-Refunded, 5.75%, 8/01/16 .................................................................. 3,000,000 3,308,070
Refunding, FSA Insured, 5.00%, 8/01/18 ........................................................ 4,500,000 4,488,705
Refunding, FSA Insured, 5.05%, 8/01/22 ........................................................ 13,620,000 13,639,613
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 .................................... 500,000 529,100
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 ................................. 840,000 841,344
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ............................................................................... 750,000 822,780
6.70%, 10/01/23 ............................................................................... 1,900,000 2,085,516
Guam Power Authority Revenue, Series A, 6.30%, 10/01/12 .......................................... 825,000 892,741
Hermiston GO, AMBAC Insured, 6.00%, 8/01/15 ...................................................... 1,000,000 1,077,250
Hillsborough Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ................... 205,000 216,708
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical Center Project,
7.00%, 6/01/02 ................................................................................ 1,500,000 1,628,385
7.25%, 6/01/06 ................................................................................ 2,310,000 2,507,159
Lane and Douglas Counties GO, School District No. 28J Fern Ridge, FGIC Insured, 5.00%, 6/01/17 ... 1,000,000 1,007,290
Lane County COP, Fairground Project, 7.00%, 8/01/04 .............................................. 1,000,000 1,012,530
Lane County PCR, Weyerhaeuser Co. Project, Refunding, 6.50%, 7/01/09 ............................. 11,575,000 12,566,515
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 ........................................... 2,425,000 2,455,676
Marion County COP, Courthouse Square Project, Series A, MBIA Insured,
4.80%, 6/01/17 ................................................................................ 1,140,000 1,119,526
4.80%, 6/01/18 ................................................................................ 1,165,000 1,137,739
5.00%, 6/01/23 ................................................................................ 2,000,000 1,972,200
Marion County Housing Authority Revenue, Elliott Residence Project, GNMA Secured, 7.50%, 10/20/25 1,240,000 1,396,017
Marion County UHSD No. 7J, Pre-Refunded, 6.00%, 6/01/13 .......................................... 1,000,000 1,114,380
Medford Hospital Facilities Authority Revenue,
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/18 .................................. 13,700,000 13,548,478
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/24 .................................. 6,300,000 6,192,963
Asante Health Systems, Series B, MBIA Insured, 5.125%, 8/15/28 ................................ 11,500,000 11,513,455
Gross Rogue Valley Health Services, MBIA Insured, Pre-Refunded, 6.75%, 12/01/20 ............... 4,475,000 4,818,859
Metropolitan Service District Convention Center GO, Series A, 6.25%, 1/01/13 ..................... 4,865,000 5,068,698
Multnomah County Drain District No. 1 Assessment, MBIA Insured, 5.25%, 7/01/17 ................... 1,000,000 1,025,000
</TABLE>
121
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Multnomah Educational Service District, 5.40%, 6/01/17 ........................................ $ 1,000,000 $ 1,036,240
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.40%, 3/15/28 3,500,000 3,413,445
Oak Lodge Water District GO, AMBAC Insured,
7.40%, 12/01/08 ............................................................................ 215,000 250,370
7.50%, 12/01/09 ............................................................................ 215,000 250,146
Ontario Catholic Health Revenue, Dominican Sisters Holy Rosary, 6.10%, 11/15/17 ............... 1,500,000 1,602,045
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 ..................................... 4,000,000 4,702,720
Oregon Health Sciences University Revenue, Series A, MBIA Insured, 5.25%,
7/01/25 .................................................................................... 100,000 102,212
7/01/28 .................................................................................... 2,000,000 2,045,740
Oregon State Department of Administrative Services COP,
Series A, AMBAC Insured, 5.80%, 5/01/24 .................................................... 5,000,000 5,417,250
Series C, MBIA Insured, 5.75%, 5/01/17 ..................................................... 2,000,000 2,155,820
Oregon State Department of General Services COP,
Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 ..... 750,000 810,998
Real Property Financing Program, Series A, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 ...... 10,000 10,551
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 .......................................... 1,000,000 1,048,910
Series B, MBIA Insured, Pre-Refunded, 7.20%, 1/15/15 ....................................... 150,000 158,267
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 ...................................... 950,000 1,027,264
Series G, AMBAC Insured, 6.25%, 9/01/15 .................................................... 750,000 805,718
Oregon State Department of Transportation Revenue GO, Regional Light Rail Federal Westside
Project, MBIA Insured, 6.10%,
6/01/07 .................................................................................... 2,000,000 2,217,220
6.20%, 6/01/08 ............................................................................. 2,500,000 2,775,675
6.25%, 6/01/09 ............................................................................. 1,750,000 1,934,818
(b)Oregon State Department Services, COP, Series A, Refunding, 5.00%, 5/01/24 .................. 35,000,000 34,749,750
Oregon State EDR, Georgia Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 ..................................................... 1,500,000 1,514,250
Series CLVII, 6.35%, 8/01/25 ............................................................... 18,500,000 19,599,825
Oregon State Elderly Housing GO, Series A, 7.125%, 8/01/30 .................................... 635,000 655,803
Oregon State GO,
Alternative Energy Project, Refunding, Series D, 5.00%, 1/01/28 ............................ 4,265,000 4,232,501
Board of Higher Education, 6.50%, 10/01/17 ................................................. 750,000 800,393
Board of Higher Education, Baccalaureate, Series A, 5.00%, 8/01/22 ......................... 5,000,000 5,004,100
Board of Higher Education, Baccalaureate, Series A, 5.00%, 8/01/27 ......................... 6,000,000 5,981,640
Board of Higher Education, Series A, 5.65%, 8/01/27 ........................................ 4,440,000 4,756,927
Board of Higher Education, Series C, 5.65%, 8/01/27 ........................................ 1,460,000 1,564,215
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/15 ........................... 910,000 975,684
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/21 ........................... 455,000 485,262
Elderly and Disabled Housing Authority, Series A, 5.375%, 8/01/28 .......................... 1,950,000 1,997,561
Elderly and Disabled Housing Authority, Series B, 6.10%, 8/01/17 ........................... 1,410,000 1,506,331
Elderly and Disabled Housing Authority, Series B, 6.25%, 8/01/23 ........................... 2,015,000 2,244,146
Elderly and Disabled Housing Authority, Series B, 6.375%, 8/01/24 .......................... 2,155,000 2,364,401
Elderly and Disabled Housing Authority, Series C, 6.50%, 8/01/22 ........................... 6,000,000 6,608,820
Veteran's Welfare, Series 75, 5.85%, 10/01/15 .............................................. 800,000 883,424
Veteran's Welfare, Series 75, 5.875%, 10/01/18 ............................................. 460,000 494,054
Veteran's Welfare, Series 75, 6.00%, 4/01/27 ............................................... 2,655,000 2,956,104
Veteran's Welfare, Series 76-A, 6.05%, 10/01/28 ............................................ 3,000,000 3,319,260
Veteran's Welfare, Series 77, 5.30%, 10/01/29 .............................................. 5,000,000 5,087,850
Oregon State Health, Housing, Educational and Cultural Facilities Authority Revenue, Lewis
and Clark College Project, Series A, 6.125%, 10/01/24 ...................................... 10,500,000 11,540,550
Oregon State Housing and Community Services Department Finance Housing Revenue SFM,
Series A, 5.75%, 7/01/12 ................................................................... 850,000 882,283
Series A, 6.35%, 7/01/14 ................................................................... 2,920,000 3,093,010
Series A, 6.40%, 7/01/18 ................................................................... 1,340,000 1,412,628
Series A, 6.45%, 7/01/26 ................................................................... 3,100,000 3,264,734
Series B, 6.875%, 7/01/28 .................................................................. 12,000,000 12,705,960
Series C, 6.20%, 7/01/15 ................................................................... 2,480,000 2,604,645
Series C, 6.40%, 7/01/26 ................................................................... 1,180,000 1,246,045
Series D, 6.80%, 7/01/27 ................................................................... 1,750,000 1,837,990
Series E, 7.00%, 7/01/09 ................................................................... 125,000 133,978
</TABLE>
122
<PAGE>
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STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Oregon State Housing and Community Services Department Finance Housing Revenue SFM, (cont.)
Series E, 5.80%, 7/01/16 ....................................................................... $ 800,000 $ 820,088
Series E, 6.75%, 7/01/16 ....................................................................... 45,000 45,029
Series E, 7.15%, 7/01/25 ....................................................................... 425,000 455,779
Series F, 7.00%, 7/01/22 ....................................................................... 910,000 916,197
Series F, 5.65%, 7/01/28 ....................................................................... 1,000,000 1,023,490
Series G, 6.80%, 7/01/22 ....................................................................... 620,000 657,355
Series H, 5.65%, 7/01/28 ....................................................................... 2,000,000 2,034,740
Oregon State Housing and Community Services Department Finance Housing Revenue, Multi-Unit,
Series A, 6.80%, 7/01/13 ....................................................................... 6,710,000 7,089,786
Series A, 6.15%, 7/01/21 ....................................................................... 910,000 971,097
Series C, 6.85%, 7/01/22 ....................................................................... 180,000 189,853
Port Astoria GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 ....................................... 450,000 484,160
Port Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 8/01/08 ................................ 2,200,000 2,233,154
Port of Portland International Airport Revenue, Portland International Airport,
Series 7A, MBIA Insured, 6.75%, 7/01/09 ........................................................ 990,000 1,057,756
Series 7A, MBIA Insured, Pre-Refunded, 6.75%, 7/01/09 .......................................... 510,000 552,611
Series 7-B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 ......................................... 2,800,000 3,405,248
Series 10, FGIC Insured, 5.75%, 7/01/25 ........................................................ 300,000 317,595
Series 12C, FGIC Insured, 5.00%, 7/01/28 ....................................................... 5,000,000 4,872,050
Series 12C, FGIC Insured., 5.00%, 7/01/18 ...................................................... 1,500,000 1,494,375
Port of Portland International Airport Special Obligation Revenue, Delta Airlines Inc. Project,
6.20%, 9/01/22 ................................................................................. 4,000,000 4,187,080
Port St. Helens PCR,
Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/27 ........................................ 7,750,000 7,767,825
Portland General Electric Co. Project, Series A, 5.25%, 8/01/14 ................................ 3,600,000 3,651,948
Port Umpqua PCR, International Paper Co. Project, Refunding, Series B, 5.20%, 6/01/11 ............. 2,200,000 2,260,016
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 2,969,923
Portland COP, PBA, Series A, Pre-Refunded, 7.25%, 4/01/08 ......................................... 2,000,000 2,006,540
Portland Hospital Facilities Authority Hospital Revenue, Legacy Health System, Refunding,
Series A, AMBAC Insured, 6.70%, 5/01/21 ........................................................ 5,500,000 5,862,505
Series B, AMBAC Insured, 6.70%, 5/01/21 ........................................................ 8,475,000 9,033,587
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 ............................... 1,500,000 1,561,815
Portland Housing Authority Revenue, 7.10%, 7/01/15 ................................................ 1,000,000 1,046,180
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16 ................. 635,000 635,584
Portland International Airport, Portland International Airport, Series 7-B, MBIA Insured,
7.10%, 7/01/21 ................................................................................. 105,000 114,021
Pre-Refunded, 7.10%, 7/01/21 ................................................................... 95,000 103,340
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 ............................ 1,000,000 1,042,220
Portland Oregon GO, Revenue, Limited Tax, Series A, 5.00%, 4/01/18 ................................ 3,380,000 3,338,933
Portland Sewer System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 6/01/15 .............................................. 500,000 503,995
Series A, Pre-Refunded, 6.25%, 6/01/15 ......................................................... 9,100,000 10,225,124
Portland Urban Renewal and Redevelopment, Downtown Waterfront, Refunding, Series A, 6.40%,
6/01/08 ........................................................................................ 5,555,000 5,952,960
Portland Water System Revenue, Series A, 5.00%, 8/01/16 ........................................... 1,000,000 1,004,730
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured, Pre-Refunded,
9.00%, 7/01/09 ................................................................................. 75,000 92,932
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ................................................................... 1,000,000 1,144,150
Public Improvement, Refunding, 5.375%, 7/01/25 ................................................. 1,000,000 1,030,710
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 ......................................................... 4,000,000 4,326,800
Series Y, 5.50%, 7/01/36 ....................................................................... 13,000,000 13,934,440
Series Y, 5.50%, 7/01/26 ....................................................................... 7,275,000 7,642,606
Puerto Rico Commonwealth Infrastructure Financing Authority, Special Tax Revenue, Series A, 7.75%,
7/01/08 ........................................................................................ 280,000 286,289
