SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Tax-Free Trust covers the 12 months ended
February 29, 2000.
The year under review was marked by economic strength, as U.S. gross domestic
product (GDP) rose 4.2%, consumer confidence remained strong and unemployment
hit a 30-year low. In fact, the domestic economy grew for a record 107th month
in a row, and domestic stock markets surged to all-time highs. Even in the face
of such economic expansion, inflation as measured by the Consumer Price Index
was 2.7% for calendar year 1999, lower than many feared. In spite of the surging
economy, some large market segments were left out or actually suffered through
the period. The Standard and Poor's 500(R) (S&P 500(R)) Index rose 11.7% from
March 1, 1999, through February 29, 2000; however, 66% of the stocks that
comprise the index were down. Meanwhile, the Nasdaq(R) Index more than doubled
during the same period, advancing 105.8%, although 40% of the index's shares
declined.(1)
Bond markets experienced similar contrasts. They started the period in what
looked to be a potentially positive year due to the interest-rate environment.
However, the Federal Reserve Board (the Fed) raised interest rates 0.25% on four
separate occasions due to inflation fears. This contributed to one of the worst
years that bond markets have ever experienced. The yield on the 30-year Treasury
rose from 5.58% on February 28, 1999, to 6.14% on February 29, 2000, reaching a
high of 6.75% on January 20, 2000. The price on the Bond Buyer Municipal Bond
Index (Bond Buyer 40), an indicator of the municipal bond market, dropped 13.1%
during the reporting period. As interest rates and yields increased, the dollar
value of bonds decreased, meaning bond funds in general depreciated in value.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ................................. 1
Fund Reports
Franklin Arizona Insured Tax-Free Income Fund ..... 4
Franklin Florida Insured Tax-Free Income Fund ..... 9
Franklin Insured Tax-Free Income Fund ............. 14
Franklin Massachusetts Insured Tax-Free Income Fund 21
Franklin Michigan Insured Tax-Free Income Fund .... 26
Franklin Minnesota Insured Tax-Free Income Fund ... 32
Franklin Ohio Insured Tax-Free Income Fund ........ 37
Municipal Bond Ratings ............................. 43
Financial Highlights & Statement of Investments .... 45
Financial Statements ............................... 95
Notes to Financial Statements ...................... 103
Independent Auditors' Report ....................... 109
Tax Designation .................................... 110
</TABLE>
[PYRAMID GRAPHIC]
(1) Based on securities held in the Nasdaq Index for at least the 12 months
ended 2/29/00.
<PAGE>
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.
Municipal bond supply in 1999 added pressure to the already volatile municipal
bond market. Although less than in 1998, the $225 billion issuance in 1999 was
the fourth-highest on record. Looking forward, we anticipate decreased new
issuance in 2000. The near-record volume did have some benefit, as it helped
municipal bonds remain cheap relative to Treasuries. During the year under
review, municipal bonds, as measured by the Bond Buyer 40, yielded as much as
101% of a comparable Treasury bond's yield. Historically, this ratio is about
90%. Because municipal bonds are tax-exempt, generally they yield less than
Treasuries, which are subject to federal income tax. When municipals are
yielding nearly the same as Treasuries, investors are able to take advantage of
the tax exemption at little extra cost.
Please keep in mind that municipal bond funds continue to be an attractive
investment for those investors seeking tax-free income. 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 tax-free
investment.
Looking forward, we anticipate that the Fed will monitor inflationary tendencies
closely, and probably raise interest rates again. If, as a result, the economy
slows toward the end of 2000, the bond markets could begin to experience less
volatility.
The last few times municipal bonds lost ground, they enjoyed sharp rebounds in
the following year. For example, in 1994, when the Fed raised interest rates six
times, the average general municipal bond fund lost 6.5% in total return. In the
following year, rates declined, and the average municipal bond fund gained
nearly 17%. Although there is no guarantee that bond markets and municipal bond
funds will repeat past behavior, markets do go through up and down cycles.
Predicting these cycles is very difficult, even for professional economists --
which is why we recommend investing for the long term. It is important to
remember that over time, the tax-free income received from municipal bond funds
will ultimately drive the fund's total return performance.
We encourage you to discuss your financial goals with your investment
representative, who can address concerns about volatility and help you diversify
your investments and stay focused on the long term. 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/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Insured Tax-Free Income Fund - Class A 3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 4.20 cents
April 4.20 cents
May 4.20 cents
June 4.00 cents
July 4.00 cents
August 4.00 cents
September 4.00 cents
October 4.00 cents
November 4.00 cents
December 4.03 cents
January 4.03 cents
February 4.03 cents
- -----------------------------
TOTAL 48.69 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.
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Arizona Insured Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and Arizona state personal
income taxes through a portfolio consisting primarily of insured Arizona
municipal bonds.(1)
- --------------------------------------------------------------------------------
STATE UPDATE
[AZ STATE GRAPHIC]
Arizona's economy retained its positive growth trend throughout the one-year
review period, with the nation's third-highest employment growth rate for the 12
months ended October 1999.(2) Despite the state's rapid population growth rate,
the second-highest in the nation after Nevada's, unemployment remained in line
with the national average, as demonstrated by December's 4.1% rate for Arizona
and the U.S.(3, 4)
On the trade front, the state's 2.39% jump in exports for the first nine months
of 1999 compared favorably with the 0.68% average gain for all states during the
same period. Arizona should benefit from growth in California and Mexico, its
leading domestic and international trading partners, respectively, as well as
the upturn in Asia, a major market for the state's high tech manufacturing.
After California and Texas, Arizona ranked third in the nation for semiconductor
and integrated circuits exports.(3)
The state maintained a healthy financial outlook during the review period.
Rising employment and vibrant economic activity resulted in revenue growth,
which outpaced increased spending and more than offset recent income tax cuts.
The state's $353 net tax-supported per-capita debt rate registered well below
the $540 national median for 1999.(5) In addition, fiscal year 1999 revenues
exceeded the budgeted forecast by $99.4 million, and fiscal year 2000-2001
revenues are expected to outpace the biennial budget estimates by $303
million.(6) With personal income, employment and population projected to grow
faster than the national average, we anticipate a bright future for Arizona
bonds.
(1) For investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
The insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
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: Arizona Department of Commerce, The Gold Sheet, Winter 2000.
(3) Source: Standard & Poor's Ratings Direct, 8/19/99.
(4) Source: Bureau of Labor Statistics, 2/18/2000.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 46.
PORTFOLIO NOTES
The rise in interest rates during the reporting period resulted in decreasing
bond prices, presenting challenges for municipal bond investors. For the 12
months ended February 29, 2000, the 30-year Treasury bond price fell 10.06%, and
the Lehman Brothers Insured Municipal Bond Index was off 8.92%. By comparison,
your fund's share price, as measured by net asset value, declined 9.13%.(7)
Franklin Arizona Insured Tax-Free Income Fund sought to take advantage of the
reporting period's higher interest-rate environment to restructure the
portfolio. We sold shorter maturity securities (in the 2015-2020 year range) and
bought bonds with higher original issue discount (OID), or discount from par
value at time of issuance. In addition, the fund booked tax losses, which can
then be carried forward to help offset current or future capital gains and
potentially lower shareholders' future tax liabilities. We believe this higher
interest-rate restructuring should help the fund achieve its high, current
tax-free income goals.
During the reporting period, Franklin Arizona Insured Tax-Free Income Fund
participated in the year's largest Arizona issue. We bought Mesa Industrial
Development Authority Revenue (IDAR) for Discovery Health System, and made this
credit one of the portfolio's core positions. This purchase increased our
exposure to the hospital/health care sector from 10.5% of total long-term
investments on February 28, 1999, to 24.0% on February 29, 2000. Other purchases
during the reporting period included bonds for Maricopa County GO - Tempe
Elementary and Pima County IDA SFMR Bonds.
PORTFOLIO BREAKDOWN
Franklin Arizona Insured
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ---------------------------------------------------------
<S> <C>
General Obligation 24.3%
Hospital & Health Care 24.0%
Utilities 15.5%
Housing 8.7%
Prerefunded 7.8%
Subject to Government Appropriation 7.7%
Transportation 5.4%
Tax-Supported 2.8%
Higher Education 2.5%
Other Revenue 1.3%
</TABLE>
(5) Source: Moody's Investors Service.
(6) Source: Joint Legislative Budget Committee Fiscal Policy Analysis for the
Arizona Legislature, 1/2000.
(7) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 7 shows that at the end of this reporting
period, the fund's distribution rate was 4.72%, based on an annualization of the
current 4.05 cent ($0.0405) per share dividend and the maximum offering price of
$10.29 on February 29, 2000. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. An investor in the maximum
combined federal and Arizona state personal income tax bracket of 42.64% would
need to earn 8.23% from a taxable investment to match the fund's tax-free
distribution rate.
Arizona's bond issuance decreased 20.8% from 1998, for $3.307 billion issuance
in 1999.(8) We expect the municipal bond supply to remain stable in 2000.
Combined with strong retail demand for Arizona paper, this should help maintain
the state's municipal bonds as attractive investments.
(8) Source: The Bond Buyer, 1/3/2000.
- --------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
- --------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -4.68%
Net Asset Value (NAV) $9.85 (2/29/00) $10.84 (2/28/99)
Change in NAV -$0.99
Distributions (3/1/99-2/29/00) Dividend Income $0.4869
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.68% +29.98% +39.12%
Average Annual Total Return(2) -8.72% +4.48% +4.29%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A
- ------------------------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.72%
Taxable Equivalent Distribution Rate(4) 8.23%
30-Day Standardized Yield(5) 4.77%
Taxable Equivalent Yield(4) 8.32%
</TABLE>
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A: 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. Past expense reductions by the
fund's manager increased the fund's total return.
- --------------------------------------------------------------------------------
(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 4.05 cent per share
current monthly dividend and the maximum offering price of $10.29 per share on
February 29, 2000.
(4) Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Arizona state personal
income tax bracket of 42.64%, 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 month ended February 29, 2000.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------------------------------------
<S> <C>
1-Year -8.72%
5-Year +4.48%
Since Inception (4/30/93) +4.29%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
[CLASS A LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Franklin Arizona Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/30/1993 $ 9,579 $10,000 $10,000
05/31/1993 0.70% $ 9,646 0.56% $10,056 0.14% $10,014
06/30/1993 1.99% $ 9,838 1.67% $10,224 0.14% $10,028
07/31/1993 0.14% $ 9,852 0.13% $10,237 0.00% $10,028
08/31/1993 2.22% $10,070 2.08% $10,450 0.28% $10,056
09/30/1993 1.27% $10,198 1.14% $10,569 0.21% $10,077
10/31/1993 0.02% $10,200 0.19% $10,589 0.41% $10,119
11/30/1993 -1.38% $10,060 -0.88% $10,496 0.07% $10,126
12/31/1993 2.89% $10,350 2.11% $10,718 0.00% $10,126
01/31/1994 1.38% $10,493 1.14% $10,840 0.27% $10,153
02/28/1994 -3.20% $10,157 -2.59% $10,559 0.34% $10,187
03/31/1994 -6.14% $ 9,534 -4.07% $10,129 0.34% $10,222
04/30/1994 0.98% $ 9,627 0.85% $10,215 0.14% $10,236
05/31/1994 1.01% $ 9,724 0.87% $10,304 0.07% $10,244
06/30/1994 -1.01% $ 9,626 -0.61% $10,241 0.34% $10,278
07/31/1994 2.44% $ 9,861 1.83% $10,429 0.27% $10,306
08/31/1994 0.17% $ 9,878 0.35% $10,465 0.40% $10,347
09/30/1994 -1.99% $ 9,681 -1.47% $10,312 0.27% $10,375
10/31/1994 -2.48% $ 9,441 -1.78% $10,128 0.07% $10,383
11/30/1994 -2.57% $ 9,199 -1.81% $9,945 0.13% $10,396
12/31/1994 3.21% $ 9,494 2.20% $10,163 0.00% $10,396
01/31/1995 4.14% $ 9,887 2.86% $10,454 0.40% $10,438
02/28/1995 3.70% $10,253 2.91% $10,758 0.40% $10,479
03/31/1995 1.43% $10,399 1.15% $10,882 0.33% $10,514
04/30/1995 0.02% $10,401 0.12% $10,895 0.33% $10,549
05/31/1995 3.64% $10,780 3.19% $11,243 0.20% $10,570
06/30/1995 -1.50% $10,618 -0.87% $11,145 0.20% $10,591
07/31/1995 0.57% $10,679 0.95% $11,251 0.00% $10,591
08/31/1995 1.46% $10,835 1.27% $11,394 0.26% $10,618
09/30/1995 0.74% $10,915 0.63% $11,465 0.20% $10,640
10/31/1995 1.67% $11,097 1.45% $11,632 0.33% $10,675
11/30/1995 2.39% $11,362 1.66% $11,825 -0.07% $10,667
12/31/1995 1.28% $11,508 0.96% $11,938 -0.07% $10,660
01/31/1996 0.55% $11,571 0.76% $12,029 0.59% $10,723
02/29/1996 -1.09% $11,445 -0.68% $11,947 0.32% $10,757
03/31/1996 2.57% $11,739 -1.28% $11,794 0.52% $10,813
04/30/1996 -0.31% $11,703 -0.28% $11,761 0.39% $10,855
05/31/1996 -0.09% $11,692 -0.04% $11,757 0.19% $10,876
06/30/1996 1.48% $11,865 1.09% $11,885 0.06% $10,882
07/31/1996 0.84% $11,965 0.90% $11,992 0.19% $10,903
08/31/1996 -0.21% $11,940 -0.02% $11,989 0.19% $10,924
09/30/1996 1.99% $12,177 1.40% $12,157 0.32% $10,959
10/31/1996 1.19% $12,322 1.13% $12,294 0.32% $10,994
11/30/1996 2.01% $12,570 1.83% $12,519 0.19% $11,015
12/31/1996 -0.55% $12,501 -0.42% $12,467 0.00% $11,015
01/31/1997 -4.30% $11,963 0.19% $12,491 0.32% $11,050
02/28/1997 0.92% $12,073 0.92% $12,605 0.31% $11,084
03/31/1997 -1.57% $11,884 -1.33% $12,438 0.25% $11,112
04/30/1997 1.02% $12,005 0.84% $12,542 0.12% $11,125
05/31/1997 1.65% $12,203 1.51% $12,732 -0.06% $11,119
06/30/1997 1.12% $12,340 1.07% $12,868 0.12% $11,132
07/31/1997 3.12% $12,725 2.77% $13,224 0.12% $11,145
08/31/1997 -1.27% $12,563 -0.94% $13,100 0.19% $11,166
09/30/1997 1.20% $12,714 1.19% $13,256 0.25% $11,194
10/31/1997 0.56% $12,785 0.64% $13,341 0.25% $11,222
11/30/1997 0.59% $12,861 0.59% $13,419 -0.06% $11,216
12/31/1997 1.67% $13,075 1.46% $13,615 -0.12% $11,202
01/31/1998 1.09% $13,218 1.03% $13,756 0.19% $11,223
02/28/1998 -0.04% $13,213 0.03% $13,760 0.19% $11,245
03/31/1998 0.16% $13,234 0.09% $13,772 0.19% $11,266
04/30/1998 -0.55% $13,161 -0.45% $13,710 0.18% $11,286
05/31/1998 1.72% $13,387 1.58% $13,927 0.18% $11,307
06/30/1998 0.30% $13,427 0.39% $13,981 0.12% $11,320
07/31/1998 0.36% $13,476 0.25% $14,016 0.12% $11,334
08/31/1998 1.53% $13,682 1.55% $14,233 0.12% $11,347
09/30/1998 1.21% $13,848 1.25% $14,411 0.12% $11,361
10/31/1998 -0.03% $13,843 0.00% $14,411 0.24% $11,388
11/30/1998 0.41% $13,900 0.35% $14,462 0.00% $11,388
12/31/1998 0.02% $13,903 0.25% $14,498 -0.06% $11,381
01/31/1999 0.96% $14,036 1.19% $14,670 0.24% $11,409
02/28/1999 -0.44% $13,975 -0.44% $14,606 0.12% $11,422
03/31/1999 0.27% $14,012 0.14% $14,626 0.30% $11,457
04/30/1999 0.20% $14,040 0.25% $14,663 0.73% $11,540
05/31/1999 -0.77% $13,932 -0.58% $14,578 0.00% $11,540
06/30/1999 -1.66% $13,701 -1.44% $14,368 0.00% $11,540
07/31/1999 0.27% $13,738 0.36% $14,420 0.30% $11,575
08/31/1999 -1.78% $13,493 -0.80% $14,304 0.24% $11,603
09/30/1999 -0.40% $13,440 0.04% $14,310 0.48% $11,658
10/31/1999 -1.80% $13,198 -1.08% $14,155 0.18% $11,679
11/30/1999 1.15% $13,349 1.06% $14,305 0.06% $11,686
12/31/1999 -1.39% $13,164 -0.75% $14,198 0.00% $11,686
01/31/2000 -0.41% $13,110 -0.44% $14,136 0.24% $11,715
02/29/2000 $13,326 1.16% $14,300 0.59% $11,784
Total Return 33.26% 43.00% 17.84%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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
[FL STATE GRAPHIC]
Florida's economy benefited from strong growth in the service, construction and
trade sectors, which employed more than 64% of the state's workforce during the
year under review. Furthermore, the reporting period's favorable employment
numbers show no signs of letting up in the near future. Calendar year 2000's
projected 4.2% unemployment rate could be the lowest level Florida will record
in 20 years.(2)
Within this favorable economic environment, Florida's fiscal year 1999 audit
revealed healthy finances, as demonstrated by a substantial $3.5 billion general
fund balance on June 30, 1999. At the same time, revenues for fiscal year 2000
were 2.1% above budgeted levels as of mid-February 2000, with an additional
revenue surplus anticipated for fiscal year-end.(3)
One weak spot in Florida's fiscal outlook is its narrow tax base, principally
sales tax, which increases the state's vulnerability to economic cycles. In a
measure to mitigate this economic vulnerability, Florida has been building up
its Budget Stabilization
DIVIDEND DISTRIBUTIONS*
Franklin Florida Insured Tax-Free
Income Fund - Class A
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 4.10 cents
April 4.10 cents
May 4.10 cents
June 3.95 cents
July 3.95 cents
August 3.95 cents
September 3.95 cents
October 3.95 cents
November 3.95 cents
December 3.95 cents
January 3.95 cents
February 3.95 cents
- -----------------------------
TOTAL 47.85 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.
(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 insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
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, Global Credit Research, 2/18/2000.
(3) Source: Standard and Poor's Ratings Direct, 2/17/2000.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 49.
PORTFOLIO BREAKDOWN
Franklin Florida Insured
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------------------
<S> <C>
Utilities 38.3%
Tax-Supported 11.7%
Other Revenue 11.5%
Hospital & Health Care 10.6%
Prerefunded 9.6%
Housing 9.2%
Subject to Government Appropriation 6.1%
Transportation 2.1%
General Obligation 0.9%
</TABLE>
Reserve balance, which totaled $787 million on June 30, 1999.(3) The state's
high population growth rate, while contributing to its economic strength, also
places demands on infrastructure, leading to higher borrowing levels. Although
manageable, Florida's debt levels have risen steadily in recent years, at a $866
net tax-supported per-capita debt rate, above the $540 national state median.(4)
Florida's diversified, service-based economy, fully-funded budget, past history
of fiscal discipline and stabilization reserves equal to 5% of revenues should
maintain the state's favorable credit outlook going forward.
PORTFOLIO NOTES
Generally rising interest rates during the reporting period resulted in
decreasing bond prices, presenting challenges for municipal bond investors. For
the 12 months ended February 29, 2000, the 30-year Treasury bond price fell
10.06%, and the Lehman Brothers Insured Municipal Bond Index was off 8.92%. By
comparison, your fund's share price, as measured by net asset value, declined
8.74%.(5)
The rise in interest rates during the year created the opportunity to sell some
portfolio holdings at tax losses, which can be carried forward in the portfolio
to help offset current or future capital gains, and reinvest the proceeds at
higher yields. Following this strategy, we sold Vero Beach Electric Revenue,
Lake Mary Public Improvement Revenue, Lee County Solid Waste System Revenue,
Gainesville Public Improvements and Alachua County School Board COP during the
reporting period.
(4) Source: Moody's Investors Service.
(5) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
When possible, the fund also sold prerefunded bonds to capture the premium and
decrease call exposure. The fund's percentage of prerefunded bonds decreased
from 11.9% of total long-term investments on February 28, 1999, to 9.6% on
February 29, 2000. We extended the portfolio's maturity by selling
lower-yielding bonds with weak call protection, and reinvesting the proceeds in
current coupon bonds with longer maturities. Purchases during the reporting
period included bonds for Tampa Water and Sewer Revenue, St. Lucie West Services
District Utility Revenue, Polk County Capital Improvement Revenue, Palm Beach
County School Board COP and Escambia County HFA, SFMR.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 12 shows that at the end of this reporting
period, the fund's distribution rate was 4.79%, based on an annualization of the
current 4.01 cent ($0.0401) per share dividend and the maximum offering price of
$10.04 on February 29, 2000. This tax-free rate is generally higher than the
after-tax return on a comparable taxable investment. An investor in the maximum
federal tax bracket of 39.6% would need to earn 7.93% from a taxable investment
to match the fund's tax-free distribution rate.
Seeking to take advantage of recent, higher interest rates, we intend to
maintain our investment strategy of buying current coupon bonds at a slight
discount, as we attempt to provide shareholders with high, current, tax-free
income.
WHAT IS A PREREFUNDED BOND?
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.
- --------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
- --------------------------------------------------------------------------------
FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A: 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. Past expense reductions by the
fund's manager increased the fund's total return.
- --------------------------------------------------------------------------------
(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 4.01 cent per share
current monthly dividend and the maximum offering price of $10.04 per share on
February 29, 2000.
(4) Taxable equivalent distribution rate and yield assume the 2000 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 month ended February 29, 2000.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -4.22%
Net Asset Value (NAV) $9.61 (2/29/00) $10.53 (2/28/99)
Change in NAV -$0.92
Distributions (3/1/99-2/29/00) Dividend Income $0.4785
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.22% +30.28% +35.73%
Average Annual Total Return(2) -8.31% +4.53% +3.92%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A
- -----------------------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.79%
Taxable Equivalent Distribution Rate(4) 7.93%
30-Day Standardized Yield(5) 4.72%
Taxable Equivalent Yield(4) 7.81%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
[CLASS A LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Franklin Florida Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
04/30/1993 $ 9,579 $10,000 $10,000
05/31/1993 -0.30% $ 9,550 0.56% $10,056 0.14% $10,014
06/30/1993 1.60% $ 9,703 1.67% $10,224 0.14% $10,028
07/31/1993 0.34% $ 9,736 0.13% $10,237 0.00% $10,028
08/31/1993 2.07% $ 9,938 2.08% $10,450 0.28% $10,056
09/30/1993 1.02% $10,039 1.14% $10,569 0.21% $10,077
10/31/1993 0.33% $10,072 0.19% $10,589 0.41% $10,119
11/30/1993 -1.48% $ 9,923 -0.88% $10,496 0.07% $10,126
12/31/1993 3.02% $10,223 2.11% $10,718 0.00% $10,126
01/31/1994 1.10% $10,335 1.14% $10,840 0.27% $10,153
02/28/1994 -3.64% $ 9,959 -2.59% $10,559 0.34% $10,187
03/31/1994 -6.38% $ 9,324 -4.07% $10,129 0.34% $10,222
04/30/1994 0.78% $ 9,396 0.85% $10,215 0.14% $10,236
05/31/1994 0.70% $ 9,462 0.87% $10,304 0.07% $10,244
06/30/1994 -0.94% $ 9,373 -0.61% $10,241 0.34% $10,278
07/31/1994 2.93% $ 9,648 1.83% $10,429 0.27% $10,306
08/31/1994 -0.67% $ 9,583 0.35% $10,465 0.40% $10,347
09/30/1994 -2.07% $ 9,385 -1.47% $10,312 0.27% $10,375
10/31/1994 -3.33% $ 9,072 -1.78% $10,128 0.07% $10,383
11/30/1994 -2.36% $ 8,858 -1.81% $9,945 0.13% $10,396
12/31/1994 4.02% $ 9,214 2.20% $10,163 0.00% $10,396
01/31/1995 4.36% $ 9,616 2.86% $10,454 0.40% $10,438
02/28/1995 3.79% $ 9,980 2.91% $10,758 0.40% $10,479
03/31/1995 0.93% $10,073 1.15% $10,882 0.33% $10,514
04/30/1995 0.11% $10,084 0.12% $10,895 0.33% $10,549
05/31/1995 3.73% $10,460 3.19% $11,243 0.20% $10,570
06/30/1995 -1.47% $10,307 -0.87% $11,145 0.20% $10,591
07/31/1995 0.67% $10,376 0.95% $11,251 0.00% $10,591
08/31/1995 1.27% $10,508 1.27% $11,394 0.26% $10,618
09/30/1995 0.75% $10,586 0.63% $11,465 0.20% $10,640
10/31/1995 1.91% $10,789 1.45% $11,632 0.33% $10,675
11/30/1995 2.14% $11,019 1.66% $11,825 -0.07% $10,667
12/31/1995 1.40% $11,174 0.96% $11,938 -0.07% $10,660
01/31/1996 0.25% $11,202 0.76% $12,029 0.59% $10,723
02/29/1996 -1.14% $11,074 -0.68% $11,947 0.32% $10,757
03/31/1996 2.53% $11,354 -1.28% $11,794 0.52% $10,813
04/30/1996 -0.43% $11,305 -0.28% $11,761 0.39% $10,855
05/31/1996 0.08% $11,314 -0.04% $11,757 0.19% $10,876
06/30/1996 1.41% $11,474 1.09% $11,885 0.06% $10,882
07/31/1996 1.05% $11,594 0.90% $11,992 0.19% $10,903
08/31/1996 -0.14% $11,578 -0.02% $11,989 0.19% $10,924
09/30/1996 2.03% $11,813 1.40% $12,157 0.32% $10,959
10/31/1996 0.82% $11,910 1.13% $12,294 0.32% $10,994
11/30/1996 1.87% $12,133 1.83% $12,519 0.19% $11,015
12/31/1996 -0.59% $12,061 -0.42% $12,467 0.00% $11,015
01/31/1997 -4.47% $11,522 0.19% $12,491 0.32% $11,050
02/28/1997 1.03% $11,641 0.92% $12,605 0.31% $11,084
03/31/1997 -1.65% $11,449 -1.33% $12,438 0.25% $11,112
04/30/1997 1.04% $11,568 0.84% $12,542 0.12% $11,125
05/31/1997 1.49% $11,740 1.51% $12,732 -0.06% $11,119
06/30/1997 1.15% $11,875 1.07% $12,868 0.12% $11,132
07/31/1997 3.32% $12,269 2.77% $13,224 0.12% $11,145
08/31/1997 -1.14% $12,129 -0.94% $13,100 0.19% $11,166
09/30/1997 1.13% $12,266 1.19% $13,256 0.25% $11,194
10/31/1997 0.95% $12,383 0.64% $13,341 0.25% $11,222
11/30/1997 0.69% $12,468 0.59% $13,419 -0.06% $11,216
12/31/1997 1.61% $12,669 1.46% $13,615 -0.12% $11,202
01/31/1998 1.10% $12,809 1.03% $13,756 0.19% $11,223
02/28/1998 -0.06% $12,801 0.03% $13,760 0.19% $11,245
03/31/1998 0.15% $12,820 0.09% $13,772 0.19% $11,266
04/30/1998 -0.29% $12,783 -0.45% $13,710 0.18% $11,286
05/31/1998 1.37% $12,958 1.58% $13,927 0.18% $11,307
06/30/1998 0.40% $13,010 0.39% $13,981 0.12% $11,320
07/31/1998 0.45% $13,068 0.25% $14,016 0.12% $11,334
08/31/1998 1.47% $13,260 1.55% $14,233 0.12% $11,347
09/30/1998 0.95% $13,386 1.25% $14,411 0.12% $11,361
10/31/1998 0.15% $13,407 0.00% $14,411 0.24% $11,388
11/30/1998 0.70% $13,500 0.35% $14,462 0.00% $11,388
12/31/1998 0.11% $13,515 0.25% $14,498 -0.06% $11,381
01/31/1999 0.88% $13,634 1.19% $14,670 0.24% $11,409
02/28/1999 -0.46% $13,571 -0.44% $14,606 0.12% $11,422
03/31/1999 0.26% $13,607 0.14% $14,626 0.30% $11,457
04/30/1999 0.10% $13,620 0.25% $14,663 0.73% $11,540
05/31/1999 -0.61% $13,537 -0.58% $14,578 0.00% $11,540
06/30/1999 -1.52% $13,331 -1.44% $14,368 0.00% $11,540
07/31/1999 0.17% $13,354 0.36% $14,420 0.30% $11,575
08/31/1999 -1.35% $13,174 -0.80% $14,304 0.24% $11,603
09/30/1999 -0.52% $13,105 0.04% $14,310 0.48% $11,658
10/31/1999 -1.75% $12,876 -1.08% $14,155 0.18% $11,679
11/30/1999 1.07% $13,014 1.06% $14,305 0.06% $11,686
12/31/1999 -0.92% $12,894 -0.75% $14,198 0.00% $11,686
01/31/2000 -0.53% $12,826 -0.44% $14,136 0.24% $11,715
02/29/2000 $13,001 1.16% $14,300 0.59% $11,784
Total Return 30.01% 43.00% 17.84%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
PORTFOLIO BREAKDOWN
Franklin Insured
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------------------
<S> <C>
Hospital & Health Care 26.9%
Prerefunded 21.0%
Utilities 19.7%
Transportation 6.8%
General Obligation 6.6%
Higher Education 6.1%
Housing 3.7%
Subject to Government Appropriation 3.3%
Tax-Supported 2.7%
Other Revenue Bonds 2.3%
Corporate-Backed 0.9%
</TABLE>
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
The fixed income markets reacted with caution to Federal Reserve Board (Fed)
policy during the review period. The Fed took on a more aggressive posture
regarding potential domestic inflationary tendencies, increasing the federal
funds target rate four times, or a rise of one percent (100 basis points), to
5.75%. At the end of the reporting period, the Fed maintained a bias toward
further increases. In the near term, we believe the economy's strength and
inflationary pressures will determine the level of volatility affecting the
fixed income markets.
Rising interest rates during the fund's reporting period proved challenging for
the municipal bond market. The yield on the benchmark 30-year Treasury bond
steadily increased from 5.58% on February 28, 1999, to 6.14% on February 29,
2000 -- reaching a high of 6.75% on January 20, 2000. Its price fell 10.06% for
the same period, as bond prices fall when yields increase. The municipal bond
market generally trended with the 30-year Treasury bond, and the Lehman Brothers
Insured Municipal Bond Index lost 8.92% in price. By comparison, Franklin
Insured Tax-Free Income Fund's Class A share price, as measured by net asset
value, declined 8.32%.(2)
(1) These dividends are generally subject to state and local income taxes, if
any. 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 insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
(2) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 53.
Recent marketplace volatility offered us the opportunity to purchase specialty
state bonds to increase the fund's liquidity and take advantage of narrow yield
spreads. Specialty state bonds historically trade at lower yields than other
state bonds due to supply and demand characteristics. In down markets, specialty
state bonds generally trade at yields close to national levels. As the bond
market stabilizes, the yield ratios should return to historical levels, a
situation which should prove beneficial for our specialty state bonds going
forward. The fund also added to its allocation of insured hospital bonds. As the
fixed income market declined, hospital bonds fell out of favor, enabling us to
purchase them at what we felt were advantageous levels. Some of the fund's
purchases were University of Colorado Hospital Authority Revenue, Georgia
Medical Center Hospital Authority Revenue, Atlanta (GA) Water and Wastewater
Revenue, Mesa (AZ) IDAR Discovery Health System, and Harris County (TX) Health
Facilities Development Corp. Revenue bonds.
We made most of our purchases in the new-issue market as we believed many deals
coming to market were priced attractively. Furthermore, we sold bonds in the
secondary market attempting to take tax losses that can be used to help offset
current or future capital gains, possibly lowering shareholders' future tax
liabilities. To meet redemptions, the fund primarily sold securities that were
trading at relatively favorable market prices -- mostly specialty state bonds
with lower coupons. During the reporting period, the fund sold Florida State
Turnpike Authority Revenue, Lee Co. (FL) Solid Waste System Revenue, Atlanta
(GA) Water and Wastewater Revenue, Port Authority of New York and New Jersey
Revenue, Jefferson County (KY) Health Facilities, Kent Hospital (MI) Finance
Authority Health Care Revenue, and Wisconsin State Health and Educational
Revenue bonds.
Your fund offers a notable tax advantage over a comparable taxable investment.
On page 19, the Performance Summary shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.16%, based on an
annualization of the current 5.05 cent ($0.0505) per share dividend and the
maximum offering price of $11.74 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal personal income tax bracket of 39.6% would
need to earn 8.54% from a taxable investment to match the fund's tax-free
distribution rate. The Performance Summary also shows the distribution rates and
taxable equivalent distribution rates for Class B and C shares.
Looking forward, we will continue attempting to take advantage of the recently
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Insured Tax-Free Income Fund can help to lower such
volatility, as they offer a level of diversification that is difficult for
individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Insured Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------------------------
MONTH CLASS A CLASS B** CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.10 cents -- 4.47 cents
April 5.10 cents -- 4.47 cents
May 5.10 cents -- 4.47 cents
June 5.05 cents -- 4.50 cents
July 5.05 cents -- 4.50 cents
August 5.05 cents -- 4.50 cents
September 5.05 cents -- 4.53 cents
October 5.05 cents -- 4.53 cents
November 5.05 cents -- 4.53 cents
December 5.05 cents -- 4.53 cents
January 5.05 cents -- 4.53 cents
February 5.05 cents 2.88 cents 4.53 cents
- ------------------------------------------------------------------------------
TOTAL 60.75 CENTS 2.88 CENTS 54.09 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.
**Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
- --------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
- --------------------------------------------------------------------------------
FRANKLIN INSURED
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
CLASS A: 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 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: 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.
- --------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -3.21%
Net Asset Value (NAV) $11.24 (2/29/00) $12.26 (2/28/99)
Change in NAV -$1.02
Distributions (3/1/99-2/29/00) Dividend Income $0.6075
Short-Term Capital Gain $0.0032
Long-Term Capital Gain $0.0179
------------------------------------
Total $0.6286
CLASS B
Aggregate Total Return +1.31%
Net Asset Value (NAV) $11.24 (2/29/00) $11.14 (2/1/00)
Change in NAV +$0.10
Distributions (2/1/00-2/29/00) Dividend Income $0.0288
CLASS C
One-Year Total Return -3.74%
Net Asset Value (NAV) $11.31 (2/29/00) $12.33 (2/28/99)
Change in NAV -$1.02
Distributions (3/1/99-2/29/00) Dividend Income $0.5409
Short-Term Capital Gain $0.0032
Long-Term Capital Gain $0.0179
------------------------------------
Total $0.5620
</TABLE>
Franklin Insured Tax-Free Income Fund paid distributions derived from long-term
capital gains of 1.79 cents ($0.0179) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.21% +26.05% +84.15% +193.65%
Average Annual Total Return(2) -7.29% +3.84% +5.84% +7.18%
<CAPTION>
INCEPTION
CLASS B (2/1/00)
- ---------------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +1.31%
Aggregate Total Return(2) -2.69%
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.74% +8.80% +21.94%
Average Annual Total Return(2) -5.57% +2.52% +3.98%
<CAPTION>
SHARE CLASS A B C
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.16% 4.84% 4.76%
Taxable Equivalent Distribution Rate(4) 8.54% 8.01% 7.88%
30-Day Standardized Yield(5) 4.96% 4.66% 4.58%
Taxable Equivalent Yield(4) 8.21% 7.72% 7.58%
</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, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4) Taxable equivalent distribution rate and yield assume the 2000 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 month ended February 29, 2000.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN INSURED
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN 2/29/00
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------
<S> <C>
1-Year -7.29%
5-Year +3.84%
10-Year +5.84%
Since Inception (4/3/85) +7.18%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN 2/29/00
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------
<S> <C>
1-Year -5.57%
3-Year +2.52%
Since Inception (5/1/95) +3.98%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
[CLASS A LINE GRAPH]
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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Insured Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $ 9,572 $10,000 $10,000
03/31/1990 -0.03% $ 9,569 0.03% $10,003 0.55% $10,055
04/30/1990 -0.92% $ 9,481 -0.72% $9,931 0.16% $10,071
05/31/1990 2.33% $ 9,702 2.18% $10,147 0.23% $10,094
06/30/1990 0.87% $ 9,786 0.88% $10,237 0.54% $10,149
07/31/1990 1.67% $ 9,950 1.47% $10,387 0.38% $10,187
08/31/1990 -2.41% $ 9,710 -1.45% $10,237 0.92% $10,281
09/30/1990 0.76% $ 9,784 0.06% $10,243 0.84% $10,367
10/31/1990 1.49% $ 9,930 1.82% $10,429 0.60% $10,430
11/30/1990 2.10% $10,138 2.01% $10,639 0.22% $10,453
12/31/1990 0.30% $10,169 0.43% $10,685 0.00% $10,453
01/31/1991 1.64% $10,335 1.34% $10,828 0.60% $10,515
02/28/1991 0.65% $10,403 0.87% $10,922 0.15% $10,531
03/31/1991 0.39% $10,443 0.03% $10,925 0.15% $10,547
04/30/1991 1.44% $10,593 1.34% $11,072 0.15% $10,563
05/31/1991 0.65% $10,662 0.89% $11,170 0.30% $10,594
06/30/1991 -0.05% $10,657 -0.10% $11,159 0.29% $10,625
07/31/1991 1.35% $10,801 1.22% $11,295 0.15% $10,641
08/31/1991 0.82% $10,889 1.32% $11,444 0.29% $10,672
09/30/1991 1.34% $11,035 1.30% $11,593 0.44% $10,719
10/31/1991 0.64% $11,106 0.90% $11,697 0.15% $10,735
11/30/1991 -0.05% $11,100 0.28% $11,730 0.29% $10,766
12/31/1991 2.03% $11,326 2.15% $11,982 0.07% $10,774
01/31/1992 0.55% $11,388 0.23% $12,010 0.15% $10,790
02/29/1992 0.12% $11,402 0.03% $12,013 0.36% $10,829
03/31/1992 0.32% $11,438 0.03% $12,017 0.51% $10,884
04/30/1992 0.78% $11,527 0.89% $12,124 0.14% $10,899
05/31/1992 1.47% $11,697 1.18% $12,267 0.14% $10,914
06/30/1992 1.30% $11,849 1.68% $12,473 0.36% $10,954
07/31/1992 3.66% $12,283 3.00% $12,847 0.21% $10,977
08/31/1992 -1.36% $12,116 -0.97% $12,723 0.28% $11,007
09/30/1992 0.15% $12,134 0.65% $12,805 0.28% $11,038
10/31/1992 -1.64% $11,935 -0.98% $12,680 0.35% $11,077
11/30/1992 2.42% $12,224 1.79% $12,907 0.14% $11,092
12/31/1992 1.35% $12,389 1.02% $13,039 -0.07% $11,085
01/31/1993 1.32% $12,552 1.16% $13,190 0.49% $11,139
02/28/1993 2.84% $12,909 3.62% $13,667 0.35% $11,178
03/31/1993 -0.54% $12,839 -1.06% $13,522 0.35% $11,217
04/30/1993 0.68% $12,926 1.01% $13,659 0.28% $11,248
05/31/1993 0.38% $12,975 0.56% $13,735 0.14% $11,264
06/30/1993 1.72% $13,198 1.67% $13,965 0.14% $11,280
07/31/1993 0.17% $13,221 0.13% $13,983 0.00% $11,280
08/31/1993 2.05% $13,492 2.08% $14,274 0.28% $11,311
09/30/1993 1.09% $13,639 1.14% $14,437 0.21% $11,335
10/31/1993 0.13% $13,657 0.19% $14,464 0.41% $11,382
11/30/1993 -0.31% $13,614 -0.88% $14,337 0.07% $11,390
12/31/1993 1.79% $13,858 2.11% $14,639 0.00% $11,390
01/31/1994 0.95% $13,990 1.14% $14,806 0.27% $11,420
02/28/1994 -2.02% $13,707 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.17% $13,273 -4.07% $13,836 0.34% $11,498
04/30/1994 0.41% $13,327 0.85% $13,953 0.14% $11,514
05/31/1994 0.69% $13,419 0.87% $14,075 0.07% $11,522
06/30/1994 -0.36% $13,371 -0.61% $13,989 0.34% $11,562
07/31/1994 1.58% $13,582 1.83% $14,245 0.27% $11,593
08/31/1994 0.26% $13,617 0.35% $14,295 0.40% $11,639
09/30/1994 -0.92% $13,492 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.28% $13,319 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.68% $13,096 -1.81% $13,583 0.13% $11,694
12/31/1994 2.01% $13,359 2.20% $13,882 0.00% $11,694
01/31/1995 2.35% $13,673 2.86% $14,279 0.40% $11,741
02/28/1995 2.31% $13,989 2.91% $14,695 0.40% $11,788
03/31/1995 0.87% $14,110 1.15% $14,864 0.33% $11,827
04/30/1995 0.20% $14,138 0.12% $14,882 0.33% $11,866
05/31/1995 2.27% $14,459 3.19% $15,356 0.20% $11,889
06/30/1995 -0.48% $14,390 -0.87% $15,223 0.20% $11,913
07/31/1995 0.50% $14,462 0.95% $15,367 0.00% $11,913
08/31/1995 0.89% $14,591 1.27% $15,563 0.26% $11,944
09/30/1995 0.47% $14,659 0.63% $15,661 0.20% $11,968
10/31/1995 1.26% $14,844 1.45% $15,888 0.33% $12,007
11/30/1995 1.37% $15,047 1.66% $16,151 -0.07% $11,999
12/31/1995 0.86% $15,177 0.96% $16,306 -0.07% $11,991
01/31/1996 0.58% $15,265 0.76% $16,430 0.59% $12,061
02/29/1996 -0.41% $15,202 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.00% $15,050 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.26% $15,011 -0.28% $16,065 0.39% $12,210
05/31/1996 0.19% $15,039 -0.04% $16,058 0.19% $12,234
06/30/1996 0.96% $15,184 1.09% $16,233 0.06% $12,241
07/31/1996 0.67% $15,286 0.90% $16,379 0.19% $12,264
08/31/1996 0.15% $15,309 -0.02% $16,376 0.19% $12,287
09/30/1996 1.24% $15,498 1.40% $16,605 0.32% $12,327
10/31/1996 0.88% $15,635 1.13% $16,793 0.32% $12,366
11/30/1996 1.37% $15,849 1.83% $17,100 0.19% $12,390
12/31/1996 -0.24% $15,811 -0.42% $17,028 0.00% $12,390
01/31/1997 0.13% $15,831 0.19% $17,061 0.32% $12,429
02/28/1997 0.71% $15,944 0.92% $17,218 0.31% $12,468
03/31/1997 -0.92% $15,797 -1.33% $16,989 0.25% $12,499
04/30/1997 0.70% $15,908 0.84% $17,131 0.12% $12,514
05/31/1997 1.17% $16,094 1.51% $17,390 -0.06% $12,507
06/30/1997 0.89% $16,237 1.07% $17,576 0.12% $12,522
07/31/1997 2.35% $16,619 2.77% $18,063 0.12% $12,537
08/31/1997 -0.86% $16,476 -0.94% $17,893 0.19% $12,560
09/30/1997 1.03% $16,645 1.19% $18,106 0.25% $12,592
10/31/1997 0.64% $16,752 0.64% $18,222 0.25% $12,623
11/30/1997 0.66% $16,863 0.59% $18,330 -0.06% $12,616
12/31/1997 1.38% $17,095 1.46% $18,597 -0.12% $12,601
01/31/1998 0.86% $17,242 1.03% $18,789 0.19% $12,624
02/28/1998 -0.04% $17,235 0.03% $18,794 0.19% $12,648
03/31/1998 0.23% $17,275 0.09% $18,811 0.19% $12,672
04/30/1998 -0.31% $17,221 -0.45% $18,727 0.18% $12,695
05/31/1998 1.42% $17,466 1.58% $19,023 0.18% $12,718
06/30/1998 0.48% $17,550 0.39% $19,097 0.12% $12,733
07/31/1998 0.31% $17,604 0.25% $19,145 0.12% $12,749
08/31/1998 1.34% $17,840 1.55% $19,441 0.12% $12,764
09/30/1998 1.13% $18,042 1.25% $19,684 0.12% $12,779
10/31/1998 0.05% $18,051 0.00% $19,684 0.24% $12,810
11/30/1998 0.35% $18,114 0.35% $19,753 0.00% $12,810
12/31/1998 0.10% $18,132 0.25% $19,803 -0.06% $12,802
01/31/1999 0.91% $18,297 1.19% $20,038 0.24% $12,833
02/28/1999 -0.40% $18,224 -0.44% $19,950 0.12% $12,848
03/31/1999 0.32% $18,282 0.14% $19,978 0.30% $12,887
04/30/1999 0.17% $18,313 0.25% $20,028 0.73% $12,981
05/31/1999 -0.53% $18,216 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.29% $17,981 -1.44% $19,625 0.00% $12,981
07/31/1999 0.15% $18,008 0.36% $19,696 0.30% $13,020
08/31/1999 -1.22% $17,788 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.18% $17,756 0.04% $19,546 0.48% $13,114
10/31/1999 -1.41% $17,506 -1.08% $19,335 0.18% $13,137
11/30/1999 1.01% $17,683 1.06% $19,540 0.06% $13,145
12/31/1999 -0.95% $17,515 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.62% $17,406 -0.44% $19,308 0.24% $13,177
02/29/2000 1.33% $17,632 1.16% $19,532 0.59% $13,255
Total Return 76.32% 95.32% 32.55%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[CLASS C LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Insured Tax-Free Income Lehman Brothers Municipal CPI
Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,901 $10,000 $10,000
05/31/1995 2.38% $10,137 3.19% $10,319 0.20% $10,020
06/30/1995 -0.45% $10,091 -0.87% $10,229 0.20% $10,040
07/31/1995 0.45% $10,136 0.95% $10,326 0.00% $10,040
08/31/1995 0.84% $10,222 1.27% $10,458 0.26% $10,066
09/29/1995 0.51% $10,274 0.63% $10,523 0.20% $10,086
10/31/1995 1.20% $10,397 1.45% $10,676 0.33% $10,120
11/30/1995 1.23% $10,525 1.66% $10,853 -0.07% $10,112
12/29/1995 0.89% $10,619 0.96% $10,957 -0.07% $10,105
01/31/1996 0.52% $10,674 0.76% $11,041 0.59% $10,165
02/29/1996 -0.44% $10,627 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.05% $10,515 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.22% $10,492 -0.28% $10,795 0.39% $10,291
05/31/1996 0.14% $10,507 -0.04% $10,791 0.19% $10,310
06/28/1996 0.91% $10,602 1.09% $10,908 0.06% $10,316
07/31/1996 0.71% $10,678 0.90% $11,006 0.19% $10,336
08/30/1996 0.03% $10,681 -0.02% $11,004 0.19% $10,356
09/30/1996 1.19% $10,808 1.40% $11,158 0.32% $10,389
10/31/1996 0.83% $10,898 1.13% $11,284 0.32% $10,422
11/29/1996 1.31% $11,040 1.83% $11,491 0.19% $10,442
12/31/1996 -0.29% $11,008 -0.42% $11,443 0.00% $10,442
01/31/1997 0.08% $11,017 0.19% $11,464 0.32% $10,475
02/28/1997 0.74% $11,099 0.92% $11,570 0.31% $10,508
03/31/1997 -1.05% $10,982 -1.33% $11,416 0.25% $10,534
04/30/1997 0.73% $11,062 0.84% $11,512 0.12% $10,547
05/31/1997 1.11% $11,185 1.51% $11,686 -0.06% $10,540
06/30/1997 0.84% $11,279 1.07% $11,811 0.12% $10,553
07/31/1997 2.29% $11,537 2.77% $12,138 0.12% $10,565
08/31/1997 -0.90% $11,434 -0.94% $12,024 0.19% $10,586
09/30/1997 0.97% $11,544 1.19% $12,167 0.25% $10,612
10/31/1997 0.59% $11,613 0.64% $12,245 0.25% $10,639
11/30/1997 0.61% $11,683 0.59% $12,317 -0.06% $10,632
12/31/1997 1.41% $11,848 1.46% $12,497 -0.12% $10,619
01/31/1998 0.73% $11,935 1.03% $12,626 0.19% $10,640
02/28/1998 -0.01% $11,933 0.03% $12,629 0.19% $10,660
03/31/1998 0.10% $11,945 0.09% $12,641 0.19% $10,680
04/30/1998 -0.36% $11,902 -0.45% $12,584 0.18% $10,699
05/31/1998 1.44% $12,074 1.58% $12,783 0.18% $10,719
06/30/1998 0.43% $12,126 0.39% $12,832 0.12% $10,731
07/31/1998 0.26% $12,157 0.25% $12,865 0.12% $10,744
08/31/1998 1.29% $12,314 1.55% $13,064 0.12% $10,757
09/30/1998 1.08% $12,447 1.25% $13,227 0.12% $10,770
10/31/1998 0.00% $12,447 0.00% $13,227 0.24% $10,796
11/30/1998 0.30% $12,484 0.35% $13,274 0.00% $10,796
12/31/1998 0.05% $12,491 0.25% $13,307 -0.06% $10,789
01/31/1999 0.86% $12,598 1.19% $13,465 0.24% $10,815
02/28/1999 -0.44% $12,543 -0.44% $13,406 0.12% $10,828
03/31/1999 0.26% $12,575 0.14% $13,425 0.30% $10,861
04/30/1999 0.12% $12,590 0.25% $13,458 0.73% $10,940
05/31/1999 -0.57% $12,519 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.33% $12,352 -1.44% $13,187 0.00% $10,940
07/31/1999 0.11% $12,366 0.36% $13,235 0.30% $10,973
08/31/1999 -1.18% $12,220 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.31% $12,182 0.04% $13,134 0.48% $11,052
10/31/1999 -1.53% $11,995 -1.08% $12,992 0.18% $11,072
11/30/1999 1.05% $12,121 1.06% $13,130 0.06% $11,079
12/31/1999 -0.99% $12,001 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.66% $11,922 -0.44% $12,974 0.24% $11,105
02/29/2000 1.28% $12,073 1.16% $13,125 0.59% $11,171
Total Return 20.73% 31.25% 11.71%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
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
[MA STATE GRAPHIC]
As of January 2000, Standard & Poor's, an independent rating agency, upgraded
Massachusetts' general obligation debt to AA-, to positive from stable,
reflecting the commonwealth's strengthened and diversified economic base, as
well as its recent history of prudent fiscal management.(2)
The high technology, financial services, education and health care industries
underpinned the commonwealth's vibrant economy. Massachusetts' 9.5%
high-technology employment concentration was the highest of any state in the
U.S. at the end of the reporting period.(2) In this expanding economic
environment, Massachusetts' low unemployment averaged 3.1% for 1999, compared
with 4.2% for the nation.(3)
Also contributing to the state's solid financial picture, fiscal year 1999 rang
in Massachusetts' eighth consecutive year of budgetary surpluses.(2) In February
2000, the governor endorsed a debt reduction plan to use a general obligation
debt. Although in 1999 Massachusetts' $2,612 net tax-supported per-capita debt
level remained higher than the national average, its growing economy and
demonstrated financial discipline should bolster its positive credit status
going forward.(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.
The insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
(2) Source: Standard & Poor's Ratings Direct, 1/14/2000. This does not indicate
Standard & Poor's rating for the fund.
(3) Source: Moody's Investors Service, Municipal Credit Research, 2/15/2000.
(4) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 68.
PORTFOLIO BREAKDOWN
Franklin Massachusetts Insured Tax-Free Income Fund 2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------
<S> <C>
Hospital & Health Care 27.2%
Transportation 18.3%
Higher Education 15.6%
Prerefunded 12.3%
General Obligation 9.8%
Utilities 7.7%
Housing 5.1%
Other Revenue 3.1%
Subject to Government Appropriation 0.9%
</TABLE>
PORTFOLIO NOTES
The rise in interest rates during the reporting period resulted in decreasing
bond prices, presenting challenges for municipal bond investors. For the 12
months ended February 29, 2000, the 30-year Treasury bond price fell 10.06%, and
the Lehman Brothers Insured Municipal Bond Index was off 8.92%. By comparison,
your fund's Class A share price, as measured by net asset value, declined
8.20%.(5)
We sought to take advantage of the reporting period's rising interest-rate
environment to restructure the portfolio, seeking to improve the fund's
long-term income-earning potential. Such a strategy enabled us to sell bonds at
losses that can be used to help offset current or future capital gains, possibly
lowering shareholders' future tax liabilities. With this in mind, the fund sold
Massachusetts State Turnpike Authority Western Turnpike Revenue, Massachusetts
State Health and Educational Facilities Authority Revenue and Massachusetts
State Water Resources Authority Revenue bonds during the reporting period.
Strategies to improve the fund's dividend distributions included selling
shorter-maturity bonds and buying longer-term bonds; replacing lower-yielding
with higher-yielding bonds; and selling prerefunded bonds to buy longer-term,
higher-yielding bonds. We also sold bonds close to their call dates and bought
bonds with longer call protection to improve the predictability of the fund's
future dividend payments. Attempting to meet these goals, we made several
additions to the portfolio during the reporting period, including Massachusetts
State Water Resources Authority Revenue; Massachusetts State HFAR, SFHR;
Massachusetts State Port Authority Revenue; and Kingston (MA) General
Obligation.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 24 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.08%, based on an
annualization of the current 4.75 cent ($0.0475) per share dividend and the
maximum offering price of $11.23 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Massachusetts state personal
income tax bracket of 43.19% would need to earn 8.94% from a taxable investment
to match the fund's tax-free distribution rate. The Performance Summary also
shows the distribution rate and taxable equivalent distribution rate for Class C
shares.
(5) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
Looking forward, we will continue attempting to take advantage of the recently
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Massachusetts Insured Tax-Free Income Fund can help
to lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Massachusetts Insured Tax-Free Income Fund 3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
March 4.75 cents 4.18 cents
April 4.75 cents 4.18 cents
May 4.75 cents 4.18 cents
June 4.75 cents 4.24 cents
July 4.75 cents 4.24 cents
August 4.75 cents 4.24 cents
September 4.75 cents 4.23 cents
October 4.75 cents 4.23 cents
November 4.75 cents 4.23 cents
December 4.75 cents 4.26 cents
January 4.75 cents 4.26 cents
February 4.75 cents 4.26 cents
- --------------------------------------------------------------------------
TOTAL 57.00 CENTS 50.73 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.
- --------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
- --------------------------------------------------------------------------------
FRANKLIN MASSACHUSETTS
INSURED TAX-FREE
INCOME FUND
- --------------------------------------------------------------------------------
CLASS A: 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: 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
29, 2000.
(4) Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Massachusetts state
personal income tax bracket of 43.19%, 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 month ended February 29, 2000.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -3.34%
Net Asset Value (NAV) $10.75 (2/29/00) $11.71 (2/28/99)
Change in NAV -$0.96
Distributions (3/1/99-2/29/00) Dividend Income $0.5700
CLASS C
One-Year Total Return -3.78%
Net Asset Value (NAV) $10.81 (2/29/00) $11.76 (2/28/99)
Change in NAV -$0.95
Distributions (3/1/99-2/29/00) Dividend Income $0.5073
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.34% +25.93% +81.78% +168.68%
Average Annual Total Return(2) -7.45% +3.82% +5.69% +6.55%
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.78% +8.70% +21.64%
Average Annual Total Return(2) -5.66% +2.47% +3.93%
<CAPTION>
SHARE CLASS A C
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.08% 4.66%
Taxable Equivalent Distribution Rate(4) 8.94% 8.20%
30-Day Standardized Yield(5) 4.91% 4.53%
Taxable Equivalent Yield(4) 8.64% 7.97%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
[CLASS A LINE GRAPH]
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 3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Massachusetts Insured Lehman Brothers Municipal CPI
Tax-Free Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,571 $10,000 $10,000
03/31/1990 0.00% $9,571 0.03% $10,003 0.55% $10,055
04/30/1990 -1.04% $9,471 -0.72% $9,931 0.16% $10,071
05/31/1990 2.10% $9,670 2.18% $10,147 0.23% $10,094
06/30/1990 0.85% $9,753 0.88% $10,237 0.54% $10,149
07/31/1990 1.60% $9,909 1.47% $10,387 0.38% $10,187
08/31/1990 -1.86% $9,724 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.19% $9,706 0.06% $10,243 0.84% $10,367
10/31/1990 1.25% $9,827 1.82% $10,429 0.60% $10,430
11/30/1990 2.00% $10,024 2.01% $10,639 0.22% $10,453
12/31/1990 0.28% $10,052 0.43% $10,685 0.00% $10,453
01/31/1991 1.79% $10,232 1.34% $10,828 0.60% $10,515
02/28/1991 0.46% $10,279 0.87% $10,922 0.15% $10,531
03/31/1991 0.47% $10,327 0.03% $10,925 0.15% $10,547
04/30/1991 1.40% $10,472 1.34% $11,072 0.15% $10,563
05/31/1991 0.65% $10,540 0.89% $11,170 0.30% $10,594
06/30/1991 0.10% $10,550 -0.10% $11,159 0.29% $10,625
07/31/1991 1.39% $10,697 1.22% $11,295 0.15% $10,641
08/31/1991 0.83% $10,786 1.32% $11,444 0.29% $10,672
09/30/1991 1.19% $10,914 1.30% $11,593 0.44% $10,719
10/31/1991 0.73% $10,994 0.90% $11,697 0.15% $10,735
11/30/1991 0.00% $10,994 0.28% $11,730 0.29% $10,766
12/31/1991 1.92% $11,205 2.15% $11,982 0.07% $10,774
01/31/1992 0.61% $11,273 0.23% $12,010 0.15% $10,790
02/29/1992 -0.03% $11,270 0.03% $12,013 0.36% $10,829
03/31/1992 0.27% $11,300 0.03% $12,017 0.51% $10,884
04/30/1992 0.85% $11,396 0.89% $12,124 0.14% $10,899
05/31/1992 1.31% $11,546 1.18% $12,267 0.14% $10,914
06/30/1992 1.50% $11,719 1.68% $12,473 0.36% $10,954
07/31/1992 3.29% $12,104 3.00% $12,847 0.21% $10,977
08/31/1992 -1.31% $11,946 -0.97% $12,723 0.28% $11,007
09/30/1992 0.12% $11,960 0.65% $12,805 0.28% $11,038
10/31/1992 -1.87% $11,736 -0.98% $12,680 0.35% $11,077
11/30/1992 2.53% $12,033 1.79% $12,907 0.14% $11,092
12/31/1992 1.48% $12,211 1.02% $13,039 -0.07% $11,085
01/31/1993 1.35% $12,376 1.16% $13,190 0.49% $11,139
02/28/1993 2.79% $12,722 3.62% $13,667 0.35% $11,178
03/31/1993 0.05% $12,728 -1.06% $13,522 0.35% $11,217
04/30/1993 0.76% $12,825 1.01% $13,659 0.28% $11,248
05/31/1993 0.28% $12,861 0.56% $13,735 0.14% $11,264
06/30/1993 1.62% $13,069 1.67% $13,965 0.14% $11,280
07/31/1993 0.23% $13,099 0.13% $13,983 0.00% $11,280
08/31/1993 1.87% $13,344 2.08% $14,274 0.28% $11,311
09/30/1993 0.95% $13,471 1.14% $14,437 0.21% $11,335
10/31/1993 0.19% $13,496 0.19% $14,464 0.41% $11,382
11/30/1993 -0.36% $13,448 -0.88% $14,337 0.07% $11,390
12/31/1993 1.52% $13,652 2.11% $14,639 0.00% $11,390
01/31/1994 1.06% $13,797 1.14% $14,806 0.27% $11,420
02/28/1994 -1.67% $13,566 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.29% $13,120 -4.07% $13,836 0.34% $11,498
04/30/1994 0.21% $13,148 0.85% $13,953 0.14% $11,514
05/31/1994 0.60% $13,226 0.87% $14,075 0.07% $11,522
06/30/1994 -0.25% $13,193 -0.61% $13,989 0.34% $11,562
07/31/1994 1.45% $13,385 1.83% $14,245 0.27% $11,593
08/31/1994 0.24% $13,417 0.35% $14,295 0.40% $11,639
09/30/1994 -1.00% $13,283 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.11% $13,135 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.62% $12,922 -1.81% $13,583 0.13% $11,694
12/31/1994 1.82% $13,158 2.20% $13,882 0.00% $11,694
01/31/1995 2.55% $13,493 2.86% $14,279 0.40% $11,741
02/28/1995 2.42% $13,820 2.91% $14,695 0.40% $11,788
03/31/1995 0.80% $13,930 1.15% $14,864 0.33% $11,827
04/30/1995 0.36% $13,980 0.12% $14,882 0.33% $11,866
05/31/1995 2.00% $14,260 3.19% $15,356 0.20% $11,889
06/30/1995 -0.37% $14,207 -0.87% $15,223 0.20% $11,913
07/31/1995 0.67% $14,302 0.95% $15,367 0.00% $11,913
08/31/1995 0.82% $14,420 1.27% $15,563 0.26% $11,944
09/30/1995 0.64% $14,512 0.63% $15,661 0.20% $11,968
10/31/1995 1.20% $14,686 1.45% $15,888 0.33% $12,007
11/30/1995 1.23% $14,867 1.66% $16,151 -0.07% $11,999
12/31/1995 0.96% $15,009 0.96% $16,306 -0.07% $11,991
01/31/1996 0.49% $15,083 0.76% $16,430 0.59% $12,061
02/29/1996 -0.30% $15,038 -0.68% $16,319 0.32% $12,100
03/31/1996 3.39% $15,548 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.36% $15,492 -0.28% $16,065 0.39% $12,210
05/31/1996 0.17% $15,518 -0.04% $16,058 0.19% $12,234
06/30/1996 0.87% $15,653 1.09% $16,233 0.06% $12,241
07/31/1996 0.74% $15,769 0.90% $16,379 0.19% $12,264
08/31/1996 0.13% $15,789 -0.02% $16,376 0.19% $12,287
09/30/1996 1.14% $15,969 1.40% $16,605 0.32% $12,327
10/31/1996 0.86% $16,107 1.13% $16,793 0.32% $12,366
11/30/1996 1.44% $16,339 1.83% $17,100 0.19% $12,390
12/31/1996 -0.36% $16,280 -0.42% $17,028 0.00% $12,390
01/31/1997 -4.06% $15,619 0.19% $17,061 0.32% $12,429
02/28/1997 0.79% $15,742 0.92% $17,218 0.31% $12,468
03/31/1997 -1.27% $15,542 -1.33% $16,989 0.25% $12,499
04/30/1997 0.78% $15,663 0.84% $17,131 0.12% $12,514
05/31/1997 1.45% $15,891 1.51% $17,390 -0.06% $12,507
06/30/1997 1.09% $16,064 1.07% $17,576 0.12% $12,522
07/31/1997 2.69% $16,496 2.77% $18,063 0.12% $12,537
08/31/1997 -0.94% $16,341 -0.94% $17,893 0.19% $12,560
09/30/1997 1.12% $16,524 1.19% $18,106 0.25% $12,592
10/31/1997 0.55% $16,615 0.64% $18,222 0.25% $12,623
11/30/1997 0.65% $16,723 0.59% $18,330 -0.06% $12,616
12/31/1997 1.45% $16,965 1.46% $18,597 -0.12% $12,601
01/31/1998 0.69% $17,082 1.03% $18,789 0.19% $12,624
02/28/1998 0.00% $17,082 0.03% $18,794 0.19% $12,648
03/31/1998 0.10% $17,099 0.09% $18,811 0.19% $12,672
04/30/1998 -0.21% $17,063 -0.45% $18,727 0.18% $12,695
05/31/1998 1.35% $17,294 1.58% $19,023 0.18% $12,718
06/30/1998 0.57% $17,392 0.39% $19,097 0.12% $12,733
07/31/1998 0.20% $17,427 0.25% $19,145 0.12% $12,749
08/31/1998 1.28% $17,650 1.55% $19,441 0.12% $12,764
09/30/1998 1.07% $17,839 1.25% $19,684 0.12% $12,779
10/31/1998 -0.32% $17,782 0.00% $19,684 0.24% $12,810
11/30/1998 0.42% $17,857 0.35% $19,753 0.00% $12,810
12/31/1998 0.13% $17,880 0.25% $19,803 -0.06% $12,802
01/31/1999 0.85% $18,032 1.19% $20,038 0.24% $12,833
02/28/1999 -0.19% $17,998 -0.44% $19,950 0.12% $12,848
03/31/1999 0.30% $18,052 0.14% $19,978 0.30% $12,887
04/30/1999 0.23% $18,093 0.25% $20,028 0.73% $12,981
05/31/1999 -0.49% $18,004 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.38% $17,756 -1.44% $19,625 0.00% $12,981
07/31/1999 0.13% $17,779 0.36% $19,696 0.30% $13,020
08/31/1999 -1.40% $17,530 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.48% $17,446 0.04% $19,546 0.48% $13,114
10/31/1999 -1.51% $17,183 -1.08% $19,335 0.18% $13,137
11/30/1999 1.13% $17,377 1.06% $19,540 0.06% $13,145
12/31/1999 -0.94% $17,213 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.59% $17,112 -0.44% $19,308 0.24% $13,177
02/29/2000 1.65% $17,399 1.16% $19,532 0.59% $13,255
Total Return 73.99% 95.32% 32.55%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[CLASS B LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Massachusetts Insured Lehman Brothers Municipal CPI
Tax-Free Income Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.12% $10,114 3.19% $10,319 0.20% $10,020
06/30/1995 -0.34% $10,080 -0.87% $10,229 0.20% $10,040
07/31/1995 0.61% $10,141 0.95% $10,326 0.00% $10,040
08/31/1995 0.85% $10,227 1.27% $10,458 0.26% $10,066
09/29/1995 0.50% $10,278 0.63% $10,523 0.20% $10,086
10/31/1995 1.13% $10,395 1.45% $10,676 0.33% $10,120
11/30/1995 1.28% $10,528 1.66% $10,853 -0.07% $10,112
12/29/1995 0.91% $10,623 0.96% $10,957 -0.07% $10,105
01/31/1996 0.43% $10,669 0.76% $11,041 0.59% $10,165
02/29/1996 -0.34% $10,633 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.10% $10,622 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.34% $10,586 -0.28% $10,795 0.39% $10,291
05/31/1996 0.20% $10,607 -0.04% $10,791 0.19% $10,310
06/28/1996 0.75% $10,687 1.09% $10,908 0.06% $10,316
07/31/1996 0.79% $10,771 0.90% $11,006 0.19% $10,336
08/30/1996 0.00% $10,771 -0.02% $11,004 0.19% $10,356
09/30/1996 1.20% $10,900 1.40% $11,158 0.32% $10,389
10/31/1996 0.74% $10,981 1.13% $11,284 0.32% $10,422
11/29/1996 1.34% $11,128 1.83% $11,491 0.19% $10,442
12/31/1996 -0.35% $11,089 -0.42% $11,443 0.00% $10,442
01/31/1997 -0.89% $10,991 0.19% $11,464 0.32% $10,475
02/28/1997 0.83% $11,082 0.92% $11,570 0.31% $10,508
03/31/1997 -1.31% $10,937 -1.33% $11,416 0.25% $10,534
04/30/1997 0.65% $11,008 0.84% $11,512 0.12% $10,547
05/31/1997 1.40% $11,162 1.51% $11,686 -0.06% $10,540
06/30/1997 1.13% $11,288 1.07% $11,811 0.12% $10,553
07/31/1997 2.55% $11,576 2.77% $12,138 0.12% $10,565
08/31/1997 -0.98% $11,462 -0.94% $12,024 0.19% $10,586
09/30/1997 1.15% $11,594 1.19% $12,167 0.25% $10,612
10/31/1997 0.49% $11,651 0.64% $12,245 0.25% $10,639
11/30/1997 0.60% $11,721 0.59% $12,317 -0.06% $10,632
12/31/1997 1.31% $11,874 1.46% $12,497 -0.12% $10,619
01/31/1998 0.72% $11,960 1.03% $12,626 0.19% $10,640
02/28/1998 -0.05% $11,954 0.03% $12,629 0.19% $10,660
03/31/1998 0.05% $11,960 0.09% $12,641 0.19% $10,680
04/30/1998 -0.25% $11,930 -0.45% $12,584 0.18% $10,699
05/31/1998 1.30% $12,085 1.58% $12,783 0.18% $10,719
06/30/1998 0.52% $12,148 0.39% $12,832 0.12% $10,731
07/31/1998 0.23% $12,176 0.25% $12,865 0.12% $10,744
08/31/1998 1.14% $12,315 1.55% $13,064 0.12% $10,757
09/30/1998 1.02% $12,440 1.25% $13,227 0.12% $10,770
10/31/1998 -0.28% $12,406 0.00% $13,227 0.24% $10,796
11/30/1998 0.29% $12,442 0.35% $13,274 0.00% $10,796
12/31/1998 0.17% $12,463 0.25% $13,307 -0.06% $10,789
01/31/1999 0.79% $12,561 1.19% $13,465 0.24% $10,815
02/28/1999 -0.32% $12,521 -0.44% $13,406 0.12% $10,828
03/31/1999 0.33% $12,562 0.14% $13,425 0.30% $10,861
04/30/1999 0.18% $12,585 0.25% $13,458 0.73% $10,940
05/31/1999 -0.53% $12,518 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.42% $12,340 -1.44% $13,187 0.00% $10,940
07/31/1999 0.09% $12,351 0.36% $13,235 0.30% $10,973
08/31/1999 -1.44% $12,174 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.62% $12,098 0.04% $13,134 0.48% $11,052
10/31/1999 -1.54% $11,912 -1.08% $12,992 0.18% $11,072
11/30/1999 1.16% $12,050 1.06% $13,130 0.06% $11,079
12/31/1999 -0.98% $11,932 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.72% $11,846 -0.44% $12,974 0.24% $11,105
02/29/2000 1.69% $12,047 1.16% $13,125 0.59% $11,171
Total Return 20.47% 31.25% 11.71%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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]
In 1999, Michigan enjoyed healthy economic performance, reflecting the strength
of the manufacturing sector, which accounts for one-third of total state
personal income. Although Michigan's economic dependence on manufacturing,
particularly in the transportation equipment sector, makes it vulnerable to
cyclical volatility, past industrial restructuring and the further
diversification of the state's employment base should temper the effects of any
possible downturns.(2)
The state's December 3.6% unemployment rate, compared to the 4.1% national
average for that month reflected its history, since 1994, of lower unemployment
rates compared to the rest of the U.S.(2),(3) However, despite enviable
employment statistics, Michigan's personal income growth has trailed the U.S.
average for the past four years.(4)
The state's ability to balance its budget should benefit from stabilized
Medicaid expenditures, improved funding for its retirement systems, and recent
legislation improving the state's seasonal cash position, which had been
weakened by public school financing demands. These developments, coupled with
the state's traditionally low debt issuance levels -- $398 compared to the $540
national median for 1999 -- speak well for its credits going forward.(5)
(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 insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
(2) Source: Standard & Poor's Ratings Direct, 7/10/99.
(3) Source: Bureau of Labor Statistics, 2/18/2000.
(4) Source: Moody's Investors Service, Municipal Credit Research, 1/11/2000.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 74.
PORTFOLIO NOTES
Rising interest rates during the fund's reporting period proved challenging for
the municipal bond market. The yield on the benchmark 30-year Treasury bond
steadily increased from 5.58% on February 28, 1999, to 6.14% on February 29,
2000 -- reaching a high of 6.75% on January 20, 2000. Its price fell 10.06% for
the same period, as bond prices fall when yields increase. The municipal bond
market generally trended with the 30-year Treasury bond, and the Lehman Brothers
Insured Municipal Bond Index fell 8.92% in price. By comparison, Franklin
Michigan Insured Tax-Free Income Fund's Class A share price, as measured by net
asset value, declined 7.41%.(6)
We made most of our purchases in the new-issue market as many deals were priced
attractively. New additions to the fund included Charlotte Public School
District GO, Michigan State Hospital Finance Authority Revenue, Wayne Charter
County Airport Revenue, Detroit Sewage Disposal Revenue and Kent County Building
Authority GO bonds.
Furthermore, we sold bonds in the secondary market attempting to take tax losses
that can be used to help offset current or future capital gains, possibly
lowering shareholders' future tax liabilities. To meet redemptions, the fund
primarily sold securities that were trading at relatively favorable market
prices -- generally prerefunded or general obligation-backed school bonds.
During the reporting period, the fund sold Michigan State Trunk Line, Howell
Public Schools GO, Wayne State University Revenue and St. John's Public Schools
bonds.
Your fund offers a notable tax advantage over a comparable taxable investment.
On page 30, the Performance Summary shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.03%, based on an
annualization of the current 4.98 cent ($0.0498) per share dividend and the
maximum offering price of $11.87 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Michigan state personal income
tax bracket of 42.26% would need to earn 8.71% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rates for Class B and
C shares.
(5) Source: Moody's Investors Service.
(6) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
PORTFOLIO BREAKDOWN
Franklin Michigan Insured
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Prerefunded 35.8%
General Obligation 24.5%
Hospital & Health Care 8.8%
Utilities 11.7%
Transportation 4.3%
Higher Education 1.6%
Tax-Supported 1.1%
Other Revenue 1.0%
Subject to Government
Appropriation 0.6%
Housing 0.5%
Corporate-Backed 0.1%
</TABLE>
Looking forward, we will continue attempting to take advantage of the recently
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Michigan Insured Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------------------
<S> <C> <C> <C>
MONTH CLASS A CLASS B** CLASS C
March 4.95 cents -- 4.32 cents
April 4.95 cents -- 4.32 cents
May 4.95 cents -- 4.32 cents
June 4.95 cents -- 4.36 cents
July 4.95 cents -- 4.36 cents
August 4.95 cents -- 4.36 cents
September 4.95 cents -- 4.41 cents
October 4.95 cents -- 4.41 cents
November 4.95 cents -- 4.41 cents
December 4.95 cents -- 4.44 cents
January 4.95 cents -- 4.44 cents
February 4.95 cents 2.82 cents 4.44 cents
- -------- ---------- ---------- ----------
TOTAL 59.40 CENTS 2.82 CENTS 52.59 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.
**Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -2.57%
Net Asset Value (NAV) $11.37 (2/29/00) $12.28 (2/28/99)
Change in NAV -$0.91
Distributions (3/1/99-2/29/00) Dividend Income $0.5940
Long-Term Capital Gain $0.0003
---------------------- -------
Total $0.5943
CLASS B
Aggregate Total Return +1.11%
Net Asset Value (NAV) $11.39 (2/29/00) $11.31 (2/1/00)
Change in NAV +$0.08
Distributions (2/1/00-2/29/00) Dividend Income $0.0282
CLASS C
One-Year Total Return -3.11%
Net Asset Value (NAV) $11.45 (2/29/00) $12.36 (2/28/99)
Change in NAV -$0.91
Distributions (3/1/99-2/29/00) Dividend Income $0.5259
Long-Term Capital Gain $0.0003
---------------------- -------
Total $0.5262
</TABLE>
Franklin Michigan Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains of 0.03 cents ($0.0003) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852(b)(3).
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
Past performance does not guarantee future results.
(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, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4) Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Michigan state personal
income tax bracket of 42.26%, based on the federal income tax rate of 39.6%.
(5) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -2.57% +28.10% +85.88% +184.79%
Average Annual Total Return(2) -6.74% +4.17% +5.94% +6.96%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
- ------- --------
<S> <C>
Cumulative Total Return(1) +1.11%
Aggregate Total Return(2) -2.89%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.11% +10.32% +23.95%
Average Annual Total Return(2) -4.96% +2.99% +4.32%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C
- ----------- --- --- ---
<S> <C> <C> <C>
Distribution Rate(3) 5.03% 4.69% 4.62%
Taxable Equivalent Distribution Rate(4) 8.71% 8.12% 8.00%
30-Day Standardized Yield(5) 4.82% 4.46% 4.44%
Taxable Equivalent Yield(4) 8.35% 7.72% 7.69%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
CLASS A (3/1/90 - 2/29/00)
[CLASS A LINE GRAPH]
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 3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Michigan Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,578 $10,000 $10,000
03/31/1990 0.02% $9,580 0.03% $10,003 0.55% $10,055
04/30/1990 -0.89% $9,495 -0.72% $ 9,931 0.16% $10,071
05/31/1990 2.33% $9,716 2.18% $10,147 0.23% $10,094
06/30/1990 1.20% $9,832 0.88% $10,237 0.54% $10,149
07/31/1990 1.46% $9,976 1.47% $10,387 0.38% $10,187
08/31/1990 -2.04% $9,773 -1.45% $10,237 0.92% $10,281
09/30/1990 0.11% $9,783 0.06% $10,243 0.84% $10,367
10/31/1990 1.31% $9,911 1.82% $10,429 0.60% $10,430
11/30/1990 2.12% $10,122 2.01% $10,639 0.22% $10,453
12/31/1990 0.20% $10,142 0.43% $10,685 0.00% $10,453
01/31/1991 1.56% $10,300 1.34% $10,828 0.60% $10,515
02/28/1991 0.64% $10,366 0.87% $10,922 0.15% $10,531
03/31/1991 0.38% $10,405 0.03% $10,925 0.15% $10,547
04/30/1991 1.36% $10,547 1.34% $11,072 0.15% $10,563
05/31/1991 0.64% $10,614 0.89% $11,170 0.30% $10,594
06/30/1991 -0.07% $10,607 -0.10% $11,159 0.29% $10,625
07/31/1991 1.27% $10,742 1.22% $11,295 0.15% $10,641
08/31/1991 0.73% $10,820 1.32% $11,444 0.29% $10,672
09/30/1991 1.26% $10,956 1.30% $11,593 0.44% $10,719
10/31/1991 0.72% $11,035 0.90% $11,697 0.15% $10,735
11/30/1991 -0.07% $11,028 0.28% $11,730 0.29% $10,766
12/31/1991 2.05% $11,254 2.15% $11,982 0.07% $10,774
01/31/1992 0.54% $11,314 0.23% $12,010 0.15% $10,790
02/29/1992 -0.07% $11,306 0.03% $12,013 0.36% $10,829
03/31/1992 0.31% $11,341 0.03% $12,017 0.51% $10,884
04/30/1992 0.95% $11,449 0.89% $12,124 0.14% $10,899
05/31/1992 1.56% $11,628 1.18% $12,267 0.14% $10,914
06/30/1992 1.46% $11,798 1.68% $12,473 0.36% $10,954
07/31/1992 3.62% $12,225 3.00% $12,847 0.21% $10,977
08/31/1992 -1.33% $12,062 -0.97% $12,723 0.28% $11,007
09/30/1992 0.22% $12,089 0.65% $12,805 0.28% $11,038
10/31/1992 -1.69% $11,884 -0.98% $12,680 0.35% $11,077
11/30/1992 2.36% $12,165 1.79% $12,907 0.14% $11,092
12/31/1992 1.27% $12,319 1.02% $13,039 -0.07% $11,085
01/31/1993 1.23% $12,471 1.16% $13,190 0.49% $11,139
02/28/1993 2.79% $12,819 3.62% $13,667 0.35% $11,178
03/31/1993 -0.17% $12,797 -1.06% $13,522 0.35% $11,217
04/30/1993 0.67% $12,883 1.01% $13,659 0.28% $11,248
05/31/1993 0.54% $12,952 0.56% $13,735 0.14% $11,264
06/30/1993 1.66% $13,167 1.67% $13,965 0.14% $11,280
07/31/1993 0.00% $13,167 0.13% $13,983 0.00% $11,280
08/31/1993 1.99% $13,429 2.08% $14,274 0.28% $11,311
09/30/1993 1.18% $13,588 1.14% $14,437 0.21% $11,335
10/31/1993 0.43% $13,646 0.19% $14,464 0.41% $11,382
11/30/1993 -0.49% $13,579 -0.88% $14,337 0.07% $11,390
12/31/1993 1.72% $13,813 2.11% $14,639 0.00% $11,390
01/31/1994 0.87% $13,933 1.14% $14,806 0.27% $11,420
02/28/1994 -2.07% $13,645 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.16% $13,213 -4.07% $13,836 0.34% $11,498
04/30/1994 0.64% $13,298 0.85% $13,953 0.14% $11,514
05/31/1994 0.51% $13,366 0.87% $14,075 0.07% $11,522
06/30/1994 -0.39% $13,314 -0.61% $13,989 0.34% $11,562
07/31/1994 1.50% $13,513 1.83% $14,245 0.27% $11,593
08/31/1994 0.25% $13,547 0.35% $14,295 0.40% $11,639
09/30/1994 -1.11% $13,397 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.31% $13,221 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.63% $13,006 -1.81% $13,583 0.13% $11,694
12/31/1994 2.04% $13,271 2.20% $13,882 0.00% $11,694
01/31/1995 2.30% $13,576 2.86% $14,279 0.40% $11,741
02/28/1995 2.43% $13,906 2.91% $14,695 0.40% $11,788
03/31/1995 0.87% $14,027 1.15% $14,864 0.33% $11,827
04/30/1995 0.19% $14,054 0.12% $14,882 0.33% $11,866
05/31/1995 2.37% $14,387 3.19% $15,356 0.20% $11,889
06/30/1995 -0.59% $14,302 -0.87% $15,223 0.20% $11,913
07/31/1995 0.57% $14,384 0.95% $15,367 0.00% $11,913
08/31/1995 0.89% $14,512 1.27% $15,563 0.26% $11,944
09/30/1995 0.55% $14,591 0.63% $15,661 0.20% $11,968
10/31/1995 1.26% $14,775 1.45% $15,888 0.33% $12,007
11/30/1995 1.46% $14,991 1.66% $16,151 -0.07% $11,999
12/31/1995 0.77% $15,106 0.96% $16,306 -0.07% $11,991
01/31/1996 0.65% $15,205 0.76% $16,430 0.59% $12,061
02/29/1996 -0.44% $15,138 -0.68% $16,319 0.32% $12,100
03/31/1996 3.27% $15,633 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.10% $15,617 -0.28% $16,065 0.39% $12,210
05/31/1996 -0.08% $15,605 -0.04% $16,058 0.19% $12,234
06/30/1996 1.08% $15,773 1.09% $16,233 0.06% $12,241
07/31/1996 0.80% $15,899 0.90% $16,379 0.19% $12,264
08/31/1996 -0.11% $15,882 -0.02% $16,376 0.19% $12,287
09/30/1996 1.37% $16,099 1.40% $16,605 0.32% $12,327
10/31/1996 0.85% $16,236 1.13% $16,793 0.32% $12,366
11/30/1996 1.65% $16,504 1.83% $17,100 0.19% $12,390
12/31/1996 -0.40% $16,438 -0.42% $17,028 0.00% $12,390
01/31/1997 -4.19% $15,749 0.19% $17,061 0.32% $12,429
02/28/1997 0.78% $15,872 0.92% $17,218 0.31% $12,468
03/31/1997 -1.20% $15,682 -1.33% $16,989 0.25% $12,499
04/30/1997 0.69% $15,790 0.84% $17,131 0.12% $12,514
05/31/1997 1.34% $16,002 1.51% $17,390 -0.06% $12,507
06/30/1997 0.87% $16,141 1.07% $17,576 0.12% $12,522
07/31/1997 2.45% $16,536 2.77% $18,063 0.12% $12,537
08/31/1997 -0.97% $16,376 -0.94% $17,893 0.19% $12,560
09/30/1997 1.03% $16,545 1.19% $18,106 0.25% $12,592
10/31/1997 0.65% $16,652 0.64% $18,222 0.25% $12,623
11/30/1997 0.58% $16,749 0.59% $18,330 -0.06% $12,616
12/31/1997 1.68% $17,030 1.46% $18,597 -0.12% $12,601
01/31/1998 0.85% $17,175 1.03% $18,789 0.19% $12,624
02/28/1998 0.18% $17,206 0.03% $18,794 0.19% $12,648
03/31/1998 0.03% $17,211 0.09% $18,811 0.19% $12,672
04/30/1998 -0.18% $17,180 -0.45% $18,727 0.18% $12,695
05/31/1998 1.40% $17,420 1.58% $19,023 0.18% $12,718
06/30/1998 0.67% $17,537 0.39% $19,097 0.12% $12,733
07/31/1998 0.29% $17,588 0.25% $19,145 0.12% $12,749
08/31/1998 1.25% $17,808 1.55% $19,441 0.12% $12,764
09/30/1998 1.20% $18,022 1.25% $19,684 0.12% $12,779
10/31/1998 0.03% $18,027 0.00% $19,684 0.24% $12,810
11/30/1998 0.42% $18,103 0.35% $19,753 0.00% $12,810
12/31/1998 0.16% $18,132 0.25% $19,803 -0.06% $12,802
01/31/1999 0.90% $18,295 1.19% $20,038 0.24% $12,833
02/28/1999 -0.09% $18,278 -0.44% $19,950 0.12% $12,848
03/31/1999 0.31% $18,335 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $18,362 0.25% $20,028 0.73% $12,981
05/31/1999 -0.54% $18,263 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.22% $18,041 -1.44% $19,625 0.00% $12,981
07/31/1999 0.23% $18,082 0.36% $19,696 0.30% $13,020
08/31/1999 -1.06% $17,890 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.19% $17,856 0.04% $19,546 0.48% $13,114
10/31/1999 -0.98% $17,681 -1.08% $19,335 0.18% $13,137
11/30/1999 0.91% $17,842 1.06% $19,540 0.06% $13,145
12/31/1999 -0.69% $17,719 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.45% $17,639 -0.44% $19,308 0.24% $13,177
02/29/2000 1.65% $17,800 1.16% $19,532 0.59% $13,255
Total Return 78.00% 95.32% 32.55%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year -6.74%
5-Year +4.17%
10-Year +5.94%
Since Inception (4/3/85) +6.96%
</TABLE>
CLASS C (5/1/95 - 2/29/60)
[CLASS C LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Michigan Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class C Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,899 $10,000 $10,000
05/31/1995 2.58% $10,154 3.19% $10,319 0.20% $10,020
06/30/1995 -0.56% $10,098 -0.87% $10,229 0.20% $10,040
07/31/1995 0.52% $10,150 0.95% $10,326 0.00% $10,040
08/31/1995 0.84% $10,235 1.27% $10,458 0.26% $10,066
09/29/1995 0.58% $10,295 0.63% $10,523 0.20% $10,086
10/31/1995 1.20% $10,418 1.45% $10,676 0.33% $10,120
11/30/1995 1.40% $10,564 1.66% $10,853 -0.07% $10,112
12/29/1995 0.72% $10,640 0.96% $10,957 -0.07% $10,105
01/31/1996 0.60% $10,704 0.76% $11,041 0.59% $10,165
02/29/1996 -0.51% $10,649 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.19% $10,629 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.17% $10,611 -0.28% $10,795 0.39% $10,291
05/31/1996 -0.98% $10,507 -0.04% $10,791 0.19% $10,310
06/28/1996 0.90% $10,602 1.09% $10,908 0.06% $10,316
07/31/1996 0.77% $10,683 0.90% $11,006 0.19% $10,336
08/30/1996 0.00% $10,683 -0.02% $11,004 0.19% $10,356
09/30/1996 1.28% $10,820 1.40% $11,158 0.32% $10,389
10/31/1996 0.82% $10,909 1.13% $11,284 0.32% $10,422
11/29/1996 1.56% $11,079 1.83% $11,491 0.19% $10,442
12/31/1996 -0.40% $11,035 -0.42% $11,443 0.00% $10,442
01/31/1997 -0.02% $11,032 0.19% $11,464 0.32% $10,475
02/28/1997 0.80% $11,121 0.92% $11,570 0.31% $10,508
03/31/1997 -1.32% $10,974 -1.33% $11,416 0.25% $10,534
04/30/1997 0.65% $11,045 0.84% $11,512 0.12% $10,547
05/31/1997 1.28% $11,187 1.51% $11,686 -0.06% $10,540
06/30/1997 0.90% $11,287 1.07% $11,811 0.12% $10,553
07/31/1997 2.39% $11,557 2.77% $12,138 0.12% $10,565
08/31/1997 -1.09% $11,431 -0.94% $12,024 0.19% $10,586
09/30/1997 1.06% $11,552 1.19% $12,167 0.25% $10,612
10/31/1997 0.51% $11,611 0.64% $12,245 0.25% $10,639
11/30/1997 0.61% $11,682 0.59% $12,317 -0.06% $10,632
12/31/1997 1.62% $11,871 1.46% $12,497 -0.12% $10,619
01/31/1998 0.79% $11,965 1.03% $12,626 0.19% $10,640
02/28/1998 0.13% $11,981 0.03% $12,629 0.19% $10,660
03/31/1998 -0.02% $11,978 0.09% $12,641 0.19% $10,680
04/30/1998 -0.23% $11,951 -0.45% $12,584 0.18% $10,699
05/31/1998 1.35% $12,112 1.58% $12,783 0.18% $10,719
06/30/1998 0.70% $12,197 0.39% $12,832 0.12% $10,731
07/31/1998 0.24% $12,226 0.25% $12,865 0.12% $10,744
08/31/1998 1.19% $12,371 1.55% $13,064 0.12% $10,757
09/30/1998 1.15% $12,514 1.25% $13,227 0.12% $10,770
10/31/1998 -0.01% $12,512 0.00% $13,227 0.24% $10,796
11/30/1998 0.37% $12,559 0.35% $13,274 0.00% $10,796
12/31/1998 0.13% $12,575 0.25% $13,307 -0.06% $10,789
01/31/1999 0.85% $12,682 1.19% $13,465 0.24% $10,815
02/28/1999 -0.13% $12,666 -0.44% $13,406 0.12% $10,828
03/31/1999 0.24% $12,696 0.14% $13,425 0.30% $10,861
04/30/1999 0.10% $12,709 0.25% $13,458 0.73% $10,940
05/31/1999 -0.58% $12,635 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.26% $12,476 -1.44% $13,187 0.00% $10,940
07/31/1999 0.18% $12,498 0.36% $13,235 0.30% $10,973
08/31/1999 -1.10% $12,361 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.23% $12,332 0.04% $13,134 0.48% $11,052
10/31/1999 -1.10% $12,197 -1.08% $12,992 0.18% $11,072
11/30/1999 0.94% $12,311 1.06% $13,130 0.06% $11,079
12/31/1999 -0.82% $12,210 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.49% $12,150 -0.44% $12,974 0.24% $11,105
02/29/2000 0.99% $12,270 1.16% $13,125 0.59% $11,171
Total Return 22.70% 31.25% 11.71%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year -4.96%
3-Year +2.99%
Since Inception (5/1/95) +4.32%
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
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]
Minnesota owes its economic strength to a diversified employment base that
enhances its ability to weather economic downturns. The state's employment
breakdown, with services representing 29%, trade 24%, and durable and
non-durable goods manufacturing combined comprising 17% of total employment,
closely resembles the U.S. labor force composition.(2) Among these sectors,
services shows the greatest potential for contributing to future employment
growth.
The state enjoys enviably low unemployment levels, typified by December's 2.4%
unemployment rate, compared to the 4.1% national average for the same month.(3)
Going forward, labor shortages, particularly for skilled positions, could temper
business expansion, although it might also promote population growth.
Minnesota's 6.6% personal income growth rate, which outpaced the nation's 6.0%
rate in 1999, indicates another measure of the state's economic health.(2)
Continuing positive economic trends have enabled the state's revenues to
increase faster than expenditures. The adopted 2000-2001 biennium general fund
budget is structurally balanced and maintains solid budget reserve levels, while
supporting a 9.6% expenditure increase above the previous biennium.(2) In
addition, the state's 1999 net tax-supported per-capita debt rate of $513 came
in below the $540 national
PORTFOLIO BREAKDOWN
Franklin Minnesota Insured
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
General Obligation 24.9%
Hospital & Health Care 22.2%
Housing 17.0%
Utilities 11.9%
Prerefunded 8.4%
Transportation 7.2%
Subject to Government
Appropriation 3.4%
Tax-Supported 2.4%
Higher Education 1.4%
Other Revenue 1.2%
</TABLE>
(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 seeks to comply with Minnesota requirements for the
pass-through of tax-exempt income dividends.
The insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
(2) Source: Standard & Poor's Ratings Direct, 1/4/2000.
(3) Source: Bureau of Labor Statistics, 2/18/2000.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 82.
PORTFOLIO NOTES
The rise in interest rates during the reporting period resulted in decreasing
bond prices, presenting challenges for municipal bond investors. For the 12
months ended February 29, 2000, the 30-year Treasury bond price fell 10.06%, and
the Lehman Brothers Insured Municipal Bond Index was off 8.92%. By comparison,
your fund's Class A share price, as measured by net asset value, declined
8.32%.(5)
We sought to take advantage of the reporting period's rising interest-rate
environment to restructure the portfolio, seeking to improve the fund's
long-term income-earning potential. Such a strategy enabled us to sell bonds at
losses that can be used to help offset current or future capital gains, possibly
lowering shareholders' future tax liabilities. With this in mind, the fund sold
bonds issued by Braham ISD No. 314, Puerto Rico Commonwealth GO, Hennepin County
GO and Minneapolis and St. Paul Housing RDA - Health One Obligated Group.
Strategies to improve the fund's dividend distributions included selling
shorter-maturity bonds and buying longer-term bonds; replacing lower-yielding
with higher-yielding bonds; and selling prerefunded bonds to buy longer-term,
higher-yielding bonds. We also sold bonds close to their call dates and bought
bonds with longer call protection to improve the predictability of the fund's
future dividend payments. Attempting to meet these goals, we made several
additions to the portfolio during the reporting period, including Minnetonka
MFHR; Burnsville MFHR, Coventry Center, Refunding; Eagan MFHR Forest Ridge
Apartments, Refunding; Minnesota Agriculture and Economic Development Board
Revenue; and Dakota County Housing and Redevelopment Authority MFHR bonds.
Your fund offers a notable tax advantage over a comparable taxable investment.
On page 35, the Performance Summary shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.01%, based on an
annualization of the current 4.85 cent ($0.0485) per share dividend and the
maximum offering price of $11.62 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Minnesota state personal income
tax bracket of 44.43% would need to earn 9.02% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
(4) Source: Moody's Investors Service.
(5) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
Looking forward, we will continue attempting to take advantage of the recently
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Minnesota Insured Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Minnesota Insured Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------
MONTH CLASS A CLASS C
- ----- ------- -------
<S> <C> <C>
March 5.00 cents 4.42 cents
April 5.00 cents 4.42 cents
May 5.00 cents 4.42 cents
June 4.90 cents 4.36 cents
July 4.90 cents 4.36 cents
August 4.90 cents 4.36 cents
September 4.85 cents 4.30 cents
October 4.85 cents 4.30 cents
November 4.85 cents 4.30 cents
December 4.85 cents 4.34 cents
January 4.85 cents 4.34 cents
February 4.85 cents 4.34 cents
TOTAL 58.80 CENTS 52.26 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
CLASS A
<S> <C> <C>
One-Year Total Return -3.30%
Net Asset Value (NAV) $11.13 (2/29/00) $12.14 (2/28/99)
Change in NAV -$1.01
Distributions (3/1/99-2/29/00) Dividend Income $0.5880
Long-Term Capital Gain $0.0237
---------------------- -------
Total $0.6117
</TABLE>
<TABLE>
CLASS C
<S> <C> <C>
One-Year Total Return -3.84%
Net Asset Value (NAV) $11.18 (2/29/00) $12.19 (2/28/99)
Change in NAV -$1.01
Distributions (3/1/99-2/29/00) Dividend Income $0.5226
Long-Term Capital Gain $0.0237
---------------------- -------
Total $0.5463
</TABLE>
Franklin Minnesota Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains of 2.37 cents ($0.0237) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.30% +23.62% +76.18% +178.10%
Average Annual Total Return(2) -7.42% +3.43% +5.36% +6.79%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.84% +7.64% +19.39%
Average Annual Total Return(2) -5.68% +2.15% +3.52%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.01% 4.61%
Taxable Equivalent Distribution Rate(4) 9.02% 8.30%
30-Day Standardized Yield(5) 4.92% 4.53%
Taxable Equivalent Yield(4) 8.85% 8.15%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
(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
29, 2000.
(4) Taxable equivalent distribution rate and yield assume the published
rates as of March 15, 2000, for the maximum combined federal and Minnesota state
personal income tax bracket of 44.43%, 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 month ended February 29, 2000.
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 MINNESOTA INSURED TAX-FREE INCOME FUND
CLASS A: 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: 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 performance does not guarantee future results.
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year -7.42%
5-Year +3.43%
10-Year +5.36%
Since Inception (4/3/85) +6.79%
</TABLE>
[CLASS A LINE GRAPH]
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 3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Minnesota Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,577 $10,000 $10,000
03/31/1990 0.05% $9,582 0.03% $10,003 0.55% $10,055
04/30/1990 -0.48% $9,536 -0.72% $9,931 0.16% $10,071
05/31/1990 2.10% $9,736 2.18% $10,147 0.23% $10,094
06/30/1990 1.02% $9,835 0.88% $10,237 0.54% $10,149
07/31/1990 1.37% $9,970 1.47% $10,387 0.38% $10,187
08/31/1990 -1.77% $9,794 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.21% $9,773 0.06% $10,243 0.84% $10,367
10/31/1990 1.40% $9,910 1.82% $10,429 0.60% $10,430
11/30/1990 1.92% $10,100 2.01% $10,639 0.22% $10,453
12/31/1990 0.05% $10,105 0.43% $10,685 0.00% $10,453
01/31/1991 1.47% $10,254 1.34% $10,828 0.60% $10,515
02/28/1991 0.49% $10,304 0.87% $10,922 0.15% $10,531
03/31/1991 0.40% $10,345 0.03% $10,925 0.15% $10,547
04/30/1991 1.46% $10,496 1.34% $11,072 0.15% $10,563
05/31/1991 0.75% $10,575 0.89% $11,170 0.30% $10,594
06/30/1991 -0.06% $10,569 -0.10% $11,159 0.29% $10,625
07/31/1991 1.34% $10,710 1.22% $11,295 0.15% $10,641
08/31/1991 0.63% $10,778 1.32% $11,444 0.29% $10,672
09/30/1991 1.32% $10,920 1.30% $11,593 0.44% $10,719
10/31/1991 0.71% $10,998 0.90% $11,697 0.15% $10,735
11/30/1991 -0.06% $10,991 0.28% $11,730 0.29% $10,766
12/31/1991 1.92% $11,202 2.15% $11,982 0.07% $10,774
01/31/1992 0.54% $11,262 0.23% $12,010 0.15% $10,790
02/29/1992 -0.06% $11,256 0.03% $12,013 0.36% $10,829
03/31/1992 0.48% $11,310 0.03% $12,017 0.51% $10,884
04/30/1992 0.77% $11,397 0.89% $12,124 0.14% $10,899
05/31/1992 1.45% $11,562 1.18% $12,267 0.14% $10,914
06/30/1992 1.28% $11,710 1.68% $12,473 0.36% $10,954
07/31/1992 3.40% $12,108 3.00% $12,847 0.21% $10,977
08/31/1992 -1.45% $11,933 -0.97% $12,723 0.28% $11,007
09/30/1992 -0.02% $11,930 0.65% $12,805 0.28% $11,038
10/31/1992 -1.74% $11,723 -0.98% $12,680 0.35% $11,077
11/30/1992 2.43% $12,008 1.79% $12,907 0.14% $11,092
12/31/1992 1.35% $12,170 1.02% $13,039 -0.07% $11,085
01/31/1993 1.23% $12,319 1.16% $13,190 0.49% $11,139
02/28/1993 2.68% $12,649 3.62% $13,667 0.35% $11,178
03/31/1993 -0.15% $12,630 -1.06% $13,522 0.35% $11,217
04/30/1993 0.75% $12,725 1.01% $13,659 0.28% $11,248
05/31/1993 0.44% $12,781 0.56% $13,735 0.14% $11,264
06/30/1993 1.55% $12,979 1.67% $13,965 0.14% $11,280
07/31/1993 0.07% $12,988 0.13% $13,983 0.00% $11,280
08/31/1993 1.71% $13,210 2.08% $14,274 0.28% $11,311
09/30/1993 1.00% $13,343 1.14% $14,437 0.21% $11,335
10/31/1993 0.27% $13,379 0.19% $14,464 0.41% $11,382
11/30/1993 -0.49% $13,313 -0.88% $14,337 0.07% $11,390
12/31/1993 1.46% $13,507 2.11% $14,639 0.00% $11,390
01/31/1994 0.86% $13,624 1.14% $14,806 0.27% $11,420
02/28/1994 -1.90% $13,365 -2.59% $14,423 0.34% $11,459
03/31/1994 -2.81% $12,989 -4.07% $13,836 0.34% $11,498
04/30/1994 0.31% $13,029 0.85% $13,953 0.14% $11,514
05/31/1994 0.77% $13,130 0.87% $14,075 0.07% $11,522
06/30/1994 -0.35% $13,084 -0.61% $13,989 0.34% $11,562
07/31/1994 1.40% $13,267 1.83% $14,245 0.27% $11,593
08/31/1994 0.33% $13,311 0.35% $14,295 0.40% $11,639
09/30/1994 -1.02% $13,175 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.39% $12,992 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.71% $12,770 -1.81% $13,583 0.13% $11,694
12/31/1994 2.01% $13,026 2.20% $13,882 0.00% $11,694
01/31/1995 2.44% $13,344 2.86% $14,279 0.40% $11,741
02/28/1995 2.31% $13,652 2.91% $14,695 0.40% $11,788
03/31/1995 0.85% $13,769 1.15% $14,864 0.33% $11,827
04/30/1995 0.18% $13,793 0.12% $14,882 0.33% $11,866
05/31/1995 2.09% $14,082 3.19% $15,356 0.20% $11,889
06/30/1995 -0.51% $14,010 -0.87% $15,223 0.20% $11,913
07/31/1995 0.56% $14,088 0.95% $15,367 0.00% $11,913
08/31/1995 0.88% $14,212 1.27% $15,563 0.26% $11,944
09/30/1995 0.62% $14,300 0.63% $15,661 0.20% $11,968
10/31/1995 1.16% $14,466 1.45% $15,888 0.33% $12,007
11/30/1995 1.19% $14,638 1.66% $16,151 -0.07% $11,999
12/31/1995 0.84% $14,761 0.96% $16,306 -0.07% $11,991
01/31/1996 0.48% $14,832 0.76% $16,430 0.59% $12,061
02/29/1996 -0.52% $14,755 -0.68% $16,319 0.32% $12,100
03/31/1996 1.12% $14,590 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.20% $14,561 -0.28% $16,065 0.39% $12,210
05/31/1996 0.08% $14,572 -0.04% $16,058 0.19% $12,234
06/30/1996 0.95% $14,711 1.09% $16,233 0.06% $12,241
07/31/1996 0.82% $14,831 0.90% $16,379 0.19% $12,264
08/31/1996 -0.12% $14,814 -0.02% $16,376 0.19% $12,287
09/30/1996 1.23% $14,996 1.40% $16,605 0.32% $12,327
10/31/1996 0.87% $15,126 1.13% $16,793 0.32% $12,366
11/30/1996 1.28% $15,320 1.83% $17,100 0.19% $12,390
12/31/1996 -0.27% $15,278 -0.42% $17,028 0.00% $12,390
01/31/1997 0.19% $15,307 0.19% $17,061 0.32% $12,429
02/28/1997 0.77% $15,425 0.92% $17,218 0.31% $12,468
03/31/1997 -0.95% $15,279 -1.33% $16,989 0.25% $12,499
04/30/1997 0.68% $15,383 0.84% $17,131 0.12% $12,514
05/31/1997 1.16% $15,561 1.51% $17,390 -0.06% $12,507
06/30/1997 0.87% $15,697 1.07% $17,576 0.12% $12,522
07/31/1997 2.27% $16,053 2.77% $18,063 0.12% $12,537
08/31/1997 -0.64% $15,950 -0.94% $17,893 0.19% $12,560
09/30/1997 0.94% $16,100 1.19% $18,106 0.25% $12,592
10/31/1997 0.55% $16,189 0.64% $18,222 0.25% $12,623
11/30/1997 0.57% $16,281 0.59% $18,330 -0.06% $12,616
12/31/1997 1.08% $16,457 1.46% $18,597 -0.12% $12,601
01/31/1998 0.77% $16,583 1.03% $18,789 0.19% $12,624
02/28/1998 0.10% $16,600 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $16,635 0.09% $18,811 0.19% $12,672
04/30/1998 -0.17% $16,607 -0.45% $18,727 0.18% $12,695
05/31/1998 1.25% $16,814 1.58% $19,023 0.18% $12,718
06/30/1998 0.44% $16,888 0.39% $19,097 0.12% $12,733
07/31/1998 0.22% $16,925 0.25% $19,145 0.12% $12,749
08/31/1998 1.09% $17,110 1.55% $19,441 0.12% $12,764
09/30/1998 0.89% $17,262 1.25% $19,684 0.12% $12,779
10/31/1998 0.29% $17,312 0.00% $19,684 0.24% $12,810
11/30/1998 0.34% $17,371 0.35% $19,753 0.00% $12,810
12/31/1998 0.13% $17,394 0.25% $19,803 -0.06% $12,802
01/31/1999 0.74% $17,522 1.19% $20,038 0.24% $12,833
02/28/1999 -0.34% $17,463 -0.44% $19,950 0.12% $12,848
03/31/1999 0.48% $17,547 0.14% $19,978 0.30% $12,887
04/30/1999 0.08% $17,561 0.25% $20,028 0.73% $12,981
05/31/1999 -0.38% $17,494 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.37% $17,254 -1.44% $19,625 0.00% $12,981
07/31/1999 0.14% $17,278 0.36% $19,696 0.30% $13,020
08/31/1999 -1.33% $17,049 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.28% $17,001 0.04% $19,546 0.48% $13,114
10/31/1999 -1.62% $16,725 -1.08% $19,335 0.18% $13,137
11/30/1999 1.10% $16,909 1.06% $19,540 0.06% $13,145
12/31/1999 -0.98% $16,744 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.56% $16,650 -0.44% $19,308 0.24% $13,177
02/29/2000 1.42% $16,864 1.16% $19,532 0.59% $13,255
Total Return 68.64% 95.32% 32.55%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year -5.68%
3-Year +2.15%
Since Inception (5/1/95) +3.52%
</TABLE>
[CLASS C LINE GRAPH]
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 2/29/00.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Date Franklin Minnesota Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class C Bond Index
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,900 $10,000 $10,000
05/31/1995 2.20% $10,118 3.19% $10,319 0.20% $10,020
06/30/1995 -0.56% $10,061 -0.87% $10,229 0.20% $10,040
07/31/1995 0.51% $10,112 0.95% $10,326 0.00% $10,040
08/31/1995 0.91% $10,204 1.27% $10,458 0.26% $10,066
09/29/1995 0.49% $10,254 0.63% $10,523 0.20% $10,086
10/31/1995 1.10% $10,367 1.45% $10,676 0.33% $10,120
11/30/1995 1.22% $10,494 1.66% $10,853 -0.07% $10,112
12/29/1995 0.79% $10,577 0.96% $10,957 -0.07% $10,105
01/31/1996 0.42% $10,621 0.76% $11,041 0.59% $10,165
02/29/1996 -0.58% $10,559 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.16% $10,437 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.25% $10,411 -0.28% $10,795 0.39% $10,291
05/31/1996 0.11% $10,422 -0.04% $10,791 0.19% $10,310
06/28/1996 0.82% $10,508 1.09% $10,908 0.06% $10,316
07/31/1996 0.77% $10,589 0.90% $11,006 0.19% $10,336
08/30/1996 -0.08% $10,580 -0.02% $11,004 0.19% $10,356
09/30/1996 1.10% $10,697 1.40% $11,158 0.32% $10,389
10/31/1996 0.82% $10,784 1.13% $11,284 0.32% $10,422
11/29/1996 1.23% $10,917 1.83% $11,491 0.19% $10,442
12/31/1996 -0.32% $10,882 -0.42% $11,443 0.00% $10,442
01/31/1997 0.13% $10,896 0.19% $11,464 0.32% $10,475
02/28/1997 0.78% $10,981 0.92% $11,570 0.31% $10,508
03/31/1997 -1.01% $10,870 -1.33% $11,416 0.25% $10,534
04/30/1997 0.64% $10,940 0.84% $11,512 0.12% $10,547
05/31/1997 1.11% $11,061 1.51% $11,686 -0.06% $10,540
06/30/1997 0.91% $11,162 1.07% $11,811 0.12% $10,553
07/31/1997 2.12% $11,399 2.77% $12,138 0.12% $10,565
08/31/1997 -0.69% $11,320 -0.94% $12,024 0.19% $10,586
09/30/1997 0.89% $11,421 1.19% $12,167 0.25% $10,612
10/31/1997 0.50% $11,478 0.64% $12,245 0.25% $10,639
11/30/1997 0.52% $11,537 0.59% $12,317 -0.06% $10,632
12/31/1997 1.11% $11,666 1.46% $12,497 -0.12% $10,619
01/31/1998 0.72% $11,750 1.03% $12,626 0.19% $10,640
02/28/1998 0.05% $11,755 0.03% $12,629 0.19% $10,660
03/31/1998 0.16% $11,774 0.09% $12,641 0.19% $10,680
04/30/1998 -0.21% $11,749 -0.45% $12,584 0.18% $10,699
05/31/1998 1.20% $11,890 1.58% $12,783 0.18% $10,719
06/30/1998 0.39% $11,937 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $11,957 0.25% $12,865 0.12% $10,744
08/31/1998 1.04% $12,081 1.55% $13,064 0.12% $10,757
09/30/1998 0.84% $12,183 1.25% $13,227 0.12% $10,770
10/31/1998 0.23% $12,211 0.00% $13,227 0.24% $10,796
11/30/1998 0.29% $12,246 0.35% $13,274 0.00% $10,796
12/31/1998 0.16% $12,266 0.25% $13,307 -0.06% $10,789
01/31/1999 0.69% $12,351 1.19% $13,465 0.24% $10,815
02/28/1999 -0.46% $12,294 -0.44% $13,406 0.12% $10,828
03/31/1999 0.42% $12,345 0.14% $13,425 0.30% $10,861
04/30/1999 0.11% $12,359 0.25% $13,458 0.73% $10,940
05/31/1999 -0.50% $12,297 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.41% $12,124 -1.44% $13,187 0.00% $10,940
07/31/1999 0.18% $12,146 0.36% $13,235 0.30% $10,973
08/31/1999 -1.46% $11,968 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.33% $11,929 0.04% $13,134 0.48% $11,052
10/31/1999 -1.65% $11,732 -1.08% $12,992 0.18% $11,072
11/30/1999 1.04% $11,854 1.06% $13,130 0.06% $11,079
12/31/1999 -1.02% $11,733 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.60% $11,663 -0.44% $12,974 0.24% $11,105
02/29/2000 1.37% $11,820 1.16% $13,125 0.59% $11,171
Total Return 18.20% 31.25% 11.71%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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]
Ohio's economy performed strongly during the year under review, benefiting from
stability in its manufacturing base, as well as growth in the trade and services
sectors. The state's 4.0% December unemployment rate, compared favorably with
the 4.1% national average, reflecting a history of rates just below or on par
with the national average.(2) Ohio's expected 1% annual job growth through 2002
represents steady growth, although not at the rapid levels of 1994-1997.
Asia-related declines in the state's export market were partly responsible for
this slowdown.(3)
Ohio boasted not only solid economic performance, but stalwart finances as well.
Fiscal year 1999 recorded another year's operating surplus, while fiscal year
2000's results through November 1999 demonstrate a favorable
revenues-to-expenditures balance. At the same time, Ohio's reserve fund balance
now exceeds its levels prior to the last recession, and should provide a cushion
against future economic volatility.
In 1999, the state's $668 net tax-supported per-capita debt level was moderately
above the national median of $540.(4) An Ohio Supreme Court decision requiring
major funding changes for the state's schools represents a noteworthy, yet not
overwhelming, challenge to the state's resources. In light of such developments,
we expect a stable credit outlook for Ohio in the months to come.
PORTFOLIO BREAKDOWN
Franklin Ohio Insured Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
General Obligation 26.6%
Utilities 25.6%
Prerefunded 15.0%
Hospital & Health Care 12.5%
Higher Education 5.9%
Housing 3.8%
Transportation 3.8%
Corporate-Backed 3.2%
Subject to Government
Appropriation 2.6%
Other Revenue 0.7%
Tax-Supported 0.3%
</TABLE>
(1) For Investors subject to the federal alternative minimum tax, a portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
The insurance guarantees the scheduled payment of principal and interest on the
insured securities in the fund's portfolio, but does not guarantee the insured
securities' market value, the value of the fund's shares, or the fund's
distributions. Fund shares are not insured. No representation is made as to any
insurer's ability to meet its obligation to the fund if called upon to do so.
(2) Source: Bureau of Labor Statistics, 2/18/2000.
(3) Source: Standard & Poor's Ratings Direct, 1/20/2000.
(4) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing
of the fund's portfolio holdings, including dollar value and number of shares
or principal amount. The SOI begins on page 88.
PORTFOLIO NOTES
The rise in interest rates during the reporting period resulted in decreasing
bond prices, presenting challenges for municipal bond investors. For the 12
months ended February 29, 2000, the 30-year Treasury bond price fell 10.06%, and
the Lehman Brothers Insured Municipal Bond Index was off 8.92%. By comparison,
your fund's Class A share price, as measured by net asset value, declined
7.77%.(5)
We took advantage of the reporting period's rising interest-rate environment to
restructure the portfolio, seeking to improve the fund's long-term
income-earning potential. Such a strategy enabled us to sell bonds at losses
that can be used to help offset current or future capital gains, possibly
lowering shareholders' future tax liabilities. With this in mind, the fund sold
bonds issued by Barberton City School District, Licking Valley Local School GO,
Cleveland Water Works Revenue, Hamilton County Hospital Facilities Revenue and
Franklin County Convention Facilities Authority Tax and Lease Revenue.
Strategies to improve the fund's dividend distributions included selling
shorter- maturity bonds and buying longer-term bonds; replacing lower-yielding
with higher-yielding bonds; and selling prerefunded bonds to buy longer-term,
higher-yielding bonds. We also sold bonds close to their call dates and bought
bonds with longer call protection to improve the predictability of the fund's
future dividend payments. Attempting to meet these goals, we made several
additions to the portfolio during the reporting period, including Aurora City
School District COP, Edgewood City School District GO, University of Akron
General Receipts, and Rural Lorain County Water Authority - Water Resource
Revenue Improvement bonds.
Your fund offers a notable tax advantage over a comparable taxable investment.
On page 41, the Performance Summary shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.04%, based on an
annualization of the current 5.05 cent ($0.0505) per share dividend and the
maximum offering price of $12.03 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Ohio state personal income tax
bracket of 45.48% would need to earn 9.24% from a taxable investment to match
the fund's tax-free distribution rate. The Performance Summary also shows the
distribution rates and taxable equivalent distribution rates for Class B and C
shares.
(5) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed rate
of return and fixed principal value; their interest payments and principal are
guaranteed. The fund's investment return and share price fluctuate with market
conditions. Index is unmanaged and includes reinvested interest. One cannot
invest directly in an index.
Looking forward, we will continue attempting to take advantage of the recently
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Ohio Insured Tax-Free Income Fund can help to lower
such volatility, as they offer a level of diversification that is difficult for
individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Ohio Insured Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------------------
MONTH CLASS A CLASS B** CLASS C
- ----- ------- --------- -------
<S> <C> <C> <C>
March 5.10 cents -- 4.50 cents
April 5.10 cents -- 4.50 cents
May 5.10 cents -- 4.50 cents
June 5.00 cents -- 4.44 cents
July 5.00 cents -- 4.44 cents
August 5.00 cents -- 4.44 cents
September 5.00 cents -- 4.44 cents
October 5.00 cents -- 4.44 cents
November 5.00 cents -- 4.44 cents
December 5.03 cents -- 4.50 cents
January 5.03 cents -- 4.50 cents
February 5.03 cents 2.87 cents 4.50 cents
- ----- ----------- ---------- -----------
TOTAL 60.39 CENTS 2.87 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.
** Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
CLASS A
<S> <C> <C>
One-Year Total Return -2.80%
Net Asset Value (NAV) $11.52 (2/29/00) $12.49 (2/28/99)
Change in NAV -$0.97
Distributions (3/1/99-2/29/00) Dividend Income $0.6039
Long-Term Capital Gain $0.0171
---------------------- -------
Total $0.6210
</TABLE>
<TABLE>
CLASS B
<S> <C> <C>
Aggregate Total Return +1.19%
Net Asset Value (NAV) $11.52 (2/29/00) $11.43 (2/1/00)
Change in NAV +$0.09
Distributions (2/1/00-2/29/00) Dividend Income $0.0287
</TABLE>
<TABLE>
CLASS C
<S> <C> <C>
One-Year Total Return -3.41%
Net Asset Value (NAV) $11.58 (2/29/00) $12.56 (2/28/99)
Change in NAV -$0.98
Distributions (3/1/99-2/29/00) Dividend Income $0.5364
Long-Term Capital Gain $0.0171
---------------------- -------
Total $0.5535
</TABLE>
Franklin Ohio Insured Tax-Free Income Fund paid distributions derived from
long-term capital gains of 1.71 cents ($0.0171) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -2.80% +27.21% +84.95% +183.72%
Average Annual Total Return(2) -6.90% +4.02% +5.88% +6.94%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
- ---------------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +1.19%
Aggregate Total Return(2) -2.81%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.41% +9.29% +23.05%
Average Annual Total Return(2) -5.31% +2.67% +4.17%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.04% 4.70% 4.65%
Taxable Equivalent Distribution Rate(4) 9.24% 8.62% 8.53%
30-Day Standardized Yield(5) 4.94% 4.61% 4.57%
Taxable Equivalent Yield(4) 9.06% 8.46% 8.38%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
(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, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
(3) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4) Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Ohio state personal
income tax bracket of 45.48%, 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 month ended February 29, 2000.
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 does not guarantee future results.
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------
<S> <C>
1-Year -6.90%
5-Year +4.02%
10-Year +5.88%
Since Inception (4/3/85) +6.94%
</TABLE>
[CLASS A LINE GRAPH]
The following line graph compares the performance of the Franklin Ohio 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Ohio Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class A Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,573 $10,000 $10,000
03/31/1990 0.02% $9,575 0.03% $10,003 0.55% $10,055
04/30/1990 -0.71% $9,507 -0.72% $9,931 0.16% $10,071
05/31/1990 2.30% $9,726 2.18% $10,147 0.23% $10,094
06/30/1990 1.11% $9,834 0.88% $10,237 0.54% $10,149
07/31/1990 1.65% $9,996 1.47% $10,387 0.38% $10,187
08/31/1990 -1.73% $9,823 -1.45% $10,237 0.92% $10,281
09/30/1990 0.22% $9,844 0.06% $10,243 0.84% $10,367
10/31/1990 1.31% $9,973 1.82% $10,429 0.60% $10,430
11/30/1990 1.75% $10,148 2.01% $10,639 0.22% $10,453
12/31/1990 0.39% $10,188 0.43% $10,685 0.00% $10,453
01/31/1991 1.64% $10,355 1.34% $10,828 0.60% $10,515
02/28/1991 0.38% $10,394 0.87% $10,922 0.15% $10,531
03/31/1991 0.30% $10,425 0.03% $10,925 0.15% $10,547
04/30/1991 1.45% $10,576 1.34% $11,072 0.15% $10,563
05/31/1991 0.65% $10,645 0.89% $11,170 0.30% $10,594
06/30/1991 -0.05% $10,640 -0.10% $11,159 0.29% $10,625
07/31/1991 1.36% $10,784 1.22% $11,295 0.15% $10,641
08/31/1991 0.74% $10,864 1.32% $11,444 0.29% $10,672
09/30/1991 1.35% $11,011 1.30% $11,593 0.44% $10,719
10/31/1991 0.73% $11,091 0.90% $11,697 0.15% $10,735
11/30/1991 -0.05% $11,086 0.28% $11,730 0.29% $10,766
12/31/1991 1.95% $11,302 2.15% $11,982 0.07% $10,774
01/31/1992 0.54% $11,363 0.23% $12,010 0.15% $10,790
02/29/1992 -0.17% $11,344 0.03% $12,013 0.36% $10,829
03/31/1992 0.30% $11,378 0.03% $12,017 0.51% $10,884
04/30/1992 0.93% $11,483 0.89% $12,124 0.14% $10,899
05/31/1992 1.37% $11,641 1.18% $12,267 0.14% $10,914
06/30/1992 1.29% $11,791 1.68% $12,473 0.36% $10,954
07/31/1992 3.50% $12,204 3.00% $12,847 0.21% $10,977
08/31/1992 -1.32% $12,043 -0.97% $12,723 0.28% $11,007
09/30/1992 0.05% $12,049 0.65% $12,805 0.28% $11,038
10/31/1992 -1.68% $11,846 -0.98% $12,680 0.35% $11,077
11/30/1992 2.51% $12,144 1.79% $12,907 0.14% $11,092
12/31/1992 1.43% $12,317 1.02% $13,039 -0.07% $11,085
01/31/1993 1.39% $12,488 1.16% $13,190 0.49% $11,139
02/28/1993 3.01% $12,864 3.62% $13,667 0.35% $11,178
03/31/1993 0.07% $12,873 -1.06% $13,522 0.35% $11,217
04/30/1993 0.58% $12,948 1.01% $13,659 0.28% $11,248
05/31/1993 0.45% $13,006 0.56% $13,735 0.14% $11,264
06/30/1993 1.80% $13,240 1.67% $13,965 0.14% $11,280
07/31/1993 0.08% $13,251 0.13% $13,983 0.00% $11,280
08/31/1993 1.88% $13,500 2.08% $14,274 0.28% $11,311
09/30/1993 1.08% $13,646 1.14% $14,437 0.21% $11,335
10/31/1993 0.19% $13,672 0.19% $14,464 0.41% $11,382
11/30/1993 -0.41% $13,616 -0.88% $14,337 0.07% $11,390
12/31/1993 1.78% $13,858 2.11% $14,639 0.00% $11,390
01/31/1994 1.02% $13,999 1.14% $14,806 0.27% $11,420
02/28/1994 -2.28% $13,680 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.52% $13,199 -4.07% $13,836 0.34% $11,498
04/30/1994 0.48% $13,262 0.85% $13,953 0.14% $11,514
05/31/1994 0.77% $13,364 0.87% $14,075 0.07% $11,522
06/30/1994 -0.38% $13,313 -0.61% $13,989 0.34% $11,562
07/31/1994 1.57% $13,522 1.83% $14,245 0.27% $11,593
08/31/1994 0.25% $13,556 0.35% $14,295 0.40% $11,639
09/30/1994 -1.27% $13,384 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.56% $13,175 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.62% $12,962 -1.81% $13,583 0.13% $11,694
12/31/1994 2.11% $13,235 2.20% $13,882 0.00% $11,694
01/31/1995 2.63% $13,583 2.86% $14,279 0.40% $11,741
02/28/1995 2.49% $13,922 2.91% $14,695 0.40% $11,788
03/31/1995 0.86% $14,041 1.15% $14,864 0.33% $11,827
04/30/1995 0.11% $14,057 0.12% $14,882 0.33% $11,866
05/31/1995 2.52% $14,411 3.19% $15,356 0.20% $11,889
06/30/1995 -0.67% $14,314 -0.87% $15,223 0.20% $11,913
07/31/1995 0.48% $14,383 0.95% $15,367 0.00% $11,913
08/31/1995 1.05% $14,534 1.27% $15,563 0.26% $11,944
09/30/1995 0.46% $14,601 0.63% $15,661 0.20% $11,968
10/31/1995 1.25% $14,784 1.45% $15,888 0.33% $12,007
11/30/1995 1.44% $14,996 1.66% $16,151 -0.07% $11,999
12/31/1995 0.93% $15,136 0.96% $16,306 -0.07% $11,991
01/31/1996 0.56% $15,221 0.76% $16,430 0.59% $12,061
02/29/1996 -0.60% $15,129 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.20% $14,948 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.12% $14,930 -0.28% $16,065 0.39% $12,210
05/31/1996 0.24% $14,966 -0.04% $16,058 0.19% $12,234
06/30/1996 1.10% $15,130 1.09% $16,233 0.06% $12,241
07/31/1996 0.81% $15,253 0.90% $16,379 0.19% $12,264
08/31/1996 -0.04% $15,247 -0.02% $16,376 0.19% $12,287
09/30/1996 1.48% $15,472 1.40% $16,605 0.32% $12,327
10/31/1996 0.95% $15,619 1.13% $16,793 0.32% $12,366
11/30/1996 1.60% $15,869 1.83% $17,100 0.19% $12,390
12/31/1996 -0.34% $15,815 -0.42% $17,028 0.00% $12,390
01/31/1997 0.03% $15,820 0.19% $17,061 0.32% $12,429
02/28/1997 0.77% $15,942 0.92% $17,218 0.31% $12,468
03/31/1997 -1.18% $15,754 -1.33% $16,989 0.25% $12,499
04/30/1997 0.76% $15,874 0.84% $17,131 0.12% $12,514
05/31/1997 1.32% $16,083 1.51% $17,390 -0.06% $12,507
06/30/1997 0.95% $16,236 1.07% $17,576 0.12% $12,522
07/31/1997 2.48% $16,639 2.77% $18,063 0.12% $12,537
08/31/1997 -0.95% $16,480 -0.94% $17,893 0.19% $12,560
09/30/1997 1.09% $16,660 1.19% $18,106 0.25% $12,592
10/31/1997 0.46% $16,737 0.64% $18,222 0.25% $12,623
11/30/1997 0.64% $16,844 0.59% $18,330 -0.06% $12,616
12/31/1997 1.55% $17,105 1.46% $18,597 -0.12% $12,601
01/31/1998 0.92% $17,262 1.03% $18,789 0.19% $12,624
02/28/1998 -0.06% $17,252 0.03% $18,794 0.19% $12,648
03/31/1998 0.05% $17,261 0.09% $18,811 0.19% $12,672
04/30/1998 -0.24% $17,219 -0.45% $18,727 0.18% $12,695
05/31/1998 1.39% $17,458 1.58% $19,023 0.18% $12,718
06/30/1998 0.39% $17,527 0.39% $19,097 0.12% $12,733
07/31/1998 0.29% $17,577 0.25% $19,145 0.12% $12,749
08/31/1998 1.14% $17,778 1.55% $19,441 0.12% $12,764
09/30/1998 1.26% $18,002 1.25% $19,684 0.12% $12,779
10/31/1998 0.19% $18,036 0.00% $19,684 0.24% $12,810
11/30/1998 0.33% $18,095 0.35% $19,753 0.00% $12,810
12/31/1998 0.16% $18,124 0.25% $19,803 -0.06% $12,802
01/31/1999 0.81% $18,271 1.19% $20,038 0.24% $12,833
02/28/1999 -0.24% $18,227 -0.44% $19,950 0.12% $12,848
03/31/1999 0.39% $18,298 0.14% $19,978 0.30% $12,887
04/30/1999 0.16% $18,328 0.25% $20,028 0.73% $12,981
05/31/1999 -0.60% $18,218 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.22% $17,996 -1.44% $19,625 0.00% $12,981
07/31/1999 0.14% $18,021 0.36% $19,696 0.30% $13,020
08/31/1999 -1.20% $17,804 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.01% $17,803 0.04% $19,546 0.48% $13,114
10/31/1999 -1.30% $17,571 -1.08% $19,335 0.18% $13,137
11/30/1999 0.90% $17,729 1.06% $19,540 0.06% $13,145
12/31/1999 -0.85% $17,579 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.44% $17,501 -0.44% $19,308 0.24% $13,177
02/29/2000 1.21% $17,703 1.16% $19,532 0.59% $13,255
Total Return 77.03% 95.32% 32.55%
- ------------------------------ ---------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C>
1-Year -5.31%
3-Year +2.67%
Since Inception (5/1/95) +4.17%
</TABLE>
[CLASS C LINE GRAPH]
The following line graph compares the performance of the Franklin Ohio 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 2/29/00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Date Franklin Ohio Insured Tax-Free Lehman Brothers Municipal CPI
Income Fund-Class C Bond Index
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,900 $10,000 $10,000
05/31/1995 2.55% $10,152 3.19% $10,319 0.20% $10,020
06/30/1995 -0.72% $10,079 -0.87% $10,229 0.20% $10,040
07/31/1995 0.52% $10,132 0.95% $10,326 0.00% $10,040
08/31/1995 1.00% $10,233 1.27% $10,458 0.26% $10,066
09/29/1995 0.41% $10,275 0.63% $10,523 0.20% $10,086
10/31/1995 1.28% $10,407 1.45% $10,676 0.33% $10,120
11/30/1995 1.39% $10,551 1.66% $10,853 -0.07% $10,112
12/29/1995 0.88% $10,644 0.96% $10,957 -0.07% $10,105
01/31/1996 0.59% $10,707 0.76% $11,041 0.59% $10,165
02/29/1996 -0.65% $10,637 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.24% $10,505 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.17% $10,488 -0.28% $10,795 0.39% $10,291
05/31/1996 0.19% $10,507 -0.04% $10,791 0.19% $10,310
06/28/1996 0.97% $10,609 1.09% $10,908 0.06% $10,316
07/31/1996 0.92% $10,707 0.90% $11,006 0.19% $10,336
08/30/1996 -0.09% $10,697 -0.02% $11,004 0.19% $10,356
09/30/1996 1.34% $10,841 1.40% $11,158 0.32% $10,389
10/31/1996 0.97% $10,946 1.13% $11,284 0.32% $10,422
11/29/1996 1.54% $11,114 1.83% $11,491 0.19% $10,442
12/31/1996 -0.39% $11,071 -0.42% $11,443 0.00% $10,442
01/31/1997 -0.01% $11,070 0.19% $11,464 0.32% $10,475
02/28/1997 0.72% $11,150 0.92% $11,570 0.31% $10,508
03/31/1997 -1.22% $11,014 -1.33% $11,416 0.25% $10,534
04/30/1997 0.72% $11,093 0.84% $11,512 0.12% $10,547
05/31/1997 1.26% $11,233 1.51% $11,686 -0.06% $10,540
06/30/1997 0.90% $11,334 1.07% $11,811 0.12% $10,553
07/31/1997 2.51% $11,618 2.77% $12,138 0.12% $10,565
08/31/1997 -0.99% $11,503 -0.94% $12,024 0.19% $10,586
09/30/1997 0.95% $11,613 1.19% $12,167 0.25% $10,612
10/31/1997 0.49% $11,669 0.64% $12,245 0.25% $10,639
11/30/1997 0.60% $11,739 0.59% $12,317 -0.06% $10,632
12/31/1997 1.50% $11,916 1.46% $12,497 -0.12% $10,619
01/31/1998 0.86% $12,018 1.03% $12,626 0.19% $10,640
02/28/1998 -0.10% $12,006 0.03% $12,629 0.19% $10,660
03/31/1998 0.08% $12,016 0.09% $12,641 0.19% $10,680
04/30/1998 -0.37% $11,971 -0.45% $12,584 0.18% $10,699
05/31/1998 1.33% $12,130 1.58% $12,783 0.18% $10,719
06/30/1998 0.42% $12,181 0.39% $12,832 0.12% $10,731
07/31/1998 0.16% $12,201 0.25% $12,865 0.12% $10,744
08/31/1998 1.17% $12,344 1.55% $13,064 0.12% $10,757
09/30/1998 1.21% $12,493 1.25% $13,227 0.12% $10,770
10/31/1998 0.14% $12,510 0.00% $13,227 0.24% $10,796
11/30/1998 0.28% $12,545 0.35% $13,274 0.00% $10,796
12/31/1998 0.03% $12,549 0.25% $13,307 -0.06% $10,789
01/31/1999 0.84% $12,655 1.19% $13,465 0.24% $10,815
02/28/1999 -0.29% $12,618 -0.44% $13,406 0.12% $10,828
03/31/1999 0.34% $12,661 0.14% $13,425 0.30% $10,861
04/30/1999 0.12% $12,676 0.25% $13,458 0.73% $10,940
05/31/1999 -0.64% $12,595 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.26% $12,436 -1.44% $13,187 0.00% $10,940
07/31/1999 0.10% $12,449 0.36% $13,235 0.30% $10,973
08/31/1999 -1.25% $12,293 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.14% $12,276 0.04% $13,134 0.48% $11,052
10/31/1999 -1.25% $12,122 -1.08% $12,992 0.18% $11,072
11/30/1999 0.84% $12,224 1.06% $13,130 0.06% $11,079
12/31/1999 -0.89% $12,115 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.56% $12,048 -0.44% $12,974 0.24% $11,105
02/29/2000 1.16% $12,182 1.16% $13,125 0.59% $11,171
Total Return 21.82% 31.25% 11.71%
- --------------- ----------------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Best quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what generally are known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba: Contain speculative elements. Often the protection of interest and principal
payments may be very moderate and, thereby, not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally regarded as upper medium-grade. They have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. BB indicates the lowest degree of speculation and
CC the highest degree of speculation. While such bonds likely will have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: Reserved for income bonds on which no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................... $10.84 $10.77 $10.36 $10.36 $ 9.80
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ............................................... .48 .53 .54 .55 .55
Net realized and unrealized gains (losses) .......................... (.99) .07 .42 -- .57
------- ------- ------- ------- -------
Total from investment operations ..................................... (.51) .60 .96 .55 1.12
------- ------- ------- ------- -------
Less distributions from net investment income ........................ (.49)(c) (.53) (.55) (.55) (.56)
------- ------- ------- ------- -------
Net asset value, end of year ......................................... $ 9.84 $10.84 $10.77 $10.36 $10.36
======= ======= ======= ======= =======
Total return(b) ...................................................... (4.68)% 5.75% 9.53% 5.55% 11.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................................... $72,517 $80,684 $58,059 $39,693 $38,199
Ratios to average net assets:
Expenses ............................................................ .81% .37% .30% .25% .16%
Expenses excluding waiver and payments by affiliate ................. .81% .84% .82% .86% .86%
Net investment income ............................................... 4.67% 4.87% 5.11% 5.45% 5.51%
Portfolio turnover rate .............................................. 33.46% 10.68% 17.44% 18.27% 4.12%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------- --------- -----
<S> <C> <C>
LONG TERM INVESTMENTS 98.7%
Arizona Health Facilities Authority Hospital System Revenue, Northern Arizona Healthcare System,
AMBAC Insured, 5.00%, 10/01/23 ...................................................................... $2,500,000 $2,160,025
Refunding, AMBAC Insured, 4.75%, 10/01/30 ........................................................... 1,000,000 800,850
Arizona State University COP, Downtown Campus/Mercado Project, Series A, MBIA Insured, 5.80%,
7/01/24 ............................................................................................. 1,350,000 1,317,236
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 ........................................... 400,000 411,308
Douglas Municipal Property Corp. Municipal Facilities Excise Tax Revenue, MBIA Insured, 5.75%,
7/01/15 ............................................................................................. 525,000 524,953
Gilbert GO, Projects of 1988, Series C, MBIA Insured, 5.50%, 7/01/23 ................................... 1,000,000 936,370
Glendale IDA, Midwestern University, Series A, MBIA Insured, 5.375%, 5/15/28 ........................... 2,000,000 1,800,820
La Paz County School District No. 4, Quartzsite Elementary School Improvement, MBIA Insured,
5.70%, 7/01/16 ...................................................................................... 480,000 478,445
Marana Municipal Property Corp. Municipal Facilities Revenue, Refunding, MBIA Insured, 5.25%, 7/01/22 .. 1,100,000 978,604
Maricopa County GO,
Hospital District No. 1, AMBAC Insured, Pre-Refunded, 5.00%, 6/01/21 ................................ 1,250,000 1,249,688
School District No. 3, Tempe Elementary, AMBAC Insured, Pre-Refunded, 6.00%, 7/01/13 ................ 255,000 269,833
School District No. 3, Tempe Elementary, Project of 1997, Series E, FGIC Insured, 5.75%, 7/01/17 .... 500,000 497,785
School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 ................... 445,000 457,674
School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 ................... 500,000 509,340
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 .................... 700,000 725,550
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 ................... 500,000 508,505
School District No. 31, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 7/01/13 ....................... 570,000 602,929
School District No. 68, Alhambra Elementary, Refunding and Improvement, AMBAC Insured, 5.125%,
7/01/13 .......................................................................................... 500,000 473,370
School District No. 98, Fountain Hills Unified, AMBAC Insured, 5.75%, 7/01/12 ....................... 500,000 509,825
School District No. 98, Fountain Hills Unified, Series A, MBIA Insured, Pre-Refunded, 6.20%,
7/01/10 .......................................................................................... 235,000 248,576
USD No. 9, Wickenburg Projects of 1997, AMBAC Insured, 5.65%, 7/01/16 ............................... 1,055,000 1,046,033
USD No. 80, Chandler, FGIC Insured, 5.85%, 7/01/13 .................................................. 435,000 445,105
USD No. 80, Chandler, Projects of 1995, Series E, FGIC Insured, 5.00%, 7/01/13 ...................... 750,000 701,385
USD No. 95, Queens Creek, Series A, AMBAC Insured, 5.70%, 7/01/14 ................................... 400,000 401,388
Maricopa County IDA,
MFHR, Metro Gardens, Mesa Ridge Project, Series A, MBIA Insured, 5.15%, 7/01/29 ..................... 2,350,000 2,018,580
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ..................... 1,000,000 890,910
MFHR, Villas De Merced Apartment Project, Series A, GNMA Secured, 5.50%, 12/20/37 ................... 570,000 504,205
Water System Revenue, Improvement, Chaparral Water Co., Series A, AMBAC Insured, 5.40%, 12/01/22 .... 1,000,000 912,110
Water System Revenue, Series B, AMBAC Insured, 5.30%, 12/01/22 ...................................... 515,000 463,459
McDowell Mountain Ranch Community Facilities District GO, Refunding, AMBAC Insured, 5.00%, 7/15/22 ..... 3,745,000 3,233,246
Mesa GO, FGIC Insured, 5.00%, 7/01/18 .................................................................. 500,000 444,315
Mesa IDAR,
Discovery Health System, Series A, MBIA Insured, 5.75%, 1/01/25 ..................................... 7,500,000 7,277,625
Discovery Health System, Series A, MBIA Insured, 5.625%, 1/01/29 .................................... 2,000,000 1,869,060
Lutheran Health Systems, Refunding, Series A-1, MBIA Insured, 5.00%, 1/01/19 ........................... 1,490,000 1,330,451
Mesa Street and Highway Revenue, FGIC Insured, 5.00%, 7/01/17 .......................................... 1,000,000 890,780
Mohave County Hospital District No. 1 GO, Kingman Regional Medical Center Project, FGIC Insured,
6.50%, 6/01/15 ...................................................................................... 610,000 628,703
Navajo County PCR, Arizona Public Service Co., Series A,
AMBAC Insured, 5.50%, 8/15/28 ....................................................................... 2,400,000 2,215,656
MBIA Insured, 5.875%, 8/15/28 ....................................................................... 2,450,000 2,421,531
Oro Valley Municipal Property Corp. Excise Tax Revenue, Refunding, FGIC Insured, 5.00%, 7/01/19 ........ 1,035,000 927,691
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured, 5.55%, 7/01/17 ...... 700,000 685,461
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series A, FSA Insured, 5.00%, 7/01/25 .... 1,500,000 1,271,910
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, MBIA Insured, Pre-Refunded,
6.90%, 7/01/21 ...................................................................................... 1,000,000 1,092,860
Phoenix Civic Improvement Corp. Water System Revenue, junior lien, MBIA Insured, 5.375%, 7/01/22 ....... 1,000,000 913,590
Phoenix IDA, SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 ................................... 1,500,000 1,343,775
Pima County IDA, SFMR,
GNMA Secured, 6.625%, 11/01/14 ...................................................................... 525,000 538,655
Series B-1, GNMA Secured, 6.10%, 5/01/31 ............................................................ 1,000,000 970,090
Pima County USD No. 6 GO, Marana Projects of 1995, Series B, FGIC Insured, 5.00%, 7/01/17 .............. 1,600,000 1,440,096
Pinal County USD No. 43 GO, Apache Junction, Series C, FGIC Insured, 5.00%, 7/01/15 .................... 1,000,000 909,940
Puerto Rico Commonwealth GO, MBIA Insured, Pre-Refunded, 6.45%, 7/01/17 ................................ 845,000 911,223
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Puerto Rico State
Infrastructure, MBIA Insured, 5.00%, 7/01/28 ........................................................ 1,960,000 1,687,266
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED 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 Hospital Revenue, Hospital Auxilio Mutuo Obligation,
Series A, MBIA Insured, 6.25%, 7/01/24 ........................................................ $ 840,000 $ 856,246
Puerto Rico PBA Revenue, Government Facilities, Series B, AMBAC Insured,
5.00%, 7/01/27 .............................................................................. 1,800,000 1,553,022
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Refunding, Series D, 5.50%, 1/01/25 ......................................................... 1,000,000 923,670
Series D, 6.25%, 1/01/27 .................................................................... 1,205,000 1,216,267
Series D, Pre-Refunded, 6.25%, 1/01/27 ...................................................... 295,000 308,316
Santa Cruz County USD No. 1, Nogales, Series B, AMBAC Insured, Pre-Refunded,
6.10%, 7/01/14 .............................................................................. 250,000 261,453
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured,
6.15%, 1/01/15 .............................................................................. 360,000 369,022
5.00%, 1/01/18 .............................................................................. 1,250,000 1,114,175
Tucson GO, Series 1984-G, FGIC Insured, Pre-Refunded,
6.25%, 7/01/18 .............................................................................. 650,000 688,805
Tucson Water Revenue, Refunding, FGIC Insured, 5.125%, 7/01/20 ................................. 1,000,000 882,470
University of Arizona COP,
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/16 ....... 500,000 505,220
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/23 ....... 1,625,000 1,626,560
Parking and Student Housing, AMBAC Insured, 5.75%, 6/01/24 .................................. 1,115,000 1,078,127
Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 ............................... 1,000,000 1,014,560
Yavapai County GO,
Elementary School District No. 6 Cottonwood-Oak Creek, Project of 1993, Series B,
AMBAC Insured, 6.70%, 7/01/09 ............................................................... 250,000 265,448
USD No. 28 Camp Verde, Refunding, FGIC Insured, 6.00%, 7/01/09 .............................. 775,000 804,194
Yavapai County IDA, Residential Care Facility Revenue, Margaret T. Morris Center,
Series A, GNMA Secured, 5.40%, 2/20/38 ......................................................... 1,585,000 1,378,284
Yuma IDA, Hospital Revenue, Regency Apartments, Refunding, Series A, GNMA Secured, 5.50%,
12/20/32 .................................................................................... 920,000 833,699
-----------
TOTAL LONG TERM INVESTMENTS (COST $75,255,657) ................................................. 71,528,323
-----------
(a) SHORT TERM INVESTMENTS .8%
Maricopa County PCC, PCR, Arizona Public Service Co., Refunding, Series A,
Daily VRDN and Put, 3.75%, 5/01/29 ............................................................. 100,000 100,000
Pinal County IDA, PCR, Magna Copper Co., Newmont Mining Corp., Daily VRDN and Put, 3.90%,
12/01/09 .................................................................................... 500,000 500,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $600,000) ................................................... 600,000
-----------
TOTAL INVESTMENTS (COST $75,855,657) 99.5% ..................................................... 72,128,323
OTHER ASSETS, LESS LIABILITIES .5% ............................................................. 388,826
-----------
NET ASSETS 100.0% .............................................................................. $72,517,149
===========
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 10.53 $ 10.43 $ 9.99 $ 10.02 $ 9.53
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ................................ .48 .51 .53 .53 .53
Net realized and unrealized gains (losses) ........... (.92) .10 .44 (.03) .49
----------- ----------- ----------- ----------- -----------
Total from investment operations ...................... (.44) .61 .97 .50 1.02
----------- ----------- ----------- ----------- -----------
Less distributions from net investment income ......... (.48) (.51) (.53) (.53) (.53)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year .......................... $ 9.61 $ 10.53 $ 10.43 $ 9.99 $ 10.02
=========== =========== =========== =========== ===========
Total return(b) ....................................... (4.22)% 6.01% 9.94% 5.17% 10.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 108,831 $ 124,488 $ 101,506 $ 77,177 $ 69,583
Ratios to average net assets:
Expenses ............................................. .76% .42% .35% .35% .35%
Expenses excluding waiver and payments by affiliate .. .77% .79% .80% .80% .82%
Net investment income ................................ 4.79% 4.88% 5.16% 5.36% 5.37%
Portfolio turnover rate ............................... 23.92% 1.81% 8.08% 32.23% 24.36%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------- ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS 97.9%
Alachua County Public Improvement Revenue, AMBAC Insured, 5.25%, 8/01/29 ............................ $2,500,000 $2,214,650
Bay Medical Center Hospital Revenue, Bay Medical Center Project, AMBAC Insured,
5.00%, 10/01/27 .................................................................................. 2,025,000 1,708,088
Broward County HFA, FSA Insured,
5.60%, 11/01/17 .................................................................................. 630,000 592,383
5.65%, 11/01/22 .................................................................................. 885,000 824,130
5.70%, 11/01/29 .................................................................................. 1,345,000 1,237,037
Canaveral Port Authority Revenue, Refunding, Series B, FGIC Insured, 5.625%, 6/01/21 ................ 1,000,000 958,670
Celebration CDD, Special Assessment, Series A, MBIA Insured, 5.50%, 5/01/18 ......................... 515,000 496,069
Citrus County PCR, Florida Power Corp., Refunding, MBIA Insured, 6.625%, 1/01/27 .................... 2,435,000 2,499,454
Cocoa Beach Improvement Revenue, Refunding, AMBAC Insured, 5.45%, 12/01/20 .......................... 1,000,000 952,200
Dade County HFA, MFMR, Siesta Pointe Apartments, Series A, FSA Insured, 5.75%, 9/01/29 .............. 1,890,000 1,770,628
Dade County Water and Sewer System Revenue, FGIC Insured, 5.25%, 10/01/21 ........................... 1,000,000 900,920
Escambia County HFA, SFMR, Multi County Program, Series A, MBIA Insured, 6.40%, 10/01/30 ............ 2,000,000 2,010,180
Escambia County Utilities Authority Utility System Revenue, FGIC Insured, 5.625%, 1/01/27 ........... 1,500,000 1,425,300
First Florida Governmental Financing Commission Revenue, Refunding, AMBAC Insured,
5.375%, 7/01/18 .................................................................................. 1,475,000 1,393,551
Florida HFA, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 ..................... 1,600,000 1,639,040
Florida HFC Revenue, Housing Logans Pointe Apartments, Series F-1, FSA Insured,
5.90%, 12/01/19 .................................................................................. 1,205,000 1,165,356
Florida State Department of General Services Division Facilities Management Revenue,
Florida Facilities Pool, Series B, FSA Insured,
5.50%, 9/01/28 ................................................................................... 550,000 512,666
Gulf Breeze Revenue, Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 ................... 1,915,000 1,985,683
Hernando County Water and Sewer Revenue, FGIC Insured,
6.00%, 6/01/19 ................................................................................... 1,035,000 1,040,651
Pre-Refunded, 6.00%, 6/01/19 ..................................................................... 965,000 1,009,158
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured,
6.25%, 12/01/34 .................................................................................. 1,500,000 1,522,875
Hillsborough County IDAR, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ............... 2,000,000 1,943,980
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ........................... 1,250,000 1,166,013
Indian Trace CDD, Water Management Special Benefit Assessment, MBIA Insured, 5.00%, 5/01/27 ......... 1,000,000 852,730
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 ................................................................................... 1,090,000 1,091,373
5.60%, 8/01/17 ................................................................................... 1,000,000 983,580
5.50%, 8/01/22 ................................................................................... 500,000 471,730
Jacksonville Sales Tax Revenue, River City Renaissance Project, FGIC Insured,
5.375%, 10/01/18 ................................................................................. 1,000,000 944,410
Jacksonville Water and Sewer Revenue, United Water Project, AMBAC Insured, 6.35%, 8/01/25 ........... 1,000,000 1,018,830
Lake Clarke Shores Utility Systems Revenue, Refunding and Improvement, FGIC Insured,
5.80%, 10/01/18 .................................................................................. 1,415,000 1,413,330
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project,
Refunding, MBIA Insured, 5.25%, 11/15/16 ......................................................... 2,000,000 1,883,160
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured,
6.00%, 10/01/17 .................................................................................. 500,000 506,465
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding,
MBIA Insured, 6.05%,
11/01/15 ......................................................................................... 2,000,000 2,030,380
11/01/20 ......................................................................................... 1,500,000 1,504,410
Lynn Haven Capital Improvement Revenue, Series A, MBIA Insured, 5.75%, 12/01/16 ..................... 1,000,000 1,000,520
Martin County Consolidated Utilities System Revenue, Refunding, FGIC Insured, 6.00%,
10/01/24 ......................................................................................... 215,000 215,682
Martin County Health Facilities Authority Hospital Revenue, Martin Memorial Medical
Center Project, AMBAC Insured, 5.00%, 11/15/28 ................................................... 1,750,000 1,474,288
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 ........................ 1,000,000 1,022,810
Miami-Dade County School Board COP, Refunding, Series C, FSA Insured, 5.00%, 8/01/25 ................ 2,000,000 1,715,540
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded,
6.75%, 10/01/25 .................................................................................. 2,000,000 2,166,860
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 ............................... 5,220,000 4,967,922
Okaloosa County Gas District Revenue, Gas System, MBIA Insured, 5.50%, 10/01/21 ..................... 2,795,000 2,636,635
Okeechobee Utility Authority Utility System Revenue, Capital Improvement, Refunding,
FSA Insured, 5.00%, 10/01/25 ..................................................................... 2,000,000 1,714,100
Orange County Capital Improvement Revenue,
AMBAC Insured, Pre-Refunded, 6.00%, 10/01/22 ..................................................... 500,000 524,330
Refunding, AMBAC Insured, 6.00%, 10/01/22 ........................................................ 490,000 491,911
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series B, FSA Insured, 6.75%, 11/15/21 ........................................ 1,000,000 1,033,460
MBIA Insured, 6.00%, 11/01/24 .................................................................... 700,000 698,145
Series A, MBIA Insured, 6.00%, 11/01/24 .......................................................... 1,700,000 1,784,167
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ............................ 1,000,000 1,003,560
Orange County School Board COP, Series A, MBIA Insured, 5.375%, 8/01/22 ............................. 875,000 805,009
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, FSA Insured,
5.70%, 12/01/17 .................................................................................. 630,000 603,502
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------- ------ -----
<S> <C> <C>
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured,
6.10%, 4/01/17 ............................................................................... $ 1,225,000 $ 1,240,325
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 ............. 1,000,000 1,014,950
Palm Beach County School Board COP, Series A, FGIC Insured, 6.00%, 8/01/22 ...................... 3,000,000 3,012,120
Polk County Capital Improvement Revenue, Special Tax, FSA Insured, 5.75%, 12/01/21 .............. 1,000,000 977,960
Port Orange Water and Sewer Revenue, junior lien, Refunding, AMBAC Insured,
5.25%, 10/01/21 .............................................................................. 1,500,000 1,385,235
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A, MBIA Insured,
5.125%, 9/01/27 .............................................................................. 4,000,000 3,512,800
Puerto Rico Commonwealth GO, FSA Insured, Pre-Refunded, 6.00%, 7/01/22 .......................... 1,000,000 1,044,890
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured,
5.50%, 7/01/25 ............................................................................... 1,000,000 948,920
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 ......................... 520,000 505,960
Seminole County School Board COP, Series A, MBIA Insured, Pre-Refunded, 6.125%,
7/01/14 ...................................................................................... 1,000,000 1,063,790
7/01/19 ...................................................................................... 1,000,000 1,063,790
South Miami Health Facilities Authority Hospital Revenue, Baptist Health System
Obligation Group, MBIA Insured, 5.00%, 11/15/28 ............................................. 3,000,000 2,513,700
St. John's County IDA, IDR, Series A, MBIA Insured,
5.25%, 3/01/11 ............................................................................... 1,250,000 1,233,588
5.50%, 3/01/17 ............................................................................... 1,000,000 969,950
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie,
Water Management Benefit, senior lien, Refunding, Series A, MBIA Insured,
5.25%, 5/01/25 ............................................................................... 5,000,000 4,533,800
St. Lucie West Services District Utility Revenue, senior lien, MBIA Insured,
6.125%, 10/01/32 ............................................................................. 2,240,000 2,250,595
Stuart Utilities Revenue, FGIC Insured, Pre-Refunded,
6.70%, 10/01/14 .............................................................................. 500,000 530,360
6.80%, 10/01/24 .............................................................................. 500,000 531,985
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ..................... 2,000,000 1,793,320
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 .............. 1,000,000 930,400
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 ................ 2,000,000 1,791,240
Tampa Water and Sewer Revenue, FGIC Insured, 5.50%, 10/01/29 .................................... 3,000,000 2,789,430
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 ................. 490,000 523,879
Village Center CDD, Recreational Revenue, Refunding, Series A, MBIA Insured,
5.00%, 11/01/21 .............................................................................. 1,000,000 877,160
West Melbourne Water and Sewer Revenue, Refunding and Improvement, FGIC Insured,
6.75%, 10/01/14 .............................................................................. 500,000 531,360
West Palm Beach Utilities System Revenue, Series B, FGIC Insured, 5.40%, 10/01/23 ............... 1,500,000 1,403,265
------------
TOTAL LONG TERM INVESTMENTS (COST $110,087,249) ................................................. 106,502,293
------------
(a)SHORT TERM INVESTMENTS .8%
Manatee County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put,
3.85%, 9/01/24 (COST $900,000) ............................................................... 900,000 900,000
------------
TOTAL INVESTMENTS (COST $110,987,249) 98.7% ..................................................... 107,402,293
OTHER ASSETS, LESS LIABILITIES 1.3% ............................................................. 1,429,007
------------
NET ASSETS 100.0% ............................................................................... $108,831,300
============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
---------------------------------------------------------------------------
CLASS A 2000(d) 1999 1998 1997 1996
- ------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $12.26 $12.31 $12.15 $12.27 $11.97
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ........................ .61 .63 .66 .69 .71
Net realized and unrealized gains (losses) ... (1.00) .06 .29 (.11) .30
---------- ---------- ---------- ---------- ----------
Total from investment operations .............. (.39) .69 .95 .58 1.01
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ........................ (.61)(e) (.63) (.66) (.70) (.71)
In excess of net investment income ........... -- (.01) (.01) -- --
Net realized gains ........................... (.02) (.10) (.12) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ........................... (.63) (.74) (.79) (.70) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .................. $11.24 $12.26 $12.31 $12.15 $12.27
========== ========== ========== ========== ==========
Total return(b) ............................... (3.21)% 5.72% 8.09% 4.88% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $1,445,546 $1,727,014 $1,685,260 $1,662,087 $1,705,038
Ratios to average net assets:
Expenses ..................................... .62% .62% .61% .60% .60%
Net investment income ........................ 5.23% 5.11% 5.44% 5.68% 5.81%
Portfolio turnover rate ....................... 13.29% 13.16% 27.77% 18.66% 13.52%
CLASS B
- -------
PER SHARE OPERATING PERFORMANCE)(a)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.14
------
Income from investment operations:
Net investment income ........................ .05
Net realized and unrealized gains ............ .10
------
Total from investment operations .............. .15
------
Less distributions from net investment income.. (.05)
------
Net asset value, end of period ................ $11.24
======
Total return(b) ............................... 1.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $63
Ratio to average net assets:
Expenses ..................................... 1.18%(c)
Net investment income ........................ 5.23%(c)
Portfolio turnover rate ....................... 13.29%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN INSURED TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
---------------------------------------------------------------------
CLASS C 2000 1999 1998 1997 1996(d)
- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $12.33 $12.38 $12.21 $12.31 $11.98
------- ------- ------- ------- ------
Income from investment operations:
Net investment income .............................. .55 .57 .60 .62 .54
Net realized and unrealized gains (losses) ......... (1.00) .05 .29 (.09) .32
------- ------- ------- ------- ------
Total from investment operations .................... (.45) .62 .89 .53 .86
------- ------- ------- ------- ------
Less distributions from:
Net investment income .............................. (.55)(e) (.60) (.63) (.53)
Net realized gains ................................. (.02) (.10) (.12) -- --
------- ------- ------- ------- ------
Total distributions ................................. (.57) (.67) (.72) (.63) (.53)
------- ------- ------- ------- ------
Net asset value, end of year ........................ $11.31 $12.33 $12.38 $12.21 $12.31
======= ======= ======= ======= ======
Total return(b) ..................................... (3.74)% 5.12% 7.52% 4.42% 7.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $56,627 $65,166 $38,057 $21,521 $8,152
Ratios to average net assets:
Expenses ........................................... 1.18% 1.18% 1.18% 1.17% 1.18%(c)
Net investment income .............................. 4.66% 4.54% 4.86% 5.10% 5.21%(c)
Portfolio turnover rate ............................. 13.29% 13.16% 27.77% 18.66% 13.52%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
(f) Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
<S> <C> <C>
ALABAMA 3.2%
Alabama State Board Educational Revenue, Southern Union State Junior College, MBIA
Insured, Pre-Refunded, 6.50%, 7/01/12 ............................................... $ 1,000,000 $ 1,048,290
Alabama Water Pollution Control Authority Revolving Fund Loan, AMBAC Insured,
6.25%, 8/15/14 .................................................................... 100,000 100,765
Anniston Regional Medical Center Board, Series A, AMBAC Insured,
5.25%, 6/01/18 .................................................................... 5,000,000 4,577,150
5.125%, 6/01/28 ................................................................... 3,000,000 2,579,670
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue, Merscot-Auburn
LP Project, FGIC Insured, 7.30%, 1/01/12 ............................................ 1,345,000 1,381,624
Bessemer Governmental Utility Services Corp., Water Supply Revenue, MBIA Insured,
5.25%, 6/01/32 .................................................................... 5,000,000 4,327,950
Birmingham Airport Authority Revenue, MBIA Insured, 5.625%, 7/01/26 ................... 2,000,000 1,886,060
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 3,375,120
Daphne Utilities Board Water Gas and Sewer Revenue,
Capital Improvement Bonds, Series B, FGIC Insured, 7.35%, 6/01/20 ................. 2,000,000 2,046,340
Refunding, Series B, FGIC Insured, 7.30%, 6/01/10 ................................. 4,030,000 4,132,120
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation
Bond, Series A, MBIA Insured, 5.25%, 9/01/28 ...................................... 8,000,000 6,941,600
Fort Payne Waterworks Board of Water Revenue, MBIA Insured, 5.45%, 7/01/21 ............ 3,550,000 3,296,353
Huntsville Health Care Authority Facilities Revenue, Series A, MBIA Insured,
6.375%, 6/01/22 ..................................................................... 300,000 303,837
Huntsville Health Care Authority, Series A, MBIA Insured, 5.00%, 6/01/23 .............. 2,000,000 1,689,000
Jefferson County Sewer Revenue, wts., Series D, FGIC Insured, 5.75%, 2/01/22 .......... 5,000,000 4,807,200
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital and
Clinic, Refunding, AMBAC Insured, 6.00%, 3/01/26 .................................... 4,000,000 3,932,800
University of Alabama Hospital Revenues, Huntsville, Refunding, Series A, MBIA
Insured, 5.50%, 5/01/18 ............................................................. 2,500,000 2,391,925
------------
48,817,804
------------
ALASKA 2.7%
Alaska Energy Authority Power Revenue,
Bradley Lake Hydro Project, Series 1, MBIA Insured, 7.25%, 7/01/21 ................ 5,795,000 5,947,177
Bradley Lake Project, BIG Insured, 6.25%, 7/01/21 ................................. 5,000 5,002
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured,
5.20%, 7/01/17 .................................................................... 3,000,000 2,773,770
5.375%, 7/01/20 ................................................................... 5,000,000 4,591,350
Alaska Industrial Development and Export Authority, Refunding, Series A, MBIA Insured,
6.125%, 4/01/27 ................................................................... 5,000,000 4,937,850
Alaska State HFC, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 .................................................................... 5,000,000 4,862,300
5.875%, 12/01/30 .................................................................. 485,000 462,137
6.10%, 12/01/37 ................................................................... 5,000,000 4,905,400
Anchorage Electric Utility Revenue,
Municipal Light and Power, Senior lien, Series C, AMBAC Insured, 5.125%, 12/01/26 . 5,000,000 4,296,150
Senior lien, Series B, MBIA Insured, 5.50%, 2/01/26 ............................... 4,000,000 3,660,160
Anchorage GO, General Purpose, AMBAC Insured, Pre-Refunded, 7.30%, 8/01/10 ............ 2,765,000 2,801,056
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 .................. 500,000 519,145
University of Alaska Revenues, Series B, AMBAC Insured, 6.50%, 10/01/17 ............... 250,000 260,425
------------
40,021,922
------------
ARIZONA 3.7%
Arizona State Municipal Financing Program COP, Series 1986-20, BIG Insured, ETM,
7.70%, 8/01/10 ...................................................................... 6,000,000 6,911,700
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 ............. 2,200,000 2,270,510
Cochise County USD, No. 68, Sierra Vista,
Refunding, FGIC Insured, 7.50%, 7/01/10 ........................................... 500,000 582,670
Series B, FGIC Insured, Pre-Refunded, 7.625%, 7/01/10 ............................. 3,000,000 3,064,080
Maricopa County GO,
UHSD, No. 216, FGIC Insured, 6.70%, 7/01/11 ....................................... 325,000 330,424
UHSD, No. 216, FGIC Insured, Pre-Refunded, 6.70%, 7/01/11 ......................... 675,000 687,413
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.20%, 7/01/07 .................. 775,000 790,500
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.20%, 7/01/08 .................. 825,000 841,500
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 7.25%, 7/01/09 .................. 500,000 510,080
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Service Hospital,
Refunding, Series A, MBIA Insured, 7.00%, 12/01/16 .................................. 300,000 340,986
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
ARIZONA (CONT.)
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 ..................................................................... $18,000,000 $ 17,466,300
5.625%, 1/01/29 .................................................................... 12,655,000 11,826,477
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 . 3,000,000 2,965,140
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ..................... 270,000 278,608
Salt River Project Agricultural Improvement and Power District Electric System
Revenue, Refunding, Series A, FGIC Insured, 5.50%, 1/01/19 ........................... 1,150,000 1,093,006
Tucson Water Revenue, Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 ........ 5,000,000 5,276,700
------------
55,236,094
------------
ARKANSAS .1%
Arkansas State Development Finance Authority Water Revenue, Refunding, Series
A, MBIA Insured, 6.50%, 7/01/10 ...................................................... 2,000,000 2,160,720
------------
CALIFORNIA 2.0%
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ........... 15,000,000 18,869,700
Lancaster RDA, Tax Allocation, Lancaster Residential Redevelopment, Refunding, MBIA
Insured, 6.10%, 8/01/19 .............................................................. 1,515,000 1,535,756
Oakland RDA, Central District Redevelopment, Refunding, AMBAC Insured, 5.50%, 2/01/14 .. 250,000 252,410
Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ... 3,000,000 2,771,760
San Francisco BART District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/20 ............ 1,035,000 993,352
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding, Series A,
MBIA Insured, 5.25%, 1/15/30 ......................................................... 5,000,000 4,494,300
Stockton East Water District COP, 1990 Project, Series A, AMBAC Insured, 6.40%, 4/01/22 1,460,000 1,503,333
------------
30,420,611
------------
COLORADO 6.3%
Arapahoe County COP,
Arapahoe County Building Finance Corp., FSA Insured, Pre-Refunded, 7.50%, 12/01/10 . 1,000,000 1,024,960
Refunding, FSA Insured, 6.625%, 12/01/16 ........................................... 8,695,000 9,012,715
Broomfield COP, AMBAC Insured, 6.00%, 12/01/29 ......................................... 3,000,000 2,995,530
Castle Pines Metropolitan District GO, Refunding and Improvement, FSA Insured,
Pre-Refunded, 7.625%, 12/01/15 ..................................................... 1,500,000 1,567,920
Centennial Water and Sanitation District, Water and Sewer Revenue, Refunding, Series A,
FSA Insured, 5.125%, 12/01/17 ........................................................ 5,000,000 4,566,550
Colorado Health Facilities Authority Revenue, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.25%, 7/15/17 ................................................ 1,174,000 1,226,666
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series A,
MBIA Insured, 5.00%, 9/01/21 ......................................................... 5,000,000 4,314,000
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 ........... 2,455,000 2,414,321
Colorado State Board of Agriculture Revenue, MBIA Insured, 6.40%,
3/01/11 ............................................................................ 350,000 361,823
3/01/17 ............................................................................ 440,000 448,413
Colorado Water Resource and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured, 6.70%, 11/01/12 .............................................. 2,000,000 2,094,720
Denver City and County Airport Revenue,
Series A, MBIA Insured, 5.50%, 11/15/25 ............................................ 7,250,000 6,706,033
Series C, MBIA Insured, 6.125%, 11/15/25 ........................................... 4,410,000 4,378,469
Series C, MBIA Insured, ETM, 6.125%, 11/15/25 ...................................... 3,590,000 3,648,050
Series D, MBIA Insured, 5.50%, 11/15/25 ............................................ 3,900,000 3,607,383
Series E, MBIA Insured, 5.50%, 11/15/25 ............................................ 5,000,000 4,624,850
Denver City and County Board of Water Commissioners COP, FGIC Insured,
6.625%, 11/15/11 ................................................................... 545,000 565,127
Pre-Refunded, 6.625%, 11/15/11 ..................................................... 955,000 994,231
Denver City and County Revenue, Children's Hospital Association Project, FGIC Insured,
6.00%, 10/01/15 ...................................................................... 3,000,000 3,020,970
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 ............................ 175,000 179,440
Garfield, Pitkin and Eagle Counties Reorganized School District No. 1, MBIA Insured,
Pre-Refunded, 6.60%, 12/15/14 ........................................................ 3,600,000 3,857,040
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 ............. 2,000,000 2,038,360
Jefferson County COP, Refunding, MBIA Insured, 6.65%, 12/01/08 ......................... 5,000,000 5,272,200
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ............. 145,000 149,781
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 ... 490,000 509,110
Morgan County PCR, First Mortgage, Public Service Co., Refunding, Series A, MBIA
Insured, 5.50%, 6/01/12 .............................................................. 1,000,000 998,140
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 .................................................................... 1,900,000 1,917,233
5.75%, 6/01/23 ..................................................................... 3,000,000 2,877,330
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
COLORADO (CONT.)
Parker Water and Sanitation District Water and Sewer Revenue, Refunding, FGIC Insured,
6.20%, 10/01/15 ..................................................................... $ 275,000 $ 278,935
Postsecondary Educational Facilities Authority Revenue, University of Denver Project,
Refunding, Connie Lee Insured, 6.00%, 3/01/10 ....................................... 1,000,000 1,022,890
Regional Transportation District Sales Tax Revenue, FGIC Insured, 6.25%, 11/01/12 ..... 235,000 243,681
University of Colorado Hospital Authority Revenue,
Refunding, Series A, AMBAC Insured, 5.20%, 11/15/17 ............................... 5,675,000 5,149,041
Refunding, Series A, AMBAC Insured, 5.25%, 11/15/22 ............................... 8,800,000 7,787,912
Series A, AMBAC Insured, 5.00%, 11/15/29 .......................................... 5,000,000 4,177,850
------------
94,031,674
------------
CONNECTICUT .6%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 .......................... 2,000,000 2,055,600
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ............................ 2,450,000 2,434,761
Trinity College, Series D, FGIC Insured, Pre-Refunded, 6.125%, 7/01/24 ............ 2,000,000 2,123,560
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 2,000,000 2,060,500
------------
8,674,421
------------
DELAWARE .3%
Delaware State EDA Revenue, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 ... 1,000,000 1,049,320
Delaware State Health Facilities Authority Revenue, Medical Center, MBIA Insured,
Pre-Refunded, 7.00%, 10/01/15 ....................................................... 2,900,000 3,118,051
------------
4,167,371
------------
FLORIDA 3.1%
Bay Medical Center Hospital Revenue, Bay Medical Center Project, Refunding, AMBAC
Insured, 5.65%, 10/01/26 ............................................................ 2,500,000 2,381,150
Cape Coral Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 ..................... 1,800,000 1,780,920
Celebration CDD, Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 ........... 2,375,000 2,263,993
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 ....... 200,000 237,886
Greater Orlando Aviation Authority Orlando Airport Facilities Revenue, Series B, FGIC
Insured, 5.25%, 10/01/28 ............................................................ 2,500,000 2,229,825
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured,
6.25%, 12/01/34 ..................................................................... 1,000,000 1,015,250
Hillsborough County IDAR, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 . 3,000,000 2,915,970
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project, Refunding,
MBIA Insured, 5.25%, 11/15/25 ....................................................... 1,250,000 1,124,813
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding, MBIA
Insured, 6.05%,
11/01/15 .......................................................................... 1,000,000 1,015,190
11/01/20 .......................................................................... 1,000,000 1,002,940
Lee County Solid Waste System Revenue, MBIA Insured, 5.375%, 10/01/15 ................. 2,000,000 1,868,760
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 .......... 5,000,000 5,352,100
Opa-Locka Capital Improvement Revenue, FGIC Insured, 6.125%, 1/01/24 .................. 1,000,000 1,009,880
Orange County Health Facilities Authority Revenue,
MBIA Insured, 6.00%, 11/01/24 ..................................................... 260,000 259,311
Series A, MBIA Insured, 6.00%, 11/01/24 ........................................... 740,000 776,637
South Central Nursing, Series A, FSA Insured, 5.50%, 7/01/32 ...................... 3,000,000 2,762,730
Orlando and Orange County Expressway Authority Expressway Revenue, junior lien, FGIC
Insured, 6.50%,
7/01/10 ........................................................................... 100,000 109,608
7/01/12 ........................................................................... 225,000 247,048
Orlando Utilities Commission Water and Electric Revenue, Series A, AMBAC Insured,
5.50%, 10/01/26 ..................................................................... 2,535,000 2,364,344
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured,
6.10%, 4/01/17 ...................................................................... 1,000,000 1,012,510
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 ....... 970,000 994,861
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/24 ................... 5,000,000 4,294,400
Reedy Creek ID, Utilities Revenue, Refunding, Series 1, MBIA Insured, 5.00%, 10/01/19 . 3,500,000 3,111,640
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured,
7.15%, 11/01/15 ..................................................................... 250,000 292,043
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ........... 2,000,000 1,793,320
Tampa Bay Water Utilities Systems Revenue, FGIC Insured, 5.75%, 10/01/29 .............. 2,000,000 1,941,820
Volusia County Educational Facility Authority Revenue, Embry Riddle Aeronautical
University, Refunding, Series B, 5.25%, 10/15/19 .................................... 3,500,000 3,216,990
------------
47,375,939
------------
GEORGIA 3.7%
Atlanta GO, Refunding, FGIC Insured, 5.00%,
12/01/20 .......................................................................... 4,775,000 4,160,171
12/01/23 .......................................................................... 6,000,000 5,149,380
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
GEORGIA (CONT.)
Atlanta Water and Wastewater Revenue, Refunding, Series A, FGIC Insured, 5.00%, 11/01/29 $10,000,000 $ 8,447,800
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured,
6.10%, 10/01/14 ...................................................................... 1,535,000 1,604,351
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle,
7th Series, MBIA Insured, 6.625%, 10/01/24 ......................................... 2,000,000 2,042,960
Refunding, 2nd Series, AMBAC Insured, 5.25%, 5/01/34 ............................... 5,450,000 4,704,495
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 ....................................................... 1,500,000 1,260,600
Refunding, MBIA Insured, 6.90%, 8/01/18 ............................................ 1,000,000 1,042,920
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 ..... 1,500,000 1,558,590
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/24 .............................................................. 1,020,000 1,032,923
Georgia Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare Systems, MBIA Insured, 5.50%, 8/01/19 ............................ 15,000,000 14,015,550
Macon-Bibb County Urban Development Authority Revenue, MF Housing, Refunding, Series A,
MBIA Insured, 5.55%, 1/01/24 ......................................................... 1,590,000 1,469,414
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus Regional
Healthcare System, MBIA Insured, 5.50%, 8/01/25 ...................................... 3,500,000 3,217,620
Municipal Electric Authority, Project One, Refunding, Sub Series A, MBIA Insured,
5.375%, 1/01/19 ...................................................................... 5,000,000 4,671,200
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 ............... 1,340,000 1,178,034
------------
55,556,008
------------
HAWAII 2.0%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 ............................................................................ 1,000,000 1,006,940
5/01/13 ............................................................................ 1,000,000 999,920
Hawaii State Airports System Revenue, Second Series 1990, FGIC Insured, 7.50%, 7/01/20 . 5,000,000 5,130,100
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 3,053,280
St. Francis Medical Centers, Refunding, FSA Insured, 6.50%, 7/01/22 ................ 4,000,000 4,055,080
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 4,682,250
Series B, MBIA Insured, 5.875%, 12/01/26 ........................................... 2,000,000 1,925,500
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05 ............................................................................ 535,000 560,514
7/01/06 ............................................................................ 605,000 632,491
7/01/07 ............................................................................ 610,000 637,035
Honolulu City and County GO, Series C, FGIC Insured, 5.00%, 7/01/20 .................... 6,250,000 5,430,000
Kauai County GO, Series A, FGIC Insured, 6.125%, 8/01/23 ............................... 1,755,000 1,768,987
------------
29,882,097
------------
IDAHO .1%
Boise State University Revenues, Student Fee, MBIA Insured, Pre-Refunded, 6.50%, 4/01/19 1,000,000 1,067,030
------------
ILLINOIS 3.3%
Aurora SFMR, GNMA Secured, AMBAC Insured, 7.80%, 12/01/15 .............................. 230,000 234,582
Chicago Board of Education GO, Chicago School Reform, Series A, AMBAC Insured,
5.25%, 12/01/30 ...................................................................... 2,000,000 1,725,620
Chicago Board of Education Lease COP, Refunding, Series A, MBIA Insured, 6.25%, 1/01/09 320,000 340,720
Chicago Heights GO, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 ........................ 100,000 104,240
Cicero GO, FSA Insured, 6.90%, 12/01/12 ................................................ 1,500,000 1,598,280
Cook County Community College District No. 508 COP, FGIC Insured,
8.50%, 1/01/02 ..................................................................... 7,470,000 7,952,711
8.75%, 1/01/05 ..................................................................... 5,000,000 5,774,000
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 ...... 4,452,000 4,665,251
Michael Reese Hospital, Series A, FSA Insured, ETM, 7.60%, 2/15/05 ................. 3,680,000 3,886,963
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%, 11/15/28 5,000,000 4,183,850
Refunding, Series B, MBIA Insured, ETM, 7.90%, 8/15/03 ............................. 403,000 432,479
Series 1990, FSA Insured, 7.75%, 8/15/10 ........................................... 2,525,000 2,603,351
Series 1990, FSA Insured, ETM, 7.75%, 8/15/10 ...................................... 105,000 124,320
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
ILLINOIS (CONT.)
Illinois Health Facilities Authority Revenue, (cont.)
Series B, MBIA Insured, 7.90%, 8/15/03 ............................................. $ 1,695,000 $ 1,700,255
Silver Cross Hospital, MBIA Insured, Pre-Refunded, 7.00%, 8/15/21 .................. 1,000,000 1,051,550
Illinois State COP, FSA Insured, Pre-Refunded, 6.95%, 7/01/13 .......................... 5,750,000 6,116,448
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured,
6.50%, 1/01/06 ....................................................................... 300,000 320,451
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 3,664,807
Onterie Center HFC, Mortgage Revenue, Refunding, MBIA Insured, 7.05%, 7/01/27 .......... 2,000,000 2,075,640
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%, 11/01/20 .... 300,000 341,883
------------
48,897,401
------------
INDIANA .2%
Indiana Health Facility Financing Authority Hospital Revenue, Community Hospital
Project, Refunding and Improvement, MBIA Insured, 6.40%, 5/01/12 ..................... 250,000 260,773
Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%, 6/01/15 .... 500,000 409,255
Jasper County PCR, Northern Indiana Public Service Co., Refunding, MBIA Insured,
7.10%, 7/01/17 ....................................................................... 500,000 521,790
Patoka Lake Regional Water and Sewer District Waterworks Revenue, Series A, AMBAC
Insured, Pre-Refunded, 6.45%, 1/01/15 ................................................ 1,500,000 1,586,130
Rockport PCR, Michigan Power Co., Refunding, Series B, FGIC Insured, 7.60%, 3/01/16 .... 185,000 192,929
------------
2,970,877
------------
IOWA .2%
Davenport Hospital Revenue, St. Lukes Hospital, Series A, AMBAC Insured, Pre-Refunded,
7.40%, 7/01/20 ....................................................................... 200,000 206,082
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Logan Park Project,
Refunding, Series B, MBIA Insured, 6.50%, 1/01/24 .................................... 2,105,000 2,135,459
------------
2,341,541
------------
KANSAS .6%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding, MBIA Insured,
7.00%, 6/01/31 ....................................................................... 3,350,000 3,495,424
Cowley and Shawnee Counties SFMR, AMBAC Insured, GNMA Secured, 7.35%, 12/01/11 ......... 685,000 706,982
Kansas State Development Finance Authority Health Facility Revenue, MBIA Insured,
5.80%, 11/15/21 ...................................................................... 1,330,000 1,289,980
Wichita Hospital Revenue, St. Francis, Refunding and Improvement, MBIA Insured,
6.25%, 10/01/10 ...................................................................... 2,000,000 2,072,120
Wichita Water and Sewer Utility Revenue, Refunding and Improvement, Series B, FGIC
Insured, Pre-Refunded, 6.00%, 10/01/12 ............................................... 1,000,000 1,020,470
------------
8,584,976
------------
KENTUCKY 1.5%
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured,
5.375%, 6/01/22 .................................................................... 2,000,000 1,831,360
5.50%, 6/01/28 ..................................................................... 2,750,000 2,539,185
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services Inc.,
AMBAC Insured, 6.55%, 5/01/22 ........................................................ 1,000,000 1,033,610
Jefferson County Health System Revenue, Alliant Health System Inc., MBIA Insured,
5.20%, 10/01/28 ...................................................................... 7,000,000 6,026,230
Kenton County Water District No. 001 Waterworks Revenue, Series B, FGIC Insured,
5.70%, 2/01/20 ....................................................................... 1,250,000 1,209,500
Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Baptist Healthcare System, Refunding, MBIA Insured, 5.00%, 8/15/24 ................. 2,000,000 1,684,360
St. Elizabeth Medical Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 ...... 2,375,000 2,339,993
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 1,032,160
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 2,181,800
Northern Kentucky University COP, Student Housing Facilities, FSA Insured, Pre-Refunded,
7.25%, 1/01/12 ....................................................................... 2,000,000 2,086,760
------------
21,964,958
------------
LOUISIANA .3%
Jefferson Parish Hospital Service District No. 2 Hospital Revenue, FSA Insured,
5.00%, 7/01/28 ....................................................................... 5,000,000 4,191,850
New Orleans GO, Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 ......... 500,000 531,260
------------
4,723,110
------------
MAINE .5%
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 2,096,520
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
MAINE (CONT.)
Maine State Health and Higher Educational Facilities Authority Revenue, (cont.)