Puerto Rico Electric Power Authority Revenue,
Refunding, Series O, 7.125%, 7/01/14 ........................................................... 1,065,000 1,095,310
Refunding, Series X, 5.50%, 7/01/25 ............................................................ 2,600,000 2,695,264
(b)Series DD, 5.00%, 7/01/28 .................................................................... 6,000,000 5,846,460
Series R, Pre-Refunded, 6.25%, 7/01/17 ......................................................... 2,070,000 2,271,473
Series X, 6.00%, 7/01/15 ....................................................................... 2,500,000 2,708,900
Puerto Rico HFC Revenue, Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded,
7.75%, 12/01/26 ................................................................................ 395,000 481,959
</TABLE>
123
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ................... $ 240,000 $ 251,645
Puerto Rico Housing Bank and Financing Authority SFMR, Homeownership Fifth Portfolio, Pre-Refunded,
7.50%, 12/01/15 ................................................................................ 500,000 525,675
Puerto Rico PBA Revenue, Government Facilities, Series B, 5.25%, 7/01/21 .......................... 3,700,000 3,746,805
Puerto Rico PBA, Public Education and Health Facilities, Refunding, Series M, 5.75%, 7/01/15 ...... 2,500,000 2,633,200
Puerto Rico Telephone Authority Revenue, Refunding, Series L, 6.125%, 1/01/22 ..................... 1,100,000 1,163,195
Salem Educational Facilities Revenue, Williamette University, Refunding, 6.10%, 4/01/14 ........... 1,000,000 1,056,530
Salem GO, Series A, 5.875%, 1/01/07 ............................................................... 1,250,000 1,304,263
Salem-Keizer School District No. 24J GO, FGIC Insured, Pre-Refunded, 6.00%,
6/01/13 ........................................................................................ 4,345,000 4,806,222
6/01/14 ........................................................................................ 4,395,000 4,861,529
Taft-Nelscott-Delake Rural Fire Protection District, 6.00%, 6/01/16 ............................... 1,110,000 1,206,147
Tillamook Peoples Utilities District, Pre-Refunded, 5.75%, 1/01/28 ................................ 2,765,000 2,989,435
Tri-County Metropolitan Transportation District GO, Light Rail Extended, Series A, 6.00%, 7/01/12 . 2,500,000 2,678,525
Unified Sewer Agency Sewer Revenue, Pre-Refunded, 7.00%, 11/01/09 ................................. 2,700,000 2,770,929
Virgin Islands PFA Revenue, Senior Lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ....................................................................................... 1,635,000 1,664,365
10/01/18 ....................................................................................... 2,400,000 2,426,520
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 ........................................................................................ 2,500,000 2,496,800
7/01/21 ........................................................................................ 1,400,000 1,389,024
Wasco County Hospital Facility Authority Hospital Revenue, 7.375%, 7/01/00 ........................ 2,000,000 2,072,340
Washington County Housing Authority MFHR,
Bethany Meadows II Project, 5.85%, 9/01/27 ..................................................... 1,435,000 1,501,426
Terrace View Project, 5.50%, 12/01/17 .......................................................... 1,725,000 1,790,067
Terrace View Project, 5.60%, 12/01/22 .......................................................... 1,360,000 1,407,627
Washington County School District No. 088 GO, J Sherwood, FSA Insured,
6.10%, 6/01/12 ................................................................................. 190,000 209,963
Pre-Refunded, 6.10%, 6/01/12 ................................................................... 810,000 910,246
Washington County Unified Sewer Agency Revenue, senior lien, Series A,
AMBAC Insured, 6.20%, 10/01/10 ................................................................. 470,000 514,580
AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 .................................................. 1,000,000 1,118,500
Pre-Refunded, 6.20%, 10/01/10 .................................................................. 3,530,000 3,961,507
Western Lane Hospital District Hospital Facilities Authority Revenue, Sisters of St. Joseph of
Peace Health and Hospital Services,
MBIA Insured, Pre-Refunded, 7.125%, 8/01/17 .................................................... 2,700,000 2,799,495
Refunding, MBIA Insured, 5.875%, 8/01/12 ....................................................... 4,400,000 4,834,764
Yamhill County GO, USD No. 029J Newberg, FSA Insured, 6.10%, 6/01/11 .............................. 5,000,000 5,582,850
------------
TOTAL LONG TERM INVESTMENTS (COST $500,936,176) ................................................... 528,321,851
(a)SHORT TERM INVESTMENTS 2.0%
Oregon State GO,
Series 73E, Weekly VRDN and Put, 2.95%, 12/01/16 ............................................... 4,300,000 4,300,000
Series 73 F, Weekly VRDN and Put, 2.95%, 12/01/17 .............................................. 1,000,000 1,000,000
Port of Portland International Airport Special Obligation Revenue, Horizon Airlines Inc. ..........
Project, Daily VRDN and Put, 3.40%, 6/15/27 .................................................... 100,000 100,000
Port of Portland PCR, Reynolds Metals, Daily VRDN and Put, 3.35%, 12/01/09 ........................ 1,100,000 1,100,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and
Put, 2.40%, 12/01/15 ........................................................................... 1,500,000 1,500,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put 2.60%, 7/01/28 ............................................................. 2,700,000 2,700,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $10,700,000) ................................................... 10,700,000
TOTAL INVESTMENTS (COST $511,636,176) 104.3% ...................................................... 539,021,851
OTHER ASSETS, LESS LIABILITIES (4.3%) ............................................................. (22,395,171)
------------
NET ASSETS 100.0% ................................................................................. $516,626,680
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
124
<PAGE>
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Financial Highlights
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 10.56 $ 10.39 $ 10.44 $ 10.16 $ 10.56
Income from investment operations:
Net investment income ...................... .55 .58 .60 .62 .62
Net realized and unrealized gains (losses) . (.02) .32 (.04) .29 (.41)
Total from investment operations ............ .53 .90 .56 .91 .21
Less distributions from:
Net investment income ...................... (.55) (.58) (.61) (.63) (.61)
In excess of net investment income ......... (.01) (.01) -- -- --
Net realized gains ......................... (.01) (.14) -- -- --
----------------------------------------------------------------
Total distributions ......................... (.57) (.73) (.61) (.63) (.61)
----------------------------------------------------------------
Net asset value, end of year ................ $ 10.52 $ 10.56 $ 10.39 $ 10.44 $ 10.16
----------------------------------------------------------------
Total return* ............................... 5.11% 8.90% 5.53% 9.15% 2.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 758,942 $ 713,141 $ 658,339 $ 639,847 $ 587,366
Ratios to average net assets:
Expenses ................................... .65% .65% .64% .64% .63%
Net investment income ...................... 5.17% 5.49% 5.84% 5.96% 6.15%
Portfolio turnover rate ..................... 11.11% 12.74% 22.24% 9.71% 12.91%
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 10.61 $ 10.43 $ 10.47 $ 10.17
--------------------------------------------------
Income from investment operations:
Net investment income ...................... .49 .52 .55 .47
Net realized and unrealized gains (losses) . (.03) .33 (.05) .30
--------------------------------------------------
Total from investment operations ............ .46 .85 .50 .77
--------------------------------------------------
Less distributions from:
Net investment income ...................... (.49)(2) (.53) (.54) (.47)
Net realized gains ......................... (.01) (.14) -- --
--------------------------------------------------
Total distributions ......................... (.50) (.67) (.54) (.47)
--------------------------------------------------
Net asset value, end of year ................ $ 10.57 $ 10.61 $ 10.43 $ 10.47
--------------------------------------------------
Total return* ............................... 4.50% 8.35% 4.98% 7.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 41,917 $ 25,899 $ 11,935 $ 3,110
Ratios to average net assets:
Expenses ................................... 1.21% 1.21% 1.21% 1.22%**
Net investment income ...................... 4.61% 4.89% 5.22% 5.36%**
Portfolio turnover rate ..................... 11.11% 12.74% 22.24% 9.71%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
** Annualized
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(2) Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements. 125
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
BONDS 97.7%
Abington School, FGIC Insured, Pre-Refunded, 6.00%, 5/15/26 .......................... $ 2,000,000 $ 2,247,960
Allegheny County Higher Education Building Authority, Duquesne University
Project, 5.00%, 3/01/21 ............................................................ 1,000,000 984,270
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, 6.25%, 9/01/20 ......... 10,000,000 10,163,800
Allegheny Hospital, South Hills Health System, Series A, MBIA Insured,
5.875%, 5/01/26 ................................................................. 1,700,000 1,823,624
Health Center, Canterbury Place, 5.375%, 12/01/21 .................................. 5,000,000 5,107,550
Health Center, University of Pittsburgh Medical Center, Series B,
MBIA Insured, 5.00%, 7/01/16 .................................................... 4,000,000 3,985,960
University of Pittsburgh Health Center, Refunding, Series A, MBIA
Insured, 5.625%, 4/01/27 ........................................................ 10,450,000 10,944,808
Allegheny County IDAR,
Environmental Improvement, Refunding, 6.10%, 1/15/18 ............................... 2,000,000 2,113,680
Environmental Improvement, USX Corp., Refunding, 5.50%, 12/01/29 ................... 10,000,000 9,987,300
Environmental Improvement, USX Corp., Refunding, 5.60%, 9/01/30 .................... 7,530,000 7,542,199
Kaufmann Medical Project, Refunding, Series A, MBIA Insured, 6.80%, 3/01/15 ........ 1,000,000 1,095,740
Allegheny County RDAR, Home Improvement Loan, Refunding, Series A, 5.90%, 2/01/11 .... 1,555,000 1,606,502
Allegheny County Residential Finance Authority Mortgage Revenue SFM,
Series DD-1, GNMA Secured, 5.35%, 11/01/19 ......................................... 1,000,000 1,004,230
Series DD-2, GNMA Secured, 5.40%, 11/01/29 ......................................... 2,000,000 2,013,620
Allegheny County Residential Finance Authority Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G, FHA
Insured, 6.35%, 10/01/36 ........................................................ 1,960,000 2,076,287
Lexington Home, Series E, 7.125%, 2/01/27 .......................................... 3,715,000 3,851,563
MFMR, Series D, FHA Insured, 7.50%, 6/01/33 ........................................ 1,400,000 1,461,656
Series J, GNMA Secured, 7.50%, 6/01/17 ............................................. 1,915,000 1,959,217
Series K, GNMA Secured, 7.75%, 12/01/22 ............................................ 1,815,000 1,857,634
SFMR, Series M, GNMA Secured, 7.90%, 6/01/11 ....................................... 1,075,000 1,123,225
SFMR, Series T, GNMA Secured, 6.95%, 5/01/17 ....................................... 810,000 854,153
Ambridge Area School District, Refunding, Series A, FGIC Insured, 5.25%, 11/01/16 .... 2,730,000 2,786,921
Beaver County Hospital Authority Revenue, Beaver County Medical Center Inc.,
AMBAC Insured, Pre-Refunded, 6.625%, 7/01/10 ....................................... 5,000,000 5,550,500
Beaver County IDA, PCR,
Beaver Valley Project, Pennsylvania Power and Light, Refunding, Series A,
7.15%, 9/01/21 .................................................................. 4,400,000 4,698,144
Ohio Edison Project, Series A, 7.75%, 9/01/24 ...................................... 6,475,000 6,705,381
Bensalem Township, Refunding, FGIC Insured, 5.75%, 12/01/16 .......................... 3,000,000 3,191,280
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 . 4,000,000 4,588,360
Bethlehem Area School District, MBIA Insured, Pre-Refunded, 6.00%, 3/01/16 ........... 4,000,000 4,483,920
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co. Projects,
Series A, 6.60%, 3/01/19 .......................................................... 2,500,000 2,744,900
Burrell School District, FGIC Insured, Pre-Refunded, 5.60%, 11/15/15 ................. 2,890,000 3,176,630
(b) Butler Area School District, Refunding, Series B, FGIC Insured, 5.00%, 10/01/26 .... 5,000,000 4,868,450
Butler County IDA, PCR, Witco Corp. Project, Refunding, 5.85%, 12/01/23 .............. 2,000,000 2,097,300
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital,
Refunding, Series B, 6.375%, 7/01/18 .............................................. 3,500,000 3,858,155
Cambria County IDA, PCR, Pennsylvania Electric Co. Project, Refunding,
Series A, MBIA Insured, 5.80%, 11/01/20 ........................................... 5,000,000 5,390,450
Chartiers Valley Industrial and Commercial Development Authority Revenue,
First Mortgage, Asbury Place Project, Refunding, 6.50%, 2/01/36 ................... 4,250,000 4,624,128
Clarion County Hospital Authority Revenue, Clarion Hospital Project,
Refunding, 5.40%, 7/01/07 ......................................................... 1,000,000 1,017,360
5.55%, 7/01/09 .................................................................... 2,365,000 2,430,321
5.60%, 7/01/10 .................................................................... 600,000 614,124
5.75%, 7/01/12 .................................................................... 1,795,000 1,844,075
5.75%, 7/01/17 .................................................................... 700,000 710,829
5.625%,7/01/21 .................................................................... 1,500,000 1,502,775
Cranberry Township Municipal Authority Water and Sewer Revenue,
MBIA Insured, 5.125%, 12/01/26 .................................................... 1,450,000 1,455,467
Dauphin County General Authority Health System Revenue, Pinnacle Health
System Project, Refunding, MBIA Insured, 5.50%, 5/15/17 ........................... 4,280,000 4,455,951
Dauphin County General Authority Hospital Revenue, Hapsco-Western
Hospital Project, Refunding,
Series A, MBIA Insured, 6.50%, 7/01/12 ............................................. 4,500,000 4,881,690
Series B, MBIA Insured, 6.25%, 7/01/16 ............................................. 5,000,000 5,337,450
Dauphin County General Authority, Sub Series 0003, AMBAC Insured, 4.75%, 6/01/26 ..... 1,000,000 1,042,090
Deer Lakes School District, Series A, FSA Insured, 5.00%, 1/15/23 .................... 1,000,000 980,810
Delaware County Authority Health Facility Revenue, Mercy Health Corp. ................