Series B, FSA Insured, Pre-Refunded, 7.00%, 7/01/24 ................................ $ 2,000,000 $ 2,190,980
Series C, FSA Insured, 6.20%, 7/01/25 .............................................. 2,015,000 2,026,546
Old Orchard Beach GO, MBIA Insured, Pre-Refunded, 6.65%,
9/01/11 ............................................................................ 1,180,000 1,254,411
9/01/12 ............................................................................ 535,000 572,792
------------
8,141,249
------------
MARYLAND .2%
Maryland State CDA, Department of Housing and Community Development, Infrastructure
Financing, Series A, AMBAC Insured, 6.625%, 6/01/12 .................................. 245,000 256,170
Pre-Refunded, 6.625%, 6/01/12 ...................................................... 1,755,000 1,856,474
Pre-Refunded, 6.70%, 6/01/22 ....................................................... 820,000 868,708
Maryland State Health and Higher Educational Facilities Authority Revenue, University of
Maryland Medical System, Series B, FGIC Insured, 7.00%, 7/01/22 ...................... 200,000 223,110
------------
3,204,462
------------
MASSACHUSETTS 7.2%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, Pre-Refunded,
6.00%, 11/01/21 ...................................................................... 3,700,000 3,780,475
Central Berkshire Religious School District GO, Series B, FSA Insured, 5.125%, 3/01/18 . 1,125,000 1,014,120
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue, Refunding,
Series A, AMBAC Insured, 6.00%, 7/01/18 .............................................. 4,455,000 4,462,217
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 .................... 10,000,000 9,933,600
Beverly Hospital, Series E, MBIA Insured, Pre-Refunded, 7.70%, 7/01/20 ............. 1,500,000 1,547,205
Boston Medical Center, Series A, MBIA Insured, 5.00%, 7/01/29 ...................... 2,785,000 2,319,042
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/18 ................. 2,000,000 1,747,240
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 ................. 5,000,000 4,158,400
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 ................ 5,000,000 4,313,800
Harvard Pilgrim Health, Series A, FSA Insured, 5.00%, 7/01/18 ...................... 3,000,000 2,461,290
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 ............... 1,000,000 900,000
Massachusetts General Hospital, Series F, AMBAC Insured, Pre-Refunded, 6.25%,
7/01/20 .......................................................................... 9,220,000 9,783,434
Massachusetts Medical Center, Series A, AMBAC Insured, Pre-Refunded, 7.10%, 7/01/21 1,000,000 1,051,650
McLean Hospital, Series C, FGIC Insured, Pre-Refunded, 6.625%, 7/01/15 ............. 1,085,000 1,149,189
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ................... 8,500,000 8,725,165
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ................ 12,200,000 10,851,778
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 .......................... 8,000,000 6,900,480
Stonehill College, Series E, MBIA Insured, 6.60%, 7/01/20 .......................... 1,120,000 1,165,024
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.60%, 7/01/20 ............ 880,000 931,586
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 ............... 2,000,000 1,971,940
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22 .............. 3,000,000 3,180,480
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 5,000,000 5,162,000
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 .................................. 3,000,000 2,785,860
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 .................................. 4,000,000 3,979,720
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 ................. 1,590,000 1,491,992
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 ................. 1,560,000 1,458,007
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 ................. 2,155,000 1,998,030
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 ................. 2,910,000 2,677,025
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, sub. lien,
Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 .................................. 2,100,000 1,774,122
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%, 10/15/10 ... 2,000,000 2,083,280
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 ...................... 2,300,000 2,392,713
------------
108,150,864
------------
MICHIGAN 3.6%
Chippewa Valley Schools GO, Refunding, AMBAC Insured, 5.00%, 5/01/27 ................... 1,000,000 846,440
Detroit Sewage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 .......................... 6,000,000 5,085,540
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
MICHIGAN (CONT.)
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 ............................ $ 7,250,000 $ 6,739,020
Jackson County Hospital Finance Authority Hospital Revenue, W.A. Foote Memorial
Hospital, Series A, AMBAC Insured, 5.25%, 6/01/17 .................................... 500,000 462,025
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist
Hospital, Refunding and Improvement,
MBIA Insured, 5.875%, 5/15/26 ...................................................... 5,500,000 5,317,675
Series A, MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 .............................. 2,000,000 2,124,760
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital,
Refunding, Series D, FSA Insured, 6.10%, 4/01/19 ..................................... 5,000,000 5,018,650
Michigan State Hospital Finance Authority Revenue,
Hospital Botsford Obligation, Refunding, Series A, MBIA Insured, 5.25%, 2/15/22 .... 2,000,000 1,773,700
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ........ 6,725,000 5,744,293
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ......... 10,000,000 8,206,200
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 ............ 2,500,000 2,565,850
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co., Pollution
Project, Refunding,
FGIC Insured, 6.875%, 12/01/21 ..................................................... 200,000 207,792
Series BB, AMBAC Insured, 7.00%, 5/01/21 ........................................... 250,000 282,310
Saginaw Valley State University Revenue, AMBAC Insured, 5.30%, 7/01/28 ................. 3,400,000 3,047,658
Yale Public Schools District GO, FSA Insured, 5.375%, 5/01/27 .......................... 3,845,000 3,482,839
Zeeland Public Schools GO, Refunding, MBIA Insured, 5.25%, 5/01/24 ..................... 3,180,000 2,832,680
------------
53,737,432
------------
MINNESOTA 2.1%
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 .... 2,000,000 2,014,660
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 4,782,950
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22 . 2,045,000 2,010,624
Northern Municipal Power Agency Electric System Revenue, Refunding, Series B, AMBAC
Insured, 5.50%, 1/01/18 .............................................................. 2,100,000 2,005,710
Southern Minnesota Municipal Power Agency Power Supply System Revenue, Series A, AMBAC
Insured, 5.75%, 1/01/18 .............................................................. 2,870,000 2,819,545
St. Louis Park Health Care Facilities Revenue, Health System of Minnesota Obligated
Group, Refunding, Series A, AMBAC Insured, 5.20%, 7/01/16 ............................ 7,000,000 6,419,560
Washington County GO,
Governmental Housing, Scandia II Project, Series B, FGIC Insured, 6.30%, 7/01/24 ... 1,200,000 1,214,064
Raymie Johnson Apartments, Refunding, Series C, FGIC Insured, 6.30%, 1/01/20 ....... 2,415,000 2,449,076
Western Minnesota Municipal Power Agency Power Supply Revenue, Series A, MBIA Insured,
6.125%, 1/01/16 ...................................................................... 8,350,000 8,358,684
------------
32,074,873
------------
MISSISSIPPI
Harrison County Wastewater Management District Revenue, Wastewater Treatment Facilities,
Refunding, Series A, FGIC Insured, 8.50%, 2/01/13 .................................... 200,000 255,360
------------
MISSOURI 1.0%
Kansas City IDA, Mortgage Revenue, Presidential Gardens, Refunding, Series A, FNMA
Insured, 5.55%, 8/01/25 .............................................................. 1,000,000 924,070
Missouri State HDC, SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 ....................... 620,000 634,297
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 ..................... 1,000,000 1,020,180
Richmond Heights COP, Capital Improvement Projects, Series A, MBIA Insured,
5.30%, 8/15/17 ....................................................................... 2,000,000 1,886,900
St. Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured,
6.375%, 3/15/07 ...................................................................... 2,850,000 2,969,045
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ....................... 240,000 242,590
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 ............ 2,000,000 2,025,160
Refunding and Improvement, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 .............. 2,025,000 2,131,090
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 .................. 2,950,000 3,038,146
------------
14,871,478
------------
MONTANA 1.0%
Forsyth County PCR, Puget Sound Power and Light Co. Project, AMBAC Insured,
6.80%, 3/01/22 ....................................................................... 4,475,000 4,687,160
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 .......................... 750,000 788,138
Montana State Board Workers Compensation Investment Program, MBIA Insured, ETM,
6.875%, 6/01/20 ...................................................................... 8,500,000 8,853,175
Montana State University Revenue, Higher Education Facilities, Acquisition and
Improvement, Series C, MBIA Insured, 6.00%, 11/15/14 ................................. 1,000,000 1,001,540
------------
15,330,013
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
NEBRASKA .6%
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1, MBIA
Insured, ETM, 6.70%, 6/01/22 ......................................................... $ 2,500,000 $ 2,684,475
Lincoln Hospital Revenue, Lincoln General Hospital, Series A, FSA Insured, Pre-Refunded,
6.20%, 12/01/14 ...................................................................... 2,000,000 2,108,260
Municipal Energy Agency of Nebraska Power Supply System Revenue, Refunding, Series A,
AMBAC Insured, 6.00%,
4/01/15 ............................................................................ 2,000,000 2,021,640
4/01/17 ............................................................................ 1,350,000 1,354,752
Nebraska Educational Finance Authority Revenue, Creighton University Project, AMBAC
Insured, 5.95%, 1/01/11 .............................................................. 1,000,000 1,036,170
------------
9,205,297
------------
NEVADA .4%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 .................. 1,000,000 927,890
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 ............................... 250,000 270,598
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 ................... 4,000,000 4,488,040
------------
5,686,528
------------
NEW HAMPSHIRE 1.1%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Concord Hospital, Refunding, AMBAC Insured, 6.00%, 10/01/26 ........................ 4,300,000 4,182,954
Mary Hitchcock Memorial Hospital, FGIC Insured, 5.75%, 8/15/23 ..................... 9,250,000 8,870,843
University System, Refunding, MBIA Insured, 6.25%, 7/01/20 ......................... 4,000,000 4,055,440
------------
17,109,237
------------
NEW JERSEY 1.3%
Essex County Improvement Authority Lease, Jail and Youth House Projects,
AMBAC Insured, Pre-Refunded, 7.00%, 12/01/24 ....................................... 3,000,000 3,305,850
Refunding, AMBAC Insured, 5.35%, 12/01/24 .......................................... 4,000,000 3,681,080
Essex County Improvement Authority Revenue, Garden State Cancer Center Project, AMBAC
Insured, 6.00%, 12/01/20 ............................................................. 2,525,000 2,530,909
Mantua Township School District COP, MBIA Insured, Pre-Refunded, 7.25%, 6/30/10 ........ 1,700,000 1,750,728
Middlesex County COP, MBIA Insured, 5.30%, 6/15/29 ..................................... 3,575,000 3,181,750
Mount Laurel Township Municipal Utilities Authority System Revenue, Refunding, Series A,
MBIA Insured, 6.00%, 7/01/15 ......................................................... 2,000,000 2,023,300
New Jersey Health Care Facilities Financing Authority Revenue, Muhlenberg Regional
Medical Center, Series B, AMBAC Insured, 8.00%, 7/01/18 .............................. 3,000,000 3,033,600
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured,
6.50%, 1/01/16 ....................................................................... 300,000 325,755
------------
19,832,972
------------
NEW MEXICO .5%
Farmington PCR, Public Service Co. of New Mexico, Refunding, Series A, AMBAC Insured,
6.375%, 12/15/22 ..................................................................... 5,000,000 5,061,900
Gallup PCR, Plains Electric Generation, Refunding, MBIA Insured, 6.65%, 8/15/17 ........ 2,000,000 2,069,720
New Mexico Mortgage Finance Authority SFM Program, Series C, FGIC Insured,
8.625%, 7/01/17 ...................................................................... 585,000 587,246
------------
7,718,866
------------
NEW YORK 7.1%
Central Square GO, Central School District, FGIC Insured, 6.50%, 6/15/10 ............... 900,000 983,934
Dutchess County IDA, Civic Facilities Revenue, Bard College Project, AMBAC Insured,
5.375%, 6/01/27 ...................................................................... 3,945,000 3,566,951
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranty, FSA Insured,
5.75%, 8/01/29 ....................................................................... 5,000,000 4,761,800
New York City GO, Series C, Sub Series C-1, MBIA Insured, Pre-Refunded, 6.625%, 8/01/12 105,000 111,009
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 2,047,700
New York City Trust Cultural Resources Revenue, New York Botanical Garden, MBIA Insured,
5.80%, 7/01/26 ....................................................................... 2,000,000 1,949,780
New York State Dormitory Authority Revenue,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 ................................... 4,000,000 4,119,960
City University, Series C, FGIC Insured, 7.00%, 7/01/14 ............................ 6,110,000 6,277,658
City University, Series C, FGIC Insured, Pre-Refunded, 7.00%, 7/01/14 .............. 2,545,000 2,619,798
Mount Sinai School of Medicine, Refunding, MBIA Insured, 6.75%, 7/01/15 ............ 1,500,000 1,549,110
Pace University, MBIA Insured, 5.70%, 7/01/22 ...................................... 7,500,000 7,260,300
Pace University, Refunding, MBIA Insured, 5.75%, 7/01/26 ........................... 2,500,000 2,420,775
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 .............................. 890,000 896,025
St. John's University, MBIA Insured, 5.70%, 7/01/26 ................................ 15,000,000 14,425,950
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 ............................. 4,000,000 3,599,520
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
NEW YORK (CONT.)
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 $ 5,088,400
New York State Energy Research and Development Authority PCR,
Niagara Mohawk Power Corp., Refunding, Series A, FGIC Insured, 6.625%, 10/01/13 .... 3,500,000 3,622,255
Rochester Gas and Electric Project, Refunding, Series B, MBIA Insured,
6.50%, 5/15/32 ................................................................... 5,000,000 5,126,400
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 3,120,840
New York State Tollway Authority General Revenue, Series C, FGIC Insured, Pre-Refunded,
6.00%, 1/01/25 ....................................................................... 7,815,000 8,282,884
Niagara Frontier Transportation Authority Airport Revenue, Greater Buffalo International
Airport, Series A, AMBAC Insured, 6.25%, 4/01/24 ..................................... 9,000,000 9,071,730
Port Authority of New York and New Jersey Revenue, Consolidated, 102nd Series, MBIA
Insured,
5.625%, 10/15/17 ................................................................... 5,000,000 4,920,100
5.875%, 10/15/27 ................................................................... 10,000,000 9,898,100
Upper Mohawk Valley Regional Water Finance Authority Water Systems Revenue, Refunding,
Series A, FSA Insured, 5.125%, 10/01/26 .............................................. 1,495,000 1,297,316
------------
107,018,295
------------
NORTH CAROLINA 1.9%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ........................... 1,000,000 948,610
Catawba County Hospital Revenue, Catawba Memorial Hospital Project, Refunding, AMBAC
Insured, 5.00%, 10/01/17 ............................................................. 1,125,000 1,000,418
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
AMBAC Insured, 5.75%, 10/01/26 ..................................................... 1,150,000 1,088,659
MBIA Insured, 5.00%, 10/01/28 ...................................................... 7,000,000 5,865,160
North Carolina Medical Care Commission Health Care Facilities Revenue, Novant Health
Project, Series B, MBIA Insured, 5.00%, 10/01/28 ..................................... 11,300,000 9,428,720
North Carolina Medical Care Commission Hospital Revenue,
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 .............................. 5,000,000 4,412,950
Wayne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 ......... 5,000,000 4,301,800
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, MBIA Insured, ETM,
6.50%, 1/01/10 ....................................................................... 20,000 21,391
Wilmington COP, Series A, MBIA Insured, 5.35%, 6/01/24 ................................. 2,300,000 2,085,571
------------
29,153,279
------------
NORTH DAKOTA .4%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group, MBIA
Insured, 5.625%, 8/15/27 ............................................................. 5,500,000 5,071,605
North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC Insured,
6.75%, 6/01/11 ....................................................................... 300,000 308,382
------------
5,379,987
------------
OHIO 4.4%
Clermont County Building and Road Improvement, Refunding, AMBAC Insured, 5.60%, 9/01/14 2,000,000 1,994,100
Cleveland Airport Systems Revenue, Series A, FSA Insured, 5.125%, 1/01/27 .............. 6,000,000 5,147,400
Cleveland Waterworks Revenue,
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/23 ................... 2,750,000 2,373,608
Series F, AMBAC Insured, Pre-Refunded, 6.50%, 1/01/11 .............................. 1,625,000 1,704,495
Cuyahoga County Hospital Revenue, University Hospitals Health System Inc., Refunding,
AMBAC Insured, 5.50%, 1/15/30 ........................................................ 5,000,000 4,576,750
Elyria GO, FGIC Insured, 5.40%, 12/01/17 ............................................... 2,400,000 2,296,824
Hamilton County Sales Tax, Hamilton County Football, Project B, MBIA Insured,
5.00%, 12/01/27 ...................................................................... 3,250,000 2,747,583
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 ............. 3,015,000 2,787,790
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 .......... 1,750,000 1,775,200
Lucas County Hospital Revenue, Promedia Healthcare Obligation Group, AMBAC Insured,
5.375%, 11/15/29 ..................................................................... 5,000,000 4,461,250
Medina City School District GO, FGIC Insured, 5.25%, 12/01/28 .......................... 7,500,000 6,630,750
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ................................. 2,255,000 2,310,135
Ohio Municipal Electric Generation Agency Joint Venture 5, Certificates of Beneficial
Interest, AMBAC Insured, 5.375%, 2/15/24 ............................................. 5,500,000 5,039,870
Ohio State Turnpike Commission Turnpike Revenue, Series A, MBIA Insured, Pre-Refunded,
5.50%, 2/15/26 ....................................................................... 15,900,000 16,433,127
University of Cincinnati COP, University Center Project, MBIA Insured, 5.125%, 6/01/24 . 2,950,000 2,574,613
West Holmes Local School District GO, MBIA Insured, 5.375%, 12/01/17 ................... 3,100,000 2,941,745
------------
65,795,240
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
OKLAHOMA .6%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 .............. $ 410,000 $ 422,165
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 ...................... 300,000 302,955
Muskogee County, HFAR, SFMR, Refunding, Series A, FGIC Insured, 7.60%, 12/01/10 ........ 130,000 132,857
Oklahoma State Turnpike Authority Turnpike Revenue, First Senior, Series A, AMBAC
Insured, 6.00%, 1/01/12 .............................................................. 2,000,000 2,050,240
Okmulgee County Governmental Building Authority Sales Tax Revenue, First Mortgage, MBIA
Insured, 6.20%, 3/01/20 .............................................................. 1,625,000 1,634,555
Pottawatomie County Development Authority Water Revenue, North Deer Creek Reservoir
Project, AMBAC Insured, Pre-Refunded, 7.375%, 7/01/26 ................................ 250,000 257,583
Tulsa County Home Finance Authority Mortgage Revenue, Series D, GNMA Secured,
6.95%, 12/01/22 ...................................................................... 145,000 147,958
Tulsa Industrial Authority Revenue, Holland Hall School Project, FSA Insured,
Pre-Refunded, 6.75%, 12/01/14 ........................................................ 3,270,000 3,569,172
------------
8,517,485
------------
OREGON 2.0%
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.95%, 6/01/16 ....... 3,000,000 3,129,750
Clackamas Community College District, MBIA Insured, Pre-Refunded, 5.80%, 6/01/26 ....... 2,500,000 2,588,300
Deschutes and Jefferson Counties School District No. 2-J, Redmond, MBIA Insured,
5.60%, 6/01/09 ....................................................................... 1,500,000 1,514,895
Josephine County School District No. 7, FGIC Insured, Pre-Refunded, 5.70%, 6/01/13 ..... 5,000,000 5,046,700
Medford Hospital Facilities Authority Revenue, Asante Health System, Series A, MBIA
Insured, 5.00%, 8/15/24 .............................................................. 2,250,000 1,927,395
Northern Wasco County Peoples Utilities District Electric Revenue, FGIC Insured,
5.625%, 12/01/22 ..................................................................... 1,000,000 951,310
Ontario Catholic Health Revenue, Holy Rosary Medical Center, MBIA Insured,
5.50%, 11/15/12 ...................................................................... 700,000 694,260
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 ...... 1,500,000 1,430,025
Oregon State Department of Administrative Services COP, Series A,
AMBAC Insured, Pre-Refunded, 5.80%, 5/01/24 .......................................... 5,000,000 5,217,800
MBIA Insured, 5.70%, 5/01/17 ......................................................... 1,000,000 989,130
Port of Portland International Airport Revenue, Portland International Airport, Series
11, FGIC Insured, 5.625%, 7/01/26 .................................................... 1,000,000 930,640
Washington County Unified Sewer Agency Revenue,
Senior lien, FGIC Insured, 5.50%, 10/01/16 ......................................... 1,845,000 1,794,115
Senior lien, Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ............... 1,000,000 1,047,970
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 3,063,180
------------
30,325,470
------------
PENNSYLVANIA 1.8%
Beaver County GO, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 ................ 2,000,000 2,084,960
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital, Refunding,
Series B, Connie Lee Insured, Pre-Refunded, 6.375%, 7/01/18 .......................... 5,000,000 5,253,850
Lehigh County General Purpose Authority Revenue, Hospital Healtheast Inc., Refunding,
Series A, MBIA Insured, 7.00%, 7/01/15 ............................................... 100,000 102,694
Montgomery County IDAR, PCR, Philadelphia Electric Co., Series B, MBIA Insured,
6.70%, 12/01/21 ...................................................................... 8,000,000 8,377,360
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured, ETM,
6.00%, 9/01/19 ....................................................................... 500,000 514,535
Pennsylvania State Turnpike Oil Commission Franchise Tax Revenue, Refunding, Series P,
AMBAC Insured, 6.00%, 12/01/17 ....................................................... 500,000 503,630
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured,
6.10%, 6/15/25 ....................................................................... 4,000,000 4,001,880
Philadelphia Water and Wastewater Revenue, FSA Insured,
5.50%, 6/15/15 ..................................................................... 665,000 647,524
Pre-Refunded, 5.50%, 6/15/15 ....................................................... 335,000 347,442
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District Sales
Tax, AMBAC Insured, 5.25%, 2/01/31 ................................................... 6,000,000 5,237,280
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured, ETM,
7.25%, 9/01/14 ....................................................................... 90,000 102,247
------------
27,173,402
------------
RHODE ISLAND 1.4%
Kent County Water Authority General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 .... 2,100,000 2,167,326
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 ................................... 3,000,000 2,934,420
Rhode Island Clean Water Financing Agency Revenue, Cranston Wastewater Treatment System,
MBIA Insured, 5.80%, 9/01/22 ......................................................... 9,995,000 9,606,994
Rhode Island Port Authority and EDC Revenue, Shepard Building Project, Series B, AMBAC
Insured, Pre-Refunded, 6.75%, 6/01/25 ................................................ 2,000,000 2,165,400
Rhode Island State GO, Series A, FGIC Insured, 6.25%, 6/15/07 .......................... 175,000 182,852
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 2,218,820
Hospital Financing Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ......... 1,750,000 1,657,723
------------
20,933,535
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
SOUTH CAROLINA .5%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement, AMBAC Insured,
6.00%, 1/01/16 ....................................................................... $ 250,000 $ 251,670
Edgefield County School District, Refunding, FSA Insured, ETM, 8.50%, 2/01/01 .......... 250,000 259,383
Lexington Water and Sewer Revenue, FSA Insured, 5.45%, 4/01/19 ......................... 2,320,000 2,203,838
Piedmont Municipal Power Agency Electric Revenue, Refunding, FGIC Insured,
6.25%, 1/01/21 ....................................................................... 200,000 208,310
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
Series A, FSA Insured, ETM, 7.125%, 7/01/17 .......................................... 3,000,000 3,389,850
Spartanburg Sanitation Sewer District Sewer System Revenue, Implementation, MBIA
Insured, Pre-Refunded, 5.50%, 6/01/27 ................................................ 500,000 512,970
------------
6,826,021
------------
SOUTH DAKOTA 1.1%
Brookings COP, AMBAC Insured, 5.10%, 12/01/18 .......................................... 5,000,000 4,452,000
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 .............................. 4,800,000 4,692,672
Lawrence County COP, Courthouse, FSA Insured, Pre-Refunded, 7.65%, 7/01/10 ............. 2,000,000 2,062,420
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 ...................... 1,955,000 1,984,912
South Dakota Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ..................... 2,720,000 3,019,390
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding,
Series A, MBIA Insured, 5.50%, 4/01/17 ............................................... 20,000 19,249
------------
16,230,643
------------
TENNESSEE .9%
Greater Tennessee Housing Assistance Revenue, Section 8, Refunding, Series A, MBIA
Insured, 6.00%, 7/01/24 .............................................................. 1,405,000 1,404,860
Johnson City Health and Educational Revenue, Medical Center Hospital, Refunding and
Improvement, MBIA Insured,
5.125%, 7/01/25 .................................................................... 5,000,000 4,380,650
5.25%, 7/01/28 ..................................................................... 8,500,000 7,489,265
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%, 7/01/15 200,000 208,052
------------
13,482,827
------------
TEXAS 10.5%
Austin Combined Utility System Revenue,
BIG Insured, Pre-Refunded, 8.625%, 11/15/17 ........................................ 1,000,000 1,080,360
Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 ............................... 3,000,000 3,121,020
Austin Hotel Occupancy Tax Revenue, Refunding, sub. lien, AMBAC Insured,
5.625%, 11/15/21 ................................................................... 2,355,000 2,207,718
5.80%, 11/15/29 .................................................................... 13,750,000 13,185,838
Austin Utility System Revenue,
FGIC Insured, Pre-Refunded, 6.00%, 5/15/15 ......................................... 35,000 35,138
Refunding, FGIC Insured, 6.00%, 5/15/15 ............................................ 15,000 15,003
Bell County Health Facilities Development Corporate Revenue, Hospital Cook Children's
Medical, Refunding, FSA Insured, 5.30%, 12/01/23 ..................................... 5,000,000 4,455,350
Bexar County HFC Revenue, Series A, GNMA Secured, 8.20%, 4/01/22 ....................... 2,315,000 2,354,193
Brazos River Authority Revenue, Houston Light and Power Co. Project, Refunding, Series
A, AMBAC Insured, 6.70%, 3/01/17 ..................................................... 2,000,000 2,085,280
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, ETM,
6.30%, 1/01/17 ....................................................................... 12,230,000 12,799,913
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 ........................................ 600,000 619,128
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 ....................... 455,000 468,550
Faulkey Gully MUD GO, AMBAC Insured,
6.625%, 3/01/07 .................................................................... 295,000 303,652
Pre-Refunded, 6.625%, 3/01/07 ...................................................... 1,225,000 1,268,684
Fort Bend County Levee ID No. 011, AMBAC Insured, 6.00%,
9/01/21 ............................................................................ 1,395,000 1,396,283
9/01/22 ............................................................................ 1,495,000 1,496,375
9/01/23 ............................................................................ 1,610,000 1,614,460
Grand Prairie Health Facilities Development Corp., Dallas/Fort Worth Medical Center
Project, Refunding, AMBAC Insured, 6.875%, 11/01/10 .................................. 2,700,000 2,670,003
Harris County Health Facilities Development Corp. Revenue, Christus Health, Refunding,
Series A, MBIA Insured, 5.375%, 7/01/29 .............................................. 22,000,000 19,193,240
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC Insured,
7.40%, 2/15/10 ....................................................................... 2,350,000 2,621,073
Harris County Toll Road,
Senior lien, Series A, AMBAC Insured, 6.50%, 8/15/17 ............................... 1,580,000 1,635,268
Senior lien, Series B, AMBAC Insured, 6.625%, 8/15/17 .............................. 240,000 242,170
Series A, FGIC Insured, 6.50%, 8/15/11 ............................................. 35,000 36,749
Houston Airport System Revenue, sub. lien, Series A, FGIC Insured, 6.75%, 7/01/21 ...... 2,500,000 2,594,900
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
TEXAS (CONT.)
Houston Water and Sewer System Revenue,
junior lien, Refunding, Series C, AMBAC Insured, 6.375%, 12/01/17 .................. $ 880,000 $ 896,711
junior lien, Refunding, Series C, MBIA Insured, 5.75%, 12/01/15 .................... 500,000 499,950
junior lien, Series C, AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17 ............... 55,000 57,582
Series A, MBIA Insured, 6.375%, 12/01/22 ........................................... 1,840,000 1,862,614
Series A, MBIA Insured, Pre-Refunded, 6.375%, 12/01/22 ............................. 4,540,000 4,805,953
Lubbock HFC, SFMR, Mortgage Extension Program, Refunding, Series B, BIG Insured,
8.875%, 12/01/12 ..................................................................... 425,000 425,293
Matagorda County Navigation District No. 1 PCR, Central Power and Light Co. Project,
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 .................................... 12,850,000 12,814,270
Matagorda County Navigation District No. 1 Revenue, Houston Industries Inc. Project,
Refunding,
Series A, MBIA Insured, 5.25%, 11/01/29 ............................................ 3,185,000 2,749,611
Series B, MBIA Insured, 5.15%, 11/01/29 ............................................ 2,750,000 2,326,390
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 ..................... 6,000,000 6,052,680
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding, AMBAC
Insured, 5.45%, 2/15/25 .............................................................. 1,450,000 1,329,940
Sabine River Authority PCR, Texas Utilities Electric Co. Project, Collateralized,
Refunding, FGIC Insured, 6.55%, 10/01/22 ............................................. 3,250,000 3,342,625
San Antonio Water Revenue,
Refunding and Improvement, MBIA Insured, 5.60%, 5/15/21 ............................ 3,250,000 3,039,497
Senior lien, MBIA Insured, 6.50%, 5/15/10 .......................................... 2,920,000 3,051,692
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured,
5.125%, 8/15/20 ...................................................................... 2,870,000 2,530,709
San Patricio County COP, MBIA Insured, Pre-Refunded, 6.60%, 4/01/07 .................... 2,500,000 2,591,375
Smithville HDC, Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA
Insured, 6.40%, 1/01/22 .............................................................. 1,035,000 1,045,774
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ..... 1,155,000 1,157,541
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris
Methodist Health, MBIA Insured, ETM, 6.00%, 9/01/24 .................................. 3,250,000 3,247,920
Tarrant County Health Facilities Development Corp. Hospital Revenue, Fort Worth
Osteopathic Hospital, MBIA Insured, 5.125%, 5/15/21 .................................. 2,905,000 2,519,797
Texas Health Facilities Development Corp. Hospital Revenue, All Saints Episcopal
Hospitals, Refunding, Series B, MBIA Insured,
6.25%, 8/15/22 ..................................................................... 2,500,000 2,509,025
6.375%, 8/15/23 .................................................................... 4,885,000 4,939,517
Texas State Turnpike Authority Revenue, Dallas North Tollway, Refunding, AMBAC Insured,
5.00%, 1/01/20 ....................................................................... 7,250,000 6,314,605
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical Center
Project,
Series B, FSA Insured, 5.50%, 11/01/17 ............................................. 1,000,000 945,910
Series C, FSA Insured, 5.60%, 11/01/27 ............................................. 1,430,000 1,305,962
Series D, FSA Insured, 5.375%, 11/01/27 ............................................ 9,700,000 8,539,395
------------
158,402,686
------------
US TERRITORIES
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ............. 645,000 650,644
------------
UTAH 1.2%
Intermountain Power Agency Power Supply Revenue, Refunding,
Series A, AMBAC Insured, 5.50%, 7/01/20 ............................................ 4,680,000 4,391,197
Series B, MBIA Insured, 5.75%, 7/01/19 ............................................. 3,250,000 3,143,043
Provo Electric System Revenue, Refunding, Series A, AMBAC Insured, ETM, 10.375%, 9/15/15 40,000 54,179
Utah County Hospital Revenue, IHC Health Services Inc., MBIA Insured, 5.25%,
8/15/21 ............................................................................ 5,000,000 4,495,100
8/15/26 ............................................................................ 5,000,000 4,374,350
Utah State Board of Regents Student Loan Revenue, Series H, AMBAC Insured,
6.70%, 11/01/15 ...................................................................... 1,080,000 1,121,321
------------
17,579,190
------------
VERMONT .7%
Vermont COP, MBIA Insured, Pre-Refunded, 7.25%, 6/15/11 ................................ 2,205,000 2,267,975
Vermont HFA, Home Mortgage Purchase, Series B, MBIA Insured, 7.60%, 12/01/24 ........... 6,630,000 6,768,567
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 .................... 1,000,000 1,019,980
------------
10,056,522
------------
VIRGINIA 1.6%
Chesapeake Bay Bridge and Tunnel Commission District Revenue, General Resolution, MBIA
Insured, Pre-Refunded, 5.75%, 7/01/25 ................................................ 9,850,000 9,993,613
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured,
6.00%, 6/01/12 ....................................................................... 5,000,000 5,156,750
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
VIRGINIA (CONT.)
Danville IDA, Hospital Revenue, Danville Regional Medical Center, FGIC Insured,
Pre-Refunded, 6.50%, 10/01/24 ........................................................ $ 1,000,000 $ 1,071,170
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA Insured,
5.00%, 7/01/28 ....................................................................... 3,405,000 2,874,501
Spotsylvania County Water and Sewer System Revenue, MBIA Insured, 5.40%, 6/01/27 ....... 3,850,000 3,508,005
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University
Project, MBIA Insured,
5.00%, 10/01/18 .................................................................... 1,000,000 886,810
5.25%, 10/01/28 .................................................................... 1,420,000 1,245,482
------------
24,736,331
------------
WASHINGTON 5.8%
Douglas County PUD No. 1 Electric Systems Revenue, MBIA Insured, 6.00%, 1/01/15 ........ 900,000 909,945
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 ..................... 850,000 876,546
Grant County PUD No. 2, Wanapum Hydroelectric Revenue, Series B, AMBAC Insured,
6.75%, 1/01/23 ..................................................................... 1,060,000 1,102,209
Pre-Refunded, 6.75%, 1/01/23 ....................................................... 940,000 987,517
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 2,997,570
Kitsap County School District No. 100-C, MBIA Insured, Pre-Refunded, 6.60%, 12/01/08 ... 1,015,000 1,047,398
Klickitat County PUD No. 001 Electric Revenue, FGIC Insured,
5.65%, 10/01/15 .................................................................... 1,000,000 979,680
5.75%, 10/01/27 .................................................................... 1,000,000 950,950
Mason County GO, School District No. 402, Pioneer, MBIA Insured, Pre-Refunded,
6.60%, 12/01/11 ...................................................................... 1,040,000 1,112,124
Pierce County GO, School District No. 003 Puyallup, FGIC Insured, 5.70%, 12/01/15 ...... 1,000,000 987,640
Port of Longview GO, MBIA Insured, 6.00%, 11/01/15 ..................................... 2,000,000 1,995,780
Seatac Storm Water Revenue, MBIA Insured, Pre-Refunded, 6.50%, 12/01/13 ................ 2,890,000 3,101,577
Seattle Municipality Metropolitan Sewer Revenue, Series W, MBIA Insured, Pre-Refunded,
6.30%, 1/01/33 ....................................................................... 11,000,000 11,613,910
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 ............................ 2,000,000 1,873,500
Snohomish County PUD No. 1 Electric Revenue, Generation System, FGIC Insured, ETM,
6.65%, 1/01/16 ....................................................................... 4,250,000 4,442,524
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 5,178,700
Tacoma Electric System Revenue,
AMBAC Insured, 6.25%, 1/01/11 ...................................................... 470,000 486,887
Refunding, AMBAC Insured, Pre-Refunded, 6.25%, 1/01/11 ............................. 30,000 31,353
Refunding, FGIC Insured, 6.25%, 1/01/15 ............................................ 6,190,000 6,325,499
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 .................................... 3,400,000 3,206,370
Thurston and Pierce Counties Community Schools, Series B, AMBAC Insured, 6.65%, 12/01/09 1,305,000 1,373,447
Washington State Health Care Facilities Authority Revenue,
Providence Services, MBIA Insured, 5.50%, 12/01/26 ................................. 7,000,000 6,354,880
Swedish Health Services, Refunding, AMBAC Insured, 5.50%, 11/15/28 ................. 15,370,000 13,896,017
Washington State Housing Finance Commission MFMR, Series A, GNMA Secured, 7.70%, 7/01/32 2,840,000 2,882,344
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/17 .................................. 420,000 424,704
Series C, FGIC Insured, Pre-Refunded, 7.75%, 7/01/08 ............................... 2,500,000 2,578,400
Washington State University Revenues, Housing and Dining System, Refunding, MBIA
Insured, 6.40%, 10/01/24 ............................................................. 6,130,000 6,231,329
Western Washington University Revenue, Housing and Dining System,
MBIA Insured, 6.375%, 10/01/22 ..................................................... 80,000 80,958
Refunding, MBIA Insured, 6.70%, 10/01/11 ........................................... 235,000 240,476
Refunding, MBIA Insured, 6.375%, 10/01/21 .......................................... 770,000 773,665
Whatcom County School District No. 501, GO, Bellingham, FGIC Insured, Pre-Refunded,
6.125%, 12/01/13 ..................................................................... 2,000,000 2,098,960
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%, 6/01/19 ...... 350,000 353,070
------------
87,495,929
------------
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 12,209,787
Monongalia County Building Community Hospital Revenue, Monongalia General Hospital,
Refunding, Series B, MBIA Insured, 6.50%, 7/01/17 .................................... 1,000,000 1,024,760
West Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 ........................ 5,000,000 4,311,000
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 ....... 2,250,000 2,331,338
West Virginia State Water Development Authority Revenue, Loan Program, Refunding,
Series A, FSA Insured, 7.00%, 11/01/25 ............................................... 2,750,000 2,878,040
------------
22,754,925
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
WISCONSIN .4%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E,
FGIC Insured, 6.90%, 8/01/21 ......................................................... $ 3,000,000 $ 3,361,830
Wisconsin State Health and Educational Facilities Authority Revenue, SSM Health Care,
Refunding, Series AA, MBIA Insured, 6.25%, 6/01/20 ................................... 500,000 503,080
Wisconsin State Health and Educational Revenue,
Community Provider Program, Series A, FSA Insured, 7.50%, 1/15/04 .................. 1,326,000 1,351,751
Series A, FSA Insured, 7.50%, 1/15/09 .............................................. 712,000 725,507
--------------
5,942,168
--------------
WYOMING 1.4%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society, Refunding, MBIA
Insured, 5.90%, 1/01/16 .............................................................. 500,000 500,990
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding, AMBAC
Insured, 6.00%, 9/15/24 .............................................................. 9,885,000 9,649,342
University of Wyoming Revenues, Facilities, MBIA Insured, 7.10%, 6/01/10 ............... 2,245,000 2,274,095
Wyoming CDA, SFMR, Series A, AMBAC Insured, 6.00%, 6/01/23 ............................. 6,750,000 6,682,500
Wyoming Municipal Power Agency Power Supply System Revenue, Series A, MBIA Insured,
Pre-Refunded, 6.125%, 1/01/16 ........................................................ 2,000,000 2,102,480
--------------
21,209,407
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,510,197,349) ...................................... 1,481,877,171
--------------
(a)SHORT TERM INVESTMENTS .4%
ALABAMA
Stevenson IDB, Environmental Improvement Revenue, The Mead Corp. Project, Refunding,
Series D, Daily VRDN and Put, 3.80%, 11/01/11 ........................................ 300,000 300,000
--------------
INDIANA .1%
Princeton PCR, PSI Energy Inc. Project, Refunding, Daily VRDN and Put, 3.80%, 4/01/22 .. 1,400,000 1,400,000
--------------
MARYLAND
Maryland State Health and Higher Educational Facilities Authority Revenue, Adjustable
Pooled Loan Program, Series B, Weekly VRDN and Put, 3.85%, 4/01/35 ................... 300,000 300,000
--------------
NORTH CAROLINA
Buncombe County GO, Weekly VRDN and Put, 3.95%, 6/01/16 ................................ 300,000 300,000
North Carolina Medical Care Commission Revenue, Carol Woods Project, Daily VRDN and Put,
3.85%, 4/01/21 ....................................................................... 100,000 100,000
North Carolina Medical Care Common Health Care Facilities Revenue, Methodist Home
Project, Weekly VRDN and Put, 3.85%, 3/01/18 ......................................... 100,000 100,000
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Co.,
Series A, Weekly VRDN and Put, 3.80%, 5/01/15 ........................................ 100,000 100,000
--------------
600,000
--------------
VIRGINIA .3%
Richmond Redevelopment and Housing Authority Housing Revenue, Belmont Apartments
Project, Refunding, Weekly VRDN and Put, 3.85%, 4/01/07 .............................. 3,430,000 3,430,000
Roanoke IDA Hospital Revenue, Roanoke Memorial Hospital Project, Series C, Weekly VRDN
and Put, 3.80%, 7/01/19 .............................................................. 400,000 400,000
--------------
3,830,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $6,430,000) ......................................... 6,430,000
--------------
TOTAL INVESTMENTS (COST $1,516,627,349) 99.0% .......................................... 1,488,307,171
OTHER ASSETS, LESS LIABILITIES 1.0% .................................................... 13,928,583
--------------
NET ASSETS 100.0% ...................................................................... $1,502,235,754
==============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-------------------------------------------------------------------------------
CLASS A 2000 1999 1998 1997 1996(d)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.71 $ 11.75 $ 11.54 $ 11.65 $ 11.34
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .58 .59 .61 .63 .66
Net realized and unrealized gains (losses) . (.96) .03 .35 (.10) .31
-------------------------------------------------------------------------------
Total from investment operations ............ (.38) .62 .96 .53 .97
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.58) (.59) (.61) (.64)(e) (.66)
In excess of net investment income ......... -- -- (.01) -- --
Net realized gains ......................... -- (.07) (.13) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.58) (.66) (.75) (.64) (.66)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.75 $ 11.71 $ 11.75 $ 11.54 $ 11.65
===============================================================================
Total return(b) ............................. (3.34)% 5.36% 8.50% 4.75% 8.80%
Ratios/supplemental data
Net assets, end of year (000's) ............. $ 306,531 $ 340,109 $ 328,147 $ 325,065 $ 301,529
Ratios to average net assets:
Expenses ................................... .68% .68% .68% .68% .69%
Net investment income ...................... 5.16% 4.99% 5.21% 5.51% 5.67%
Portfolio turnover rate ..................... 25.75% 6.80% 30.46% 29.22% 10.29%
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.76 $ 11.80 $ 11.59 $ 11.69 $ 11.36
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .52 .52 .55 .57 .50
Net realized and unrealized gains (losses) . (.96) .03 .34 (.09) .32
-------------------------------------------------------------------------------
Total from investment operations ............ (.44) .55 .89 .48 .82
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.51) (.52) (.55) (.58)(e) (.49)
Net realized gains ......................... -- (.07) (.13) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.51) (.59) (.68) (.58) (.49)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.81 $ 11.76 $ 11.80 $ 11.59 $ 11.69
===============================================================================
Total return(b) ............................. (3.78)% 4.74% 7.86% 4.22% 7.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 27,253 $ 26,271 $ 13,937 $ 6,378 $ 2,759
Ratios to average net assets:
Expenses ................................... 1.24% 1.24% 1.25% 1.25% 1.26%(c)
Net investment income ...................... 4.60% 4.44% 4.59% 4.96% 5.06%(c)
Portfolio turnover rate ..................... 25.75% 6.80% 30.46% 29.22% 10.29%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.1%
<S> <C> <C>
Ashburnham and Westminister Regional School District, MBIA Insured, 6.00%, 12/15/13 ...... $ 2,700,000 $ 2,814,642
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11 .............................................................................. 1,045,000 1,083,801
7/01/12 .............................................................................. 1,045,000 1,091,785
7/01/13 .............................................................................. 685,000 712,674
7/01/14 .............................................................................. 755,000 783,441
Blackstone-Milville School District, AMBAC Insured, Pre-Refunded, 6.50%,
5/01/08 .............................................................................. 705,000 743,486
5/01/09 .............................................................................. 750,000 790,943
5/01/10 .............................................................................. 795,000 838,399
Boston Revenue, Boston City Hospital, Refunding, Series B, MBIA Insured, 5.75%, 2/15/23 .. 10,500,000 10,061,310
Central Berkshire GO, School District, MBIA Insured, Pre-Refunded, 7.25%, 6/01/08 ........ 1,095,000 1,125,047
Chelsea GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16 ................... 1,750,000 1,600,585
Dudley Charleston Regional School District GO, Series B, FGIC Insured, 5.25%, 5/01/19 .... 3,140,000 2,857,055
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments, Series A, GNMA
Secured, 6.65%, 2/20/32 ............................................................... 1,650,000 1,705,127
Greenfield GO, MBIA Insured, Pre-Refunded, 6.50%,
10/15/08 ............................................................................. 500,000 523,735
10/15/09 ............................................................................. 500,000 523,735
Holyoke GO, School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04 ............. 1,000,000 1,098,600
Hudson GO, MBIA Insured, 6.00%,
5/15/13 .............................................................................. 250,000 259,658
5/15/14 .............................................................................. 240,000 248,885
Kingston GO, FGIC Insured, 5.50%, 11/15/19 ............................................... 2,055,000 1,952,908
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11 ...................................................................... 1,000,000 1,042,950
6.625%, 10/15/15 ..................................................................... 500,000 522,145
Leominster GO, MBIA Insured, Pre-Refunded, 7.50%, 4/01/09 ................................ 450,000 460,179
Lowell GO, FGIC Insured, 5.85%, 2/15/20 .................................................. 1,595,000 1,578,284
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07 ...................................................................... 210,000 237,554
7.30%, 11/01/08 ...................................................................... 210,000 239,163
7.40%, 11/01/09 ...................................................................... 210,000 242,472
Lynn Water and Sewer Commission General Revenue, Series A,
FSA Insured, 5.125%, 12/01/17 ........................................................ 3,000,000 2,738,760
MBIA Insured, Pre-Refunded, 7.25%, 12/01/10 .......................................... 4,000,000 4,171,120
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17 .......................... 1,685,000 1,533,586
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12 ................................. 500,000 525,725
Massachusetts Bay Transportation Authority COP, BIG Insured, 7.75%, 1/15/06 .............. 2,500,000 2,743,225
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series C, FGIC Insured, 5.25%, 3/01/15 ............................................... 2,000,000 1,892,720
Series D, MBIA Insured, 5.00%, 3/01/27 ............................................... 5,000,000 4,212,700
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured,
7.25%, 1/01/09 ......................................................................... 1,560,000 1,605,817
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue, Series D,
MBIA Insured, 6.125%, 7/01/19 .......................................................... 4,395,000 4,430,160
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11 ........................................................ 1,665,000 1,727,271
MBIA Insured, 6.50%, 8/01/11 ......................................................... 855,000 886,977
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 1,512,075
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ...................... 3,500,000 3,476,760
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19 ..................... 5,500,000 5,493,400
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13 ........... 1,900,000 1,930,951
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21 .............................. 20,000 20,545
Boston College, Series J, FGIC Insured, Pre-Refunded, 6.625%, 7/01/21 ................ 2,230,000 2,331,688
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23 ............ 1,000,000 880,210
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16 ............. 2,200,000 2,233,044
Community College Program, Series A, Connie Lee Insured, Pre-Refunded, 6.50%, 10/01/09 1,000,000 1,060,160
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18 .................. 5,595,000 5,264,615
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25 .................. 7,720,000 7,047,511
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Dana-Farber Cancer Institute, Refunding, Series F, FGIC Insured, 6.00%, 12/01/15 ...... $ 1,000,000 $ 1,008,580
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .................. 26,730,000 24,057,000
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15 .... 2,500,000 2,520,125
Massachusetts General Hospital, Series F, AMBAC Insured, Pre-Refunded, 6.25%, 7/01/20 . 9,000,000 9,549,990
McLean Hospital, Series C, FGIC Insured, Pre-Refunded, 6.625%, 7/01/15 ................ 1,280,000 1,355,725
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16 ............................... 2,400,000 2,458,464
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24 ......................... 6,500,000 6,568,185
New England Deaconess Hospitals, Series D, AMBAC Insured, Pre-Refunded, 6.875%, 4/01/22 1,895,000 2,010,008
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18 ..................... 1,300,000 1,297,010
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25 ..................... 6,750,000 6,654,285
Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10 .................... 1,250,000 1,292,013
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ...................... 3,900,000 4,003,311
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ................... 5,000,000 4,447,450
Series I, MBIA Insured, 6.125%, 7/01/17 ............................................... 610,000 616,966
Series I, MBIA Insured, Pre-refunded, 6.125%, 7/01/17 ................................. 640,000 670,893
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 ............................. 2,600,000 2,242,656
Springfield College, AMBAC Insured, 5.00%, 10/15/27 ................................... 2,500,000 2,093,525
Stonehill College, MBIA Insured, 6.55%, 7/01/12 ....................................... 495,000 520,106
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.65%, 7/01/10 .............. 1,025,000 1,057,093
Stonehill College, Series D, AMBAC Insured, Pre-Refunded, 7.70%, 7/01/20 .............. 515,000 531,207
Stonehill College, Series E, MBIA Insured, 6.60%, 7/01/20 ............................. 1,550,000 1,612,310
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.55%, 7/01/12 ............... 395,000 417,724
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.60%, 7/01/20 ............... 1,450,000 1,534,999
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26 ............................ 1,690,000 1,629,937
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22 ...................... 3,000,000 3,041,460
Tufts University, FGIC Insured, 5.95%, 8/15/18 ........................................ 5,000,000 5,005,600
University Hospital, Series C, MBIA Insured, Pre-Refunded, 7.25%, 7/01/19 ............. 1,500,000 1,544,535
Wellesley College, Series F, 5.125%, 7/01/39 .......................................... 5,000,000 4,203,700
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26 .............................. 2,500,000 2,298,300
Massachusetts State HFA,
Housing Revenue, SF, Series 53, MBIA Insured, 6.15%, 12/01/29 ......................... 2,500,000 2,452,875
Housing Revenue, SF, Series 57, MBIA Insured, 5.55%, 6/01/25 .......................... 4,835,000 4,399,415
Housing Revenue, SFMR, Series 18, MBIA Insured, 7.35%, 12/01/16 ....................... 895,000 919,953
MFHR, Section 8 Assisted, Series A, GNMA Secured, ETM, 7.00%, 4/01/21 ................. 430,000 474,449
Massachusetts State HFAR, SFHR, Series 59, AMBAC Insured, 5.50%, 12/01/30 ................ 4,915,000 4,369,042
Massachusetts State Industrial Finance Agency Assisted Living Facility Revenue, Arbors at
Taunton Project, GNMA Secured, 5.50%, 6/20/40 ........................................... 2,000,000 1,753,480
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket
Electric Co., Series A, AMBAC Insured, 5.875%, 7/01/17 .................................. 4,000,000 3,984,560
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22 ................. 3,105,000 3,291,797
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 ... 2,010,000 2,075,124
Simons Rock College, AMBAC Insured, 5.50%, 6/01/17 .................................... 1,000,000 961,160
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27 .................................... 1,560,000 1,449,895
St. Marks School Issue, MBIA Insured, 5.375%, 1/01/21 ................................. 2,665,000 2,480,156
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ..................................... 3,510,000 3,259,456
Suffolk University, AMBAC Insured, 5.25%, 7/01/27 ..................................... 4,000,000 3,534,080
Trustees Deerfield Academy, 5.25%, 10/01/27 ........................................... 2,800,000 2,483,488
Western New England College, AMBAC Insured, 5.00%, 7/01/28 ............................ 4,000,000 3,385,560
WGBH Educational Foundation, Refunding, AMBAC Insured, 5.00%, 3/01/28 ................. 4,000,000 3,387,960
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17 ............. 3,720,000 3,438,582
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21 ... 3,500,000 3,306,310
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27 .. 4,000,000 3,460,440
Massachusetts State Port Authority Revenue,
Series A, FGIC Insured, 7.50%, 7/01/20 ................................................ 3,980,000 4,083,719
Series A, FGIC Insured, Pre-Refunded, 7.50%, 7/01/20 .................................. 1,220,000 1,256,990
Series A, FSA Insured, 5.125%, 7/01/17 ................................................ 5,000,000 4,564,000
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Massachusetts State Port Authority Revenue, (cont.)
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/19 ................... $ 2,215,000 $ 2,089,122
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/22 ................... 2,610,000 2,429,623
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/27 ................... 1,500,000 1,375,935
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/29 .................... 7,450,000 7,008,290
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/39 .................... 3,000,000 2,772,840
US Airways Project, MBIA Insured, 6.00%, 9/01/21 ..................................... 2,000,000 1,980,940
US Airways Project, Series A, MBIA Insured, 5.875%, 9/01/23 .......................... 4,500,000 4,341,825
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, Series A, MBIA
Insured, 5.00%, 1/01/37 .............................................................. 10,000,000 8,267,900
sub. lien, Series B, MBIA Insured, 5.25%, 1/01/29 .................................... 5,000,000 4,416,200
sub. lien, Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 ........................ 10,000,000 8,448,200
Massachusetts State Water Pollution Abatement Trust Revenue, Massachusetts Water Revenue
Authority Program, Refunding, Sub Series A, 5.75%, 8/01/29 ........................... 5,000,000 4,814,600
Massachusetts State Water Resources Authority Revenue, Refunding, Series B, MBIA Insured,
5.00%, 3/01/22 ....................................................................... 1,500,000 1,283,865
(b)Series A, FGIC Insured, 5.75%, 8/01/39 ............................................ 8,000,000 7,640,640
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 ....................................................................... 200,000 207,558
6.05%, 8/15/12 ....................................................................... 200,000 207,546
6.10%, 8/15/13 ....................................................................... 200,000 209,082
6.10%, 8/15/14 ....................................................................... 200,000 208,750
Millis School Project GO, Unlimited Tax, AMBAC Insured, 7.40%,
5/01/06 .............................................................................. 270,000 276,421
5/01/07 .............................................................................. 270,000 276,402
5/01/08 .............................................................................. 270,000 276,434
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 .............................................................................. 450,000 462,938
1/15/11 .............................................................................. 425,000 437,584
1/15/12 .............................................................................. 375,000 387,728
1/15/13 .............................................................................. 300,000 310,962
North Andover Municipal Purpose GO, Limited Tax, MBIA Insured, 7.40%, 9/15/09 ............ 300,000 312,567
North Attleborough GO, Limited Tax, AMBAC Insured, Pre-Refunded, 7.20%, 6/01/09 .......... 125,000 128,415
Plymouth County COP, Correctional Facility Project, AMBAC Insured, 5.00%, 4/01/22 ........ 3,500,000 3,014,824
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 .......... 85,000 87,347
Salem GO, AMBAC Insured,
6.70%, 8/15/05 ....................................................................... 425,000 443,067
6.80%, 8/15/07 ....................................................................... 500,000 521,655
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured, 7.95%, 11/20/30 ...... 3,000,000 3,069,990
South Essex Sewer District GO,
AMBAC Insured, 6.25%, 11/01/11 ....................................................... 330,000 342,550
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 ................................. 2,800,000 3,067,064
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 ........................................... 2,375,000 2,478,811
Whately GO, AMBAC Insured,
6.20%, 1/15/07 ....................................................................... 215,000 222,824
6.30%, 1/15/08 ....................................................................... 215,000 223,280
6.40%, 1/15/10 ....................................................................... 200,000 208,308
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 ......................... 1,335,000 1,358,469
Worcester Municipal Purpose Loan, Refunding, Series A, AMBAC Insured, 5.25%, 8/01/16 ..... 1,410,000 1,315,812
------------
TOTAL LONG TERM INVESTMENTS (COST $338,569,280) .......................................... 330,799,599
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
(a)SHORT TERM INVESTMENTS 2.2%
<S> <C> <C>
Massachusetts State Health and Educational Facilities Authority Revenue, Capital Assets
Program, Series D, MBIA Insured, Daily VRDN and Put, 3.80%, 1/01/35 (COST $7,325,000) $ 7,325,000 $ 7,325,000
------------
TOTAL INVESTMENTS (COST $345,894,280) 101.3% .......................................... 338,124,599
OTHER ASSETS, LESS LIABILITIES (1.3)% ................................................. (4,341,184)
------------
NET ASSETS 100.0% ..................................................................... $333,783,415
============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
---------------------------------------------------------------------------
CLASS A 2000(d) 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 12.28 $ 12.20 $ 12.00 $ 12.09 $ 11.76
----------------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .60 .61 .63 .66 .68
Net realized and unrealized gains (losses) ......... (.91) .13 .34 (.09) .34
----------------------------------------------------------------------------
Total from investment operations .................... (.31) .74 .97 .57 1.02
----------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.60) (.61) (.63) (.66)(e) (.69)(f)
In excess of net investment income ................. -- -- (.01) -- --
Net realized gains ................................. -- (g) (.05) (.13) -- --
----------------------------------------------------------------------------
Total distributions ................................. (.60) (.66) (.77) (.66) (.69)
----------------------------------------------------------------------------
Net asset value, end of year ........................ $ 11.37 $ 12.28 $ 12.20 $ 12.00 $ 12.09
============================================================================
Total return(b) ..................................... (2.57)% 6.23% 8.37% 4.90% 8.86%
Ratios/supplemental data
Net assets, end of year (000's) ..................... $1,057,787 $1,161,345 $1,142,565 $1,111,537 $1,115,454
Ratios to average net assets:
Expenses ........................................... .63% .63% .63% .62% .62%
Net investment income .............................. 5.10% 4.98% 5.24% 5.52% 5.65%
Portfolio turnover rate ............................. 13.73% 7.37% 20.08% 30.03% 9.38%
CLASS B
- -------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $ 11.31
----------
Income from investment operations:
Net investment income .............................. .05
Net realized and unrealized gains .................. .07
----------
Total from investment operations .................... .12
----------
Less distributions from net investment income ....... (.05)
----------
Net asset value, end of period ...................... $ 11.38
==========
Total return(b) ..................................... 1.11%
Ratios/supplemental data
Net assets, end of period (000's) ................... $ 228
Ratio to average net assets:
Expenses ........................................... 1.19%(c)
Net investment income .............................. 4.88%(c)
Portfolio turnover rate ............................. 13.73%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e) Includes distributions in excess of net investment income in the amount of
$.002.
(f) Includes distributions in excess of net investment income in the amount of
$.001.
(g) The fund made a capital gain distribution of $.0003.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
----------------------------------------------------------------------
CLASS C 2000 1999 1998 1997 1996(d)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 12.36 $ 12.27 $ 12.07 $ 12.14 $ 11.77
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ................................ .54 .55 .57 .59 .51
Net realized and unrealized gains (losses) ........... (.92) .13 .33 (.07) .37
---------- ---------- ---------- ---------- ----------
Total from investment operations ...................... (.38) .68 .90 .52 .88
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ................................ (.53) (.54) (.57) (.59) (.51)
Net realized gains ................................... -- (e) (.05) (.13) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ................................... (.53) (.59) (.70) (.59) (.51)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .......................... $ 11.45 $ 12.36 $ 12.27 $ 12.07 $ 12.14
========== ========== ========== ========== ==========
Total return(b) ....................................... (3.11)% 5.71% 7.70% 4.44% 7.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 49,038 $ 49,970 $ 32,873 $ 20,162 $ 6,683
Ratios to average net assets:
Expenses ............................................. 1.19% 1.19% 1.20% 1.19% 1.20%(c)
Net investment income ................................ 4.54% 4.42% 4.67% 4.94% 5.03%(c)
Portfolio turnover rate ............................... 13.73% 7.37% 20.08% 30.03% 9.38%
</TABLE>
(a) Based on average shares outstanding effective February 29, 2000.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) The fund made a capital gain distribution of $.0003.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
<S> <C> <C>
Allegan Public School, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ......................... $ 4,165,000 $ 4,305,194
Allendale Public School, MBIA Insured,
5.875%, 5/01/14 ......................................................................... 1,335,000 1,349,632
School Building, Pre-Refunded, 6.00%, 5/01/24 ........................................... 3,750,000 3,928,200
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 ..................................... 1,925,000 1,793,792
Alpena Public Schools GO, MBIA Insured, Pre-Refunded, 5.625%, 5/01/22 ...................... 1,665,000 1,708,739
Anchor Bay GO, School Building and Site Project, Series I, FGIC Insured, 6.00%, 5/01/29 .... 2,000,000 1,991,620
Anchor Bay School District, MBIA Insured, Pre-Refunded, 5.50%, 5/01/26 ..................... 7,380,000 7,519,261
Avondale School District, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ...................... 4,000,000 4,134,640
Bath Community Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/25 ...................... 1,625,000 1,695,590
Battle Creek Downtown Development Authority, Refunding, MBIA Insured, 5.125%, 5/01/20 ...... 4,500,000 4,008,870
Berkley City School District, FGIC Insured, Pre-Refunded, 6.00%, 1/01/19 ................... 2,125,000 2,227,999
Big Rapids Public School District, Building and Site, FGIC Insured, Pre-Refunded,
5.625%, 5/01/25 ......................................................................... 1,470,000 1,519,907
Brandon School District, FGIC Insured, Pre-Refunded, 5.875%,
5/01/16 ................................................................................. 5,540,000 5,795,782
5/01/26 ................................................................................. 7,000,000 7,323,190
Breitung Township School District GO,
FSA Insured, Pre-Refunded, 7.20%, 5/01/19 ............................................... 6,000,000 6,030,300
Refunding, MBIA Insured, 6.30%, 5/01/15 ................................................. 2,935,000 3,017,708
Byron Center Public Schools,
MBIA Insured, Pre-Refunded, 5.875%, 5/01/24 ............................................. 5,115,000 5,346,147
Refunding, MBIA Insured, 5.875%, 5/01/24 ................................................ 135,000 132,679
Cadillac Area Public Schools GO, FGIC Insured,
5.50%, 5/01/22 .......................................................................... 2,605,000 2,449,299
Pre-Refunded, 5.50%, 5/01/22 ............................................................ 2,770,000 2,823,350
Caledonia Community Schools,
MBIA Insured, Pre-Refunded, 5.85%, 5/01/22 .............................................. 4,500,000 4,678,110
Refunding, AMBAC Insured, 6.625%, 5/01/14 ............................................... 3,750,000 3,935,700
Refunding, AMBAC Insured, 5.50%, 5/01/22 ................................................ 1,500,000 1,410,345
Calumet, Laurium and Keweenaw Public Schools GO, FSA Insured, Pre-Refunded,
5.875%, 5/01/20 ......................................................................... 875,000 916,081
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%,
5/01/19 ................................................................................. 2,425,000 2,538,854
5/01/24 ................................................................................. 3,875,000 4,049,491
Central Michigan University Revenue, FGIC Insured,
5.00%, 10/01/27 ......................................................................... 500,000 420,015
Pre-Refunded, 5.625%, 10/01/22 .......................................................... 2,500,000 2,575,025
Central Montcalm Public School GO, MBIA Insured, 6.00%, 5/01/29 ............................ 1,400,000 1,394,134
Charlotte Public School District GO, FGIC Insured, 5.375%, 5/01/29 ......................... 5,000,000 4,552,500
Chelsea School District, FGIC Insured, Pre-Refunded, 5.875%, 5/01/25 ....................... 3,140,000 3,281,897
Chippewa County Hospital Financing Authority Revenue, Chippewa County War
Memorial Hospital, Refunding, Series B, 5.625%, 11/01/14 ............................... 650,000 553,436
Coldwater Community Schools, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 .......................................................................... 1,100,000 1,169,421
6.30%, 5/01/23 .......................................................................... 1,700,000 1,813,611
De Witt Public Schools, AMBAC Insured, Pre-Refunded,
5.70%, 5/01/21 .......................................................................... 6,905,000 7,116,984
5.50%, 5/01/26 .......................................................................... 5,500,000 5,603,785
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/21 ....................................... 1,000,000 887,010
Series A, FGIC Insured, 5.75%, 11/15/15 ................................................. 100,000 98,468
Series A, FGIC Insured, 5.875%, 11/15/25 ................................................ 500,000 485,440
Detroit GO, City School District, Series A, AMBAC Insured, Pre-Refunded,
5.70%, 5/01/25 .......................................................................... 14,000,000 14,620,900
Detroit Local Development Finance Authority, Refunding, Series A, 5.375%, 5/01/21 .......... 100,000 90,449
Detroit Sewage Disposal Revenue,
Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ....................................... 12,585,000 11,317,061
Series A, MBIA Insured, 5.50%, 7/01/20 .................................................. 215,000 201,253
Series A, MBIA Insured, 5.00%, 7/01/27 .................................................. 20,000,000 16,811,000
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Detroit Water Supply System Revenue,
FGIC Insured, Pre-Refunded, 7.25%, 7/01/20 ............................................... $ 3,500,000 $ 3,604,755
Refunding, FGIC Insured, ETM, 6.25%, 7/01/12 ............................................. 5,000,000 5,222,200
Series A, MBIA Insured, 5.00%, 7/01/27 ................................................... 5,750,000 4,833,163
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 ........................ 5,500,000 4,839,395
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 .......................... 1,050,000 1,052,226
East Detroit School District GO, FGIC Insured,
6.10%, 5/01/16 ........................................................................... 1,025,000 1,045,121
Pre-Refunded, 6.10%, 5/01/16 ............................................................. 4,975,000 5,263,152
(b) East Grand Rapids Public School District, FSA Insured, 6.00%, 5/01/29 .................... 4,775,000 4,754,993
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 ............................................................. 9,100,000 8,412,131
Refunding, AMBAC Insured, 6.375%, 6/01/14 ................................................ 1,000,000 1,021,890
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 ................................. 5,000,000 4,832,650
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, MBIA Insured,
5.75%, 2/15/25 ........................................................................... 100,000 94,927
Farmington Hills Hospital Finance Authority Revenue, Botsford General Hospital,
Refunding, Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/15/14 ............................ 10,140,000 10,600,863
Ferndale School District GO,
FGIC Insured, 5.50%, 5/01/22 ............................................................. 4,525,000 4,254,541
Refunding, FGIC Insured, 5.375%, 5/01/21 ................................................. 4,185,000 3,864,052
Ferris State College Revenue, AMBAC Insured, Pre-Refunded,
6.15%, 10/01/14 .......................................................................... 1,000,000 1,059,710
6.25%, 10/01/19 .......................................................................... 1,000,000 1,062,960
Ferris State University Revenue, AMBAC Insured, Pre-Refunded,
5.75%, 10/01/17 .......................................................................... 2,500,000 2,600,825
5.85%, 10/01/22 .......................................................................... 2,500,000 2,615,475
5.90%, 10/01/26 .......................................................................... 6,840,000 7,176,049
Fowlerville Community School District, MBIA Insured, Pre-Refunded, 5.60%, 5/01/21 ........... 2,000,000 2,049,580
Gladstone Area Public Schools GO, AMBAC Insured,
5.50%, 5/01/26 ........................................................................... 695,000 647,629
Pre-Refunded, 5.50%, 5/01/26 ............................................................. 805,000 820,190
Gogebic-Iron Wastewater Authority Wastewater Treatment System Revenue,
Refunding, MBIA Insured, 5.95%, 1/01/15 .................................................. 1,015,000 1,025,485
Grand Haven Area Public Schools GO,
MBIA Insured, Pre-Refunded, 6.05%, 5/01/14 ............................................... 4,540,000 4,778,305
Refunding, MBIA Insured, 6.05%, 5/01/14 .................................................. 460,000 468,919
Grand Ledge Public School District GO,
MBIA Insured, Pre-Refunded, 6.60%, 5/01/24 ............................................... 10,000,000 10,779,900
Refunding, MBIA Insured, 5.375%, 5/01/24 ................................................. 12,605,000 11,545,676
Grand Rapids Downtown Development Authority Tax Increment Revenue,
MBIA Insured, 6.875%, 6/01/24 ................................................................ 7,500,000 7,933,725
Grand Traverse County Building Authority GO, AMBAC Insured,
Pre-Refunded, 5.75%, 9/01/15 ................................................................ 1,700,000 1,761,812
Grand Traverse County Hospital Revenue, Munson Healthcare, Series A, AMBAC Insured,
6.25%, 7/01/12 ........................................................................... 815,000 841,659
6.25%, 7/01/22 ........................................................................... 2,395,000 2,406,424
Pre-Refunded, 6.25%, 7/01/12 ............................................................. 1,685,000 1,769,772
Pre-Refunded, 6.25%, 7/01/22 ............................................................. 5,505,000 5,781,957
Greenville Public School Building GO, MBIA Insured, Pre-Refunded, 5.75%, 5/01/19 ............ 2,010,000 2,086,822
Grosse-Ile Township School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 .......... 5,250,000 5,504,415
Hamilton Community School District GO, Refunding, FGIC Insured, 5.00%, 5/01/24 .............. 2,000,000 1,709,540
Hancock Hospital Finance Authority Revenue, Portage Health, MBIA Insured, 5.45%, 8/01/47 .... 4,400,000 3,855,104
Harrison Community Schools GO, AMBAC Insured, Pre-Refunded, 6.25%, 5/01/13 .................. 4,715,000 5,021,334
Haslett Public School District GO,
FSA Insured, Pre-Refunded, 7.50%, 5/01/20 ................................................ 4,000,000 4,061,840
MBIA Insured, Pre-Refunded, 5.70%, 5/01/26 ............................................... 3,900,000 4,019,730
Refunding, FSA Insured, 6.625%, 5/01/19 .................................................. 3,875,000 4,055,498
Hastings School District GO, FGIC Insured, Pre-Refunded, 5.625%, 5/01/15 ..................... 1,000,000 1,033,951
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 ........................ 2,000,000 2,076,140
Holly Area School District GO, FGIC Insured, Pre-Refunded, 5.625%, 5/01/25 ................... 7,150,000 7,392,743
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Hopkins Public Schools GO, FGIC Insured, Pre-Refunded,
5.70%, 5/01/21 ....................................................................... $ 4,000,000 $ 4,122,801
5.50%, 5/01/26 ....................................................................... 1,000,000 1,018,870
Houghton-Portage Township School District GO, Refunding, AMBAC Insured,
6.00%, 5/01/14 ....................................................................... 2,000,000 2,032,120
Howell Public Schools GO,
MBIA Insured, 5.875%, 5/01/22 ........................................................ 2,000,000 1,971,800
MBIA Insured, 6.00%, 5/01/25 ......................................................... 1,600,000 1,595,728
Hudsonville Public Schools GO, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 ....................................................................... 2,000,000 2,115,080
6.10%, 5/01/24 ....................................................................... 2,000,000 2,118,800
Huron Valley School District GO,
FGIC Insured, Pre-Refunded, 5.875%, 5/01/16 .......................................... 100,000 104,106
FGIC Insured, Pre-Refunded, 5.75%, 5/01/22 ........................................... 2,450,000 2,532,467
Refunding, FGIC Insured, 6.125%, 5/01/20 ............................................. 11,535,000 11,622,435
Jenison Public Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 ................... 130,000 135,153
Kalamazoo Hospital Finance Authority Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 ..................... 3,805,000 3,780,686
Bronson Methodist Hospital, Refunding and Improvement, MBIA Insured,
5.875%, 5/15/26 ...................................................................... 26,165,000 25,297,630
Bronson Methodist Hospital, Refunding and Improvement,
Series A, MBIA Insured, Pre-Refunded, 6.25%, 5/15/12 ................................. 5,000,000 5,293,600
Bronson Methodist Hospital, Refunding and Improvement, Series A,
MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 .......................................... 2,460,000 2,613,455
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.25%, 5/15/18 .................. 250,000 229,123
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.50%, 5/15/28 .................. 14,500,000 13,118,440
Kelloggsville Public School District GO, FGIC Insured, Pre-Refunded,
5.75%, 5/01/13 ....................................................................... 1,000,000 1,039,500
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21 .............................................................................. 1,510,000 1,492,756
5/01/26 .............................................................................. 9,000,000 8,828,280
Kent County Building Authority GO, 5.00%, 6/01/26 ....................................... 21,885,000 18,777,330
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System,
Series A, MBIA Insured, Pre-Refunded, 5.625%, 1/15/26 ................................ 15,500,000 16,073,655
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 ....... 2,200,000 2,086,920
Lake Shore Public Schools GO, Macomb County, FSA Insured, 5.50%,
5/01/17 .............................................................................. 4,000,000 3,866,120
5/01/20 .............................................................................. 2,000,000 1,897,200
Lake Superior State University Revenue, AMBAC Insured, Pre-Refunded, 6.375%,
11/15/15 ............................................................................. 1,500,000 1,613,010
Lakeshore Public Schools GO, Berrien County, MBIA Insured, 5.70%, 5/01/22 ............... 3,000,000 2,893,740
Lakeview Community Schools GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 ........................................... 100,000 103,366
Refunding, MBIA Insured, 6.75%, 5/01/13 .............................................. 1,500,000 1,560,570
Lakewood Public Schools GO, MBIA Insured,
5.375%, 5/01/20 ...................................................................... 3,300,000 3,082,266
5.75%, 5/01/22 ....................................................................... 800,000 776,536
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 ..................... 1,470,000 1,396,838
Lenawee County Hospital Finance Authority Hospital Revenue, Lenawee Health
Alliance, Refunding, Series A, AMBAC Insured, 5.20%, 7/01/19 ......................... 2,115,000 1,902,675
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured,
Pre-Refunded, 6.00%, 5/01/25 ......................................................... 3,500,000 3,677,835
Lincoln Consolidated School District GO,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/21 ........................................... 130,000 136,513
FSA Insured, 5.00%, 5/01/28 .......................................................... 1,000,000 845,510
Refunding, FGIC Insured, 5.85%, 5/01/21 .............................................. 10,000 9,856
Lincoln Park School District,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/15 ........................................... 2,885,000 3,014,421
FGIC Insured, Pre-Refunded, 5.90%, 5/01/26 ........................................... 6,050,000 6,337,254
Refunding, FGIC Insured, 5.00%, 5/01/26 .............................................. 400,000 340,912
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital,
Refunding, Series D, FSA Insured,
5.875%, 4/01/11 ...................................................................... 4,525,000 4,595,907
6.10%, 4/01/19 ....................................................................... 5,225,000 5,244,489
Marysville Public School District, MBIA Insured, Pre-Refunded, 5.75%, 5/01/22 ........... 1,100,000 1,142,042
Mason Public School District GO, FGIC Insured, 5.40%, 5/01/21 ........................... 1,400,000 1,304,702
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%,
5/01/20 .............................................................................. $ 2,675,000 $ 2,681,795
Merrill Community School District GO, FGIC Insured, 5.60%, 5/01/26 ...................... 4,000,000 4,099,160
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A,
MBIA Insured,
7.40%, 10/01/04 ...................................................................... 1,360,000 1,397,318
7.55%, 10/01/08 ...................................................................... 610,000 626,232
Michigan Municipal Board Authority Revenue,
AMBAC Insured, 6.80%, 11/01/23 ....................................................... 280,000 296,369
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/23 ............................... 545,000 595,380
Michigan Municipal Bond Authority Revenue,
Local Government Loan Program Revenue Sharing, 5.20%, 11/01/19 ....................... 330,000 292,426
Local Government Loan Program, Series C, MBIA Insured, 6.00%, 11/01/10 ............... 3,790,000 3,916,586
Series B, AMBAC Insured, 6.75%, 11/01/14 ............................................. 1,010,000 1,079,458
Series B, AMBAC Insured, 6.80%, 11/01/14 ............................................. 1,135,000 1,215,369
Series G, AMBAC Insured, Pre-Refunded, 6.75%, 11/01/14 ............................... 5,480,000 5,975,282
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/14 ............................... 515,000 562,607
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series 1, 4.75%, 10/15/21 ............................. 500,000 414,790
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 .................................. 1,500,000 1,512,780
Series II, MBIA Insured, 6.25%, 10/01/20 ............................................. 4,645,000 4,684,575
Series II, MBIA Insured, ETM, 7.40%, 4/01/01 ......................................... 2,140,000 2,156,264
Michigan State Comprehensive Transportation Revenue, Series A, MBIA Insured,
5.50%, 5/15/22 ....................................................................... 4,500,000 4,189,005
Michigan State HDA,
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 ...................... 200,000 200,974
SFMR, Refunding, Series B, 6.20%, 6/01/27 ............................................ 70,000 69,446
SFMR, Refunding, Series E, 6.20%, 12/01/27 ........................................... 295,000 291,882
SFMR, Series A, AMBAC Insured, 5.95%, 6/01/17 ........................................ 2,500,000 2,452,225
SFMR, Series D, 5.95%, 12/01/16 ...................................................... 250,000 250,143
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured, 6.125%, 11/15/23 ......... 15,175,000 15,145,105
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 .......................... 1,750,000 1,774,973
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured,
5.50%, 8/15/24 ....................................................................... 15,000,000 13,616,550
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured,
5.25%, 8/15/27 ....................................................................... 10,000,000 8,695,100
Henry Ford Health, Refunding, Series A, 5.25%, 11/15/25 .............................. 5,000,000 4,043,250
Holland Community Hospital, AMBAC Insured, 5.625%, 1/01/28 ........................... 3,000,000 2,783,580
Mercy Health Services, Refunding, Series T, MBIA Insured, 5.75%, 8/15/15 ............. 10,525,000 10,365,967
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 ...................... 12,090,000 10,786,456
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/16 ...................... 1,500,000 1,408,740
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/26 ...................... 1,750,000 1,561,315
Mercy Health Services, Series U, 5.75%, 8/15/26 ...................................... 300,000 270,702
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 ......................... 8,605,000 7,482,134
Mercy Health Services-X, Refunding, MBIA Insured, 6.00%, 8/15/34 ..................... 11,000,000 10,597,290
Mercy Mount Clemens Corp., Refunding, Series A, MBIA Insured, 5.75%, 5/15/29 ......... 4,890,000 4,587,994
Mid Michigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 ..... 7,500,000 6,672,375
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 .......... 10,375,000 8,862,014
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/26 ........... 500,000 420,185
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ........... 7,050,000 5,785,371
Presbyterian Villages Obligation Group, 6.375%, 1/01/15 .............................. 225,000 206,118
Presbyterian Villages Obligation Group, 6.375%, 1/01/25 .............................. 1,250,000 1,103,913
Sparrow Obligation Group, MBIA Insured, 5.90%, 11/15/26 .............................. 100,000 96,986
Sparrow Obligation Group, Refunding, MBIA Insured, 6.50%, 11/15/11 ................... 1,500,000 1,555,695
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 .............. 3,445,000 3,535,741
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 5/15/14 .............. 9,545,000 10,000,010
St. John's Hospital, Refunding, Series A, AMBAC Insured, 5.125%, 5/15/17 ............. 14,500,000 13,279,970
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co., Pollution Project, Refunding, FGIC Insured, 6.875%, 12/01/21 ..... 20,000,000 20,779,200
Detroit Edison Co., Pollution Project, Refunding, Series AA, FGIC Insured,
6.95%, 5/01/11 ....................................................................... 5,000,000 5,629,450
Detroit Edison Co., Pollution Project, Refunding, Series BB, AMBAC Insured,
7.00%, 5/01/21 ....................................................................... 3,000,000 3,387,720
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured,
6.05%, 10/01/23 ...................................................................... 1,285,000 1,285,527
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Michigan State Strategic Fund Limited Obligation Revenue, (cont.)
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured,
6.20%, 8/15/25 ....................................................................... $10,250,000 $10,340,713
Detroit Edison Co., Pollution Project, Refunding, Series CC, FGIC Insured,
6.95%, 9/01/21 ....................................................................... 5,540,000 5,747,805
Detroit Edison Co., Pollution Project, Refunding, Series CC, MBIA Insured,
6.05%, 10/01/23 ...................................................................... 5,825,000 5,827,388
Hope Network Project, Refunding, Series B, 5.125%, 9/01/13 ........................... 600,000 559,260
Worthington Armstrong Venture, 5.75%, 10/01/22 ....................................... 350,000 314,930
Michigan State Trunk Line,
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 .................................. 1,400,000 1,315,832
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 ................................... 4,500,000 4,229,460
Series A, FGIC Insured, 5.50%, 10/01/21 .............................................. 1,475,000 1,386,323
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/20 ............................... 2,765,000 2,860,918
Series A, FGIC Insured, Pre-Refunded, 5.80%, 11/15/24 ................................ 6,000,000 6,309,000
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/26 ............................... 8,990,000 9,301,863
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 .............................................. 4,000,000 4,175,480
Series 1-B, MBIA Insured, 6.55%, 9/01/24 ............................................. 4,000,000 4,131,840
Series CC, MBIA Insured, 6.55%, 6/01/24 .............................................. 1,150,000 1,186,294
Morley-Stanwood Community Schools, Building and Site, FGIC Insured,
Pre-Refunded, 5.625%, 5/01/21 ........................................................ 2,000,000 2,067,900
Muskegon Public Schools GO, Series 95, FGIC Insured, 5.25%,
5/01/18 .............................................................................. 1,900,000 1,761,338
5/01/21 .............................................................................. 2,000,000 1,816,940
Northview Public School District GO,
MBIA Insured, 5.80%, 5/01/21 ......................................................... 235,000 230,213
MBIA Insured, Pre-Refunded, 5.80%, 5/01/21 ........................................... 4,265,000 4,445,196
Refunding, FGIC Insured, 5.00%, 5/01/21 .............................................. 3,450,000 2,986,458
Novi Community School District GO,
Building and Site, FGIC Insured, 5.30%, 5/01/21 ...................................... 1,960,000 1,803,220
FGIC Insured, Pre-Refunded, 6.125%, 5/01/18 .......................................... 4,750,000 5,009,683
Oakland County EDC, Limited Obligation Revenue, Cranbrook Educational
Community, Refunding, 5.00%, 11/01/17 ................................................ 500,000 442,460
Oakland, Washtenaw, etc. Counties Community College District, AMBAC Insured,
6.65%, 5/01/11 ....................................................................... 3,500,000 3,695,790
Oakridge Public Schools GO, FSA Insured,
5.00%, 5/01/23 ....................................................................... 500,000 429,275
5.125%, 5/01/28 ...................................................................... 500,000 431,470
Paw Paw Public School District, Building and Site, FGIC Insured, Pre-Refunded,
5.625%, 5/01/25 ...................................................................... 3,500,000 3,591,770
Pinckney Community Schools, Livingston and Washtenaw Counties, FGIC Insured,
5.50%, 5/01/27 ....................................................................... 10,700,000 9,945,864
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 ............................................. 4,000,000 3,977,480
Series C, FGIC Insured, Pre-Refunded, 6.50%, 5/01/16 ................................. 3,500,000 3,688,825
Series C, MBIA Insured, Pre-Refunded, 6.50%, 5/01/16 ................................. 3,000,000 3,161,850
Port Huron School District,
FSA Insured, Pre-Refunded, 7.25%, 5/01/15 ............................................ 5,500,000 5,637,500
Refunding, AMBAC Insured, 6.00%, 5/01/12 ............................................. 4,500,000 4,592,340
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 ...................................................................... 770,000 791,075
6.20%, 10/01/20 ...................................................................... 670,000 680,465
Portage Public Schools GO, MBIA Insured, Pre-Refunded, 5.625%, 5/01/19 .................. 2,750,000 2,848,670
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, ETM, 8.75%, 7/01/00 ..................................................... 500,000 507,835
Pre-Refunded, 9.00%, 7/01/09 ......................................................... 2,500,000 2,858,525
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, 6.75%, 7/01/06 ........... 830,000 840,400
Puerto Rico Electric Power Authority Revenue, Refunding, Series U, FSA Insured,
6.00%, 7/01/14 ....................................................................... 3,400,000 3,500,470
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ......... 1,290,000 1,324,224
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 .............. 8,700,000 9,078,363
Redford USD, GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 ............................. 14,090,000 14,832,543
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 ....................................................... 3,900,000 3,884,088
FGIC Insured, 5.25%, 5/01/22 ......................................................... 1,250,000 1,119,275
FGIC Insured, 5.25%, 5/01/27 ......................................................... 3,000,000 2,649,810
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Rockford Public Schools GO, Refunding, (cont.)
FSA Insured, 5.875%, 5/01/19 .......................................................... $ 3,150,000 $ 3,137,148
MBIA Insured, 5.875%, 5/01/12 ......................................................... 1,850,000 1,876,696
MBIA Insured, 5.875%, 5/01/19 ......................................................... 1,925,000 1,917,146
Romulus Community Schools GO, Refunding, FGIC Insured, 5.75%,
5/01/13 ............................................................................... 690,000 695,444
5/01/17 ............................................................................... 1,200,000 1,192,140
5/01/22 ............................................................................... 5,435,000 5,275,591
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 .... 5,000,000 5,034,900
Saginaw Hospital Finance Authority Revenue,
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.375%, 7/01/19 ........... 4,850,000 4,463,892
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.50%, 7/01/24 ............ 2,750,000 2,496,753
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.875%, 7/01/14 ....... 5,325,000 5,516,753
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.75%, 7/01/17 ........ 2,000,000 2,057,760
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.00%, 7/01/21 ........ 3,875,000 3,828,733
St. Luke's Hospital Project, Refunding, Series D, MBIA Insured, 6.50%, 7/01/11 ........ 1,000,000 1,043,610
Saginaw Valley State University Revenue, AMBAC Insured, 5.25%, 7/01/19 ................... 2,540,000 2,342,642
Schoolcraft Community School District GO, FGIC Insured, Pre-Refunded,
5.75%, 5/01/21 ........................................................................ 3,575,000 3,695,335
5.375%, 5/01/26 ....................................................................... 1,000,000 1,011,470
South Redford School District GO, FGIC Insured,
5.50%, 5/01/22 ........................................................................ 3,155,000 2,966,426
Pre-Refunded, 5.50%, 5/01/22 .......................................................... 1,455,000 1,482,456
St. Clair County Building Authority GO, MBIA Insured, 5.25%,
4/01/18 ............................................................................... 2,065,000 1,914,751
4/01/21 ............................................................................... 2,400,000 2,167,896
St. Clair County EDC, PCR, Detroit Edison Co., Refunding,
Series AA, AMBAC Insured, 6.40%, 8/01/24 .............................................. 10,000,000 10,313,500
Series DD, AMBAC Insured, 6.05%, 8/01/24 .............................................. 7,745,000 7,747,478
Sturgis Public School District, MBIA Insured, Pre-Refunded, 6.10%, 5/01/18 ............... 1,000,000 1,049,640
Thornapple Kellogg School District, FGIC Insured, 5.375%, 5/01/22 ........................ 1,960,000 1,801,750
Three Rivers Community Schools, Building and Site, MBIA Insured, Pre-Refunded,
6.00%, 5/01/23 ........................................................................ 2,400,000 2,526,480
Traverse City Area Public Schools GO, Building and Site, Series I, MBIA Insured,
Pre-Refunded, 5.70%, 5/01/20 .......................................................... 4,550,000 4,719,806
University of Michigan Revenues, Medical Service Plan, MBIA Insured, Pre-Refunded,
6.50%, 12/01/21 ....................................................................... 2,365,000 2,480,932
Vicksburg Community Schools GO, Refunding, MBIA Insured, 5.625%,
5/01/12 ............................................................................... 2,175,000 2,188,833
5/01/20 ............................................................................... 1,000,000 963,170
Walled Lake Consolidated School District GO, Refunding, MBIA Insured, 5.50%, 5/01/22 ..... 3,000,000 2,820,690
Wayland USD, GO, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 .............................. 2,000,000 2,169,020
Wayne Charter County Airport Revenue, Detroit Metropolitan Wayne County,
Series A, MBIA Insured, 5.25%, 12/01/18 ............................................... 5,500,000 4,925,030
Series A, MBIA Insured, 5.00%, 12/01/22 ............................................... 10,100,000 8,555,609
sub. lien, Refunding, Series C, MBIA Insured, 5.25%, 12/01/21 ......................... 1,000,000 903,850
sub. lien, Series B, MBIA Insured, 6.875%, 12/01/11 ................................... 300,000 313,884
sub. lien, Series B, MBIA Insured, 6.75%, 12/01/21 .................................... 2,000,000 2,072,120
Wayne County Airport Revenue, sub. lien, Series B, AMBAC Insured, 6.00%, 12/01/20 ........ 10,585,000 10,558,961
Wayne-Westland Community Schools GO, Refunding, FGIC Insured, 6.10%, 5/01/13 ............. 2,275,000 2,335,993
West Ottawa Public School District GO,
FGIC Insured, 5.60%, 5/01/21 .......................................................... 2,355,000 2,250,862
FGIC Insured, 5.60%, 5/01/26 .......................................................... 12,100,000 11,433,653
Refunding, FGIC Insured, 6.00%, 5/01/20 ............................................... 6,630,000 6,643,857
Western School District GO, Refunding, MBIA Insured, 5.50%, 5/01/20 ...................... 1,660,000 1,574,676
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding,
FSA Insured,
6.75%, 1/01/15 ........................................................................ 18,710,000 19,230,699
6.50%, 1/01/19 ........................................................................ 4,915,000 5,024,605
Williamston Community School District GO, Building and Site, MBIA Insured,
5.375%, 5/01/15 ....................................................................... 4,900,000 4,729,725
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 ......................... 1,800,000 1,890,108
Wyandotte City School District GO, Refunding, FSA Insured, 5.625%, 5/01/13 ............... 1,800,000 1,805,040
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Wyandotte Electric Revenue, Refunding, MBIA Insured, 6.25%, 10/01/17 .............. $ 9,980,000 $ 10,157,744
Yale Public Schools District GO, AMBAC Insured,
5.375%, 5/01/17 ................................................................ 2,000,000 1,906,120
5.50%, 5/01/19 ................................................................. 1,500,000 1,429,890
Ypsilanti School District GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/20 ..................................... 4,700,000 4,858,202
Refunding, FGIC Insured, 5.375%, 5/01/26 ....................................... 6,750,000 6,138,248
Zeeland Public Schools GO,
FGIC Insured, 5.375%, 5/01/25 .................................................. 6,040,000 5,457,442
Series B, MBIA Insured, Pre-Refunded, 6.10%, 5/01/24 ........................... 4,000,000 4,237,588
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,094,779,090) .............................. 1,093,335,259
--------------
(a) SHORT TERM INVESTMENTS
Flint Hospital Building Authority Revenue, Hurley Medical Center, Series B,
Weekly VRDN and Put, 3.85%, 7/01/15 (COST $200,000) ............................ 200,000 200,000
--------------
TOTAL INVESTMENTS (COST $1,094,979,090) 98.8% ..................................... 1,093,535,259
OTHER ASSETS, LESS LIABILITIES 1.2% ............................................... 13,517,398
--------------
NET ASSETS 100.0% ................................................................. $1,107,052,657
==============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Year Ended February 29,
Class A 2000 1999 1998 1997 1996(d)
- ------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $12.14 $12.16 $12.01 $12.14 $11.88
--------------------------------------------------------
Income from investment operations:
Net investment income ..................................... .59 .61 .64 .65 .67
Net realized and unrealized gains (losses) ................ (.99) .01 .25 (.12) .27
--------------------------------------------------------
Total from investment operations ........................... (.40) .62 .89 .53 .94
--------------------------------------------------------
Less distributions from:
Net investment income ..................................... (.59)(e) (.62)(g) (.64) (.66) (.68)
Net realized gains ........................................ (.02) (.02) (.10) -- --
--------------------------------------------------------
Total distributions ........................................ (.61) (.64) (.74) (.66) (.68)
--------------------------------------------------------
Net asset value, end of year ............................... $11.13 $12.14 $12.16 $12.01 $12.14
========================================================
Total return(b) ............................................ (3.30)% 5.18% 7.60% 4.54% 8.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $451,142 $515,174 $495,315 $482,128 $492,139
Ratios to average net assets:
Expenses .................................................. .66% .67% .65% .66% .66%
Net investment income ..................................... 5.05% 5.01% 5.29% 5.47% 5.58%
Portfolio turnover rate .................................... 15.79% 16.25% 14.87% 14.40% 17.72%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ......................... $12.19 $12.21 $12.05 $12.17 $11.89
--------------------------------------------------------
Income from investment operations:
Net investment income ..................................... .52 .54 .57 .59 .50
Net realized and unrealized gains (losses) ................ (.98) .01 .26 (.12) .28
--------------------------------------------------------
Total from investment operations ........................... (.46) .55 .83 .47 .78
--------------------------------------------------------
Less distributions from:
Net investment income ..................................... (.53)(f) (.55)(g) (.57) (.59) (.50)
Net realized gains ........................................ (.02) (.02) (.10) -- --
--------------------------------------------------------
Total distributions ........................................ (.55) (.57) (.67) (.59) (.50)
--------------------------------------------------------
Net asset value, end of year ............................... $11.18 $12.19 $12.21 $12.05 $12.17
========================================================
Total return(b) ............................................ (3.84)% 4.58% 7.04% 3.98% 6.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................ $21,828 $20,896 $10,131 $4,844 $1,152
Ratios to average net assets:
Expenses .................................................. 1.22% 1.23% 1.22% 1.23% 1.25%(c)
Net investment income ..................................... 4.50% 4.44% 4.72% 4.87% 4.94%(c)
Portfolio turnover rate .................................... 15.79% 16.25% 14.87% 14.40% 17.72%
</TABLE>
(a)Based on average shares outstanding effective February 29, 2000.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(e)Includes distributions in excess of net investment income in the amount of
$.008.
(f)Includes distributions in excess of net investment income in the amount of
$.007.
(g)Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------- ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS 99.3%
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16 ................................. $ 2,295,000 $ 2,356,644
Albert Lea Minnesota ISD No. 241, MBIA Insured, 5.00%, 2/01/18 ............................ 2,000,000 1,784,200
Anoka County Housing and Redevelopment Authority,
City of Ramsey, Housing Development, AMBAC Insured, 5.00%, 1/01/28 ..................... 2,045,000 1,752,340
Ice Arena, Series A, MBIA Insured, 5.70%, 2/01/23 ...................................... 2,195,000 2,118,724
Becker GO, Tax Increment, Refunding, Series D, MBIA Insured, 6.25%, 8/01/15 ............... 4,870,000 4,971,832
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15 ........................................ 290,000 292,793
Big Lake ISD No. 727, MBIA Insured, 5.70%, 2/01/21 ........................................ 3,085,000 3,011,238
Bloomington Health Care Facilities Revenue, Masonic Home Care Center, AMBAC Insured,
5.875%, 7/01/22 ....................................................................... 2,685,000 2,611,592
Brainerd Health Care Facilities Revenue, Benedictine Health St. Joseph, Refunding,
Series D, MBIA Insured, 5.875%, 2/15/13 ............................................... 3,500,000 3,536,470
Buffalo GO,
AMBAC Insured, 5.55%, 6/01/17 .......................................................... 1,000,000 979,280
ISD No. 877, Formerly Wright County ISD No. 23, Refunding, MBIA Insured, 5.00%, 2/01/22. 6,255,000 5,449,481
ISD No. 877, FSA Insured, 6.15%, 2/01/18 ............................................... 2,800,000 2,876,160
Burnsville ISD No. 191, Series A, FSA Insured, 6.20%, 2/01/17 ............................. 2,105,000 2,184,948
Burnsville MFHR, Coventry Center, Refunding, Series A, GNMA Secured, 5.90%, 9/20/19 ....... 400,000 386,936
Burnsville MFR, Coventry Court, Refunding, Series A, GNMA Secured,
5.95%, 9/20/29 ......................................................................... 1,275,000 1,222,024
6.00%, 9/20/34 ......................................................................... 1,000,000 955,230
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26 .......................... 250,000 237,738
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25 ................. 2,975,000 3,004,274
Columbia Heights ISD No. 013, FSA Insured,
5.375%, 2/01/19 ........................................................................ 2,450,000 2,307,116
5.50%, 2/01/23 ......................................................................... 6,000,000 5,678,640
Dakota County Housing and Redevelopment Authority MFHR, Dakota Station Project, GNMA Secured,
5.65%, 1/20/24 ......................................................................... 1,500,000 1,417,380
5.75%, 1/20/41 ......................................................................... 4,500,000 4,156,335
Dakota County Housing and Redevelopment Authority SFMR,
GNMA Secured, FNMA Insured, 5.75%, 4/01/18 ............................................. 2,992,000 2,874,923
GNMA Secured, FNMA Insured, 5.85%, 10/01/30 ............................................ 4,988,000 4,697,748
Refunding, GNMA Secured, 8.10%, 3/01/16 ................................................ 145,000 149,169
Dakota County Housing and Redevelopment Authority, Governmental Housing Revenue,
Eagan Senior Housing Facility, MBIA Insured, 5.40%, 1/01/27 .......................... 1,015,000 930,451
Dakota, Washington and Stearns County SFMR, Series 1990, GNMA Secured,
7.80%, 12/01/10 ........................................................................ 415,000 424,860
7.85%, 12/01/30 ........................................................................ 1,585,000 1,622,216
Duluth EDA, Health Care Facilities Revenue, The Duluth Clinic, Ltd.,
AMBAC Insured, Pre-Refunded,
6.20%, 11/01/12 ........................................................................ 2,880,000 3,033,101
6.30%, 11/01/22 ........................................................................ 7,530,000 7,949,531
Duluth EDA, Hospital Facilities Revenue, St. Lukes Hospital, Series A,
Connie Lee Insured, 6.40%, 5/01/12 .................................................... 3,000,000 3,036,660
Eagan MFHR, Forest Ridge Apartments, Refunding, Series A, GNMA Secured,
5.95%, 9/20/29 ......................................................................... 1,700,000 1,631,575
6.00%, 9/20/34 ......................................................................... 1,480,000 1,413,740
Eden Prairie ISD No. 272, Series A, FSA Insured, Pre-Refunded, 5.75%, 2/01/15 ............. 4,980,000 5,065,009
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31 ....... 2,000,000 2,014,660
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25 ............................ 1,000,000 980,400
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15 ........................................ 1,500,000 1,529,775
Ham Lake GO, Anoka County Housing, Senior Housing Project, Series B,
MBIA Insured, 6.10%, 1/01/26 ......................................................... 2,180,000 2,185,058
Hennepin County GO, Series A, 5.125%, 12/01/19 ............................................ 1,440,000 1,302,941
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured,
Pre-Refunded, 5.00%, 11/01/25 ........................................................ 8,000,000 7,581,920
Hopkins Elderly Housing Revenue, St. Therese Project, Refunding, Series A, GNMA Secured,
5.60%, 11/20/17 ........................................................................ 750,000 723,015
5.70%, 11/20/32 ........................................................................ 3,000,000 2,802,450
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22 ............................... 4,030,000 4,145,097
Lakeville ISD No. 194,
FGIC Insured, 5.40%, 2/01/13 ........................................................... 1,000,000 1,006,610
Series C, MBIA Insured, 5.125%, 2/01/13 ................................................ 4,000,000 3,833,880
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------- ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
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 $ 972,699
Health One Obligated Group, Series A, MBIA Insured, Pre-Refunded, 7.40%, 8/15/11........ 9,890,000 10,225,469
Minneapolis and St. Paul Metropolitan Airport Commission Airport Revenue,
Series A, AMBAC Insured,
5.00%, 1/01/22.......................................................................... 10,000,000 8,674,800
5.20%, 1/01/24.......................................................................... 5,000,000 4,429,700
5.00%, 1/01/30.......................................................................... 22,405,000 18,993,839
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 1,105,020
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01........... 2,100,000 2,153,592
Minneapolis GO, Sports Arena Project, Refunding, 5.20%, 10/01/24............................ 3,750,000 3,344,700
Minneapolis Hospital Facilities Revenue, Fairview Hospital and Healthcare,
Refunding,
Series A, MBIA Insured, 6.50%, 1/01/11.................................................. 600,000 626,016
Series B, MBIA Insured, 6.70%, 1/01/17.................................................. 7,815,000 8,082,273
Minneapolis MFR, Riverside Plaza, Refunding, GNMA Secured, 5.20%, 12/20/30.................. 6,320,000 5,506,237
Minneapolis Revenue University Gateway Project, Series A, 5.25%, 12/01/24................... 3,000,000 2,697,150
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17......... 5,000,000 5,014,500
Minneapolis St. Paul Housing Finance Board SFMR,
Phase VI, Series A, GNMA Secured, 8.30%, 8/01/21........................................ 1,520,000 1,523,162
Series A, GNMA Secured, 8.375%, 11/01/17................................................ 260,000 262,129
Series C, GNMA Secured, 8.875%, 11/01/18................................................ 220,000 221,797
Minnesota Agriculture and Economic Development Board Revenue,
Benedictine Health, Refunding, Series A, MBIA Insured, 5.00%, 2/15/23................... 6,850,000 5,827,021
Benedictine Health, Refunding, Series A, MBIA Insured, 5.125%, 2/15/29.................. 12,250,000 10,440,920
Evangelical Lutheran Good Samaritan, AMBAC Insured, 5.00%, 12/01/23..................... 2,750,000 2,333,815
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/01/22.... 5,180,000 4,588,444
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured,
5.75%, 11/15/26........................................................................ 18,000,000 17,218,620
Minnesota State GO, Refunding, MBIA Insured, 5.40%, 8/01/09................................. 3,000,000 3,017,460
Minnesota State HFA,
Rental Housing, Refunding, Series D, MBIA Insured, 5.90%, 8/01/15....................... 7,070,000 7,085,413
Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18....................... 2,605,000 2,585,020
Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22....................... 3,005,000 2,954,486
SFHR, Series D, 5.45%, 1/01/26.......................................................... 5,000,000 4,477,100
SFMR, Series E, AMBAC Insured, 5.40%, 1/01/25........................................... 9,000,000 8,029,620
SFMR, Series F, MBIA Insured, 6.30%, 7/01/25............................................ 1,470,000 1,484,083
SFMR, Series G, AMBAC Insured, 6.25%, 7/01/26........................................... 2,300,000 2,290,915
SFMR, Series I, MBIA Insured, 6.25%, 1/01/15............................................ 1,365,000 1,385,257
Minnesota State Higher Education Facilities Authority Revenue, Bethel, Refunding,
5.10%, 4/01/28........................................................................ 4,100,000 3,595,126
Minnetonka MFHR,
Brier Creek Project, Refunding, Series A, GNMA Secured, 6.45%, 6/20/24 ................. 2,720,000 2,762,949
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.90%, 10/20/19................. 1,750,000 1,696,503
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.95%, 10/20/29................. 5,955,000 5,699,352
New Hope MFR, North Ridge, Refunding, Series A, GNMA Secured,
6.05%, 1/01/17.......................................................................... 450,000 452,178
6.20%, 1/01/31.......................................................................... 5,470,000 5,482,855
North St. Paul Maplewood ISD No. 622 GO,
Refunding, Series A, 5.125%, 2/01/25.................................................... 2,275,000 1,992,627
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19.................................... 2,000,000 2,177,160
Northeast Metropolitan ISD No. 916 GO, FSA Insured, 5.80%, 1/01/16.......................... 5,475,000 5,497,338
Northern Municipal Power Agency Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12.................................................. 1,780,000 1,698,957
Refunding, FSA Insured, 5.25%, 1/01/17.................................................. 1,000,000 928,270
Refunding, FSA Insured, 5.30%, 1/01/21.................................................. 1,000,000 911,190
Refunding, Series B, AMBAC Insured, 5.50%, 1/01/18...................................... 8,150,000 7,784,065
Series C, AMBAC Insured, 6.125%, 1/01/20................................................ 8,090,000 8,443,371
Owatonna Public Utilities Commission Public Utilities Revenue, Refunding,
Series A, AMBAC Insured, 5.45%, 1/01/16............................................... 3,350,000 3,249,567
Park Rapids ISD No. 309, MBIA Insured, 5.00%, 2/01/25....................................... 9,090,000 7,817,218
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------- ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16............................................................................ $ 1,600,000 $ 1,637,936
6.125%, 6/01/24........................................................................... 1,815,000 1,819,919
Princeton Hospital Revenue, Fairview Hospital and Healthcare,
Series C, MBIA Insured, 6.25%, 1/01/21................................................... 7,205,000 7,245,492
Princeton ISD No. 477, Mille Lacs County, FSA Insured, 5.125%, 2/01/24....................... 2,190,000 1,925,536
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, Pre-Refunded, 6.50%, 7/01/23.. 1,500,000 1,620,450
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22.............. 290,000 298,007
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14................... 1,300,000 1,356,537
Robbinsdale GO, Housing Development, Senior Housing Project,
Series B, FGIC Insured, 5.875%, 1/01/31.................................................. 2,160,000 2,072,369
Robbinsdale Hospital Revenue, North Memorial Medical Center Project,
Refunding, Series A, AMBAC Insured, 5.45%, 5/15/13........................................ 2,000,000 1,966,600
Series B, AMBAC Insured, 5.45%, 5/15/13................................................... 2,900,000 2,851,570
Series B, AMBAC Insured, 5.50%, 5/15/23................................................... 3,900,000 3,629,418
Rochester Health Care Facilities Revenue, Mayo Foundation, Series B, 5.50%, 11/15/27......... 5,000,000 4,551,250
Roseville ISD No. 623, Series A, FSA Insured,
5.80%, 2/01/19............................................................................ 1,200,000 1,194,480
5.85%, 2/01/24............................................................................ 2,470,000 2,441,644
6.00%, 2/01/25............................................................................ 4,260,000 4,268,690
Scott County Housing and Redevelopment Authority Facilities Lease Revenue, AMBAC Insured,
5.25%, 12/01/11........................................................................... 2,380,000 2,349,036
5.50%, 12/01/15........................................................................... 1,750,000 1,706,670
5.70%, 2/01/29............................................................................ 1,380,000 1,294,702
Scott County Housing and Redevelopment Authority GO, Savage City,
Hamilton Apartments Project, AMBAC Insured, 5.70%, 2/01/33............................... 2,285,000 2,137,389
Scott County Housing and Redevelopment Authority Housing Development Revenue,
River City Centre Project, Series A, FSA Insured,
5.375%, 2/01/27........................................................................... 1,520,000 1,376,147
Scott County Housing and Redevelopment Authority MFR, Highview Commons,
Series A, GNMA Secured, 6.20%, 1/20/41................................................... 2,900,000 2,910,962
Scott County Housing and Redevelopment Authority Special Benefits Tax Revenue,
River City Centre Project, Series B, AMBAC Insured,
5.50%, 2/01/27............................................................................ 675,000 622,620
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 1,064,185
Shakopee Public Utilities Commission Public Utilities Revenue, MBIA Insured, 6.00%, 2/01/28.. 2,530,000 2,541,967
South Washington County ISD No. 833 GO, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10... 2,080,000 2,100,946
Southern Minnesota Municipal Power Agency Power Supply System Revenue,
Refunding, Series A, MBIA Insured, ETM, 5.75%, 1/01/18.................................... 1,000,000 982,160
Series A, AMBAC Insured, 5.75%, 1/01/18................................................... 2,250,000 2,210,445
Series A, FGIC Insured, 5.75%, 1/01/18.................................................... 1,000,000 982,420
Series A, MBIA Insured, 5.00%, 1/01/12.................................................... 5,975,000 5,702,301
Series A, MBIA Insured, 5.75%, 1/01/18.................................................... 8,865,000 8,709,153
Series B, AMBAC Insured, 6.00%, 1/01/16................................................... 5,000,000 5,053,650
Series C, AMBAC Insured, 5.00%, 1/01/17................................................... 1,000,000 892,930
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding,
Series A, AMBAC Insured, 5.00%, 7/01/15................................................... 1,165,000 1,058,496
Series C, AMBAC Insured, 5.30%, 10/01/20.................................................. 1,230,000 1,109,645
St. Cloud Housing and RDA, Sales Tax Revenue, Paramount Theater Project, Refunding,
Series A, FGIC Insured, 5.00%, 3/01/22................................................... 1,250,000 1,074,350
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13............................................................................ 1,500,000 1,571,985
6.375%, 2/01/16........................................................................... 5,465,000 5,734,097
St. Louis Park Health Care Facilities Revenue, Health System of Minnesota Obligated Group,
Refunding, Series A, AMBAC Insured, 5.20%,
7/01/16................................................................................... 1,000,000 917,080
7/01/23................................................................................... 9,000,000 7,908,120
St. Louis Park Hospital Facilities Revenue, Methodist Hospital Project, Refunding,
Series A, AMBAC Insured, 7.25%,
7/01/08................................................................................... 4,115,000 4,231,200
7/01/15................................................................................... 1,000,000 1,028,210
St. Paul Housing and Redevelopment Authority Parking Revenue,
Series A, FSA Insured, 5.75%, 8/01/13.................................................... 5,105,000 5,156,612
St. Paul ISD No. 625 COP, Series C, MBIA Insured, 6.10%,
2/01/14................................................................................... 1,075,000 1,093,963
2/01/15................................................................................... 500,000 507,590
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------- ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
St. Paul ISD No. 625 GO,
Series A, FSA Insured, 5.75%, 2/01/16.................................................... $ 3,500,000 $ 3,508,680
Series C, FSA Insured, 6.00%, 2/01/20.................................................... 1,600,000 1,614,176
St. Paul Port Authority IDR, Series K, FGIC Insured, 9.50%,
12/01/01................................................................................. 5,000 5,039
12/01/02................................................................................. 5,000 5,032
12/01/14................................................................................. 190,000 172,307
Stillwater ISD No. 834 GO, MBIA Insured, 5.75%, 2/01/15 2,990,000 3,046,063
Todd Morrisson and Stearns Counties ISD No. 2753 GO, MBIA Insured, 5.00%, 4/01/17........... 1,500,000 1,349,910
Virginia Governmental Housing Project GO, Refunding, MBIA Insured, 5.90%, 2/01/26........... 2,915,000 2,824,635
Washington County Housing and RDAR, Government Housing, Landfall Terrace Project, Refunding,
5.35%, 2/01/22........................................................................... 1,000,000 910,550
5.40%, 8/01/27........................................................................... 2,015,000 1,828,794
Washington County SFMR, Housing and RDA, GNMA Secured, 7.60%, 12/01/11...................... 80,000 80,064
Western Minnesota Municipal Power Agency Power Supply Revenue, Refunding, Series A,
AMBAC Insured, 5.50%, 1/01/12............................................................ 2,745,000 2,760,372
AMBAC Insured, 5.50%, 1/01/13............................................................ 4,500,000 4,487,355
MBIA Insured, 5.50%, 1/01/15............................................................. 5,425,000 5,258,887
Western Minnesota Municipal Power Agency Transmission Project Revenue, Refunding,
AMBAC Insured, 6.75%, 1/01/16........................................................... 2,000,000 2,056,520
Worthington ISD No. 518 GO, Series A, FSA Insured, 5.00%, 2/01/24........................... 5,675,000 4,900,930
------------
TOTAL LONG TERM INVESTMENTS ( COST $486,554,868)............................................ 469,684,390
------------
(a)SHORT TERM INVESTMENTS .1%
Minneapolis Convention Center, Weekly VRDN and Put, 3.75%, 12/01/18......................... 210,000 210,000
Minneapolis GO, Series B, Weekly VRDN and Put, 3.75%, 12/01/07.............................. 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $410,000)................................................ 410,000
------------
TOTAL INVESTMENTS (COST $486,964,868) 99.4%................................................. 470,094,390
OTHER ASSETS, LESS LIABILITIES .6%.......................................................... 2,876,035
------------
NET ASSETS 100.0%........................................................................... $472,970,425
============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
CLASS A 2000(d) 1999 1998 1997 1996
- ------- ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year.................... $12.49 $12.45 $12.19 $12.22 $11.90
------------------------------------------------------------------------
Income from investment operations:
Net investment income................................ .61 .62 .64 .66 .68
Net realized and unrealized gains (losses)........... (.95) .07 .33 (.03) .33
------------------------------------------------------------------------
Total from investment operations...................... (.34) .69 .97 .63 1.01
------------------------------------------------------------------------
Less distributions from:
Net investment income................................ (.61)(e) (.62) (.64)(f) (.66)(g) (.69)(h)
Net realized gains................................... (.02) (.03) (.07) -- --
------------------------------------------------------------------------
Total distributions................................... (.63) (.65) (.71) (.66) (.69)
------------------------------------------------------------------------
Net asset value, end of year.......................... $11.52 $12.49 $12.45 $12.19 $12.22
========================================================================
Total return(b)....................................... (2.80)% 5.63% 8.22% 5.35% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)....................... $689,084 $776,592 $741,079 $698,360 $685,783
Ratios to average net assets:
Expenses............................................. .64% .65% .64% .64% .64%
Net investment income................................ 5.07% 4.98% 5.24% 5.43% 5.58%
Portfolio turnover rate............................... 9.61% 6.56% 12.84% 14.95% 11.47%
CLASS B
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the period)
Net asset value, beginning of period.................. $11.43
------
Income from investment operations:
Net investment income................................ .05
Net realized and unrealized gains.................... .09
------
Total from investment operations...................... .14
------
Less distributions from net investment income......... (.05)
------
Net asset value, end of period........................ $11.52
======
Total return(b)....................................... 1.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..................... $76
Ratio to average net assets:
Expenses............................................. 1.20%(c)
Net investment income................................ 5.02%(c)
Portfolio turnover rate............................... 9.61%
</TABLE>
(a)Based on average shares outstanding effective February 29, 2000.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e)Includes distributions in excess of net investment income in the amount of
$.002.
(f)Includes distributions in excess of net investment income in the amount of
$.007.
(g)Includes distributions in excess of net investment income in the amount of
$.003.
(h)Includes distributions in excess of net investment income in the amount of
$.001.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
CLASS C 2000 1999 1998 1997 1996(d)
- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(a)
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $12.56 $12.51 $12.24 $12.26 $11.90
--------------------------------------------------------------
Income from investment operations:
Net investment income ................................. .54 .55 .58 .59 .52
Net realized and unrealized gains (losses) ............ (.96) .08 .34 (.02) .35
--------------------------------------------------------------
Total from investment operations ...................... (.42) .63 .92 .57 .87
--------------------------------------------------------------
Less distributions from:
Net investment income ................................. (.54)(e) (.55) (.58) (.59) (.51)
Net realized gains .................................... (.02) (.03) (.07) -- --
--------------------------------------------------------------
Total distributions .................................... (.56) (.58) (.65) (.59) (.51)
--------------------------------------------------------------
Net asset value, end of year ........................... $11.58 $12.56 $12.51 $12.24 $12.26
==============================================================
Total return(b) ........................................ (3.41)% 5.10% 7.66% 4.79% 7.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $40,181 $42,258 $28,178 $15,786 $6,085
Ratios to average net assets:
Expenses .............................................. 1.20% 1.21% 1.20% 1.20% 1.22%(c)
Net investment income ................................. 4.52% 4.42% 4.67% 4.80% 4.99%(c)
Portfolio turnover rate ................................ 9.61% 6.56% 12.84% 14.95% 11.47%
</TABLE>
(a)Based on average shares outstanding effective February 29, 2000.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
(e)Includes distributions in excess of net investment income in the amount of
$.002.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS 98.5%
Akron Bath Copley Joint Township Hospital Revenue, Akron General Medical Center Project,
Refunding, AMBAC Insured, 5.375%,
1/01/17 ................................................................................. $ 1,000,000 $ 943,360
1/01/22 ................................................................................. 1,500,000 1,366,245
1/01/27 ................................................................................. 1,000,000 890,320
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 ........................................ 500,000 557,630
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 ....................... 3,660,000 3,543,429
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 ............... 1,000,000 1,018,090
Allen County GO, Refunding, AMBAC Insured, 5.30%, 12/01/15 ................................. 1,250,000 1,198,375
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 .................................. 1,200,000 1,205,808
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 .......................................................... 2,000,000 2,006,520
Refunding, MBIA Insured, 5.90%, 12/01/11 ................................................ 600,000 606,960
Aurora City School District COP, MBIA Insured,
6.10%, 12/01/19 ......................................................................... 1,825,000 1,849,200
6.15%, 12/01/24 ......................................................................... 1,670,000 1,684,178
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%, 12/01/16 ... 1,075,000 1,078,881
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 ................................. 2,500,000 2,512,000
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 ........................ 8,375,000 8,155,659
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 ............................. 2,295,000 2,422,717
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 ........................................... 1,000,000 1,000,520
Butler County Hospital Facilities Revenue, Middletown Regional Hospital,
Refunding and Improvement, FGIC Insured, 6.75%, 11/15/10 ............................... 2,150,000 2,254,963
Butler County Transportation Improvement, Series A, FSA Insured, 5.125%, 4/01/17 ........... 2,000,000 1,840,580
Butler County Waterworks Revenue, AMBAC Insured,
5.45%, 12/01/16 ......................................................................... 1,000,000 977,370
Pre-Refunded, 6.35%, 12/01/08 ........................................................... 790,000 828,829
Pre-Refunded, 6.40%, 12/01/12 ........................................................... 500,000 525,210
Canal Winchester Local School District GO, FGIC Insured, 5.30%, 12/01/25 ................... 5,455,000 4,910,918
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 ................ 400,000 419,308
Celina Wastewater System Mortgage Revenue, FGIC Insured, Pre-Refunded, 6.55%, 11/01/16 ..... 1,200,000 1,247,064
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 ................................ 675,000 696,776
Claymont City School District, FGIC Insured, 5.70%, 12/01/21 ............................... 1,000,000 969,620
Clermont County Hospital Facilities Revenue, Mercy Health System,
Refunding, Series B, AMBAC Insured, 6.00%, 9/01/19 ...................................... 1,750,000 1,754,848
Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/19 ................................... 515,000 535,955
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 .............. 11,000,000 10,998,900
Cleveland Airport Systems Revenue,
Series A, FGIC Insured, 6.25%, 1/01/20 .................................................. 3,000,000 3,030,240
Series A, FSA Insured, 5.125%, 1/01/27 .................................................. 5,900,000 5,061,610
Series B, FGIC Insured, Pre-Refunded, 6.10%, 1/01/24 .................................... 1,450,000 1,531,954
Cleveland GO, Series 1994, MBIA Insured, Pre-Refunded, 6.70%, 11/15/18 ..................... 2,000,000 2,177,640
Cleveland Waterworks Revenue,
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 ...................................... 2,000,000 2,044,040
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/28 ........................ 20,000,000 16,904,800
Series F-92A, AMBAC Insured, Pre-Refunded, 6.25%, 1/01/15 ............................... 1,000,000 1,044,600
Series H, MBIA Insured, Pre-Refunded, 5.75%, 1/01/26 .................................... 17,400,000 18,195,180
Clinton-Massie Local School District, Issue I, AMBAC Insured, Pre-Refunded, 7.50%, 12/01/11. 1,000,000 1,065,580
Columbiana County, Refunding, FSA Insured, 5.25%, 12/01/24 ................................. 1,000,000 893,230
Columbus GO, Limited Tax, FGIC Insured, 9.50%, 4/15/03 ..................................... 975,000 1,105,796
Columbus Municipal Airport Authority Revenue, Airport Improvement,
Port Columbus International, Series B, AMBAC Insured,
5.00%, 1/01/18 ......................................................................... 3,815,000 3,392,832
Columbus Tax Increment Financing Revenue, Easton Project, AMBAC Insured, 5.30%, 12/01/19 ... 2,500,000 2,304,300
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 .................................. 1,530,000 1,615,145
Crestview Local School District GO, Construction and Improvement,
AMBAC Insured, 6.65%, 12/01/14 ......................................................... 1,650,000 1,748,984
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 ............................ 100,000 118,235
Cuyahoga County Hospital Revenue,
Metrohealth System Project, Refunding and Improvement, MBIA Insured, 5.50%, 2/15/27 ..... 3,915,000 3,572,398
University Hospitals Health System Inc., Refunding, AMBAC Insured, 5.40%, 1/15/19 ....... 2,500,000 2,337,100
University Hospitals Health System Inc., Refunding, AMBAC Insured, 5.50%, 1/15/30 ....... 4,000,000 3,661,400
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Cuyahoga County Utility System Revenue,
AMBAC Insured, 5.125%, 2/15/28............................................................ $ 1,500,000 $ 1,292,385
Medical Center Co. Project, Refunding, Series B, MBIA Insured, 6.10%, 8/15/15............. 2,945,000 2,979,987
Dayton Airport Revenue, Refunding, AMBAC Insured, 5.25%, 12/01/15............................ 2,000,000 1,913,100
Defiance GO, MBIA Insured,
6.10%, 12/01/14........................................................................... 1,000,000 1,025,410
6.20%, 12/01/20........................................................................... 750,000 761,040
Delaware City School District, FGIC Insured, 5.75%, 12/01/15................................. 1,640,000 1,644,379
Dover City School District, AMBAC Insured, 6.25%, 12/01/16................................... 2,000,000 2,075,440
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19....................... 1,625,000 1,634,653
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13............................. 1,100,000 1,125,564
East Liverpool Hospital Revenue, East Liverpool City Hospital Project,
Series B, FSA Insured, 5.00%, 10/01/21................................................... 1,000,000 862,490
Edgewood City School District GO, Refunding, Series A, MBIA Insured, 5.25%, 12/01/25......... 6,575,000 5,853,197
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11......................... 1,390,000 1,481,559
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20............................. 1,000,000 1,003,740
Fairfield County GO, FGIC Insured, 5.25%, 6/01/24............................................ 4,220,000 3,773,440
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24.............................. 1,980,000 1,931,569
Forest Hills Local School District, MBIA Insured, 5.70%, 12/01/16............................ 1,500,000 1,493,445
Fostoria City School District GO, AMBAC Insured, Pre-Refunded, 6.70%, 12/01/16............... 2,500,000 2,667,100
Franklin County Hospital Revenue, Holy Cross Health Systems, AMBAC Insured, 5.875%, 6/01/21.. 2,500,000 2,433,250
Green County Sewer System Revenue, Governmental Enterprise, MBIA Insured, 5.25%, 12/01/25.... 6,000,000 5,341,320
Green County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21.................. 2,100,000 2,118,921
Green Local School District GO, Summit County, FGIC Insured, Pre-Refunded,
5.875%, 12/01/14.......................................................................... 2,800,000 2,953,720
5.90%, 12/01/19........................................................................... 5,150,000 5,438,091
Hamilton City Electric System Mortgage Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 10/15/23........................................ 11,450,000 11,458,244
Series B, FGIC Insured, 6.30%, 10/15/25................................................... 2,340,000 2,381,886
Hamilton County Hospital Facilities Revenue,
Bethesda Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 1/01/12..................... 3,650,000 3,795,672
Children's Hospital Medical Center, Series G, MBIA Insured, 5.00%, 5/15/23................ 5,000,000 4,266,500
Hamilton County Sewer System Revenue, Refunding, Series A, FGIC Insured, 6.05%, 12/01/15..... 3,010,000 3,065,474
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21........................................................................... 3,040,000 3,021,426
5.20%, 10/15/23........................................................................... 7,525,000 6,708,688
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21................ 4,665,000 4,732,176
Hillard School District GO, Refunding, FGIC Insured, 6.55%,
12/01/05.................................................................................... 500,000 539,785
Hudson Local School District GO, Refunding, FGIC Insured, 5.60%, 12/15/14.................... 2,750,000 2,741,530
Indian Lake Local School District GO, Construction and Improvement,
FGIC Insured, 5.375%, 12/01/23.......................................................... 1,000,000 915,430
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22................................. 1,000,000 941,830
Jackson Local School District GO, Stark and Summit Counties School
Building, Construction and Improvement, MBIA Insured,
5.40%, 12/01/13........................................................................... 2,750,000 2,713,040
5.50%, 12/01/21........................................................................... 3,060,000 2,892,924
Kent State University Revenues, General Receipts,
AMBAC Insured, Pre-Refunded, 6.45%, 5/01/12............................................... 1,195,000 1,258,263
MBIA Insured, 5.50%, 5/01/28.............................................................. 5,920,000 5,466,765
Kettering City School District, FGIC Insured, 5.25%, 12/01/22................................ 1,000,000 899,480
Lake County Hospital Facilities Revenue, Lake Hospital System Inc.,
AMBAC Insured, 5.00%, 8/15/23............................................................ 7,500,000 6,394,875
Lake Local School District GO, Stark County, AMBAC Insured, 6.25%, 12/01/09.................. 1,000,000 1,048,440
Lakota Local District GO, AMBAC Insured, Pre-Refunded, 6.125%, 12/01/17...................... 3,200,000 3,371,008
Licking Valley Local School GO, MBIA Insured, 5.00%, 12/01/25................................ 3,000,000 2,556,690
Lincolnview Local School District, FGIC Insured, 5.50%, 12/01/25............................. 4,225,000 3,949,361
Lorain County Health Facilities Revenue, Catholic Healthcare Partners,
Series A, AMBAC Insured, 5.50%, 9/01/29................................................. 6,250,000 5,700,063
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding,
Series B, MBIA Insured, 5.50%, 9/01/27................................................... 11,250,000 10,327,500
Loveland City School District GO, Refunding, Series A, MBIA Insured, 5.00%, 12/01/24......... 6,000,000 5,134,860
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06.................................................................................. 120,000 138,746
12/01/08.................................................................................. 110,000 130,218
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Lucas County GO, Limited Tax, FGIC Insured, 8.00%, (cont.)
12/01/09................................................................................. $ 120,000 $ 143,384
12/01/10................................................................................. 220,000 265,542
Lucas County Hospital Revenue,
Promedica Healthcare Obligation Group, AMBAC Insured, 5.375%, 11/15/29................... 2,000,000 1,784,500
Promedica Healthcare Obligation, Refunding, MBIA Insured, 5.75%, 11/15/14................ 5,000,000 5,040,350
St. Vincent Medical Center, Refunding, Series B, MBIA Insured, 5.25%, 8/15/20............ 3,500,000 3,177,650
Mahoning County GO, Bridge Improvement,
Limited Tax, AMBAC Insured, 7.20%, 12/01/09.............................................. 1,500,000 1,538,520
Unlimited Tax, AMBAC Insured, 7.15%, 12/01/04............................................ 1,500,000 1,538,910
Mahoning County Hospital Facilities Revenue,
Western Reserve Care, MBIA Insured, ETM, 5.50%, 10/15/25................................. 4,750,000 4,476,353
Youngstown Hospital Inc. Project, Series B, MBIA Insured, Pre-Refunded, 7.00%, 10/15/08.. 2,000,000 2,108,860
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project,
AMBAC Insured, 6.70%, 12/01/09........................................................ 2,500,000 2,621,350
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07...................... 1,000,000 1,025,730
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21....................................... 3,875,000 3,874,574
Marysville Exempt Village School District GO,
MBIA Insured, 5.75%, 12/01/23............................................................ 1,000,000 970,930
(b)School Improvement, AMBAC Insured, 6.00%, 12/01/29.................................... 1,500,000 1,497,765
Marysville Water Systems, Refunding, AMBAC Insured,
5.40%, 12/01/13.......................................................................... 1,000,000 982,790
5.50%, 12/01/18.......................................................................... 1,500,000 1,442,205
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19................................... 1,935,000 1,945,043
Maumee Hospital Revenue, St. Luke's Hospital Project, Refunding,
AMBAC Insured, 5.80%, 12/01/14.......................................................... 2,755,000 2,779,161
Medina City School District GO, FGIC Insured, 5.25%, 12/01/28................................ 4,000,000 3,536,400
Mentor Exempt Village School District, MBIA Insured,
5.375%, 12/01/11......................................................................... 1,000,000 999,480
6.625%, 12/01/13......................................................................... 2,000,000 2,099,420
Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Nursing Care Inc.,
Series B, MBIA Insured, 6.50%, 5/01/21.................................................. 1,340,000 1,384,970
Middleburg Heights Hospital Revenue, Southwest General Health Center,
Refunding, FSA Insured, 5.75%, 8/15/21.................................................. 1,500,000 1,446,270
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities,
MBIA Insured,
7.40%, 4/01/09........................................................................... 12,510,000 12,661,121
5.50%, 4/01/26........................................................................... 2,000,000 1,829,640
Montgomery County Revenue,
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/12............... 1,600,000 1,662,352
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/16............... 3,250,000 3,309,085
Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%, 5/15/21.................. 1,565,000 1,624,736
Muskingum County GO,
County Office Building Improvement, AMBAC Insured, 7.20%, 12/01/10....................... 1,000,000 1,035,950
Justice Center Improvement, AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17................ 1,695,000 1,794,293
New Lexington HDC, Mortgage Revenue, Lincoln Park, Refunding,
Series A, MBIA Insured, 5.85%, 1/01/21.................................................. 1,045,000 1,009,543
New Philadelphia City School District GO, School Improvement,
AMBAC Insured, 6.25%, 12/01/17.......................................................... 2,000,000 2,026,340
New Richmond Exempt Village School District GO, AMBAC Insured, 7.125%, 9/01/09.............. 1,500,000 1,525,110
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12............................................ 3,800,000 3,988,898
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17................... 2,900,000 3,036,010
Northwest Local School District GO,
Hamilton County, FGIC Insured, 5.15%, 12/01/22........................................... 3,400,000 3,016,616
Scioto County, AMBAC Insured, Pre-Refunded, 7.05%, 12/01/14.............................. 2,000,000 2,116,260
Oak Hills Local School District GO, MBIA Insured, 5.45%, 12/01/21........................... 5,000,000 4,696,750
Ohio Capital Corp. HMR,
Refunding, Series G, MBIA Insured, 6.35%, 7/01/22........................................ 2,000,000 2,023,220
Refunding, Series H, MBIA Insured, 6.90%, 7/01/24........................................ 4,215,000 4,301,281
Refunding, Series J, MBIA Insured, 6.50%, 1/01/25........................................ 3,500,000 3,545,185
Westview Apartments, Refunding, Series A, MBIA Insured, 6.125%, 1/01/15.................. 1,625,000 1,646,060
Westview Apartments, Refunding, Series A, MBIA Insured, 6.25%, 1/01/23................... 2,565,000 2,584,545
Ohio HFA,
MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25.............................. 750,000 790,125
MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32............... 2,035,000 1,876,962
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Ohio HFA, (cont.)
RMR, Series A-1, GNMA Secured, 5.40%, 9/01/29 .......................................... $ 3,000,000 $ 2,669,940
SFMR, Series B, GNMA Secured, 7.40%, 9/01/15 ........................................... 415,000 423,972
SFMR, Series C, GNMA Secured, 7.85%, 9/01/21 ........................................... 1,025,000 1,054,049
SFMR, Series D, GNMA Secured, 7.50%, 9/01/13 ........................................... 685,000 703,605
SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ........................................... 2,795,000 2,863,338
SFMR, Series I, GNMA Secured, 7.60%, 9/01/16 ........................................... 1,825,000 1,874,987
Ohio Municipal Electric Generation Agency Joint Venture 5,
Certificates of Beneficial Interest, AMBAC Insured,
5.625%, 2/15/16 ........................................................................ 13,000,000 12,831,390
5.375%, 2/15/24 ........................................................................ 7,680,000 7,037,491
Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas and Electric, Refunding, Series B, MBIA Insured, 5.45%, 1/01/24 ........ 5,000,000 4,659,250
Columbus and Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 .................. 4,000,000 4,097,080
JMG Funding LP Project, AMBAC Insured, 5.625%, 10/01/22 ................................ 6,875,000 6,461,125
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 1/01/29 ...................... 1,230,000 1,246,703
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 4/01/29 ...................... 15,245,000 15,452,027
Ohio Power Co., Refunding, Series C, AMBAC Insured, 5.15%, 5/01/26 ..................... 7,500,000 6,576,975
PCR, Ohio Edison, Refunding, Series A, FGIC Insured, 7.45%, 3/01/16 .................... 1,000,000 1,020,000
PCR, Ohio Edison, Refunding, Series B, AMBAC Insured, 5.625%, 11/15/29 ................. 5,400,000 5,035,554
PCR, Pennsylvania Power Co., Refunding, Series A, AMBAC Insured, 6.45%, 5/01/27 ........ 7,000,000 7,131,810
Ohio State Building Authority Revenue, Adult Correctional Facilities, Series A,
AMBAC Insured, 5.60%, 4/01/16 .......................................................... 2,000,000 1,948,240
MBIA Insured, 6.125%, 10/01/13 ......................................................... 13,000,000 13,384,930
Ohio State Department of Transportation COP, Panhandle Rail Line Project,
FSA Insured, 6.50%, 4/15/12 .......................................................... 1,100,000 1,146,838
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ............. 5,000,000 4,840,400
Ohio State Higher Educational Facility Commission Revenue,
Higher Educational Facility Oberlin College, Refunding, AMBAC Insured, 5.00%, 10/01/26.. 5,000,000 4,245,950
University Dayton Project, FGIC Insured, 5.80%, 12/01/14 ............................... 1,300,000 1,309,958
University Dayton Project, FGIC Insured, 6.75%, 12/01/15 ............................... 1,725,000 1,808,766
Xavier University Higher Educational Facility, MBIA Insured, 5.375%, 5/15/22 ........... 5,000,000 4,607,400
Ohio State Turnpike Commission Turnpike Revenue, Series A,
FGIC Insured, Pre-Refunded, 5.75%, 2/15/24 ............................................. 1,000,000 1,045,210
MBIA Insured, Pre-Refunded, 5.50%, 2/15/26 ............................................. 16,400,000 16,949,892
Ohio State University General Receipts Revenue, Athens, FSA Insured, 5.00%, 12/01/24 ...... 3,025,000 2,588,825
Ohio State Water Development Authority PCR, Facilities Revenue,
Pennsylvania Power Co. Project, Refunding, AMBAC Insured, 6.15%, 8/01/23 ............... 3,420,000 3,450,370
Water Control Loan Fund, Water Quality Series, MBIA Insured, 5.125%, 6/01/19 ........... 5,000,000 4,514,650
Ohio State Water Development Authority Revenue,
Cincinnati Gas, Refunding, Series A, MBIA Insured, 5.45%, 1/01/24 ...................... 4,000,000 3,727,400
Dayton Power, Refunding, Series A, AMBAC Insured, 6.40%, 8/15/27 ....................... 5,000,000 5,090,550
Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 .................................... 8,750,000 8,696,100
Pure Water, Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 .................. 1,000,000 1,006,540
Pure Water, Refunding and Improvement, AMBAC Insured, ETM, 5.50%, 12/01/18 ............. 4,450,000 4,278,542
Pure Water, Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 .............................. 2,000,000 2,170,300
Olentangy Local School District GO, BIG Insured, 7.75%,
12/01/08 ............................................................................... 375,000 440,021
12/01/09 ............................................................................... 375,000 444,180
12/01/10 ............................................................................... 375,000 447,443
Olmsted Falls Local School District, FGIC Insured,
5.85%, 12/15/17 ........................................................................ 1,500,000 1,504,830
Pre-Refunded, 7.05%, 12/15/11 .......................................................... 1,000,000 1,058,950
Ontario Local School District GO, FSA Insured, 5.125%, 12/01/18 ........................... 4,000,000 3,613,040
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 ................ 1,150,000 1,166,652
Ottawa County GO, Catawba Isle, AMBAC Insured, Pre-Refunded, 7.00%, 9/01/11 ............... 1,500,000 1,572,990
Ottawa County Sewer System Revenue, Danbury Project, Refunding,
AMBAC Insured, 5.50%, 10/01/14 ........................................................ 1,950,000 1,942,181
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 ....................................................................... 3,240,000 3,297,672
5.65%, 12/01/15 ........................................................................ 4,490,000 4,466,428
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Perrysburg Exempt Village School District,
AMBAC Insured, 6.00%, 12/01/15 ......................................................... $ 2,000,000 $ 2,027,860
Series B, FSA Insured, 5.00%, 12/01/25 ................................................. 5,000,000 4,261,150
Pickerington Local School District GO,
AMBAC Insured, 5.00%, 12/01/25 ......................................................... 8,335,000 7,103,337
Refunding, AMBAC Insured, 5.55%, 12/01/07 .............................................. 1,000,000 1,020,580
Powell Village GO, Series A, MBIA Insured, 5.60%, 12/01/22 ................................. 445,000 424,610
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 ............................................................ 3,000,000 2,826,300
Refunding, MBIA Insured, 5.75%, 7/01/24 ................................................ 2,000,000 1,986,860
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, 5.50%, 7/01/21 .... 4,000,000 3,844,400
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ................. 11,000,000 11,032,230
Revere Local School District GO, AMBAC Insured, 6.00%, 12/01/16 ............................ 1,600,000 1,619,168
Reynoldsburg City School District GO, Refunding, FGIC Insured, 5.45%, 12/01/17 ............. 4,075,000 3,922,228
Rural Lorain County Water Authority, Water Resource Revenue Improvement,
AMBAC Insured, 5.875%, 10/01/24 ....................................................... 3,100,000 3,026,995
Salem GO, AMBAC Insured, 6.50%, 12/01/06 ................................................... 2,000,000 2,165,020
South Range Local School District GO, MBIA Insured, 6.15%, 12/01/18 ........................ 700,000 710,045
Southwest Regional Water District Revenue, MBIA Insured, 6.00%,
12/01/15 ............................................................................... 1,000,000 1,013,710
12/01/20 ............................................................................... 700,000 702,618
South-Western City School District of Ohio Franklin and Pickway Counties GO,
FGIC Insured, ETM, 7.875%,
12/01/04 ............................................................................... 550,000 616,237
12/01/06 ............................................................................... 600,000 690,990
12/01/07 ............................................................................... 600,000 699,930
St. Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 ............... 600,000 629,454
St. Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ............................. 750,000 786,818
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 ................................ 2,775,000 2,747,306
Steubenville City School District, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 12/01/17.. 2,075,000 2,205,829
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 ............................ 1,750,000 1,848,315
Summit County GO, Limited Tax, Refunding, Series B, AMBAC Insured, 6.95%, 8/01/08 ......... 400,000 417,880
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 .............................. 4,830,000 4,698,189
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 ......................................................... 3,715,000 3,772,100
AMBAC Insured, 6.00%, 12/01/16 ......................................................... 1,000,000 1,017,580
FGIC Insured, 7.375%, 12/01/00 ......................................................... 500,000 510,915
FGIC Insured, 7.375%, 12/01/02 ......................................................... 400,000 425,832
FGIC Insured, 7.375%, 12/01/03 ......................................................... 650,000 702,975
FGIC Insured, 7.375%, 12/01/04 ......................................................... 650,000 712,121
FGIC Insured, 7.375%, 12/01/05 ......................................................... 650,000 720,038
FGIC Insured, 7.375%, 12/01/06 ......................................................... 625,000 697,294
Trumbull County Hospital Revenue, Refunding and Improvement,
Series A, FGIC Insured, Pre-Refunded, 6.25%, 11/15/12 .................................. 1,000,000 1,047,500
Series B, FGIC Insured, Pre-Refunded, 6.90%, 11/15/12 .................................. 2,000,000 2,109,880
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 .............................. 4,000,000 4,193,480
University of Akron General Receipts, FGIC Insured,
5.70%, 1/01/24 ......................................................................... 7,300,000 7,050,413
5.75%, 1/01/29 ......................................................................... 1,500,000 1,438,815
University of Cincinnati COP, MBIA Insured, Pre-Refunded, 6.75%, 12/01/09 ................. 1,600,000 1,685,056
University of Cincinnati General Receipt,
Series AD, MBIA Insured, 5.125%, 6/01/20 ............................................... 1,500,000 1,335,930
Series W, MBIA Insured, 5.85%, 6/01/16 ................................................. 1,630,000 1,640,334
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 ................ 6,000,000 5,490,720
University of Toledo General Receipt, Refunding, Series A, FGIC Insured, 5.90%, 6/01/20 ... 5,500,000 5,480,090
Upper Arlington County School District GO, MBIA Insured, 5.25%, 12/01/22 .................. 5,000,000 4,497,400
Urbana Wastewater Treatment Plant GO, Improvement, AMBAC Insured, 7.05%, 12/01/11 ......... 1,000,000 1,069,860
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 .............................. 1,400,000 1,517,166
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Warren GO,
MBIA Insured, Pre-Refunded, 6.65%, 11/01/12 ............................................. $ 2,415,000 $ 2,601,245
Refunding, AMBAC Insured, 5.50%, 11/15/13 ............................................... 1,015,000 1,011,042
Wausen Exempt Village School District GO, Refunding and School Improvements,
MBIA Insured, 5.50%, 12/01/17 .......................................................... 1,800,000 1,742,418
Wayne Local School District GO, Warren County, AMBAC Insured, 6.10%, 12/01/24 ............... 1,800,000 1,811,916
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 5,279,091
Wilmington City School District GO, FGIC Insured, 6.30%, 12/01/14 ........................... 2,000,000 2,086,620
Wilmington Water Revenue, First Mortgage System, AMBAC Insured, 6.00%, 6/15/21 .............. 2,510,000 2,517,856
Woodmore Local School District GO, Refunding, AMBAC Insured, 5.65%, 12/01/08 ................ 500,000 510,755
Wooster City School District GO, AMBAC Insured, Pre-Refunded, 6.50%, 12/01/17 ............... 8,700,000 9,237,312
Worthington City School District GO, Refunding, FGIC Insured, 6.375%, 12/01/12 .............. 2,350,000 2,459,651
Youngstown State University General Receipts, AMBAC Insured, Pre-Refunded, 6.00%, 12/15/16 .. 2,250,000 2,385,945
------------
TOTAL LONG TERM INVESTMENTS (COST $728,878,807) ............................................. 718,632,163
------------
(a)SHORT TERM INVESTMENT .4%
Ohio State Air Quality Development Authority Revenue, Cincinnati Gas and Electric,
Refunding, Series A, Daily VRDN and Put, 3.75%,
9/01/30 (COST $2,900,000) ............................................................... 2,900,000 2,900,000
------------
TOTAL INVESTMENTS (COST $731,778,807) 98.9% ................................................ 721,532,163
OTHER ASSETS, LESS LIABILITIES 1.1% ........................................................ 7,808,733
------------
NET ASSETS 100.0% .......................................................................... $729,340,896
============
</TABLE>
See glossary of terms on page 94.
(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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
- -----------------
<S> <C>
AMBAC - American Municipal Bond Assurance Corp.
BART - Bay Area Rapid Transit
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989 and no longer does business under this name).
CDA - Community Development Authority/Agency
CDD - Community Development District
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
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
IDB - Industrial Development Board
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
MUD - Municipal Utility District
PBA - Public Building Authority
PCC - Pollution Control Corporation
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFM - Single Family Mortgage
SFHR - Single Family Housing Revenue
SFMR - Single Family Mortgage Revenue
UHSD - Unified High School District
USD - Unified School District
VRDN - Variable Rate Demand Notes
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED FRANKLIN MASSACHUSETTS
TAX-FREE TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost .................................................. $75,855,657 $110,987,249 $ 1,516,627,349 $345,894,280
==================================================================
Value ................................................. 72,128,323 107,402,293 1,488,307,171 338,124,599
Cash ................................................... 52,291 97,994 16,348 28,243
Receivables:
Capital shares sold ................................... 6,717 2,482 402,160 251,872
Interest .............................................. 806,983 1,887,537 22,045,842 4,497,579
-----------------------------------------------------------------
Total assets ............................................ 72,994,314 109,390,306 1,510,771,521 342,902,293
-----------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ....................... -- -- -- 7,587,773
Capital shares redeemed ............................... 271,731 239,451 4,116,635 570,392
Affiliates ............................................ 47,909 70,891 813,200 203,476
Shareholders .......................................... 31,023 59,520 937,128 178,899
Distributions to shareholders .......................... 113,544 174,049 2,575,492 559,143
Other liabilities ...................................... 12,958 15,095 93,312 19,195
Total liabilities ....................................... 477,165 559,006 8,535,767 9,118,878
-----------------------------------------------------------------
Net assets, at value ................................... $72,517,149 $108,831,300 $ 1,502,235,754 $333,783,415
=================================================================
Net assets consist of:
Undistributed net investment income .................... $ -- $ 7,872 $ -- $ --
Accumulated distributions in excess of net
investment income .................................. (9,222) -- (1,863,569) (138,563)
Net unrealized depreciation ............................ (3,727,334) (3,584,956) (28,320,178) (7,769,681)
Accumulated net realized loss .......................... (1,047,218) (1,809,902) (4,586,441) (1,390,941)
Capital shares ......................................... 77,300,923 114,218,286 1,537,005,942 343,082,600
-----------------------------------------------------------------
Net assets, at value ................................... $72,517,149 $108,831,300 $ 1,502,235,754 $333,783,415
=================================================================
CLASS A:
Net assets, at value ................................... $72,517,149 $108,831,300 $ 1,445,545,966 $306,530,761
=================================================================
Shares outstanding ..................................... 7,365,906 11,324,522 128,564,290 28,511,780
=================================================================
Net asset value per share* ............................. $ 9.84 $ 9.61 $ 11.24 $ 10.75
=================================================================
Maximum offering price per share (net asset
value per share / 95.75%) .......................... $ 10.28 $ 10.04 $ 11.74 $ 11.23
=================================================================
CLASS B:
Net assets, at value ................................... -- -- $ 63,251 --
=================================================================
Shares outstanding ..................................... -- -- 5,626 --
=================================================================
Net asset value and maximum offering price per share* .. -- -- $ 11.24 --
=================================================================
CLASS C:
Net assets, at value ................................... -- -- $ 56,626,537 $ 27,252,654
=================================================================
Shares outstanding ..................................... -- -- 5,005,935 2,521,596
=================================================================
Net asset value per share* ............................. -- -- $ 11.31 $ 10.81
=================================================================
Maximum offering price per share (net asset
value per share / 99%) ........ -- -- $ 11.43 $ 10.92
=================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost ............................................................... $1,094,979,090 $486,964,868 $731,778,807
================================================
Value .............................................................. 1,093,535,259 470,094,390 721,532,163
Cash ................................................................ 47,650 1,153 387,159
Receivables:
Investment securities sold ......................................... 5,338,613 4,080,943 1,479,395
Capital shares sold ................................................ 589,838 59,979 323,595
Interest ........................................................... 17,804,986 5,051,717 11,259,649
------------------------------------------------
Total assets ......................................................... 1,117,316,346 479,288,182 734,981,961
------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................... 4,737,675 3,859,207 1,493,085
Capital shares redeemed ............................................ 2,455,701 1,089,782 2,039,351
Affiliates ......................................................... 611,272 277,189 426,384
Shareholders ....................................................... 575,781 282,215 421,969
Distributions to shareholders ....................................... 1,846,924 785,216 1,217,638
Other liabilities ................................................... 36,336 24,148 42,638
------------------------------------------------
Total liabilities .................................................... 10,263,689 6,317,757 5,641,065
------------------------------------------------
Net assets, at value ................................................ $1,107,052,657 $472,970,425 $729,340,896
================================================
Net assets consist of:
Accumulated distributions in excess of net investment income ........ $ (856,242) $ (375,804) $ (160,736)
Net unrealized depreciation ......................................... (1,443,831) (16,870,478) (10,246,644)
Accumulated net realized loss ....................................... (1,391,908) (1,391,185) (1,293,348)
Capital shares ...................................................... 1,110,744,638 491,607,892 741,041,624
------------------------------------------------
Net assets, at value ................................................ $1,107,052,657 $472,970,425 $729,340,896
================================================
CLASS A:
Net assets, at value ................................................ $1,057,786,538 $451,142,338 $689,083,648
================================================
Shares outstanding .................................................. 93,000,756 40,539,553 59,823,757
================================================
Net asset value per share* .......................................... $ 11.37 $ 11.13 $ 11.52
================================================
Maximum offering price per share (net asset value per share / 95.75%) $ 11.87 $ 11.62 $ 12.03
================================================
CLASS B:
Net assets, at value ................................................ $ 228,103 -- $ 75,913
================================================
Shares outstanding .................................................. 20,036 -- 6,587
================================================
Net asset value and maximum offering price per share* ............... $ 11.38 $ 11.52
================================================
CLASS C:
Net assets, at value ................................................ $ 49,038,016 $ 21,828,087 $ 40,181,335
================================================
Shares outstanding .................................................. 4,282,577 1,952,137 3,468,877
================================================
Net asset value per share* .......................................... $ 11.45 $ 11.18 $ 11.58
================================================
Maximum offering price per share (net asset value per share / 99%) .. $ 11.57 $ 11.29 $ 11.70
================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA INSURED MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................... $ 4,515,640 $ 6,609,236 $ 97,587,364 $ 20,888,158
-------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 511,640 718,877 7,715,627 1,854,148
Distribution fees (Note 3)
Class A .......................................... 82,594 119,404 1,424,689 307,504
Class B .......................................... -- -- 11 --
Class C .......................................... -- -- 409,101 176,916
Transfer agent fees (Note 3) ...................... 29,481 41,633 708,052 152,248
Custodian fees .................................... 869 1,231 16,319 3,565
Reports to shareholders ........................... 4,661 7,717 147,775 35,101
Registration and filing fees ...................... 12,860 7,845 105,545 23,008
Professional fees ................................. 5,541 6,232 35,788 10,734
Trustees' fees and expenses ....................... 817 1,182 16,572 3,597
Other ............................................. 16,790 14,953 106,715 27,733
-------------------------------------------------------------------
Total expenses ................................ 665,253 919,074 10,686,194 2,594,554
Expenses waived/paid by affiliate (Note 3) .... -- (13,253) -- --
-------------------------------------------------------------------
Net expenses ................................. 665,253 905,821 10,686,194 2,594,554
Net investment income ......................... 3,850,387 5,703,415 86,901,170 18,293,604
-------------------------------------------------------------------
Realized and unrealized losses:
Net realized loss from investments ................ (864,384) (542,354) (4,583,322) (1,390,941)
Net unrealized depreciation on investments ........ (7,201,575) (10,374,422) (139,213,298) (29,607,121)
-------------------------------------------------------------------
Net realized and unrealized loss ................... (8,065,959) (10,916,776) (143,796,620) (30,998,062)
-------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (4,215,572) $ (5,213,361) $ (56,895,450) $ (12,704,458)
===================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Interest .......................................... $ 67,977,706 $ 29,196,489 $ 45,283,561
----------------------------------------------
Expenses:
Management fees (Note 3) .......................... 5,567,281 2,541,127 3,798,880
Distribution fees (Note 3)
Class A .......................................... 1,027,547 440,429 687,814
Class B .......................................... 78 -- 23
Class C .......................................... 344,431 147,528 278,085
Transfer agent fees (Note 3) ...................... 589,143 251,186 390,629
Custodian fees .................................... 11,880 5,142 7,839
Reports to shareholders ........................... 118,016 43,957 72,193
Registration and filing fees ...................... 25,730 17,315 27,226
Professional fees ................................. 23,778 14,618 22,696
Trustees' fees and expenses ....................... 11,760 5,721 7,856
Insurance ......................................... -- -- 7,051
Other ............................................. 66,826 25,668 49,766
----------------------------------------------
Total expenses ................................ 7,786,470 3,492,691 5,350,058
----------------------------------------------
Net investment income ........................ 60,191,236 25,703,798 39,933,503
----------------------------------------------
Realized and unrealized losses:
Net realized loss from investments ................ (1,175,679) (1,391,185) (1,293,348)
Net unrealized depreciation on investments ........ (90,745,904) (42,186,535) (62,487,259)
----------------------------------------------
Net realized and unrealized loss ................... (91,921,583) (43,577,720) (63,780,607)
----------------------------------------------
Net decrease in net assets resulting from operations $(31,730,347) $(17,873,922) $(23,847,104)
==============================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN ARIZONA INSURED FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 3,850,387 $ 3,274,625 $ 5,703,415 $ 5,520,101
Net realized gain (loss) from investments ... (864,384) 64,058 (542,354) 2,867
Net unrealized appreciation (depreciation) on
investments ............................... (7,201,575) 334,186 (10,374,422) 979,147
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............. (4,215,572) 3,672,869 (5,213,361) 6,502,115
Distributions to shareholders from:
Net investment income ....................... (3,918,083) (3,262,224) (5,735,968) (5,528,406)
In excess of net investment income .......... (9,222) -- -- --
-------------------------------------------------------------------
Total distributions to shareholders .......... (3,927,305) (3,262,224) (5,735,968) (5,528,406)
Capital share transactions: (Note 2) ......... (24,399) 22,215,047 (4,707,193) 22,008,531
-------------------------------------------------------------------
Net increase (decrease) in net assets ......... (8,167,276) 22,625,692 (15,656,522) 22,982,240
Net assets :
Beginning of year ............................ 80,684,425 58,058,733 124,487,822 101,505,582
-------------------------------------------------------------------
End of year .................................. $ 72,517,149 $ 80,684,425 $ 108,831,300 $ 124,487,822
===================================================================
Undistributed net investment income
(accumulated distributions in excess of net
investment income) included in net assets:
End of year ................................. $ (9,222) $ 67,696 $ 7,872 $ 40,425
===================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................... $ 86,901,170 $ 89,621,811 $ 18,293,604 $ 17,503,725
Net realized gain (loss) from investments ... (4,583,322) 10,620,546 (1,390,941) 549,086
Net unrealized depreciation on investments .. (139,213,298) (3,082,372) (29,607,121) (1,068)
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ......................... (56,895,450) 97,159,985 (12,704,458) 18,051,743
Distributions to shareholders from:
Net investment income:
Class A .................................... (83,999,774) (87,334,716) (17,014,519) (16,632,794)
Class B .................................... (71) -- -- --
Class C .................................... (2,901,325) (2,287,095) (1,233,276) (844,761)
In excess of net investment income:
Class A .................................... (128,561) (856,324) -- --
Class C .................................... (4,440) (22,408) -- --
Net realized gains:
Class A .................................... (2,954,541) (13,902,736) -- (1,931,958)
Class C .................................... (115,941) (425,541) -- (108,794)
---------------------------------------------------------------------------
Total distributions to shareholders .......... (90,104,653) (104,828,820) (18,247,795) (19,518,307)
Capital share transactions: (Note 2)
Class A .................................... (140,018,064) 49,150,017 (4,931,023) 13,335,276
Class B .................................... 63,000 -- -- --
Class C .................................... (2,989,153) 27,381,709 3,286,208 12,428,507
---------------------------------------------------------------------------
Total capital share transactions ............. (142,944,217) 76,531,726 (1,644,815) 25,763,783
Net increase (decrease) in net assets ......... (289,944,320) 68,862,891 (32,597,068) 24,297,219
Net assets
Beginning of year ............................ 1,792,180,074 1,723,317,183 366,380,483 342,083,264
---------------------------------------------------------------------------
End of year .................................. $ 1,502,235,754 $ 1,792,180,074 $ 333,783,415 $ 366,380,483
===========================================================================
Accumulated distributions in excess of net
investment income included in net
assets:
End of year ................................. $ (1,863,569) $ (1,730,568) $ (138,563) $ (184,372)
===========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 60,191,236 $ 59,062,198 $ 25,703,798 $ 25,893,137
Net realized gain (loss) from investments .... (1,175,679) 2,222,023 (1,391,185) 1,829,574
Net unrealized appreciation (depreciation)
on investments .............................. (90,745,904) 10,636,500 (42,186,535) (1,790,539)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............... (31,730,347) 71,920,721 (17,873,922) 25,932,172
Distributions to shareholders from:
Net investment income:
Class A ..................................... (57,627,770) (56,963,881) (24,693,081) (25,368,828)
Class B ..................................... (470) -- -- --
Class C ..................................... (2,366,024) (1,809,222) (1,010,717) (681,854)
In excess of net investment income:
Class A ..................................... -- -- (315,053) (46,601)
Class C ..................................... -- -- (12,896) (1,254)
Net realized gains:
Class A ..................................... (29,134) (5,139,566) (1,012,367) (856,454)
Class C ..................................... (1,391) (185,565) (45,306) (29,745)
--------------------------------------------------------------------------------
Total distributions to shareholders ........... (60,024,789) (64,098,234) (27,089,420) (26,984,736)
Capital share transactions: (Note 2)
Class A ..................................... (15,930,404) 11,242,515 (21,060,438) 20,874,563
Class B ..................................... 226,865 -- -- --
Class C ..................................... 3,195,982 16,812,877 2,924,255 10,802,209
--------------------------------------------------------------------------------
Total capital share transactions .............. (12,507,557) 28,055,392 (18,136,183) 31,676,772
Net increase (decrease) in net assets ...... (104,262,693) 35,877,879 (63,099,525) 30,624,208
Net assets
Beginning of year ............................. 1,211,315,350 1,175,437,471 536,069,950 505,445,742
--------------------------------------------------------------------------------
End of year ................................... $ 1,107,052,657 $ 1,211,315,350 $ 472,970,425 $ 536,069,950
================================================================================
Accumulated distributions in excess of net
investment income included in net
assets:
End of year .................................. $ (856,242) $ (1,057,561) $ (375,804) $ (47,855)
================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
--------------------
2000 1999
---- ----
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................................... $ 39,933,503 $ 39,188,055
Net realized gain (loss) from investments ................................ (1,293,348) 2,482,460
Net unrealized appreciation (depreciation) on investments ................ (62,487,259) 1,410,754
---------------------------------
Net increase (decrease) in net assets resulting from operations ...... (23,847,104) 43,081,269
Distributions to shareholders from:
Net investment income:
Class A ................................................................. (38,019,372) (37,252,026)
Class B ................................................................. (123) --
Class C ................................................................. (1,914,008) (1,528,613)
In excess of net investment income:
Class A ................................................................. (126,788) --
Class C ................................................................. (6,383) --
Net realized gains:
Class A ................................................................. (1,086,554) (1,823,769)
Class C ................................................................. (61,042) (89,688)
---------------------------------
Total distributions to shareholders (41,214,270) (40,694,096)
Capital share transactions: (Note 2)
Class A ................................................................. (25,936,766) 33,237,755
Class B ................................................................. 75,442 --
Class C ................................................................. 1,413,023 13,967,984
---------------------------------
Total capital share transactions ........................................... (24,448,301) 47,205,739
Net increase (decrease) in net assets ................................ (89,509,675) 49,592,912
Net assets
Beginning of year ......................................................... 818,850,571 769,257,659
---------------------------------
End of year ............................................................... $ 729,340,896 $ 818,850,571
---------------------------------
Accumulated distributions in excess of net investment income included in net
assets:
End of year ............................................................... $ (160,736) $ (27,565)
=================================
</TABLE>
See notes to financial statements.
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-six separate
series (the Funds). All Funds included in this report are diversified except the
Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida Insured
Tax-Free Income Fund. The investment objective of the Funds included in this
report 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 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. Dividends from net investment income are
normally declared daily and distributed monthly to shareholders. Other
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. INSURANCE
The scheduled payments of interest and principal for each insured 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.
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the funds are indicated below.
Effective February 1, 2000, the Franklin Insured Tax-Free Income Fund, Franklin
Michigan Insured Tax-Free Income Fund, and the Franklin Ohio Insured Tax-Free
Income Fund began offering a new class of shares, Class B. Each class of shares
differs by its initial sales load, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
<TABLE>
<CAPTION>
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Arizona Insured Franklin Massachusetts Insured Franklin Insured Tax-Free Income
Tax-Free Income Fund Tax-Free Income Fund Fund
Franklin Florida Insured Franklin Minnesota Insured Franklin Ohio Insured Tax-Free
Tax-Free Income Fund Tax-Free Income Fund Income Fund
</TABLE>
At February 29, 2000, there were an unlimited number of shares authorized (no
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN ARIZONA INSURED FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Year ended February 29, 2000
<S> <C> <C> <C> <C>
Shares sold 2,453,917 $ 25,296,356 3,353,488 $ 33,401,084
Shares issued in reinvestment of distributions 198,966 2,037,874 202,653 2,024,670
Shares redeemed (2,729,952) (27,358,629) (4,057,502) (40,132,947)
----------- ------------- ----------- ------------
Net decrease (77,069) $ (24,399) (501,361) $ (4,707,193)
----------- ------------- ----------- ------------
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
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Year ended February 29, 2000
Shares sold 19,707,494 $ 231,292,083 3,962,796 $ 44,900,906
Shares issued in reinvestment of distributions 3,316,153 38,762,056 716,003 7,977,204
Shares redeemed (35,299,112) (410,072,203) (5,217,521) (57,809,133)
------------- -------------- ----------- -------------
Net decrease (12,275,465) $(140,018,064) (538,722) $ (4,931,023)
============= =============== =========== =============
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
============= =============== =========== =============
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold 14,530 $ 163,000
Shares issued in reinvestment of distributions 1 12
Shares redeemed (8,905) (100,012)
------------- ----------
Net increase 5,626 $ 63,000
============= ==========
</TABLE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- --------------------
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Year ended February 29, 2000
Shares sold........................................ 1,513,376 $ 17,938,774 966,201 $ 10,781,033
Shares issued in reinvestment of distributions..... 157,205 1,849,145 76,607 856,655
Shares redeemed.................................... (1,948,799) (22,777,072) (754,410) (8,351,480)
------------------------------------------------------------------
Net increase (decrease)............................ (278,218) $ (2,989,153) 288,398 $ 3,286,208
==================================================================
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
==================================================================
</TABLE>
<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 29, 2000
Shares sold........................................ 10,186,319 $ 121,214,207 3,490,337 $ 40,650,218
Shares issued on merger (Note 7)................... 1,293,437 15,172,016 -- --
Shares issued in reinvestment of distributions..... 2,518,024 29,587,974 1,201,706 13,903,684
Shares redeemed.................................... (15,575,753) (181,904,601) (6,592,039) (75,614,340)
--------------------------------------------------------------------
Net decrease (1,577,973) $ (15,930,404) (1,899,996) $(21,060,438)
====================================================================
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
====================================================================
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES:
<S> <C> <C>
Year ended February 29, 2000(a)
Shares sold........................................ 20,025 $ 226,741
Shares issued in reinvestment of distributions..... 11 124
-----------------------------
Net increase....................................... 20,036 $ 226,865
=============================
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES:
<S> <C> <C> <C> <C>
Year ended February 29, 2000
Shares sold........................................ 1,409,896 $ 16,934,372 698,406 $ 8,181,096
Shares issued in reinvestment of distributions..... 136,796 1,617,620 66,230 767,862
Shares redeemed.................................... (1,307,889) (15,356,010) (526,304) (6,024,703)
-------------------------------------------------------------------
Net increase....................................... 238,803 $ 3,195,982 238,332 $ 2,924,255
===================================================================
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
===================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
--------------------
CLASS A SHARES: SHARES AMOUNT
------ ------
<S> <C> <C>
Year ended February 29, 2000
Shares sold........................................... 6,843,345 $ 82,632,226
Shares issued in reinvestment of distributions........ 1,661,089 19,820,266
Shares redeemed....................................... (10,850,902) (128,389,258)
---------------------------------------
Net decrease.......................................... (2,346,468) $ (25,936,766)
=======================================
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
=======================================
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold........................................... 6,586 $ 75,434
Shares issued in reinvestment of distributions........ 1 8
---------------------------------------
Net increase.......................................... 6,587 $ 75,442
=======================================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold........................................... 931,003 $ 11,267,145
Shares issued in reinvestment of distributions........ 116,996 1,402,890
Shares redeemed....................................... (944,288) (11,257,012)
---------------------------------------
Net increase.......................................... 103,711 $ 1,413,023
=======================================
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
=======================================
</TABLE>
(a)For the period February 1, 2000 (effective date) to February 29, 2000.
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 Florida
Insured Tax-Free Income Fund through August 31, 1999, as noted in the Statement
of Operations.
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
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.
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
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions paid ............... $ 19,134 $ 691 $379,975 $104,665
Contingent deferred
sales charges ..................... $ 10,224 $ 1,130 $ 78,535 $ 29,631
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net commissions paid .................... $307,087 $111,796 $184,101
Contingent deferred
sales charges .......................... $ 56,030 $ 37,510 $ 81,934
</TABLE>
The funds paid transfer agent fees of $2,162,372, of which $1,825,421 was paid
to Investor Services.
4. INCOME TAXES
At February 29, 2000, 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
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C>
2003 ....................................... $ 165,472 $1,100,392 $ -- $ --
2005 ....................................... 17,363 167,156 -- --
2007 ....................................... -- -- -- --
2008 ....................................... 698,822 497,948 3,533,187 1,247,097
- ---------------------------------------------------------------------------------------------------------------------------------
$ 881,657 $1,765,496 $3,533,187 $1,247,097
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C>
2003 ..................................... $ -- $ -- $ --
2005 ..................................... -- -- --
2007 ..................................... 104,203 -- --
2008 ..................................... 68,409 1,391,185 1,196,416
- -------------------------------------------------------------------------------------------------------------------
$ 172,612 $1,391,185 $1,196,416
===================================================================================================================
</TABLE>
At February 29, 2000, the following funds have deferred capital losses occurring
subsequent to October 31, 1999. For tax purposes, such losses will be reflected
in the year ending February 28, 2001.
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS MICHIGAN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 165,561 $ 44,406 $1,050,135 $ 143,844 $1,107,270 $ 96,932
</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 29, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ............ $ 75,855,657 $ 110,987,249 $ 1,516,630,468 $ 345,894,280
==============================================================================================
Unrealized appreciation ........ $ 689,986 $ 1,214,646 $ 30,684,740 $ 5,082,618
Unrealized depreciation ........ (4,417,320) (4,799,602) (59,008,037) (12,852,299)
----------------------------------------------------------------------------------------------
Net unrealized depreciation .... $ (3,727,334) $ (3,584,956) $ (28,323,297) $ (7,769,681)
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------- ------------------- -----------------
<S> <C> <C> <C>
Investments at cost ............ $ 1,095,091,116 $ 486,964,868 $ 731,778,807
======================================================================
Unrealized appreciation ........ $ 29,172,174 $ 5,678,298 $ 14,819,387
Unrealized depreciation ........ (30,728,031) (22,548,776) (25,066,031)
----------------------------------------------------------------------
Net unrealized depreciation .... $ (1,555,857) $ (16,870,478) $ (10,246,644)
======================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 29, 2000, were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
ARIZONA FLORIDA FRANKLIN MASSACHUSETTS
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ...... $ 27,731,508 $ 27,695,469 $218,961,897 $ 91,891,457
Sales .......... $ 26,782,132 $ 31,033,052 $367,050,295 $ 90,072,934
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
MICHIGAN MINNESOTA OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases ............ $159,964,006 $ 79,776,178 $ 75,008,833
Sales ................ $165,034,805 $ 91,614,026 $104,266,962
</TABLE>
6. CREDIT RISK
The funds have investments in excess of 10% of their total net assets in their
respective states and/or U.S. territories and possessions except the Franklin
Insured Tax-Free Income Fund which has investments in excess of 10% of its total
net assets in the state of Texas. Such concentration may subject the funds more
significantly to economic changes occurring within those states and/or U.S.
territories and possessions.
7. FUND MERGER
On August 26, 1999, the Franklin Michigan Insured Tax-Free Income Fund acquired
the net assets of Franklin Michigan Tax-Free Income Fund pursuant to a plan of
reorganization approved by Franklin Michigan Tax-Free Income Fund's
shareholders. The merger was accomplished by a tax-free exchange of 1,293,437
Class A shares of the Franklin Michigan Insured Tax-Free Income Fund (valued at
$11.73) for the net assets of the Franklin Michigan Tax-Free Income Fund which
aggregated $15,172,016, including $346,476 of unrealized depreciation. The
merger was accounted for as a pooling-of-interests without restatement for
financial reporting purposes. The combined net assets of the Franklin Michigan
Insured Tax-Free Income Fund immediately after the merger were $1,206,193,329.
8. CREDIT FACILITY
Certain Franklin Templeton Funds, including the Franklin Tax-Free Trust, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Funds' borrowings at market rates. At February 29,
2000, the Trust had not utilized this credit facility.
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 of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Tax-Free Trust (hereafter referred to
as the "Trust") at February 29, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States 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 29, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 3, 2000
FRANKLIN TAX-FREE TRUST
TAX DESIGNATION
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 29, 2000.
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Tax-Free Trust covers the 12 months ended
February 29, 2000.
The year under review was marked by economic strength, as U.S. gross domestic
product (GDP) rose 4.2%, consumer confidence remained strong and unemployment
hit a 30-year low. In fact, the domestic economy grew for a record 107th month
in a row, and domestic stock markets surged to all-time highs. Even in the face
of such economic expansion, inflation as measured by the Consumer Price Index
was 2.7% for calendar year 1999, lower than many feared. In spite of the surging
economy, some large market segments were left out or actually suffered through
the period. The Standard and Poor's 500(R) (S&P 500(R)) Index rose 11.7% from
March 1, 1999, through February 29, 2000; however, 66% of the stocks that
comprise the index were down. Meanwhile, the Nasdaq(R) Index more than doubled
during the same period, advancing 105.8%, although 40% of the index's shares
declined.(1)
Bond markets experienced similar contrasts. They started the period in what
looked to be a potentially positive year due to the interest-rate environment.
However, the Federal Reserve Board (the Fed) raised interest rates 0.25% on four
separate occasions due to inflation fears. This contributed to one of the worst
years that bond markets have ever experienced. The yield on the 30-year Treasury
rose from 5.58% on February 28, 1999, to 6.14% on February 29, 2000, reaching a
high of 6.75% on January 20, 2000. The price on the Bond Buyer Municipal Bond
Index (Bond Buyer 40), an indicator of the municipal bond market, dropped 13.1%
during the reporting period. As interest rates and yields increased, the dollar
value of bonds decreased, meaning bond funds in general depreciated in value.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Shareholder Letter .................. 1
Fund Reports
Franklin Alabama
Tax-Free Income Fund .............. 4
Franklin Florida
Tax-Free Income Fund .............. 10
Franklin Georgia
Tax-Free Income Fund .............. 17
Franklin Kentucky
Tax-Free Income Fund .............. 23
Franklin Louisiana
Tax-Free Income Fund .............. 28
Franklin Maryland
Tax-Free Income Fund .............. 34
Franklin Missouri
Tax-Free Income Fund .............. 40
Franklin North Carolina
Tax-Free Income Fund .............. 45
Franklin Texas
Tax-Free Income Fund .............. 51
Franklin Virginia
Tax-Free Income Fund .............. 57
Municipal Bond Ratings .............. 63
Financial Highlights &
Statement of Investments ............ 65
Financial Statements ................ 110
Notes to Financial Statements ....... 121
Independent Auditors' Report ........ 128
Tax Designation ..................... 129
</TABLE>
FUND CATEGORY
[PYRAMID OMITTED]
(1) Based on securities held in the Nasdaq Index for at least the 12 months
ended 2/29/00.
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.
Municipal bond supply in 1999 added pressure to the already volatile municipal
bond market. Although less than in 1998, the $225 billion issuance in 1999 was
the fourth-highest on record. Looking forward, we anticipate decreased new
issuance in 2000. The near-record volume did have some benefit, as it helped
municipal bonds remain cheap relative to Treasuries. During the year under
review, municipal bonds, as measured by the Bond Buyer 40, yielded as much as
101% of a comparable Treasury bond's yield. Historically, this ratio is about
90%. Because municipal bonds are tax-exempt, generally they yield less than
Treasuries, which are subject to federal income tax. When municipals are
yielding nearly the same as Treasuries, investors are able to take advantage of
the tax exemption at little extra cost.
Please keep in mind that municipal bond funds continue to be an attractive
investment for those investors seeking tax-free income. 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 tax-free
investment.
Looking forward, we anticipate that the Fed will monitor inflationary tendencies
closely, probably raising interest rates again. If, as a result, the economy
slows toward the end of 2000, the bond markets could begin to experience less
volatility.
The last few times municipal bonds lost ground, they enjoyed sharp rebounds in
the following year. For example, in 1994, when the Fed raised interest rates six
times, the average general municipal bond fund lost 6.5% in total return. In the
following year, rates declined, and the average municipal bond fund gained
nearly 17%. Although there is no guarantee that bond markets and municipal bond
funds will repeat past behavior, markets do go through up and down cycles.
Predicting these cycles is very difficult, even for professional economists --
which is why we recommend investing for the long term. It is important to
remember that over time, the tax-free income received from municipal bond funds
will ultimately drive the fund's total return performance.
We encourage you to discuss your financial goals with your investment
representative, who can address concerns about volatility and help you diversify
your investments and stay focused on the long term. 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/ C B Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
FRANKLIN ALABAMA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Alabama Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
<TABLE>
<CAPTION>
<S> <C>
AAA 64.3%
AA 5.1%
A 2.9%
BBB 24.3%
Below Investment Grade 3.4%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit 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
[STATE OF ALABAMA ILLUSTRATION]
Alabama's strong economy is keeping pace with other southern states and the
nation as a whole. The state continues to diversify with growth in technology
firms in the Huntsville area and health and business services near Birmingham
and Mobile. Significant tax incentives and proactive economic development
policies have helped fuel growth, and as a corollary, business investments have
also increased construction and manufacturing employment statewide. As a result,
personal income grew faster than the national average in 1999, but stood at just
$21,923 per year, or 83% of the $26,410 national average.(2)
Unemployment in 1999 was 4.8%, above the national average of 4.1%. Although
there were strong gains in manufacturing employment and efficiency, the largest
employment gains were found in the finance, real estate, insurance and services
sectors. About 20% of the state's labor force, or about 380,000 people, worked
in manufacturing, while another 450,000 people, or 24% of the work force, were
employed in service industries, the fastest-growing employment sector. The
state's employment picture isn't all rosy, however. More than 50% of the state's
new jobs in 1998 and 1999 were in the volatile and often low-wage retail sector,
an industry with high worker turnover, low benefits and susceptibility to
economic downturns. Also, analysts caution that without public education
improvements, gains in manufacturing employment and efficiency may suffer from a
shortage of skilled workers.(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 Ratings Direct, 2/17/00.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 66.
Higher-than-expected tax collections for 1999 created extra money for 2000,
which many state legislators are hoping to put into a "rainy day" reserve fund
or redirect to education. Although the Alabama economy is booming, legislative
officials have ongoing tax-structure concerns. A $100 million budget shortfall
followed a Supreme Court ruling in spring of 1999 that struck down the
two-tiered corporate franchise tax, which saw out-of-state firms paying the bulk
of business taxes while Alabama-based companies contributed just a fraction.(3)
This judgment left lawmakers eyeing both cigarette and state sales tax hikes to
compensate. State services spending in the Heart of Dixie could be slashed in
2000 to prevent deficit spending, if legislators cannot fill the void.
Looking forward, Alabama's economy is expected to continue to expand, as the
state exercises further budgetary discipline to maintain its financial
operations, reserve levels and financial flexibility. Therefore, we expect
Alabama municipal obligations to perform well in the future.
PORTFOLIO NOTES
Generally rising interest rates during the year under review presented
challenges for the municipal bond market, as bond prices fall when interest
rates rise. For the 12 months ended February 29, 2000, the 30-year Treasury bond
price fell 10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) was
off 13.1%. By comparison, your fund's Class A share price, as measured by net
asset value, declined 9.1%.(4)
During the period, we attempted to take advantage of the higher interest-rate
environment to restructure the fund's portfolio and enhance its income-producing
potential. We generally sold shorter maturity bonds, maturing in the 2015-2020
year range, and bought original issue bonds at a discount to par value with
higher yields. In addition, we booked tax losses, which can be carried forward
in the portfolio to help offset taxable capital gains in the future and
potentially lower shareholders' future tax liabilities. With this in mind, the
fund sold East Alabama Health Care Authority, Alabama Oneonta Utilities Board
Revenue, and Puerto Rico Commonwealth Highway & Transportation Authority bonds.
PORTFOLIO BREAKDOWN
Franklin Alabama
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Hospital & Health Care 23.4%
Utilities 22.2%
General Obligation 13.9%
Corporate-Backed 13.7%
Housing 6.7%
Subject to Government
Appropriation 4.8%
Transportation 4.0%
Prerefunded 3.8%
Higher Education 3.7%
Other Revenue 2.1%
Tax-Supported Debt 1.7%
</TABLE>
(3.) Source: Associated Press State & Local Wire, 1/11/00.
(4.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
Alabama's bond supply for 1999 was $4.3 billion, 25.4% higher than in 1998.(5)
When investigating potential purchases, we continued to seek bonds maximizing
current, tax-free income and having favorable call protection to provide our
shareholders with a steady, long-term income stream. Attempting to meet these
goals, we made several additions to the portfolio during the reporting period,
including Jefferson County Sewer Revenue, St. Clair County Board of Education,
and Lauderdale County & Florence Alabama Health Care Authority - - Coffee Health
bonds. These purchases maintained diversification in a broad range of
securities, which helped reduce the fund's exposure to risk and volatility that
might affect any one credit. In addition, our active portfolio management has
built a portfolio with not only credit risk diversity, but also a wide range of
coupons and maturities. The fund continues to emphasize high-quality securities,
and AAA-rated bonds represented 64.3% of the fund's total long-term investments
at the end of the reporting period.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 8 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.46%, based on an
annualization of the current 5.05 cent ($0.0505) per share dividend and the
maximum offering price of $11.09 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Alabama state personal income
tax bracket of 42.62% would need to earn 9.52% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
Looking forward, we will attempt to continue taking advantage of the generally
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Alabama Tax-Free Income Fund can help to lower such
volatility, as they offer a level of diversification that is difficult for
individual investors to achieve on their own.