Project, ETM, Refunding, 6.00%, 12/15/26 .......................................... 10,800,000 12,199,572
Delaware County Authority Healthcare Revenue, Mercy Health Corp. .....................
Southeastern, Series B, Pre-Refunded, 6.00%, 11/15/07 ............................. 9,000,000 9,876,330
Delaware County Authority Revenue, Elwyn Inc. Project, Pre-Refunded, 8.35%, 6/01/15 .. 2,000,000 2,160,400
</TABLE>
126
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
BONDS (cont.)
Delaware County IDAR, Philadelphia Electric, Refunding, Series 1991, 7.375%, 4/01/21 ..... $ 5,000,000 $ 5,364,750
Delaware River Port Authority Pennsylvania and New Jersey Revenue,
Series 1995, FGIC Insured, 5.50%, 1/01/26 ............................................. 7,350,000 7,764,908
Delaware Valley Regional Finance Authority Local Government Revenue,
Series B, AMBAC Insured, 5.60%, 7/01/17 ............................................... 5,000,000 5,438,800
Erie County Hospital Authority Revenue,
Nursing Home, Sarah A. Reed Retirement Center, Refunding, 5.625%, 7/01/14 .............. 3,660,000 3,602,501
St. Vincent Health Center Project, Series A, MBIA Insured, 6.375%, 7/01/22 ............. 7,000,000 7,530,670
Erie County IDAR, Nursing Home, Sarah Reed Center Project, Pre-Refunded, 8.625%, 7/01/14 . 2,110,000 2,172,055
Erie Higher Education Building Authority College Revenue, Gannon
University Project, Series A, Pre-Refunded, 8.50%, 6/01/15 ............................ 3,000,000 3,099,510
Erie-Western Pennsylvania Port Authority General Revenue,
6.875%, 6/15/16 ........................................................................ 920,000 1,005,045
Pre-Refunded, 8.625%, 6/15/10 .......................................................... 1,850,000 2,008,120
Exeter Township, Refunding, Series B, FGIC Insured, 5.30%, 7/15/21 ....................... 6,100,000 6,194,306
Harrisburg Authority Revenue, Series I, MBIA Insured, 5.625%, 4/01/19 .................... 6,000,000 6,293,040
Hazleton Area School District, Series B, FGIC Insured, 5.00%, 3/01/23 .................... 4,455,000 4,369,553
Hazleton Health Services Authority Hospital Revenue, Hazleton General
Hospital, 5.50%, 7/01/27 .............................................................. 2,475,000 2,492,251
Interboro School District GO, Delaware County, MBIA Insured, 5.375%, 8/15/22 ............. 2,335,000 2,381,770
Jeannette County Municipal Authority Sewer Revenue, Pre-Refunded, 7.00%, 7/01/17 ......... 1,250,000 1,377,963
Jeannette Health Service Authority Hospital Revenue, Jeannette District Memorial
Hospital, Refunding, Series A, 6.00%, 11/01/18 ........................................ 785,000 824,854
Lancaster County Hospital Authority Revenue, Health Center, Masonic Homes
Project, Refunding, AMBAC Insured, 5.00%, 11/15/20 .................................... 1,600,000 1,589,408
Lawrence County IDA, PCR, Pennsylvania Power Co., New Castle Project,
Refunding, 7.15%, 3/01/17 .............................................................. 5,595,000 5,974,117
Lebanon County Good Samaritan Hospital Authority Revenue, Good Samaritan
Hospital Project, Refunding, 6.00%, 11/15/18 .......................................... 2,500,000 2,600,350
Lehigh County General Purpose Authority Revenue,
Good Shepard Rehabilitation Hospital, Refunding, AMBAC Insured, 5.25%, 11/15/27 ........ 5,500,000 5,571,500
Hospital Lehigh Valley, Health Network, Series A, MBIA Insured, 5.00%, 7/01/28 ......... 4,000,000 3,880,000
Lehigh Valley Hospital Inc., Refunding, Series A, MBIA Insured, 5.875%, 7/01/15 ........ 1,000,000 1,075,080
Muhlenburg Hospital Center, Series A, Pre-Refunded, 8.00%, 7/15/01 ..................... 1,000,000 1,034,500
Muhlenburg Hospital Center, Series A, Pre-Refunded, 6.60%, 7/15/22 ..................... 5,800,000 6,551,390
Muhlenburg Hospital Center, Series B, Pre-Refunded, 8.00%, 7/15/01 ..................... 900,000 934,020
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding,
Series A, MBIA Insured, 6.40%, 11/01/21 .............................................. 5,000,000 5,424,950
Series A, MBIA Insured, 6.15%, 8/01/29 ............................................... 5,550,000 6,063,431
Series B, MBIA Insured, 6.40%, 9/01/29 ............................................... 10,000,000 11,108,600
Lower Providence Township Sewer Authority Revenue, Refunding, MBIA Insured, 5.25%,
5/01/14 ................................................................................ 2,000,000 2,052,640
5/01/22 ................................................................................ 3,750,000 3,801,075
Luzerne County IDA, Exempt Facility Revenue, Gas and Water Co. Project,
Refunding, Series A, AMBAC Insured, 7.00%, 12/01/17 .................................... 5,000,000 5,728,250
6.05%, 1/01/19 ...................................................................... 4,750,000 4,976,385
Meadville GO, Series A, AMBAC Insured, 5.25%, 10/01/25 ................................... 2,285,000 2,300,035
Montgomery County GO, Refunding, Series B, 5.375%, 10/15/21 .............................. 3,400,000 3,501,456
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 2,471,805
Jeanes Health System Project, Pre-Refunded, 8.75%, 7/01/20 ............................. 5,000,000 5,446,500
Pottstown Memorial Medical Center Project, Pre-Refunded, 7.35%, 11/15/05 ............... 1,315,000 1,470,025
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22 ................ 1,750,000 1,921,150
Montgomery County IDA, Retirement Community Revenue,
Act Retirement-Life Communities, 5.25%, 11/15/28 ....................................... 5,000,000 4,831,850
Adult Community Total Services, Refunding, Series A, 5.875%, 11/15/22 .................. 4,850,000 5,044,000
Adult Community Total Services, Series B, 5.75%, 11/15/17 .............................. 3,000,000 3,098,790
Montgomery County IDAR,
Hill School Project, MBIA Insured, 5.35%, 8/15/27 ...................................... 4,000,000 4,084,360
PCR, Philadelphia Electric Co., Refunding, Series A, 7.60%, 4/01/21 .................... 2,530,000 2,725,721
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 ................ 5,000,000 5,401,500
Resource Recovery, 7.50%, 1/01/12 ...................................................... 10,000,000 10,578,400
Mount Pleasant Business District Authority Hospital Revenue,
Frick Hospital, Refunding,
5.70%, 12/01/13 ........................................................................ 1,205,000 1,220,340
5.75%, 12/01/17 ........................................................................ 500,000 503,535
5.75%, 12/01/27 ........................................................................ 1,600,000 1,602,384
</TABLE>
127
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
BONDS (cont.)