(5.) Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS*
Franklin Alabama Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- ----- ------- -------
<S> <C> <C>
March 5 cents 4.42 cents
April 5 cents 4.42 cents
May 5 cents 4.42 cents
June 5 cents 4.46 cents
July 5 cents 4.46 cents
August 5 cents 4.46 cents
September 5 cents 4.47 cents
October 5 cents 4.47 cents
November 5 cents 4.47 cents
December 5 cents 4.50 cents
January 5 cents 4.50 cents
February 5 cents 4.50 cents
TOTAL 60 CENTS 53.55 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN ALABAMA
TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Alabama state
personal income tax bracket of 42.62%, based on the federal income tax rate of
39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -3.92%
Net Asset Value (NAV) $10.62 (2/29/00) $11.68 (2/28/99)
Change in NAV -$1.06
Distributions (3/1/99 - 2/29/00) Dividend Income $0.6000
Long-Term Capital Gain $0.0072
-----------------------------------
Total $0.6072
CLASS C
One-Year Total Return -4.46%
Net Asset Value (NAV) $10.68 (2/29/00) $11.74 (2/28/99)
Change in NAV -$1.06
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5355
Long-Term Capital Gain $0.0072
-----------------------------------
Total $0.5427
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------- ------ ------ ------- --------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.92% +25.29% +81.25% +125.09%
Average Annual Total Return(2) -8.02% +3.71% +5.66% +6.34%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.46% +6.11% +20.67%
Average Annual Total Return(2) -6.33% +1.65% +3.76%
SHARE CLASS A C
----- ------
Distribution Rate(3) 5.46% 5.07%
Taxable Equivalent Distribution Rate(4) 9.52% 8.84%
30-Day Standardized Yield(5) 5.29% 4.95%
Taxable Equivalent Yield(4) 9.22% 8.63%
</TABLE>
Franklin Alabama Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.72 cents ($0.0072) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which includes
approximately 38,000 municipal securities from across the country, differs from
the fund in composition, does not pay management fees or expenses and includes
reinvested interest. One cannot invest directly in an index. For the periods
shown, performance of the fund's shares exceeded the rate of inflation as
measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Alabama Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,558 $10,000 $10,000
03/31/1990 0.15% $9,544 0.03% $10,003 0.55% $10,055
04/30/1990 -0.81% $9,466 -0.72% $9,931 0.16% $10,071
05/31/1990 2.13% $9,668 2.18% $10,147 0.23% $10,094
06/30/1990 1.07% $9,771 0.88% $10,237 0.54% $10,149
07/31/1990 1.63% $9,931 1.47% $10,387 0.38% $10,187
08/31/1990 -2.65% $9,668 -1.45% $10,237 0.92% $10,281
09/30/1990 0.23% $9,690 0.06% $10,243 0.84% $10,367
10/31/1990 1.38% $9,824 1.82% $10,429 0.60% $10,430
11/30/1990 2.13% $10,033 2.01% $10,639 0.22% $10,453
12/31/1990 -0.15% $10,018 0.43% $10,685 0.00% $10,453
01/31/1991 1.84% $10,202 1.34% $10,828 0.60% $10,515
02/28/1991 0.78% $10,282 0.87% $10,922 0.15% $10,531
03/31/1991 0.50% $10,333 0.03% $10,925 0.15% $10,547
04/30/1991 1.25% $10,462 1.34% $11,072 0.15% $10,563
05/31/1991 0.69% $10,534 0.89% $11,170 0.30% $10,594
06/30/1991 -0.05% $10,529 -0.10% $11,159 0.29% $10,625
07/31/1991 1.44% $10,681 1.22% $11,295 0.15% $10,641
08/31/1991 0.96% $10,783 1.32% $11,444 0.29% $10,672
09/30/1991 1.51% $10,946 1.30% $11,593 0.44% $10,719
10/31/1991 0.59% $11,011 0.90% $11,697 0.15% $10,735
11/30/1991 0.31% $11,045 0.28% $11,730 0.29% $10,766
12/31/1991 1.96% $11,261 2.15% $11,982 0.07% $10,774
01/31/1992 0.49% $11,316 0.23% $12,010 0.15% $10,790
02/29/1992 -0.22% $11,292 0.03% $12,013 0.36% $10,829
03/31/1992 0.17% $11,311 0.03% $12,017 0.51% $10,884
04/30/1992 0.90% $11,413 0.89% $12,124 0.14% $10,899
05/31/1992 1.33% $11,564 1.18% $12,267 0.14% $10,914
06/30/1992 1.42% $11,729 1.68% $12,473 0.36% $10,954
07/31/1992 3.21% $12,105 3.00% $12,847 0.21% $10,977
08/31/1992 -1.16% $11,965 -0.97% $12,723 0.28% $11,007
09/30/1992 0.25% $11,995 0.65% $12,805 0.28% $11,038
10/31/1992 -1.70% $11,791 -0.98% $12,680 0.35% $11,077
11/30/1992 2.34% $12,067 1.79% $12,907 0.14% $11,092
12/31/1992 1.52% $12,250 1.02% $13,039 -0.07% $11,085
01/31/1993 1.17% $12,393 1.16% $13,190 0.49% $11,139
02/28/1993 3.06% $12,772 3.62% $13,667 0.35% $11,178
03/31/1993 -0.38% $12,724 -1.06% $13,522 0.35% $11,217
04/30/1993 0.76% $12,821 1.01% $13,659 0.28% $11,248
05/31/1993 0.45% $12,878 0.56% $13,735 0.14% $11,264
06/30/1993 1.44% $13,064 1.67% $13,965 0.14% $11,280
07/31/1993 0.04% $13,069 0.13% $13,983 0.00% $11,280
08/31/1993 1.86% $13,312 2.08% $14,274 0.28% $11,311
09/30/1993 1.31% $13,486 1.14% $14,437 0.21% $11,335
10/31/1993 0.34% $13,532 0.19% $14,464 0.41% $11,382
11/30/1993 -0.30% $13,492 -0.88% $14,337 0.07% $11,390
12/31/1993 1.92% $13,751 2.11% $14,639 0.00% $11,390
01/31/1994 0.96% $13,883 1.14% $14,806 0.27% $11,420
02/28/1994 -1.93% $13,615 -2.59% $14,423 0.34% $11,459
03/31/1994 3.40% $13,152 -4.07% $13,836 0.34% $11,498
04/30/1994 0.36% $13,199 0.85% $13,953 0.14% $11,514
05/31/1994 0.66% $13,286 0.87% $14,075 0.07% $11,522
06/30/1994 -0.32% $13,244 -0.61% $13,989 0.34% $11,562
07/31/1994 1.62% $13,458 1.83% $14,245 0.27% $11,593
08/31/1994 0.40% $13,512 0.35% $14,295 0.40% $11,639
09/30/1994 -1.09% $13,365 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.74% $13,132 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.09% $12,858 -1.81% $13,583 0.13% $11,694
12/31/1994 2.19% $13,140 2.20% $13,882 0.00% $11,694
01/31/1995 2.72% $13,497 2.86% $14,279 0.40% $11,741
02/28/1995 2.45% $13,828 2.91% $14,695 0.40% $11,788
03/31/1995 0.97% $13,962 1.15% $14,864 0.33% $11,827
04/30/1995 0.44% $14,023 0.12% $14,882 0.33% $11,866
05/31/1995 2.34% $14,351 3.19% $15,356 0.20% $11,889
06/30/1995 -0.47% $14,284 -0.87% $15,223 0.20% $11,913
07/31/1995 0.57% $14,365 0.95% $15,367 0.00% $11,913
08/31/1995 0.90% $14,495 1.27% $15,563 0.26% $11,944
09/30/1995 0.62% $14,584 0.63% $15,661 0.20% $11,968
10/31/1995 1.26% $14,768 1.45% $15,888 0.33% $12,007
11/30/1995 1.60% $15,005 1.66% $16,151 -0.07% $11,999
12/31/1995 0.95% $15,147 0.96% $16,306 -0.07% $11,991
01/31/1996 0.48% $15,220 0.76% $16,430 0.59% $12,061
02/29/1996 -0.30% $15,174 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.00% $15,022 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.04% $15,016 -0.28% $16,065 0.39% $12,210
05/31/1996 0.16% $15,040 -0.04% $16,058 0.19% $12,234
06/30/1996 1.06% $15,200 1.09% $16,233 0.06% $12,241
07/31/1996 0.75% $15,314 0.90% $16,379 0.19% $12,264
08/31/1996 0.12% $15,332 -0.02% $16,376 0.19% $12,287
09/30/1996 1.26% $15,525 1.40% $16,605 0.32% $12,327
10/31/1996 1.11% $15,698 1.13% $16,793 0.32% $12,366
11/30/1996 1.48% $15,930 1.83% $17,100 0.19% $12,390
12/31/1996 -0.20% $15,898 -0.42% $17,028 0.00% $12,390
01/31/1997 0.24% $15,936 0.19% $17,061 0.32% $12,429
02/28/1997 0.80% $16,064 0.92% $17,218 0.31% $12,468
03/31/1997 -0.88% $15,922 -1.33% $16,989 0.25% $12,499
04/30/1997 0.79% $16,048 0.84% $17,131 0.12% $12,514
05/31/1997 1.11% $16,226 1.51% $17,390 -0.06% $12,507
06/30/1997 1.06% $16,398 1.07% $17,576 0.12% $12,522
07/31/1997 2.41% $16,794 2.77% $18,063 0.12% $12,537
08/31/1997 -0.73% $16,671 -0.94% $17,893 0.19% $12,560
09/30/1997 1.23% $16,876 1.19% $18,106 0.25% $12,592
10/31/1997 0.67% $16,989 0.64% $18,222 0.25% $12,623
11/30/1997 0.68% $17,105 0.59% $18,330 -0.06% $12,616
12/31/1997 1.36% $17,337 1.46% $18,597 -0.12% $12,601
01/31/1998 0.78% $17,472 1.03% $18,789 0.19% $12,624
02/28/1998 0.02% $17,476 0.03% $18,794 0.19% $12,648
03/31/1998 0.22% $17,514 0.09% $18,811 0.19% $12,672
04/30/1998 -0.17% $17,485 -0.45% $18,727 0.18% $12,695
05/31/1998 -0.32% $17,429 1.58% $19,023 0.18% $12,718
06/30/1998 -0.12% $17,408 0.39% $19,097 0.12% $12,733
07/31/1998 0.33% $17,465 0.25% $19,145 0.12% $12,749
08/31/1998 1.23% $17,680 1.55% $19,441 0.12% $12,764
09/30/1998 0.92% $17,843 1.25% $19,684 0.12% $12,779
10/31/1998 -0.04% $17,836 0.00% $19,684 0.24% $12,810
11/30/1998 0.36% $17,900 0.35% $19,753 0.00% $12,810
12/31/1998 0.17% $17,930 0.25% $19,803 -0.06% $12,802
01/31/1999 0.86% $18,084 1.19% $20,038 0.24% $12,833
02/28/1999 -0.26% $18,037 -0.44% $19,950 0.12% $12,848
03/31/1999 0.40% $18,110 0.14% $19,978 0.30% $12,887
04/30/1999 0.16% $18,139 0.25% $20,028 0.73% $12,981
05/31/1999 -0.37% $18,071 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.21% $17,853 -1.44% $19,625 0.00% $12,981
07/31/1999 0.15% $17,880 0.36% $19,696 0.30% $13,020
08/31/1999 -1.38% $17,633 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.02% $17,629 0.04% $19,546 0.48% $13,114
10/31/1999 -1.37% $17,388 -1.08% $19,335 0.18% $13,137
11/30/1999 0.50% $17,475 1.06% $19,540 0.06% $13,145
12/31/1999 -1.10% $17,282 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.94% $17,120 -0.44% $19,308 0.24% $13,177
02/29/2000 1.22% $17,349 1.16% $19,532 0.59% $13,255
Total Return 73.49% 95.32% 32.55%
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of the Franklin Alabama
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Alabama Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class C Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.37% $10,139 3.19% $10,319 0.20% $10,020
06/30/1995 -0.44% $10,094 -0.87% $10,229 0.20% $10,040
07/31/1995 0.60% $10,155 0.95% $10,326 0.00% $10,040
08/31/1995 0.75% $10,231 1.27% $10,458 0.26% $10,066
09/29/1995 0.66% $10,298 0.63% $10,523 0.20% $10,086
10/31/1995 1.21% $10,423 1.45% $10,676 0.33% $10,120
11/30/1995 1.55% $10,585 1.66% $10,853 -0.07% $10,112
12/29/1995 0.99% $10,689 0.96% $10,957 -0.07% $10,105
01/31/1996 0.43% $10,735 0.76% $11,041 0.59% $10,165
02/29/1996 -0.35% $10,698 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.04% $10,586 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.09% $10,577 -0.28% $10,795 0.39% $10,291
05/31/1996 0.11% $10,589 -0.04% $10,791 0.19% $10,310
06/28/1996 1.01% $10,696 1.09% $10,908 0.06% $10,316
07/31/1996 0.70% $10,770 0.90% $11,006 0.19% $10,336
08/30/1996 0.07% $10,778 -0.02% $11,004 0.19% $10,356
09/30/1996 1.20% $10,907 1.40% $11,158 0.32% $10,389
10/31/1996 1.05% $11,022 1.13% $11,284 0.32% $10,422
11/29/1996 1.42% $11,178 1.83% $11,491 0.19% $10,442
12/31/1996 -0.25% $11,150 -0.42% $11,443 0.00% $10,442
01/31/1997 0.18% $11,170 0.19% $11,464 0.32% $10,475
02/28/1997 0.84% $11,264 0.92% $11,570 0.31% $10,508
03/31/1997 -0.93% $11,159 -1.33% $11,416 0.25% $10,534
04/30/1997 0.74% $11,242 0.84% $11,512 0.12% $10,547
05/31/1997 1.05% $11,360 1.51% $11,686 -0.06% $10,540
06/30/1997 1.01% $11,475 1.07% $11,811 0.12% $10,553
07/31/1997 2.36% $11,746 2.77% $12,138 0.12% $10,565
08/31/1997 0.77% $11,655 -0.94% $12,024 0.19% $10,586
09/30/1997 1.18% $11,793 1.19% $12,167 0.25% $10,612
10/31/1997 0.61% $11,865 0.64% $12,245 0.25% $10,639
11/30/1997 0.63% $11,939 0.59% $12,317 -0.06% $10,632
12/31/1997 1.39% $12,105 1.46% $12,497 -0.12% $10,619
01/31/1998 0.65% $12,184 1.03% $12,626 0.19% $10,640
02/28/1998 0.06% $12,191 0.03% $12,629 0.19% $10,660
03/31/1998 0.09% $12,202 0.09% $12,641 0.19% $10,680
04/30/1998 -0.13% $12,186 -0.45% $12,584 0.18% $10,699
05/31/1998 -0.45% $12,132 1.58% $12,783 0.18% $10,719
06/30/1998 -0.08% $12,122 0.39% $12,832 0.12% $10,731
07/31/1998 0.27% $12,155 0.25% $12,865 0.12% $10,744
08/31/1998 1.17% $12,297 1.55% $13,064 0.12% $10,757
09/30/1998 0.87% $12,404 1.25% $13,227 0.12% $10,770
10/31/1998 -0.09% $12,393 0.00% $13,227 0.24% $10,796
11/30/1998 0.31% $12,431 0.35% $13,274 0.00% $10,796
12/31/1998 0.12% $12,446 0.25% $13,307 -0.06% $10,789
01/31/1999 0.81% $12,547 1.19% $13,465 0.24% $10,815
02/28/1999 -0.30% $12,509 -0.44% $13,406 0.12% $10,828
03/31/1999 0.34% $12,552 0.14% $13,425 0.30% $10,861
04/30/1999 0.20% $12,577 0.25% $13,458 0.73% $10,940
05/31/1999 -0.50% $12,514 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.17% $12,368 -1.44% $13,187 0.00% $10,940
07/31/1999 0.02% $12,370 0.36% $13,235 0.30% $10,973
08/31/1999 -1.43% $12,193 -0.80% $13,129 0.24% $10,999
09/30/1999 0.03% $12,197 0.04% $13,134 0.48% $11,052
10/31/1999 -1.59% $12,003 -1.08% $12,992 0.18% $11,072
11/30/1999 0.54% $12,068 1.06% $13,130 0.06% $11,079
12/31/1999 -1.14% $11,930 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.98% $11,813 -0.44% $12,974 0.24% $11,105
02/29/2000 1.17% $11,952 1.16% $13,125 0.59% $11,171
Total Return 19.52% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN FLORIDA TAX-FREE INCOME FUND
[PIE CHART]
CREDIT QUALITY BREAKDOWN*
AAA - 65.9%
AA 10.4%
A - 12.2%
BBB - 10.9%
Below Investment Grade - 0.6%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
Your Fund's Goal: Franklin Florida Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal taxes 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
[PICTURE OF STATE OF FLORIDA]
Florida's economy benefited from strong growth in the service, construction and
trade sectors, which employed more than 64% of the state's workforce during the
year under review. Furthermore, the reporting period's favorable employment
numbers show no signs of letting up in the near future. Calendar year 2000's
projected 4.2% unemployment rate could be the lowest level Florida will record
in 20 years.(2)
Within this favorable economic environment, Florida's fiscal year 1999 audit
revealed healthy finances, as demonstrated by a substantial $3.5 billion general
fund balance on June 30, 1999. At the same time, revenues for fiscal year 2000
were 2.1% above budgeted levels as of mid-February 2000, with an additional
revenue surplus anticipated for fiscal year 2000.(3)
One weak spot in Florida's fiscal outlook is its narrow tax base, principally
sales tax, which increases the state's vulnerability to economic cycles. In a
measure to mitigate this economic vulnerability, Florida has been building up
its Budget Stabilization Reserve balance, which totaled $787 million on June 30,
1999.(3) The state's high population growth rate, while contributing to its
economic strength, also places demands on infrastructure, leading to higher
borrowing levels. Although manageable, Florida's debt levels have risen steadily
in recent years, with a projected $866 net tax-supported per-capita debt rate
for 2000, higher than the $540 national median.(4)
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Moody's Investors Service, Global Credit Research, 2/18/00.
3. Source: Standard and Poor's Ratings Direct, 2/17/00.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 71.
Florida's diversified, service-based economy, fully-funded budget, past history
of fiscal discipline and stabilization reserves equal to 5% of revenues should
maintain the state's favorable credit outlook going forward.
PORTFOLIO NOTES
Rising interest rates during the year under review presented challenges for the
municipal bond market, as bond prices decline when interest rates rise. For the
12 months ended February 29, 2000, the 30-year Treasury bond price fell 10.1%,
and the Bond Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By
comparison, your fund's Class A share price, as measured by net asset value,
declined 8.7%.(5)
During the period, we attempted to take advantage of the higher interest-rate
environment to restructure the fund's portfolio and enhance its income-producing
potential. We generally sold shorter maturity bonds, maturing in the 2015-2020
year range, and bought longer-term bonds with higher yields. In addition, we
booked tax losses, which can be carried forward in the portfolio to help offset
taxable capital gains in the future and potentially lower shareholders' future
tax liabilities. With this in mind, the fund sold Dade County Water and Sewer,
Atlantic Beach Utility System, Florida Housing Financial Agency, and Alachua
County - Shands Teaching Hospital bonds.
Florida's $11.6 billion bond supply for 1999 was down 24% from 1998's.6 When
investigating potential purchases, we continued to seek bonds maximizing
current, tax-free income and having favorable call protection to provide our
shareholders with a steady, long-term income stream. Attempting to meet these
goals, we made several additions to the portfolio during the reporting period,
including Palm Beach School, Brevard County Housing, St. Lucie West Service
District, and Escambia County
PORTFOLIO BREAKDOWN
Franklin Florida
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------
<S> <C>
Utilities 23.5%
Prerefunded 18.7%
Hospital & Health Care 14.0%
Transportation 12.2%
Housing 9.4%
Tax-Supported Debt 9.1%
Other Revenue 5.4%
General Obligation 2.8%
Subject to Government
Appropriation 2.8%
Higher Education 1.8%
Corporate-Backed 0.3%
</TABLE>
4. Source: Moody's Investors Service.
5. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
6. Source: The Bond Buyer, 1/3/00.
Housing - Single Family Housing Revenue bonds. These purchases maintained
diversification in a broad range of credits, which helped reduce the fund's
exposure to risk and volatility that might affect any one credit. In addition,
our active portfolio management has built a portfolio with not only credit risk
diversity, but also a wide range of coupons and maturities. The fund continues
to emphasize high-quality securities, and AAA-rated bonds represented 65.9% of
the fund's total long-term investments at the end of the reporting period.
Your fund offers a notable tax advantage over a comparable taxable investment.
On page 15, the Performance Summary shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.31%, based on an
annualization of the current 5.03 cent ($0.0503) per share dividend and the
maximum offering price of $11.37 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal personal income tax bracket of 39.6% would
need to earn 8.79% from a taxable investment to match the fund's tax-free
distribution rate. The Performance Summary also shows the distribution rates and
taxable equivalent distribution rates for Class B and C shares.
Looking forward, we will attempt to continue taking advantage of the generally
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin Florida Tax-Free Income Fund can help to lower such
volatility, as they offer a level of diversification that is difficult for
individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Florida Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS B** CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5 cents -- 4.43 cents
April 5 cents -- 4.43 cents
May 5 cents -- 4.43 cents
June 5 cents -- 4.46 cents
July 5 cents -- 4.46 cents
August 5 cents -- 4.46 cents
September 5 cents -- 4.48 cents
October 5 cents -- 4.48 cents
November 5 cents -- 4.48 cents
December 5 cents -- 4.49 cents
January 5 cents -- 4.49 cents
February 5 cents 3.03 cents 4.49 cents
- --------------------------------------------------------------------------------
TOTAL 60 CENTS 3.03 CENTS 53.58 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.
** Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided
is not a complete analysis of every aspect of any industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN FLORIDA
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -3.54%
Net Asset Value (NAV) $10.89 (2/29/00) $11.91 (2/28/99)
Change in NAV -$1.02
Distributions (3/1/99 - 2/29/00) Dividend Income $0.6000
Long-Term Capital Gain $0.0009
--------------------------------
Total $0.6009
CLASS B
Aggregate Total Return +1.07%
Net Asset Value (NAV) $10.90 (2/29/00) $10.83 (2/1/00)
Change in NAV +$0.07
Distributions (2/1/00 - 2/29/00) Dividend Income $0.0303
CLASS C
One-Year Total Return -4.14%
Net Asset Value (NAV) $10.98 (2/29/00) $12.01 (2/28/99)
Change in NAV -$1.03
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5358
Long-Term Capital Gain $0.0009
--------------------------------
Total $0.5367
</TABLE>
CLASS A: 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 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: 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.
Franklin Florida Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.09 cents ($0.0009) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.54% +27.08% +86.82% +135.69%
Average Annual Total Return(2) -7.65% +4.01% +5.98% +6.73%
INCEPTION
CLASS B (2/1/00)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) +1.07%
Aggregate Total Return(2) -2.93%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -4.14% +8.72% +22.95%
Average Annual Total Return(2) -5.99% +2.48% +4.16%
SHARE CLASS A B C
- --------------------------------------------------------------------------------
Distribution Rate(3) 5.31% 4.98% 4.92%
Taxable Equivalent Distribution Rate(4) 8.79% 8.25% 8.15%
30-Day Standardized Yield(5) 4.95% 4.65% 4.58%
Taxable Equivalent Yield(4) 8.20% 7.70% 7.58%
</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, aggregate total return for that class represents total
return since inception, including the maximum sales charge.
3. Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
4. Taxable equivalent distribution rate and yield assume the 2000 maximum
federal personal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN FLORIDA
TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------
<S> <C>
1-Year -7.65%
5-Year +4.01%
10-Year +5.98%
Since Inception (9/1/87) +6.73%
</TABLE>
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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Florida Lehman Brothers
Tax-Free Income Municipal Bond
Fund-Class A Index CPI*
--------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,561 $10,000 $10,000
03/31/1990 -0.11% $9,550 0.03% $10,003 0.55% $10,055
04/30/1990 -0.87% $9,467 -0.72% $9,931 0.16% $10,071
05/31/1990 2.36% $9,691 2.18% $10,147 0.23% $10,094
06/30/1990 0.92% $9,780 0.88% $10,237 0.54% $10,149
07/31/1990 1.67% $9,943 1.47% $10,387 0.38% $10,187
08/31/1990 -2.80% $9,665 -1.45% $10,237 0.92% $10,281
09/30/1990 0.65% $9,728 0.06% $10,243 0.84% $10,367
10/31/1990 1.49% $9,873 1.82% $10,429 0.60% $10,430
11/30/1990 2.23% $10,093 2.01% $10,639 0.22% $10,453
12/31/1990 -0.05% $10,088 0.43% $10,685 0.00% $10,453
01/31/1991 1.65% $10,254 1.34% $10,828 0.60% $10,515
02/28/1991 0.70% $10,326 0.87% $10,922 0.15% $10,531
03/31/1991 0.42% $10,369 0.03% $10,925 0.15% $10,547
04/30/1991 1.35% $10,509 1.34% $11,072 0.15% $10,563
05/31/1991 0.69% $10,582 0.89% $11,170 0.30% $10,594
06/30/1991 -0.04% $10,578 -0.10% $11,159 0.29% $10,625
07/31/1991 1.63% $10,750 1.22% $11,295 0.15% $10,641
08/31/1991 1.06% $10,864 1.32% $11,444 0.29% $10,672
09/30/1991 1.42% $11,018 1.30% $11,593 0.44% $10,719
10/31/1991 0.59% $11,083 0.90% $11,697 0.15% $10,735
11/30/1991 0.41% $11,129 0.28% $11,730 0.29% $10,766
12/31/1991 2.02% $11,354 2.15% $11,982 0.07% $10,774
01/31/1992 0.25% $11,382 0.23% $12,010 0.15% $10,790
02/29/1992 0.08% $11,391 0.03% $12,013 0.36% $10,829
03/31/1992 0.29% $11,424 0.03% $12,017 0.51% $10,884
04/30/1992 0.92% $11,529 0.89% $12,124 0.14% $10,899
05/31/1992 1.26% $11,674 1.18% $12,267 0.14% $10,914
06/30/1992 1.17% $11,811 1.68% $12,473 0.36% $10,954
07/31/1992 3.59% $12,235 3.00% $12,847 0.21% $10,977
08/31/1992 -1.04% $12,108 -0.97% $12,723 0.28% $11,007
09/30/1992 0.01% $12,109 0.65% $12,805 0.28% $11,038
10/31/1992 -1.58% $11,918 -0.98% $12,680 0.35% $11,077
11/30/1992 2.08% $12,166 1.79% $12,907 0.14% $11,092
12/31/1992 1.54% $12,353 1.02% $13,039 -0.07% $11,085
01/31/1993 1.29% $12,512 1.16% $13,190 0.49% $11,139
02/28/1993 2.63% $12,841 3.62% $13,667 0.35% $11,178
03/31/1993 -0.27% $12,807 -1.06% $13,522 0.35% $11,217
04/30/1993 0.87% $12,918 1.01% $13,659 0.28% $11,248
05/31/1993 0.73% $13,012 0.56% $13,735 0.14% $11,264
06/30/1993 1.46% $13,202 1.67% $13,965 0.14% $11,280
07/31/1993 0.15% $13,222 0.13% $13,983 0.00% $11,280
08/31/1993 1.53% $13,424 2.08% $14,274 0.28% $11,311
09/30/1993 1.09% $13,571 1.14% $14,437 0.21% $11,335
10/31/1993 0.71% $13,667 0.19% $14,464 0.41% $11,382
11/30/1993 -0.44% $13,607 -0.88% $14,337 0.07% $11,390
12/31/1993 1.68% $13,836 2.11% $14,639 0.00% $11,390
01/31/1994 1.05% $13,981 1.14% $14,806 0.27% $11,420
02/28/1994 -1.85% $13,722 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.05% $13,304 -4.07% $13,836 0.34% $11,498
04/30/1994 0.46% $13,365 0.85% $13,953 0.14% $11,514
05/31/1994 0.58% $13,442 0.87% $14,075 0.07% $11,522
06/30/1994 -0.12% $13,426 -0.61% $13,989 0.34% $11,562
07/31/1994 1.46% $13,622 1.83% $14,245 0.27% $11,593
08/31/1994 0.25% $13,656 0.35% $14,295 0.40% $11,639
09/30/1994 -0.90% $13,533 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.19% $13,372 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.88% $13,121 -1.81% $13,583 0.13% $11,694
12/31/1994 1.92% $13,373 2.20% $13,882 0.00% $11,694
01/31/1995 2.64% $13,726 2.86% $14,279 0.40% $11,741
02/28/1995 2.37% $14,051 2.91% $14,695 0.40% $11,788
03/31/1995 0.82% $14,166 1.15% $14,864 0.33% $11,827
04/30/1995 0.38% $14,220 0.12% $14,882 0.33% $11,866
05/31/1995 2.37% $14,557 3.19% $15,356 0.20% $11,889
06/30/1995 -0.18% $14,531 -0.87% $15,223 0.20% $11,913
07/31/1995 0.59% $14,617 0.95% $15,367 0.00% $11,913
08/31/1995 0.83% $14,738 1.27% $15,563 0.26% $11,944
09/30/1995 0.56% $14,821 0.63% $15,661 0.20% $11,968
10/31/1995 1.20% $14,999 1.45% $15,888 0.33% $12,007
11/30/1995 1.36% $15,203 1.66% $16,151 -0.07% $11,999
12/31/1995 0.89% $15,338 0.96% $16,306 -0.07% $11,991
01/31/1996 0.50% $15,415 0.76% $16,430 0.59% $12,061
02/29/1996 -0.37% $15,358 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.81% $15,233 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.20% $15,203 -0.28% $16,065 0.39% $12,210
05/31/1996 0.09% $15,216 -0.04% $16,058 0.19% $12,234
06/30/1996 1.17% $15,394 1.09% $16,233 0.06% $12,241
07/31/1996 0.60% $15,487 0.90% $16,379 0.19% $12,264
08/31/1996 -0.04% $15,481 -0.02% $16,376 0.19% $12,287
09/30/1996 1.37% $15,693 1.40% $16,605 0.32% $12,327
10/31/1996 0.87% $15,829 1.13% $16,793 0.32% $12,366
11/30/1996 1.42% $16,054 1.83% $17,100 0.19% $12,390
12/31/1996 0.27% $16,011 -0.42% $17,028 0.00% $12,390
01/31/1997 0.08% $16,023 0.19% $17,061 0.32% $12,429
02/28/1997 0.83% $16,156 0.92% $17,218 0.31% $12,468
03/31/1997 -1.13% $15,974 -1.33% $16,989 0.25% $12,499
04/30/1997 0.90% $16,118 0.84% $17,131 0.12% $12,514
05/31/1997 1.14% $16,301 1.51% $17,390 -0.06% $12,507
06/30/1997 1.02% $16,468 1.07% $17,576 0.12% $12,522
07/31/1997 2.37% $16,858 2.77% $18,063 0.12% $12,537
08/31/1997 -0.73% $16,735 -0.94% $17,893 0.19% $12,560
09/30/1997 0.72% $16,855 1.19% $18,106 0.25% $12,592
10/31/1997 0.67% $16,968 0.64% $18,222 0.25% $12,623
11/30/1997 0.60% $17,070 0.59% $18,330 -0.06% $12,616
12/31/1997 1.40% $17,309 1.46% $18,597 -0.12% $12,601
01/31/1998 1.05% $17,491 1.03% $18,789 0.19% $12,624
02/28/1998 0.11% $17,510 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $17,547 0.09% $18,811 0.19% $12,672
04/30/1998 -0.18% $17,515 -0.45% $18,727 0.18% $12,695
05/31/1998 1.19% $17,724 1.58% $19,023 0.18% $12,718
06/30/1998 0.34% $17,784 0.39% $19,097 0.12% $12,733
07/31/1998 0.40% $17,855 0.25% $19,145 0.12% $12,749
08/31/1998 1.29% $18,085 1.55% $19,441 0.12% $12,764
09/30/1998 0.91% $18,250 1.25% $19,684 0.12% $12,779
10/31/1998 0.13% $18,274 0.00% $19,684 0.24% $12,810
11/30/1998 0.44% $18,354 0.35% $19,753 0.00% $12,810
12/31/1998 0.31% $18,411 0.25% $19,803 -0.06% $12,802
01/31/1999 0.76% $18,551 1.19% $20,038 0.24% $12,833
02/28/1999 -0.17% $18,519 -0.44% $19,950 0.12% $12,848
03/31/1999 0.14% $18,545 0.14% $19,978 0.30% $12,887
04/30/1999 0.24% $18,590 0.25% $20,028 0.73% $12,981
05/31/1999 -0.53% $18,491 -0.58% $19,912 0.00% $12,981
06/30/1999 1.24% $18,262 -1.44% $19,625 0.00% $12,981
07/31/1999 0.06% $18,273 0.36% $19,696 0.30% $13,020
08/31/1999 -0.84% $18,119 -0.80% $19,538 0.24% $13,051
09/30/1999 0.37% $18,052 0.04% $19,546 0.48% $13,114
10/31/1999 -1.44% $17,792 -1.08% $19,335 0.18% $13,137
11/30/1999 0.86% $17,945 1.06% $19,540 0.06% $13,145
12/31/1999 -0.80% $17,802 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.65% $17,686 -0.44% $19,308 0.24% $13,177
02/29/2000 1.00% $17,882 1.16% $19,532 0.59% $13,255
Total Return 78.82% 95.32% 32.55%
</TABLE>
* Source: Standard & Poor's Micropal.
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- ------------------------------------
<S> <C>
1-Year -5.99%
3-Year +2.48%
Since Inception (5/1/95) +4.16%
</TABLE>
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
5/1/95 to 2/29/00.
<TABLE>
<CAPTION>
Lehman Brothers
Date Franklin Florida Tax-Free Municipal Bond
Income Fund-Class C Index *CPI*
------------------------- ------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.75% $10,176 3.19% $10,319 0.20% $10,020
06/30/1995 -0.15% $10,161 -0.87% $10,229 0.20% $10,040
07/31/1995 0.45% $10,207 0.95% $10,326 0.00% $10,040
08/31/1995 0.86% $10,295 1.27% $10,458 0.26% $10,066
09/29/1995 0.59% $10,355 0.63% $10,523 0.20% $10,086
10/31/1995 1.05% $10,464 1.45% $10,676 0.33% $10,120
11/30/1995 1.39% $10,610 1.66% $10,853 -0.07% $10,112
12/29/1995 0.83% $10,698 0.96% $10,957 -0.07% $10,105
01/31/1996 0.45% $10,746 0.76% $11,041 0.59% $10,165
02/29/1996 -0.41% $10,702 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.94% $10,601 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.25% $10,575 -0.28% $10,795 0.39% $10,291
05/31/1996 0.04% $10,579 -0.04% $10,791 0.19% $10,310
06/28/1996 1.20% $10,706 1.09% $10,908 0.06% $10,316
07/31/1996 0.45% $10,754 0.90% $11,006 0.19% $10,336
08/30/1996 -0.09% $10,744 -0.02% $11,004 0.19% $10,356
09/30/1996 1.40% $10,895 1.40% $11,158 0.32% $10,389
10/31/1996 0.90% $10,993 1.13% $11,284 0.32% $10,422
11/29/1996 1.36% $11,142 1.83% $11,491 0.19% $10,442
12/31/1996 -0.32% $11,107 -0.42% $11,443 0.00% $10,442
01/31/1997 0.04% $11,111 0.19% $11,464 0.32% $10,475
02/28/1997 0.80% $11,200 0.92% $11,570 0.31% $10,508
03/31/1997 -1.17% $11,069 -1.33% $11,416 0.25% $10,534
04/30/1997 0.86% $11,164 0.84% $11,512 0.12% $10,547
05/31/1997 1.09% $11,286 1.51% $11,686 -0.06% $10,540
06/30/1997 0.97% $11,395 1.07% $11,811 0.12% $10,553
07/31/1997 2.39% $11,668 2.77% $12,138 0.12% $10,565
08/31/1997 -0.85% $11,568 -0.94% $12,024 0.19% $10,586
09/30/1997 0.75% $11,655 1.19% $12,167 0.25% $10,612
10/31/1997 0.61% $11,726 0.64% $12,245 0.25% $10,639
11/30/1997 0.55% $11,791 0.59% $12,317 -0.06% $10,632
12/31/1997 1.34% $11,949 1.46% $12,497 -0.12% $10,619
01/31/1998 0.99% $12,067 1.03% $12,626 0.19% $10,640
02/28/1998 0.06% $12,074 0.03% $12,629 0.19% $10,660
03/31/1998 0.16% $12,094 0.09% $12,641 0.19% $10,680
04/30/1998 -0.22% $12,067 -0.45% $12,584 0.18% $10,699
05/31/1998 1.14% $12,205 1.58% $12,783 0.18% $10,719
06/30/1998 0.37% $12,250 0.39% $12,832 0.12% $10,731
07/31/1998 0.26% $12,282 0.25% $12,865 0.12% $10,744
08/31/1998 1.32% $12,444 1.55% $13,064 0.12% $10,757
09/30/1998 0.77% $12,539 1.25% $13,227 0.12% $10,770
10/31/1998 0.08% $12,549 0.00% $13,227 0.24% $10,796
11/30/1998 0.47% $12,608 0.35% $13,274 0.00% $10,796
12/31/1998 0.18% $12,631 0.25% $13,307 -0.06% $10,789
01/31/1999 0.79% $12,731 1.19% $13,465 0.24% $10,815
02/28/1999 -0.22% $12,703 -0.44% $13,406 0.12% $10,828
03/31/1999 0.09% $12,714 0.14% $13,425 0.30% $10,861
04/30/1999 0.20% $12,740 0.25% $13,458 0.73% $10,940
05/31/1999 -0.57% $12,667 -0.58% $13,380 0.00% $10,940
06/30/1999 1.28% $12,505 -1.44% $13,187 0.00% $10,940
07/31/1999 0.02% $12,508 0.36% $13,235 0.30% $10,973
08/31/1999 -0.97% $12,386 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.41% $12,335 0.04% $13,134 0.48% $11,052
10/31/1999 -1.47% $12,154 -1.08% $12,992 0.18% $11,072
11/30/1999 0.89% $12,262 1.06% $13,130 0.06% $11,079
12/31/1999 -0.84% $12,159 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.78% $12,064 -0.44% $12,974 0.24% $11,105
02/29/2000 0.95% $12,177 1.16% $13,125 0.59% $11,171
Total Return 21.77% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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
[PICTURE OF STATE OF GEORGIA]
During the year under review, Georgia enjoyed sustained economic expansion, in
addition to a relatively low debt burden and improved financial management and
performance. Driving the state's economic growth is its strong job creation,
extensive transportation infrastructure, and low average cost of living.
Employment in the services sector grew 4.8% in 1999, counterbalancing slow
growth or declines in manufacturing jobs. Overall, Georgia's employment rate
grew 2.9%, compared with 2.2% for the nation as a whole. The state's growing
employment rate is indicative of its tight labor market, although job growth is
expected to slow to an average of 1.6% annually over the next five years.(2)
Fiscal years 1995-1998 each closed with general fund operating surpluses, with
fiscal year 1999 estimated to do the same. This increased the state's unreserved
general fund balance, providing the state with substantial financial
flexibility. The enacted fiscal year 2000 budget places a high priority on
educational programs, maintaining competitive teacher salaries, increased prison
capacity, and property tax relief. This budget tops $13.3 billion, 6.1% above
fiscal year 1999 estimates, and net state revenues, composed of fees and taxes,
are budgeted to rise 5.5% over fiscal year 1999 estimates.(2) Georgia's overall
debt level remains relatively low at $697 per capita, ranking 15th nationally,
moderately above the national median level of $540.(3)
[PIE CHART]
CREDIT QUALITY BREAKDOWN
Franklin Georgia Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
AAA - 54.5%
AA - 16.6%
A - 11.7%
BBB - 17.2%
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 Ratings Direct, 2/15/00. This does not indicate
Standard & Poor's rating of the fund.
3. Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 80.
PORTFOLIO BREAKDOWN
Franklin Georgia
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------
<S> <C>
Utilities 18.5%
Hospital & Health Care 16.9%
Housing 13.3%
Prerefunded 13.1%
Higher Education 10.5%
Corporate-Backed 9.3%
General Obligation 8.3%
Transportation 4.8%
Tax-Supported Debt 2.5%
Other Revenue 1.7%
Subject to Government
Appropriation 1.1%
</TABLE>
The state's financial outlook is stable, supported by its well-diversified
economy and the presence of many major corporate employers. Although the state's
Department of Revenue recently experienced problems recording and redistributing
sales tax revenue, Georgia's strengthened financial policies and procedures,
coupled with conservative fiscal management and a commitment to fully funding
its reserves, should enable the state to remain fiscally sound in the future. In
light of its economic strength, Georgia has received the highest rating, AAA, by
Standard & Poor's, an independent credit rating agency.(2)
PORTFOLIO NOTES
Interest rates generally rose during the 12 months under review, presenting
challenges for municipal bond investors, as bond prices fall when interest rates
rise. For the year ended February 29, 2000, the 30-year Treasury bond price fell
10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) dropped 13.1%. By
comparison, Franklin Georgia Tax-Free Income Fund's Class A share price declined
8.6%, as measured by net asset value.(4)
During the period, we sought to capitalize on market opportunities to enhance
the portfolio's structure and income-producing potential. The rise in interest
rates allowed us to book tax losses, which can be carried forward to help offset
current or future capital gains and possibly reduce our shareholders' future tax
liabilities, by selling lower-yielding securities and reinvesting the proceeds
at recent, higher rates. During the period, we focused on selling highly liquid
securities with shorter call protection than we would prefer, such as Douglas
County Housing Authority, Gainesville Hospital Authority Revenue, Paulding
County Water and Sewer Authority, and Pike County School District general
obligation bonds.
When investigating potential purchases, we continued to seek bonds maximizing
current, tax-free income and having favorable call protection to provide our
shareholders a steady, long-term income stream. Purchases during the year
included revenue bonds of Emory University, Clayton County Development
Authority, Henry County Hospital Authority for the Henry Medical Center, and
Rockdale County Water and Sewer Authority. These purchases maintained the
portfolio's diversification among a broad range of sectors, helping to reduce
the fund's exposure to the risk and volatility that may affect any one sector.
In addition, our active portfolio management has built a portfolio with not only
credit risk diversity, but also a wide range of coupons and maturities. At the
end of the reporting period, AAA-rated bonds represented 54.5% of the fund's
total long-term investments, while the portfolio's weighted average life to
first call increased to 6.87 years at the end of the period from 6.74 years at
the beginning.
4. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 21 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.16%, based on an
annualization of the current 4.95 cent ($0.0495) per share dividend and the
maximum offering price of $11.52 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Georgia state personal income
tax bracket of 43.22% would need to earn 9.09% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
Looking forward, we will attempt to continue taking advantage of the recently
higher interest-rate environment. Please keep in mind that interest rates, and
therefore bond prices, rise and fall depending on domestic and global economic
factors. Such fluctuations are a normal part of investing, and one should expect
this when investing in any security, including municipal bonds. However,
municipal bond funds such as Franklin Georgia Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Georgia Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.95 cents 4.43 cents
April 4.95 cents 4.43 cents
May 4.95 cents 4.43 cents
June 4.95 cents 4.42 cents
July 4.95 cents 4.42 cents
August 4.95 cents 4.42 cents
September 4.95 cents 4.31 cents
October 4.95 cents 4.31 cents
November 4.95 cents 4.31 cents
December 4.95 cents 4.43 cents
January 4.95 cents 4.43 cents
February 4.95 cents 4.43 cents
- --------------------------------------------------------------------------------
TOTAL 59.40 CENTS 52.77 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
One-Year Total Return -3.71%
Net Asset Value (NAV) $11.03 (2/29/00) $12.07 (2/28/99)
Change in NAV -$1.04
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5940
Long-Term Capital Gain $0.0017
------------------------------------------
Total $0.5957
CLASS C
One-Year Total Return -4.32%
Net Asset Value (NAV) $11.10 (2/29/00) $12.15 (2/28/99)
Change in NAV -$1.05
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5277
Long-Term Capital Gain $0.0017
------------------------------------------
Total $0.5294
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.71% +25.39% +81.58% +127.82%
Average Annual Total Return(2) -7.83% +3.73% +5.69% +6.44%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------
Cumulative Total Return(1) -4.32% +7.38% +21.05%
Average Annual Total Return(2) -6.16% +2.06% +3.81%
SHARE CLASS A C
- ---------------------------------------------------------------------------------
Distribution Rate(3) 5.16% 4.80%
Taxable Equivalent Distribution Rate(4) 9.09% 8.45%
30-Day Standardized Yield(5) 5.03% 4.66%
Taxable Equivalent Yield(4) 8.86% 8.21%
</TABLE>
Franklin Georgia Tax-Free Income Fund paid distributions derived from long-term
capital gains of 0.17 cents ($0.0017) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code 852(b)(3).
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN GEORGIA
TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Georgia state personal
income tax bracket of 43.22%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 GEORGIA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------
<S> <C>
1-Year -7.83%
5-Year +3.73%
10-Year +5.69%
Since Inception (9/1/87) +6.44%
</TABLE>
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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Georgia Lehman Brothers Municipal CPI*
Tax-Free Income Bond Index*
Fund-Class A
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,572 $10,000 $10,000
03/31/1990 -0.06% $9,566 0.03% $10,003 0.55% $10,055
04/30/1990 -0.60% $9,509 -0.72% $9,931 0.16% $10,071
05/31/1990 2.20% $9,718 2.18% $10,147 0.23% $10,094
06/30/1990 0.88% $9,804 0.88% $10,237 0.54% $10,149
07/31/1990 1.70% $9,970 1.47% $10,387 0.38% $10,187
08/31/1990 -2.59% $9,712 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.14% $9,698 0.06% $10,243 0.84% $10,367
10/31/1990 1.37% $9,831 1.82% $10,429 0.60% $10,430
11/30/1990 2.39% $10,066 2.01% $10,639 0.22% $10,453
12/31/1990 -0.14% $10,052 0.43% $10,685 0.00% $10,453
01/31/1991 1.91% $10,244 1.34% $10,828 0.60% $10,515
02/28/1991 0.77% $10,323 0.87% $10,922 0.15% $10,531
03/31/1991 0.32% $10,356 0.03% $10,925 0.15% $10,547
04/30/1991 1.33% $10,494 1.34% $11,072 0.15% $10,563
05/31/1991 0.68% $10,565 0.89% $11,170 0.30% $10,594
06/30/1991 -0.04% $10,561 -0.10% $11,159 0.29% $10,625
07/31/1991 1.42% $10,711 1.22% $11,295 0.15% $10,641
08/31/1991 1.05% $10,823 1.32% $11,444 0.29% $10,672
09/30/1991 1.40% $10,975 1.30% $11,593 0.44% $10,719
10/31/1991 0.49% $11,029 0.90% $11,697 0.15% $10,735
11/30/1991 0.40% $11,073 0.28% $11,730 0.29% $10,766
12/31/1991 1.87% $11,280 2.15% $11,982 0.07% $10,774
01/31/1992 0.50% $11,336 0.23% $12,010 0.15% $10,790
02/29/1992 0.20% $11,314 0.03% $12,013 0.36% $10,829
03/31/1992 0.19% $11,335 0.03% $12,017 0.51% $10,884
04/30/1992 0.94% $11,442 0.89% $12,124 0.14% $10,899
05/31/1992 1.30% $11,590 1.18% $12,267 0.14% $10,914
06/30/1992 1.31% $11,742 1.68% $12,473 0.36% $10,954
07/31/1992 3.34% $12,134 3.00% $12,847 0.21% $10,977
08/31/1992 -1.13% $11,997 -0.97% $12,723 0.28% $11,007
09/30/1992 0.29% $12,032 0.65% $12,805 0.28% $11,038
10/31/1992 -1.77% $11,819 -0.98% $12,680 0.35% $11,077
11/30/1992 2.29% $12,090 1.79% $12,907 0.14% $11,092
12/31/1992 1.53% $12,275 1.02% $13,039 0.07% $11,085
01/31/1993 0.79% $12,372 1.16% $13,190 0.49% $11,139
02/28/1993 2.75% $12,712 3.62% $13,667 0.35% $11,178
03/31/1993 -0.39% $12,662 -1.06% $13,522 0.35% $11,217
04/30/1993 1.17% $12,810 1.01% $13,659 0.28% $11,248
05/31/1993 0.60% $12,887 0.56% $13,735 0.14% $11,264
06/30/1993 1.75% $13,113 1.67% $13,965 0.14% $11,280
07/31/1993 0.05% $13,119 0.13% $13,983 0.00% $11,280
08/31/1993 1.75% $13,349 2.08% $14,274 0.28% $11,311
09/30/1993 1.26% $13,517 1.14% $14,437 0.21% $11,335
10/31/1993 0.34% $13,563 0.19% $14,464 0.41% $11,382
11/30/1993 -0.37% $13,513 -0.88% $14,337 0.07% $11,390
12/31/1993 1.65% $13,736 2.11% $14,639 0.00% $11,390
01/31/1994 1.19% $13,899 1.14% $14,806 0.27% $11,420
02/28/1994 -2.13% $13,603 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.33% $13,150 -4.07% $13,836 0.34% $11,498
04/30/1994 0.38% $13,200 0.85% $13,953 0.14% $11,514
05/31/1994 0.68% $13,290 0.87% $14,075 0.07% $11,522
06/30/1994 -0.42% $13,234 -0.61% $13,989 0.34% $11,562
07/31/1994 1.69% $13,458 1.83% $14,245 0.27% $11,593
08/31/1994 0.41% $13,513 0.35% $14,295 0.40% $11,639
09/30/1994 -0.98% $13,381 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.53% $13,176 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.95% $12,919 -1.81% $13,583 0.13% $11,694
12/31/1994 2.34% $13,221 2.20% $13,882 0.00% $11,694
01/31/1995 2.68% $13,576 2.86% $14,279 0.40% $11,741
02/28/1995 2.11% $13,862 2.91% $14,695 0.40% $11,788
03/31/1995 0.96% $13,995 1.15% $14,864 0.33% $11,827
04/30/1995 0.27% $14,033 0.12% $14,882 0.33% $11,866
05/31/1995 2.31% $14,357 3.19% $15,356 0.20% $11,889
06/30/1995 -0.37% $14,304 -0.87% $15,223 0.20% $11,913
07/31/1995 0.48% $14,373 0.95% $15,367 0.00% $11,913
08/31/1995 0.97% $14,512 1.27% $15,563 0.26% $11,944
09/30/1995 0.37% $14,566 0.63% $15,661 0.20% $11,968
10/31/1995 1.27% $14,751 1.45% $15,888 0.33% $12,007
11/30/1995 1.29% $14,941 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,081 0.96% $16,306 -0.07% $11,991
01/31/1996 0.39% $15,140 0.76% $16,430 0.59% $12,061
02/29/1996 -0.29% $15,096 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.90% $14,961 -1.28% $16,110 0.52% $12,163
04/30/1996 0.04% $14,967 -0.28% $16,065 0.39% $12,210
05/31/1996 0.25% $15,004 -0.04% $16,058 0.19% $12,234
06/30/1996 0.96% $15,148 1.09% $16,233 0.06% $12,241
07/31/1996 0.57% $15,234 0.90% $16,379 0.19% $12,264
08/31/1996 0.12% $15,253 -0.02% $16,376 0.19% $12,287
09/30/1996 1.24% $15,442 1.40% $16,605 0.32% $12,327
10/31/1996 0.87% $15,576 1.13% $16,793 0.32% $12,366
11/30/1996 1.29% $15,777 1.83% $17,100 0.19% $12,390
12/31/1996 0.05% $15,785 -0.42% $17,028 0.00% $12,390
01/31/1997 0.19% $15,815 0.19% $17,061 0.32% $12,429
02/28/1997 0.69% $15,924 0.92% $17,218 0.31% $12,468
03/31/1997 -0.89% $15,782 -1.33% $16,989 0.25% $12,499
04/30/1997 0.77% $15,904 0.84% $17,131 0.12% $12,514
05/31/1997 1.08% $16,076 1.51% $17,390 -0.06% $12,507
06/30/1997 0.88% $16,217 1.07% $17,576 0.12% $12,522
07/31/1997 2.12% $16,561 2.77% $18,063 0.12% $12,537
08/31/1997 0.66% $16,452 -0.94% $17,893 0.19% $12,560
09/30/1997 1.03% $16,621 1.19% $18,106 0.25% $12,592
10/31/1997 0.56% $16,714 0.64% $18,222 0.25% $12,623
11/30/1997 0.66% $16,824 0.59% $18,330 -0.06% $12,616
12/31/1997 1.20% $17,026 1.46% $18,597 -0.12% $12,601
01/31/1998 0.78% $17,159 1.03% $18,789 0.19% $12,624
02/28/1998 0.02% $17,163 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $17,199 0.09% $18,811 0.19% $12,672
04/30/1998 -0.09% $17,183 -0.45% $18,727 0.18% $12,695
05/31/1998 1.25% $17,398 1.58% $19,023 0.18% $12,718
06/30/1998 0.29% $17,448 0.39% $19,097 0.12% $12,733
07/31/1998 0.22% $17,487 0.25% $19,145 0.12% $12,749
08/31/1998 1.18% $17,693 1.55% $19,441 0.12% $12,764
09/30/1998 1.13% $17,893 1.25% $19,684 0.12% $12,779
10/31/1998 -0.21% $17,855 0.00% $19,684 0.24% $12,810
11/30/1998 0.42% $17,930 0.35% $19,753 0.00% $12,810
12/31/1998 0.32% $17,988 0.25% $19,803 -0.06% $12,802
01/31/1999 0.74% $18,121 1.19% $20,038 0.24% $12,833
02/28/1999 -0.34% $18,059 -0.44% $19,950 0.12% $12,848
03/31/1999 0.23% $18,101 0.14% $19,978 0.30% $12,887
04/30/1999 0.32% $18,159 0.25% $20,028 0.73% $12,981
05/31/1999 -0.55% $18,059 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.31% $17,822 -1.44% $19,625 0.00% $12,981
07/31/1999 0.06% $17,833 0.36% $19,696 0.30% $13,020
08/31/1999 -1.16% $17,626 0.80% $19,538 0.24% $13,051
09/30/1999 -0.28% $17,577 0.04% $19,546 0.48% $13,114
10/31/1999 -1.44% $17,324 -1.08% $19,335 0.18% $13,137
11/30/1999 0.75% $17,454 1.06% $19,540 0.06% $13,145
12/31/1999 -0.89% $17,298 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.91% $17,141 -0.44% $19,308 0.24% $13,177
02/29/2000 1.44% $17,392 1.16% $19,532 0.59% $13,255
Total Return 73.92% 95.32% 32.55%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------
<S> <C>
1-Year -6.16%
3-Year +2.06%
Since Inception (5/1/95) +3.81%
</TABLE>
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Georgia Lehman Brothers Municipal CPI*
Tax-Free Income Bond Index*
Fund-Class C
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,897 $10,000 $10,000
05/31/1995 2.34% $10,129 3.19% $10,319 0.20% $10,020
06/30/1995 -0.25% $10,103 -0.87% $10,229 0.20% $10,040
07/31/1995 0.51% $10,155 0.95% $10,326 0.00% $10,040
08/31/1995 0.84% $10,240 1.27% $10,458 0.26% $10,066
09/29/1995 0.41% $10,282 0.63% $10,523 0.20% $10,086
10/31/1995 1.12% $10,397 1.45% $10,676 0.33% $10,120
11/30/1995 1.33% $10,536 1.66% $10,853 -0.07% $10,112
12/29/1995 0.89% $10,629 0.96% $10,957 -0.07% $10,105
01/31/1996 0.34% $10,665 0.76% $11,041 0.59% $10,165
02/29/1996 -0.33% $10,630 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.94% $10,530 -1.28% $10,825 0.52% $10,251
04/30/1996 0.00% $10,530 -0.28% $10,795 0.39% $10,291
05/31/1996 0.19% $10,550 -0.04% $10,791 0.19% $10,310
06/28/1996 0.90% $10,645 1.09% $10,908 0.06% $10,316
07/31/1996 0.58% $10,707 0.90% $11,006 0.19% $10,336
08/30/1996 0.05% $10,712 -0.02% $11,004 0.19% $10,356
09/30/1996 1.26% $10,847 1.40% $11,158 0.32% $10,389
10/31/1996 0.82% $10,936 1.13% $11,284 0.32% $10,422
11/29/1996 1.15% $11,062 1.83% $11,491 0.19% $10,442
12/31/1996 0.09% $11,072 -0.42% $11,443 0.00% $10,442
01/31/1997 0.06% $11,079 0.19% $11,464 0.32% $10,475
02/28/1997 0.73% $11,160 0.92% $11,570 0.31% $10,508
03/31/1997 -0.93% $11,056 -1.33% $11,416 0.25% $10,534
04/30/1997 0.63% $11,125 0.84% $11,512 0.12% $10,547
05/31/1997 1.10% $11,248 1.51% $11,686 -0.06% $10,540
06/30/1997 0.82% $11,340 1.07% $11,811 0.12% $10,553
07/31/1997 2.06% $11,574 2.77% $12,138 0.12% $10,565
08/31/1997 -0.70% $11,493 -0.94% $12,024 0.19% $10,586
09/30/1997 0.98% $11,605 1.19% $12,167 0.25% $10,612
10/31/1997 0.50% $11,663 0.64% $12,245 0.25% $10,639
11/30/1997 0.61% $11,734 0.59% $12,317 -0.06% $10,632
12/31/1997 1.23% $11,879 1.46% $12,497 -0.12% $10,619
01/31/1998 0.64% $11,955 1.03% $12,626 0.19% $10,640
02/28/1998 0.06% $11,962 0.03% $12,629 0.19% $10,660
03/31/1998 0.07% $11,970 0.09% $12,641 0.19% $10,680
04/30/1998 -0.14% $11,954 -0.45% $12,584 0.18% $10,699
05/31/1998 1.20% $12,097 1.58% $12,783 0.18% $10,719
06/30/1998 0.33% $12,137 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $12,158 0.25% $12,865 0.12% $10,744
08/31/1998 1.13% $12,295 1.55% $13,064 0.12% $10,757
09/30/1998 1.08% $12,428 1.25% $13,227 0.12% $10,770
10/31/1998 -0.26% $12,395 0.00% $13,227 0.24% $10,796
11/30/1998 0.37% $12,441 0.35% $13,274 0.00% $10,796
12/31/1998 0.27% $12,475 0.25% $13,307 -0.06% $10,789
01/31/1999 0.78% $12,572 1.19% $13,465 0.24% $10,815
02/28/1999 -0.38% $12,524 -0.44% $13,406 0.12% $10,828
03/31/1999 0.18% $12,547 0.14% $13,425 0.30% $10,861
04/30/1999 0.20% $12,572 0.25% $13,458 0.73% $10,940
05/31/1999 -0.58% $12,499 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.35% $12,330 -1.44% $13,187 0.00% $10,940
07/31/1999 0.02% $12,333 0.36% $13,235 0.30% $10,973
08/31/1999 -1.21% $12,184 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.33% $12,143 0.04% $13,134 0.48% $11,052
10/31/1999 -1.48% $11,964 -1.08% $12,992 0.18% $11,072
11/30/1999 0.78% $12,057 1.06% $13,130 0.06% $11,079
12/31/1999 -1.02% $11,934 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.95% $11,821 -0.44% $12,974 0.24% $11,105
02/29/2000 1.39% $11,981 1.16% $13,125 0.59% $11,171
Total Return 19.81% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
Past performance does not guarantee future results.
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
[PICTURE OF STATE OF KENTUCKY]
During the past decade, Kentucky's economy has experienced consistent, solid
growth. As a result of this growth and the state's effective fiscal management,
the commonwealth's financial position has improved since the deficits of the
early 1990s, with fiscal year 1998 representing the fifth consecutive year of
positive financial results. Revenues for the state have also improved, with
revenues for fiscal year 1999 increasing 2.4% over 1998's. In addition, Kentucky
has enjoyed healthy employment growth, largely a result of its central
geographic location and low labor and energy costs. Nonagricultural employment
grew an average of 2.5% per year from 1993 to 1998, keeping pace with national
trends. More recently, job growth slowed slightly, with average monthly
employment increasing 2.0%, compared to a year earlier, for the 12-month period
ended November 1999.2 The employment base continues to diversify, however, as
higher wage jobs, including automotive, transportation equipment, air
transportation, and health and business services, replace those in the
lower-paid coal mining, tobacco and apparel sectors.
The commonwealth's administrative and legislative branches have demonstrated a
strong commitment to include debt service appropriations within the state
budget, thus mitigating potential concerns about any given project's viability.
Debt ratios have dropped over the past several years to a moderate level, from
5.2% in 1984, to 4.6% in 1995, to 3.9% by the end of 1999, as debt has grown
more slowly than personal income during the past decade. The state's $760 debt
per capita is moderately above the 1999 national median of $540(3); however,
debt levels are expected to increase as the commonwealth plans to issue
approximately $850 million in debt authorized during the current, 1999 - 2000
biennial budget, and possibly $909 million in new debt authorizations for the
2001 - 2002 biennium. While issuance of these authorizations will add
significantly to the commonwealth's $3.3 billion in net tax-supported
outstanding debt, debt service is expected to remain a moderate fixed cost,
given the state's goal of limiting debt service to about 6% of general fund
revenues.(2)
[CREDIT QUALITY PIE CHART]
CREDIT QUALITY BREAKDOWN
Franklin Kentucky Taz-Free Income Fund Based on Total Long-Term Investments
2/29/00
AAA - 62.2%
AA - 16.0%
A - 8.2%
BBB - 12.9%
Below Investment Grade - 0.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit 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, State of Kentucky, 1/28/00. This does not
indicate Moody's rating of the fund.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 83.
Kentucky's outlook is stable. A modestly accelerating economy is expected to
sustain recent financial improvement, and while debt ratios are expected to rise
slightly, Kentucky's financial performance should continue to benefit from
positive economic trends, its demonstrated ability to control spending, and its
prudent revenue estimating practices. In light of this sound financial position,
Moody's, an independent credit rating agency, has assigned the commonwealth a
strong Aa2 rating.(2)
PORTFOLIO NOTES
Interest rates generally rose during the 12 months under review, presenting
challenges for municipal bond investors, as bond prices fall when interest rates
rise. For the year ended February 29, 2000, the 30-year Treasury bond price fell
10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) dropped 13.1%. By
comparison, Franklin Kentucky Tax-Free Income Fund's Class A share price
declined 9.2%, as measured by net asset value.(4)
During the period, we sought to capitalize on market opportunities to enhance
the portfolio's structure and income-producing potential. The rise in interest
rates allowed us to book tax losses by selling lower-yielding securities and
reinvesting the proceeds at recent, higher rates. During the period, we focused
on selling highly liquid securities in the intermediate maturity range, such as
Kenton County Water District, Daviess County Public Improvement Corp., and
Kentucky Infrastructure Wastewater revenue bonds. These sales improved the
portfolio's overall structure and booked tax losses for the fund, which can be
carried forward to help offset current or future capital gains and possibly
reduce our shareholders' future tax liabilities.
PORTFOLIO BREAKDOWN
Franklin Kentucky
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------------------------------------------
<S> <C>
Utilities 18.6%
Housing 14.7%
Hospital & Health Care 13.9%
Other Revenue 12.8%
Subject to Government
Appropriation 12.7%
Prerefunded 9.5%
Transportation 9.0%
Corporate-Backed 5.8%
Tax-Supported Debt 2.8%
Higher Education 0.2%
</TABLE>
3. Source: Moody's Investors Service.
4. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
When investigating potential purchases, we continued to seek bonds maximizing
current, tax-free income and having favorable call protection to provide our
shareholders a steady long-term income stream. We found value in new-issue
school district bonds during the period and purchased securities from Bowling
Green Independent School District, Fayette County School District, and Jessamine
County School District. Our active portfolio management has built a portfolio
with not only credit risk diversity, but also a wide range of coupons and
maturities. At the end of the period, AAA-rated bonds represented 62.2% of the
fund's total long-term investments, reflecting the portfolio's fundamentally
high quality.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 26 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.32%, based on an
annualization of the current 4.82 cent ($0.0482) per share dividend and the
maximum offering price of $10.88 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Kentucky state personal income
tax bracket of 43.22% would need to earn 9.37% from a taxable investment to
match the fund's tax-free distribution rate.
Looking forward, we will attempt to continue taking advantage of the recently
higher interest-rate environment. Please keep in mind that interest rates, and
therefore bond prices, rise and fall depending on domestic and global economic
factors. Such fluctuations are a normal part of investing, and one should expect
this when investing in any security, including municipal bonds. However,
municipal bond funds such as Franklin Kentucky Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Kentucky Tax-Free
Income Fund - Class A
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- -----------------------------
<S> <C>
March 4.85 cents
April 4.85 cents
May 4.85 cents
June 4.85 cents
July 4.85 cents
August 4.85 cents
September 4.82 cents
October 4.82 cents
November 4.82 cents
December 4.82 cents
January 4.82 cents
February 4.82 cents
- -----------------------------
TOTAL 58.02 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN KENTUCKY
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -4.13%
Net Asset Value (NAV) $10.42 (2/29/00) $11.47 (2/28/99)
Change in NAV -$1.05
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5802
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (10/12/91)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.13% +29.70% +64.17%
Average Annual Total Return(2) -8.21% +4.42% +5.55%
Distribution Rate(3) 5.32%
Taxable Equivalent Distribution Rate(4) 9.37%
30-Day Standardized Yield(5) 5.34%
Taxable Equivalent Yield(4) 9.40%
</TABLE>
CLASS A: 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 has agreed in advance to
waive a portion of its management fees, which reduces operating expenses and
increases distribution rate, yield and total return to shareholders. Without
this waiver, the fund's distribution rate and total return would have been
lower, and yield for the period would have been 4.97%. 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.
3. Distribution rate is based on an annualization of the current 4.82 cent per
share monthly dividend and the maximum offering price of $10.88 on February 29,
2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Kentucky state personal
income tax bracket of 43.22%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which includes
approximately 38,000 municipal securities from across the country, differs from
the fund in composition, does not pay management fees or expenses and includes
reinvested interest. One cannot invest directly in an index. For the periods
shown, 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 Kentucky
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
10/12/91 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Kentucky Lehman Brothers
Tax-Free Income Municipal Bond
Fund-Class A Index* CPI*
<S> <C> <C> <C> <C> <C> <C>
10/12/1991 $9,579 $10,000 $10,000
10/31/1991 $9,588 0.55% $10,055 0.09% $10,009
11/30/1991 0.10% $9,598 0.28% $10,083 0.29% $10,038
12/31/1991 2.00% $9,790 2.15% $10,300 0.07% $10,045
01/31/1992 0.68% $9,856 0.23% $10,324 0.15% $10,060
02/29/1992 0.23% $9,879 0.03% $10,327 0.36% $10,097
03/31/1992 0.25% $9,903 0.03% $10,330 0.51% $10,148
04/30/1992 0.83% $9,986 0.89% $10,422 0.14% $10,162
05/31/1992 1.49% $10,134 1.18% $10,545 0.14% $10,176
06/30/1992 1.39% $10,275 1.68% $10,722 0.36% $10,213
07/31/1992 4.06% $10,693 3.00% $11,044 0.21% $10,235
08/31/1992 -1.71% $10,510 -0.97% $10,937 0.28% $10,263
09/30/1992 0.24% $10,535 0.65% $11,008 0.28% $10,292
10/31/1992 -1.65% $10,361 -0.98% $10,900 0.35% $10,328
11/30/1992 2.84% $10,655 1.79% $11,095 0.14% $10,342
12/31/1992 1.49% $10,814 1.02% $11,208 -0.07% $10,335
01/31/1993 1.14% $10,937 1.16% $11,338 0.49% $10,386
02/28/1993 3.04% $11,270 3.62% $11,749 0.35% $10,422
03/31/1993 -0.60% $11,202 -1.06% $11,624 0.35% $10,459
04/30/1993 1.07% $11,322 1.01% $11,741 0.28% $10,488
05/31/1993 0.74% $11,406 0.56% $11,807 0.14% $10,503
06/30/1993 2.06% $11,641 1.67% $12,004 0.14% $10,517
07/31/1993 0.31% $11,677 0.13% $12,020 0.00% $10,517
08/31/1993 2.03% $11,914 2.08% $12,270 0.28% $10,547
09/30/1993 1.47% $12,089 1.14% $12,410 0.21% $10,569
10/31/1993 0.63% $12,165 0.19% $12,433 0.41% $10,612
11/30/1993 -1.09% $12,033 -0.88% $12,324 0.07% $10,620
12/31/1993 2.38% $12,319 2.11% $12,584 0.00% $10,620
01/31/1994 1.10% $12,455 1.14% $12,727 0.27% $10,648
02/28/1994 -2.88% $12,096 -2.59% $12,398 0.34% $10,685
03/31/1994 -5.64% $11,414 -4.07% $11,893 0.34% $10,721
04/30/1994 0.78% $11,503 0.85% $11,994 0.14% $10,736
05/31/1994 1.10% $11,629 0.87% $12,099 0.07% $10,743
06/30/1994 -0.94% $11,520 -0.61% $12,025 0.34% $10,780
07/31/1994 2.30% $11,785 1.83% $12,245 0.27% $10,809
08/31/1994 0.31% $11,821 0.35% $12,288 0.40% $10,852
09/30/1994 -2.33% $11,546 -1.47% $12,107 0.27% $10,882
10/31/1994 -2.90% $11,211 -1.78% $11,892 0.07% $10,889
11/30/1994 -2.53% $10,927 -1.81% $11,676 0.13% $10,903
12/31/1994 3.11% $11,267 2.20% $11,933 0.00% $10,903
01/31/1995 3.96% $11,714 2.86% $12,275 0.40% $10,947
02/28/1995 3.50% $12,123 2.91% $12,632 0.40% $10,991
03/31/1995 1.10% $12,257 1.15% $12,777 0.33% $11,027
04/30/1995 0.07% $12,265 0.12% $12,792 0.33% $11,063
05/31/1995 3.62% $12,709 3.19% $13,200 0.20% $11,086
06/30/1995 -1.45% $12,525 -0.87% $13,086 0.20% $11,108
07/31/1995 0.58% $12,598 0.95% $13,210 0.00% $11,108
08/31/1995 1.31% $12,763 1.27% $13,378 0.26% $11,137
09/30/1995 0.82% $12,867 0.63% $13,462 0.20% $11,159
10/31/1995 1.78% $13,097 1.45% $13,657 0.33% $11,196
11/30/1995 1.94% $13,351 1.66% $13,884 -0.07% $11,188
12/31/1995 1.15% $13,504 0.96% $14,017 -0.07% $11,180
01/31/1996 0.47% $13,568 0.76% $14,124 0.59% $11,246
02/29/1996 -1.06% $13,424 -0.68% $14,028 0.32% $11,282
03/31/1996 -1.45% $13,229 -1.28% $13,848 0.52% $11,341
04/30/1996 -0.08% $13,219 -0.28% $13,809 0.39% $11,385
05/31/1996 0.13% $13,236 -0.04% $13,804 0.19% $11,406
06/30/1996 1.29% $13,406 1.09% $13,954 0.06% $11,413
07/31/1996 0.67% $13,496 0.90% $14,080 0.19% $11,435
08/31/1996 0.00% $13,496 -0.02% $14,077 0.19% $11,457
09/30/1996 1.58% $13,710 1.40% $14,274 0.32% $11,493
10/31/1996 1.23% $13,878 1.13% $14,435 0.32% $11,530
11/30/1996 1.72% $14,117 1.83% $14,700 0.19% $11,552
12/31/1996 -0.25% $14,082 -0.42% $14,638 0.00% $11,552
01/31/1997 0.03% $14,086 0.19% $14,666 0.32% $11,589
02/28/1997 0.91% $14,214 0.92% $14,801 0.31% $11,625
03/31/1997 -1.33% $14,025 -1.33% $14,604 0.25% $11,654
04/30/1997 0.90% $14,151 0.84% $14,726 0.12% $11,668
05/31/1997 1.42% $14,352 1.51% $14,949 -0.06% $11,661
06/30/1997 1.10% $14,510 1.07% $15,109 0.12% $11,675
07/31/1997 2.70% $14,902 2.77% $15,527 0.12% $11,689
08/31/1997 -0.71% $14,796 -0.94% $15,381 0.19% $11,711
09/30/1997 1.17% $14,969 1.19% $15,564 0.25% $11,741
10/31/1997 0.58% $15,056 0.64% $15,664 0.25% $11,770
11/30/1997 0.78% $15,173 0.59% $15,756 -0.06% $11,763
12/31/1997 1.51% $15,402 1.46% $15,986 -0.12% $11,749
01/31/1998 0.88% $15,538 1.03% $16,151 0.19% $11,771
02/28/1998 0.09% $15,552 0.03% $16,156 0.19% $11,793
03/31/1998 0.29% $15,597 0.09% $16,170 0.19% $11,816
04/30/1998 -0.38% $15,538 -0.45% $16,098 0.18% $11,837
05/31/1998 1.58% $15,783 1.58% $16,352 0.18% $11,858
06/30/1998 0.42% $15,850 0.39% $16,416 0.12% $11,873
07/31/1998 0.22% $15,884 0.25% $16,457 0.12% $11,887
08/31/1998 1.41% $16,108 1.55% $16,712 0.12% $11,901
09/30/1998 1.10% $16,286 1.25% $16,921 0.12% $11,915
10/31/1998 -0.23% $16,248 0.00% $16,921 0.24% $11,944
11/30/1998 0.35% $16,305 0.35% $16,980 0.00% $11,944
12/31/1998 0.24% $16,344 0.25% $17,023 -0.06% $11,937
01/31/1999 0.96% $16,501 1.19% $17,225 0.24% $11,965
02/28/1999 -0.53% $16,414 -0.44% $17,149 0.12% $11,980
03/31/1999 0.31% $16,464 0.14% $17,173 0.30% $12,016
04/30/1999 0.15% $16,489 0.25% $17,216 0.73% $12,103
05/31/1999 -0.57% $16,395 -0.58% $17,116 0.00% $12,103
06/30/1999 -1.40% $16,166 -1.44% $16,870 0.00% $12,103
07/31/1999 0.05% $16,174 0.36% $16,931 0.30% $12,140
08/31/1999 -1.25% $15,972 -0.80% $16,795 0.24% $12,169
09/30/1999 -0.22% $15,936 0.04% $16,802 0.48% $12,227
10/31/1999 -1.60% $15,681 -1.08% $16,620 0.18% $12,249
11/30/1999 0.78% $15,804 1.06% $16,797 0.06% $12,257
12/31/1999 -0.95% $15,654 -0.75% $16,671 0.00% $12,257
01/31/2000 -0.89% $15,514 -0.44% $16,597 0.24% $12,286
02/29/2000 1.42% $15,726 1.16% $16,790 0.59% $12,359
Total Return 57.26% 66.98% 23.47%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
[PIE CHART--CREDIT QUALITY BREAKDOWN]
CREDIT QUALITY BREAKDOWN
Franklin Louisiana Tax-Free Income Fund Based on Total Long-Term Investments
2/29/00
<TABLE>
<S> <C>
AAA 63.3%
AA 1.3%
A 7.7%
BBB 23.2%
Below Investment Grade 4.5%
</TABLE>
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
[PICTURE OF STATE OF LOUISIANA]
During the year under review, Louisiana continued to experience a number of
developments that maintained its stable credit outlook. The state has
diversified its economic base and experienced employment growth, especially in
the services and trade sectors, at above national levels. A rebound in the
chemical industry and growth in the transportation equipment sector also
contributed to the state's improving economy. Louisiana has experienced a
consistent decline in the unemployment rate so that, by December 1999, it was
down to 4.3%.(2) However, state income levels remain relatively low, at 81% of
the national average, and the state remains susceptible to economic swings due
to its dependence on the oil and energy sectors, despite a broadening employment
base.(3)
Louisiana's debt burden has decreased dramatically in recent years. Per-capita
debt is $505, below the national median level of $540.(4) Fiscal year 2000
budget priorities include reducing additional outstanding debt and establishing
a reserve fund. This debt reduction has provided the state a more stable
baseline for future budgeting.
The state's stable economic outlook reflects employment growth, new tax
revenues, and the state administration's efforts to reverse several negative
financial trends. While job losses are expected in the manufacturing sector,
employment gains in the services and trade areas should offset them. The state
enjoys a favorable financial picture, as state government employment stabilized,
Medicaid spending was brought more under control, the state's debt burden
declined, and some unfunded liabilities were addressed. Standard & Poor's, an
independent credit rating agency, has assigned Louisiana an A-rating.(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: Bureau of Labor Statistics.
3. Source: Standard & Poor's Ratings Direct, 7/1/99. This does not indicate
Standard & Poor's rating of the fund.
4. Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 86.
PORTFOLIO NOTES
Interest rates generally rose during the 12 months under review, presenting
challenges for municipal bond investors, as bond prices fall when interest rates
rise. For the year ended February 29, 2000, the 30-year Treasury bond price fell
10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) dropped 13.1%. By
comparison, Franklin Louisiana Tax-Free Income Fund's Class A share price
declined 9.0%, as measured by net asset value.(5)
During the period, we sought to take advantage of the higher interest-rate
environment to enhance the portfolio's structure and income-producing potential.
The rise in interest rates allowed us to book tax losses, which can be carried
forward to help offset current or future capital gains and possibly reduce our
shareholders' future tax liabilities, by selling lower-yielding securities and
reinvesting the proceeds at recent, higher rates. During the period, we focused
on selling highly liquid securities with shorter call protection than we would
prefer, such as New Orleans General Obligation, Hammond-Tangipahoa Home
Mortgage, and Greater New Orleans Expressway.
For 1999, Louisiana bond issuance fell to $2.7 billion, down more than 27% from
1998.(6) Despite reduced supply during the period, we continued to seek bonds
maximizing current, tax-free income and having favorable call protection to
provide our shareholders a steady, long-term income stream. Purchases during the
year included University of Louisiana System Board for the Lafayette Cajundome
Convention Center and revenue bonds from De Soto Parish Pollution Control for
Central Louisiana Electric Company, and Local Government Environmental
Facilities for both the Baton Rouge Apartments and Delgado Community College.
These purchases maintained the portfolio's diversification among a broad range
of sectors, helping to reduce the fund's exposure to the risk and volatility
that may affect any one sector. In addition, our active portfolio management has
built a portfolio with not only credit risk diversity, but also a wide range of
coupons and maturities. The fund continues to emphasize high-quality securities,
and AAA-rated bonds represented 63.3% of the fund's total long-term investments
at the end of the reporting period.
PORTFOLIO BREAKDOWN
Franklin Louisiana
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------------------------------------------
<S> <C>
Utilities 17.4%
Higher Education 15.9%
Hospital & Health Care 14.9%
Corporate-Backed 13.2%
Housing 11.5%
Tax-Supported Debt 7.5%
General Obligation 6.7%
Prerefunded 4.6%
Subject to Government
Appropriation 4.4%
Other Revenue 3.2%
Transportation 0.7%
</TABLE>
5. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
6. Source: The Bond Buyer, 1/3/00.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 32 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.34%, based on an
annualization of the current 4.9 cent ($0.049) per share dividend and the
maximum offering price of $11.02 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Louisiana state personal income
tax bracket of 43.22% would need to earn 9.41% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
Looking forward, we will attempt to continue taking advantage of the recently
higher interest-rate environment. Please keep in mind that interest rates, and
therefore bond prices, rise and fall depending on domestic and global economic
factors. Such fluctuations are a normal part of investing, and one should expect
this when investing in any security, including municipal bonds. However,
municipal bond funds such as Franklin Louisiana Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Louisiana Tax-free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
March 4.9 cents 4.33 cents
April 4.9 cents 4.33 cents
May 4.9 cents 4.33 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 4.41 cents
October 4.9 cents 4.41 cents
November 4.9 cents 4.41 cents
December 4.9 cents 4.43 cents
January 4.9 cents 4.43 cents
February 4.9 cents 4.43 cents
- ----------------------------------------------------------------------------------
TOTAL 58.8 CENTS 52.59 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN LOUISIANA
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -3.93%
Net Asset Value (NAV) $10.55 (2/29/00) $11.59 (2/28/99)
Change in NAV -$1.04
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5880
CLASS C
One-Year Total Return -4.45%
Net Asset Value (NAV) $10.62 (2/29/00) $11.66 (2/28/99)
Change in NAV -$1.04
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5259
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.93% +26.32% +82.50% +126.65%
Average Annual Total Return(2) -7.98% +3.88% +5.74% +6.39%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.45% +7.97% +22.48%
Average Annual Total Return(2) -6.32% +2.26% +4.07%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.34% 4.94%
Taxable Equivalent Distribution Rate(4) 9.41% 8.70%
30-Day Standardized Yield(5) 5.24% 4.91%
Taxable Equivalent Yield(4) 9.23% 8.65%
</TABLE>
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Louisiana state personal
income tax bracket of 43.22%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, 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 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Louisiana Lehman Brothers
Tax-Free Income Municipal Bond CPI*
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,580 $10,000 $10,000
03/31/1990 0.06% $9,586 0.03% $10,003 0.55% $10,055
04/30/1990 -0.70% $9,519 -0.72% $9,931 0.16% $10,071
05/31/1990 2.37% $9,744 2.18% $10,147 0.23% $10,094
06/30/1990 1.01% $9,843 0.88% $10,237 0.54% $10,149
07/31/1990 1.67% $10,007 1.47% $10,387 0.38% $10,187
08/31/1990 -2.28% $9,779 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.23% $9,756 0.06% $10,243 0.84% $10,367
10/31/1990 1.42% $9,895 1.82% $10,429 0.60% $10,430
11/30/1990 2.47% $10,139 2.01% $10,639 0.22% $10,453
12/31/1990 0.25% $10,165 0.43% $10,685 0.00% $10,453
01/31/1991 1.77% $10,345 1.34% $10,828 0.60% $10,515
02/28/1991 0.81% $10,428 0.87% $10,922 0.15% $10,531
03/31/1991 0.34% $10,464 0.03% $10,925 0.15% $10,547
04/30/1991 1.28% $10,598 1.34% $11,072 0.15% $10,563
05/31/1991 0.80% $10,683 0.89% $11,170 0.30% $10,594
06/30/1991 -0.03% $10,679 -0.10% $11,159 0.29% $10,625
07/31/1991 1.56% $10,846 1.22% $11,295 0.15% $10,641
08/31/1991 0.98% $10,952 1.32% $11,444 0.29% $10,672
09/30/1991 1.45% $11,111 1.30% $11,593 0.44% $10,719
10/31/1991 0.42% $11,158 0.90% $11,697 0.15% $10,735
11/30/1991 0.52% $11,216 0.28% $11,730 0.29% $10,766
12/31/1991 1.71% $11,408 2.15% $11,982 0.07% $10,774
01/31/1992 0.40% $11,453 0.23% $12,010 0.15% $10,790
02/29/1992 -0.04% $11,449 0.03% $12,013 0.36% $10,829
03/31/1992 0.27% $11,479 0.03% $12,017 0.51% $10,884
04/30/1992 0.81% $11,572 0.89% $12,124 0.14% $10,899
05/31/1992 1.25% $11,717 1.18% $12,267 0.14% $10,914
06/30/1992 1.25% $11,864 1.68% $12,473 0.36% $10,954
07/31/1992 3.70% $12,303 3.00% $12,847 0.21% $10,977
08/31/1992 -1.25% $12,149 -0.97% $12,723 0.28% $11,007
09/30/1992 0.17% $12,169 0.65% $12,805 0.28% $11,038
10/31/1992 -1.54% $11,982 -0.98% $12,680 0.35% $11,077
11/30/1992 2.08% $12,231 1.79% $12,907 0.14% $11,092
12/31/1992 1.63% $12,431 1.02% $13,039 -0.07% $11,085
01/31/1993 1.11% $12,569 1.16% $13,190 0.49% $11,139
02/28/1993 2.84% $12,926 3.62% $13,667 0.35% $11,178
03/31/1993 -0.45% $12,867 -1.06% $13,522 0.35% $11,217
04/30/1993 0.70% $12,957 1.01% $13,659 0.28% $11,248
05/31/1993 0.38% $13,007 0.56% $13,735 0.14% $11,264
06/30/1993 1.91% $13,255 1.67% $13,965 0.14% $11,280
07/31/1993 0.13% $13,272 0.13% $13,983 0.00% $11,280
08/31/1993 1.53% $13,475 2.08% $14,274 0.28% $11,311
09/30/1993 1.00% $13,610 1.14% $14,437 0.21% $11,335
10/31/1993 0.11% $13,625 0.19% $14,464 0.41% $11,382
11/30/1993 -0.21% $13,597 -0.88% $14,337 0.07% $11,390
12/31/1993 1.60% $13,814 2.11% $14,639 0.00% $11,390
01/31/1994 0.80% $13,925 1.14% $14,806 0.27% $11,420
02/28/1994 -1.73% $13,684 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.56% $13,197 -4.07% $13,836 0.34% $11,498
04/30/1994 0.09% $13,208 0.85% $13,953 0.14% $11,514
05/31/1994 0.85% $13,321 0.87% $14,075 0.07% $11,522
06/30/1994 -0.42% $13,265 -0.61% $13,989 0.34% $11,562
07/31/1994 1.65% $13,484 1.83% $14,245 0.27% $11,593
08/31/1994 0.31% $13,525 0.35% $14,295 0.40% $11,639
09/30/1994 -0.86% $13,409 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.52% $13,205 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.33% $12,898 -1.81% $13,583 0.13% $11,694
12/31/1994 1.95% $13,149 2.20% $13,882 0.00% $11,694
01/31/1995 2.89% $13,529 2.86% $14,279 0.40% $11,741
02/28/1995 2.32% $13,843 2.91% $14,695 0.40% $11,788
03/31/1995 0.54% $13,918 1.15% $14,864 0.33% $11,827
04/30/1995 0.27% $13,955 0.12% $14,882 0.33% $11,866
05/31/1995 2.42% $14,293 3.19% $15,356 0.20% $11,889
06/30/1995 -0.66% $14,199 -0.87% $15,223 0.20% $11,913
07/31/1995 0.68% $14,295 0.95% $15,367 0.00% $11,913
08/31/1995 0.92% $14,427 1.27% $15,563 0.26% $11,944
09/30/1995 0.73% $14,532 0.63% $15,661 0.20% $11,968
10/31/1995 1.30% $14,721 1.45% $15,888 0.33% $12,007
11/30/1995 1.47% $14,937 1.66% $16,151 -0.07% $11,999
12/31/1995 0.89% $15,070 0.96% $16,306 -0.07% $11,991
01/31/1996 0.40% $15,131 0.76% $16,430 0.59% $12,061
02/29/1996 -0.49% $15,056 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.86% $14,927 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.14% $14,906 -0.28% $16,065 0.39% $12,210
05/31/1996 0.34% $14,957 -0.04% $16,058 0.19% $12,234
06/30/1996 1.00% $15,106 1.09% $16,233 0.06% $12,241
07/31/1996 0.77% $15,223 0.90% $16,379 0.19% $12,264
08/31/1996 0.29% $15,267 -0.02% $16,376 0.19% $12,287
09/30/1996 1.20% $15,450 1.40% $16,605 0.32% $12,327
10/31/1996 0.96% $15,598 1.13% $16,793 0.32% $12,366
11/30/1996 1.52% $15,835 1.83% $17,100 0.19% $12,390
12/31/1996 -0.22% $15,801 -0.42% $17,028 0.00% $12,390
01/31/1997 0.15% $15,824 0.19% $17,061 0.32% $12,429
02/28/1997 0.82% $15,954 0.92% $17,218 0.31% $12,468
03/31/1997 -0.83% $15,822 -1.33% $16,989 0.25% $12,499
04/30/1997 0.63% $15,921 0.84% $17,131 0.12% $12,514
05/31/1997 1.14% $16,103 1.51% $17,390 -0.06% $12,507
06/30/1997 1.11% $16,282 1.07% $17,576 0.12% $12,522
07/31/1997 2.22% $16,643 2.77% $18,063 0.12% $12,537
08/31/1997 -0.59% $16,545 -0.94% $17,893 0.19% $12,560
09/30/1997 1.17% $16,738 1.19% $18,106 0.25% $12,592
10/31/1997 0.67% $16,850 0.64% $18,222 0.25% $12,623
11/30/1997 0.60% $16,952 0.59% $18,330 -0.06% $12,616
12/31/1997 1.43% $17,194 1.46% $18,597 -0.12% $12,601
01/31/1998 0.72% $17,318 1.03% $18,789 0.19% $12,624
02/28/1998 -0.06% $17,307 0.03% $18,794 0.19% $12,648
03/31/1998 0.22% $17,345 0.09% $18,811 0.19% $12,672
04/30/1998 -0.27% $17,299 -0.45% $18,727 0.18% $12,695
05/31/1998 1.31% $17,525 1.58% $19,023 0.18% $12,718
06/30/1998 0.34% $17,585 0.39% $19,097 0.12% $12,733
07/31/1998 0.15% $17,611 0.25% $19,145 0.12% $12,749
08/31/1998 1.32% $17,844 1.55% $19,441 0.12% $12,764
09/30/1998 1.09% $18,038 1.25% $19,684 0.12% $12,779
10/31/1998 -0.22% $17,999 0.00% $19,684 0.24% $12,810
11/30/1998 0.36% $18,063 0.35% $19,753 0.00% $12,810
12/31/1998 0.32% $18,121 0.25% $19,803 -0.06% $12,802
01/31/1999 0.86% $18,277 1.19% $20,038 0.24% $12,833
02/28/1999 -0.36% $18,211 -0.44% $19,950 0.12% $12,848
03/31/1999 0.31% $18,268 0.14% $19,978 0.30% $12,887
04/30/1999 0.24% $18,311 0.25% $20,028 0.73% $12,981
05/31/1999 -0.56% $18,209 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.29% $17,974 -1.44% $19,625 0.00% $12,981
07/31/1999 -0.03% $17,969 0.36% $19,696 0.30% $13,020
08/31/1999 -1.32% $17,731 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.12% $17,710 0.04% $19,546 0.48% $13,114
10/31/1999 -1.58% $17,430 -1.08% $19,335 0.18% $13,137
11/30/1999 0.87% $17,582 1.06% $19,540 0.06% $13,145
12/31/1999 -0.93% $17,418 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.87% $17,267 -0.44% $19,308 0.24% $13,177
02/29/2000 1.31% $17,474 1.16% $19,532 0.59% $13,255
Total Return 74.74% 95.32% 32.55%
</TABLE>
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Louisiana Tax-Free Lehman Brothers Municipal CPI*
Income Fund-Class C Bond Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,901 $10,000 $10,000
05/31/1995 2.45% $10,144 3.19% $10,319 0.20% $10,020
06/30/1995 -0.63% $10,080 -0.87% $10,229 0.20% $10,040
07/31/1995 0.80% $10,160 0.95% $10,326 0.00% $10,040
08/31/1995 0.87% $10,249 1.27% $10,458 0.26% $10,066
09/29/1995 0.59% $10,309 0.63% $10,523 0.20% $10,086
10/31/1995 1.33% $10,446 1.45% $10,676 0.33% $10,120
11/30/1995 1.41% $10,594 1.66% $10,853 -0.07% $10,112
12/29/1995 0.92% $10,691 0.96% $10,957 -0.07% $10,105
01/31/1996 0.35% $10,728 0.76% $11,041 0.59% $10,165
02/29/1996 -0.54% $10,671 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.99% $10,565 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.10% $10,554 -0.28% $10,795 0.39% $10,291
05/31/1996 0.28% $10,584 -0.04% $10,791 0.19% $10,310
06/28/1996 0.86% $10,675 1.09% $10,908 0.06% $10,316
07/31/1996 0.81% $10,761 0.90% $11,006 0.19% $10,336
08/30/1996 0.25% $10,788 -0.02% $11,004 0.19% $10,356
09/30/1996 1.15% $10,912 1.40% $11,158 0.32% $10,389
10/31/1996 0.89% $11,009 1.13% $11,284 0.32% $10,422
11/29/1996 1.46% $11,170 1.83% $11,491 0.19% $10,442
12/31/1996 0.28% $11,139 -0.42% $11,443 0.00% $10,442
01/31/1997 0.17% $11,158 0.19% $11,464 0.32% $10,475
02/28/1997 0.67% $11,233 0.92% $11,570 0.31% $10,508
03/31/1997 -0.79% $11,144 -1.33% $11,416 0.25% $10,534
04/30/1997 0.58% $11,208 0.84% $11,512 0.12% $10,547
05/31/1997 1.17% $11,340 1.51% $11,686 -0.06% $10,540
06/30/1997 0.97% $11,450 1.07% $11,811 0.12% $10,553
07/31/1997 2.26% $11,708 2.77% $12,138 0.12% $10,565
08/31/1997 -0.62% $11,636 -0.94% $12,024 0.19% $10,586
09/30/1997 1.03% $11,756 1.19% $12,167 0.25% $10,612
10/31/1997 0.62% $11,829 0.64% $12,245 0.25% $10,639
11/30/1997 0.56% $11,895 0.59% $12,317 -0.06% $10,632
12/31/1997 1.37% $12,058 1.46% $12,497 -0.12% $10,619
01/31/1998 0.67% $12,139 1.03% $12,626 0.19% $10,640
02/28/1998 -0.02% $12,136 0.03% $12,629 0.19% $10,660
03/31/1998 0.08% $12,146 0.09% $12,641 0.19% $10,680
04/30/1998 -0.31% $12,108 -0.45% $12,584 0.18% $10,699
05/31/1998 1.34% $12,270 1.58% $12,783 0.18% $10,719
06/30/1998 0.30% $12,307 0.39% $12,832 0.12% $10,731
07/31/1998 0.09% $12,318 0.25% $12,865 0.12% $10,744
08/31/1998 1.26% $12,473 1.55% $13,064 0.12% $10,757
09/30/1998 0.96% $12,593 1.25% $13,227 0.12% $10,770
10/31/1998 -0.18% $12,571 0.00% $13,227 0.24% $10,796
11/30/1998 0.31% $12,610 0.35% $13,274 0.00% $10,796
12/31/1998 0.19% $12,634 0.25% $13,307 -0.06% $10,789
01/31/1999 0.90% $12,747 1.19% $13,465 0.24% $10,815
02/28/1999 -0.40% $12,696 -0.44% $13,406 0.12% $10,828
03/31/1999 0.34% $12,739 0.14% $13,425 0.30% $10,861
04/30/1999 0.11% $12,753 0.25% $13,458 0.73% $10,940
05/31/1999 -0.60% $12,677 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.34% $12,507 -1.44% $13,187 0.00% $10,940
07/31/1999 -0.08% $12,497 0.36% $13,235 0.30% $10,973
08/31/1999 -1.36% $12,327 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.16% $12,307 0.04% $13,134 0.48% $11,052
10/31/1999 -1.61% $12,109 -1.08% $12,992 0.18% $11,072
11/30/1999 0.82% $12,208 1.06% $13,130 0.06% $11,079
12/31/1999 -0.97% $12,090 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.90% $11,981 -0.44% $12,974 0.24% $11,105
02/29/2000 1.26% $12,127 1.16% $13,125 0.59% $11,171
Total Return 21.27% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN MARYLAND TAX-FREE INCOME FUND
[CREDIT QUALITY PIE CHART]
CREDIT QUALITY BREAKDOWN*
Franklin Maryland Tax-Free Income Fund Based on Total Long-Term Investments
2/29/00
<TABLE>
<CAPTION>
AAA AA A BBB
<S> <C> <C> <C>
49.7% 18.1% 21.7% 10.5%
</TABLE>
* Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating Agency.
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
[PICTURE OF STATE OF MARYLAND]
Maryland's debt continued to maintain the highest credit rating from Moody's,
Fitch and Standard & Poor's, three independent credit rating agencies.(2) The
state's strength not only mirrors the nation's positive economic cycle, but also
stems from broad-based and growing local economies, high wealth and income
levels, historically sound financial performance, and manageable overall debt
burden. Calendar year 1999 showed a similar growth pattern to 1998's, with
personal income tax collections posting particularly strong growth, more than 4%
higher than in 1998.(3)
Although steady since 1994, growth accelerated during 1999 as employment
increased nearly twice as fast as expected. In fact, Maryland was one of only 10
states to report consecutive decreases in the unemployment rate in the past five
years, and touted the nation's largest decline in unemployment during 1999,
dropping from 4.6% to 3.5%.(4) As of February 2000, state unemployment remained
well below the 4.1% national average. Proximity to the nation's capital, which
gives Maryland a high dependence on government employment, has been a boon in
recent years compared to the federal downsizing trend that limited job growth in
the mid-'90s. For example, the consolidation of military operations to the
Patuxent River Naval Air Station created more than 5,000 new jobs and is
anticipated to add another 3,000 through 2000. Maryland's robust services sector
has led overall labor force growth in recent years, followed by construction,
wholesale and retail trade, and government. State per-capita personal income
levels have been consistently above the U.S. average in recent years. Keeping
with this trend, 1999's median $29,843 per-capita personal income measured 113%
of the national average, and is expected to grow by 5% through 2000.(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. This does not indicate a rating for the fund.