Neshaminy School District GO, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14 .............. $ 1,000,000 $ 1,153,510
New Wilmington Municipal Authority College Revenue, Westminster
College, 5.35%, 3/01/28 ............................................................ 2,250,000 2,220,615
North Hampton County IDAR, PCR, Metropolitan Edison Co., Refunding,
Series A, MBIA Insured, 6.10%, 7/15/21 ............................................. 6,100,000 6,715,917
Northeastern Pennsylvania Hospital and Educational Authority Revenue,
Kings College Project, Refunding, Series B, 6.00%, 7/15/11 .......................... 1,000,000 1,037,880
Kings College Project, Refunding, Series B, 6.00%, 7/15/18 .......................... 1,000,000 1,028,090
Wilkes University, Refunding, 6.125%, 10/01/11 ...................................... 5,000,000 5,002,700
Pennsylvania Convention Center Authority Revenue, Refunding, Series A, 6.60%, 9/01/09 . 5,000,000 5,461,500
Pennsylvania EDA,
Financing Authority Revenue, MacMillan LP Project, 7.60%, 12/01/20 .................. 3,000,000 3,648,660
Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 .... 5,000,000 5,530,800
Pennsylvania HFA,
Rental Housing, Refunding, FNMA Insured, 5.75%, 7/01/14 ............................. 10,000,000 10,368,900
SFM, Refunding, Series Y, 7.45%, 4/01/16 ............................................ 2,355,000 2,425,038
SFM, Series 29, 7.375%, 10/01/16 .................................................... 3,065,000 3,212,978
SFM, Series 30, 7.30%, 10/01/17 ..................................................... 2,055,000 2,164,943
SFM, Series 34-A, 6.85%, 4/01/16 .................................................... 3,000,000 3,168,210
SFM, Series 34-B, 7.00%, 4/01/24 .................................................... 6,000,000 6,317,940
SFM, Series 38, 6.125%, 10/01/24 .................................................... 4,895,000 5,118,750
SFM, Series 1991, 7.15%, 4/01/15 .................................................... 4,370,000 4,588,456
SFM, Series U, 7.80%, 10/01/20 ...................................................... 330,000 344,210
SFM, Series W, 7.80%, 10/01/20 ...................................................... 1,965,000 2,023,754
SFMR, Refunding, Series 54-A, 6.15%, 10/01/22 ....................................... 1,500,000 1,567,215
Pennsylvania Infrastructure Investment Authority Revenue, Pennvest Loan
Pool Program, MBIA Insured, 5.625%, 9/01/13 ........................................ 6,010,000 6,498,192
9/01/14 ......................................................................... 2,870,000 3,075,980
Pennsylvania Intergovernmental Cooperative Authority Special Tax
Revenue, Philadelphia Funding Project, FGIC Insured, Pre-Refunded, 7.00%, 6/15/14 .. 6,000,000 7,009,020
Pennsylvania State Financial Authority Revenue, Municipal Capital
Improvements Program, Refunding, 6.60%, 11/01/09 .................................... 12,565,000 13,872,263
Pennsylvania State Higher Educational Facilities Authority Revenue,
Allegheny College Project, Refunding, Series B, 6.125%, 11/01/13 .................... 1,000,000 1,062,070
Allegheny College Project, Refunding, Series B, 6.00%, 11/01/22 ..................... 3,140,000 3,492,182
Allegheny College, Refunding, Series A, MBIA Insured, 5.00%, 11/01/22 ............... 3,300,000 3,245,814
Allegheny College, Refunding, Series B, 5.00%, 11/01/26 ............................. 3,000,000 2,942,490
Drexel University, Refunding, 6.375%, 5/01/17 ....................................... 5,220,000 5,649,136
Drexel University, Refunding, MBIA Insured, 5.75%, 5/01/22 .......................... 4,385,000 4,705,631
Geneva College, 5.45%, 4/01/18 ...................................................... 2,360,000 2,348,814
Health Services, Allegheny Delaware Valley, Refunding,
Series A, MBIA Insured, 5.875%, 11/15/21 ......................................... 17,000,000 17,498,440
Health Services, University of Pennsylvania, Refunding, Series A, 5.75%, 1/01/22 .... 10,000,000 10,435,000
La Salle University, MBIA Insured, 5.25%, 5/01/23 ................................... 1,500,000 1,519,935
La Salle University, Refunding, MBIA Insured, 5.625%, 5/01/17 ....................... 4,000,000 4,211,280
Medical College of Pennsylvania, Series A, Pre-Refunded, 8.375%, 3/01/11 ............ 1,000,000 1,020,000
Medical College of Pennsylvania, Series A, Pre-Refunded, 7.50%, 3/01/14 ............. 3,135,000 3,135,000
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 ........................ 3,040,000 3,289,736
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ............ 3,000,000 3,172,860
State Systems of Higher Education, Series O, AMBAC Insured, 5.125%, 6/15/24 ......... 1,990,000 1,994,497
Temple University, 7.40%, 10/01/10 .................................................. 30,000 30,343
University of Pennsylvania, 5.50%, 7/15/38 .......................................... 10,000,000 10,271,800
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 .............. 4,250,000 4,623,108
Pennsylvania State Pooled Finance Authority Lease Revenue,
Capital Improvement, Series B, MBIA Insured, Pre-Refunded, 8.00%, 11/01/09 ......... 890,000 896,248
Pennsylvania State Turnpike Oil Commission Franchise Tax Revenue,
Series B, AMBAC Insured, 4.75%, 12/01/27 ............................................ 5,235,000 4,974,978
sub. lien, Series B, AMBAC Insured, 5.00%, 12/01/23 ................................. 2,000,000 1,977,440
Pennsylvania State University, Series A, 5.00%, 8/15/22 ............................... 9,610,000 9,466,234
Philadelphia Airport Revenue, Philadelphia Airport System, Series A,
AMBAC Insured, 6.10%, 6/15/25 ...................................................... 5,000,000 5,411,450
</TABLE>
128
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (cont.)
BONDS (cont.)
Philadelphia Gas Works Revenue,
11th Series C, AMBAC Insured, 7.25%, 1/01/10 ....................................... $ 795,000 $ 820,050
ETM, 12th Series B, MBIA Insured, 7.00%, 5/15/20 ................................... 1,000,000 1,210,050
First Series A, FSA Insured, 5.00%, 7/01/26 ........................................ 8,000,000 7,824,480
Series A, 6.375%, 7/01/26 .......................................................... 10,100,000 11,091,113
(b) Philadelphia GO, FSA Insured, 5.00%, 3/15/28 ....................................... 14,250,000 13,908,570
Philadelphia Hospitals and Higher Education Facilities Authority Revenue,
Albert Einstein Medical Center, Pre-Refunded, 7.30%, 10/01/08 ...................... 5,225,000 5,805,707
Temple University Hospital, 5.875%, 11/15/23 ....................................... 5,000,000 5,127,700
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Albert Einstein Medical Center, Pre-Refunded, 7.625%, 4/01/11 ...................... 7,755,000 7,937,010
Children's Hospital, Refunding, Series A, 5.00%, 2/15/21 ........................... 2,465,000 2,375,841
Children's Seashore House, Series A, 7.00%, 8/15/17 ................................ 1,000,000 1,092,820
Children's Seashore House, Series B, 7.00%, 8/15/22 ................................ 2,600,000 2,841,332
Frankford Hospital, Series A, 6.00%, 6/01/14 ....................................... 2,500,000 2,612,025
Philadelphia Municipal Authority Gas Works Lease Revenue, 7.625%, 5/01/14 ............ 2,750,000 2,818,613
Philadelphia Municipal Authority Revenue, Lease, Refunding, Series D, 6.30%, 7/15/17 . 2,000,000 2,117,580
Philadelphia Parking Authority Airport Revenue,
AMBAC Insured, 5.00%, 2/01/27 ...................................................... 3,000,000 2,933,610
Refunding, AMBAC Insured, 5.50%, 9/01/18 ........................................... 1,000,000 1,045,070
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 1,044,640
Philadelphia School District, Series B, AMBAC Insured,
5.50%, 9/01/15 ..................................................................... 5,000,000 5,273,900
5.375%, 4/01/22 .................................................................... 2,995,000 3,052,804
Philadelphia Water and Sewer Revenue, ETM, Series 10, 7.35%, 9/01/04 ................. 6,840,000 7,743,769
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 ................. 10,000,000 10,306,900
Pittsburgh Urban RDA,
Mortgage Revenue, Series A, 7.15%, 10/01/27 ........................................ 840,000 899,380
Mortgage Revenue, Series A, 5.25%, 10/01/29 ........................................ 3,345,000 3,347,743
Mortgage Revenue, Series D, 6.25%, 10/01/17 ........................................ 1,695,000 1,819,871
Oliver Garage Project, FGIC Insured, 5.45%, 6/01/28 ................................ 3,500,000 3,617,635
SFMR, Series B, GNMA Secured, 7.375%, 12/01/16 ..................................... 1,965,000 2,025,935
Pittsburgh Water and Sewer System Authority Revenue,
ETM, Refunding, FGIC Insured, 7.25%, 9/01/14 ...................................... 1,250,000 1,533,950
Pottstown Borough Authority Sewer Revenue, FSA Insured,
Pre-Refunded, 7.70%, 11/01/21 ..................................................... 4,000,000 4,029,960
Rose Tree Media School District GO, FGIC Insured, 5.85%, 2/15/17 ..................... 5,000,000 5,328,300
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources
Inc., Pre-Refunded, 6.50%, 1/01/10 ................................................ 16,350,000 16,809,926
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ........ 1,500,000 1,628,685
Scranton School District GO, AMBAC Insured, 5.20%, 4/01/18 ........................... 5,275,000 5,343,311
South Fork Municipal Authority Hospital Revenue,
Conemaugh Valley Memorial Hospital Project, Series A, MBIA Insured, 5.75%, 7/01/26 . 10,000,000 10,629,500
Good Samaritan Medical Center, Johnstown Project, Refunding, Series B, MBIA Insured,
5.25%, 7/01/26 .................................................................. 5,000,000 5,058,450
Southeastern Pennsylvania Transportation Authority Special Revenue,
FGIC Insured, 5.375%, 3/01/22 ...................................................... 4,000,000 4,116,840
Series A, FGIC Insured, Pre-Refunded, 5.75%, 3/01/20 ............................... 9,660,000 10,683,670
State Public School Building Authority Revenue,
Cornell School District Project, Refunding, Series B, MBIA Insured, 5.375%, 9/01/12 2,165,000 2,264,763
Shenandoah Valley School District Project, Refunding, AMBAC Insured, 7.375%, 9/15/10 1,000,000 1,039,480
University of Pittsburgh Revenue, Higher Education, Refunding, Series B,
MBIA Insured, 5.00%, 6/01/21 ...................................................... 10,000,000 9,932,900
Upper St. Clair Township School District GO, Refunding, 5.20%, 7/15/27 ............... 5,000,000 5,050,350
Westtown Township Sewer Revenue, FSA Insured, 5.25%, 12/15/27 ........................ 3,270,000 3,318,004
Wilkes Barre Area School District GO,
FGIC Insured, 6.375%, 4/01/15 ...................................................... 3,000,000 3,384,900
Refunding, FGIC Insured, 5.25%, 4/01/16 .............................................. 1,385,000 1,412,320
------------
TOTAL BONDS .......................................................................... 782,836,848
------------
</TABLE>
129
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d) ZERO COUPON BONDS .7%
Pennsylvania HFA,
SFM, Series 63A, zero cpn., 4/01/30 .................................................... $ 11,000,000 $ 2,056,010
SFMR, Series 64, zero cpn., 4/01/30 ...................................................... 6,000,000 3,549,120
------------
TOTAL ZERO COUPON BONDS .................................................................. 5,605,130
------------
TOTAL LONG TERM INVESTMENTS (COST $741,559,735) .......................................... 788,441,978
------------
(a) SHORT TERM INVESTMENTS 1.1%
Allegheny County Hospital Development Authority Revenue,
Health Center, Presbyterian, Series A, Weekly VRDN and Put, 2.25%, 3/01/20 ............. 700,000 700,000
Health Center, Presbyterian, Series B, Weekly VRDN and Put, 2.25%, 3/01/20 ............. 460,000 460,000
Health Center, Presbyterian, Series B, Weekly VRDN and Put, 2.55%, 3/01/20 ............. 100,000 100,000
Health Center, Presbyterian, Series D, MBIA Insured, Weekly VRDN and Put, 2.25%, 3/01/20 1,000,000 1,000,000
Presbyterian University Hospital, Series B-1, Weekly VRDN and Put, 3.50%, 3/01/18 ...... 105,000 105,000
Emmaus General Authority Revenue, FSA Insured, Weekly VRDN and Put, 3.00%, 12/01/28 ...... 1,100,000 1,100,000
Erie Higher Education Building Authority College Revenue, Gannon University Project,
Series F, Weekly VRDN and Put, 2.25%, 7/01/13 ......................................... 3,000,000 3,000,000
Northeastern Hospital and Educational Authority Health Care Revenue, Wyoming
Valley Health Care, Refunding, Series A,
AMBAC Insured, Weekly VRDN and Put, 2.95%, 1/01/24 ........................................ 1,300,000 1,300,000
Pennsylvania State Higher Educational Facilities Authority Revenue,
Council of Independent Colleges,
Series A2, Weekly VRDN and Put, 3.00%, 4/01/22 ........................................ 100,000 100,000
Waynesburg College, Weekly VRDN and Put, 3.40%, 4/01/17 ............................... 600,000 600,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $8,465,000) ........................................... 8,465,000
------------
TOTAL INVESTMENTS (COST $750,024,735) 99.5% .............................................. 796,906,978
------------
OTHER ASSETS, LESS LIABILITIES .5% ....................................................... 3,952,570
------------
NET ASSETS 100.0% ........................................................................ $800,859,548
------------
</TABLE>
See glossary of terms on page 134.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an unconditional
right of demand to receive payment of the principal balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
(d) Zero coupon/step-up bonds. The current effective yield may vary. The
original accretion rate will remain constant.
130
See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------
CLASS A 1999 1998 1997 1996(1) 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.86 $ 11.51 $ 11.59 $ 11.31 $ 11.83
---------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .60 .62 .65 .66 .67
Net realized and unrealized gains (losses) ......... .06 .36 .02 .30 (.50)
---------------------------------------------------------------
Total from investment operations .................... .66 .98 .67 .96 .17
---------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.60)(3) (.62) (.65)(3) (.67)(2) (.69)
Net realized gains ................................. (.04) (.01) (.10) (.01) --
---------------------------------------------------------------
Total distributions ................................. (.64) (.63) (.75) (.68) (.69)
---------------------------------------------------------------
Net asset value, end of year ........................ $ 11.88 $ 11.86 $ 11.51 $ 11.59 $ 11.31
---------------------------------------------------------------
Total return* ....................................... 5.68% 8.78% 6.03% 8.68% 1.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 218,753 $ 210,325 $ 192,525 $ 190,577 $ 176,888
Ratios to average net assets:
Expenses ........................................... .74% .75% .73% .74% .73%
Net investment income .............................. 4.98% 5.35% 5.62% 5.71% 5.95%
Portfolio turnover rate ............................. 20.19% 7.94% 21.09% 27.99% 18.30%
CLASS C
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.87 $ 11.53 $ 11.62 $ 11.32
-------------------------------------------------
Income from investment operations:
Net investment income .............................. .53 .56 .58 .50
Net realized and unrealized gains .................. .06 .34 .02 .30
-------------------------------------------------
Total from investment operations .................... .59 .90 .60 .80
-------------------------------------------------
Less distributions from:
Net investment income .............................. (.53)(4) (.55) (.59) (.49)
Net realized gains ................................. (.04) (.01) (.10) (.01)
-------------------------------------------------
Total distributions ................................. (.57) (.56) (.69) (.50)
-------------------------------------------------
Net asset value, end of year ........................ $ 11.89 $ 11.87 $ 11.53 $ 11.62
-------------------------------------------------
Total return* ....................................... 5.09% 8.07% 5.33% 7.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 7,050 $ 3,615 $ 1,679 $ 533
Ratios to average net assets:
Expenses ........................................... 1.30% 1.31% 1.30% 1.32%**
Net investment income .............................. 4.43% 4.78% 5.04% 5.16%**
Portfolio turnover rate ............................. 20.19% 7.94% 21.09% 27.99%
</TABLE>
* Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. Prior to May
1, 1994, dividends from net investment income were reinvested at the offering
price.
** Annualized
(1) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(2) Includes distributions in excess of net investment income in the amount
of $.001.
(3) Includes distributions in excess of net investment income in the amount
of $.006.
(4) Includes distributions in excess of net investment income in the amount
of $.004.
See notes to financial statements. 131
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.7%
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ........................................................................ $ 1,675,000 $ 1,837,542
6.70%, 10/01/23 ........................................................................ 5,800,000 6,366,312
Guam Government GO, Series A,
5.90%, 9/01/05 ......................................................................... 4,575,000 4,619,149
6.00%, 9/01/06 ......................................................................... 1,085,000 1,095,145
Guam Government Limited Obligation Highway Revenue, Refunding, Series A,
FSA Insured, 6.30%, 5/01/12 ........................................................... 5,590,000 6,059,560
Guam Housing Corp. SFR, MBS, Mortgage Guaranteed, Series A, 5.35%, 9/01/18 ............... 5,000,000 5,085,900
Guam Power Authority Revenue, Series A,
6.30%, 10/01/22 ........................................................................ 7,190,000 7,750,532
6.75%, 10/01/24 ........................................................................ 2,680,000 2,988,066
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.40%, 3/15/28 .............................................................. 7,000,000 6,826,890
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.40%, 7/01/11 ........................................................... 2,400,000 2,740,200
Refunding, MBIA Insured, 5.75%, 7/01/24 ................................................ 2,000,000 2,140,560
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Puerto Rico State Infrastructure Bank, 5.00%, 7/01/28 .................................. 2,000,000 1,948,820
Series A, 5.00%, 7/01/38 ............................................................... 1,950,000 1,894,347
Series Q, Pre-Refunded, 7.75%, 7/01/10 ................................................. 350,000 377,468
Series Y, Pre-Refunded, 6.00%, 7/01/22 ................................................. 8,000,000 9,124,240
Puerto Rico Commonwealth IDC, General Purpose Revenue, Series B, 5.375%, 7/01/16 ......... 5,000,000 5,210,950
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ......................................................................... 580,000 599,314
7.75%, 7/01/08 ......................................................................... 300,000 306,738
7.50%, 7/01/09 ......................................................................... 660,000 674,659
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 ............................................ 3,350,000 3,491,303
Puerto Rico Electric Power Authority Revenue,
Refunding, Series U, 6.00%, 7/01/14 .................................................... 700,000 770,056
Series DD, 5.00%, 7/01/28 .............................................................. 1,680,000 1,637,009
Series O, Pre-Refunded, 7.125%, 7/01/14 ................................................ 1,525,000 1,568,402
Series P, Pre-Refunded, 7.00%, 7/01/11 ................................................. 615,000 676,211
Series P, Pre-Refunded, 7.00%, 7/01/21 ................................................. 1,000,000 1,099,530
Series T, Pre-Refunded, 6.375%, 7/01/24 ................................................ 9,000,000 10,278,450
Series X, Pre-Refunded, 6.125%, 7/01/21 ................................................ 7,225,000 8,253,407
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 10/01/15 ............................................ 420,000 436,388
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................................. 1,470,000 1,527,359
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 2,060,000 2,513,509
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 .......... 2,320,000 2,445,906
Puerto Rico Housing Bank and Financing Authority SFMR,
Affordable Housing Mortgage, First Portfolio, 6.25%, 4/01/29 ........................... 2,075,000 2,210,083
Homeownership Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ........................... 955,000 1,004,039
Puerto Rico Industrial Medical and Environmental Facilities Higher
Education Revenue, Inter American University, 5.00%, 10/01/22 ......................... 6,500,000 6,481,865
Puerto Rico Industrial Medical and Environmental PCFA, Revenue,
American Airlines Corp., Series A, 6.45%, 12/01/25 ..................................... 2,000,000 2,183,040
PepsiCo Inc. Project, 6.25%, 11/15/13 .................................................. 900,000 986,679
Puerto Rico Industrial Tourist Educational Medical and Environmental
Control Facilities Financing Authority Hospital Revenue,
Dr. Pila Hospital Project, Refunding, 6.125%, 8/01/25 .................................. 2,500,000 2,702,725
Dr. Pila Hospital Project, Refunding, 6.25%, 8/01/32 ................................... 500,000 540,790
Hospital Auxilio Mutuo Obligation, 5.50%, 7/01/17 ...................................... 2,750,000 2,909,720
Hospital Auxilio Mutuo Obligation, Series A, 6.25%, 7/01/24 ............................ 8,445,000 9,366,265
Mennonite General Hospital Project, 5.625%, 7/01/17 .................................... 950,000 969,475
Mennonite General Hospital Project, 6.50%, 7/01/26 ..................................... 5,000,000 5,460,100
Mennonite General Hospital Project, 5.625%, 7/01/27 .................................... 2,000,000 2,022,380
Puerto Rico Industrial Tourist Educational Medical and Environmental
Control Facilities Financing Authority Industrial Revenue,
Guaynabo Municipal Government, 5.625%, 7/01/15 ......................................... 6,550,000 6,670,782
Guaynabo Municipal Government, 5.625%, 7/01/22 ......................................... 3,160,000 3,258,023
Guaynabo Warehouse, Series A, 5.20%, 7/01/24 ........................................... 4,120,000 4,085,310
</TABLE>
132
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Industrial Tourist Educational Medical and Environmental
Control Facilities Financing Authority Industrial Revenue, (cont.)
Teachers Retirement System Revenue, 5.50%, 7/01/16 .................................. $ 3,175,000 $ 3,303,969
Teachers Retirement System Revenue, 5.50%, 7/01/21 .................................. 6,585,000 6,802,766
Puerto Rico Municipal Finance Agency GO, Series A, 6.50%, 7/01/19 ..................... 2,000,000 2,235,340
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, 5.75%, 7/01/22 1,000,000 1,073,690
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21 .............................................. 1,250,000 1,287,013
Special Facilities, American Airlines, Series A, 6.30%, 6/01/23 ..................... 5,500,000 5,863,440
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26 ..................... 1,900,000 2,046,224
Puerto Rico Telephone Authority Revenue,
Refunding, Series L, 6.125%, 1/01/22 ................................................ 6,450,000 6,820,553
Series N, 5.50%, 1/01/13 ............................................................ 500,000 517,830
Series N, 5.50%, 1/01/22 ............................................................ 2,375,000 2,442,664
University of Puerto Rico Revenues, Series M, MBIA Insured,
5.50%, 6/01/15 ...................................................................... 4,000,000 4,233,880
5.25%, 6/01/25 ...................................................................... 6,145,000 6,263,906
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 ...................................................................... 410,000 434,649
6.50%, 3/01/25 ...................................................................... 960,000 1,017,600
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ..................................................................... 3,000,000 3,033,150
5.50%, 10/01/22 ..................................................................... 3,000,000 3,010,050
5.625%, 10/01/25 .................................................................... 3,000,000 3,054,810
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 ........................................................... 1,700,000 1,697,824
Refunding, 5.30%, 7/01/21 ........................................................... 1,000,000 992,160
Series A, Pre-Refunded, 7.40%, 7/01/11 .............................................. 5,150,000 5,618,135
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.25%, 7/01/12 ...................................................................... 4,000,000 3,950,680
5.50%, 7/01/17 ...................................................................... 4,000,000 3,940,677
------------
TOTAL LONG TERM INVESTMENTS (COST $207,622,364) ....................................... 222,836,208
------------
(a) SHORT TERM INVESTMENTS
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, 2.90%, 7/01/28 (COST $100,000) ................. 100,000 100,000
------------
TOTAL INVESTMENTS (COST $207,722,364) 98.7% ........................................... 222,936,208
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................... 2,867,002
------------
NET ASSETS 100.0% ..................................................................... $225,803,210
------------
</TABLE>
See glossary of terms on page 134.
(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.
See notes to financial statements. 133
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 28, 1999 (CONT.)
GLOSSARY OF TERMS
<TABLE>
<S> <C>
1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in
1989 and no longer does business under this name).
CDA - Community Development 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
HFAR - Housing Finance Authority/Agency Revenue
HFC - Housing Finance Corp.