3. Source: Standard & Poor's Ratings Direct, State of Maryland, 12/16/99.
4. Source: Bureau of Labor Statistics, 2/00.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 90.
Maryland's debt burden is above average but carefully managed and rapidly
repaid. Residents' debt per capita of $895 is relatively high compared to the
$540 debt-per-capita median nationwide, but is mitigated by the fact that
Maryland closely follows the recommendations of its Capital Debt Affordability
Committee's policy, which limits total debt to within 3.2% of personal income.
Additionally, the state pays off debt quickly due to a constitutional provision
that requires tax-supported debt to be retired within 15 years.(3),(5)
Looking forward, Maryland has excellent credit characteristics and prospects.
With a healthy $484 million surplus in state coffers, fiscal year 2000 budget
priorities include income tax reform, as well as proposed expenditures for
health and education.(3) As Maryland entered the new millennium with record
reserve levels, a conservative revenue forecasting and budgetary model was in
place within an environment of improved debt management and continued economic
strength -- all of which bodes well for maintenance of fiscal balance.
PORTFOLIO NOTES
Generally rising interest rates during the year under review presented
challenges for the municipal bond market, as bond prices fall when interest
rates rise. For the 12 months ended February 29, 2000, the 30-year Treasury bond
price fell 10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) was
off 13.1%. By comparison, your fund's Class A share price, as measured by net
asset value, declined by 8.8%.(6)
Franklin Maryland Tax-Free Income Fund sought to take advantage of the recent
volatility in the municipal bond marketplace by purchasing attractively priced
new issues during dips in the market. This strategy worked well for the fund as
the recent volatility enabled us to book some tax losses and invest the proceeds
at higher yields. Such losses can be carried forward to help offset current or
future capital gains and possibly reduce our shareholders' future tax
liabilities. In the process, we sold Puerto Rico Commonwealth general
obligation, Puerto Rico Electric Power Authority revenue, and Maryland Health &
Higher Education Facilities Authority revenue bonds for both Johns Hopkins
University and Francis Scott Key Facility.
PORTFOLIO BREAKDOWN
Franklin Maryland
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------
<S> <C>
Hospital & Health Care 21.7%
Housing 20.2%
Utilities 16.3%
Subject to Government
Appropriation 9.2%
Prerefunded 7.8%
General Obligation 6.9%
Transportation 5.3%
Other Revenue 4.3%
Corporate-Backed 3.7%
Higher Education 2.7%
Tax-Supported Debt 1.9%
</TABLE>
5. Source: Moody's Investors Service.
6. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
Maryland's $2.6 billion municipal bond supply for 1999 was extremely light, a
31% decrease from 1998 issuance.(7) Despite this reduction, we were able to find
value in a number of issues that came to market. When investigating potential
purchases, we continued to seek bonds maximizing current, tax-free income and
having favorable call protection to provide our shareholders with a steady,
long-term income stream. Attempting to meet these goals, we made several
additions to the portfolio during the reporting period, including Baltimore
General Obligation and Maryland Health & Higher Education Facilities Authority
revenue bonds for Roland Park Place and Anne Arundel Medical Center. In
addition, our active portfolio management has built a portfolio with not only
credit risk diversity, but also a wide range of coupons and maturities. The fund
continues to emphasize high-quality securities, and AAA-rated bonds represented
49.7% of the fund's total long-term investments at the end of the reporting
period.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 38 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.06%, based on an
annualization of the current 4.68 cent ($0.0468) per share dividend and the
maximum offering price of $11.10 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Maryland state and local
personal income tax bracket of 44.35% would need to earn 9.09% from a taxable
investment to match the fund's tax-free distribution rate. The Performance
Summary also shows the distribution rate and taxable equivalent distribution
rate for Class C shares.
Looking forward, we will maintain our strategy of buying current coupon bonds at
a slight discount as we seek to provide shareholders with high, current tax-free
income.
7. Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS*
Franklin Maryland Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
March 4.6 cents 4.04 cents
April 4.6 cents 4.04 cents
May 4.6 cents 4.04 cents
June 4.6 cents 4.08 cents
July 4.6 cents 4.08 cents
August 4.6 cents 4.08 cents
September 4.6 cents 4.08 cents
October 4.6 cents 4.08 cents
November 4.6 cents 4.08 cents
December 4.65 cents 4.17 cents
January 4.65 cents 4.17 cents
February 4.65 cents 4.17 cents
- ----------------------------------------------------------------------------------
TOTAL 55.35 CENTS 49.11 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN MARYLAND
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -3.86%
Net Asset Value (NAV) $10.63 (2/29/00) $11.66 (2/28/99)
Change in NAV -$1.03
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5535
Long-Term Capital Gain $0.0301
-------------------------------------------
Total $0.5836
CLASS C
One-Year Total Return -4.37%
Net Asset Value (NAV) $10.72 (2/29/00) $11.75 (2/28/99)
Change in NAV -$1.03
Distributions (3/1/99 - 2/29/00) Dividend Income $0.4911
Long-Term Capital Gain $0.0301
-------------------------------------------
Total $0.5212
</TABLE>
CLASS A: 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: 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.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.86% +27.51% +84.63% +104.34%
Average Annual Total Return(2) -7.97% +4.08% +5.86% +6.06%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.37% +8.25% +23.59%
Average Annual Total Return(2) -6.24% +2.32% +4.26%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.06% 4.65%
Taxable Equivalent Distribution Rate(4) 9.09% 8.36%
30-Day Standardized Yield(5) 5.08% 4.72%
Taxable Equivalent Yield(4) 9.13% 8.48%
</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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Maryland state and local
personal income tax bracket of 44.35%, 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 month ended February 29, 2000.
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 Maryland Tax-Free Income Fund paid distributions derived from long-term
capital gains of 3.01 cents ($0.0301) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Maryland Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,532 10,000 10,000
03/31/1990 -0.43% $9,491 0.03% 10,003 0.55% 10,055
04/30/1990 -0.69% $9,426 -0.72% 9,931 0.16% 10,071
05/31/1990 2.28% $9,640 2.18% 10,147 0.23% 10,094
06/30/1990 1.17% $9,753 0.88% 10,237 0.54% 10,149
07/31/1990 1.46% $9,896 1.47% 10,387 0.38% 10,187
08/31/1990 2.41% $9,657 -1.45% 10,237 0.92% 10,281
09/30/1990 -0.10% $9,647 0.06% 10,243 0.84% 10,367
10/31/1990 1.50% $9,792 1.82% 10,429 0.60% 10,430
11/30/1990 2.28% $10,015 2.01% 10,639 0.22% 10,453
12/31/1990 -0.10% $10,005 0.43% 10,685 0.00% 10,453
01/31/1991 1.97% $10,203 1.34% 10,828 0.60% 10,515
02/28/1991 0.77% $10,281 0.87% 10,922 0.15% 10,531
03/31/1991 0.39% $10,321 0.03% 10,925 0.15% 10,547
04/30/1991 1.26% $10,451 1.34% 11,072 0.15% 10,563
05/31/1991 0.58% $10,512 0.89% 11,170 0.30% 10,594
06/30/1991 0.10% $10,522 -0.10% 11,159 0.29% 10,625
07/31/1991 1.16% $10,644 1.22% 11,295 0.15% 10,641
08/31/1991 0.96% $10,747 1.32% 11,444 0.29% 10,672
09/30/1991 1.43% $10,900 1.30% 11,593 0.44% 10,719
10/31/1991 0.57% $10,962 0.90% 11,697 0.15% 10,735
11/30/1991 0.28% $10,993 0.28% 11,730 0.29% 10,766
12/31/1991 2.00% $11,213 2.15% 11,982 0.07% 10,774
01/31/1992 0.47% $11,266 0.23% 12,010 0.15% 10,790
02/29/1992 -0.06% $11,259 0.03% 12,013 0.36% 10,829
03/31/1992 0.15% $11,276 0.03% 12,017 0.51% 10,884
04/30/1992 0.90% $11,377 0.89% 12,124 0.14% 10,899
05/31/1992 1.35% $11,531 1.18% 12,267 0.14% 10,914
06/30/1992 1.26% $11,676 1.68% 12,473 0.36% 10,954
07/31/1992 3.12% $12,040 3.00% 12,847 0.21% 10,977
08/31/1992 -1.05% $11,914 -0.97% 12,723 0.28% 11,007
09/30/1992 0.23% $11,941 0.65% 12,805 0.28% 11,038
10/31/1992 -1.61% $11,749 -0.98% 12,680 0.35% 11,077
11/30/1992 2.30% $12,019 1.79% 12,907 0.14% 11,092
12/31/1992 1.56% $12,207 1.02% 13,039 -0.07% 11,085
01/31/1993 1.21% $12,355 1.16% 13,190 0.49% 11,139
02/28/1993 2.89% $12,712 3.62% 13,667 0.35% 11,178
03/31/1993 -0.41% $12,660 -1.06% 13,522 0.35% 11,217
04/30/1993 0.87% $12,770 1.01% 13,659 0.28% 11,248
05/31/1993 0.37% $12,817 0.56% 13,735 0.14% 11,264
06/30/1993 1.84% $13,053 1.67% 13,965 0.14% 11,280
07/31/1993 0.28% $13,089 0.13% 13,983 0.00% 11,280
08/31/1993 1.63% $13,303 2.08% 14,274 0.28% 11,311
09/30/1993 0.56% $13,377 1.14% 14,437 0.21% 11,335
10/31/1993 0.43% $13,435 0.19% 14,464 0.41% 11,382
11/30/1993 -0.33% $13,390 -0.88% 14,337 0.07% 11,390
12/31/1993 2.24% $13,690 2.11% 14,639 0.00% 11,390
01/31/1994 0.88% $13,811 1.14% 14,806 0.27% 11,420
02/28/1994 -1.86% $13,554 -2.59% 14,423 0.34% 11,459
03/31/1994 -3.82% $13,036 -4.07% 13,836 0.34% 11,498
04/30/1994 0.08% $13,047 0.85% 13,953 0.14% 11,514
05/31/1994 0.94% $13,169 0.87% 14,075 0.07% 11,522
06/30/1994 -0.45% $13,110 -0.61% 13,989 0.34% 11,562
07/31/1994 1.76% $13,341 1.83% 14,245 0.27% 11,593
08/31/1994 0.39% $13,393 0.35% 14,295 0.40% 11,639
09/30/1994 -1.26% $13,224 -1.47% 14,084 0.27% 11,671
10/31/1994 -1.94% $12,967 -1.78% 13,834 0.07% 11,679
11/30/1994 -2.41% $12,655 -1.81% 13,583 0.13% 11,694
12/31/1994 2.67% $12,993 2.20% 13,882 0.00% 11,694
01/31/1995 3.12% $13,398 2.86% 14,279 0.40% 11,741
02/28/1995 3.00% $13,800 2.91% 14,695 0.40% 11,788
03/31/1995 0.98% $13,935 1.15% 14,864 0.33% 11,827
04/30/1995 0.07% $13,945 0.12% 14,882 0.33% 11,866
05/31/1995 2.69% $14,320 3.19% 15,356 0.20% 11,889
06/30/1995 -0.77% $14,210 -0.87% 15,223 0.20% 11,913
07/31/1995 1.39% $14,407 0.95% 15,367 0.00% 11,913
08/31/1995 1.18% $14,577 1.27% 15,563 0.26% 11,944
09/30/1995 0.80% $14,694 0.63% 15,661 0.20% 11,968
10/31/1995 1.19% $14,869 1.45% 15,888 0.33% 12,007
11/30/1995 1.53% $15,096 1.66% 16,151 -0.07% 11,999
12/31/1995 0.95% $15,240 0.96% 16,306 -0.07% 11,991
01/31/1996 0.38% $15,298 0.76% 16,430 0.59% 12,061
02/29/1996 -0.59% $15,208 -0.68% 16,319 0.32% 12,100
03/31/1996 -1.14% $15,034 -1.28% 16,110 0.52% 12,163
04/30/1996 -0.07% $15,024 -0.28% 16,065 0.39% 12,210
05/31/1996 0.05% $15,031 -0.04% 16,058 0.19% 12,234
06/30/1996 0.98% $15,178 1.09% 16,233 0.06% 12,241
07/31/1996 0.84% $15,306 0.90% 16,379 0.19% 12,264
08/31/1996 -0.08% $15,294 -0.02% 16,376 0.19% 12,287
09/30/1996 1.45% $15,515 1.40% 16,605 0.32% 12,327
10/31/1996 0.94% $15,661 1.13% 16,793 0.32% 12,366
11/30/1996 1.59% $15,910 1.83% 17,100 0.19% 12,390
12/31/1996 -0.41% $15,845 -0.42% 17,028 0.00% 12,390
01/31/1997 0.13% $15,866 0.19% 17,061 0.32% 12,429
02/28/1997 0.89% $16,007 0.92% 17,218 0.31% 12,468
03/31/1997 -1.20% $15,815 -1.33% 16,989 0.25% 12,499
04/30/1997 0.79% $15,940 0.84% 17,131 0.12% 12,514
05/31/1997 1.29% $16,145 1.51% 17,390 -0.06% 12,507
06/30/1997 0.98% $16,304 1.07% 17,576 0.12% 12,522
07/31/1997 2.45% $16,703 2.77% 18,063 0.12% 12,537
08/31/1997 -0.71% $16,584 -0.94% 17,893 0.19% 12,560
09/30/1997 1.14% $16,774 1.19% 18,106 0.25% 12,592
10/31/1997 0.55% $16,866 0.64% 18,222 0.25% 12,623
11/30/1997 0.66% $16,977 0.59% 18,330 -0.06% 12,616
12/31/1997 1.30% $17,198 1.46% 18,597 -0.12% 12,601
01/31/1998 0.77% $17,330 1.03% 18,789 0.19% 12,624
02/28/1998 -0.01% $17,328 0.03% 18,794 0.19% 12,648
03/31/1998 0.19% $17,361 0.09% 18,811 0.19% 12,672
04/30/1998 -0.12% $17,341 -0.45% 18,727 0.18% 12,695
05/31/1998 1.37% $17,578 1.58% 19,023 0.18% 12,718
06/30/1998 0.44% $17,655 0.39% 19,097 0.12% 12,733
07/31/1998 0.29% $17,707 0.25% 19,145 0.12% 12,749
08/31/1998 1.29% $17,935 1.55% 19,441 0.12% 12,764
09/30/1998 0.99% $18,113 1.25% 19,684 0.12% 12,779
10/31/1998 0.10% $18,131 0.00% 19,684 0.24% 12,810
11/30/1998 0.25% $18,176 0.35% 19,753 0.00% 12,810
12/31/1998 0.20% $18,212 0.25% 19,803 -0.06% 12,802
01/31/1999 0.83% $18,364 1.19% 20,038 0.24% 12,833
02/28/1999 -0.29% $18,310 -0.44% 19,950 0.12% 12,848
03/31/1999 0.19% $18,345 0.14% 19,978 0.30% 12,887
04/30/1999 0.39% $18,417 0.25% 20,028 0.73% 12,981
05/31/1999 -0.49% $18,326 -0.58% 19,912 0.00% 12,981
06/30/1999 -1.40% $18,070 -1.44% 19,625 0.00% 12,981
07/31/1999 0.21% $18,108 0.36% 19,696 0.30% 13,020
08/31/1999 -1.52% $17,833 -0.80% 19,538 0.24% 13,051
09/30/1999 -0.23% $17,792 0.04% 19,546 0.48% 13,114
10/31/1999 -1.60% $17,507 -1.08% 19,335 0.18% 13,137
11/30/1999 1.03% $17,687 1.06% 19,540 0.06% 13,145
12/31/1999 -0.95% $17,519 -0.75% 19,393 0.00% 13,145
01/31/2000 -0.70% $17,397 -0.44% 19,308 0.24% 13,177
02/29/2000 1.18% $17,675 1.16% 19,532 0.59% 13,255
Total Return 76.75% 95.32% 32.55%
</TABLE>
The following line graph compares the performance of the Franklin Maryland
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Maryland Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class C Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,900 $10,000 $10,000
05/31/1995 2.81% $10,178 3.19% $10,319 0.20% $10,020
06/30/1995 -0.83% $10,094 -0.87% $10,229 0.20% $10,040
07/31/1995 1.42% $10,237 0.95% $10,326 0.00% $10,040
08/31/1995 1.12% $10,352 1.27% $10,458 0.26% $10,066
09/29/1995 0.66% $10,420 0.63% $10,523 0.20% $10,086
10/31/1995 1.31% $10,557 1.45% $10,676 0.33% $10,120
11/30/1995 1.47% $10,712 1.66% $10,853 -0.07% $10,112
12/29/1995 0.90% $10,808 0.96% $10,957 -0.07% $10,105
01/31/1996 0.41% $10,852 0.76% $11,041 0.59% $10,165
02/29/1996 -0.51% $10,797 -0.68% $10,966 0.32% $10,198
03/29/1996 1.09% $10,679 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.21% $10,657 -0.28% $10,795 0.39% $10,291
05/31/1996 0.08% $10,665 -0.04% $10,791 0.19% $10,310
06/28/1996 0.84% $10,755 1.09% $10,908 0.06% $10,316
07/31/1996 0.78% $10,839 0.90% $11,006 0.19% $10,336
08/30/1996 -0.04% $10,835 -0.02% $11,004 0.19% $10,356
09/30/1996 1.31% $10,977 1.40% $11,158 0.32% $10,389
10/31/1996 0.97% $11,083 1.13% $11,284 0.32% $10,422
11/29/1996 1.45% $11,244 1.83% $11,491 0.19% $10,442
12/31/1996 -0.37% $11,202 -0.42% $11,443 0.00% $10,442
01/31/1997 0.07% $11,210 0.19% $11,464 0.32% $10,475
02/28/1997 0.83% $11,303 0.92% $11,570 0.31% $10,508
03/31/1997 -1.25% $11,162 -1.33% $11,416 0.25% $10,534
04/30/1997 0.74% $11,244 0.84% $11,512 0.12% $10,547
05/31/1997 1.33% $11,394 1.51% $11,686 -0.06% $10,540
06/30/1997 0.93% $11,500 1.07% $11,811 0.12% $10,553
07/31/1997 2.39% $11,775 2.77% $12,138 0.12% $10,565
08/31/1997 -0.75% $11,686 -0.94% $12,024 0.19% $10,586
09/30/1997 1.08% $11,813 1.19% $12,167 0.25% $10,612
10/31/1997 0.50% $11,872 0.64% $12,245 0.25% $10,639
11/30/1997 0.61% $11,944 0.59% $12,317 -0.06% $10,632
12/31/1997 1.33% $12,103 1.46% $12,497 -0.12% $10,619
01/31/1998 0.63% $12,179 1.03% $12,626 0.19% $10,640
02/28/1998 -0.06% $12,172 0.03% $12,629 0.19% $10,660
03/31/1998 0.23% $12,200 0.09% $12,641 0.19% $10,680
04/30/1998 -0.25% $12,169 -0.45% $12,584 0.18% $10,699
05/31/1998 1.40% $12,340 1.58% $12,783 0.18% $10,719
06/30/1998 0.39% $12,388 0.39% $12,832 0.12% $10,731
07/31/1998 0.24% $12,418 0.25% $12,865 0.12% $10,744
08/31/1998 1.23% $12,570 1.55% $13,064 0.12% $10,757
09/30/1998 0.94% $12,688 1.25% $13,227 0.12% $10,770
10/31/1998 0.05% $12,695 0.00% $13,227 0.24% $10,796
11/30/1998 0.20% $12,720 0.35% $13,274 0.00% $10,796
12/31/1998 0.16% $12,741 0.25% $13,307 -0.06% $10,789
01/31/1999 0.78% $12,840 1.19% $13,465 0.24% $10,815
02/28/1999 -0.34% $12,796 -0.44% $13,406 0.12% $10,828
03/31/1999 0.22% $12,824 0.14% $13,425 0.30% $10,861
04/30/1999 0.25% $12,857 0.25% $13,458 0.73% $10,940
05/31/1999 -0.53% $12,788 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.43% $12,605 -1.44% $13,187 0.00% $10,940
07/31/1999 0.16% $12,626 0.36% $13,235 0.30% $10,973
08/31/1999 -1.55% $12,430 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.28% $12,395 0.04% $13,134 0.48% $11,052
10/31/1999 -1.63% $12,193 -1.08% $12,992 0.18% $11,072
11/30/1999 0.97% $12,311 1.06% $13,130 0.06% $11,079
12/31/1999 -0.99% $12,190 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.73% $12,101 -0.44% $12,974 0.24% $11,105
02/29/2000 1.13% $12,236 1.16% $13,125 0.59% $11,171
Total Return 22.36% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN MISSOURI TAX-FREE INCOME FUND
[PIE CHART -- CREDIT QUALITY BREAKDOWN]
CREDIT QUALITY BREAKDOWN*
Franklin Missouri Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
AAA AA A BBB Below Investment Grade
59.5% 17.5% 6.5% 15.6% 0.9%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
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
[PICTURE OF STATE OF MISSOURI]
Missouri's economic strength continues, as it benefits from the nation's
positive economic cycle. The state's personal income and employment grew at a
healthy pace, as gains in trade and services jobs offset modest declines in the
manufacturing sector. The state enjoys a diversified economic base, including
such important sectors as services and manufacturing, which closely resembles
that of the national economy. The Show Me State's strong economic performance
and state management's efforts to curtail expenditures resulted in Missouri's
maintaining a sound financial position.
The state is fiscally conservative and maintains balanced financial operations.
In the past several years, the state's revenues not only exceeded estimates, but
also were above Missouri's revenue limit, creating mandated taxpayer refunds. In
addition, the state's overall debt level is low at $245 per capita, versus the
national median level of $540, and debt service requirements are less than 2% of
general fund revenues.(2),(3)
Missouri's fiscal year 2000 budget is based on a conservative revenue estimate
of 5.1% growth and proposes spending accumulated fund balances on such one-time
projects as higher education facilities, prisons and state park improvements.
The budget also includes further tax reductions designed to keep the state
within its revenue limits. Although the state constitution requires it to
maintain sound reserves, these tax reductions could restrict the state's
financial flexibility in the future. However, based on
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.
3. Source: Standard & Poor's Ratings Direct, 9/22/99. This does not indicate
Standard & Poor's rating of the fund.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 94.
Missouri's broad economic base and sound financial management, Standard &
Poor's, an independent credit rating agency, assigns the state its highest
rating, AAA.(3)
PORTFOLIO NOTES
Interest rates generally rose during the 12 months under review, presenting
challenges for municipal bond investors, as bond prices fall when interest rates
rise. For the year ended February 29, 2000, the 30-year Treasury bond price fell
10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) dropped 13.1%. By
comparison, Franklin Missouri Tax-Free Income Fund's Class A share price
declined 9.6%, as measured by net asset value.(4)
During the period, we sought to take advantage of the higher interest-rate
environment to restructure the portfolio. We purchased securities with more
attractive yields and higher original issue discounts, or discounts from par
value at the time of issuance. We also sold some lower-yielding bonds at a loss
to help offset current or future capital gains, thereby possibly reducing
shareholders' future tax liabilities.
For 1999, Missouri bond issuance fell to $3.207 billion, down more than 36% from
1998.(5) Supply in 2000 is expected to remain in the same range, which, combined
with strong demand for Missouri bonds, should help keep them attractive
investments. Despite reduced supply during the period, we found value in some
new issues, such as Missouri Health and Education for Washington University. At
the end of the reporting period, hospitals and health care was the fund's
largest sector weighting, comprising 26.9% of total long-term investments. At
the same time, AAA-rated bonds represented 59.5% of the fund's total long-term
investments, maintaining the portfolio's high quality.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 43 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.21%, based on an
annualization of the current 5.0 cent ($0.050) per share dividend and the
maximum offering price of $11.51 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Missouri state personal income
tax bracket of 43.22% would need to earn 9.18% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
PORTFOLIO BREAKDOWN
Franklin Missouri
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------------------
<S> <C>
Hospital & Health Care 26.9%
Subject to Government
Appropriation 18.3%
Housing 11.9%
Utilities 9.2%
Prerefunded 9.2%
Higher Education 7.6%
Corporate-Backed 4.8%
Tax-Supported Debt 4.6%
Other Revenue 3.3%
Transportation 3.2%
General Obligation 1.0%
</TABLE>
4. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
5. Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS*
Franklin Missouri Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
March 5 cents 4.42 cents
April 5 cents 4.42 cents
May 5 cents 4.42 cents
June 5 cents 4.48 cents
July 5 cents 4.48 cents
August 5 cents 4.48 cents
September 5 cents 4.47 cents
October 5 cents 4.47 cents
November 5 cents 4.47 cents
December 5 cents 4.50 cents
January 5 cents 4.50 cents
February 5 cents 4.50 cents
- ----------------------------------------------------------------------------------
TOTAL 60 CENTS 53.61 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 the month. Income
distributions include all accrued income earned by the fund during the reporting
period.
Looking forward, we will attempt to continue taking advantage of the recently
higher interest-rate environment. Please keep in mind that interest rates, and
therefore bond prices, rise and fall depending on domestic and global economic
factors. Such fluctuations are a normal part of investing, and one should expect
this when investing in any security, including municipal bonds. However,
municipal bond funds such as Franklin Missouri Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN MISSOURI
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -4.62%
Net Asset Value (NAV) $11.02 (2/29/00) $12.19 (2/28/99)
Change in NAV -$1.17
Distributions (3/1/99 - 2/29/00) Dividend Income $0.6000
Long-Term Capital Gain $0.0135
-------------------------------------------
Total $0.6135
CLASS C
One-Year Total Return -5.21%
Net Asset Value (NAV) $11.06 (2/29/00) $12.24 (2/28/99)
Change in NAV -$1.18
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5361
Long-Term Capital Gain $0.0135
-------------------------------------------
Total $0.5496
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -4.62% +27.07% +86.59% +129.44%
Average Annual Total Return(2) -8.66% +4.00% +5.98% +6.50%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -5.21% +8.02% +22.45%
Average Annual Total Return(2) -7.02% +2.26% +4.06%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.21% 4.83%
Taxable Equivalent Distribution Rate(4) 9.18% 8.51%
30-Day Standardized Yield(5) 5.09% 4.70%
Taxable Equivalent Yield(4) 8.96% 8.28%
</TABLE>
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Missouri state personal
income tax bracket of 43.22%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 Missouri Tax-Free Income Fund paid distributions derived from long-term
capital gains of 1.35 cents ($0.0135) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code 852(b)(3).
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN MISSOURI
TAX-FREE INCOME FUND
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------
<S> <C>
1-Year -8.66%
5-Year +4.00%
10-Year +5.98%
Since Inception (9/1/87) +6.50%
</TABLE>
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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Franklin Missouri Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class A Index* CPI*
- ---- ----------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,570 $10,000 $10,000
03/31/1990 -0.08% $9,562 0.03% $10,003 0.55% $10,055
04/30/1990 -0.46% $9,518 -0.72% $9,931 0.16% $10,071
05/31/1990 2.22% $9,730 2.18% $10,147 0.23% $10,094
06/30/1990 0.96% $9,823 0.88% $10,237 0.54% $10,149
07/31/1990 1.52% $9,972 1.47% $10,387 0.38% $10,187
08/31/1990 -1.93% $9,780 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.27% $9,754 0.06% $10,243 0.84% $10,367
10/31/1990 1.66% $9,915 1.82% $10,429 0.60% $10,430
11/30/1990 2.30% $10,143 2.01% $10,639 0.22% $10,453
12/31/1990 0.02% $10,145 0.43% $10,685 0.00% $10,453
01/31/1991 1.53% $10,301 1.34% $10,828 0.60% $10,515
02/28/1991 0.58% $10,360 0.87% $10,922 0.15% $10,531
03/31/1991 0.49% $10,411 0.03% $10,925 0.15% $10,547
04/30/1991 1.42% $10,559 1.34% $11,072 0.15% $10,563
05/31/1991 0.67% $10,630 0.89% $11,170 0.30% $10,594
06/30/1991 -0.16% $10,613 -0.10% $11,159 0.29% $10,625
07/31/1991 1.60% $10,783 1.22% $11,295 0.15% $10,641
08/31/1991 0.85% $10,874 1.32% $11,444 0.29% $10,672
09/30/1991 1.40% $11,027 1.30% $11,593 0.44% $10,719
10/31/1991 0.66% $11,099 0.90% $11,697 0.15% $10,735
11/30/1991 0.47% $11,151 0.28% $11,730 0.29% $10,766
12/31/1991 1.89% $11,362 2.15% $11,982 0.07% $10,774
01/31/1992 0.39% $11,407 0.23% $12,010 0.15% $10,790
02/29/1992 0.23% $11,433 0.03% $12,013 0.36% $10,829
03/31/1992 0.25% $11,461 0.03% $12,017 0.51% $10,884
04/30/1992 0.88% $11,562 0.89% $12,124 0.14% $10,899
05/31/1992 1.13% $11,693 1.18% $12,267 0.14% $10,914
06/30/1992 1.14% $11,826 1.68% $12,473 0.36% $10,954
07/31/1992 3.46% $12,235 3.00% $12,847 0.21% $10,977
08/31/1992 -1.25% $12,082 -0.97% $12,723 0.28% $11,007
09/30/1992 0.33% $12,122 0.65% $12,805 0.28% $11,038
10/31/1992 -1.79% $11,905 -0.98% $12,680 0.35% $11,077
11/30/1992 2.41% $12,192 1.79% $12,907 0.14% $11,092
12/31/1992 1.60% $12,387 1.02% $13,039 -0.07% $11,085
01/31/1993 1.17% $12,532 1.16% $13,190 0.49% $11,139
02/28/1993 2.78% $12,881 3.62% $13,667 0.35% $11,178
03/31/1993 -0.20% $12,855 -1.06% $13,522 0.35% $11,217
04/30/1993 0.68% $12,942 1.01% $13,659 0.28% $11,248
05/31/1993 0.54% $13,012 0.56% $13,735 0.14% $11,264
06/30/1993 1.78% $13,244 1.67% $13,965 0.14% $11,280
07/31/1993 0.47% $13,306 0.13% $13,983 0.00% $11,280
08/31/1993 1.93% $13,563 2.08% $14,274 0.28% $11,311
09/30/1993 1.39% $13,751 1.14% $14,437 0.21% $11,335
10/31/1993 0.18% $13,776 0.19% $14,464 0.41% $11,382
11/30/1993 -0.54% $13,702 -0.88% $14,337 0.07% $11,390
12/31/1993 2.41% $14,032 2.11% $14,639 0.00% $11,390
01/31/1994 0.95% $14,165 1.14% $14,806 0.27% $11,420
02/28/1994 -2.22% $13,851 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.60% $13,352 -4.07% $13,836 0.34% $11,498
04/30/1994 0.28% $13,389 0.85% $13,953 0.14% $11,514
05/31/1994 0.84% $13,502 0.87% $14,075 0.07% $11,522
06/30/1994 -0.39% $13,449 -0.61% $13,989 0.34% $11,562
07/31/1994 1.53% $13,655 1.83% $14,245 0.27% $11,593
08/31/1994 0.40% $13,710 0.35% $14,295 0.40% $11,639
09/30/1994 -1.35% $13,525 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.65% $13,301 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.99% $13,037 -1.81% $13,583 0.13% $11,694
12/31/1994 2.16% $13,318 2.20% $13,882 0.00% $11,694
01/31/1995 2.87% $13,701 2.86% $14,279 0.40% $11,741
02/28/1995 2.59% $14,055 2.91% $14,695 0.40% $11,788
03/31/1995 0.86% $14,176 1.15% $14,864 0.33% $11,827
04/30/1995 0.34% $14,225 0.12% $14,882 0.33% $11,866
05/31/1995 2.66% $14,603 3.19% $15,356 0.20% $11,889
06/30/1995 -0.56% $14,521 -0.87% $15,223 0.20% $11,913
07/31/1995 0.55% $14,601 0.95% $15,367 0.00% $11,913
08/31/1995 1.05% $14,754 1.27% $15,563 0.26% $11,944
09/30/1995 0.43% $14,818 0.63% $15,661 0.20% $11,968
10/31/1995 1.24% $15,001 1.45% $15,888 0.33% $12,007
11/30/1995 1.58% $15,239 1.66% $16,151 -0.07% $11,999
12/31/1995 1.10% $15,406 0.96% $16,306 -0.07% $11,991
01/31/1996 0.97% $15,556 0.76% $16,430 0.59% $12,061
02/29/1996 -0.38% $15,496 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.24% $15,304 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.22% $15,271 -0.28% $16,065 0.39% $12,210
05/31/1996 -0.02% $15,268 -0.04% $16,058 0.19% $12,234
06/30/1996 1.04% $15,426 1.09% $16,233 0.06% $12,241
07/31/1996 0.73% $15,539 0.90% $16,379 0.19% $12,264
08/31/1996 0.19% $15,568 -0.02% $16,376 0.19% $12,287
09/30/1996 1.40% $15,786 1.40% $16,605 0.32% $12,327
10/31/1996 1.00% $15,944 1.13% $16,793 0.32% $12,366
11/30/1996 1.45% $16,176 1.83% $17,100 0.19% $12,390
12/31/1996 -0.27% $16,132 -0.42% $17,028 0.00% $12,390
01/31/1997 0.14% $16,154 0.19% $17,061 0.32% $12,429
02/28/1997 0.79% $16,282 0.92% $17,218 0.31% $12,468
03/31/1997 -0.96% $16,126 -1.33% $16,989 0.25% $12,499
04/30/1997 1.03% $16,292 0.84% $17,131 0.12% $12,514
05/31/1997 1.26% $16,497 1.51% $17,390 -0.06% $12,507
06/30/1997 0.96% $16,655 1.07% $17,576 0.12% $12,522
07/31/1997 2.37% $17,050 2.77% $18,063 0.12% $12,537
08/31/1997 -0.73% $16,926 -0.94% $17,893 0.19% $12,560
09/30/1997 1.29% $17,144 1.19% $18,106 0.25% $12,592
10/31/1997 0.56% $17,240 0.64% $18,222 0.25% $12,623
11/30/1997 0.66% $17,354 0.59% $18,330 -0.06% $12,616
12/31/1997 1.47% $17,609 1.46% $18,597 -0.12% $12,601
01/31/1998 0.76% $17,743 1.03% $18,789 0.19% $12,624
02/28/1998 0.43% $17,819 0.03% $18,794 0.19% $12,648
03/31/1998 0.13% $17,842 0.09% $18,811 0.19% $12,672
04/30/1998 -0.26% $17,796 -0.45% $18,727 0.18% $12,695
05/31/1998 1.33% $18,033 1.58% $19,023 0.18% $12,718
06/30/1998 0.33% $18,092 0.39% $19,097 0.12% $12,733
07/31/1998 0.14% $18,117 0.25% $19,145 0.12% $12,749
08/31/1998 1.26% $18,346 1.55% $19,441 0.12% $12,764
09/30/1998 1.13% $18,553 1.25% $19,684 0.12% $12,779
10/31/1998 -0.20% $18,516 0.00% $19,684 0.24% $12,810
11/30/1998 0.27% $18,566 0.35% $19,753 0.00% $12,810
12/31/1998 0.32% $18,625 0.25% $19,803 -0.06% $12,802
01/31/1999 0.91% $18,795 1.19% $20,038 0.24% $12,833
02/28/1999 -0.33% $18,733 -0.44% $19,950 0.12% $12,848
03/31/1999 0.30% $18,789 0.14% $19,978 0.30% $12,887
04/30/1999 0.16% $18,819 0.25% $20,028 0.73% $12,981
05/31/1999 -0.60% $18,706 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.53% $18,420 -1.44% $19,625 0.00% $12,981
07/31/1999 0.15% $18,448 0.36% $19,696 0.30% $13,020
08/31/1999 -1.42% $18,186 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.19% $18,151 0.04% $19,546 0.48% $13,114
10/31/1999 -1.67% $17,848 -1.08% $19,335 0.18% $13,137
11/30/1999 1.02% $18,030 1.06% $19,540 0.06% $13,145
12/31/1999 -1.15% $17,823 -0.75% $19,393 0.00% $13,145
01/31/2000 -1.00% $17,644 -0.44% $19,308 0.24% $13,177
02/29/2000 1.26% $17,870 1.16% $19,532 0.59% $13,255
Total Return 78.70% 95.32% 32.55%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- ---------------------------------------
<S> <C>
1-Year -7.02%
3-Year +2.26%
Since Inception (5/1/95) +4.06%
</TABLE>
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 2/29/00.
<TABLE>
<CAPTION>
Lehman
Franklin Missouri Brothers
Tax-Free Income Municipal Bond
Date Fund-Class C Index* CPI*
- ---- ----------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,896 $10,000 $10,000
05/31/1995 2.77% $10,170 3.19% $10,319 0.20% $10,020
06/30/1995 -0.61% $10,108 -0.87% $10,229 0.20% $10,040
07/31/1995 0.50% $10,159 0.95% $10,326 0.00% $10,040
08/31/1995 1.00% $10,260 1.27% $10,458 0.26% $10,066
09/29/1995 0.47% $10,308 0.63% $10,523 0.20% $10,086
10/31/1995 1.18% $10,430 1.45% $10,676 0.33% $10,120
11/30/1995 1.52% $10,589 1.66% $10,853 -0.07% $10,112
12/29/1995 1.05% $10,700 0.96% $10,957 -0.07% $10,105
01/31/1996 0.91% $10,797 0.76% $11,041 0.59% $10,165
02/29/1996 -0.41% $10,753 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.36% $10,607 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.19% $10,586 -0.28% $10,795 0.39% $10,291
05/31/1996 -0.07% $10,579 -0.04% $10,791 0.19% $10,310
06/28/1996 0.99% $10,684 1.09% $10,908 0.06% $10,316
07/31/1996 0.69% $10,758 0.90% $11,006 0.19% $10,336
08/30/1996 0.15% $10,774 -0.02% $11,004 0.19% $10,356
09/30/1996 1.27% $10,910 1.40% $11,158 0.32% $10,389
10/31/1996 1.02% $11,022 1.13% $11,284 0.32% $10,422
11/29/1996 1.39% $11,175 1.83% $11,491 0.19% $10,442
12/31/1996 -0.49% $11,120 -0.42% $11,443 0.00% $10,442
01/31/1997 0.09% $11,130 0.19% $11,464 0.32% $10,475
02/28/1997 0.79% $11,218 0.92% $11,570 0.31% $10,508
03/31/1997 -0.93% $11,114 -1.33% $11,416 0.25% $10,534
04/30/1997 0.98% $11,223 0.84% $11,512 0.12% $10,547
05/31/1997 1.20% $11,357 1.51% $11,686 -0.06% $10,540
06/30/1997 0.91% $11,461 1.07% $11,811 0.12% $10,553
07/31/1997 2.41% $11,737 2.77% $12,138 0.12% $10,565
08/31/1997 -0.77% $11,647 -0.94% $12,024 0.19% $10,586
09/30/1997 1.24% $11,791 1.19% $12,167 0.25% $10,612
10/31/1997 0.51% $11,851 0.64% $12,245 0.25% $10,639
11/30/1997 0.62% $11,925 0.59% $12,317 -0.06% $10,632
12/31/1997 1.41% $12,093 1.46% $12,497 -0.12% $10,619
01/31/1998 0.71% $12,179 1.03% $12,626 0.19% $10,640
02/28/1998 0.38% $12,225 0.03% $12,629 0.19% $10,660
03/31/1998 0.08% $12,235 0.09% $12,641 0.19% $10,680
04/30/1998 -0.30% $12,198 -0.45% $12,584 0.18% $10,699
05/31/1998 1.28% $12,354 1.58% $12,783 0.18% $10,719
06/30/1998 0.37% $12,400 0.39% $12,832 0.12% $10,731
07/31/1998 0.09% $12,411 0.25% $12,865 0.12% $10,744
08/31/1998 1.21% $12,561 1.55% $13,064 0.12% $10,757
09/30/1998 1.00% $12,687 1.25% $13,227 0.12% $10,770
10/31/1998 -0.25% $12,655 0.00% $13,227 0.24% $10,796
11/30/1998 0.30% $12,693 0.35% $13,274 0.00% $10,796
12/31/1998 0.19% $12,717 0.25% $13,307 -0.06% $10,789
01/31/1999 0.86% $12,827 1.19% $13,465 0.24% $10,815
02/28/1999 -0.30% $12,788 -0.44% $13,406 0.12% $10,828
03/31/1999 0.25% $12,820 0.14% $13,425 0.30% $10,861
04/30/1999 0.03% $12,824 0.25% $13,458 0.73% $10,940
05/31/1999 -0.56% $12,752 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.65% $12,542 -1.44% $13,187 0.00% $10,940
07/31/1999 0.10% $12,554 0.36% $13,235 0.30% $10,973
08/31/1999 -1.38% $12,381 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.32% $12,341 0.04% $13,134 0.48% $11,052
10/31/1999 -1.62% $12,141 -1.08% $12,992 0.18% $11,072
11/30/1999 0.88% $12,248 1.06% $13,130 0.06% $11,079
12/31/1999 -1.19% $12,102 -0.75% $13,032 0.00% $11,079
01/31/2000 -1.04% $11,977 -0.44% $12,974 0.24% $11,105
02/29/2000 1.22% $12,118 1.16% $13,125 0.59% $11,171
Total Return 21.18% 31.25% 11.71%
</TABLE>
* Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin North Carolina
Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
[CREDIT QUALITY PIE CHART]
AAA - 55.2%
AA - 17.5%
A - 13.0%
BBB - 14.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit 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 GRAHIC]
During the 12-month 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, an independent credit rating agency.(2)
Reliance on the manufacturing industry decreased, led by expansion and new
employment in the services, financial, insurance, real estate and
high-technology sectors. These changes were fueled in large part by the surging
U.S. economy and below-average business costs, which attracted many new
businesses to the state. Based on data from the U.S. Bureau of Labor Statistics
(BLS), the improved economy contributed to the state's low, 3.2% unemployment
rate through February 2000, well below the 4.1% national average. The BLS also
ranked the state 10th in nonagricultural employment, and eighth in manufacturing
employment. However, continued downsizing in manufacturing, particularly the
textile and apparel industries, tempered growth in 1999 so that the state is
expected to trail the nation slightly in terms of 2000 employment gains.
North Carolina's outstanding debt has more than doubled to $2.6 billion since
1996. However, 1999 per-capita debt remained low at $343, well below the
national median of $540.(3) This comes despite a $2.75 billion bond
authorization program in 1996 to improve schools and roads, more than half of
which was issued in the past three years. Sound financial operations within the
state during 1999 contributed to increased revenues of 15% over 1998. The state
still leads the nation in the production of textiles, furniture, and tobacco
products, while showing leadership in manufacturing electrical and computer
equipment as well as industrial and commercial machinery. Going forward, planned
issuance for 2000 includes $450 million in school bonds and $300 million in
clean water bonds.(4)
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Standard & Poor's, 2/00. This does not indicate Standard & Poor's
rating for the fund.
3. Source: Moody's Investors Service, Global Credit Research, State of North
Carolina, 10/99.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 99.
PORTFOLIO BREAKDOWN
Franklin North Carolina
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ---------------------------------------
<S> <C>
Hospital & Health Care 22.3%
Utilities 19.5%
Prerefunded 18.1%
Housing 11.7%
Subject to Government
Appropriation 7.4%
Corporate-Backed 6.1%
Transportation 5.0%
Other Revenue 4.1%
Tax-Supported Debt 2.5%
Higher Education 2.3%
General Obligation 1.0%
</TABLE>
Looking ahead, North Carolina's economy is expected to continue to expand, as
the state exercises budgetary discipline to maintain its strong fiscal
operations, reserve levels, and financial flexibility. Therefore, we expect
North Carolina municipal obligations to perform well in the future.
PORTFOLIO NOTES
Rising interest rates during the year under review presented challenges for the
municipal bond market, as bond prices decline when interest rates rise. For the
12 months ended February 29, 2000, the 30-year Treasury bond price fell 10.1%,
and the Bond Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By
comparison, your fund's Class A share price, as measured by net asset value,
declined 9.2%.(5)
During the period, we attempted to take advantage of the higher interest-rate
environment to restructure the fund's portfolio mix and enhance its
income-producing potential. We generally sold shorter maturity bonds, maturing
in the 2015-2020 range, and bought longer-term bonds with higher yields. In
addition, we booked tax losses, which can be carried forward in the portfolio to
help offset taxable capital gains in the future and potentially lower
shareholders' future tax liabilities. With this in mind, the fund sold
Appalachian State University, Concord Utility System, Charlotte Water and Sewer,
Fayetteville Public Works Commission, and University of North Carolina Charlotte
Student Activity Center.
4. Source: Standard & Poor's Ratings Direct, State of North Carolina, 2/00.
5. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
North Carolina municipal issuance remained low, declining more than 27% in
1999.(6) When investigating potential purchases, we continued to seek bonds
maximizing current, tax-free income and having favorable call protection to
provide our shareholders with a steady, long-term income stream. Attempting to
meet these goals, we made several additions to the portfolio during the
reporting period, including Charlotte Airport North Carolina, North Carolina
Medical Care Wake Hospital, and Halifax County Pollution Control Revenue
Champion International Corporation. In addition, our active portfolio management
has built a portfolio with not only credit risk diversity, but also a wide range
of coupons and maturities. The fund continues to emphasize high-quality
securities, and AAA-rated bonds represented 55.2% of the fund's total long-term
investments at the end of the reporting period.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 49 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.17%, based on an
annualization of the current 4.97 cent ($0.0497) per share dividend and the
maximum offering price of $11.53 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and North Carolina state personal
income tax bracket of 44.28% would need to earn 9.28% from a taxable investment
to match the fund's tax-free distribution rate. The Performance Summary also
shows the distribution rate and taxable equivalent distribution rate for Class C
shares.
Looking forward, we will attempt to continue taking advantage of the generally
higher interest-rate environment, seeking to provide shareholders with high,
current tax-free income. Please keep in mind that interest rates, and therefore
bond prices, rise and fall depending on domestic and global economic factors.
Such fluctuations are a normal part of investing, and one should expect this
when investing in any security, including municipal bonds. However, municipal
bond funds such as Franklin North Carolina Tax-Free Income Fund can help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
6. Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS*
Franklin North Carolina Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.95 cents 4.36 cents
April 4.95 cents 4.36 cents
May 4.95 cents 4.36 cents
June 4.95 cents 4.39 cents
July 4.95 cents 4.39 cents
August 4.95 cents 4.39 cents
September 4.95 cents 4.41 cents
October 4.95 cents 4.41 cents
November 4.95 cents 4.41 cents
December 4.95 cents 4.45 cents
January 4.95 cents 4.45 cents
February 4.95 cents 4.45 cents
- --------------------------------------------------------------------------------
TOTAL 59.40 CENTS 52.83 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
CLASS A
<TABLE>
<S> <C> <C>
One-Year Total Return -4.37%
Net Asset Value (NAV) $11.04 (2/29/00) $12.16 (2/28/99)
Change in NAV -$1.12
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5940
</TABLE>
CLASS C
<TABLE>
<S> <C> <C>
One-Year Total Return -4.88%
Net Asset Value (NAV) $11.12 (2/29/00) $12.24 (2/28/99)
Change in NAV -$1.12
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5283
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -4.37% +26.44% +81.40% +127.89%
Average Annual Total Return(2) -8.43% +3.91% +5.68% +6.45%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.88% +8.11% +22.14%
Average Annual Total Return(2) -6.70% +2.29% +4.00%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.17% 4.77%
Taxable Equivalent Distribution Rate(4) 9.28% 8.56%
30-Day Standardized Yield(5) 5.00% 4.63%
Taxable Equivalent Yield(4) 8.97% 8.31%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and North Carolina state
personal income tax bracket of 44.28%, based on the federal income tax rate of
39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 NORTH CAROLINA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------------
<S> <C>
1-Year -8.43%
5-Year +3.91%
10-Year +5.68%
Since Inception (9/1/87) +6.45%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- ------------------------------------------
<S> <C>
1-Year -6.70%
3-Year +2.29%
Since Inception (5/1/95) +4.00%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, 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 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin North Carolina Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,574 $10,000 $10,000
03/31/1990 0.00% $9,574 0.03% $10,003 0.55% $10,055
04/30/1990 -0.64% $9,513 -0.72% $9,931 0.16% $10,071
05/31/1990 2.28% $9,730 2.18% $10,147 0.23% $10,094
06/30/1990 1.06% $9,833 0.88% $10,237 0.54% $10,149
07/31/1990 1.50% $9,980 1.47% $10,387 0.38% $10,187
08/31/1990 -2.18% $9,763 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.17% $9,746 0.06% $10,243 0.84% $10,367
10/31/1990 1.45% $9,887 1.82% $10,429 0.60% $10,430
11/30/1990 2.28% $10,113 2.01% $10,639 0.22% $10,453
12/31/1990 0.11% $10,124 0.43% $10,685 0.00% $10,453
01/31/1991 1.51% $10,277 1.34% $10,828 0.60% $10,515
02/28/1991 0.57% $10,335 0.87% $10,922 0.15% $10,531
03/31/1991 0.39% $10,376 0.03% $10,925 0.15% $10,547
04/30/1991 1.31% $10,512 1.34% $11,072 0.15% $10,563
05/31/1991 0.75% $10,590 0.89% $11,170 0.30% $10,594
06/30/1991 -0.16% $10,574 -0.10% $11,159 0.29% $10,625
07/31/1991 1.40% $10,722 1.22% $11,295 0.15% $10,641
08/31/1991 0.93% $10,821 1.32% $11,444 0.29% $10,672
09/30/1991 1.29% $10,961 1.30% $11,593 0.44% $10,719
10/31/1991 0.56% $11,022 0.90% $11,697 0.15% $10,735
11/30/1991 0.38% $11,064 0.28% $11,730 0.29% $10,766
12/31/1991 2.01% $11,287 2.15% $11,982 0.07% $10,774
01/31/1992 0.37% $11,328 0.23% $12,010 0.15% $10,790
02/29/1992 -0.05% $11,323 0.03% $12,013 0.36% $10,829
03/31/1992 0.15% $11,340 0.03% $12,017 0.51% $10,884
04/30/1992 0.78% $11,428 0.89% $12,124 0.14% $10,899
05/31/1992 1.12% $11,556 1.18% $12,267 0.14% $10,914
06/30/1992 1.30% $11,706 1.68% $12,473 0.36% $10,954
07/31/1992 3.61% $12,129 3.00% $12,847 0.21% $10,977
08/31/1992 -1.16% $11,988 -0.97% $12,723 0.28% $11,007
09/30/1992 0.32% $12,027 0.65% $12,805 0.28% $11,038
10/31/1992 -1.26% $11,875 -0.98% $12,680 0.35% $11,077
11/30/1992 2.19% $12,135 1.79% $12,907 0.14% $11,092
12/31/1992 1.49% $12,316 1.02% $13,039 -0.07% $11,085
01/31/1993 1.24% $12,469 1.16% $13,190 0.49% $11,139
02/28/1993 2.83% $12,821 3.62% $13,667 0.35% $11,178
03/31/1993 -0.29% $12,784 -1.06% $13,522 0.35% $11,217
04/30/1993 0.75% $12,880 1.01% $13,659 0.28% $11,248
05/31/1993 0.36% $12,927 0.56% $13,735 0.14% $11,264
06/30/1993 1.59% $13,132 1.67% $13,965 0.14% $11,280
07/31/1993 0.04% $13,137 0.13% $13,983 0.00% $11,280
08/31/1993 2.08% $13,411 2.08% $14,274 0.28% $11,311
09/30/1993 1.12% $13,561 1.14% $14,437 0.21% $11,335
10/31/1993 0.25% $13,595 0.19% $14,464 0.41% $11,382
11/30/1993 -0.54% $13,521 -0.88% $14,337 0.07% $11,390
12/31/1993 1.73% $13,755 2.11% $14,639 0.00% $11,390
01/31/1994 0.95% $13,886 1.14% $14,806 0.27% $11,420
02/28/1994 -2.08% $13,597 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.87% $13,071 -4.07% $13,836 0.34% $11,498
04/30/1994 0.54% $13,141 0.85% $13,953 0.14% $11,514
05/31/1994 0.75% $13,240 0.87% $14,075 0.07% $11,522
06/30/1994 -0.75% $13,141 -0.61% $13,989 0.34% $11,562
07/31/1994 1.79% $13,376 1.83% $14,245 0.27% $11,593
08/31/1994 0.40% $13,429 0.35% $14,295 0.40% $11,639
09/30/1994 -1.35% $13,248 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.92% $12,994 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.55% $12,662 -1.81% $13,583 0.13% $11,694
12/31/1994 2.38% $12,964 2.20% $13,882 0.00% $11,694
01/31/1995 3.10% $13,366 2.86% $14,279 0.40% $11,741
02/28/1995 2.80% $13,740 2.91% $14,695 0.40% $11,788
03/31/1995 1.23% $13,909 1.15% $14,864 0.33% $11,827
04/30/1995 0.09% $13,921 0.12% $14,882 0.33% $11,866
05/31/1995 2.59% $14,282 3.19% $15,356 0.20% $11,889
06/30/1995 -0.72% $14,179 -0.87% $15,223 0.20% $11,913
07/31/1995 0.48% $14,247 0.95% $15,367 0.00% $11,913
08/31/1995 0.98% $14,387 1.27% $15,563 0.26% $11,944
09/30/1995 0.53% $14,463 0.63% $15,661 0.20% $11,968
10/31/1995 1.52% $14,683 1.45% $15,888 0.33% $12,007
11/30/1995 1.59% $14,916 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,057 0.96% $16,306 -0.07% $11,991
01/31/1996 0.47% $15,127 0.76% $16,430 0.59% $12,061
02/29/1996 -0.72% $15,018 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.00% $14,868 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.05% $14,861 -0.28% $16,065 0.39% $12,210
05/31/1996 0.15% $14,883 -0.04% $16,058 0.19% $12,234
06/30/1996 1.04% $15,038 1.09% $16,233 0.06% $12,241
07/31/1996 0.72% $15,146 0.90% $16,379 0.19% $12,264
08/31/1996 0.01% $15,148 -0.02% $16,376 0.19% $12,287
09/30/1996 1.32% $15,348 1.40% $16,605 0.32% $12,327
10/31/1996 0.99% $15,500 1.13% $16,793 0.32% $12,366
11/30/1996 1.37% $15,712 1.83% $17,100 0.19% $12,390
12/31/1996 -0.23% $15,676 -0.42% $17,028 0.00% $12,390
01/31/1997 0.12% $15,695 0.19% $17,061 0.32% $12,429
02/28/1997 0.86% $15,830 0.92% $17,218 0.31% $12,468
03/31/1997 -0.91% $15,685 -1.33% $16,989 0.25% $12,499
04/30/1997 0.85% $15,819 0.84% $17,131 0.12% $12,514
05/31/1997 1.16% $16,002 1.51% $17,390 -0.06% $12,507
06/30/1997 1.05% $16,170 1.07% $17,576 0.12% $12,522
07/31/1997 2.21% $16,528 2.77% $18,063 0.12% $12,537
08/31/1997 -0.58% $16,432 -0.94% $17,893 0.19% $12,560
09/30/1997 1.03% $16,601 1.19% $18,106 0.25% $12,592
10/31/1997 0.72% $16,721 0.64% $18,222 0.25% $12,623
11/30/1997 0.66% $16,831 0.59% $18,330 -0.06% $12,616
12/31/1997 1.45% $17,075 1.46% $18,597 -0.12% $12,601
01/31/1998 0.85% $17,220 1.03% $18,789 0.19% $12,624
02/28/1998 0.01% $17,222 0.03% $18,794 0.19% $12,648
03/31/1998 0.20% $17,256 0.09% $18,811 0.19% $12,672
04/30/1998 -0.19% $17,224 -0.45% $18,727 0.18% $12,695
05/31/1998 1.33% $17,453 1.58% $19,023 0.18% $12,718
06/30/1998 0.40% $17,522 0.39% $19,097 0.12% $12,733
07/31/1998 0.30% $17,575 0.25% $19,145 0.12% $12,749
08/31/1998 1.26% $17,796 1.55% $19,441 0.12% $12,764
09/30/1998 1.21% $18,012 1.25% $19,684 0.12% $12,779
10/31/1998 -0.05% $18,003 0.00% $19,684 0.24% $12,810
11/30/1998 0.26% $18,050 0.35% $19,753 0.00% $12,810
12/31/1998 0.23% $18,091 0.25% $19,803 -0.06% $12,802
01/31/1999 0.90% $18,254 1.19% $20,038 0.24% $12,833
02/28/1999 -0.42% $18,177 -0.44% $19,950 0.12% $12,848
03/31/1999 0.22% $18,217 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $18,245 0.25% $20,028 0.73% $12,981
05/31/1999 -0.53% $18,148 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.56% $17,865 -1.44% $19,625 0.00% $12,981
07/31/1999 0.06% $17,875 0.36% $19,696 0.30% $13,020
08/31/1999 -1.09% $17,681 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.20% $17,645 0.04% $19,546 0.48% $13,114
10/31/1999 -1.50% $17,381 -1.08% $19,335 0.18% $13,137
11/30/1999 0.84% $17,527 1.06% $19,540 0.06% $13,145
12/31/1999 -1.15% $17,325 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.82% $17,183 -0.44% $19,308 0.24% $13,177
02/29/2000 1.17% $17,368 1.16% $19,532 0.59% $13,255
Total Return 73.68% 95.32% 32.55%
</TABLE>
* Source: Standard & Poor's Micropal.
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin North Carolina Lehman Brothers Municipal CPI*
Tax-Free Income Bond Index*
Fund-Class C
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,896 $10,000 $10,000
05/31/1995 2.62% $10,155 3.19% $10,319 0.20% $10,020
06/30/1995 -0.60% $10,094 -0.87% $10,229 0.20% $10,040
07/31/1995 0.51% $10,146 0.95% $10,326 0.00% $10,040
08/31/1995 0.93% $10,240 1.27% $10,458 0.26% $10,066
09/29/1995 0.57% $10,299 0.63% $10,523 0.20% $10,086
10/31/1995 1.46% $10,449 1.45% $10,676 0.33% $10,120
11/30/1995 1.53% $10,609 1.66% $10,853 -0.07% $10,112
12/29/1995 0.97% $10,712 0.96% $10,957 -0.07% $10,105
01/31/1996 0.33% $10,747 0.76% $11,041 0.59% $10,165
02/29/1996 -0.75% $10,666 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.04% $10,555 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.10% $10,545 -0.28% $10,795 0.39% $10,291
05/31/1996 0.09% $10,554 -0.04% $10,791 0.19% $10,310
06/28/1996 1.07% $10,667 1.09% $10,908 0.06% $10,316
07/31/1996 0.59% $10,730 0.90% $11,006 0.19% $10,336
08/30/1996 -0.04% $10,726 -0.02% $11,004 0.19% $10,356
09/30/1996 1.35% $10,871 1.40% $11,158 0.32% $10,389
10/31/1996 0.85% $10,963 1.13% $11,284 0.32% $10,422
11/29/1996 1.40% $11,117 1.83% $11,491 0.19% $10,442
12/31/1996 -0.28% $11,086 -0.42% $11,443 0.00% $10,442
01/31/1997 0.07% $11,093 0.19% $11,464 0.32% $10,475
02/28/1997 0.80% $11,182 0.92% $11,570 0.31% $10,508
03/31/1997 -0.95% $11,076 -1.33% $11,416 0.25% $10,534
04/30/1997 0.80% $11,164 0.84% $11,512 0.12% $10,547
05/31/1997 1.20% $11,298 1.51% $11,686 -0.06% $10,540
06/30/1997 0.91% $11,401 1.07% $11,811 0.12% $10,553
07/31/1997 2.24% $11,657 2.77% $12,138 0.12% $10,565
08/31/1997 -0.71% $11,574 -0.94% $12,024 0.19% $10,586
09/30/1997 1.06% $11,697 1.19% $12,167 0.25% $10,612
10/31/1997 0.58% $11,764 0.64% $12,245 0.25% $10,639
11/30/1997 0.69% $11,846 0.59% $12,317 -0.06% $10,632
12/31/1997 1.31% $12,001 1.46% $12,497 -0.12% $10,619
01/31/1998 0.88% $12,106 1.03% $12,626 0.19% $10,640
02/28/1998 -0.03% $12,103 0.03% $12,629 0.19% $10,660
03/31/1998 0.15% $12,121 0.09% $12,641 0.19% $10,680
04/30/1998 -0.23% $12,093 -0.45% $12,584 0.18% $10,699
05/31/1998 1.36% $12,257 1.58% $12,783 0.18% $10,719
06/30/1998 0.35% $12,300 0.39% $12,832 0.12% $10,731
07/31/1998 0.25% $12,331 0.25% $12,865 0.12% $10,744
08/31/1998 1.20% $12,479 1.55% $13,064 0.12% $10,757
09/30/1998 1.08% $12,614 1.25% $13,227 0.12% $10,770
10/31/1998 -0.09% $12,603 0.00% $13,227 0.24% $10,796
11/30/1998 0.29% $12,639 0.35% $13,274 0.00% $10,796
12/31/1998 0.18% $12,662 0.25% $13,307 -0.06% $10,789
01/31/1999 0.85% $12,769 1.19% $13,465 0.24% $10,815
02/28/1999 -0.46% $12,711 -0.44% $13,406 0.12% $10,828
03/31/1999 0.16% $12,731 0.14% $13,425 0.30% $10,861
04/30/1999 0.10% $12,744 0.25% $13,458 0.73% $10,940
05/31/1999 -0.57% $12,671 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.69% $12,457 -1.44% $13,187 0.00% $10,940
07/31/1999 0.10% $12,469 0.36% $13,235 0.30% $10,973
08/31/1999 -1.21% $12,319 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.15% $12,300 0.04% $13,134 0.48% $11,052
10/31/1999 -1.62% $12,101 -1.08% $12,992 0.18% $11,072
11/30/1999 0.78% $12,195 1.06% $13,130 0.06% $11,079
12/31/1999 -1.19% $12,050 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.86% $11,946 -0.44% $12,974 0.24% $11,105
02/29/2000 1.20% $12,087 1.16% $13,125 0.59% $11,171
Total Return 20.87% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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
[GRAPHIC - TEXAS MAP]
During the year under review, Texas enjoyed a steadily growing and diversifying
economy, in addition to a low tax-supported debt burden and solid long-term
economic prospects. The Lone Star State has benefited from strong job growth and
an unemployment rate below 6% since early 1996. Its economy has continued to
expand, largely as a result of its low business costs, rapid technology sector
growth, and advantageous location for international trade. Texas also has a
growing population, which is expected to increase by 350,000 annually over the
next several years, leading to greater school and infrastructure spending
needs.(2)
Texas, without a state income tax, relies heavily upon sales taxes for revenue.
Revenue sources during the past several years have shifted away from oil and
other energy-related sectors, from 24% of total tax revenue in 1980, to 4% in
1998, toward a larger reliance on statewide sales tax revenues, up from 40% in
1980, to 55% in 1998, the most recent data available.(3) State debt levels
remain low at $295 net tax-supported debt per capita versus a U.S. median of
$540.(4)
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. Source: Bureau of Economic Analysis, Regional Accounts Data.
3. Source: Standard & Poor's CreditWeek Municipal, 3/22/99.
4. Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 103.
CREDIT QUALITY BREAKDOWN*
FRANKLIN TEXAS TAX-FREE INCOME FUND
BASED ON TOTAL LONG-TERM INVESTMENTS
2/29/00
[CREDIT QUALITY PIE CHART]
AAA - 52.9%
AA - 4.8%
A - 3.9%
BBB - 34.0%
Below Investment Grade - 4.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
PORTFOLIO BREAKDOWN
Franklin Texas Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------------------------
<S> <C>
Utilities 23.9%
Hospital & Health Care 20.8%
Corporate-Backed 14.8%
Prerefunded 12.9%
General Obligation 8.3%
Transportation 7.8%
Housing 5.0%
Higher Education 4.9%
Other Revenue 1.6%
</TABLE>
The state's financial outlook is stable due to its favorable revenue growth
trends, which support a balanced budget. However, there is an expectation that,
while revenues will continue to grow with the economy, financial reserves will
remain at modest levels. The fiscal year 2000-2001 budget includes using all
accumulated surplus and projected revenue increases for tax relief, increased
educational aid, and other uses. There were no additions to the state's economic
stabilization fund, which would provide a financial cushion in the event that an
economic slowdown adversely affects tax receipts. Per-capita debt ratios are
expected to remain low as the state continues to use cash surpluses to help fund
capital expenditures. As a result of its low debt ratio, favorable economic
outlook, and moderate financial reserve levels, Standard & Poor's, an
independent credit rating agency, has assigned Texas an A-rating.(5)
PORTFOLIO NOTES
Interest rates generally rose during the 12 months under review, presenting
challenges for municipal bond investors, as bond prices fall when interest rates
rise. For the year ended February 29, 2000, the 30-year Treasury bond price fell
10.1%, and the Bond Buyer Municipal Bond Index (Bond Buyer 40) dropped 13.1%. By
comparison, Franklin Texas Tax-Free Income Fund's Class A share price declined
10.5%, as measured by net asset value.(6)
During the period, we sought to capitalize on market opportunities to enhance
the portfolio's structure and income-producing potential. The rise in interest
rates allowed us to book tax losses by selling lower-yielding securities and
reinvesting the proceeds at recent, higher rates. During the period, we focused
on selling highly liquid securities with shorter call protection than we would
prefer, such as Tyler Health Facilities for the East Texas Medical Center,
Waxahachie Community Development Corp., and Socorro Independent School District.
These sales improved the portfolio's overall structure and booked tax losses for
the fund, which can be carried forward to help offset current or future capital
gains and possibly reduce our shareholders' future tax liabilities.
5. Source: Standard & Poor's Ratings Direct. This does not indicate Standard &
Poor's rating of the fund.
6. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest and
principal are guaranteed. The fund's investment return and share price fluctuate
with market conditions. Index is unmanaged and includes reinvested interest. One
cannot invest directly in an index.
When investigating potential purchases, we continued to seek bonds maximizing
current, tax free income and having favorable call protection to provide our
shareholders a steady, long-term income stream. Purchases during the year
included Decatur Hospital Authority, Laredo Independent School District, and
Houston Higher Education Bonds for Rice University. These purchases maintained
the portfolio's diversification among a broad range of sectors, helping to
reduce the fund's exposure to the risk and volatility that may affect any one
sector. In addition, our active portfolio management has built a portfolio with
not only credit risk diversity, but also a wide range of coupons and maturities.
The fund continues to emphasize high quality securities, and AAA-rated bonds
represented 52.9% of the fund's total long-term investments at the end of the
reporting period.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 55 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.40%, based on an
annualization of the current 4.8 cent ($0.048) per share dividend and the
maximum offering price of $10.67 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal income tax bracket of 39.6% would need to
earn 8.94% from a taxable investment to match the fund's tax-free distribution
rate. The Performance Summary also shows the distribution rate and taxable
equivalent distribution rate for Class C shares.
Looking forward, we will attempt to continue taking advantage of the recently
higher interest-rate environment. Please keep in mind that interest rates, and
therefore bond prices, rise and fall depending on domestic and global economic
factors. Such fluctuations are a normal part of investing, and one should expect
this when investing in any security, including municipal bonds. However,
municipal bond funds such as Franklin Texas Tax-Free Income Fund may help to
lower such volatility, as they offer a level of diversification that is
difficult for individual investors to achieve on their own.
DIVIDEND DISTRIBUTIONS*
Franklin Texas Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.85 cents 4.28 cents
April 4.85 cents 4.28 cents
May 4.85 cents 4.28 cents
June 4.80 cents 4.24 cents
July 4.80 cents 4.24 cents
August 4.80 cents 4.24 cents
September 4.80 cents 4.35 cents
October 4.80 cents 4.35 cents
November 4.80 cents 4.35 cents
December 4.80 cents 4.30 cents
January 4.80 cents 4.30 cents
February 4.80 cents 4.30 cents
- --------------------------------------------------------------------------------
TOTAL 57.75 CENTS 51.51 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
CLASS A
<TABLE>
<S> <C> <C>
One-Year Total Return -5.21%
Net Asset Value (NAV) $10.22 (2/29/00) $11.42 (2/28/99)
Change in NAV -$1.20
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5775
Long-Term Capital Gain $0.0397
----------------------------------------
Total $0.6172
</TABLE>
CLASS C
<TABLE>
<S> <C> <C>
One-Year Total Return -5.77%
Net Asset Value (NAV) $10.36 (2/29/00) $11.57 (2/28/99)
Change in NAV -$1.21
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5151
Long-Term Capital Gain $0.0397
----------------------------------------
Total $0.5548
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -5.21% +25.13% +81.85% +128.85%
Average Annual Total Return(2) -9.26% +3.68% +5.70% +6.48%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -5.77% +6.55% +21.63%
Average Annual Total Return(2) -7.62% +1.78% +3.93%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.40% 4.94%
Taxable Equivalent Distribution Rate(4) 8.94% 8.18%
30-Day Standardized Yield(5) 5.34% 4.96%
Taxable Equivalent Yield(4) 8.84% 8.21%
</TABLE>
Franklin Texas Tax-Free Income Fund paid distributions derived from long-term
capital gains of 3.97 cents ($0.0397) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN TEXAS
TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the 2000 maximum
federal personal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 TEXAS
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------------------------------
<S> <C>
1-Year -9.26%
5-Year +3.68%
10-Year +5.70%
Since Inception (9/1/87) +6.48%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- -------------------------------
<S> <C>
1-Year -7.62%
3-Year +1.78%
Since Inception (5/1/95) +3.93%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index.
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 3/1/90
to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Texas Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,561 $10,000 $10,000
03/31/1990 -0.12% $9,550 0.03% $10,003 0.55% $10,055
04/30/1990 -0.59% $9,493 -0.72% $9,931 0.16% $10,071
05/31/1990 2.16% $9,698 2.18% $10,147 0.23% $10,094
06/30/1990 1.00% $9,795 0.88% $10,237 0.54% $10,149
07/31/1990 1.65% $9,957 1.47% $10,387 0.38% $10,187
08/31/1990 -2.43% $9,715 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.22% $9,694 0.06% $10,243 0.84% $10,367
10/31/1990 1.61% $9,850 1.82% $10,429 0.60% $10,430
11/30/1990 2.45% $10,091 2.01% $10,639 0.22% $10,453
12/31/1990 0.25% $10,116 0.43% $10,685 0.00% $10,453
01/31/1991 1.66% $10,284 1.34% $10,828 0.60% $10,515
02/28/1991 0.53% $10,339 0.87% $10,922 0.15% $10,531
03/31/1991 0.35% $10,375 0.03% $10,925 0.15% $10,547
04/30/1991 1.46% $10,526 1.34% $11,072 0.15% $10,563
05/31/1991 0.81% $10,611 0.89% $11,170 0.30% $10,594
06/30/1991 -0.02% $10,609 -0.10% $11,159 0.29% $10,625
07/31/1991 1.37% $10,755 1.22% $11,295 0.15% $10,641
08/31/1991 0.99% $10,861 1.32% $11,444 0.29% $10,672
09/30/1991 1.44% $11,018 1.30% $11,593 0.44% $10,719
10/31/1991 0.52% $11,075 0.90% $11,697 0.15% $10,735
11/30/1991 0.43% $11,122 0.28% $11,730 0.29% $10,766
12/31/1991 2.00% $11,345 2.15% $11,982 0.07% $10,774
01/31/1992 0.14% $11,361 0.23% $12,010 0.15% $10,790
02/29/1992 0.25% $11,389 0.03% $12,013 0.36% $10,829
03/31/1992 0.27% $11,420 0.03% $12,017 0.51% $10,884
04/30/1992 0.81% $11,512 0.89% $12,124 0.14% $10,899
05/31/1992 1.24% $11,655 1.18% $12,267 0.14% $10,914
06/30/1992 1.34% $11,811 1.68% $12,473 0.36% $10,954
07/31/1992 3.30% $12,201 3.00% $12,847 0.21% $10,977
08/31/1992 -1.41% $12,029 -0.97% $12,723 0.28% $11,007
09/30/1992 0.25% $12,059 0.65% $12,805 0.28% $11,038
10/31/1992 -1.52% $11,876 -0.98% $12,680 0.35% $11,077
11/30/1992 2.15% $12,131 1.79% $12,907 0.14% $11,092
12/31/1992 1.53% $12,317 1.02% $13,039 -0.07% $11,085
01/31/1993 1.10% $12,452 1.16% $13,190 0.49% $11,139
02/28/1993 3.08% $12,836 3.62% $13,667 0.35% $11,178
03/31/1993 -0.62% $12,756 -1.06% $13,522 0.35% $11,217
04/30/1993 0.61% $12,834 1.01% $13,659 0.28% $11,248
05/31/1993 0.38% $12,883 0.56% $13,735 0.14% $11,264
06/30/1993 1.64% $13,094 1.67% $13,965 0.14% $11,280
07/31/1993 0.14% $13,112 0.13% $13,983 0.00% $11,280
08/31/1993 1.62% $13,325 2.08% $14,274 0.28% $11,311
09/30/1993 1.09% $13,470 1.14% $14,437 0.21% $11,335
10/31/1993 0.20% $13,497 0.19% $14,464 0.41% $11,382
11/30/1993 0.31% $13,539 -0.88% $14,337 0.07% $11,390
12/31/1993 1.54% $13,747 2.11% $14,639 0.00% $11,390
01/31/1994 0.82% $13,860 1.14% $14,806 0.27% $11,420
02/28/1994 -1.51% $13,651 -2.59% $14,423 0.34% $11,459
03/31/1994 -2.80% $13,269 -4.07% $13,836 0.34% $11,498
04/30/1994 0.46% $13,330 0.85% $13,953 0.14% $11,514
05/31/1994 0.76% $13,431 0.87% $14,075 0.07% $11,522
06/30/1994 -0.13% $13,414 -0.61% $13,989 0.34% $11,562
07/31/1994 1.27% $13,584 1.83% $14,245 0.27% $11,593
08/31/1994 0.32% $13,627 0.35% $14,295 0.40% $11,639
09/30/1994 -0.73% $13,528 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.02% $13,390 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.70% $13,162 -1.81% $13,583 0.13% $11,694
12/31/1994 1.52% $13,362 2.20% $13,882 0.00% $11,694
01/31/1995 1.98% $13,627 2.86% $14,279 0.40% $11,741
02/28/1995 2.01% $13,901 2.91% $14,695 0.40% $11,788
03/31/1995 0.90% $14,026 1.15% $14,864 0.33% $11,827
04/30/1995 0.28% $14,065 0.12% $14,882 0.33% $11,866
05/31/1995 2.20% $14,375 3.19% $15,356 0.20% $11,889
06/30/1995 -0.02% $14,372 -0.87% $15,223 0.20% $11,913
07/31/1995 0.59% $14,457 0.95% $15,367 0.00% $11,913
08/31/1995 1.00% $14,601 1.27% $15,563 0.26% $11,944
09/30/1995 0.73% $14,708 0.63% $15,661 0.20% $11,968
10/31/1995 1.02% $14,858 1.45% $15,888 0.33% $12,007
11/30/1995 1.19% $15,035 1.66% $16,151 -0.07% $11,999
12/31/1995 0.71% $15,141 0.96% $16,306 -0.07% $11,991
01/31/1996 0.58% $15,229 0.76% $16,430 0.59% $12,061
02/29/1996 -0.29% $15,185 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.48% $15,112 -1.28% $16,110 0.52% $12,163
04/30/1996 0.05% $15,120 -0.28% $16,065 0.39% $12,210
05/31/1996 0.26% $15,159 -0.04% $16,058 0.19% $12,234
06/30/1996 0.90% $15,295 1.09% $16,233 0.06% $12,241
07/31/1996 0.68% $15,399 0.90% $16,379 0.19% $12,264
08/31/1996 0.04% $15,405 -0.02% $16,376 0.19% $12,287
09/30/1996 1.36% $15,615 1.40% $16,605 0.32% $12,327
10/31/1996 0.86% $15,749 1.13% $16,793 0.32% $12,366
11/30/1996 1.24% $15,945 1.83% $17,100 0.19% $12,390
12/31/1996 -0.13% $15,924 -0.42% $17,028 0.00% $12,390
01/31/1997 0.16% $15,949 0.19% $17,061 0.32% $12,429
02/28/1997 0.74% $16,067 0.92% $17,218 0.31% $12,468
03/31/1997 -0.81% $15,937 -1.33% $16,989 0.25% $12,499
04/30/1997 0.82% $16,068 0.84% $17,131 0.12% $12,514
05/31/1997 1.14% $16,251 1.51% $17,390 -0.06% $12,507
06/30/1997 1.01% $16,415 1.07% $17,576 0.12% $12,522
07/31/1997 2.21% $16,778 2.77% $18,063 0.12% $12,537
08/31/1997 -0.68% $16,664 -0.94% $17,893 0.19% $12,560
09/30/1997 0.99% $16,829 1.19% $18,106 0.25% $12,592
10/31/1997 1.19% $17,029 0.64% $18,222 0.25% $12,623
11/30/1997 0.60% $17,131 0.59% $18,330 -0.06% $12,616
12/31/1997 1.41% $17,373 1.46% $18,597 -0.12% $12,601
01/31/1998 0.71% $17,496 1.03% $18,789 0.19% $12,624
02/28/1998 0.01% $17,498 0.03% $18,794 0.19% $12,648
03/31/1998 0.12% $17,519 0.09% $18,811 0.19% $12,672
04/30/1998 -0.28% $17,470 -0.45% $18,727 0.18% $12,695
05/31/1998 1.29% $17,695 1.58% $19,023 0.18% $12,718
06/30/1998 0.41% $17,768 0.39% $19,097 0.12% $12,733
07/31/1998 0.22% $17,807 0.25% $19,145 0.12% $12,749
08/31/1998 1.23% $18,026 1.55% $19,441 0.12% $12,764
09/30/1998 1.01% $18,208 1.25% $19,684 0.12% $12,779
10/31/1998 -0.32% $18,150 0.00% $19,684 0.24% $12,810
11/30/1998 0.35% $18,213 0.35% $19,753 0.00% $12,810
12/31/1998 0.25% $18,259 0.25% $19,803 -0.06% $12,802
01/31/1999 0.87% $18,418 1.19% $20,038 0.24% $12,833
02/28/1999 -0.37% $18,349 -0.44% $19,950 0.12% $12,848
03/31/1999 0.31% $18,406 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $18,434 0.25% $20,028 0.73% $12,981
05/31/1999 -0.31% $18,377 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.32% $18,134 -1.44% $19,625 0.00% $12,981
07/31/1999 0.05% $18,143 0.36% $19,696 0.30% $13,020
08/31/1999 -1.17% $17,931 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.22% $17,892 0.04% $19,546 0.48% $13,114
10/31/1999 -1.80% $17,570 -1.08% $19,335 0.18% $13,137
11/30/1999 0.59% $17,673 1.06% $19,540 0.06% $13,145
12/31/1999 -1.34% $17,436 -0.75% $19,393 0.00% $13,145
01/31/2000 -1.38% $17,196 -0.44% $19,308 0.24% $13,177
02/29/2000 1.15% $17,407 1.16% $19,532 0.59% $13,255
Total Return 74.07% 95.32% 32.55%
</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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Texas Tax-Free Lehman Brothers Municipal CPI*
Income Fund-Class C Bond Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,903 $10,000 $10,000
05/31/1995 2.32% $10,133 3.19% $10,319 0.20% $10,020
06/30/1995 -0.07% $10,126 -0.87% $10,229 0.20% $10,040
07/31/1995 0.54% $10,180 0.95% $10,326 0.00% $10,040
08/31/1995 1.21% $10,304 1.27% $10,458 0.26% $10,066
09/29/1995 0.67% $10,373 0.63% $10,523 0.20% $10,086
10/31/1995 0.96% $10,472 1.45% $10,676 0.33% $10,120
11/30/1995 1.48% $10,627 1.66% $10,853 -0.07% $10,112
12/29/1995 0.74% $10,706 0.96% $10,957 -0.07% $10,105
01/31/1996 0.53% $10,762 0.76% $11,041 0.59% $10,165
02/29/1996 -0.41% $10,718 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.44% $10,671 -1.28% $10,825 0.52% $10,251
04/30/1996 0.00% $10,671 -0.28% $10,795 0.39% $10,291
05/31/1996 0.21% $10,694 -0.04% $10,791 0.19% $10,310
06/28/1996 0.93% $10,793 1.09% $10,908 0.06% $10,316
07/31/1996 0.62% $10,860 0.90% $11,006 0.19% $10,336
08/30/1996 -0.01% $10,859 -0.02% $11,004 0.19% $10,356
09/30/1996 1.31% $11,001 1.40% $11,158 0.32% $10,389
10/31/1996 0.82% $11,091 1.13% $11,284 0.32% $10,422
11/29/1996 1.20% $11,224 1.83% $11,491 0.19% $10,442
12/31/1996 -0.16% $11,206 -0.42% $11,443 0.00% $10,442
01/31/1997 0.20% $11,229 0.19% $11,464 0.32% $10,475
02/28/1997 0.68% $11,305 0.92% $11,570 0.31% $10,508
03/31/1997 -0.94% $11,199 -1.33% $11,416 0.25% $10,534
04/30/1997 0.86% $11,295 0.84% $11,512 0.12% $10,547
05/31/1997 1.09% $11,418 1.51% $11,686 -0.06% $10,540
06/30/1997 0.96% $11,528 1.07% $11,811 0.12% $10,553
07/31/1997 2.14% $11,775 2.77% $12,138 0.12% $10,565
08/31/1997 -0.72% $11,690 -0.94% $12,024 0.19% $10,586
09/30/1997 0.93% $11,799 1.19% $12,167 0.25% $10,612
10/31/1997 1.13% $11,932 0.64% $12,245 0.25% $10,639
11/30/1997 0.55% $11,998 0.59% $12,317 -0.06% $10,632
12/31/1997 1.43% $12,169 1.46% $12,497 -0.12% $10,619
01/31/1998 0.65% $12,248 1.03% $12,626 0.19% $10,640
02/28/1998 -0.04% $12,243 0.03% $12,629 0.19% $10,660
03/31/1998 0.07% $12,252 0.09% $12,641 0.19% $10,680
04/30/1998 -0.32% $12,213 -0.45% $12,584 0.18% $10,699
05/31/1998 1.32% $12,374 1.58% $12,783 0.18% $10,719
06/30/1998 0.27% $12,407 0.39% $12,832 0.12% $10,731
07/31/1998 0.25% $12,438 0.25% $12,865 0.12% $10,744
08/31/1998 1.16% $12,583 1.55% $13,064 0.12% $10,757
09/30/1998 0.95% $12,702 1.25% $13,227 0.12% $10,770
10/31/1998 -0.36% $12,656 0.00% $13,227 0.24% $10,796
11/30/1998 0.30% $12,694 0.35% $13,274 0.00% $10,796
12/31/1998 0.20% $12,720 0.25% $13,307 -0.06% $10,789
01/31/1999 0.90% $12,834 1.19% $13,465 0.24% $10,815
02/28/1999 -0.41% $12,782 -0.44% $13,406 0.12% $10,828
03/31/1999 0.16% $12,802 0.14% $13,425 0.30% $10,861
04/30/1999 0.19% $12,826 0.25% $13,458 0.73% $10,940
05/31/1999 -0.44% $12,770 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.36% $12,596 -1.44% $13,187 0.00% $10,940
07/31/1999 0.00% $12,596 0.36% $13,235 0.30% $10,973
08/31/1999 -1.20% $12,445 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.26% $12,413 0.04% $13,134 0.48% $11,052
10/31/1999 -1.82% $12,187 -1.08% $12,992 0.18% $11,072
11/30/1999 0.44% $12,241 1.06% $13,130 0.06% $11,079
12/31/1999 -1.28% $12,084 -0.75% $13,032 0.00% $11,079
01/31/2000 -1.51% $11,901 -0.44% $12,974 0.24% $11,105
02/29/2000 1.18% $12,045 1.16% $13,125 0.59% $11,171
Total Return 20.45% 31.25% 11.71%
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
Franklin Virginia Tax-Free Income Fund
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
[VIRGINIA MAP]
By implementing a policy of conservative financial management and prudent
monitoring of debt issuance, Virginia has preserved its AAA credit rating with
Moody's, Fitch and Standard & Poor's, three independent credit rating agencies.2
Virginia's diversified and robust economy tends to outperform the national
economy. For example, wages and salaries in the commonwealth grew 7.4% during
1999 compared with 5.6% for the nation. Employment and personal income growth
kept pace with the rest of the U.S. despite cutbacks in defense spending,
indicating a broader underlying economic strength. Although less reliant on
government jobs than before, Virginia's rapidly evolving economy still derives
22% of earnings from government employment compared with an average of 15% for
the rest of the country.3
Impressive employment growth and earnings in high-technology, retail trade and
business services industries more than offset job losses in manufacturing and
federal government employment in 1999. Although the state added 81,200 jobs in
1999, the resulting 2.8% unemployment rate, the lowest in four decades, suggests
such employment growth may not be sustainable due to labor shortages.4 For
2000-2003, Virginia's annual job growth is expected to slow down due to the
tight labor market.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
2. This does not indicate a rating for the fund.
3. Source: Standard & Poor's Ratings Direct, State of Virginia, 11/99.
4. Source: Bureau of Labor Statistics, 2/00.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 106.
CREDIT QUALITY BREAKDOWN*
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
BASED ON TOTAL LONG-TERM INVESTMENTS
2/29/00
[Credit Quality Breakdown PIE CHART}
*Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
PORTFOLIO BREAKDOWN
Franklin Virginia
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -------------------------------
<S> <C>
Utilities 20.1%
Hospital & Health Care 15.7%
Transportation 12.4%
Prerefunded 12.4%
Corporate-Backed 12.1%
Housing 11.5%
Other Revenue 8.5%
Tax-Supported Debt 3.3%
Higher Education 2.7%
Subject to Government
Appropriation 0.8%
General Obligation 0.5%
</TABLE>
Even though Virginia maintains its historically conservative approach to debt,
current debt levels are rising as the commonwealth has embarked on several large
highway and university construction projects. Nevertheless, its direct general
obligation debt burden is still very low at $166 per capita for 1999. The 1999
tax-supported debt grew to $3.5 billion, yielding a per-capita debt level of
$570, up from levels of prior years and above the 1999 U.S. median of $540.5
Virginia's financial position remains strong; the commonwealth generated cash
surpluses in four of the past five years, rising to $1.6 billion in 1999 from
$1.4 billion in 1998. In 1999 and early 2000, surging local economies produced
revenue increases in excess of the commonwealth's conservative budget
projections. As with many states, Virginia's income tax revenues showed the
largest growth in 1999, at 9.5% more than the year before, with the largest tax,
the personal income tax, increasing by over 11% and accounting for more than 65%
of total tax revenues. Expenditures overall grew by 4.5%, with the biggest
increases going to education and transportation.3
With its underlying economic strength and low general obligation debt burden,
the outlook for Virginia is bright. The commonwealth has managed its debt and
finances well during a period of rapid population growth and economic
transition. Virginia's budgetary discipline and ability to maintain strong
financial operations, excellent reserve levels and financial flexibility should
allow it to take further advantage of the expected expansion.
PORTFOLIO NOTES
Rising interest rates during the year under review presented challenges for the
municipal bond market, as bond prices decline when interest rates rise. For the
12 months ended February 29, 2000, the 30-year Treasury bond price fell 10.1%,
and the Bond Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By
comparison, your fund's Class A share price, as measured by net asset value,
declined 9.1%.6
5. Source: Moody's Investors Service.
6. Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
As interest rates rose throughout the reporting period, there were fewer
opportunities for issuers to refund existing debt. During the period, we
attempted to take advantage of the higher interest-rate environment to
restructure the fund's portfolio mix and enhance its income-producing potential.
We generally sold shorter maturity bonds, maturing in the 2015-2020 range, and
bought longer-term bonds with higher yields. In addition, we booked tax losses,
which can be carried forward in the portfolio to help offset taxable capital
gains in the future and potentially lower shareholders' future tax liabilities.
With this in mind, the fund sold Virginia Resources Authority Sewer Revenue,
Bedford County General Obligation, Loudon County Virginia - Loudon Hospital, and
Winchester Industrial Development Authority for Shenandoah University.
Virginia, which has historically low bond issuance, witnessed a 28% decline in
1999's supply compared with 1998's.7 When investigating potential purchases, we
continued to seek bonds maximizing current, tax-free income and having favorable
call protection to provide our shareholders with a steady, long-term income
stream. Attempting to meet these goals, we made several additions to the
portfolio during the reporting period, including York County Virginia Sewer
Systems Revenue, Greater Richmond Convention-Hotel Tax Revenue, Virginia Housing
Development MFH, and Newport News Virginia Redevelopment and Housing Authority.
In addition, our active portfolio management has built a portfolio with not only
credit risk diversity, but also a wide range of coupons and maturities. The fund
continues to emphasize high-quality securities, and AAA-rated bonds represented
51.1% of the fund's total long-term investments at the end of the reporting
period.
Your fund offers a notable tax advantage over a comparable taxable investment.
The Performance Summary on page 61 shows that at the end of this reporting
period, the fund's Class A shares' distribution rate was 5.16%, based on an
annualization of the current 4.85 cent ($0.0485) per share dividend and the
maximum offering price of $11.27 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Virginia state personal income
tax bracket of 43.07% would need to earn 9.06% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
7. Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS*
Franklin Virginia Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.85 cents 4.29 cents
April 4.85 cents 4.29 cents
May 4.85 cents 4.29 cents
June 4.85 cents 4.32 cents
July 4.85 cents 4.32 cents
August 4.85 cents 4.32 cents
September 4.85 cents 4.33 cents
October 4.85 cents 4.33 cents
November 4.85 cents 4.33 cents
December 4.85 cents 4.36 cents
January 4.85 cents 4.36 cents
February 4.85 cents 4.36 cents
- --------------------------------------------------------------------------------
TOTAL 58.20 CENTS 51.90 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.