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
ISD - Independent School District
LLC - Limited Liability Corporation
LP - Limited Partnership
MAC - Municipal Assistance Corporation
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 Corporation
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency 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
VRDN - Variable Rate Demand Notes
</TABLE>
134
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL
ARIZONA COLORADO CONNECTICUT INTERMEDIATE-
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost .................................... $ 831,274,466 $ 300,358,251 $ 250,313,211 $ 187,361,831
----------------------------------------------------------------------
Value ................................... 881,085,864 318,632,160 265,533,638 194,533,055
Cash ..................................... 17,047 525,388 414,145 144,009
Receivables:
Capital shares sold ..................... 2,483,846 461,207 710,212 614,022
Interest ................................ 11,018,040 4,939,836 3,814,485 2,713,049
----------------------------------------------------------------------
Total assets ........................... 894,604,797 324,558,591 270,472,480 198,004,135
----------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ......... 6,936,018 -- 983,212 1,067,691
Capital shares redeemed ................. 108,617 420,832 209,275 897,359
Affiliates .............................. 522,764 218,475 187,975 143,915
Shareholders ............................ 1,056,459 246,077 347,576 77,110
Distributions to shareholders ............ 1,046,886 373,254 272,804 204,517
Other liabilities ........................ 43,167 19,888 12,593 15,175
----------------------------------------------------------------------
Total liabilities ....................... 9,713,911 1,278,526 2,013,435 2,405,767
----------------------------------------------------------------------
Net assets, at value ................... $ 884,890,886 $ 323,280,065 $ 268,459,045 $ 195,598,368
----------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ...... $ -- $ -- $ -- $ 66,835
Accumulated distributions in excess of net
investment income ........................ (714,249) (6,782) (150,586) --
Net unrealized appreciation .............. 49,811,398 18,273,909 15,220,427 7,171,224
Accumulated net realized gain (loss) ..... 2,736,594 317,169 (3,557,671) (1,115,408)
Capital shares ........................... 833,057,143 304,695,769 256,946,875 189,475,717
----------------------------------------------------------------------
Net assets, at value ................... $ 884,890,886 $ 323,280,065 $ 268,459,045 $ 195,598,368
----------------------------------------------------------------------
CLASS A:
Net assets, at value ..................... $ 861,019,906 $ 301,381,056 $ 245,016,356 $ 195,598,368
----------------------------------------------------------------------
Shares outstanding ....................... 75,676,165 25,010,763 21,741,974 17,309,260
----------------------------------------------------------------------
Net asset value per share* ............... $ 11.38 $ 12.05 $ 11.27 $ 11.30
----------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 95.75%) ..... $ 11.89 $ 12.58 $ 11.77 $ 11.56**
----------------------------------------------------------------------
CLASS C:
Net assets, at value ..................... $ 23,870,980 $ 21,899,009 $ 23,442,689 --
----------------------------------------------------------------------
Shares outstanding ....................... 2,084,645 1,808,249 2,074,157 --
----------------------------------------------------------------------
Net asset value per share* ............... $ 11.45 $ 12.11 $ 11.30 --
----------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 99.00%) ..... $ 11.57 $ 12.23 $ 11.41 --
----------------------------------------------------------------------
</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 $11.30 / 97.75%.
See notes to financial statements. 135
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD INDIANA MICHIGAN NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................... $ 6,220,378,766 $ 55,630,869 $ 16,234,216 $ 680,354,419
---------------------------------------------------------------------
Value .............................................. 6,550,576,108 59,316,143 16,852,918 726,783,993
Cash ................................................ 1,522,911 195,746 79,485 1,266,686
Receivables:
Capital shares sold ................................ 10,673,893 39,356 -- 905,719
Interest ........................................... 113,169,061 638,975 228,803 9,585,517
Affiliates ......................................... -- -- 6,280 --
Organization costs .................................. -- -- 693 --
---------------------------------------------------------------------
Total assets ...................................... 6,675,941,973 60,190,220 17,168,179 738,541,915
---------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................... 11,382,566 970,162 -- 4,939,156
Capital shares redeemed ............................ 7,028,129 4,863 -- 344,899
Affiliates ......................................... 4,093,383 41,568 1,616 472,746
Shareholders ....................................... 9,827,719 91,588 26,403 1,465,108
Distributions to shareholders ....................... 7,680,021 62,412 19,389 752,589
Other liabilities ................................... 264,482 5,804 3,353 34,228
---------------------------------------------------------------------
Total liabilities ................................. 40,276,300 1,176,397 50,761 8,008,726
---------------------------------------------------------------------
Net assets, at value ............................. $ 6,635,665,673 $ 59,013,823 $ 17,117,418 $ 730,533,189
---------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................. $ -- $ 67,119 $ 32,280 $ 74,948
Accumulated distributions in excess of
net investment income ............................... (3,528,808) -- -- --
Net unrealized appreciation ......................... 330,197,342 3,685,274 618,702 46,429,574
Accumulated net realized gain (loss) ................ 1,603,569 36,251 (33,373) 200,885
Capital shares ...................................... 6,307,393,570 55,225,179 16,499,809 683,827,782
---------------------------------------------------------------------
Net assets, at value ............................. $ 6,635,665,673 $ 59,013,823 $ 17,117,418 $ 730,533,189
---------------------------------------------------------------------
CLASS A:
Net assets, at value ................................ $ 5,988,204,246 $ 59,013,823 $ 17,117,418 $ 681,818,291
---------------------------------------------------------------------
Shares outstanding .................................. 521,176,095 4,905,278 1,543,179 56,986,626
---------------------------------------------------------------------
Net asset value per share* .......................... $ 11.49 $ 12.03 $ 11.09 $ 11.96
---------------------------------------------------------------------
Maximum offering price per share
(net asset value per share / 95.75%) ................ $ 12.00 $ 12.56 $ 11.58 $ 12.49
---------------------------------------------------------------------
CLASS B:
Net assets, at value ................................ $ 15,486,932 -- -- --
---------------------------------------------------------------------
Shares outstanding .................................. 1,344,656 -- -- --
---------------------------------------------------------------------
Net asset value and maximum offering price per share* $ 11.52 -- -- --
---------------------------------------------------------------------
CLASS C:
Net assets, at value ................................ $ 631,974,495 -- -- $ 48,714,898
---------------------------------------------------------------------
Shares outstanding .................................. 54,646,563 -- -- 4,050,857
---------------------------------------------------------------------
Net asset value per share* .......................... $ 11.56 -- -- $ 12.03
---------------------------------------------------------------------
Maximum offering price per
share (net asset value per share / 99.00%) .......... $ 11.68 -- -- $ 12.15
---------------------------------------------------------------------
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
136 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................................... $511,636,176 $750,024,735 $207,722,364
--------------------------------------------------
Value .............................................................. 539,021,851 796,906,978 222,936,208
Cash ................................................................ 177,028 45,510 62,283
Receivables:
Investment securities sold ......................................... 7,435,792 -- --
Capital shares sold ................................................ 574,537 1,079,394 221,783
Interest ........................................................... 6,594,118 13,041,845 3,375,100
--------------------------------------------------
Total assets ...................................................... 553,803,326 811,073,727 226,595,374
--------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................... 34,900,794 7,025,754 --
Capital shares redeemed ............................................ 589,162 364,977 48,857
Affiliates ......................................................... 338,940 502,141 155,985
Shareholders ....................................................... 800,637 1,333,422 321,055
Distributions to shareholders ....................................... 524,592 948,234 256,384
Other liabilities ................................................... 22,521 39,651 9,883
--------------------------------------------------
Total liabilities ................................................. 37,176,646 10,214,179 792,164
--------------------------------------------------
Net assets, at value ............................................. $516,626,680 $800,859,548 $225,803,210
--------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................. $ 692,530 $ -- $ --
Accumulated distributions in excess of net investment income ........ -- (831,892) (162,258)
Net unrealized appreciation ......................................... 27,385,675 46,882,243 15,213,844
Accumulated net realized gain (loss) ................................ (103,897) 16,970 299,410
Capital shares ...................................................... 488,652,372 754,792,227 210,452,214
--------------------------------------------------
Net assets, at value ............................................. $516,626,680 $800,859,548 $225,803,210
--------------------------------------------------
CLASS A:
Net assets, at value ................................................ $483,664,265 $758,942,464 $218,753,016
--------------------------------------------------
Shares outstanding .................................................. 40,885,474 72,117,372 18,414,910
--------------------------------------------------
Net asset value per share* .......................................... $ 11.83 $ 10.52 $ 11.88
--------------------------------------------------
Maximum offering price per share (net asset value per share / 95.75%) $ 12.36 $ 10.99 $ 12.41
--------------------------------------------------
CLASS C:
Net assets, at value ................................................ $ 32,962,415 $ 41,917,084 $ 7,050,194
--------------------------------------------------
Shares outstanding .................................................. 2,768,838 3,963,903 592,723
--------------------------------------------------
Net asset value per share* .......................................... $ 11.90 $ 10.57 $ 11.89
--------------------------------------------------
Maximum offering price per share (net asset value per share / 99.00%) $ 12.02 $ 10.68 $ 12.01
--------------------------------------------------
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements. 137
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL
ARIZONA COLORADO CONNECTICUT INTERMEDIATE-
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................................ $ 49,269,531 $ 16,984,007 $ 13,658,702 $ 8,674,233
-----------------------------------------------------------------
Expenses:
Management fees (Note 3) ................................ 4,124,084 1,615,981 1,313,337 959,067
Distribution fees (Note 3)
Class A ................................................ 765,635 268,284 211,566 164,401
Class C ................................................ 123,567 105,220 97,325 --
Transfer agent fees (Note 3) ............................ 290,820 124,287 92,818 61,054
Custodian fees .......................................... 8,510 2,985 2,553 1,927
Reports to shareholders ................................. 108,236 42,768 34,178 20,895
Registration and filing fees ............................ 26,842 10,736 8,802 51,909
Professional fees ....................................... 21,832 7,782 5,625 4,862
Trustees' fees and expenses ............................. 7,630 2,797 2,185 1,522
Other ................................................... 48,855 27,291 15,498 24,003
-----------------------------------------------------------------
Total expenses ........................................ 5,526,011 2,208,131 1,783,887 1,289,640
Expenses waived/paid by affiliate (Note 3) ............ -- -- -- (57,466)
-----------------------------------------------------------------
Net expenses ......................................... 5,526,011 2,208,131 1,783,887 1,232,174
-----------------------------------------------------------------
Net investment income ............................... 43,743,520 14,775,876 11,874,815 7,442,059
-----------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ...................... 3,918,445 1,022,077 631,807 146,469
Net unrealized appreciation (depreciation) on investments (4,679,698) (713,406) 175,555 632,241
-----------------------------------------------------------------
Net realized and unrealized gain (loss) .................. (761,253) 308,671 807,362 778,710
-----------------------------------------------------------------
Net increase in net assets resulting from operations ..... $ 42,982,267 $ 15,084,547 $ 12,682,177 $ 8,220,769
-----------------------------------------------------------------
</TABLE>
138 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD INDIANA MICHIGAN NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest ................................................ $ 403,886,153 $ 3,383,332 $ 680,121 $ 39,922,588
----------------------------------------------------------------------
Expenses:
Management fees (Note 3) ................................ 29,382,074 357,518 82,747 3,411,855
Distribution fees (Note 3)
Class A ................................................ 5,237,134 51,291 12,889 607,142
Class B ................................................ 7,044 -- -- --
Class C ................................................ 3,542,544 -- -- 247,991
Transfer agent fees (Note 3) ............................ 2,668,120 31,999 6,994 337,369
Custodian fees .......................................... 62,220 563 122 7,030
Reports to shareholders ................................. 841,318 13,378 1,869 105,181
Registration and filing fees ............................ 829,229 1,349 7,516 19,699
Professional fees ....................................... 434,957 2,285 1,324 16,146
Trustees' fees and expenses ............................. 56,452 629 227 6,286
Amortization of organization costs ...................... -- -- 300 --
Other ................................................... 226,275 8,258 7,250 39,468
----------------------------------------------------------------------
Total expenses ........................................ 43,287,367 467,270 121,238 4,798,167
Expenses waived/paid by affiliate (Note 3) ............ -- -- (89,028) --
----------------------------------------------------------------------
Net expenses ......................................... 43,287,367 467,270 32,210 4,798,167
----------------------------------------------------------------------
Net investment income ............................... 360,598,786 2,916,062 647,911 35,124,421
----------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............... 21,319,398 133,302 (33,373) 596,765
Net unrealized appreciation (depreciation) on investments (120,400,244) (141,351) 124,833 2,362,264
----------------------------------------------------------------------
Net realized and unrealized gain (loss) .................. (99,080,846) (8,049) 91,460 2,959,029
----------------------------------------------------------------------
Net increase in net assets resulting from operations ..... $ 261,517,940 $ 2,908,013 $ 739,371 $ 38,083,450
----------------------------------------------------------------------
</TABLE>
See notes to financial statements. 139
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------
<S> <C> <C> <C>
Investment income:
Interest ................................................ $ 27,260,470 $ 44,955,652 $ 12,559,957
------------------------------------------------
Expenses:
Management fees (Note 3) ................................ 2,429,095 3,734,742 1,223,542
Distribution fees (Note 3)
Class A ................................................ 420,666 676,436 194,649
Class C ................................................ 163,979 216,684 34,779
Transfer agent fees (Note 3) ............................ 194,441 391,362 125,878
Custodian fees .......................................... 4,800 7,665 2,172
Reports to shareholders ................................. 80,440 139,414 35,560
Registration and filing fees ............................ 14,482 17,010 28,482
Professional fees ....................................... 11,230 18,988 9,272
Trustees' fees and expenses ............................. 4,342 6,882 2,095
Other ................................................... 35,645 37,482 3,035
------------------------------------------------
Total expenses ......................................... 3,359,120 5,246,665 1,659,464
------------------------------------------------
Net investment income ................................. 23,901,350 39,708,987 10,900,493
------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain from investments ...................... 1,677,443 1,071,826 836,253
Net unrealized appreciation (depreciation) on investments (1,943,787) (2,242,080) 296,087
------------------------------------------------
Net realized and unrealized gain (loss) .................. (266,344) (1,170,254) 1,132,340
------------------------------------------------
Net increase in net assets resulting from operations ..... $ 23,635,006 $ 38,538,733 $ 12,032,833
------------------------------------------------
</TABLE>
140 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 43,743,520 $ 42,369,055 $ 14,775,876 $ 13,751,416
Net realized gain from investments ......................... 3,918,445 7,063,992 1,022,077 3,599,269
Net unrealized appreciation (depreciation) on investments .. (4,679,698) 12,652,846 (713,406) 5,186,539
----------------------------------------------------------------
Net increase in net assets resulting from operations ...... 42,982,267 62,085,893 15,084,547 22,537,224
Distributions to shareholders from:
Net investment income:
Class A ................................................... (42,890,425) (42,092,588) (14,188,201) (13,602,062)
Class C ................................................... (853,095) (439,780) (709,062) (381,635)
In excess of net investment income:
Class A ................................................... (112,500) (598,203) (6,459) --
Class C ................................................... (2,296) (1,250) (323) --
Net realized gains:
Class A ................................................... (3,662,232) (5,215,511) (1,791,554) (1,419,602)
Class C ................................................... (79,205) (69,925) (102,076) (51,742)
----------------------------------------------------------------
Total distributions to shareholders ......................... (47,599,753) (48,417,257) (16,797,675) (15,455,041)
Capital share transactions: (Note 2)
Class A .................................................... 55,297,029 44,417,210 36,395,512 23,138,001
Class C .................................................... 9,424,466 8,880,489 11,143,387 4,971,534
----------------------------------------------------------------
Total capital share transactions ............................ 64,721,495 53,297,699 47,538,899 28,109,535
Net increase in net assets ................................ 60,104,009 66,966,335 45,825,771 35,191,718
Net assets:
Beginning of year ........................................... 824,786,877 757,820,542 277,454,294 242,262,576
----------------------------------------------------------------
End of year ................................................. $ 884,890,886 $ 824,786,877 $ 323,280,065 $ 277,454,294
----------------------------------------------------------------
Undistributed net investment income (accumulated distributions
in excess of net investment income) included in net assets:
End of year ................................................ $ (714,249) $ (599,453) $ (6,782) $ 121,387
----------------------------------------------------------------
</TABLE>
See notes to financial statements. 141
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN CONNECTICUT FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 11,874,815 $ 10,751,324 $ 7,442,059 $ 5,667,008
Net realized gain (loss) from investments ........... 631,807 2,330,741 146,469 (95,778)
Net unrealized appreciation on investments .......... 175,555 3,355,147 632,241 3,620,765
----------------------------------------------------------------
Net increase in net assets resulting from operations 12,682,177 16,437,212 8,220,769 9,191,995
Distributions to shareholders from:
Net investment income:
Class A ............................................ (11,204,717) (10,477,972) (7,539,385) (5,768,367)
Class C ............................................ (670,098) (293,150) -- --
In excess of net investment income:
Class A ............................................ (53,408) (91,006) -- --
Class C ............................................ (3,194) (2,978) -- --
----------------------------------------------------------------
Total distributions to shareholders .................. (11,931,417) (10,865,106) (7,539,385) (5,768,367)
Capital share transactions: (Note 2)
Class A ............................................. 40,666,725 14,607,058 55,372,039 31,406,147
Class C ............................................. 14,762,426 4,302,474 -- --
----------------------------------------------------------------
Total capital share transactions ..................... 55,429,151 18,909,532 55,372,039 31,406,147
Net increase in net assets ......................... 56,179,911 24,481,638 56,053,423 34,829,775
Net assets:
Beginning of year .................................... 212,279,134 187,797,496 139,544,945 104,715,170
----------------------------------------------------------------
End of year .......................................... $ 268,459,045 $ 212,279,134 $ 195,598,368 $ 139,544,945
----------------------------------------------------------------
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year ........................................... $ (150,586) $ (93,984) $ 66,835 $ 164,161
----------------------------------------------------------------
</TABLE>
142 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN HIGH YIELD FRANKLIN INDIANA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 360,598,786 $ 312,993,540 $ 2,916,062 $ 2,875,486
Net realized gain from investments ...................... 21,319,398 37,029,261 133,302 578,277
Net unrealized appreciation (depreciation) on investments (120,400,244) 187,205,403 (141,351) 886,955
------------------------------------------------------------------
Net increase in net assets resulting from operations .... 261,517,940 537,228,204 2,908,013 4,340,718
Distributions to shareholders from:
Net investment income:
Class A ................................................ (332,249,669) (293,671,375) (2,944,395) (2,896,065)
Class B ................................................ (46,213) -- -- --
Class C ................................................ (27,314,370) (16,003,246) -- --
In excess of net investment income:
Class A ................................................ -- (4,570,398) -- --
Net realized gains:
Class A ................................................ (7,966,666) -- (157,423) (97,364)
Class C ................................................ (819,741) -- -- --
------------------------------------------------------------------
Total distributions to shareholders ...................... (368,396,659) (314,245,019) (3,101,818) (2,993,429)
Capital share transactions: (Note 2)
Class A ................................................. 342,918,876 1,028,368,708 4,564,399 2,158,623
Class B ................................................. 15,504,687 -- -- --
Class C ................................................. 217,918,008 215,193,396 -- --
------------------------------------------------------------------
Total capital share transactions ......................... 576,341,571 1,243,562,104 4,564,399 2,158,623
Net increase in net assets ............................. 469,462,852 1,466,545,289 4,370,594 3,505,912
Net assets:
Beginning of year ........................................ 6,166,202,821 4,699,657,532 54,643,229 51,137,317
------------------------------------------------------------------
End of year .............................................. $ 6,635,665,673 $ 6,166,202,821 $ 59,013,823 $ 54,643,229
------------------------------------------------------------------
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year ............................................... $ (3,528,808) $ (4,517,342) $ 67,119 $ 95,452
------------------------------------------------------------------
</TABLE>
See notes to financial statements. 143
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 647,911 $ 368,771 $ 35,124,421 $ 33,244,244
Net realized gain (loss) from investments ........... (33,373) 21,364 596,765 2,902,623
Net unrealized appreciation on investments .......... 124,833 425,437 2,362,264 14,172,961
----------------------------------------------------------------
Net increase in net assets resulting from operations 739,371 815,572 38,083,450 50,319,828
Distributions to shareholders from:
Net investment income:
Class A ............................................ (659,124) (370,383) (33,973,510) (32,627,862)
Class C ............................................ -- -- (1,728,570) (995,986)
Net realized gains:
Class A ............................................ (21,402) -- -- --
----------------------------------------------------------------
Total distributions to shareholders .................. (680,526) (370,383) (35,702,080) (33,623,848)
Capital share transactions: (Note 2)
Class A ............................................. 7,790,981 4,938,273 42,629,937 46,163,845
Class C ............................................. -- -- 20,454,134 14,421,458
----------------------------------------------------------------
Total capital share transactions ..................... 7,790,981 4,938,273 63,084,071 60,585,303
Net increase in net assets ............................ 7,849,826 5,383,462 65,465,441 77,281,283
Net assets:
Beginning of year .................................... 9,267,592 3,884,130 665,067,748 587,786,465
----------------------------------------------------------------
End of year .......................................... $ 17,117,418 $ 9,267,592 $ 730,533,189 $ 665,067,748
----------------------------------------------------------------
Undistributed net investment income
included in net assets:
End of year .......................................... $ 32,280 $ 43,531 $ 74,948 $ 652,607
----------------------------------------------------------------
</TABLE>
144 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 23,901,350 $ 21,984,674 $ 39,708,987 $ 38,371,049
Net realized gain from investments ...................... 1,677,443 3,490,454 1,071,826 6,524,504
Net unrealized appreciation (depreciation) on investments (1,943,787) 7,488,709 (2,242,080) 15,000,707
----------------------------------------------------------------
Net increase in net assets resulting from operations ... 23,635,006 32,963,837 38,538,733 59,896,260
Distributions to shareholders from:
Net investment income:
Class A ................................................ (23,518,284) (21,486,828) (38,182,843) (37,844,881)
Class C ................................................ (1,142,332) (516,221) (1,526,144) (900,095)
In excess of net investment income:
Class A ................................................ -- -- (418,611) (393,721)
Class C ................................................ -- -- (16,732) (2,828)
Net realized gains:
Class A ................................................ -- -- (985,591) (9,091,610)
Class C ................................................ -- -- (51,198) (252,851)
----------------------------------------------------------------
Total distributions to shareholders ...................... (24,660,616) (22,003,049) (41,181,119) (48,485,986)
Capital share transactions: (Note 2)
Class A ................................................. 57,633,801 32,371,580 48,325,952 43,708,763
Class C ................................................. 17,049,844 8,533,540 16,135,478 13,647,815
----------------------------------------------------------------
Total capital share transactions ......................... 74,683,645 40,905,120 64,461,430 57,356,578
Net increase in net assets ............................. 73,658,035 51,865,908 61,819,044 68,766,852
Net assets:
Beginning of year ........................................ 442,968,645 391,102,737 739,040,504 670,273,652
----------------------------------------------------------------
End of year .............................................. $ 516,626,680 $ 442,968,645 $ 800,859,548 $ 739,040,504
----------------------------------------------------------------
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year ............................................... $ 692,530 $ 1,451,796 $ (831,892) $ (396,549)
----------------------------------------------------------------
</TABLE>
See notes to financial statements. 145
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 10,900,493 $ 10,756,182
Net realized gain from investments .................. 836,253 166,654
Net unrealized appreciation on investments .......... 296,087 6,082,031
------------------------------
Net increase in net assets resulting from operations 12,032,833 17,004,867
Distributions to shareholders from:
Net investment income:
Class A ............................................ (10,664,385) (10,578,866)
Class C ............................................ (236,108) (117,117)
In excess of net investment income:
Class A ............................................ (112,508) --
Class C ............................................ (2,491) --
Net realized gains:
Class A ............................................ (682,528) (237,542)
Class C ............................................ (19,507) (2,435)
------------------------------
Total distributions to shareholders .................. (11,717,527) (10,935,960)
Capital share transactions: (Note 2)
Class A ............................................. 8,116,885 11,808,017
Class C ............................................. 3,431,283 1,858,374
------------------------------
Total capital share transactions ..................... 11,548,168 13,666,391
Net increase in net assets ......................... 11,863,474 19,735,298
Net assets:
Beginning of year .................................... 213,939,736 194,204,438
------------------------------
End of year .......................................... $ 225,803,210 $ 213,939,736
------------------------------
Accumulated distributions in excess of net
investment income included in net assets:
End of year .......................................... $ (162,258) $ (47,259)
------------------------------
</TABLE>
146 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-eight
separate series (the Funds). All Funds included in this report are diversified
except the Franklin Connecticut Tax-Free Income Fund, the Franklin Federal
Intermediate-Term Tax-Free Income Fund and the Franklin Michigan Tax-Free Income
Fund. The Funds' investment objective is to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
sale or reported bid and asked prices, information with respect to bond and note
transactions, quotations from bond dealers, market transactions in comparable
securities, and various relationships between securities are used to determine
the value of the security. The Trust may utilize a pricing service, bank or
broker/dealer experienced in such matters to perform any of the pricing
functions under procedures approved by the Board of Trustees. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially 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 classes of shares offered within each of the Funds are indicated below.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively, and the Franklin High Yield Tax-Free Income Fund began offering
a new class of shares, Class B. The shares differ by their initial sales load,
distribution fees, voting rights on matters affecting a single class and the
exchange privilege of each class.