Looking forward, we will maintain our strategy of buying current coupon bonds at
a slight discount, seeking to provide shareholders with high, current tax-free
income.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
CLASS A
<TABLE>
<S> <C> <C>
One-Year Total Return -4.31%
Net Asset Value (NAV) $10.79 (2/29/00) $11.88 (2/28/99)
Change in NAV -$1.09
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5820
</TABLE>
CLASS C
<TABLE>
<S> <C> <C>
One-Year Total Return -4.82%
Net Asset Value (NAV) $10.86 (2/29/00) $11.95 (2/28/99)
Change in NAV -$1.09
Distributions (3/1/99 - 2/29/00) Dividend Income $0.5190
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -4.31% +25.92% +83.96% +129.23%
Average Annual Total Return(2) -8.40% +3.82% +5.83% +6.49%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.82% +7.67% +21.72%
Average Annual Total Return(2) -6.67% +2.15% +3.94%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.16% 4.79%
Taxable Equivalent Distribution Rate(4) 9.06% 8.41%
30-Day Standardized Yield(5) 5.02% 4.65%
Taxable Equivalent Yield(4) 8.82% 8.17%
</TABLE>
For updated performance figures, please see "Prices and Performance" on the
Internet at www.franklintempleton.com, or call Franklin Templeton at
1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
4. Taxable equivalent distribution rate and yield assume the published rates as
of March 15, 2000, for the maximum combined federal and Virginia state personal
income tax bracket of 43.07%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -------------------------------
<S> <C>
1-Year -8.40%
5-Year +3.82%
10-Year +5.83%
Since Inception (9/1/87) +6.49%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- -------------------------------
<S> <C>
1-Year -6.67%
3-Year +2.15%
Since Inception (5/1/95) +3.94%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, 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 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Virginia Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,570 $10,000 $10,000
03/31/1990 -0.07% $9,563 0.03% $10,003 0.55% $10,055
04/30/1990 -0.64% $9,502 -0.72% $9,931 0.16% $10,071
05/31/1990 2.24% $9,715 2.18% $10,147 0.23% $10,094
06/30/1990 0.88% $9,800 0.88% $10,237 0.54% $10,149
07/31/1990 1.63% $9,960 1.47% $10,387 0.38% $10,187
08/31/1990 -2.49% $9,712 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.16% $9,697 0.06% $10,243 0.84% $10,367
10/31/1990 1.58% $9,850 1.82% $10,429 0.60% $10,430
11/30/1990 2.33% $10,079 2.01% $10,639 0.22% $10,453
12/31/1990 0.03% $10,082 0.43% $10,685 0.00% $10,453
01/31/1991 1.64% $10,248 1.34% $10,828 0.60% $10,515
02/28/1991 0.97% $10,347 0.87% $10,922 0.15% $10,531
03/31/1991 0.31% $10,379 0.03% $10,925 0.15% $10,547
04/30/1991 1.34% $10,518 1.34% $11,072 0.15% $10,563
05/31/1991 0.68% $10,590 0.89% $11,170 0.30% $10,594
06/30/1991 0.03% $10,593 -0.10% $11,159 0.29% $10,625
07/31/1991 1.53% $10,755 1.22% $11,295 0.15% $10,641
08/31/1991 0.95% $10,857 1.32% $11,444 0.29% $10,672
09/30/1991 1.51% $11,021 1.30% $11,593 0.44% $10,719
10/31/1991 0.58% $11,085 0.90% $11,697 0.15% $10,735
11/30/1991 0.39% $11,128 0.28% $11,730 0.29% $10,766
12/31/1991 1.95% $11,345 2.15% $11,982 0.07% $10,774
01/31/1992 0.29% $11,378 0.23% $12,010 0.15% $10,790
02/29/1992 0.04% $11,383 0.03% $12,013 0.36% $10,829
03/31/1992 0.16% $11,401 0.03% $12,017 0.51% $10,884
04/30/1992 0.88% $11,501 0.89% $12,124 0.14% $10,899
05/31/1992 1.13% $11,631 1.18% $12,267 0.14% $10,914
06/30/1992 1.41% $11,795 1.68% $12,473 0.36% $10,954
07/31/1992 3.47% $12,205 3.00% $12,847 0.21% $10,977
08/31/1992 -1.00% $12,083 -0.97% $12,723 0.28% $11,007
09/30/1992 0.32% $12,121 0.65% $12,805 0.28% $11,038
10/31/1992 -1.72% $11,913 -0.98% $12,680 0.35% $11,077
11/30/1992 2.23% $12,178 1.79% $12,907 0.14% $11,092
12/31/1992 1.51% $12,362 1.02% $13,039 -0.07% $11,085
01/31/1993 1.17% $12,507 1.16% $13,190 0.49% $11,139
02/28/1993 2.79% $12,856 3.62% $13,667 0.35% $11,178
03/31/1993 -0.30% $12,817 -1.06% $13,522 0.35% $11,217
04/30/1993 0.76% $12,915 1.01% $13,659 0.28% $11,248
05/31/1993 0.54% $12,984 0.56% $13,735 0.14% $11,264
06/30/1993 1.78% $13,216 1.67% $13,965 0.14% $11,280
07/31/1993 0.04% $13,221 0.13% $13,983 0.00% $11,280
08/31/1993 1.85% $13,465 2.08% $14,274 0.28% $11,311
09/30/1993 1.16% $13,622 1.14% $14,437 0.21% $11,335
10/31/1993 0.52% $13,692 0.19% $14,464 0.41% $11,382
11/30/1993 -0.20% $13,665 -0.88% $14,337 0.07% $11,390
12/31/1993 1.68% $13,895 2.11% $14,639 0.00% $11,390
01/31/1994 0.97% $14,029 1.14% $14,806 0.27% $11,420
02/28/1994 -1.92% $13,760 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.38% $13,295 -4.07% $13,836 0.34% $11,498
04/30/1994 0.36% $13,343 0.85% $13,953 0.14% $11,514
05/31/1994 0.57% $13,419 0.87% $14,075 0.07% $11,522
06/30/1994 -0.58% $13,341 -0.61% $13,989 0.34% $11,562
07/31/1994 1.62% $13,557 1.83% $14,245 0.27% $11,593
08/31/1994 0.49% $13,624 0.35% $14,295 0.40% $11,639
09/30/1994 -1.18% $13,463 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.75% $13,227 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.28% $12,926 -1.81% $13,583 0.13% $11,694
12/31/1994 2.48% $13,246 2.20% $13,882 0.00% $11,694
01/31/1995 3.00% $13,644 2.86% $14,279 0.40% $11,741
02/28/1995 2.44% $13,977 2.91% $14,695 0.40% $11,788
03/31/1995 0.97% $14,112 1.15% $14,864 0.33% $11,827
04/30/1995 0.18% $14,137 0.12% $14,882 0.33% $11,866
05/31/1995 2.43% $14,481 3.19% $15,356 0.20% $11,889
06/30/1995 -0.47% $14,413 -0.87% $15,223 0.20% $11,913
07/31/1995 0.83% $14,533 0.95% $15,367 0.00% $11,913
08/31/1995 0.98% $14,675 1.27% $15,563 0.26% $11,944
09/30/1995 0.53% $14,753 0.63% $15,661 0.20% $11,968
10/31/1995 1.26% $14,939 1.45% $15,888 0.33% $12,007
11/30/1995 1.42% $15,151 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,293 0.96% $16,306 -0.07% $11,991
01/31/1996 0.47% $15,365 0.76% $16,430 0.59% $12,061
02/29/1996 -0.47% $15,293 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.92% $15,152 -1.28% $16,110 0.52% $12,163
04/30/1996 0.03% $15,157 -0.28% $16,065 0.39% $12,210
05/31/1996 0.15% $15,179 -0.04% $16,058 0.19% $12,234
06/30/1996 0.97% $15,327 1.09% $16,233 0.06% $12,241
07/31/1996 0.65% $15,426 0.90% $16,379 0.19% $12,264
08/31/1996 0.02% $15,429 -0.02% $16,376 0.19% $12,287
09/30/1996 1.25% $15,622 1.40% $16,605 0.32% $12,327
10/31/1996 0.84% $15,754 1.13% $16,793 0.32% $12,366
11/30/1996 1.39% $15,972 1.83% $17,100 0.19% $12,390
12/31/1996 -0.26% $15,931 -0.42% $17,028 0.00% $12,390
01/31/1997 0.14% $15,953 0.19% $17,061 0.32% $12,429
02/28/1997 0.80% $16,081 0.92% $17,218 0.31% $12,468
03/31/1997 -0.98% $15,923 -1.33% $16,989 0.25% $12,499
04/30/1997 0.79% $16,049 0.84% $17,131 0.12% $12,514
05/31/1997 1.28% $16,255 1.51% $17,390 -0.06% $12,507
06/30/1997 0.84% $16,391 1.07% $17,576 0.12% $12,522
07/31/1997 2.34% $16,775 2.77% $18,063 0.12% $12,537
08/31/1997 -0.83% $16,635 -0.94% $17,893 0.19% $12,560
09/30/1997 1.13% $16,823 1.19% $18,106 0.25% $12,592
10/31/1997 0.65% $16,933 0.64% $18,222 0.25% $12,623
11/30/1997 0.75% $17,060 0.59% $18,330 -0.06% $12,616
12/31/1997 1.35% $17,290 1.46% $18,597 -0.12% $12,601
01/31/1998 0.87% $17,440 1.03% $18,789 0.19% $12,624
02/28/1998 0.10% $17,458 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $17,495 0.09% $18,811 0.19% $12,672
04/30/1998 -0.44% $17,418 -0.45% $18,727 0.18% $12,695
05/31/1998 1.53% $17,684 1.58% $19,023 0.18% $12,718
06/30/1998 0.48% $17,769 0.39% $19,097 0.12% $12,733
07/31/1998 0.30% $17,822 0.25% $19,145 0.12% $12,749
08/31/1998 1.28% $18,050 1.55% $19,441 0.12% $12,764
09/30/1998 1.06% $18,242 1.25% $19,684 0.12% $12,779
10/31/1998 -0.22% $18,202 0.00% $19,684 0.24% $12,810
11/30/1998 0.34% $18,263 0.35% $19,753 0.00% $12,810
12/31/1998 0.21% $18,302 0.25% $19,803 -0.06% $12,802
01/31/1999 0.92% $18,470 1.19% $20,038 0.24% $12,833
02/28/1999 -0.35% $18,406 -0.44% $19,950 0.12% $12,848
03/31/1999 0.21% $18,444 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $18,472 0.25% $20,028 0.73% $12,981
05/31/1999 -0.46% $18,387 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.52% $18,107 -1.44% $19,625 0.00% $12,981
07/31/1999 0.14% $18,133 0.36% $19,696 0.30% $13,020
08/31/1999 -1.38% $17,883 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.12% $17,861 0.04% $19,546 0.48% $13,114
10/31/1999 -1.64% $17,568 -1.08% $19,335 0.18% $13,137
11/30/1999 0.94% $17,733 1.06% $19,540 0.06% $13,145
12/31/1999 -1.01% $17,554 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.94% $17,389 -0.44% $19,308 0.24% $13,177
02/29/2000 1.28% $17,617 1.16% $19,532 0.59% $13,255
Total Return 76.17% 95.32% 32.55%
</TABLE>
* Source: Standard & Poor's Micropal.
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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Virginia Tax-Free Lehman Brothers Municipal CPI*
Income Fund-Class C Bond Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.73% $10,174 3.19% $10,319 0.20% $10,020
06/30/1995 -0.44% $10,130 -0.87% $10,229 0.20% $10,040
07/31/1995 0.69% $10,200 0.95% $10,326 0.00% $10,040
08/31/1995 1.01% $10,303 1.27% $10,458 0.26% $10,066
09/29/1995 0.48% $10,352 0.63% $10,523 0.20% $10,086
10/31/1995 1.20% $10,476 1.45% $10,676 0.33% $10,120
11/30/1995 1.36% $10,619 1.66% $10,853 -0.07% $10,112
12/29/1995 0.89% $10,713 0.96% $10,957 -0.07% $10,105
01/31/1996 0.42% $10,758 0.76% $11,041 0.59% $10,165
02/29/1996 -0.52% $10,702 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.88% $10,608 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.10% $10,597 -0.28% $10,795 0.39% $10,291
05/31/1996 0.10% $10,608 -0.04% $10,791 0.19% $10,310
06/28/1996 0.92% $10,706 1.09% $10,908 0.06% $10,316
07/31/1996 0.69% $10,780 0.90% $11,006 0.19% $10,336
08/30/1996 -0.11% $10,768 -0.02% $11,004 0.19% $10,356
09/30/1996 1.28% $10,905 1.40% $11,158 0.32% $10,389
10/31/1996 0.78% $10,991 1.13% $11,284 0.32% $10,422
11/29/1996 1.34% $11,138 1.83% $11,491 0.19% $10,442
12/31/1996 -0.31% $11,103 -0.42% $11,443 0.00% $10,442
01/31/1997 0.09% $11,113 0.19% $11,464 0.32% $10,475
02/28/1997 0.75% $11,197 0.92% $11,570 0.31% $10,508
03/31/1997 -0.94% $11,091 -1.33% $11,416 0.25% $10,534
04/30/1997 0.74% $11,173 0.84% $11,512 0.12% $10,547
05/31/1997 1.23% $11,311 1.51% $11,686 -0.06% $10,540
06/30/1997 0.70% $11,390 1.07% $11,811 0.12% $10,553
07/31/1997 2.36% $11,659 2.77% $12,138 0.12% $10,565
08/31/1997 -0.87% $11,557 -0.94% $12,024 0.19% $10,586
09/30/1997 0.99% $11,672 1.19% $12,167 0.25% $10,612
10/31/1997 0.68% $11,751 0.64% $12,245 0.25% $10,639
11/30/1997 0.70% $11,833 0.59% $12,317 -0.06% $10,632
12/31/1997 1.29% $11,986 1.46% $12,497 -0.12% $10,619
01/31/1998 0.82% $12,084 1.03% $12,626 0.19% $10,640
02/28/1998 0.05% $12,090 0.03% $12,629 0.19% $10,660
03/31/1998 0.16% $12,110 0.09% $12,641 0.19% $10,680
04/30/1998 -0.48% $12,052 -0.45% $12,584 0.18% $10,699
05/31/1998 1.56% $12,240 1.58% $12,783 0.18% $10,719
06/30/1998 0.43% $12,292 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $12,313 0.25% $12,865 0.12% $10,744
08/31/1998 1.22% $12,463 1.55% $13,064 0.12% $10,757
09/30/1998 1.09% $12,599 1.25% $13,227 0.12% $10,770
10/31/1998 -0.27% $12,565 0.00% $13,227 0.24% $10,796
11/30/1998 0.29% $12,602 0.35% $13,274 0.00% $10,796
12/31/1998 0.16% $12,622 0.25% $13,307 -0.06% $10,789
01/31/1999 0.86% $12,730 1.19% $13,465 0.24% $10,815
02/28/1999 -0.48% $12,669 -0.44% $13,406 0.12% $10,828
03/31/1999 0.24% $12,700 0.14% $13,425 0.30% $10,861
04/30/1999 0.18% $12,723 0.25% $13,458 0.73% $10,940
05/31/1999 -0.59% $12,648 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.56% $12,450 -1.44% $13,187 0.00% $10,940
07/31/1999 0.09% $12,461 0.36% $13,235 0.30% $10,973
08/31/1999 -1.42% $12,284 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.25% $12,254 0.04% $13,134 0.48% $11,052
10/31/1999 -1.58% $12,060 -1.08% $12,992 0.18% $11,072
11/30/1999 0.88% $12,166 1.06% $13,130 0.06% $11,079
12/31/1999 -1.13% $12,029 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.89% $11,922 -0.44% $12,974 0.24% $11,105
02/29/2000 1.13% $12,055 1.16% $13,125 0.59% $11,171
Total Return 20.55% 31.25% 11.71%
</TABLE>
* Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
MUNICIPAL BOND RATINGS
MOODY'S
AAA: Best quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what generally are known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba: Contain speculative elements. Often the protection of interest and principal
payments may be very moderate and, thereby, not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally regarded as upper medium-grade. They have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. BB indicates the lowest degree of speculation and
CC the highest degree of speculation. While such bonds likely will have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: Reserved for income bonds on which no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ALABAMA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ------------------------------------------------------------------------------------------------------------------------------------
<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 $ 11.98 $ 11.73 $ 11.73 $ 11.31
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................. .61 .62 .64 .65 .66
Net realized and unrealized gains (losses) ........ (1.06) (.25) .36 .01 .42
-----------------------------------------------------------------------------
Total from investment operations ................... (.45) .37 1.00 .66 1.08
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.60) (.62)(e) (.65) (.66) (.66)
Net realized gains ................................ (.01) (.05) (.10) -- --
-----------------------------------------------------------------------------
Total distributions ................................ (.61) (.67) (.75) (.66) (.66)
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 10.62 $ 11.68 $ 11.98 $ 11.73 $ 11.73
=============================================================================
Total return(b) .................................... (3.92)% 3.21% 8.79% 5.84% 9.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 203,256 $ 238,670 $ 216,982 $ 193,466 $ 185,981
Ratios to average net assets:
Expenses .......................................... .72% .71% .72% .71% .72%
Net investment income ............................. 5.46% 5.23% 5.39% 5.62% 5.69%
Portfolio turnover rate ............................ 20.99% 8.67% 10.44% 15.47% 12.39%
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.74 $ 12.04 $ 11.78 $ 11.77 $ 11.36
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................. .55 .56 .58 .59 .49
Net realized and unrealized gains (losses) ........ (1.06) (.25) .36 .01 .41
-----------------------------------------------------------------------------
Total from investment operations ................... (.51) .31 .94 .60 .90
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (.54) (.56)(e) (.58) (.59) (.49)
Net realized gains ................................ (.01) (.05) (.10) -- --
-----------------------------------------------------------------------------
Total distributions ................................ (.55) (.61) (.68) (.59) (.49)
-----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 10.68 $ 11.74 $ 12.04 $ 11.78 $ 11.77
=============================================================================
Total return(b) .................................... (4.46)% 2.62% 8.23% 5.28% 8.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 14,056 $ 14,895 $ 9,469 $ 5,683 $ 1,662
Ratios to average net assets:
Expenses .......................................... 1.27% 1.27% 1.29% 1.28% 1.29%(c)
Net investment income ............................. 4.91% 4.67% 4.80% 5.05% 5.09%(c)
Portfolio turnover rate ............................ 20.99% 8.67% 10.44% 15.47% 12.39%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) 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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.8%
BONDS 97.1%
Alabama Building Renovation Finance Authority Revenue,
Pre-Refunded, 7.45%, 9/01/11 ................................................................. $1,500,000 $1,553,745
Refunding, AMBAC Insured, 5.625%, 9/01/24 .................................................... 2,500,000 2,337,975
Alabama HFA, SFMR,
Series A, GNMA Secured, 7.50%, 10/01/10 ...................................................... 490,000 501,187
Series A-1, GNMA Secured, FNMA Insured, 6.50%, 4/01/17 ....................................... 3,440,000 3,501,198
Series A-2, GNMA Secured, FNMA Insured, 6.80%, 4/01/25 ....................................... 1,180,000 1,206,349
Series C, GNMA Secured, 7.45%, 10/01/21 ...................................................... 285,000 290,042
Series C-2, GNMA Secured, 7.75%, 4/01/22 ..................................................... 575,000 589,663
Series D-2, GNMA Secured, FNMA Insured, 5.75%, 10/01/23 ...................................... 1,920,000 1,813,555
Alabama State Docks Department Docks Facilities Revenue,
MBIA Insured, 6.30%, 10/01/21 ................................................................ 4,500,000 4,559,130
Refunding, MBIA Insured, 5.50%, 10/01/22 ..................................................... 1,000,000 928,070
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23 ........... 2,000,000 1,862,360
Alabama Water Pollution Control Authority Revolving Fund Loan, Series B,
Pre-Refunded, 7.75%, 8/15/12 ................................................................. 2,885,000 2,942,844
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14 ............................ 2,215,000 2,299,524
Alexander City Utility Revenue, wts., Refunding, FSA Insured, 6.20%, 8/15/10 .................... 2,000,000 2,084,180
Athens Electric Revenue, wts., MBIA Insured, 6.00%, 6/01/25 ..................................... 1,000,000 993,460
Athens Water and Sewer Revenue, wts., AMBAC Insured, 6.10%, 8/01/18 ............................. 1,500,000 1,509,375
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue, Merscot-Auburn
LP Project, FGIC Insured, 7.30%, 1/01/12 ..................................................... 1,330,000 1,366,216
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11 ................................ 2,000,000 2,084,100
Baldwin County Eastern Shore Health Care Authority Hospital Revenue, 5.75%, 4/01/27 ............. 1,000,000 772,950
Bessemer Medical Clinic Board Revenue, Bessemer Carraway Center, Refunding,
Series A, MBIA Insured, 7.25%, 4/01/15 ....................................................... 1,000,000 1,021,340
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 3,375,120
7.00%, 1/01/21 ............................................................................... 1,870,000 1,933,823
5.875%, 11/15/26 ............................................................................. 2,000,000 1,890,620
Birmingham GO, Refunding, Series B, 6.25%, 4/01/16 .............................................. 1,000,000 1,021,530
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 ............................................................................... 285,000 290,170
7.25%, 1/01/12 ............................................................................... 640,000 644,410
Birmingham Southern College Private Educational Building Authority Tuition,
Refunding, 5.35%, 12/01/19 ................................................................... 1,000,000 873,010
Birmingham Special Care Facilities Financing Authority Revenue,
Health Care, Medical Center East, MBIA Insured, 7.00%, 7/01/12 ............................... 1,200,000 1,250,136
Medical Center East, Refunding, MBIA Insured, 7.25%, 7/01/15 ................................. 2,000,000 2,012,400
Birmingham Water and Sewer Revenue, wts., Series A, 4.75%, 1/01/29 .............................. 1,860,000 1,489,060
Camden IDB, PCR, Facilities Revenue, MacMillian Bloedel Project,
Refunding, Series A, 7.75%, 5/01/09 .......................................................... 3,250,000 3,349,710
Coffee County PBA, Building Revenue, wts., FSA Insured, 6.10%, 9/01/16 .......................... 1,000,000 1,017,210
Colbert County Health Care Authority, Helen Keller Hospital, Refunding, 8.75%, 6/01/09 .......... 1,750,000 1,809,833
Courtland IDB,
Environmental Improvement Revenue, Champion International Corp. Project, Refunding,
6.40%, 11/01/26 ............................................................................. 2,000,000 1,911,360
Solid Waste Disposal Revenue, Champion International Corp. Project,
Series A, 6.50%, 9/01/25 .................................................................... 5,000,000 4,790,350
Courtland IDBR, Champion International Corp., Refunding, Series A, 7.20%, 12/01/13 .............. 4,000,000 4,169,520
Demopolis HDC, MFHR, Refunding, Series A, FSA Insured, 7.625%, 8/01/19 .......................... 1,400,000 1,421,994
Fairfield GO, wts., AMBAC Insured, Pre-Refunded, 6.30%, 6/01/22 ................................. 3,000,000 3,152,940
Fairfield IDB, Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 ............................................................................... 2,000,000 1,784,040
Series A, 6.70%, 12/01/24 .................................................................... 3,500,000 3,547,530
Florence Electric Revenue, wts., FSA Insured, 5.25%, 6/01/19 .................................... 1,915,000 1,766,549
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22 ........................................... 1,565,000 1,576,268
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 ....................................... 1,000,000 1,038,190
Gulf Shores GO, Refunding, wts., AMBAC Insured, 6.00%, 9/01/21 .................................. 1,935,000 1,935,000
Helena Utilities Board Water and Sewer Revenue, MBIA Insured, 5.75%, 9/01/25 .................... 6,000,000 5,730,120
Houston County Health Care Authority Revenue, Southeast Medical Center,
MBIA Insured, 6.125%, 10/01/12 ............................................................... 2,070,000 2,116,575
Huntsville Solid Waste Disposal Authority and Resource Recovery Revenue,
FGIC Insured, 7.00%, 10/01/14 ................................................................ 230,000 236,764
Jackson IDBR, Solid Waste, Boise Cascade, Refunding, 5.70%, 12/01/27 ............................ 4,150,000 3,471,060
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Jasper County Waterworks and Sewer Board Water and Sewer Revenue, AMBAC Insured, 6.15%, 6/01/14 ... $ 1,000,000 $ 1,023,790
Jefferson County Sewer Revenue,
Capital Improvement wts., Series A, FGIC Insured, 5.375%, 2/01/36 .............................. 5,000,000 4,402,200
Capital Improvement wts., Series A, FGIC Insured, 5.125%, 2/01/39 .............................. 3,430,000 2,877,324
wts., ETM, 7.50%, 9/01/13 ...................................................................... 200,000 203,038
wts., Series D, FGIC Insured, 5.75%, 2/01/27 ................................................... 6,000,000 5,746,620
Lauderdale County and Florence Healthcare Authority Revenue GO, Coffee Health Group,
Series A, MBIA Insured, 5.375%, 7/01/29 ........................................................ 5,000,000 4,396,500
LCM Housing Assistance Corp. Project MFR, Section 8 Assisted Project,
Refunding, Series A, 7.875%, 1/01/22 ........................................................... 1,255,000 1,275,620
Madison GO, wts.,
MBIA Insured, 6.00%, 4/01/23 ................................................................... 2,000,000 1,992,460
Series B, MBIA Insured, 6.25%, 2/01/15 ......................................................... 1,560,000 1,605,599
Marshall County Health Care Authority Hospital Revenue,
Boaz-Albertville Medical Center, Refunding, 6.50%, 1/01/18 ..................................... 10,810,000 10,075,893
Guntersville-Arab Medical Center, Refunding, 7.60%, 10/01/07 ................................... 2,530,000 2,637,905
Mcintosh IDB, Environmental Improvement Revenue, CIBA Specialty,
Refunding, Series C, 5.375%, 6/01/28 ........................................................... 3,000,000 2,557,200
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 ................................... 1,000,000 1,032,120
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09 ........................... 1,500,000 1,559,415
Mobile Housing Assistance Corp. MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21 ........... 1,340,000 1,356,120
Mobile IDB, Solid Waste Disposal Revenue, Mobile Energy Service Co. Project,
Refunding, 6.95%, 1/01/20 ...................................................................... 8,000,000 3,520,000
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson Hospital and Clinic,
Refunding, AMBAC Insured, 6.00%, 3/01/26 ....................................................... 6,000,000 5,899,200
Morgan County Decatur Health Care Authority Hospital Revenue, Decatur General Hospital,
Refunding, Connie Lee Insured, 6.375%, 3/01/24 .................................................. 5,750,000 5,831,248
Moulton Waterworks Board Water Revenue, Series A, 6.30%, 1/01/18 .................................. 1,500,000 1,409,760
Muscle Shoals GO, Refunding, wts., MBIA Insured,
5.80%, 8/01/16 ................................................................................. 1,725,000 1,725,983
5.90%, 8/01/25 ................................................................................. 7,000,000 6,864,130
Oneonta Utilities Board Utility Revenue, FSA Insured, 6.90%, 11/01/24 ............................. 230,000 245,847
Phenix County IDB, Environmental Improvement Revenue, Mead Coated Board Project,
Refunding, Series A, 5.30%, 4/01/27 ............................................................ 8,300,000 6,992,169
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10 ......................................... 780,000 803,377
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Refunding, Series R, 7.15%, 7/01/00 ............................................................ 600,000 605,724
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A, 7.90%, 7/01/07 ....................................................................... 5,000 5,062
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation,
Refunding, 7.875%, 10/01/04 .................................................................... 300,000 306,477
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ............. 4,000,000 3,358,720
Russellville GO, wts., Refunding, MBIA Insured, 5.75%, 12/01/26 ................................... 2,500,000 2,400,950
St. Clair County Board of Education, School Tax Anticipation wts., Series C,
FSA Insured, 5.85%, 2/01/29 .................................................................... 4,815,000 4,614,311
Tuscaloosa County Board Education Capital Outlay, wts., Series A, AMBAC
Insured, 5.50%, 2/01/27 ........................................................................ 2,375,000 2,199,416
Tuscaloosa, wts., AMBAC Insured, 6.75%, 7/01/20 ................................................... 4,925,000 5,055,562
University of North Alabama Revenue, General Fee, Series A, FSA Insured, 5.375%, 11/01/17 ......... 4,995,000 4,740,755
Valley Special Care Facilities Financing Authority Revenue, Lanier Memorial Hospital,
Series A, 5.65%, 11/01/22 ...................................................................... 3,465,000 2,690,261
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%, 10/01/13 ...................................................................... 1,700,000 1,585,828
10/01/22 ....................................................................................... 2,300,000 1,983,336
Warrior River Water Authority Water Revenue, FSA Insured,
5.40%, 8/01/29 ................................................................................. 4,250,000 3,808,170
5.50%, 8/01/34 ................................................................................. 4,735,000 4,284,086
Wilsonville IDB, PCR, Southern Electric Generating System, Refunding, Series C,
MBIA Insured, 6.75%, 2/01/15 ................................................................... 3,500,000 3,616,791
-----------
TOTAL BONDS ....................................................................................... 211,111,522
-----------
ZERO COUPON BONDS .7%
Alexander City Capital Appreciation, wts., Asset Guaranteed,
5/01/23 ........................................................................................ 1,790,000 408,675
5/01/24 ........................................................................................ 1,790,000 382,541
5/01/25 ........................................................................................ 1,790,000 358,000
5/01/26 ........................................................................................ 1,790,000 335,804
-----------
TOTAL ZERO COUPON BONDS ........................................................................... 1,485,020
-----------
TOTAL LONG TERM INVESTMENTS (COST $223,882,925) ................................................... 212,596,542
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS 1.0%
Mcintosh IDB, Environmental Improvement Revenue, CIBA Specialty, Refunding,
Series D, Daily VRDN and Put, 3.85%, 7/01/28 .............................................. $ 200,000 $ 200,000
North Alabama Environmental Improvement Authority Atlanta PCR, Reynold Metals,
Daily VRDN and Put, 3.75%, 12/01/00 ....................................................... 100,000 100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, 3.00%, 7/01/28 ......................................... 100,000 100,000
Stevenson IDB, Environmental Improvement Revenue, The Mead Corp. Project,
Refunding, Series D, Daily VRDN and Put, 3.80%, 11/01/11 .................................. 200,000 200,000
Series B, Weekly VRDN and Put, 3.95%, 4/01/33 ............................................. 1,500,000 1,500,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,100,000) ............................................... 2,100,000
------------
TOTAL INVESTMENTS (COST $225,982,925) 98.8% .................................................. 214,696,542
OTHER ASSETS, LESS LIABILITIES 1.2% .......................................................... 2,615,961
------------
NET ASSETS 100.0% ............................................................................ $217,312,503
============
</TABLE>
See glossary of terms on page 109.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
----------------------------------------------------------------------------------
CLASS A 2000(a,d) 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 11.91 $ 11.87 $ 11.59 $ 11.69 $ 11.35
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .61 .62 .64 .67 .69
Net realized and unrealized gains (losses) ... (1.02) .05 .30 (.08) .34
----------------------------------------------------------------------------------
Total from investment operations .............. (.41) .67 .94 .59 1.03
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.61) (.62) (e) (.65) (.69) (.69)
Net realized gains ........................... -- (f) (.01) (.01) -- --
----------------------------------------------------------------------------------
Total distributions ........................... (.61) (.63) (.66) (.69) (.69)
----------------------------------------------------------------------------------
Net asset value, end of year .................. $ 10.89 $ 11.91 $ 11.87 $ 11.59 $ 11.69
==================================================================================
Total return(b) ............................... (3.54)% 5.75% 8.37% 5.20% 9.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 1,509,624 $ 1,785,720 $ 1,650,068 $ 1,458,087 $ 1,353,541
Ratios to average net assets:
Expenses ..................................... .62% .61% .61% .60% .60%
Net investment income ........................ 5.37% 5.19% 5.45% 5.78% 5.93%
Portfolio turnover rate ....................... 26.39% 7.66% 5.60% 12.00% 11.78%
CLASS B
- --------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.83
------------
Income from investment operations:
Net investment income ........................ .05
Net realized and unrealized losses ........... .07
------------
Total from investment operations .............. .12
------------
Less distributions from net investment income . (.05)
------------
Net asset value, end of period ................ $ 10.90
============
Total return(b) ............................... 1.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 304
Ratios to average net assets:
Expenses ..................................... 1.17%(c)
Net investment income ........................ 5.32%(c)
Portfolio turnover rate ....................... 26.39%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e) Includes distributions in excess of net investment income in the amount of
$.0005.
(f) The fund made a capital gain distribution of $.0009.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN FLORIDA TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-------------------------------------------------------------------------
CLASS C 2000(a) 1999 1998 1997 1996(d)
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 12.01 $ 11.96 $ 11.67 $ 11.76 $ 11.37
-------------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .55 .55 .60 .60 .52
Net realized and unrealized gains (losses) ......... (1.04) .06 .29 (.07) .38
-------------------------------------------------------------------------
Total from investment operations .................... (.49) .61 .89 .53 .90
-------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.54) (.55)(e) (.59) (.62) (.51)
Net realized gains ................................. -- (f) (.01) (.01) -- --
-------------------------------------------------------------------------
Total distributions ................................. (.54) (.56) (.60) (.62) (.51)
-------------------------------------------------------------------------
Net asset value, end of year ........................ $ 10.98 $ 12.01 $ 11.96 $ 11.67 $ 11.76
=========================================================================
Total return(b) ..................................... (4.14)% 5.21% 7.80% 4.65% 8.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 72,135 $ 82,596 $ 56,027 $ 23,556 $ 7,644
Ratios to average net assets:
Expenses ........................................... 1.17% 1.17% 1.17% 1.17% 1.18%(c)
Net investment income .............................. 4.83% 4.63% 4.88% 5.17% 5.33%(c)
Portfolio turnover rate ............................. 26.39% 7.66% 5.60% 12.00% 11.78%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996.
(e) Includes distributions in excess of net investment income in the amount of
$.0004.
(f) The fund made a capital gain distribution of $.0009.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.5%
BONDS 94.1%
Alachua County Health Facilities Authority Revenue,
Santa Fe Health Care Facilities Project, Pre-Refunded, 7.60%, 11/15/13 .................... $ 6,705,000 $ 6,995,058
Shands Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 ......................... 10,000,000 9,708,300
Bay County Hospital System Revenue, Bay Medical Center Project, Pre-Refunded, 8.00%, 10/01/12 11,205,000 12,480,353
Bay County Resource Recovery Revenue,
Series A, MBIA Insured, Pre-Refunded, 6.60%, 7/01/11 ...................................... 3,710,000 3,929,150
Series B, MBIA Insured, Pre-Refunded, 6.60%, 7/01/12 ...................................... 18,150,000 19,222,121
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07 ............................................................................ 525,000 552,158
6.60%, 9/01/11 ............................................................................ 675,000 713,597
Boynton Beach Public Service Tax Revenue, MBIA Insured, Pre-Refunded, 7.50%, 11/01/10 ........ 4,000,000 4,101,920
Brevard County Health Facilities Authority Revenue, Wuesthoff Memorial Hospital, Series B,
Pre-Refunded, 7.20%, 4/01/13............................................................... 5,000,000 5,327,000
Brevard County HFA, SFMR,
Multi-County Program, GNMA Insured, 6.40%, 3/01/30 ........................................ 3,000,000 3,008,970
Refunding, Series B, FSA Insured, 7.00%, 3/01/30 .......................................... 700,000 721,546
Brevard County School Board COP, Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11 .......... 4,415,000 4,433,234
Broward County Educational Facilities Authority Revenue, Nova Southeastern University Project,
Refunding, Connie Lee Insured, 6.125%, 4/01/17 ............................................. 2,250,000 2,292,638
Broward County HFA, MFHR,
Bridgewater Place Apartments Project, Series A, 5.45%, 10/01/34 ........................... 3,000,000 2,448,240
Cross Keys Apartments Project, Series A, 5.80%, 10/01/33 .................................. 2,000,000 1,759,700
Cross Keys Apartments Project, Series A, 5.85%, 4/01/39 ................................... 5,870,000 5,145,407
Stirling Apartments Phase II, Series A, 5.35%, 10/01/29 ................................... 1,000,000 815,700
Stirling Apartments Phase II, Series A, 5.40%, 4/01/39 .................................... 2,000,000 1,600,020
Broward County HFAR,
Nursing Home, Refunding, 7.40%, 8/15/10 ................................................... 2,080,000 2,150,907
Nursing Home, Refunding, 7.50%, 8/15/20 ................................................... 1,475,000 1,543,411
Series B, 7.55%, 3/01/15 .................................................................. 2,480,000 2,534,560
Series D, 6.90%, 6/01/09 .................................................................. 230,000 237,910
Series D, 7.375%, 6/01/21 ................................................................. 630,000 653,833
Broward County Professional Sports Facilities Tax Revenue, Civic Arena Project, Series A,
MBIA Insured,
5.75%, 9/01/21 ............................................................................ 5,000,000 4,909,300
5.625%, 9/01/28 ........................................................................... 13,000,000 12,355,200
Broward County Resource Recovery Revenue,
Broward Waste Energy Co., LP, North Project, Series 1984, 7.95%, 12/01/08 ................. 5,295,000 5,464,387
SES Waste Energy Co., LP, South Project, 7.95%, 12/01/08 .................................. 9,545,000 9,851,395
Broward County School Board COP, Series C, AMBAC Insured, 5.375%, 7/01/17 .................... 5,000,000 4,727,450
Cape Canaveral Hospital District Revenue COP,
AMBAC Insured, 6.875%, 1/01/21 ............................................................ 1,500,000 1,561,170
Refunding, 5.25%, 1/01/28 ................................................................. 3,500,000 2,455,565
Celebration CDD, Special Assessment,
MBIA Insured, 6.00%, 5/01/10 .............................................................. 3,820,000 3,959,965
MBIA Insured, 6.10%, 5/01/16 .............................................................. 2,775,000 2,823,785
Series A, MBIA Insured, 5.50%, 5/01/18 .................................................... 1,850,000 1,781,994
Charlotte County Utilities Revenue, Refunding, Series A, FGIC Insured, 5.625%, 10/01/21 ...... 3,000,000 2,875,200
Citrus County PCR, Florida Power Corp., Crystal River, Refunding,
Series A, 6.625%, 1/01/27 ................................................................. 11,100,000 11,261,061
Series B, 6.35%, 2/01/22 .................................................................. 20,400,000 20,561,976
Clay County HFAR, SFM,
Multi-County Program, GNMA Secured, 5.30%, 10/01/29 ....................................... 4,710,000 4,086,726
Series A, GNMA Secured, 7.80%, 6/01/22 .................................................... 2,530,000 2,612,352
Series A, GNMA Secured, 7.45%, 9/01/23 .................................................... 1,310,000 1,345,868
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A, FHA Insured,
6.50%, 10/01/25............................................................................ 2,790,000 2,824,959
Collier County Water and Sewer District Revenue, Sewer Assessment, East and South Naples
Project, MBIA Insured, 7.15%, 10/01/11 .................................................... 80,000 80,791
Coral Springs ID, Special Water and Sewer Project, 6.75%, 11/01/02 ........................... 1,700,000 1,718,666
Dade County Aviation Revenue, Miami International Airport,
Series B, FSA Insured, 5.125%, 10/01/22 ................................................... 4,750,000 4,151,025
Series C, FSA Insured, 5.125%, 10/01/27 ................................................... 9,550,000 8,385,282
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
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<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Dade County Health Facilities Authority Hospital Revenue, Catholic Health and Rehabilitation
Inc. Project, Refunding, 7.625%, 8/15/20 .................................................... $ 7,475,000 $ 7,678,769
Dade County HFA, SFMR,
Refunding, Series D, FSA Insured, 6.95%, 12/15/12 ........................................... 295,000 305,027
Refunding, Series E, FNMA Insured, GNMA Secured, 7.00%, 3/01/24 ............................. 275,000 281,078
Series A, GNMA Secured, 7.50%, 9/01/13 ...................................................... 1,760,000 1,776,614
Series A, GNMA Secured, 7.10%, 3/01/17 ...................................................... 1,305,000 1,339,870
Series B, GNMA Secured, 7.25%, 9/01/23 ...................................................... 230,000 235,626
Dade County IDA, Solid Waste Disposal Revenue, Florida Power and Light Co. Project, 7.15%,
2/01/23 ..................................................................................... 5,695,000 5,900,931
Dade County Seaport Revenue, Refunding, Series 95, MBIA Insured, 5.75%, 10/01/15 ............... 4,100,000 4,122,263
Dade County Special Obligation, Courthouse Center Project, Pre-Refunded, 6.10%, 4/01/20 ........ 5,000,000 5,312,250
Dade County Water and Sewer System Revenue, FGIC Insured,
5.75%, 10/01/22 ............................................................................. 8,245,000 8,071,195
5.50%, 10/01/25 ............................................................................. 30,000,000 27,975,600
5.25%, 10/01/26 ............................................................................. 21,000,000 18,665,220
Dovera CDD, Special Assessment Revenue,
7.625%, 5/01/03 ............................................................................. 180,000 184,597
7.875%, 5/01/12 ............................................................................. 715,000 736,886
Duval County HFA,
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.60%, 7/01/17 .................. 1,000,000 960,290
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.70%, 7/01/27 .................. 2,000,000 1,871,400
SFMR, FNMA and GNMA Secured, 5.20%, 10/01/19 ................................................ 3,000,000 2,676,420
SFMR, GNMA Secured, 5.30%, 4/01/31 .......................................................... 1,800,000 1,561,482
SFMR, Series 1988, GNMA Secured, 8.625%, 12/01/19 ........................................... 30,000 32,774
SFMR, Series A, GNMA Secured, 7.85%, 12/01/22 ............................................... 1,560,000 1,595,802
SFMR, Series C, FGIC Insured, GNMA Secured, 7.70%, 9/01/24 .................................. 685,000 709,550
Enterprise Community Development District, Florida Water and Sewer Revenue, MBIA Insured,
5.50%, 5/01/26 .............................................................................. 3,000,000 2,806,710
5.70%, 5/01/29 .............................................................................. 2,100,000 2,024,715
Escambia County Health Facilities Authority Health Facility Revenue, Baptist Hospital and
Baptist Manor, 5.125%, 10/01/19 ............................................................. 8,750,000 6,518,400
Pre-Refunded, 6.75%, 10/01/14 ............................................................... 3,415,000 3,659,924
Refunding, 6.75%, 10/01/14 .................................................................. 770,000 763,609
Escambia County Health Facilities Authority Revenue, Ascension Health Credit, Refunding,
Series A-2, AMBAC Insured, 5.75%, 11/15/29 .................................................. 25,000,000 23,968,750
Escambia County HFA, SFMR, Multi-County Program,
MBIA Insured, GNMA Secured, 5.20%, 4/01/32 .................................................. 7,500,000 6,360,975
Series A, MBIA Insured, 6.40%, 10/01/30 ..................................................... 10,000,000 10,050,900
Series C, FNMA and GNMA Secured, 5.80%, 10/01/19 ............................................ 1,365,000 1,306,482
Series C, FNMA and GNMA Secured, 7.40%, 10/01/23 ............................................ 3,955,000 4,056,960
Escambia County Revenue, Series B, Sub Series 1, MBIA Insured, 7.20%, 1/01/15 .................. 2,210,000 2,258,222
Escambia County School Board COP, FSA Insured, 6.375%, 2/01/12 ................................. 1,210,000 1,239,681
Escambia County Utilities Authority Sanitary System Revenue, FSA Insured, Pre-Refunded,
6.00%, 1/01/23 .............................................................................. 2,500,000 2,623,325
First Florida Governmental Financing Commission Revenue, AMBAC Insured, 5.75%, 7/01/16 ......... 3,700,000 3,704,033
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 ....................................... 3,500,000 3,539,865
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17 ................................. 4,955,000 4,844,702
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 ............................. 420,000 431,180
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 ............................. 2,115,000 2,174,199
MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Secured, 7.65%, 6/20/31 ....... 4,000,000 4,066,640
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 ............................ 3,445,000 3,498,501
MFHR, Refunding, Series A, 6.95%, 10/01/21 .................................................. 2,900,000 2,933,756
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 ................................ 5,000,000 4,563,700
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 .............................. 2,000,000 1,825,680
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37 .............................. 1,300,000 1,283,282
SFMR, Series A, 8.60%, 7/01/16 .............................................................. 205,000 205,168
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
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<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Florida HFC Revenue,
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.65%, 6/01/19 ............................ $ 1,250,000 $ 1,190,738
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.80%, 12/01/38 ........................... 5,000,000 4,672,600
(b) Homeowner Mortgage, Series 4, FSA Insured, 6.25%, 7/01/22 .................................... 5,600,000 5,616,128
Florida HFC Revenue, Housing Deer Meadows Apartments, Series R, FNMA
Insured, 6.00%, 5/01/32 ....................................................................... 3,505,000 3,360,454
Florida Municipal Loan Council Revenue, Series B, MBIA Insured, 5.75%, 11/01/29 1,500,000 1,458,300
Florida Ports Financing Commission Revenue, State Transportation Trust Fund-Intermodal
Program, FGIC Insured, 5.50%, 10/01/23 ......................................................... 7,000,000 6,486,270
Florida State Board of Education Capital Outlay,
GO, Public Education, Series C, FGIC Insured, 5.75%, 6/01/29 .................................. 5,000,000 4,854,900
Public Education, Refunding, Series A, 7.25%, 6/01/23 ......................................... 8,775,000 9,016,225
(b) Public Education, Refunding, Series D, 5.75%, 6/01/22 ........................................ 25,900,000 25,419,555
(b) Public Education, Refunding, Series D, 6.00%, 6/01/23 ........................................ 15,000,000 15,282,300
Public Education, Series B, 5.875%, 6/01/24 ................................................... 5,000,000 4,970,700
Public Education, Series F, FGIC Insured, 5.50%, 6/01/26 ...................................... 10,000,000 9,342,300
Florida State Board Regent Housing Revenue, University of Central Florida, AMBAC Insured,
5.75%, 10/01/29 ............................................................................... 8,650,000 8,410,136
Florida State Community Services Corp. Walton County Water and Sewer Revenue, South Walton
County Regional Utilities, 7.00%, 3/01/18 .................................................... 2,550,000 2,673,420
Florida State Correctional Privatization Commission COP, Correctional Facility Bay Project,
MBIA Insured, 6.00%, 8/01/15 .................................................................. 6,000,000 6,091,980
Florida State Department of Corrections COP, Okeechobee Correctional Facility, AMBAC Insured,
6.25%, 3/01/15 ................................................................................ 2,960,000 3,061,439
Florida State Department of General Services Division, Facilities Management Revenue, Facilities
Pool, Series B, FSA Insured, 5.50%, 9/01/28 ................................................... 10,000,000 9,321,200
Florida State Department of Transportation GO, Right of Way,
Acquisition and Bridge, 5.375%, 7/01/26 ....................................................... 5,000,000 4,570,100
Series B, 5.00%, 7/01/27 ...................................................................... 5,000,000 4,266,600
Florida State Division Bond Finance Department General Services Revenues, Department of Natural
Resources Preservation 2000, MBAC Insured, Pre-Refunded, 6.75%, 7/01/13 ....................... 3,000,000 3,142,380
Florida State Mid-Bay Bridge Authority Revenue,
Exchangeable, 6.05%, 10/01/22 ................................................................. 7,000,000 6,701,030
Exchangeable, Series A, 5.95%, 10/01/13 ....................................................... 13,505,000 13,124,969
Exchangeable, Series D, 6.10%, 10/01/22 ....................................................... 16,100,000 15,507,681
Series A, 8.00%, 10/01/06 ..................................................................... 2,600,000 2,786,446
Series A, 7.50%, 10/01/17 ..................................................................... 14,250,000 15,160,718
Series A, ETM, 6.875%, 10/01/22 ............................................................... 6,000,000 6,748,620
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 .................................................. 8,780,000 9,238,579
FGIC Insured, 5.50%, 7/01/21 .................................................................. 10,000,000 9,436,300
Gainesville Utilities Systems Revenue,
Series A, 5.20%, 10/01/26 ..................................................................... 7,590,000 6,678,517
Series B, 6.00%, 10/01/17 ..................................................................... 3,500,000 3,516,345
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%, 5/01/14 ........ 8,480,000 9,117,866
Hialeah Housing Authority Revenue, Affordable Housing Program, Refunding, GNMA Secured,
5.30%, 12/20/18 ............................................................................... 1,240,000 1,140,416
Highlands County Health Facilities Authority Revenue, Adventist Health Systems,
5.25%, 11/15/20 ............................................................................... 11,000,000 8,426,990
Refunding, 5.25%, 11/15/28 .................................................................... 2,750,000 2,001,808
Hillsborough County Aviation Authority Revenue,
Special Purpose, Delta Airlines Inc., Refunding, 7.75%, 1/01/24 ............................... 14,945,000 15,239,566
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23 ......................... 5,000,000 4,965,050
Hillsborough County Capital Improvement Revenue, County Center Project, Second Series,
Pre-Refunded,
6.625%, 7/01/12 ............................................................................... 8,300,000 8,785,384
6.75%, 7/01/22 ................................................................................ 1,250,000 1,326,500
Hillsborough County Educational Facilities Authority Revenue, University of Tampa Project,
Asset Guaranty Insured, 5.00%, 12/01/28 ........................................................ 700,000 582,050
Hillsborough County IDAR, Colonial Penn Insurance Project, 7.35%, 8/01/13 ........................ 5,300,000 5,567,915
Hillsborough County Port District Revenue, Tampa Port Authority, Pre-Refunded, 8.25%, 6/01/09 .... 3,000,000 3,149,430
Hillsborough County School Board COP, Master Lease Program, Series A, MBIA Insured, 5.25%, 7/01/22 10,000,000 9,000,800
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11 ..................................................................... 10,400,000 10,793,432
Series A, 7.00%, 8/01/14 ...................................................................... 5,515,000 5,719,993
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
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<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Hillsborough County Utilities Revenue, Refunding, (cont.)
Series A, 6.50%, 8/01/16 ....................................................................... $ 3,000,000 $ 3,065,820
Series B, 6.50%, 8/01/16 ....................................................................... 1,000,000 1,021,940
Indian River County Hospital District Revenue, Refunding, FSA Insured, 5.70%, 10/01/15 ............ 1,000,000 994,850
Jacksonville Capital Improvement Revenue, Certificates, Gator Bowl Project, AMBAC Insured, 5.875%,
10/01/25 ....................................................................................... 5,000,000 4,957,250
Jacksonville Electric Authority Revenue,
Water and Sewer, Series B, FGIC Insured, 5.40%, 10/01/20 ....................................... 3,000,000 2,839,530
Water and Sewer System, Series A, 6.125%, 10/01/39 ............................................. 18,000,000 17,958,960
Jacksonville Health Facilities Authority Hospital Revenue, Charity Obligation Group, Series C,
MBIA Insured, 5.375%, 8/15/29 .................................................................. 20,000,000 18,002,200
Jacksonville Hospital Revenue, University Medical Center Inc. Project, Connie Lee Insured,
6.60%, 2/01/21 ................................................................................. 1,750,000 1,802,553
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20 .............................. 1,000,000 1,035,840
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 ...................... 5,000,000 5,075,500
Lakeland Hospital System Revenue, Lakeland Regional Health System, Series A, MBIA Insured,
5.50%, 11/15/26 ................................................................................ 10,000,000 9,237,800
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured,
6.00%, 10/01/17 ................................................................................... 4,500,000 4,558,185
Lee County Hospital Board of Directors Hospital Revenue, Lee Memorial Health System, Series A,
MBIA Insured, 5.875%, 4/01/24 .................................................................. 18,000,000 17,669,340
Lee County IDA, Health Care Facilities Revenue, Shell Point Village Project,
Refunding, Series A, 5.50%, 11/15/29 ........................................................... 4,000,000 2,966,880
Series A, 5.50%, 11/15/21 ...................................................................... 7,500,000 5,785,050
Lee County IDAR, Bonita Springs Sewer Project, Asset Guaranty, Insured,
7.20%, 11/01/11 ................................................................................ 5,000,000 5,228,900
7.25%, 11/01/20 ................................................................................ 2,000,000 2,077,260
Lee County Solid Waste System Revenue, Series A, MBIA Insured, 7.00%,
10/01/04 ....................................................................................... 1,945,000 2,039,799
10/01/05 ....................................................................................... 1,175,000 1,231,353
10/01/06 ....................................................................................... 1,305,000 1,366,779
10/01/11 ....................................................................................... 4,600,000 4,830,644
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%,
10/01/22 ....................................................................................... 4,500,000 4,405,140
10/01/27 ....................................................................................... 5,000,000 4,858,450
Leesburg Hospital Revenue, Leesburg Regional Medical Center Project,
Capital Improvement, Series A, Pre-Refunded, 7.375%, 7/01/11 ................................... 1,250,000 1,343,513
Capital Improvement, Series A, Pre-Refunded, 7.50%, 7/01/21 .................................... 2,115,000 2,278,976
Refunding, Series A, 6.125%, 7/01/18 ........................................................... 7,000,000 6,698,790
Leesburg Utilities Revenue, Series B, AMBAC Insured, 5.375%, 10/01/28 ............................. 6,515,000 6,011,325
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21 ............................................ 605,000 621,135
Manatee County HFA, SFMR, Series A, GNMA Secured, 6.85%, 11/01/23 ................................. 3,665,000 3,733,169
Manatee County IDR, Manatee Hospital and Health System Inc.,
ETM, 8.25%, 3/01/01 ............................................................................ 600,000 608,514
Pre-Refunded, 9.25%, 3/01/21 ................................................................... 6,700,000 7,144,545
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ...................... 5,575,000 5,967,592
Martin County Consolidated Utilities System Revenue,
FGIC Insured, Pre-Refunded, 6.00%, 10/01/24 .................................................... 3,265,000 3,464,230
Refunding, FGIC Insured, 6.00%, 10/01/24 ....................................................... 735,000 737,330
Martin County PCR, Florida Power and Light Co. Project, Refunding, MBIA Insured, 7.30%, 7/01/20 ... 14,500,000 14,872,940
Miami Beach Special Obligation, Subordinated, FGIC Insured, ETM, 7.375%, 12/01/08 ................. 2,000,000 2,051,240
Miami-Dade County Educational Facilities Authority Revenue, Series A, AMBAC Insured, 5.75%, 4/01/29 9,000,000 8,739,900
Miami-Dade County HFA, MFMR, Villa Esperanza Apartments Project,
5.25%, 10/01/19 ................................................................................ 430,000 386,927
5.40%, 10/01/33 ................................................................................ 1,500,000 1,322,235
Miami-Dade County IDA, IDR, Airis Miami ll LLC Project, MBIA Insured, 6.00%, 10/15/25 ............. 4,500,000 4,464,720
Miami-Dade County Special Obligation, sub. lien, Series B, MBIA Insured, 5.00%, 10/01/37 .......... 2,345,000 1,945,506
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded, 6.75%, 10/01/25 .... 6,500,000 7,042,295
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 ........................... 5,000,000 5,027,100
North Broward Hospital District Revenue, Refunding and Improvement, MBIA Insured,
5.375%, 1/15/24 ................................................................................ 10,710,000 9,739,567
5.75%, 1/15/27 ................................................................................. 19,370,000 18,626,386
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation Group, 6.00%,
8/15/16 ....................................................................................... $ 2,000,000 $ 1,993,720
8/15/24 ....................................................................................... 1,750,000 1,676,483
North Port Utilities Revenue, FGIC Insured, Pre-Refunded, 6.25%, 10/01/22 ........................ 1,500,000 1,581,990
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31, Project 2,
6.75%, 11/01/07 ............................................................................... 725,000 741,291
6.625%, 11/01/13 .............................................................................. 1,470,000 1,492,991
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series A, AMBAC Insured, 6.875%, 11/15/15 .................................. 1,000,000 1,045,980
Mayflower Retirement Project, Refunding, Asset Guaranteed, 5.25%, 6/01/29 ..................... 4,200,000 3,690,162
MBIA Insured, 6.00%, 11/01/24 ................................................................. 285,000 284,245
Regional Healthcare System, Series E, 6.00%, 10/01/26 ......................................... 12,000,000 10,653,960
Series A, MBIA Insured, 6.00%, 11/01/24 ....................................................... 715,000 750,400
South Central Nursing, Series A, FSA Insured, 5.50%, 7/01/32 .................................. 2,500,000 2,302,275
Orange County HFAR,
Refunding, Series A, FGIC Insured, GNMA Secured, 7.60%, 1/01/24 ............................... 4,050,000 4,183,124
Series A, GNMA Secured, 7.375%, 9/01/24 ....................................................... 410,000 425,498
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ......................... 5,050,000 5,067,978
Orange County Tourist Development Tax Revenue,
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10 .................................................. 3,000,000 3,113,640
Refunding, MBIA Insured, 5.125%, 10/01/20 ..................................................... 10,000,000 8,989,200
Series B, MBIA Insured, Pre-Refunded, 6.00%, 10/01/24 ......................................... 14,675,000 15,570,469
Orlando and Orange County Expressway Authority Expressway Revenue,
junior lien, FGIC Insured, 5.00%, 7/01/28 ..................................................... 30,000,000 25,370,400
senior lien, AMBAC Insured, ETM, 7.625%, 7/01/18 .............................................. 265,000 268,029
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11 ............................................................................... 2,155,000 2,236,868
6.75%, 10/01/16 ............................................................................... 2,585,000 2,667,358
Osceola County Gas Tax Revenue, Refunding and Improvement, FGIC Insured, 6.00%, 4/01/13 .......... 3,500,000 3,582,635
Osceola County IDA, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.75%, 7/01/10 ......................................................... 4,634,000 4,772,603
Series C, FSA Insured, 7.60%, 7/01/10 ......................................................... 795,000 818,317
Osceola County Sales Tax Revenue, FSA Insured, 5.00%, 4/01/24 .................................... 10,000,000 8,607,200
Pace Property Finance Authority Inc. Utility Systems Revenue, Refunding and Improvement,
AMBAC Insured, 6.125%, 9/01/07 ................................................................ 270,000 277,630
AMBAC Insured, 6.25%, 9/01/13 ................................................................. 685,000 701,303
Pre-Refunded, 6.125%, 9/01/07 ................................................................. 730,000 751,652
Pre-Refunded, 6.25%, 9/01/13 .................................................................. 1,860,000 1,916,749
Pre-Refunded, 6.125%, 9/01/17 ................................................................. 840,000 864,914
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured,
6.00%, 6/01/15 ................................................................................ 5,000,000 5,074,750
Pre-Refunded, 7.25%, 6/01/11 .................................................................. 6,950,000 7,141,056
Palm Beach County Financing Authority MFR, Housing Windsor Park Apartment Project,
Series A, 5.90%, 6/01/38 ...................................................................... 1,000,000 922,140
Palm Beach County Health Facilities Authority Retirement Community Revenue, Acts Retirement-Life
Communities, 5.125%, 11/15/29 ................................................................. 3,650,000 2,610,298
Palm Beach County HFA, SFM Purchase Revenue,
Series A, GNMA Secured, 7.70%, 3/01/22 ........................................................ 5,010,000 5,164,358
Series B, GNMA Secured, 7.60%, 3/01/23 ........................................................ 3,630,000 3,757,849
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care Inc. Project,
6.55%, 12/01/16 ............................................................................... 1,755,000 1,756,737
6.625%, 12/01/26 .............................................................................. 4,000,000 4,004,720
Palm Beach County School Board COP, Series A, FGIC Insured, 6.00%, 8/01/22 ....................... 5,000,000 5,020,200
Palm Beach County Solid Waste IDR, Okeelanta Power and Light Co. Project, Series A,
(c) 6.50%, 2/15/09 ............................................................................... 3,600,000 2,160,000
(c) 6.70%, 2/15/15 ............................................................................... 11,700,000 7,020,000
Pensacola Airport Revenue, Series A, MBIA Insured, 5.75%, 10/01/27 ............................... 5,615,000 5,463,395
Pensacola-Westwood Homes Development Corp. Revenue, Mortgage Loan, Refunding, FNMA/FHA Insured,
6.40%, 7/15/23 955,000 962,678
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Pinellas County HFA,
SFHR, Multi-County Program, Series A-1, FNMA Insured, GNMA Secured, 5.30%, 9/01/30 ........... $ 1,500,000 $ 1,288,770
SFMR, Multi-County Program, Series B, GNMA Secured, 6.875%, 8/01/10 .......................... 960,000 983,088
SFMR, Multi-County Program, Series B, GNMA Secured, 7.375%, 2/01/24 .......................... 4,100,000 4,221,483
SFMR, Series A, GNMA Secured, 7.30%, 8/01/22 ................................................. 1,340,000 1,370,753
SFMR, Series A, GNMA Secured, 7.75%, 8/01/23 ................................................. 1,260,000 1,296,250
Pinellas County PCR, Florida Power and Light Co., Refunding, 7.20%, 12/01/14 .................... 12,200,000 12,731,432
Plantation Health Facilities Authority Revenue, Covenant Retirement Community Inc., Pre-Refunded,
7.625%, 12/01/12 ............................................................................. 1,500,000 1,635,555
7.75%, 12/01/22 .............................................................................. 3,000,000 3,280,620
Polk County Capital Improvement Revenue, Special Tax, FSA Insured, 5.75%, 12/01/21 .............. 2,350,000 2,298,206
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 .............................. 2,035,000 2,087,645
Polk County IDAR, Solid Waste Disposal Facility, Tampa Electric Co. Project, 5.85%, 12/01/30 .... 20,500,000 19,436,870
Port Everglades Authority Port Improvement Revenue, Series 1986, ETM, 7.50%, 11/01/06 ........... 575,000 632,305
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital Inc., Series A,
6.20%, 10/01/14 .............................................................................. 14,350,000 13,497,467
Santa Rosa County IDR, Refunding, Holley Navarre Water System Project, 6.75%, 5/01/24 ........... 4,290,000 4,330,240
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16 ...................... 5,250,000 5,067,195
Sarasota County Utilities System Revenue, FGIC Insured,
5.75%, 10/01/27 .............................................................................. 18,000,000 17,514,000
Refunding, Series A, 5.25%, 10/01/25 ......................................................... 9,000,000 8,209,980
Seminole County School Board COP, Series B, MBIA Insured, Pre-Refunded, 6.50%, 7/01/21 .......... 5,000,000 5,350,700
South Florida Water Management District Special Obligation, Land Acquisition Bonds,
AMBAC Insured, 6.00%, 10/01/15 ............................................................... 1,000,000 1,014,660
St. John's County IDA, IDR, Professional Golf Hall of Fame Project, MBIA Insured,
5.80%, 9/01/16 ............................................................................... 4,660,000 4,679,619
St. Lucie County Solid Waste Disposal Revenue, Florida Power and Light Co. Project,
7.15%, 2/01/23 ............................................................................... 7,500,000 7,771,200
St. Lucie West Services District Capital Improvement Revenue, Lake Charles Project, Refunding,
7.50%, 8/01/04 ............................................................................... 3,170,000 3,169,683
St. Lucie West Services District Utility Revenue, senior lien, MBIA Insured, 6.125%, 10/01/32 ... 10,000,000 10,047,300
St. Petersburg Health Facilities Authority Revenue, Allegany Health System, Series A,
MBIA Insured, Pre-Refunded, 7.00%, 12/01/15 .................................................. 10,500,000 11,110,785
Sunrise Lakes Recreation District, Phase 4,
Refunding, AMBAC Insured, 5.25%, 8/01/24 ..................................................... 4,320,000 3,881,693
Series A, Pre-Refunded, 6.75%, 8/01/15 ....................................................... 3,080,000 3,365,947
Series A, Pre-Refunded, 6.75%, 8/01/24 ....................................................... 6,120,000 6,688,181
Sunrise Special Tax District No. 1, Refunding, 6.375%,
11/01/08 ..................................................................................... 3,485,000 3,586,867
11/01/21 ..................................................................................... 12,390,000 12,702,724
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ..................... 2,550,000 2,286,483
Tallahassee Consolidated Utility System Revenue, Series 1994, 6.20%, 10/01/19 ................... 3,400,000 3,455,760
Tampa Allegheny Health System Revenue, St. Joseph, MBIA Insured, Pre-Refunded,
6.75%, 12/01/17 .............................................................................. 1,180,000 1,243,755
6.50%, 12/01/23 .............................................................................. 7,000,000 7,582,750
Tampa Bay Water Utilities Systems Revenue, FGIC Insured, 5.75%, 10/01/29 ........................ 25,000,000 24,272,750
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18 ................. 2,000,000 2,088,920
Tampa-Hillsborough County Expressway Authority Revenue, AMBAC Insured, 5.00%, 7/01/22 ........... 11,500,000 9,950,490
Tampa Occupational License Tax, Refunding, Series B, FGIC Insured, 5.50%, 10/01/27 .............. 6,000,000 5,582,400
Tampa Sports Authority Revenue,
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.00%, 10/01/15 ................... 1,000,000 1,042,220
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.05%, 10/01/20 ................... 1,715,000 1,768,114
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.10%, 10/01/26 ................... 2,695,000 2,788,840
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.05%, 10/01/15 .................. 4,250,000 4,496,203
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.10%, 10/01/20 .................. 5,160,000 5,470,322
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.125%, 10/01/26 ................. 6,800,000 7,216,500
Tampa Water and Sewer Revenue,
5.50%, 10/01/29 .............................................................................. 7,000,000 6,454,420
sub. lien, Series A, AMBAC Insured, 7.25%, 10/01/16 .......................................... 1,330,000 1,332,101
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 ................. 6,000,000 6,414,840
University Community Hospital Inc. Revenue, FSA Insured, Pre-Refunded,
7.375%, 9/01/07 .............................................................................. 5,000,000 5,179,850
7.50%, 9/01/11 ............................................................................... 5,000,000 5,182,850
</TABLE>
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 29, 2000 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Venice Health Care Revenue, Bon Secours Health System Project, MBIA Insured, 5.625%, 8/15/26 .... $ 6,000,000 $ 5,665,380
Viera East CDD,
Special Assessment, 8.625%, 5/01/14 ......................................................... 10,640,000 11,394,163
Special Assessment, ETM, 7.50%, 5/01/03 ..................................................... 1,435,000 1,531,446
Special Assessment, Pre-Refunded, 8.50%, 5/01/04 ............................................ 2,810,000 2,999,197
Special Assessment, Pre-Refunded, 7.50%, 5/01/12 ............................................ 5,225,000 5,607,418
Special Assessment, Refunding, 6.30%, 5/01/26 ............................................... 7,355,000 7,233,863
Special Assessment, Refunding, Series A, 6.00%, 5/01/14 ..................................... 11,295,000 11,230,054
Special Assessment, Series B, ETM, 6.75%, 5/01/14 ........................................... 7,490,000 7,441,914
Special Assessment, Water Management, Refunding, Series A, 6.50%, 5/01/22 ................... 11,340,000 11,066,026
Special Assessment, Water Management, Series B, 6.50%, 5/01/05 .............................. 465,000 459,750
Special Assessment, Water Management, Series B, 6.50%, 5/01/22 .............................. 4,580,000 4,367,992
Water and Sewer Revenue, 7.875%, 5/01/03 .................................................... 2,585,000 2,631,711
Water and Sewer Revenue, 6.75%, 5/01/09 ..................................................... 2,850,000 2,832,387
Volusia County Educational Facility Authority Revenue,
Embry Riddle Aeronautical University, Connie Lee Insured, Pre-Refunded, 6.625%, 10/15/22 .... 500,000 532,135
Educational Facilities, Embry Riddle University, Refunding, Series B, AMBAC Insured,
5.25%, 10/15/22 ........................................................................... 3,490,000 3,162,045
Educational Facilities, Stetson University Inc. Project, AMBAC Insured, 5.25%, 6/01/29 ...... 5,000,000 4,456,600
Volusia County Health Facilities Authority Revenue, Hospital Facilities, Memorial Health
Systems Project, AMBAC Insured, 5.50%, 11/15/26 ............................................. 9,270,000 8,563,441
Volusia County School Board COP, Master Lease Program, FSA Insured, 5.50%, 8/01/24 .............. 5,000,000 4,663,300
West Lake CDD, Special Assessment Revenue, MBIA Insured, 5.75%, 5/01/17 ......................... 1,970,000 1,969,823
West Palm Beach Utility System Revenue, FGIC Insured, 5.50%, 10/01/29 ........................... 6,805,000 6,327,357
Westgate/Belvedere Homes Community RDAR, Series 1992, Pre-Refunded,
6.50%, 11/01/09 ............................................................................. 410,000 424,444
6.60%, 11/01/17 ............................................................................. 1,410,000 1,460,591
--------------
TOTAL BONDS ..................................................................................... 1,489,174,009
--------------
ZERO COUPON BONDS 5.4%
Broward County HFAR, SFMR, Refunding, Series B, 4/01/29 ......................................... 8,525,000 1,153,006
Broward County Water and Sewer Utility Revenue, Refunding, Series A, AMBAC Insured,10/01/08 ..... 3,670,000 2,296,649
(b) Clay County HFAR, SFMR, GNMA Insured, 4/01/33 ................................................... 4,560,000 468,358
Dade County Guaranteed Entitlement Revenue, Capital Appreciation, AMBAC Insured, Pre-Refunded,
8/01/18 ..................................................................................... 17,020,000 5,044,047
(b) Duval County HFA SFMR, Capital Appreciation, GNMA Insured,10/01/32 .............................. 5,000,000 539,950
Florida HFC Revenue,
(b) Capital Appreciation, Homeowner Mortgage, Series 4, FSA Insured, 7/01/30 .................... 10,000,000 1,259,400
Deferred Interest, Homeowner Mortgage, Series 1, MBIA Insured, 7/01/17 ...................... 3,190,000 1,092,766
Deferred Interest, Homeowner Mortgage, Series 2, MBIA Insured, 1/01/29 ...................... 49,480,000 7,761,433
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/01/25 .................................................................................... 9,845,000 1,970,181
10/01/26 .................................................................................... 2,500,000 468,575
Fort Pierce Utilities Authority Revenue, Capital Appreciation, Series B, AMBAC Insured,
10/01/20 .................................................................................... 3,090,000 865,694
10/01/21 .................................................................................... 2,585,000 675,099
10/01/22 .................................................................................... 3,090,000 756,648
10/01/23 .................................................................................... 3,060,000 704,045
10/01/24 .................................................................................... 2,560,000 553,421
Lakeland Electric and Water Revenue, Capital Appreciation, ETM, 0/01/14 ......................... 5,770,000 2,482,543
Miami-Dade County Special Obligation,
sub. lien, Refunding, Series A, MBIA Insured,10/1/25 ........................................ 22,365,000 4,531,373
Sub Series B, MBIA Insured,10/01/36 ......................................................... 5,635,000 560,570
Sub Series C, MBIA Insured,10/01/28 ......................................................... 8,305,000 1,387,682
Port Everglades Authority Port Improvement Revenue,
Capital Appreciation, 9/01/10 ............................................................... 24,525,000 13,541,969
Capital Appreciation, ETM, 9/01/10 .......................................................... 25,475,000 14,283,578
Refunding, Series A, 9/01/02 ................................................................ 10,575,000 9,324,295
Refunding, Series A, 9/01/03 ................................................................ 9,075,000 7,582,163
Refunding, Series A, 9/01/04 ................................................................ 3,550,000 2,802,548
</TABLE>
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 29, 2000 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
Sarasota Special Obligated Revenue, Refunding, AMBAC Insured,
11/01/09 ..................................................................................... $ 1,365,000 $ 801,323
11/01/12 ..................................................................................... 1,780,000 866,237
11/01/15 ..................................................................................... 2,180,000 862,374
--------------
TOTAL ZERO COUPON BONDS ......................................................................... 84,635,927
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,590,682,639) ............................................... 1,573,809,936
--------------
(a) SHORT TERM INVESTMENTS 2.3%
Dade County IDA, IDR, Dolphins Stadium Project, Series A, Weekly VRDN and Put, 3.85%, 1/01/16 ... 500,000 500,000
Weekly VRDN and Put, 3.85%, 1/01/16 .......................................................... 4,850,000 4,850,000
Dade County IDAR, Dolphins Stadium Project, Series B, Weekly VRDN and Put,
3.85%, 1/01/16 ............................................................................... 500,000 500,000
Florida HFC MFR, Refunding, South Pointe Project, Series J, Weekly VRDN and Put, 3.01%, 2/15/28 . 600,000 600,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 3.80%, 5/15/18 ................................ 685,000 685,000
Jacksonville Capital Project Revenue,
Series 1, AMBAC Insured, Weekly VRDN and Put, 4.00%, 10/01/17 ................................ 2,000,000 2,000,000
Series 2, AMBAC Insured, Weekly VRDN and Put, 4.00%, 10/01/22 ................................ 100,000 100,000
Jacksonville Educational Facilities Revenue, Jacksonville University Project, Weekly VRDN and
Put, 3.85%, 10/01/22 ......................................................................... 1,940,000 1,940,000
Martin County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put, 3.85%,
9/01/24 ...................................................................................... 2,200,000 2,200,000
Nassau County , Solid Waste Systems Revenue, VRDN and Put, 3.85%, 7/01/13 ....................... 1,000,000 1,000,000
Orange County IDAR, Lake Highland Preparatory School, Weekly VRDN and Put, 3.90%, 10/01/18 ...... 2,500,000 2,500,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and
Put, 2.35%, 12/01/15 ......................................................................... 800,000 800,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 3.85%, 7/01/28 .......................................................... 6,700,000 6,700,000
Putnam County Development Authority PCR, Florida Power and Light Co. Project, Refunding, Daily
VRDN and Put, 3.85%, 9/01/24 ................................................................. 1,380,000 1,380,000
Sarasota County Revenue, Sarasota Family YMCA Project, Weekly VRDN and Put, 3.85%, 10/01/21 ..... 4,100,000 4,100,000
St. Lucie County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN and Put,
3.85%, 1/01/26 ............................................................................... 6,000,000 6,000,000
3.80%, 3/01/27 ............................................................................... 400,000 400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $36,255,000) ................................................. 36,255,000
--------------
TOTAL INVESTMENTS (COST $1,626,937,639) 101.8% .................................................. 1,610,064,936
OTHER ASSETS, LESS LIABILITIES (1.8)% ........................................................... (28,001,682)
--------------
NET ASSETS 100.0% ............................................................................... $1,582,063,254
==============
</TABLE>
See glossary of terms on page 109.
(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.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN GEORGIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- -------------------------------------------------------------------------------------------------------------------------
<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 $ 12.12 $ 11.86 $ 11.88 $ 11.54
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .61 .63 .65 .66
Net realized and unrealized gains (losses) . (1.03) .01 .27 (.02) .34
-------------------------------------------------------------------------
Total from investment operations ............ (.44) .62 .90 .63 1.00
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.60)(e) (.61)(f) (.64)(g) (.65) (.66)
Net realized gains ......................... --(h) (.06) -- -- --
-------------------------------------------------------------------------
Total distributions ......................... (.60) (.67) (.64) (.65) (.66)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.03 $ 12.07 $ 12.12 $ 11.86 $ 11.88
=========================================================================
Total return(b).............................. (3.71)% 5.22% 7.75% 5.47% 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 151,670 $ 164,669 $ 149,642 $ 139,903 $ 130,380
Ratios to average net assets:
Expenses ................................... .75% .76% .76% .75% .77%
Net investment income ...................... 5.14% 5.00% 5.28% 5.49% 5.58%
Portfolio turnover rate ..................... 46.90% 12.84% 14.77% 17.47% 10.98%
CLASS C
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.15 $ 12.19 $ 11.92 $ 11.92 $ 11.57
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .54 .57 .58 .50
Net realized and unrealized gains (losses) . (1.05) .02 .27 (.01) .34
-------------------------------------------------------------------------
Total from investment operations ............ (.52) .56 .84 .57 .84
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.53)(e) (.54)(f) (.57) (.57) (.49)
Net realized gains ......................... --(h) (.06) -- -- --
-------------------------------------------------------------------------
Total distributions ......................... (.53) (.60) (.57) (.57) (.49)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.10 $ 12.15 $ 12.19 $ 11.92 $ 11.92
=========================================================================
Total return(b) ............................. (4.32)% 4.70% 7.19% 4.97% 7.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 14,811 $ 17,277 $ 9,107 $ 4,484 $ 1,335
Ratios to average net assets:
Expenses ................................... 1.30% 1.31% 1.32% 1.32% 1.34%(c)
Net investment income ...................... 4.58% 4.45% 4.72% 4.87% 5.04%(c)
Portfolio turnover rate ..................... 46.90% 12.84% 14.77% 17.47% 10.98%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(f) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and C, respectively.
(g) Includes distributions in excess of net investment income in the amount of
$.001.
(h) The fund made a capital gain distribution of $.002.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.9%
Albany-Daugherty County Hospital Authority Revenue, Anticipation Certificates, Series B,
AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ......................................................... $ 500,000 $ 518,160
Atlanta Airport Facilities Revenue, Series B, AMBAC Insured, 6.00%, 1/01/21 .......................... 1,100,000 1,087,009
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 2,773,620
Atlanta Downtown Development Authority Revenue, Underground Atlanta Project, Refunding, 6.25%,
10/01/16 ............................................................................................ 2,000,000 2,046,900
Atlanta GO, Series A, Pre-Refunded, 6.125%, 12/01/23 ................................................. 5,000,000 5,304,900
Atlanta HDC, Mortgage Revenue, Oakland City/West, Refunding, Series A, FHA Insured, 6.375%, 3/01/23 .. 1,480,000 1,496,650
Atlanta Special Purpose Facilities Revenue, Delta Air Lines Inc. Project, Series B, 7.90%, 12/01/18 .. 3,500,000 3,570,350
Atlanta Urban Residential Finance Authority MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18 ........................................................ 1,700,000 1,679,141
Fulton Cotton Mill, GNMA Secured, 6.00%, 5/20/17 .................................................... 1,040,000 1,029,985
Fulton Cotton Mill, GNMA Secured, 6.125%, 5/20/27 ................................................... 1,560,000 1,528,472
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 ..................................................................................... 2,615,000 1,967,997
5.375%, 12/01/28 .................................................................................... 2,000,000 1,484,660
Barnesville Water and Sewer Revenue, 6.85%, 9/01/17 .................................................. 1,000,000 1,016,550
Brunswick and Glynn County Development Authority Revenue, Georgia Pacific Project, Refunding, 5.55%,
3/01/26 ............................................................................................. 5,700,000 4,752,147
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle, 1st Series, 6.10%, 4/01/25 ... 1,000,000 999,940
Camden County Joint Development Authority PCR, Union Carbide Corp. Project, Refunding, 5.00%, 1/01/12 1,000,000 895,720
Cherokee County Water and Sewage Authority Revenue, Refunding, MBIA Insured, 6.90%, 8/01/18 .......... 1,595,000 1,663,457
Clarke County Hospital Authority Revenue Certificates, Athens Regional Medical Center Project,
Refunding, MBIA Insured, 5.25%, 1/01/29 ............................................................. 3,000,000 2,601,150
Clayton County Development Authority Revenue, Gateway Village Project, Series A, 6.00%, 8/01/23 ...... 3,500,000 3,482,360
Clayton County Development Authority Special Facilities Revenue, Delta Air Lines Inc. Project,
Refunding, 7.625%, 1/01/20 .......................................................................... 1,400,000 1,418,144
Clayton County Hospital Authority Revenue, Anticipation Certificates, Southern Regional Medical
Center, MBIA Insured, Pre-Refunded, 7.00%, 8/01/13 .................................................. 2,400,000 2,524,392
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23 .................... 1,000,000 950,470
Cobb County Kennestone Hospital Authority Revenue, Series A, MBIA Insured, ETM, 7.75%, 2/01/07 ....... 100,000 108,143
Cobb-Marietta Coliseum and Exhibit Hall Authority Revenue, AMBAC Insured, 5.70%, 10/01/26 ............ 1,000,000 940,160
Columbia County GO, Courthouse/Detention Center Projects, 5.00%, 2/01/24 ............................. 2,460,000 2,071,591
Conyers Water and Sewer Revenue, Series A, AMBAC Insured, ETM, 6.60%, 7/01/15 ........................ 1,000,000 1,052,570
Coweta County Association County Commissioners Leasing Program COP, MBIA Insured, Pre-Refunded,
7.00%, 12/01/10 ..................................................................................... 750,000 755,228
Dalton Development Authority Revenue, MBIA Insured, 5.50%, 8/15/26 ................................... 1,000,000 935,330
De Kalb County Housing Authority SFMR, GNMA Secured, 7.70%, 2/01/24 .................................. 200,000 207,078
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/24 ............................................................................. 925,000 936,720
Forsyth County GO, 5.75%, 2/01/19 .................................................................... 1,500,000 1,484,580
Fulco Hospital Authority Revenue, Anticipation Certificates, Health System, Catholic Health East,
Series A, MBIA Insured, 5.00%, 11/15/28 ............................................................. 2,750,000 2,302,328
Fulton County Building Authority Revenue,
Human Resources and Government Facilities Program, 7.10%, 1/01/15 ................................... 750,000 775,575
Judicial Center Facilities Project, Refunding, 6.50%, 1/01/15 ....................................... 1,000,000 1,024,450
Fulton County Development Authority Special Facilities Revenue, Delta Air Lines Inc. Project,
5.45%, 5/01/23 ...................................................................................... 1,805,000 1,517,680
Georgia Municipal Electric Authority Power Revenue, Series W, 6.60%, 1/01/18 ......................... 1,000,000 1,075,310
Georgia Municipal Gas Authority Gas Revenue, City of Toccoa Project, AMBAC Insured, 5.00%, 6/01/24 ... 1,750,000 1,498,858
Georgia State HFAR,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17 ....................................... 2,870,000 2,958,999
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23 ........................................ 450,000 461,138
MF, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 .............................. 1,000,000 1,102,930
MF, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 ............................ 1,000,000 975,060
SFM, Series B, Sub Series B-2, 6.15%, 12/01/28 ...................................................... 1,000,000 980,070
SFM, Sub Series B-2, 5.85%, 12/01/28 ................................................................ 2,990,000 2,819,540
Georgia State Residential Finance Authority Home Ownership Mortgage Revenue,
Convertible Loans, Series B, Sub Series B, 7.50%, 6/01/17 ........................................... 190,000 197,231
Series B, FHA Insured, 7.00%, 12/01/12 .............................................................. 700,000 726,691
Series E, Sub Series E-1, FHA Insured, 7.50%, 6/01/17 ............................................... 240,000 249,101
Henry County Hospital Authority Revenue, Henry Medical Center Inc. Project, Refunding, AMBAC Insured,
6.00%, 7/01/29 ...................................................................................... 5,000,000 4,884,900
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%, 10/01/23 .......... 3,300,000 3,333,132
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Liberty County IDR, Leconte Property Inc. Project, Refunding, 7.875%, 12/01/14 $ 850,000 $ 886,125
Marietta Development Authority Revenue, First Mortgage, Life College Inc.,
Refunding, Series A, FSA Insured, 5.75%, 9/01/14 1,800,000 1,801,080
Refunding, Series A, FSA Insured, 5.80%, 9/01/19 1,100,000 1,082,356
Refunding, Series A, FSA Insured, 5.95%, 9/01/19 1,000,000 1,000,590
Series B, FSA Insured, 5.75%, 9/01/14 800,000 800,480
Medical Center Hospital Authority, Revenue Anticipation Certificates, Columbus Regional
Healthcare System, MBIA Insured, 5.50%, 8/01/25 10,000,000 9,193,200
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Series A, MBIA Insured, Pre-Refunded,
6.90%, 7/01/20 5,930,000 6,473,366
Monroe County Development Authority PCR,
Georgia Power Co., AMBAC Insured, 6.25%, 7/01/19 1,000,000 1,010,880
Georgia Power Co., Scherer Project, senior lien, First Series, 5.75%, 9/01/23 1,000,000 942,350
Oglethorpe Power Co., Scherer Project, Refunding, Series A, 6.80%, 1/01/12 1,500,000 1,608,330
Municipal Electric Authority, Project One, Refunding, Sub Series A, MBIA Insured, 5.375%, 1/01/19 4,820,000 4,503,037
Newton County Hospital Authority Revenue, Newton Health System Project 1999, AMBAC Insured, 6.10%,
2/01/24 4,500,000 4,477,275
Peachtree City Water and Sewer Authority Sewer Systems Revenue, Series A, 5.60%, 3/01/27 3,000,000 2,863,620
Polk County Water Authority Water and Sewage Revenue, Refunding, MBIA Insured, 7.00%, 12/01/15 100,000 102,354
Private Colleges and Universities Authority Revenue,
Emory University Project, Series A, 5.50%, 11/01/25 10,000,000 9,299,200
Mercer University Project, Refunding, Series A, 5.25%, 10/01/25 2,000,000 1,716,720
Mercer University Project, Series A, AMBAC Insured, 5.375%, 10/01/29 2,000,000 1,722,220
Puerto Rico Commonwealth GO, Public Improvement, Refunding, 5.375%, 7/01/25 6,250,000 5,668,750
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Refunding, Series R,
7.15%, 7/01/00 230,000 232,194
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 15,000 15,185
7.50%, 7/01/09 5,000 5,060
Puerto Rico Electric Power Authority Revenue,
Refunding, Series U, 6.00%, 7/01/14 1,000,000 1,020,440
Series T, 6.00%, 7/01/16 1,000,000 1,006,690
Richmond County Development Authority, Solid Waste Disposal Revenue, International Paper Co. Project,
5.80%, 12/01/20 1,500,000 1,360,350
Rockdale County Water and Sewer Authority Revenue, Refunding,
FSA Insured, 5.00%, 7/01/22 1,500,000 1,288,665
Series A, MBIA Insured, 5.375%, 7/01/29 5,000,000 4,526,150
Savannah EDA, IDR, Hershey Foods Corp. Project, Refunding, 6.60%, 6/01/12 1,000,000 1,043,550
Savannah Hospital Authority Revenue, St. Joseph's Hospital Project, Pre-Refunded, 6.20%, 7/01/23 2,000,000 2,114,100
Savannah Port Authority PCR, Union Carbide Plastic Co. Inc., Refunding, 7.55%, 8/01/04 4,600,000 4,618,860
St. Mary's Housing Authority MFMR,
Cumberland Oaks Apartments, Refunding, Series A, FHA Insured, 7.375%, 9/01/22 500,000 509,900
Pine Apartments, Series C, FHA Insured, 7.375%, 4/01/22 700,000 705,810
Tift County School District, MBIA Insured, 6.125%, 2/01/15 2,330,000 2,389,741
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 850,000 796,093
5.50%, 10/01/22 1,200,000 1,034,783
5.625%, 10/01/25 1,530,000 1,326,570
Walker, Dade and Catoosa Counties Hospital Authority Revenue, Series A, FGIC Insured, Pre-Refunded,
7.00%, 10/01/10 1,500,000 1,580,850
Walton County Water and Sewer Authority Revenue, Refunding and Improvement, MBIA Insured, 6.00%,
2/01/21 2,000,000 1,999,880
White County IDAR, Spring Industries Inc., Refunding, 6.85%, 6/01/10 1,780,000 1,830,373
------------
TOTAL LONG TERM INVESTMENTS (COST $169,225,273) 98.9% 164,723,744
OTHER ASSETS, LESS LIABILITIES 1.1% 1,756,947
------------
NET ASSETS 100.0% $166,480,691
============
</TABLE>
See glossary of terms on page 109.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------
2000(a) 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.47 $ 11.45 $ 11.05 $ 11.04 $ 10.54
-----------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .58 .59 .61 .61 .62
Net realized and unrealized gains (losses) ......... (1.04) .03 .40 .01 .50
-----------------------------------------------------------------
Total from investment operations .................... (.46) .62 1.01 .62 1.12
-----------------------------------------------------------------
Less distributions from net investment income ....... (.59)(c) (.60)(d) (.61) (.61) (.62)
-----------------------------------------------------------------
Net asset value, end of year ........................ $ 10.42 $ 11.47 $ 11.45 $ 11.05 $ 11.04
=================================================================
Total return(b) ..................................... (4.13)% 5.51% 9.38% 5.86% 10.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 63,964 $ 64,516 $ 54,211 $ 44,289 $ 38,991
Ratios to average net assets:
Expenses ........................................... .45% .42% .35% .34% .33%
Expenses excluding waiver and payments by affiliates .81% .81% .81% .81% .82%
Net investment income .............................. 5.31% 5.12% 5.40% 5.63% 5.65%
Portfolio turnover rate ............................. 16.31% 10.49% 26.61% 24.81% 31.89%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Includes distributions in excess of net investment income in the amount of
$.005.