<TABLE>
<CAPTION>
CLASS A CLASS A & CLASS C CLASS A, CLASS B, & CLASS C
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Intermediate-Term Tax-Free Income Fund Arizona Tax-Free Income Fund High Yield Tax-Free Income Fund
Indiana Tax-Free Income Fund Colorado Tax-Free Income Fund
Michigan Tax-Free Income Fund Connecticut Tax-Free Income Fund
New Jersey Tax-Free Income Fund
Oregon Tax-Free Income Fund
Pennsylvania Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
</TABLE>
147
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At February 28, 1999, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' 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 A SHARES: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold ........................ 11,526,533 $131,398,899 4,827,831 $ 58,439,307 5,343,819 $ 60,218,484
Shares issued in reinvestment of
distributions ..................... 1,678,671 19,132,729 655,996 7,932,374 494,190 5,562,097
Shares redeemed .................... (8,347,885) (95,234,599) (2,479,532) (29,976,169) (2,231,916) (25,113,856)
---------------------------------------------------------------------------------
Net increase ........................ 4,857,319 $ 55,297,029 3,004,295 $ 36,395,512 3,606,093 $ 40,666,725
---------------------------------------------------------------------------------
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 C SHARES:
Year ended February 28, 1999
Shares sold ........................ 1,020,350 $ 11,705,629 1,064,599 $ 12,955,209 1,442,047 $ 16,291,315
Shares issued in reinvestment of
distributions ..................... 48,448 555,594 47,188 573,490 36,934 417,159
Shares redeemed .................... (247,506) (2,836,757) (195,768) (2,385,312) (172,113) (1,946,048)
---------------------------------------------------------------------------------
Net increase ........................ 821,292 $ 9,424,466 916,019 $ 11,143,387 1,306,868 $ 14,762,426
---------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
FEDERAL INTERMEDIATE-TERM FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold 11,604,328 $130,996,084 109,439,514 $ 1,270,904,703
Shares issued in reinvestment
of distributions 424,605 4,788,679 12,599,576 146,168,778
Shares redeemed (7,120,171) (80,412,724) (92,381,330) (1,074,154,605)
---------------------------------------------------------
Net increase 4,908,762 $ 55,372,039 29,657,760 $ 342,918,876
---------------------------------------------------------
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
---------------------------------------------------------
</TABLE>
148
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND
---------------------------
CLASS B SHARES: SHARES AMOUNT
---------------------------
<S> <C> <C>
Period ended February 28, 1999(1)
Shares sold .................................. 1,351,940 $ 15,588,944
Shares issued in reinvestment of distributions 1,920 22,138
Shares redeemed .............................. (9,204) (106,395)
---------------------------
Net increase .................................. 1,344,656 $ 15,504,687
---------------------------
CLASS C SHARES:
Year ended February 28, 1999
Shares sold .................................. 23,491,348 $ 274,591,698
Shares issued in reinvestment of distributions 1,434,609 16,744,689
Shares redeemed .............................. (6,290,089) (73,418,379)
---------------------------
Net increase .................................. 18,635,868 $ 217,918,008
---------------------------
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>
(1) For the period January 1, 1999 (effective date) to February 28, 1999.
<TABLE>
<CAPTION>
FRANKLIN INDIANA FRANKLIN MICHIGAN FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold ................. 693,824 $ 8,363,007 873,005 $ 9,679,445 9,025,737 $ 107,896,711
Shares issued in reinvestment
of distributions ........... 147,232 1,774,634 34,684 384,353 1,485,157 17,759,368
Shares redeemed ............. (462,563) (5,573,242) (205,659) (2,272,817) (6,947,075) (83,026,142)
----------------------------------------------------------------------------------------------
Net increase ................. 378,493 $ 4,564,399 702,030 $ 7,790,981 3,563,819 $ 42,629,937
----------------------------------------------------------------------------------------------
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 C SHARES:
Year ended February 28, 1999
Shares sold ................. 2,039,721 $ 24,514,544
Shares issued in reinvestment
of distributions ........... 92,442 1,111,258
Shares redeemed ............. (430,504) (5,171,668)
Net increase ................. 1,701,659 $ 20,454,134
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
---------------------------
</TABLE>
149
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN OREGON FRANKLIN PENNSYLVANIA FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------------------------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1999
Shares sold ................. 7,610,561 $ 90,155,831 10,273,081 $ 108,316,940 2,024,140 $ 24,064,112
Shares issued in reinvestment
of distributions ........... 1,100,982 13,038,139 1,721,278 18,145,017 469,863 5,585,862
Shares redeemed ............. (3,846,398) (45,560,169) (7,413,012) (78,136,005) (1,811,759) (21,533,089)
------------------------------------------------------------------------------------------------
Net increase ................. 4,865,145 $ 57,633,801 4,581,347 $ 48,325,952 682,244 $ 8,116,885
------------------------------------------------------------------------------------------------
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 C SHARES:
Year ended February 28, 1999
Shares sold ................. 1,560,923 $ 18,592,323 1,872,749 $ 19,847,633 361,675 $ 4,306,325
Shares issued in reinvestment
of distributions ........... 70,444 839,644 96,080 1,017,661 13,159 156,658
Shares redeemed ............. (199,919) (2,382,123) (447,006) (4,729,816) (86,636) (1,031,700)
------------------------------------------------------------------------------------------------
Net increase ................. 1,431,448 $ 17,049,844 1,521,823 $ 16,135,478 288,198 $ 3,431,283
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin Investment Advisory Services, Inc.
(Investment Advisory), Franklin/Templeton Distributors, Inc. (Distributors),
Franklin/Templeton Investor Services, Inc. (Investor Services), and Franklin
Templeton Services, Inc. (FT Services), the Funds' investment managers,
principal underwriter, transfer agent, and administrative manager, 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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH-END NET ASSETS
---------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
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 Federal Intermediate-Term Tax-Free Income Fund and the
Franklin Michigan Tax-Free Income Fund, as noted in the Statements of
Operations.
The Funds reimburse Distributors up to .10%, .65%, and .65% per year of their
average daily net assets of Class A, Class B, and Class C, respectively, for
costs incurred in marketing the Funds' shares.
150
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD INDIANA
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net commissions received (paid) .... $(76,889) $(151,335) $(197,926) $(347,744) $(3,795,464) $4,517
Contingent deferred sales charges .. $ 12,269 $ 8,464 $ 7,518 $ 4,464 $ 283,409 $ --
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MICHIGAN NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
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) .... $11,511 $(201,862) $ 132,151 $(108,983) $(10,699)
Contingent deferred sales charges .. $ -- $ 23,450 $ 13,763 $ 16,329 $ 5,057
</TABLE>
The Funds paid transfer agent fees of $4,329,703, of which $3,659,599 was paid
to Investor Services.
4. INCOME TAXES
At February 28, 1999, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FEDERAL FRANKLIN FRANKLIN
CONNECTICUT INTERMEDIATE- MICHIGAN OREGON
TAX-FREE TERM TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------
<S> <C> <C> <C> <C>
Capital loss carryovers expiring in: 2003 ... $3,162,502 $ -- $ -- $ 36,444
2004 ... 46,957 920,152 -- --
2005 ... 322,502 99,478 -- 67,453
2006 ... -- 95,778 -- --
2007 ... -- -- 33,373 --
--------------------------------------------------------
$3,531,961 $1,115,408 $33,373 $103,897
--------------------------------------------------------
</TABLE>
Distributions of income to shareholders may not equal net investment income due
to differing treatments of dividend distributions for book and tax purposes.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
At February 28, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL
ARIZONA COLORADO CONNECTICUT INTERMEDIATE-
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ............ $831,278,248 $300,359,139 $250,338,921 $187,361,831
--------------------------------------------------------------
Unrealized appreciation ........ $ 51,499,410 $ 18,477,819 $ 15,382,080 $ 7,663,180
Unrealized depreciation ........ (1,691,794) (204,798) (187,363) (491,956)
--------------------------------------------------------------
Net unrealized appreciation .... $ 49,807,616 $ 18,273,021 $ 15,194,717 $ 7,171,224
--------------------------------------------------------------
</TABLE>
151
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD INDIANA MICHIGAN NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ......... $ 6,220,381,266 $ 55,630,869 $ 16,234,216 $ 680,354,419
------------------------------------------------------------------------------
Unrealized appreciation ..... $ 444,690,683 $ 3,711,562 $ 644,702 $ 46,786,602
Unrealized depreciation ..... (114,495,841) (26,288) (26,000) (357,028)
------------------------------------------------------------------------------
Net unrealized appreciation . $ 330,194,842 $ 3,685,274 $ 618,702 $ 46,429,574
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------
<S> <C> <C> <C>
Investments at cost ......... $ 511,636,176 $ 750,024,735 $ 207,722,364
---------------------------------------------------
Unrealized appreciation ..... $ 27,593,338 $ 47,377,968 $ 15,264,452
Unrealized depreciation ..... (207,663) (495,725) (50,608)
---------------------------------------------------
Net unrealized appreciation . $ 27,385,675 $ 46,882,243 $ 15,213,844
---------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 28, 1999, were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD INDIANA
TAX-FREE TAX-FREE TAX-FREE TERM 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 . $ 174,922,140 $ 80,480,811 $ 67,344,295 $ 73,359,722 $1,693,788,732 $ 14,667,411
Sales ..... $ 119,958,401 $ 37,331,632 $ 13,573,532 $ 26,476,275 $1,178,126,292 $ 10,495,372
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MICHIGAN NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases .... $ 9,431,400 $104,152,300 $132,382,727 $137,435,546 $ 57,402,546
Sales ........ $ 1,968,903 $ 37,383,597 $ 50,554,688 $ 84,188,349 $ 43,774,393
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Yield Tax-Free Income Fund has 38.4% of its portfolio invested
in lower rated and comparable quality unrated high yield securities, which tend
to be more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At
February 28, 1999, 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 .56% and .32%,
respectively, of the Funds' net assets. For information as to specific
securities, see the accompanying Statements of Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
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
Federal 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 or New York. Such concentration may subject
the Funds more significantly to economic changes occurring within those states.
152
<PAGE>
FRANKLIN TAX-FREE TRUST
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF FRANKLIN TAX-FREE TRUST:
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the eleven funds included
in the report, which are part of the Franklin Tax-Free Trust, (hereafter
referred to as the "Trust") at February 28, 1999, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and each of their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 28, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 2, 1999
153
<PAGE>
FRANKLIN TAX-FREE TRUST
Tax Information
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended February 28, 1999:
<TABLE>
<S> <C>
Franklin Arizona Tax-Free Income Fund ................................................................... $ 3,802,669
Franklin Colorado Tax-Free Income Fund .................................................................. $ 1,022,077
Franklin High Yield Tax-Free Income Fund ................................................................ $ 10,392,475
Franklin Indiana Tax-Free Income Fund ................................................................... $ 72,701
Franklin New Jersey Tax-Free Income Fund ................................................................ $ 200,885
Franklin Pennsylvania Tax-Free Income Fund .............................................................. $ 1,050,917
Franklin Puerto Rico Tax-Free Income Fund ............................................................... $ 836,253
</TABLE>
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds hereby
designate 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 28, 1999.
154
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