(d) Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
Ashland PCR, Ashland Oil Inc. Project, Refunding, 6.65%, 8/01/09 ................................... $ 700,000 $ 721,721
Ashland Solid Waste Revenue, Ashland Oil Inc. Project, 7.20%, 10/01/20 ............................. 1,000,000 1,018,450
Boone County PCR, Collateralized, Dayton Power and Light Co., Refunding, Series A, 6.50%, 11/15/22 . 710,000 719,926
Bowling Green ISD Finance Corp. School Building Revenue, 5.75%, 1/01/20 ............................ 1,140,000 1,121,372
Carroll County PCR, Collateralized, Kentucky Utilities Co. Project, Series B, 6.25%, 2/01/18 ....... 325,000 327,100
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%, 7/01/17 .......... 1,000,000 937,510
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 .......................................... 1,500,000 1,561,935
Housing Authority, Jefferson County, 6.50%, 3/01/19 ............................................. 125,000 129,878
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 ............................................. 100,000 105,149
Daviess County Hospital Revenue, Odch Inc., Series A, MBIA Insured, 6.25%,
8/01/12 ......................................................................................... 100,000 103,608
8/01/22 ......................................................................................... 210,000 211,027
Eastern University Revenues, Consolidated Educational Building, Series Q, AMBAC Insured, 6.40%,
5/01/08 ........................................................................................... 100,000 103,795
Elizabethtown Public Properties Holding Inc. Revenue, First Mortgage, Administrative Office of the
Courts, Judicial Facilities Project, MBIA Insured, 5.20%, 4/01/22 ................................. 2,000,000 1,789,800
Fayette County School District Finance Corp. School Building Revenue, 5.50%, 9/01/18 ............... 2,500,000 2,393,750
Fulton County Industrial Building Revenue, H.I.S. Income Project, 7.50%, 2/01/10 ................... 500,000 425,660
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Section 8 Assisted Projects, Refunding,
Series A, MBIA Insured, 6.10%, 1/01/24 ............................................................ 2,000,000 2,007,500
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 .......................................... 400,000 415,276
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.30%, 10/01/22 .............................. 225,000 238,133
Hancock County Solid Waste Disposal Revenue, Willamette Industries Inc. Project, 6.60%, 5/01/26 .... 1,000,000 1,015,620
Hardin County Water District No. 2 Water System Revenue, Series A, AMBAC Insured, 5.00%, 1/01/31 ... 2,620,000 2,215,158
Henry County Water District No. 2 Water Revenue, Refunding, MBIA Insured, 4.75%, 1/01/28 ........... 2,035,000 1,650,507
Hopkins County Hospital Revenue, Trover Clinic Foundation Inc., MBIA Insured, 6.625%, 11/15/11 ..... 125,000 129,975
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured, 5.375%, 6/01/22 ............... 2,000,000 1,831,360
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services Inc.,
AMBAC Insured, 6.50%, 5/01/15 ................................................................... 750,000 780,698
AMBAC Insured, 6.55%, 5/01/22 ................................................................... 720,000 744,199
Refunding, AMBAC Insured, 5.75%, 1/01/26 ........................................................ 1,000,000 953,430
Jefferson County MFHR, Watterson Park Apartments Project, Series A, 6.35%, 11/15/11 ................ 1,930,000 1,963,100
Jefferson County PCR,
DuPont, Series A, 6.30%, 7/01/12 ................................................................ 450,000 473,594
Louisville Gas and Electric Co. Project, Refunding, Series A, 7.45%, 6/15/15 .................... 100,000 102,759
Jefferson County School District Finance Corp. School Building Revenue, Series B, FSA Insured,
5.25%, 6/01/19 .................................................................................... 1,400,000 1,288,448
Jessamine County School District Finance Corp. School Building Revenue, 5.50%, 1/01/21 ............. 2,500,000 2,336,350
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport, Series B, MBIA Insured, 5.75%, 3/01/13 ...... 1,230,000 1,239,397
Special Facilities, Delta Airlines Inc. Project, Series A, 7.50%, 2/01/20 ....................... 445,000 457,033
Special Facilities, Delta Airlines Inc. Project, Series A, 7.125%, 2/01/21 ...................... 325,000 328,214
Special Facilities, Delta Airlines Inc. Project, Series B, 7.25%, 2/01/22 ....................... 445,000 451,283
Kenton County Water District No. 1 Waterworks Revenue, Refunding, FGIC Insured, 6.375%, 2/01/17 .... 155,000 160,749
Kenton County Water District No. 1 Waterworks Revenue, Series B, FGIC Insured, 5.70%, 2/01/20 ...... 500,000 483,800
Kentucky Development Finance Authority Hospital Revenue, St. Elizabeth Medical Center, Refunding and
Improvement, Series A, FGIC Insured, 6.00%, 11/01/10 .............................................. 750,000 757,230
Kentucky Development Finance Authority Revenue, Sisters of Charity of Nazareth Health Corp.,
Pre-Refunded, 6.75%, 11/01/2012 ................................................................... 100,000 105,082
Kentucky Economic Development Finance Authority Hospital Facilities Revenue, St. Elizabeth Medical
Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 ........................................... 625,000 615,788
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian Regional Health
Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ...................................... 2,000,000 1,518,540
Kentucky Economic Development Finance Authority Medical Center Revenue, Ashland Hospital Corp.,
Refunding and Improvement, Series A, FSA Insured, 6.125%, 2/01/12 ................................. 500,000 516,080
Kentucky Economic Development Finance Authority Revenue, Catholic Health, Refunding and Improvement,
Series A, 5.00%, 12/01/18 ......................................................................... 2,000,000 1,677,420
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28 ............................................................ 1,240,000 1,245,816
Series B, 6.25%, 7/01/28 ........................................................................ 1,280,000 1,271,450
Series C, FHA Insured, 6.40%, 1/01/17 ........................................................... 1,130,000 1,153,990
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Kentucky HFC Revenue, (cont.)
SFMR, Series A, 6.60%, 7/01/11 $ 35,000 $ 35,920
SFMR, Series B, 6.60%, 7/01/11 150,000 153,944
SFMR, Series D, FHA Insured, 7.45%, 1/01/23 65,000 66,949
Kentucky Infrastructure Authority Revenue, Infrastructure Revolving Fund Program, Series J,
Pre-Refunded, 6.375%, 6/01/14 500,000 536,880
Kentucky State Property and Buildings Commission Revenues,
Project No. 56, Pre-Refunded, 6.00%, 9/01/14 700,000 740,824
Project No. 64, MBIA Insured, 5.50%, 5/01/17 1,535,000 1,478,773
Lexington-Fayette Urban County Government Revenue, University of Kentucky Library Project,
MBIA Insured, Pre-Refunded,
6.625%, 11/01/13 500,000 542,620
6.75%, 11/01/24 750,000 817,785
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 5/15/22 1,000,000 859,490
Series A, AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 300,000 327,270
Series A, FGIC Insured, 5.00%, 5/15/30 3,000,000 2,503,830
Louisville and Jefferson County Regional Airport Authority Airport Systems Revenue, MBIA Insured,
5.00%, 7/01/25 1,500,000 1,262,985
Madison County Utility District Revenue, Refunding, FSA Insured, 5.20%, 2/01/22 1,000,000 895,280
McCracken County Hospital Revenue, Mercy Health System, Refunding, Series A, MBIA Insured, 6.40%,
11/01/07 500,000 529,050
Northern Kentucky Water Service District Revenue, MBIA Insured, 4.875%, 2/01/20 1,270,000 1,084,161
Oldham County School District Finance Corp. School Building Revenue, 5.00%, 7/01/19 1,000,000 890,820
Pendleton County Multi-County Lease Revenue, Kentucky Association of Counties Leasing Trust,
Series A, 6.50%, 3/01/19 1,050,000 1,074,633
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 430,000 463,699
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities Financing Authority
Revenue, Special Facilities American Airlines Project, Series A, 6.45%, 12/01/25 1,480,000 1,487,548
Russell Health System Revenue,
Our Lady of Bellefonte, Pre-Refunded, 5.50%, 7/01/15 1,800,000 1,807,992
Pre-Refunded, 8.10%, 7/01/15 205,000 220,847
Pre-Refunded, 8.10%, 7/01/15 145,000 169,250
Russellville Housing Authority MFR, The Field Manor Project, GNMA Secured, 5.65%, 4/20/34 1,455,000 1,332,300
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.625%, 10/01/25 2,000,000 1,734,076
------------
TOTAL LONG TERM INVESTMENTS (COST $65,454,789) 62,815,586
------------
(a) SHORT TERM INVESTMENTS .5%
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 3.00%, 7/01/28 (COST $300,000) 300,000 300,000
------------
TOTAL INVESTMENTS (COST $65,754,789) 98.7% 63,115,586
OTHER ASSETS, LESS LIABILITIES 1.3% 848,760
------------
NET ASSETS 100.0% $ 63,964,346
============
</TABLE>
See glossary of terms on page 109.
(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 specific dates.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
---------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.59 $ 11.61 $ 11.32 $ 11.32 $ 11.03
---------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .58 .60 .63 .65 .66
Net realized and unrealized gains (losses) . (1.03) (.01) .30 -- .28
---------------------------------------------------------------------
Total from investment operations ............ (.45) .59 .93 .65 .94
---------------------------------------------------------------------
Less distributions from net investment income (.59)(e) (.61)(f) (.64) (.65) (.65)
---------------------------------------------------------------------
Net asset value, end of year ................ $ 10.55 $ 11.59 $ 11.61 $ 11.32 $ 11.32
=====================================================================
Total return(b) ............................. (3.93)% 5.23% 8.46% 5.94% 8.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $144,299 $158,099 $ 134,922 $112,981 $107,461
Ratios to average net assets:
Expenses ................................... .74% .75% .76% .76% .78%
Net investment income ...................... 5.29% 5.14% 5.50% 5.76% 5.89%
Portfolio turnover rate ..................... 27.31% 14.99% 15.26% 13.68% 5.23%
CLASS C
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.66 $ 11.68 $ 11.37 $ 11.37 $ 11.01
---------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .54 .57 .58 .49
Net realized and unrealized gains (losses) . (1.04) (.01) .32 -- .35
---------------------------------------------------------------------
Total from investment operations ............ (.51) .53 .89 .58 .84
---------------------------------------------------------------------
Less distributions from net investment income (.53)(e) (.55)(f) (.58) (.58) (.48)
---------------------------------------------------------------------
Net asset value, end of year ................ $ 10.62 $ 11.66 $ 11.68 $ 11.37 $ 11.37
=====================================================================
Total return(b) ............................. (4.45)% 4.61% 8.02% 5.27% 7.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 10,730 $ 9,982 $ 4,469 $ 3,004 $ 1,438
Ratios to average net assets:
Expenses ................................... 1.29% 1.31% 1.32% 1.33% 1.35%(c)
Net investment income ...................... 4.74% 4.58% 4.95% 5.29% 5.27%(c)
Portfolio turnover rate ..................... 27.31% 14.99% 15.26% 13.68% 5.23%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.009 and $.008 for Class A and C, respectively.
(f) 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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.1%
BONDS 96.6%
Bastrop PCR, International Paper Co. Project, Refunding, 6.90%, 3/01/07 ................. $ 500,000 $ 520,290
Bossier City Public Improvement Sales and Use Tax Revenue,
FGIC Insured, 5.00%, 12/01/19 ........................................................ 1,145,000 1,000,272
Refunding, FGIC Insured, 5.00%, 12/01/21 ............................................. 1,875,000 1,608,113
Refunding, FGIC Insured, 5.00%, 12/01/22 ............................................. 1,515,000 1,299,688
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding,
Series A, 7.75%, 6/01/12 ............................................................. 415,000 431,982
Series B, 6.875%, 11/01/12 ........................................................... 665,000 684,485
Calcasieu Parish Public Trust Authority SFMR, Series A, GNMA Secured,
FNMA Insured, 6.40%, 4/01/32 ......................................................... 285,000 285,758
De Soto Parish Environmental Improvement Revenue, International Paper Co. Project,
5.60%, 11/01/22 ...................................................................... 2,250,000 1,950,773
Series A, 7.70%, 11/01/18 ............................................................ 1,500,000 1,594,710
Series A, 5.65%, 12/01/21 ............................................................ 1,000,000 877,200
De Soto Parish PCR, Cleco Utility Group Inc. Project, Refunding,
AMBAC Insured, 5.875%, 9/01/29 ....................................................... 8,000,000 7,733,840
Denham Spring Livingston Housing and Mortgage Finance Authority SFHR, Series A,
FHA Insured, ETM, 7.20%, 8/01/10 ..................................................... 1,380,000 1,511,224
East Baton Rouge Mortgage Finance Authority, SFM Purchase,
Refunding, Series A, 6.10%, 10/01/29 ................................................. 990,000 985,911
Series A, GNMA Secured, 7.875%, 8/01/23 .............................................. 530,000 543,255
Series F, GNMA Secured, 7.875%, 12/01/21 ............................................. 630,000 654,167
East Baton Rouge Parish PCR, Georgia-Pacific Corp. Project, Refunding, 5.50%, 4/01/09 ... 2,000,000 1,940,180
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18 ................. 750,000 745,853
Jefferson Parish School Board Sales and Use Tax Revenue, Series A, ETM, 7.35%, 2/01/03 .. 500,000 532,410
Jefferson Sales Tax District Special Sales Tax Revenue, Refunding, FSA Insured,
5.00%, 12/01/22 ...................................................................... 4,500,000 3,860,460
Lafayette Public Trust Financing Authority SFMR,
Refunding, Series A, 8.50%, 11/15/12 ................................................. 187,142 189,059
Series A, ETM, 7.20%, 4/01/11 ........................................................ 30,000 30,071
Lafourche Parish Home Mortgage Authority SFMR, ETM, 7.40%, 7/01/10 ...................... 95,000 104,925
Lake Charles Harbor and Terminal District Port Facilities Revenue, Occidental
Petroleum Corp., Refunding, 7.20%, 12/01/20 .......................................... 3,000,000 3,086,610
Lake Charles Nonprofit HDC, Section 8 Assisted Mortgage Revenue, Chateau Project,
Refunding, Series A, FSA Insured, 7.875%, 2/15/25 .................................... 750,000 736,710
Leesville IDBR, Wal-Mart Stores Inc. Project, Refunding, 7.10%, 3/01/11 ................. 1,750,000 1,782,323
Louisiana HFA, Mortgage Revenue,
MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 ................................. 2,795,000 2,801,512
MF Westview Project, FHA Insured, 7.80%, 4/01/30 ..................................... 750,000 772,868
Louisiana Local Government Environmental Facilities CDAR, Delgado Community
College Foundation Project, MBIA Insured, 6.00%, 10/01/29 ............................ 1,000,000 978,280
Louisiana Local Government Environmental Facility Revenue, Baton Rouge Apartments,
Series A, MBIA Insured, 6.375%, 1/01/30 .............................................. 4,265,000 4,298,011
Louisiana Public Facilities Authority Hospital Revenue,
Franciscan Missionaries, Series C, MBIA Insured, 5.00%, 7/01/19 ...................... 3,750,000 3,243,075
Louisiana Health Systems Corp. Project, Refunding, FSA Insured, 5.00%, 10/01/22 ...... 1,000,000 849,790
Pendleton Memorial Methodist, Refunding, 5.25%, 6/01/28 .............................. 5,000,000 3,540,100
Touro Infirmary Project, Series A, 5.625%, 8/15/29 ................................... 6,000,000 4,677,900
Women's Hospital Foundation Project, Refunding, FSA Insured, 5.60%, 10/01/19 ......... 1,500,000 1,416,510
Louisiana Public Facilities Authority Lease Revenue, Orleans Parish School Board
Project, FSA Insured, 5.65%, 6/15/11 ................................................. 1,230,000 1,238,930
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C, MBIA Insured, 6.50%, 5/15/22 ..... 930,000 963,303
Centenary College Project, Pre-Refunded, 5.90%, 2/01/17 .............................. 1,000,000 1,039,660
Centenary College Project, Refunding, 5.75%, 2/01/29 ................................. 7,300,000 6,687,019
Dillard University Project, Refunding, AMBAC Insured, 5.00%, 2/01/18 ................. 2,000,000 1,750,320
HFA, Mortgage Purchase, FNMA Insured, 6.05%, 1/01/26 ................................. 1,200,000 1,179,876
MFH, One Lakeshore, Refunding, Series A, GNMA Secured, 6.40%, 7/20/20 ................ 1,900,000 1,917,613
SFM Purchase, Series C, 8.45%, 12/01/12 .............................................. 873,837 912,951
Student Loan, Series A, Sub Series 3, 7.00%, 9/01/06 ................................. 955,000 974,090
Tulane University, AMBAC Insured, 6.05%, 10/01/25 .................................... 5,500,000 5,471,345
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17 ...... 1,000,000 929,660
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/27 ...... 6,015,000 5,251,035
Louisiana State Office Facilities Corp. Lease Revenue, Capitol Complex Program, Series A,
MBIA Insured, 5.375%, 3/01/19 ........................................................ 3,000,000 2,818,230
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Louisiana State Offshore Terminal Authority Deepwater Port Revenue,
Loop Inc., First Stage, Refunding, Series B, 7.20%, 9/01/08 ............................. $1,000,000 $ 1,040,170
Series E, 7.60%, 9/01/10 ................................................................ 480,000 492,413
Series E, Pre-Refunded, 7.60%, 9/01/10 .................................................. 520,000 538,876
Louisiana State University Agricultural and Mechanical College University Revenues,
Auxiliary, MBIA Insured, 5.50%, 7/01/26 ................................................. 1,500,000 1,380,810
Louisiana State University at Eunice Project, MBIA Insured, 5.00%, 6/01/18 .............. 1,025,000 899,776
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12 ................................ 1,050,000 1,110,333
Natchitoches Parish GO, Consolidated School District No. 7, Series B, Pre-Refunded, 7.50%,
3/01/09 ................................................................................. 230,000 230,000
3/01/10 ................................................................................. 235,000 235,000
New Orleans GO,
Drain Systems, AMBAC Insured, 5.00%, 12/01/18 ........................................... 1,000,000 879,580
Public Improvement, Series A, AMBAC Insured, 5.125%, 12/01/27 ........................... 1,000,000 860,000
Refunding, AMBAC Insured, 6.00%, 9/01/21 ................................................ 700,000 695,821
New Roads Electric System Revenue, 7.00%, 7/01/17 .......................................... 1,000,000 1,023,760
Office Facility Corp. Capital Facilities Bonds, 7.75%, 12/01/10 ............................ 1,600,000 1,690,432
Orleans Levee District GO, Levee Improvement, FSA Insured, 5.95%, 11/01/14 ................. 875,000 890,409
Orleans Parish Parishwide School District GO,
AMBAC Insured, 5.375%, 9/01/21 .......................................................... 3,500,000 3,205,300
Refunding, Series B, FGIC Insured, 5.50%, 9/01/20 ....................................... 1,000,000 939,230
Series A, FGIC Insured, 5.125%, 9/01/22 ................................................. 1,000,000 875,530
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18 ...................... 1,950,000 1,820,501
Ouachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional
Medical Center, Refunding, FSA Insured, 5.75%, 5/15/21 .................................. 2,500,000 2,382,150
Puerto Rico Commonwealth GO, Series 1990, Pre-Refunded, 7.70%, 7/01/20 ..................... 500,000 516,025
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 .......................................................................... 120,000 121,476
7.75%, 7/01/08 .......................................................................... 50,000 50,714
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series B, GNMA Secured, 7.65%, 10/15/22 ................................................. 25,000 25,690
Series C, GNMA Secured, 6.85%, 10/15/23 ................................................. 650,000 667,245
Rapides Parish Housing and Mortgage Finance Authority Revenue, SFM Purchase,
FHA Insured, ETM, 7.25%, 8/01/10 ........................................................ 1,370,000 1,481,326
Shreveport Certificates of Indebtedness, Refunding, Series A, AMBAC Insured, 5.00%, 10/01/16 1,000,000 898,290
Shreveport Water and Sewer Revenue, Series A, FGIC Insured, 5.95%, 12/01/14 ................ 3,500,000 3,546,900
St. Bernard Home Mortgage Authority Revenue, SF, Series A, FGIC Insured, ETM, 7.50%, 9/01/10 435,000 482,406
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26 ..... 2,000,000 1,867,860
St. Bernard Parish Home Mortgage Authority SFMR, Refunding, Series A, 8.00%, 3/25/12 ....... 352,826 365,719
St. Charles Parish PCR,
Louisiana Power and Light Co. Project, 7.50%, 6/01/21 ................................... 2,500,000 2,590,750
Union Carbide Corp. Project, Refunding, 5.10%, 1/01/12 .................................. 3,000,000 2,700,360
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 .......................................................................... 1,500,000 1,535,550
Series A, 7.00%, 12/01/22 ............................................................... 750,000 773,003
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ............... 2,500,000 2,218,125
St. Tammany's Public Trust Financing Authority SFMR, Series A, ETM, 7.20%,
7/01/10 ................................................................................. 165,000 178,868
7/01/11 ................................................................................. 50,000 55,660
State Colleges and Universities Lease Revenue, University of Southwestern Louisiana,
Cajundome, MBIA Insured, 5.65%, 9/01/26 ................................................. 3,080,000 2,876,073
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding, AMBAC Insured,
6.25%, 2/01/24 .......................................................................... 5,500,000 5,531,955
University of Louisiana Board of Supervisors Lease Revenue, LaFayette Cajundome
Convention, MBIA Insured, 6.25%, 9/01/29 ................................................ 1,200,000 1,208,796
University System Board of Supervisors Revenue, Northwestern State University Wellness,
AMBAC Insured, 5.10%, 4/01/24 ........................................................... 1,000,000 864,430
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/18 ................................................................................ 3,000,000 2,652,390
West Feliciana Parish PCR, Gulf State Utility Co. Project, 7.70%, 12/01/14 ................. 6,500,000 6,875,501
------------
TOTAL BONDS ................................................................................ 149,677,550
------------
ZERO COUPON BONDS 1.5%
Shreveport Water and Sewer Revenue, Refunding, Series B, FGIC Insured,12/01/11 ............. 5,000,000 2,352,750
------------
TOTAL LONG TERM INVESTMENTS (COST $158,139,552) ............................................ 152,030,300
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS .5%
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc.,
1st Stage, ACES, Refunding, Daily VRDN and Put, 3.80%, 9/01/06 (COST $800,000) .... $ 800,000 $ 800,000
------------
TOTAL INVESTMENTS (COST $158,939,552) 98.6% ............................................ 152,830,300
OTHER ASSETS, LESS LIABILITIES 1.4% .................................................... 2,199,181
------------
NET ASSETS 100.0% ...................................................................... $155,029,481
============
</TABLE>
See glossary of terms on page 109.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MARYLAND TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
--------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.66 $ 11.64 $ 11.33 $ 11.38 $ 10.92
--------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .56 .58 .59 .61 .62
Net realized and unrealized gains (losses) . (1.00) .06 .32 (.03) .47
--------------------------------------------------------------------
Total from investment operations ............ (.44) .64 .91 .58 1.09
--------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.56) (.58)(e) (.60)(f) (.63) (.63)
Net realized gains ......................... (.03) (.04) -- -- --
--------------------------------------------------------------------
Total distributions ......................... (.59) (.62) (.60) (.63) (.63)
--------------------------------------------------------------------
Net asset value, end of year ................ $ 10.63 $ 11.66 $ 11.64 $ 11.33 $ 11.38
====================================================================
Total return(b) ............................. (3.86)% 5.64% 8.27% 5.24% 10.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $221,176 $253,014 $213,005 $185,234 $175,078
Ratios to average net assets:
Expenses ................................... .72% .74% .74% .73% .74%
Net investment income ...................... 5.07% 4.91% 5.20% 5.42% 5.56%
Portfolio turnover rate ..................... 11.78% 6.02% 3.19% 12.71% 8.11%
CLASS C
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.75 $ 11.72 $ 11.40 $ 11.44 $ 10.93
--------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .51 .51 .54 .55 .47
Net realized and unrealized gains (losses) . (1.01) .07 .31 (.03) .51
--------------------------------------------------------------------
Total from investment operations ............ (.50) .58 .85 .52 .98
--------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.50) (.51)(e) (.53) (.56) (.47)
Net realized gains ......................... (.03) (.04) -- -- --
--------------------------------------------------------------------
Total distributions ......................... (.53) (.55) (.53) (.56) (.47)
--------------------------------------------------------------------
Net asset value, end of year ................ $ 10.72 $ 11.75 $ 11.72 $ 11.40 $ 11.44
====================================================================
Total return(b) ............................. (4.37)% 5.11% 7.70% 4.68% 9.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 17,298 $ 16,826 $ 10,515 $ 5,084 $ 913
Ratios to average net assets:
Expenses ................................... 1.27% 1.29% 1.30% 1.27% 1.31%(c)
Net investment income ...................... 4.53% 4.35% 4.63% 4.78% 4.95%(c)
Portfolio turnover rate ..................... 11.78% 6.02% 3.19% 12.71% 8.11%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and C, respectively.
(f) Includes distributions in excess of net investment income in the amount of
$.005.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
Anne Arundel County Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.00%, 1/01/26 ... $1,650,000 $1,649,835
Anne Arundel County PCR, Baltimore Gas and Electric Co. Project, Refunding,
6.00%, 4/01/24 ......................................................................... 9,500,000 9,392,175
Baltimore Convention Center Revenue, FGIC Insured, Pre-Refunded, 6.15%, 9/01/19 ........... 4,250,000 4,454,978
Baltimore COP, Refunding, Series C, MBIA Insured, 7.25%, 4/01/16 .......................... 545,000 556,549
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 ........................... 90,000 91,428
Baltimore County Mortgage Revenue, Old Orchard Apartments Project, Refunding, Series A,
MBIA Insured,
7.00%, 7/01/16 ......................................................................... 1,000,000 1,044,420
7.125%, 1/01/27 ........................................................................ 3,000,000 3,144,660
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A,
6.75%, 8/01/02 ......................................................................... 780,000 794,664
7.00%, 8/01/11 ......................................................................... 3,225,000 3,358,322
Baltimore GO, Consolidated Public Improvement,
Series A, FGIC Insured, 5.30%, 10/15/15 ................................................ 1,000,000 963,940
Series A, FGIC Insured, 5.30%, 10/15/17 ................................................ 1,500,000 1,427,340
Series A, FSA Insured, 5.25%, 10/15/17 ................................................. 3,300,000 3,075,270
Series B, 7.15%, 10/15/08 .............................................................. 1,000,000 1,128,780
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 ..... 1,850,000 1,951,843
Baltimore Project Revenue, Wastewater Project, Refunding, Series B, FGIC Insured, 5.00%,
7/01/18 ................................................................................ 1,000,000 887,770
7/01/28 ................................................................................ 4,000,000 3,366,920
Baltimore Revenue, Wastewater Project, Refunding, Series A, FGIC Insured, 5.80%, 7/01/15 .. 5,000,000 5,035,600
Carroll County Revenue, Fairhaven and Copper Ridge, Refunding, Series A, Asset Guarantee,
5.375%, 1/01/16 ........................................................................ 2,000,000 1,890,800
5.50%, 1/01/19 ......................................................................... 1,000,000 940,730
5.625%, 1/01/25 ........................................................................ 2,000,000 1,883,980
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09 .................... 350,000 358,505
Frederick County EDR, Manekin Frederick Project, Refunding, Series A, 7.50%, 12/01/14 ..... 500,000 513,365
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital,
Refunding and Improvement, FSA Insured, 6.00%, 9/01/21 ................................. 8,000,000 7,971,280
Harford County Mortgage Revenue, Greenbrier V Apartments Project, Refunding,
FHA Insured, 6.50%, 11/01/26 ........................................................... 3,000,000 3,064,980
Howard County Mortgage Revenue, Normandy Woods III Apartments Project, Refunding,
Series A, FHA Insured, 6.10%, 7/01/25 .................................................. 2,000,000 2,001,080
Maryland Environmental Services COP, Water and Waste Facilities, Series A,
6.70%, 6/01/11 ......................................................................... 1,900,000 1,967,963
Maryland Local Government Insurance Trust Capitalization Program, Series A,
7.125%, 8/01/09 ........................................................................ 650,000 668,330
Maryland State CDA, Department of Housing and Community Development,
MFHR Mortgage, Series A, 7.80%, 5/15/32 ................................................ 985,000 1,007,497
MFHR Mortgage, Series A, 6.85%, 5/15/33 ................................................ 1,120,000 1,150,162
MFHR Mortgage, Series D, 7.70%, 5/15/20 ................................................ 1,000,000 1,030,960
MFHR Mortgage, Series E, 7.10%, 5/15/28 ................................................ 675,000 692,813
Residential, Series D, 5.25%, 9/01/29 .................................................. 5,000,000 4,303,100
Series B, 5.35%, 9/01/30 ............................................................... 2,985,000 2,597,517
SF Program, 2nd Series, 5.00%, 4/01/17 ................................................. 3,000,000 2,743,440
SF Program, 2nd Series, 7.60%, 4/01/23 ................................................. 290,000 298,752
SF Program, 3rd Series, 7.25%, 4/01/27 ................................................. 1,435,000 1,467,288
SF Program, 4th Series, 7.375%, 4/01/10 ................................................ 985,000 1,005,764
SF Program, 4th Series, 7.45%, 4/01/32 ................................................. 190,000 195,107
SF Program, 5th Series, 6.85%, 4/01/11 ................................................. 1,955,000 2,011,421
SFHR Program, 1st Series, 7.30%, 4/01/17 ............................................... 1,000,000 1,029,950
Maryland State EDC, Lease Revenue, Hilton Street Facilities, Series A, 7.00%, 1/01/10 ..... 1,000,000 1,052,800
Maryland State Energy Financing Administration Solid Waste Disposal Revenue,
Limited Obligation, Wheelabrator Water Projects, 6.45%, 12/01/16 ...................... 3,000,000 3,041,610
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/28 .............................. 2,000,000 1,705,160
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/33 .............................. 7,190,000 6,119,050
Charity Obligation Group, Series A, 5.00%, 11/01/19 .................................... 1,515,000 1,325,504
Charity Obligation Group, Series A, 5.00%, 11/01/29 .................................... 2,250,000 1,880,235
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/12 ............................... 1,000,000 1,034,740
Doctors Community Hospital, Pre-Refunded, 8.75%, 7/01/22 ............................... 250,000 258,685
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
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.)
Doctors Community Hospital, Refunding, 5.75%, 7/01/13 ................................. $ 3,000,000 $ 2,544,060
Helix Health Issue, AMBAC Insured, ETM, 5.00%, 7/01/27 ................................ 11,000,000 9,530,180
Johns Hopkins Medical Institutions, Parking Facilities, AMBAC Insured, 5.50%, 7/01/26 . 9,750,000 9,095,775
Johns Hopkins Medicine, MBIA Insured, 5.00%, 7/01/19 .................................. 1,000,000 875,520
Johns Hopkins University Issue, 6.00%, 7/01/39 ........................................ 5,000,000 4,954,700
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 ................................... 1,700,000 1,702,465
Mercy Medical Center Project, Refunding, FSA Insured, 5.75%, 7/01/26 .................. 1,500,000 1,435,260
Roland Park Place Project, Refunding, 5.625%, 7/01/18 ................................. 2,500,000 1,967,950
Roland Park Place Project, Refunding, 5.625%, 7/01/24 ................................. 5,000,000 3,786,850
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.375%, 1/01/28 .................... 9,440,000 8,430,298
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.125%, 1/01/33 .................... 7,400,000 6,301,322
Maryland State Industrial Development Financing Authority EDR, FSA Insured, Pre-Refunded,
7.10%, 7/01/18 ........................................................................ 1,350,000 1,419,188
Maryland State Industrial Development Financing Authority Revenue, American Center
Physics Headquarters, 6.625%, 1/01/17 ................................................. 6,000,000 6,114,300
Maryland State Stadium Authority Lease Revenue, Convention Center Expansion,
AMBAC Insured, 5.875%, 12/15/14 ........................................................ 4,655,000 4,720,729
Maryland State Stadium Authority Sports Facilities Lease Revenue, AMBAC Insured,
5.75%, 3/01/22 ........................................................................ 5,000,000 4,866,250
5.80%, 3/01/26 ........................................................................ 2,045,000 1,991,482
Maryland State Transportation Facilities Authority Revenue, Refunding, Series 1992,
5.75%, 7/01/13 ........................................................................ 5,400,000 5,428,674
Maryland Water Quality Financing Administration Revenue, Revolving Loan Fund,
Series A, 6.55%, 9/01/14 .............................................................. 1,000,000 1,035,490
Montgomery County Housing Opportunities Commission MFHR, Series B, FHA Insured,
6.00%, 7/01/37 ........................................................................ 2,500,000 2,423,825
Montgomery County Housing Opportunities Commission MFMR, Series A,
7.25%, 7/01/11 ........................................................................ 375,000 387,675
7.00%, 7/01/23 ........................................................................ 2,410,000 2,481,288
Montgomery County Housing Opportunities Commission SFMR, Series A,
6.80%, 7/01/17 ........................................................................ 1,775,000 1,813,855
7.50%, 7/01/17 ........................................................................ 190,000 194,627
7.625%, 7/01/17 ....................................................................... 5,000 5,019
Montgomery County Revenue Authority Golf Course System Revenue, Series A,
6.125%, 10/01/22 ...................................................................... 1,000,000 937,460
Northeast Solid Waste Disposal Authority Revenue, Montgomery County Resources
Recreation Project, Series A,
6.20%, 7/01/10 ........................................................................ 3,100,000 3,160,233
6.30%, 7/01/16 ........................................................................ 6,000,000 6,004,680
Ocean City GO, Refunding, MBIA Insured, 5.75%,
3/15/12 ............................................................................... 1,880,000 1,912,486
3/15/13 ............................................................................... 1,120,000 1,134,190
3/15/14 ............................................................................... 1,180,000 1,189,523
Prince George's County COP, Real Estate Acquisition Program II, MBIA Insured,
6.00%, 9/15/14 ......................................................................... 2,050,000 2,092,066
Prince George's County GO, Consolidated Public Improvement, MBIA Insured,
5.00%, 4/15/18 ........................................................................ 2,100,000 1,877,043
Prince George's County Hospital Revenue, Dimensions Health Corp., Pre-Refunded,
7.00%, 7/01/22 ........................................................................ 1,000,000 1,066,640
Prince George's County Housing Authority MFHR, Emerson House Project, Series A,
7.00%, 4/15/19 ........................................................................ 5,500,000 5,675,835
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 2,957,159
Prince George's County IDA, Lease Revenue, Upper Marlboro Justice Center Project,
MBIA Insured, 5.80%, 6/30/14 .......................................................... 2,750,000 2,772,248
Prince George's County Parking Authority Revenue, Justice Center Facilities Project,
Refunding, 6.45%, 5/01/05 ............................................................. 500,000 520,485
Prince George's County PCR, Refunding, Potomac Electric Project,
6.00%, 9/01/22 ........................................................................ 1,200,000 1,173,936
6.375%, 1/15/23 ....................................................................... 2,975,000 3,021,202
Puerto Rico Commonwealth GO, Public Improvement, Refunding, 5.75%, 7/01/17 ............... 3,000,000 2,964,120
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Y, 5.50%, 7/01/26 .............................................................. 6,900,000 6,360,213
Rockville Mortgage Revenue, Summit Apartments Project, Refunding, Series A,
MBIA Insured, 5.70%, 1/01/26 .......................................................... 1,145,000 1,110,295
University of Maryland Auxiliary Facilities System and Tuition Revenue, Series A,
5.60%, 4/01/16 ........................................................................ 1,000,000 1,002,840
Virgin Islands PFA Revenue, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ................................. 1,700,000 1,503,021
Refunding, Series A, 5.50%, 10/01/14 .................................................. 3,300,000 3,044,510
-----------
TOTAL LONG TERM INVESTMENTS (COST $243,019,553) .......................................... 234,524,029
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS .1%
Maryland State Health and Higher Educational Facilities Authority Revenue,
Adjustable Pooled Loan Program, Series B, Weekly VRDN and Put, 3.85%,
4/01/35 (COST $200,000) ...................................................... $ 200,000 $ 200,000
------------
TOTAL INVESTMENTS (COST $243,219,553) 98.4% ..................................... 234,724,029
OTHER ASSETS, LESS LIABILITIES 1.6% ............................................. 3,749,916
------------
NET ASSETS 100.0% ............................................................... $238,473,945
============
</TABLE>
See glossary of terms on page 109.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MISSOURI TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
----------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.19 $ 12.23 $ 11.83 $ 11.94 $ 11.44
----------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .60 .61 .64 .65 .65
Net realized and unrealized gains (losses) . (1.15) -- .44 (.07) .49
----------------------------------------------------------------
Total from investment operations ............ (.55) .61 1.08 .58 1.14
----------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.61) (.62) (.64) (.65) (.64)
Net realized gains ......................... (.01) (.03) (.04) (.04) --
----------------------------------------------------------------
Total distributions ......................... (.62) (.65) (.68) (.69) (.64)
----------------------------------------------------------------
Net asset value, end of year ................ $ 11.02 $ 12.19 $ 12.23 $ 11.83 $ 11.94
================================================================
Total return(b) ............................. (4.62)% 5.12% 9.43% 5.06% 10.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $346,649 $386,948 $308,045 $269,564 $247,522
Ratios to average net assets:
Expenses ................................... .69% .70% .71% .70% .71%
Net investment income ...................... 5.16% 4.99% 5.32% 5.56% 5.58%
Portfolio turnover rate ..................... 18.43% 15.21% 14.30% 21.81% 18.27%
CLASS C
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.24 $ 12.27 $ 11.85 $ 11.97 $ 11.47
----------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .54 .58 .57 .48
Net realized and unrealized gains (losses) . (1.16) .01 .45 (.07) .50
----------------------------------------------------------------
Total from investment operations ............ (.63) .55 1.03 .50 .98
----------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.54) (.55) (.57) (.58) (.48)
Net realized gains ......................... (.01) (.03) (.04) (.04) --
----------------------------------------------------------------
Total distributions ......................... (.55) (.58) (.61) (.62) (.48)
----------------------------------------------------------------
Net asset value, end of year ................ $ 11.06 $ 12.24 $ 12.27 $ 11.85 $ 11.97
================================================================
Total return(b) ............................. (5.21)% 4.58% 8.96% 4.32% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 23,537 $ 20,396 $ 10,045 $ 4,295 $ 1,325
Ratios to average net assets:
Expenses ................................... 1.24% 1.25% 1.27% 1.27% 1.27%(c)
Net investment income ...................... 4.62% 4.44% 4.75% 4.92% 4.94%(c)
Portfolio turnover rate ..................... 18.43% 15.21% 14.30% 21.81% 18.27%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 101.3%
Audrain County Hospital Revenue, Audrain Medical Center Project, Refunding,
AMBAC Insured, 7.35%, 11/01/08 ........................................................ $ 500,000 $ 528,250
Bi-State Development Agency Missouri Illinois Metropolitan District,
St. Clair County Metrolink Extension, Series A, MBIA Insured, 5.00%, 7/01/28 .......... 3,000,000 3,115,020
Term Facilities Revenue, American Commercial Lines Inc., Pre-Refunded, 7.75%, 6/01/10 . 6,500,000 5,487,300
Cape Girardeau County IDA, Solid Waste Disposal Revenue, Procter and
Gamble Paper Products, 5.30%, 5/15/28 ................................................. 6,875,000 5,916,488
Fenton Public Facility Authority Leasehold Revenue, 5.25%, 1/01/18 ....................... 2,250,000 1,961,865
Guam Airport Authority Revenue,
Series A, 6.50%, 10/01/23 ............................................................. 1,075,000 1,116,054
Series B, 6.60%, 10/01/10 ............................................................. 500,000 523,885
Series B, 6.70%, 10/01/23 ............................................................. 4,000,000 4,186,640
Guam Power Authority Revenue, Refunding, Series A,
5.125%, 10/01/29 ...................................................................... 2,000,000 1,660,980
5.25%, 10/01/34 ....................................................................... 2,000,000 1,678,800
Hazelwood IDA, MFHR, Lakes Apartments Project, Refunding, Series A, GNMA Secured,
6.10%, 9/20/26 ........................................................................ 1,745,000 1,717,883
Howard Bend Levee District Special Tax,
5.65%, 3/01/13 ........................................................................ 1,000,000 946,060
5.85%, 3/01/19 ........................................................................ 4,000,000 3,713,640
Jackson County IDAR, St. Joseph's Health Center Corp., MBIA Insured, 6.50%, 7/01/19 ...... 3,000,000 3,120,870
Jefferson County GO, Reorganized School District No. R-3, AMBAC Insured, 7.00%, 3/01/09 .. 370,000 377,992
Kansas City Airport Revenue, General Improvement, Series B, FSA Insured, Pre-Refunded,
6.875%, 9/01/12 ....................................................................... 605,000 656,528
Kansas City IDA, MFHR,
Hilltop Village Apartments Project, Refunding, Series A, 5.70%, 10/01/17 .............. 1,030,000 988,028
Hilltop Village Apartments Project, Refunding, Series A, 5.80%, 10/01/27 .............. 1,555,000 1,461,513
Mews Apartments Project, Series A, FNMA Insured, 6.30%, 7/01/20 ....................... 3,345,000 3,362,160
Kansas City IDAR, Ewing Marion Kauffman, Series B, 5.70%, 4/01/27 ........................ 11,100,000 10,570,974
Kansas City Land Clearance RDA Lease Revenue, Municipal Auditorium and Muehlebach Hotel,
Series A, FSA Insured, 5.90%, 12/01/18 ................................................ 5,000,000 4,999,450
Kansas City MAC Revenue, Leasehold Improvement,
Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 ........................ 7,790,000 8,088,513
Truman Medical Center, Series A, Pre-Refunded, 7.00%, 11/01/11 ........................ 1,665,000 1,725,356
Kansas City Municipal Assistance, Leasehold Roe Bartle, Refunding, Series A,
MBIA Insured, 5.00%, 4/15/20 .......................................................... 17,635,000 15,347,917
Kansas City Tax Increment Financing Commission Tax Increment Revenue, Briarcliff
West Project, Series B, 7.00%, 11/01/14 ............................................... 3,525,000 3,655,637
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 ......................................................... 2,000,000 2,154,580
Pre-Refunded, 6.40%, 12/01/25 ......................................................... 7,000,000 7,579,390
Refunding, 5.25%, 12/01/14 ............................................................ 1,000,000 871,310
Refunding, 5.25%, 12/01/26 ............................................................ 1,000,000 812,160
Lee's Summit IDA, MFHR, Crossroads Apartment Project, Series A, FSA Insured,
6.15%, 10/01/29 ....................................................................... 2,695,000 2,623,313
Lee's Summit IDAR, John Knox Village Project,
6.55%, 8/15/10 ........................................................................ 1,000,000 1,008,730
6.625%, 8/15/13 ....................................................................... 2,000,000 2,042,840
Missouri School Board Association COP, Pooled Finance Program,
Series A-3, BIG Insured, 7.875%, 3/01/06 .............................................. 5,000 5,056
Series A-5, BIG Insured, 7.375%, 3/01/06 .............................................. 35,000 35,452
Missouri School Board Association Lease COP,
Fox C-6 School District, FSA Insured, 5.75%, 3/01/16 .................................. 5,000,000 4,974,150
Republic R-3 School District Project, Refunding, FSA Insured, 6.00%, 3/01/16 .......... 2,220,000 2,242,200
Missouri State Development Finance Board Recreation Facilities Revenue, YMCA Greater
St. Louis Project, Series A, 5.40%, 9/01/18 ........................................... 7,420,000 6,887,541
Missouri State Development Finance Board Solid Waste Disposal Revenue, Procter and
Gamble Paper Product, 5.20%, 3/15/29 .................................................. 3,000,000 2,587,470
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 2,447,241
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 2,133,915
Thomas Hill Electric Cooperative, 5.50%, 12/01/11 ..................................... 2,000,000 1,989,560
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 1,003,030
Series A, 7.00%, 10/01/10 ............................................................. 940,000 970,541
Series A, 6.55%, 7/01/14 .............................................................. 4,500,000 4,732,335
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Missouri State Environmental Improvement and Energy Resources Authority Water
PCR, Revolving Fund Program, (cont.)
Series A, FSA Insured, 6.05%, 7/01/16 ................................................. $ 1,000,000 $ 1,012,990
Series B, 7.125%, 12/01/10 ............................................................ 430,000 445,871
Series B, 5.80%, 1/01/15 .............................................................. 1,000,000 1,010,000
Series B, 7.20%, 7/01/16 .............................................................. 2,000,000 2,192,420
Missouri State HDC,
MFHR, FHA Insured, 8.50%, 12/01/29 .................................................... 135,000 135,069
Series B, GNMA Secured, 6.40%, 12/01/24 ............................................... 2,055,000 2,065,563
SFMR, Homeowner Loan, Series B-1, 5.65%, 3/01/30 ...................................... 8,000,000 7,278,400
SFMR, Homeowner Loan, Series D, GNMA Secured, 6.125%, 3/01/28 ......................... 1,480,000 1,448,032
SFMR, Series A, GNMA Secured, 7.625%, 2/01/22 ......................................... 200,000 204,576
SFMR, Series B, GNMA Secured, 6.10%, 9/01/14 .......................................... 1,615,000 1,629,470
SFMR, Series B, GNMA Secured, 7.625%, 6/01/21 ......................................... 160,000 161,662
SFMR, Series B, GNMA Secured, 7.75%, 6/01/22 .......................................... 910,000 930,985
SFMR, Series B, GNMA Secured, 6.45%, 9/01/27 .......................................... 1,600,000 1,615,600
SFMR, Series B-2, GNMA Secured, FNMA Insured, 5.50%, 3/01/25 .......................... 1,910,000 1,735,159
SFMR, Series C, GNMA Secured, 6.90%, 7/01/18 .......................................... 1,090,000 1,117,980
SFMR, Series D-2, GNMA Secured, FNMA Insured, 5.40%, 9/01/28 .......................... 2,340,000 2,081,617
Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, Washington University, 5.00%, 11/15/37 ....................................... 11,150,000 9,198,862
(b)Series B, 6.00%, 3/01/30 .............................................................. 10,550,000 10,520,777
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
BJC Health System, MBIA Insured, 5.00%, 5/15/38 ....................................... 5,000,000 4,052,200
Children's Mercy Hospital, 5.30%, 5/15/28 ............................................. 12,420,000 10,517,380
Freeman Health Systems Project, 5.25%, 2/15/28 ........................................ 2,750,000 2,048,035
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 ................................ 5,000,000 5,104,350
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 ................................ 700,000 720,384
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14 ................................ 1,990,000 2,039,272
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22 ................................ 1,100,000 1,107,964
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 ....................... 2,745,000 2,800,394
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 ........................... 4,000,000 3,903,160
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 ........................... 3,250,000 3,084,933
Lake of the Ozarks General Hospital, 6.25%, 2/15/11 ................................... 410,000 396,749
Lake of the Ozarks General Hospital, FSA Insured, 5.125%, 2/15/24 ..................... 2,500,000 2,155,750
Lake of the Ozarks General Hospital, Pre-Refunded, 6.25%, 2/15/11 ..................... 840,000 897,884
Lake of the Ozarks General Hospital, Pre-Refunded, 6.50%, 2/15/21 ..................... 670,000 726,448
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21 ........................ 330,000 310,956
Lutheran Senior Services, Refunding, 5.875%, 2/01/23 .................................. 2,600,000 2,344,784
Lutheran Senior Services, Series A, 6.375%, 2/01/27 ................................... 4,000,000 3,877,320
Park Lane Medical Center, Series A, MBIA Insured, 4.70%, 1/01/04 ...................... 1,600,000 1,574,080
Park Lane Medical Center, Series A, MBIA Insured, 5.60%, 1/01/15 ...................... 7,300,000 6,960,477
SSM Health Care, Refunding, Series A, MBIA Insured, 6.25%, 6/01/16 .................... 795,000 806,710
Missouri State Health and Educational Facilities Authority Revenue, SSM Health Care,
Refunding, Series A, MBIA Insured, 5.00%, 6/01/18 ..................................... 7,310,000 6,395,080
Missouri State Western College Revenue, Student Housing, Pre-Refunded, 8.00%, 10/01/16 ... 5,000,000 5,340,750
Moberly Water and Sewer Revenue, Refunding and Improvement, FGIC Insured, Pre-Refunded,
7.50%, 8/01/15 ........................................................................ 1,000,000 1,033,510
Monarch-Chesterfield Levee District, MBIA Insured, 5.75%, 3/01/19 ........................ 1,920,000 1,900,320
North Kansas City Hospital Revenue, AMBAC Insured, 5.00%, 11/15/28 ....................... 4,300,000 3,576,697
Northeast State University Recreational Facility Revenue, Campus Recreational
Center Project, AMBAC Insured, 5.80%, 6/01/15 ......................................... 1,000,000 1,005,730
Northwest Educational Facilities Authority Leasehold Revenue, Jefferson County,
FSA Insured, 5.70%, 3/01/15 ........................................................... 3,775,000 3,737,514
Phelps County Hospital Revenue, Regional Medical Center, Refunding, Connie Lee Insured,
6.00%, 5/15/13 ........................................................................ 5,000,000 5,038,450
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 .......................................................... 40,000 45,736
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ........................................................................ 50,000 50,615
7.75%, 7/01/08 ........................................................................ 475,000 481,783
Puerto Rico Electric Power Authority Revenue, Series X, 6.00%, 7/01/15 ................... 2,375,000 2,399,985
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ...................... 320,000 326,704
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ............. $ 1,265,000 $ 1,298,560
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 2,252,025
Puerto Rico PBA Revenue, Government Facilities, Series B, AMBAC Insured, 5.00%, 7/01/27 ..... 1,000,000 862,790
Puerto Rico Port Authority Revenue, Special Facilities, American Airlines, Series A,
6.25%, 6/01/26 ........................................................................... 2,500,000 2,376,325
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ....... 1,865,000 1,566,003
Pulaski County IDA, MFHR, St. Robert Project, Series A, GNMA Secured, 6.00%, 8/20/39 ........ 1,600,000 1,525,888
Raymore GO, FSA Insured, Pre-Refunded, 6.00%, 3/01/14 ....................................... 1,000,000 1,022,190
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 .......................................................................... 3,000,000 2,452,980
5.70%, 8/15/28 ........................................................................... 5,250,000 4,114,478
St. Charles County IDA, MFHR, Ashwood Apartments Project, Series A, FSA Insured,
5.60%, 4/01/30 ........................................................................... 1,000,000 914,470
St. Charles County Public Water Supply District No. 2 COP, Refunding, Series A, MBIA Insured,
5.00%, 12/01/20 .......................................................................... 3,240,000 2,816,532
St. Charles Public Facility Authority Leasehold Revenue, Refunding, AMBAC Insured, 5.80%,
2/01/10 .................................................................................. 3,000,000 3,064,440
St. Louis Airport Revenue, Lambert-St. Louis International Airport,
Refunding and Improvement, FGIC Insured, 6.125%, 7/01/15 ................................. 75,000 76,057
Series B, FGIC Insured, 5.25%, 7/01/27 ................................................... 2,555,000 2,231,026
St. Louis County Housing Authority MFHR, Kensington Square Apartments Project, Refunding,
6.55%, 3/01/14 ........................................................................... 1,000,000 1,024,750
6.65%, 3/01/20 ........................................................................... 2,750,000 2,819,520
St. Louis County IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.40%, 4/01/14 ............. 1,000,000 1,013,730
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19 ............. 1,000,000 1,004,680
Health Facilities Revenue, Healthcare Nazareth Living, Refunding, 5.625%, 8/15/19 ........ 3,000,000 2,452,710
Health Facilities Revenue, Healthcare Nazareth Living, Refunding, 5.625%, 8/15/29 ........ 3,250,000 2,527,135
Health Facilities Revenue, Mother of Perpetual Help, GNMA Secured, 6.40%, 8/01/35 ........ 1,895,000 1,922,932
MFHR, Lucas Hunt Village Project, Refunding, Series A, GNMA Secured, 5.125%, 9/20/23 ..... 1,250,000 1,087,138
MFHR, Lucas Hunt Village Project, Refunding, Series A, GNMA Secured, 5.20%, 9/20/31 ...... 2,095,000 1,808,907
MFHR, South Summit Apartments, Refunding, Series A, GNMA Secured, 6.10%, 4/20/32 ......... 1,250,000 1,237,725
St. Louis County IDAR, Bethesda Living Centers, Series B, 5.85%, 8/15/28 .................... 1,500,000 1,209,075
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ............................ 20,000 20,216
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 5,391,650
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue, Anheuser-Busch Project,
5.875%, 11/01/26 ......................................................................... 1,100,000 1,060,488
5.75%, 12/01/27 .......................................................................... 1,700,000 1,603,389
St. Louis Land Clearance RDA, Kiel Site Lease, Refunding, Series A, MBIA Insured,
5.125%, 7/01/21 .......................................................................... 1,625,000 1,437,231
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center Improvement, Series A, AMBAC Insured, 6.00%, 2/15/19 ................. 5,370,000 5,406,838
City Justice Center, Series A, AMBAC Insured, 6.00%, 2/15/20 ............................. 1,000,000 1,005,890
Refunding, Series A, 6.00%, 7/15/13 ...................................................... 10,000,000 10,145,400
St. Louis Parking Facilities Revenue,
Argyle Building Facilities, Series A, MBIA Insured, 5.875%, 12/15/21 ..................... 725,000 713,987
Pre-Refunded, 6.625%, 12/15/21 ........................................................... 470,000 500,165
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 4,485,348
Series C, 7.75%, 8/15/01 ................................................................. 915,000 935,606
Series C, 7.90%, 8/15/21 ................................................................. 555,000 579,858
Series C, Pre-Refunded, 7.90%, 8/15/21 ................................................... 4,000,000 4,385,800
Taney County IDA, Hospital Revenue, The Skaggs Community Hospital Association,
5.30%, 5/15/18 ........................................................................... 3,000,000 2,372,640
5.40%, 5/15/28 ........................................................................... 1,500,000 1,132,485
Taney County Reorganization School District No. R-V GO, Direct Deposit Program,
5.80%, 3/01/17 ........................................................................... 2,585,000 2,586,448
University of Missouri Health Facilities Revenue, Series A, AMBAC Insured,
5.125%, 11/01/28 ......................................................................... 4,430,000 3,758,501
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27 ......................... 7,750,000 7,571,983
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 .......................................................................... 2,500,000 2,341,450
5.50%, 10/01/22 .......................................................................... 2,500,000 2,155,800
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (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 $ 837,890
Refunding, 5.60%, 11/15/17 ......................................................... 1,700,000 1,344,054
Refunding, 5.65%, 11/15/22 ......................................................... 1,500,000 1,152,630
Series A, Pre-Refunded, 8.625%, 9/15/20 ............................................ 1,890,000 1,956,279
-------------
TOTAL LONG TERM INVESTMENTS (COST $392,375,487) ....................................... 375,119,846
-------------
(a) SHORT TERM INVESTMENTS .1%
Kansas City IDA, Hospital Revenue, Research Health Services System, MBIA Insured, Daily
VRDN and Put, 3.90%, 10/15/14 ..................................................... 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 3.00%, 7/01/28 ...................................... 200,000 200,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $400,000) .......................................... 400,000
-------------
TOTAL INVESTMENTS (COST $392,775,487) 101.4% .......................................... 375,519,846
OTHER ASSETS, LESS LIABILITIES (1.4)% ................................................. (5,334,133)
-------------
NET ASSETS 100.0% ..................................................................... $ 370,185,713
=============
</TABLE>
See glossary of terms on page 109.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
--------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ------------------------------------------------------------------------------------------------------------------------------
<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 $ 12.11 $ 11.73 $ 11.75 $ 11.37
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .60 .60 .62 .64 .64
Net realized and unrealized gains (losses) . (1.12) .06 .38 (.03) .39
--------------------------------------------------------------------------
Total from investment operations ............ (.52) .66 1.00 .61 1.03
--------------------------------------------------------------------------
Less distributions from net investment income (.60) (.61) (.62) (.63) (.65)(e)
--------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.04 $ 12.16 $ 12.11 $ 11.73 $ 11.75
==========================================================================
Total return(b) ............................. (4.37)% 5.54% 8.78% 5.38% 9.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 315,101 $349,419 $ 297,406 $260,979 $247,031
Ratios to average net assets:
Expenses ................................... .68% .70% .70% .70% .71%
Net investment income ...................... 5.18% 4.95% 5.24% 5.47% 5.52%
Portfolio turnover rate ..................... 21.07% 5.44% 9.95% 9.98% 25.19%
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.24 $ 12.18 $ 11.79 $ 11.80 $ 11.41
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .54 .54 .56 .57 .49
Net realized and unrealized gains (losses) . (1.13) .06 .39 (.02) .38
--------------------------------------------------------------------------
Total from investment operations ............ (.59) .60 .95 .55 .87
--------------------------------------------------------------------------
Less distributions from net investment income (.53) (.54) (.56) (.56) (.48)
--------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.12 $ 12.24 $ 12.18 $ 11.79 $ 11.80
==========================================================================
Total return(b) ............................. (4.88)% 5.02% 8.22% 4.83% 7.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 38,577 $ 38,171 $ 20,043 $ 9,607 $ 2,430
Ratios to average net assets:
Expenses ................................... 1.23% 1.25% 1.26% 1.26% 1.28%(c)
Net investment income ...................... 4.63% 4.40% 4.69% 4.85% 4.90%(c)
Portfolio turnover rate ..................... 21.07% 5.44% 9.95% 9.98% 25.19%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
Appalachian State University Revenue, Utility Systems,
MBIA Insured, Pre-Refunded, 6.10%, 5/15/13 ................................................ $1,075,000 $1,139,199
MBIA Insured, 5.00%, 5/15/24 .............................................................. 3,000,000 2,554,890
Refunding, MBIA Insured, 5.00%, 5/15/18 ................................................... 1,000,000 888,050
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ................................. 4,000,000 3,794,440
Buncombe County Metropolitan Sewage District System Revenue,
FSA Insured, 5.00%, 7/01/29 ............................................................... 5,000,000 4,181,550
Series B, Pre-Refunded, 6.75%, 7/01/16 .................................................... 10,000 10,416
Centennial Authority Hotel Tax Revenue, Arena Project, FSA Insured, 5.125%, 9/01/19 .......... 5,115,000 4,588,411
Charlotte Airport Revenue, Series B, MBIA Insured, 6.00%,
7/01/24 ................................................................................... 4,000,000 3,909,600
7/01/28 ................................................................................... 6,300,000 6,132,167
Charlotte COP, Convention Facility Project, AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11 ..... 2,250,000 2,378,925
Charlotte-Mecklenberg Hospital Authority Health Care System Revenue,
5.90%, 1/15/16 ............................................................................ 3,465,000 3,340,364
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 .................................... 8,000,000 6,766,080
Refunding, Series 1992, 6.25%, 1/01/20 .................................................... 2,620,000 2,575,905
Refunding, Series 1992, Pre-Refunded, 6.25%, 1/01/20 ...................................... 1,000,000 1,043,700
Charlotte Water and Sewer GO, 5.00%, 2/01/21 ................................................. 4,000,000 3,523,840
Charlotte Water and Sewer Systems Revenue, 5.25%, 6/01/24 .................................... 2,000,000 1,814,180
Coastal Solid Waste Disposal System Authority Revenue, Regional Solid Waste Management,
Pre-Refunded, 6.50%, 6/01/08 ............................................................. 3,100,000 3,267,679
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 1,352,154
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 ............................................................................ 1,475,000 1,459,513
6.125%, 6/01/21 ........................................................................... 2,180,000 2,191,641
Cumberland County COP, Civic Center Project,
Refunding, AMBAC Insured, 5.00%, 12/01/18 ................................................. 3,000,000 2,646,360
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/19 .................................... 3,500,000 3,768,975
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/24 .................................... 3,765,000 4,054,340
Cumberland County Finance Corp. Installment Payment Revenue, Detention Center and
Mental Health, FSA Insured, 5.625%, 6/01/24 ............................................... 5,000,000 4,676,900
Cumberland County Hospital Facilities Revenue, Cumberland County Hospital Systems Inc.,
MBIA Insured, Pre-Refunded, 6.00%, 10/01/21 ............................................... 2,500,000 2,550,675
Refunding, 5.25%, 10/01/29 ................................................................ 5,250,000 4,061,295
Davie County GO, North Carolina Water, Unlimited Tax, Pre-Refunded, 7.10%,
4/01/10 ................................................................................... 350,000 357,788
4/01/11 ................................................................................... 250,000 255,563
Duplin County COP, Social Service Administrative Building, Solid Waste Project,
FGIC Insured, 6.75%, 9/01/12 .............................................................. 2,000,000 2,084,880
Durham COP, Series 1991, 6.875%, 4/01/09 ..................................................... 1,650,000 1,712,205
Durham County COP,
Hospital and Office Facilities Project, Pre-Refunded, 6.00%, 5/01/14 ...................... 3,000,000 3,136,140
Hospital and Office Facilities Project, Pre-Refunded, 6.00%, 5/01/17 ...................... 1,000,000 1,045,380
Jail Facilities and Computer Equipment Project, Pre-Refunded, 6.625%, 5/01/14 ............. 3,000,000 3,126,330
Eastern Municipal Power Agency Power System Revenue, Refunding, Series D, 6.75%, 1/01/26 ..... 5,000,000 4,939,200
Fayetteville Public Works Commission Revenue, Series A, FSA Insured, 6.00%, 3/01/16 .......... 2,000,000 2,017,620
Franklin County COP, AMBAC Insured, 5.00%, 6/01/25 ........................................... 1,250,000 1,059,738
Gaston COP, Police Station Project, FGIC Insured, 5.70%, 8/01/15 ............................. 1,500,000 1,484,760
Gastonia Combined Utilities System Revenue, MBIA Insured,
5.625%, 5/01/19 ........................................................................... 1,000,000 964,150
Pre-Refunded, 6.10%, 5/01/19 .............................................................. 2,200,000 2,330,680
Greensboro COP, Coliseum Arena Expansion Project, 6.75%, 12/01/09 ............................ 1,610,000 1,695,588
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24 .......... 1,320,000 1,341,067
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.375%, 10/01/08 ....................... 1,000,000 1,057,670
Halifax County Industrial Facilities and PCFA Revenue, Champion International Corp. Project,
5.45%, 11/01/33 ........................................................................... 4,000,000 3,311,680
Refunding, 6.45%, 11/01/29 ................................................................ 3,900,000 3,774,615
Haywood County Industrial Facilities and PCFA, Environmental Improvement Revenue, Champion
International Project, 6.25%, 9/01/25 ...................................................... 2,000,000 1,893,020
Highpoint Special Obligation Sales Tax Revenue, Solid Waste Management Project, 7.15%, 7/01/01 800,000 805,864
Kinston Enterprise System Revenue, Combined Enterprise System, FSA Insured, 5.70%, 4/01/21 ... 1,700,000 1,629,552
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Kinston Housing Authority Mortgage Revenue, Kinston Towers Project, Refunding,
6.75%, 12/01/18 ................................................................. $ 3,155,000 $ 3,186,834
Martin County Industrial Facilities and PCFA Revenue,
Pollution Control, Weyerhaeuser Co. Project, Refunding, 6.375%, 1/01/10 ......... 3,000,000 3,058,800
Solid Waste, Weyerhaeuser Co. Project, 5.65%, 12/01/23 .......................... 2,000,000 1,771,320
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 .......................... 5,400,000 4,982,525
Mooresville Grade School District COP, AMBAC Insured, 6.35%, 10/01/14 .............. 1,000,000 1,026,210
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
MBIA Insured, 5.00%, 10/01/28 ................................................... 2,000,000 1,675,760
New Hanover County Industrial Facilities and PCFA Revenue, Refunding, 6.70%, 7/01/19 1,000,000 1,009,940
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 6.50%, 1/01/17 ............................................. 9,000,000 8,836,650
Refunding, Series A, 6.50%, 1/01/18 ............................................. 3,000,000 2,974,680
Refunding, Series A, 5.75%, 1/01/26 ............................................. 10,000,000 8,675,000
Series B, MBIA Insured, 5.875%, 1/01/21 ......................................... 5,000,000 4,896,650
North Carolina Educational Facilities Finance Agency Revenue, High Point
College Project, 7.10%,
12/01/07 ........................................................................ 190,000 194,682
12/01/08 ........................................................................ 205,000 210,041
12/01/09 ........................................................................ 220,000 225,359
North Carolina HFA,
MF, Mortgage Loan Resolution, Refunding, Series H, 6.05%, 7/01/28 ............... 2,500,000 2,446,725
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20 .......................... 3,000,000 2,926,920
MF, Refunding, Series J, 5.45%, 7/01/17 ......................................... 2,175,000 2,044,196
MFR, Refunding, Series B, 6.90%, 7/01/24 ........................................ 2,925,000 3,060,662
Refunding, Series F, 6.70%, 1/01/27 ............................................. 4,855,000 5,028,662
SF, Refunding, Series DD, 6.20%, 9/01/27 ........................................ 2,885,000 2,854,938
SF, Series JJ, 6.45%, 9/01/27 ................................................... 4,590,000 4,629,841
SFMR, Series J, 7.40%, 3/01/22 .................................................. 135,000 138,013
SFR, Refunding, Series S, 6.95%, 3/01/17 ........................................ 2,240,000 2,316,989
SFR, Series AA, 6.25%, 3/01/17 .................................................. 915,000 929,475
SFR, Series RR, 5.85%, 9/01/28 .................................................. 3,500,000 3,292,660
SFR, Series X, 6.65%, 9/01/19 ................................................... 1,890,000 1,935,833
North Carolina Medical Care Commission Health Care Facilities Revenue,
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/18 ....... 1,000,000 876,660
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/24 ....... 5,500,000 4,660,370
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/19 ........... 630,000 580,356
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/29 ........... 1,220,000 1,085,288
North Carolina Medical Care Commission Health System Revenue, Catholic Health
East Project, Series C, AMBAC Insured, 5.00%,
11/15/18 ........................................................................ 2,500,000 2,190,450
11/15/28 ........................................................................ 4,600,000 3,836,860
North Carolina Medical Care Commission Hospital Revenue,
Annie Penn Memorial Hospital Project, Pre-Refunded, 7.50%, 8/15/21 .............. 4,700,000 5,016,357
Annie Penn Memorial Hospital Project, Refunding, 5.25%, 1/01/12 ................. 1,940,000 1,690,962
Annie Penn Memorial Hospital Project, Refunding, 5.375%, 1/01/22 ................ 1,920,000 1,466,342
Duke University Hospital Project, Series C, 5.25%, 6/01/26 ...................... 1,500,000 1,271,850
Halifax Memorial Hospital Project, Pre-Refunded, 6.75%, 8/15/24 ................. 3,500,000 3,717,350
Halifax Regional Medical Center Project, 5.00%, 8/15/18 ......................... 1,500,000 1,138,290
Halifax Regional Medical Center Project, 5.00%, 8/15/24 ......................... 2,800,000 2,030,588
High Point Regional Health System, AMBAC Insured, 5.00%, 10/01/29 ............... 5,000,000 4,161,700
Mission St. Joseph's Health System Project, MBIA Insured, 5.125%, 10/01/28 ...... 5,000,000 4,254,750
North Carolina Baptist Hospitals Project, Refunding, Series A, 6.00%, 6/01/22 ... 4,830,000 4,585,457
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ........................... 2,780,000 2,453,600
Southeastern Regional Medical Center, 6.25%, 6/01/29 ............................ 4,000,000 3,614,480
Transylvania Community Hospital Inc. Project, Refunding, 5.75%, 10/01/19 ........ 1,090,000 908,428
Wake County Hospital System Project, MBIA Insured, 5.375%, 10/01/26 ............. 12,775,000 11,470,927
Wayne Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.00%, 10/01/21 ... 1,000,000 1,038,870
Wayne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 ...... 2,205,000 1,897,094
Wilson Memorial Hospital Project, Refunding, AMBAC Insured, 5.625%, 11/01/18 .... 5,000,000 4,790,750
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue,
Refunding, 6.25%, 1/01/17 ....................................................... 6,820,000 6,659,935
Series A, MBIA Insured, 5.00%, 1/01/20 .......................................... 2,000,000 1,717,880
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
North Carolina State Education Assistance Authority Revenue, Guaranteed,
Student Loan, sub. lien,
Series A, 6.05%, 7/01/10 ............................................................. $ 3,310,000 $ 3,319,367
Series A, 6.30%, 7/01/15 ............................................................. 1,500,000 1,507,695
Series C, 6.35%, 7/01/16 ............................................................. 4,500,000 4,502,385
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15 .......... 2,000,000 2,030,940
Pender County COP, Pre-Refunded, 7.70%, 6/01/11 ......................................... 1,195,000 1,262,518
Person County COP, Law Enforcement Center Project, Series 1991, MBIA Insured,
7.125%, 6/01/11 ...................................................................... 2,165,000 2,260,065
Piedmont Triad Airport Authority Airport Revenue, Refunding, Series A, FSA Insured,
6.00%, 7/01/24 ....................................................................... 5,745,000 5,749,078
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12 ......................................................... 750,000 773,145
MBIA Insured, 5.85%, 4/01/17 ......................................................... 5,055,000 5,054,697
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 ......................................................... 8,050,000 8,680,878
Series 1990, Pre-Refunded, 7.25%, 7/01/10 ............................................ 500,000 515,215
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Refunding,
Series R, 7.15%, 7/01/00 ............................................................. 1,250,000 1,261,925
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A,
7.75%, 7/01/08 ....................................................................... 100,000 101,428
7.50%, 7/01/09 ....................................................................... 25,000 25,299
Puerto Rico Electric Power Authority Revenue,
Series P, Pre-Refunded, 7.00%, 7/01/21 ............................................... 1,000,000 1,052,640
Series T, Pre-Refunded, 6.375%, 7/01/24 .............................................. 1,000,000 1,079,550
Series X, Pre-Refunded, 6.125%, 7/01/21 .............................................. 5,000,000 5,375,700
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ..................... 365,000 372,647
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ......... 2,205,000 2,263,499
Puerto Rico Telephone Authority Revenue, Series L, Pre-Refunded,
6.00%, 1/01/12 ....................................................................... 1,885,000 1,929,957
6.125%, 1/01/22 ...................................................................... 1,490,000 1,544,862
Raeford HDC Revenue, First Lien, Yadkin Trail, Refunding, Series A, 6.00%, 7/15/22 ...... 1,405,000 1,403,159
Robeson County Industrial Facilities and PCFA Revenue, Campbell Soup Co. Project,
Refunding, 6.40%, 12/01/06 ........................................................... 1,750,000 1,876,228
Rutherford County COP, Public Facilities Project, FGIC Insured, 6.25%, 6/01/23 .......... 1,850,000 1,872,626
Scotland County COP, Jail/Courthouse Project, FSA Insured, 6.75%, 3/01/11 ............... 1,000,000 1,034,720
Stokes County COP, MBIA Insured, 7.00%, 3/01/06 ......................................... 1,000,000 1,037,810
University of North Carolina at Chapel Hill Revenue, Parking System, Series A,
5.70%, 5/15/27 ....................................................................... 3,000,000 2,883,630
University of North Carolina at Charlotte Revenue, Student Activity Center,
MBIA Insured, 5.50%, 6/01/16 ......................................................... 1,000,000 974,770
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ...................................................................... 2,000,000 1,768,260
5.625%, 10/01/25 ..................................................................... 1,575,000 1,365,588
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Co.,
6.90%, 4/01/09 ....................................................................... 10,000,000 10,213,500
Winston-Salem SFMR, 8.00%, 9/01/07 ...................................................... 235,000 241,216
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 .................. 2,250,000 2,247,323
------------
TOTAL LONG TERM INVESTMENTS (COST $359,532,505) .......................................... 347,722,018
------------
(a) SHORT TERM INVESTMENTS .4%
Buncombe County GO, Weekly VRDN and Put, 3.95%, 6/01/16 .................................. 600,000 600,000
Durham County GO, Weekly VRDN and Put, 3.90%, 5/01/08 .................................... 200,000 200,000
North Carolina Medical Care Commission Hospital Revenue, Pooled Financing Project,
Series A, Daily VRDN and Put, 3.85%, 10/01/16 ........................................ 400,000 400,000
North Carolina Medical Care Common Health Care Facilities Revenue, Methodist Home Project,
Weekly VRDN and Put, 3.90%, 3/01/18 .................................................. 100,000 100,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN
and Put, 2.35%, 12/01/15 ............................................................. 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,500,000) .......................................... 1,500,000
------------
TOTAL INVESTMENTS (COST $361,032,505) 98.7% ............................................. 349,222,018
OTHER ASSETS, LESS LIABILITIES 1.3% ..................................................... 4,455,346
------------
NET ASSETS 100.0% ....................................................................... $353,677,364
============
</TABLE>
See glossary of terms on page 109
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN TEXAS TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.42 $ 11.68 $ 11.37 $ 11.58 $ 11.25
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .58 .60 .62 .66 .67
Net realized and unrealized gains (losses) . (1.16) (.05) .36 -- .34
-----------------------------------------------------------------------------
Total from investment operations ............ (.58) .55 .98 .66 1.01
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.58)(e) (.60)(f) (.63) (.67) (.68)
-----------------------------------------------------------------------------
In excess of net investment income ......... -- -- (.01) -- --
Net realized gains ......................... (.04) (.21) (.03) (.20) --
-----------------------------------------------------------------------------
Total distributions ......................... (.62) (.81) (.67) (.87) (.68)
Net asset value, end of year ................ $ 10.22 $ 11.42 $ 11.68 $ 11.37 $ 11.58
=============================================================================
Total return(b) ............................. (5.21)% 4.86% 8.91% 5.91% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $104,433 $127,739 $130,578 $126,612 $129,702
Ratios to average net assets:
Expenses ................................... .78% .77% .76% .75% .76%
Net investment income ...................... 5.35% 5.17% 5.44% 5.70% 5.86%
Portfolio turnover rate ..................... 20.93% 25.26% 34.52% 35.57% 18.38%
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.57 $ 11.81 $ 11.49 $ 11.68 $ 11.27
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .53 .58 .60 .51
Net realized and unrealized gains (losses) . (1.18) (.03) .35 .02 .40
-----------------------------------------------------------------------------
Total from investment operations ............ (.65) .50 .93 .62 .91
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.52)(e) (.53)(f) (.58)(g) (.61) (.50)
Net realized gains ......................... (.04) (.21) (.03) (.20) --
-----------------------------------------------------------------------------
Total distributions ......................... (.56) (.74) (.61) (.81) (.50)
-----------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.36 $ 11.57 $ 11.81 $ 11.49 $ 11.68
=============================================================================
Total return(b) ............................. (5.77)% 4.40% 8.31% 5.48% 8.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 4,650 $ 5,229 $ 2,076 $ 740 $ 79
Ratios to average net assets:
Expenses ................................... 1.34% 1.33% 1.33% 1.32% 1.33%(c)
Net investment income ...................... 4.79% 4.61% 4.79% 5.03% 5.23%(c)
Portfolio turnover rate ..................... 20.93% 25.26% 34.52% 35.57% 18.38%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.002.
(f) Includes distributions in excess of net investment income in the amount of
$.0005 and $.0003 for Class A and Class C, respectively.
(g) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
Alliance Airport Authority Special Facilities Revenue, American Airlines Inc. ............
Project, 7.00%, 12/01/11 .............................................................. $2,250,000 $2,361,870
Austin Utility System Revenue, Series A,
AMBAC Insured, 6.75%, 11/15/07 ........................................................ 800,000 839,192
Pre-Refunded, 8.00%, 11/15/16 ......................................................... 50,000 52,017
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health
Services, Refunding, FSA Insured, ETM, 6.00%, 11/15/15 ................................ 3,000,000 3,156,240
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24 ................................... 85,000 87,999
Bexar Metropolitan Water District Waterworks Systems Revenue, Refunding, MBIA Insured,
6.35%, 5/01/25 ........................................................................ 1,890,000 1,916,895
Brazos Higher Education Authority Revenue, Student Loan Inc., Refunding,
Series A-2, 6.80%, 12/01/04 ........................................................... 825,000 848,381
Brazos River Authority PCR, Texas Utilities Electric Co. Project, Collateralized,
Refunding, Series C, 5.55%, 6/01/30 ................................................... 3,000,000 2,501,250
Series A, 7.875%, 3/01/21 ............................................................. 500,000 520,465
Brownsville Combined Tax and Revenue, Certificates of Obligation, Series A, FGIC Insured,
5.60%, 2/15/19 ........................................................................ 1,000,000 961,600
Cameron County HFC, Collateralized Mortgage Obligation, Refunding, Series B, FGIC Insured,
7.85%, 3/01/24 ........................................................................ 70,000 72,462
Canadian River Municipal Water Authority Contract Revenue, Conjunctive Use Groundwater,
Refunding, MBIA Insured, 5.625%, 2/15/20 .............................................. 2,000,000 1,895,560
Castleberry ISD, Refunding, 6.00%, 8/15/25 ............................................... 2,000,000 2,042,740
Cimarron MUD, Waterworks and Sewer System Combined Tax and Revenue, Asset Guaranteed,
Pre-Refunded, 7.50%, 3/01/15 .......................................................... 2,275,000 2,275,000
Comal County Health Facilities Development Corp. Revenue, McKenna Memorial Hospital,
Refunding, FHA Insured, 7.375%, 1/15/21 ............................................... 1,650,000 1,698,642
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11 .............. 670,000 698,529
Dallas Civic Center Convention Complex Revenue, senior lien, AMBAC Insured,
Pre-Refunded, 7.00%, 1/01/10 ............................................................. 2,000,000 2,044,100
Dallas HFC, SFMR, GNMA Secured, 7.85%, 12/01/10 .......................................... 95,000 98,029
Dallas-Fort Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines Inc., 8.00%, 11/01/24 ............................................... 1,000,000 1,029,570
American Airlines Inc., 6.375%, 5/01/35 ............................................... 1,000,000 933,290
American Airlines Inc., Refunding, 6.00%, 11/01/14 .................................... 2,000,000 1,937,340
Delta Airlines Inc., 7.625%, 11/01/21 ................................................. 2,000,000 2,072,200
Dallas-Fort Worth Regional Airport Revenue, Joint Dallas-Fort Worth International,
Refunding, MBIA Insured, 5.75%, 11/01/24 .............................................. 1,000,000 944,630
Dallas Housing Corp. Capital Projects Revenue, Section 8, Assisted Projects,
Refunding, 7.70%, 8/01/05 ............................................................. 500,000 509,465
Decatur Hospital Authority Hospital Revenue, Series A, 5.75%, 9/01/29 .................... 4,245,000 3,253,962
Denison Hospital Authority Revenue, Texoma Medical Center Inc. Project, 7.00%, 8/15/14 ... 1,250,000 1,231,000
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 .................................. 335,000 350,822
Fort Worth HFC,
HMR, Refunding, Series A, 8.50%, 10/01/11 ............................................. 585,000 612,062
SFMR, GNMA Secured, 8.25%, 12/01/11 ................................................... 20,000 20,259
Gulf Coast Waste Disposal Authority Revenue,
Champion International Corp., Series A, 6.875%, 12/01/28 .............................. 1,000,000 999,230
Valero Energy Corp. Project, 5.70%, 4/01/32 ........................................... 3,000,000 2,491,560
Harris County Health Facilities Development Corp. Revenue, Hermann Hospital Project,
FSA Insured, Pre-Refunded, 7.00%, 10/01/14 ............................................ 750,000 790,425
Harrison County Health Facilities Development Corp. Hospital Revenue, Marshall Regional
Medical Center Project, 5.50%, 1/01/18 ................................................ 1,750,000 1,609,650
Houston Higher Education Finance Corp. Higher Education Revenue, Rice University Project,
Series A, 5.375%, 11/15/29 ............................................................ 2,500,000 2,254,925
Laredo ISD, GO, Insured, 5.25%, 8/01/24 .................................................. 4,000,000 3,529,480
Leon County PCR, Nucor Corp. Project, Refunding, Series A, 7.375%, 8/01/09 ............... 2,000,000 2,087,160
Lower Colorado River Authority Revenue,
Refunding, Series B, AMBAC Insured, 7.00%, 1/01/11 .................................... 55,000 56,977
Series B, AMBAC Insured, Pre-Refunded, 7.00%, 1/01/11 ................................. 150,000 156,206
Lower Neches Valley Authority IDC Revenue, Mobil Oil Refunding Corp., Refunding,
5.55%, 3/01/33 ........................................................................ 1,500,000 1,321,995
Matagorda County Navigation District No. 1 PCR, Central Power and Light Co. Project,
Refunding, Series E, MBIA Insured, 6.10%, 7/01/28 ..................................... 1,500,000 1,495,830
Mesquite Health Facilities Development Corp. Revenue, Retirement Facility,
Christian Care Centers Inc., Refunding, Series A, 6.40%,
2/15/16 ............................................................................... 1,000,000 933,760
2/15/20 ............................................................................... 2,000,000 1,824,000
Montgomery County Texas GO, Library,
FGIC Insured, Pre-Refunded, 6.75%, 9/01/10 ............................................ 280,000 292,958
FGIC Insured, Pre-Refunded, 6.75%, 9/01/11 ............................................ 295,000 308,653
Refunding, FGIC Insured, 6.75%, 9/01/10 ............................................... 495,000 516,018
Refunding, FGIC Insured, 6.75%, 9/01/11 ............................................... 530,000 552,885
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial
Home Project,
Refunding, 6.30%, 2/15/15 ....................................................... $ 1,530,000 $ 1,419,611
Refunding, 6.375%, 2/15/20 ...................................................... 2,785,000 2,535,353
Series A, 5.375%, 2/15/14 ....................................................... 500,000 413,945
Series A, 5.375%, 2/15/25 ....................................................... 1,000,000 722,860
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project,
Refunding, 5.60%, 1/01/27 ....................................................... 6,000,000 4,730,280
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding,
5.65%, 12/01/22 ................................................................. 2,000,000 1,698,720
Red River Authority PCR, West Texas Utilities Co. Project, Public Service Co. of
Oklahoma, Central Power and Light Co., Refunding, MBIA Insured, 6.00%, 6/01/20 .. 7,000,000 6,974,870
Sabine River Authority PCR,
Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%, 4/01/18 ........ 5,000,000 5,031,350
Texas Utilities Electric Co. Project, Collateralized, Refunding, FGIC Insured,
6.55%, 10/01/22 ................................................................. 1,200,000 1,234,200
Tarrant County Health Facilities Development Corp. Health Systems Revenue,
Harris Methodist Health, FGIC Insured, ETM, 6.00%, 9/01/24 ...................... 4,000,000 3,997,440
Tarrant County Health Facilities Development Corp. Revenue, Bethesda Living Centers,
Series C, 5.75%,
8/15/18 ......................................................................... 1,570,000 1,310,087
8/15/28 ......................................................................... 3,900,000 3,098,043
Texas City IDC, Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding,
7.375%, 10/01/20 ................................................................ 500,000 578,645
Texas Housing Agency Residential Development Mortgage Revenue, Series A,
7.60%, 7/01/16 .................................................................. 1,410,000 1,442,162
Texas State Department of Housing and Community Affairs HMR, Refunding, Series A,
GNMA Secured, 6.95%, 7/01/23 .................................................... 1,420,000 1,472,114
Texas State GO, Veterans Housing Assistance Fund I, Refunding, 6.15%, 12/01/25 ..... 1,000,000 1,000,490
Texas State Higher Education Coordinating Board College Student Loan Revenue,
senior lien, 7.70%, 10/01/25 .................................................... 815,000 833,998
Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge, 7.00%, 1/01/07.. 20,000 20,262
Texas Water Development Board Revenue, State Revolving Fund, senior lien, Series A,
5.75%, 7/15/16 .................................................................. 3,275,000 3,257,577
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 ..................... 2,000,000 1,700,840
University of Texas University Revenues, Financing System, Refunding,
Series A, 7.00%, 8/15/07 ........................................................ 665,000 695,357
Series A, 5.70%, 8/15/20 ........................................................ 1,000,000 964,890
Series B, 6.75%, 8/15/13 ........................................................ 1,300,000 1,349,842
Waco Health Facilities Development Corp. Hospital Revenue, Hillcrest Baptist
Medical Center Project, MBIA Insured, 7.125%, 9/01/14 ........................... 500,000 514,755
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 1,034,900
Wylie ISD, GO,
Pre-Refunded, 7.00%, 8/15/24 .................................................... 660,000 749,285
Refunding, 7.00%, 8/15/24 ....................................................... 340,000 373,474
------------
TOTAL LONG TERM INVESTMENTS (COST $111,945,433) .................................... 107,342,633
------------
(a) SHORT TERM INVESTMENTS .1%
Harris County Health Facilities Development Corp. Hospital Revenue,
Methodist Hospital, Daily VRDN and Put, 3.80%, 12/01/26 (COST $100,000) ........... 100,000 100,000
------------
TOTAL INVESTMENTS (COST $112,045,433) 98.5% ........................................ 107,442,633
OTHER ASSETS, LESS LIABILITIES 1.5% ................................................ 1,639,654
------------
NET ASSETS 100.0% ................................................................. $109,082,287
============
</TABLE>
See glossary of terms on page 109.
(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 specific dates.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-------------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.88 $ 11.88 $ 11.65 $ 11.72 $ 11.33
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .60 .62 .65 .66
Net realized and unrealized gains (losses) . (1.09) .03 .35 (.07) .38
-------------------------------------------------------------------------------
Total from investment operations ............ (.50) .63 .97 .58 1.04
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.59)(e) (.60)(f) (.64) (.64) (.65)
Net realized gains ......................... -- (.03) (.10) (.01) --
-------------------------------------------------------------------------------
Total distributions ......................... (.59) (.63) (.74) (.65) (.65)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.79 $ 11.88 $ 11.88 $ 11.65 $ 11.72
===============================================================================
Total return(b) ............................. (4.31)% 5.40% 8.53% 5.15% 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $327,235 $379,670 $332,199 $287,172 $271,396
Ratios to average net assets:
Expenses ................................... .68% .68% .69% .69% .69%
Net investment income ...................... 5.19% 4.98% 5.29% 5.56% 5.66%
Portfolio turnover rate ..................... 22.53% 8.90% 12.90% 19.25% 12.72%
CLASS C
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.95 $ 11.95 $ 11.71 $ 11.77 $ 11.35
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .53 .57 .58 .49
Net realized and unrealized gains (losses) . (1.09) .03 .34 (.05) .41
-------------------------------------------------------------------------------
Total from investment operations ............ (.56) .56 .91 .53 .90
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.53)(e) (.53)(f) (.57) (.58) (.48)
Net realized gains ......................... -- (.03) (.10) (.01) --
-------------------------------------------------------------------------------
Total distributions ......................... (.53) (.56) (.67) (.59) (.48)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.86 $ 11.95 $ 11.95 $ 11.71 $ 11.77
===============================================================================
Total return(b) ............................. (4.82)% 4.78% 7.97% 4.61% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $21,454 $22,796 $13,186 $ 6,674 $ 2,050
Ratios to average net assets:
Expenses ................................... 1.23% 1.24% 1.25% 1.25% 1.26%(c)
Net investment income ...................... 4.64% 4.42% 4.72% 4.94% 5.06%(c)
Portfolio turnover rate ..................... 22.53% 8.90% 12.90% 19.25% 12.72%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(e) Includes distributions in excess of net investment income in the amount of
$.0004 and $.0003 for Class A and C respectively.
(f) 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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.2%
<S> <C> <C>
Abingdon IDA, Hospital Facilities Revenue, Johnston Memorial Hospital, Refunding, 5.375%, 7/01/28 $ 5,000,000 $ 4,116,050
Albermarle County IDAR,
Martha Jefferson Hospital, Refunding, 5.875%, 10/01/13 ........................................ 5,000,000 4,825,350
University of Virginia Health Services Foundation, Pre-Refunded, 6.50%, 10/01/22 .............. 1,125,000 1,189,024
Alexandria IDA, Educational Facilities Revenue, Episcopal High School, 5.875%, 1/01/29 ........... 2,500,000 2,353,000
Arlington County GO, Pre-Refunded, 6.00%, 8/01/13 ................................................ 2,085,000 2,205,159
Arlington County IDA, Hospital Facilities Revenue, Arlington Hospital, Series A, Pre-Refunded,
7.125%, 9/01/21 .............................................................................. 2,000,000 2,108,000
Augusta County IDAR, Augusta Hospital Corp. Project,
AMBAC Insured, Pre-Refunded, 6.625%, 9/01/12 .................................................. 1,000,000 1,046,870
Pre-Refunded, 7.00%, 9/01/21 .................................................................. 2,000,000 2,101,460
Augusta County Virginia Service Authority Water and Sewer Revenue, MBIA Insured, 5.00%, 11/01/24 . 2,400,000 2,054,472
Bedford County IDA, IDR, Nekoosa Packaging Corp. Project, Refunding,
5.60%, 12/01/25 ............................................................................... 11,000,000 9,404,560
6.30%, 12/01/25 ............................................................................... 2,000,000 1,909,280
Series A, 6.55%, 12/01/25 ..................................................................... 5,000,000 4,926,000
Chesapeake Hospital Authority Facilities Revenue, Chesapeake General Hospital, 8.20%, 7/01/05 .... 2,500,000 2,569,725
Chesapeake IDA,
Nursing Home Revenue, Sentara Life Care Corp. Project, 8.00%, 11/01/17 ........................ 220,000 224,466
Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured, 6.00%, 6/01/12 ........ 3,940,000 4,063,519
Chesapeake Toll Road Revenue, Expressway, Series A, 5.625%,
7/15/19 ....................................................................................... 2,000,000 1,864,800
7/15/32 ....................................................................................... 8,000,000 7,126,880
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 6.65%, 9/01/18 ........... 5,000,000 5,113,400
Danville COP, Social Services, Pre-Refunded, 7.625%, 4/01/13 ..................................... 2,000,000 2,106,320
Danville GO, Series 1991, Pre-Refunded, 6.75%,
2/01/10 ....................................................................................... 655,000 681,757
2/01/11 ....................................................................................... 705,000 733,799
Danville IDA,
Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded, 6.50%, 10/01/24 5,000,000 5,355,850
Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 ......................... 500,000 499,995
Fairfax County EDA, Parking Revenue, Huntington Metrorail, Pre-Refunded, 7.00%, 9/01/10 .......... 1,000,000 1,033,650
Fairfax County EDA Revenue, National Wildlife Federation, MBIA Insured, 5.375%, 9/01/29 .......... 8,000,000 7,190,640
Fairfax County IDAR, Health Care, Inova Health System Project,
6.00%, 8/15/26 ................................................................................ 5,000,000 4,845,350
Refunding, Series A, 5.00%, 8/15/25 ........................................................... 5,000,000 4,189,250
Fairfax County Redevelopment and Housing Authority MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27 ......................................... 4,700,000 4,792,966
Paul Spring Center, Refunding, Series A, FHA Insured, 5.90%, 6/15/17 .......................... 1,000,000 990,290
Paul Spring Center, Refunding, Series A, FHA Insured, 6.00%, 12/15/28 ......................... 1,000,000 973,190
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 ...................................... 6,500,000 6,389,370
Frederick County IDA, Lease Revenue, Government Complex Facilities Project, MBIA Insured,
6.50%, 12/01/09 .............................................................................. 2,040,000 2,169,581
Fredericksburg IDA, Hospital Facilities Revenue, Medicorp Health System Obligation,
Refunding, AMBAC Insured, 5.25%,
6/15/16 ....................................................................................... 1,860,000 1,741,797
6/15/23 ....................................................................................... 10,000,000 8,847,700
Front Royal and Warren County IDAR, Mortgage, Heritage Hall No. 13, Refunding, FHA Insured,
8.25%, 7/15/05 ............................................................................... 20,000 20,250
Goochland County IDA, IDR, Nekoosa Packaging Corp., Refunding, 5.65%, 12/01/25 ................... 5,500,000 4,777,300
Greater Richmond Convention Center Authority Hotel Tax Revenue, Convention Center
Expansion Project,
6.875%, 6/15/29 ............................................................................... 7,980,000 7,941,376
6.25%, 6/15/32 ................................................................................ 8,175,000 8,215,793
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 ......................................................... 830,000 860,810
Series A, 6.50%, 10/01/23 ..................................................................... 1,000,000 1,038,190
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric Cooperative Project,
6.50%, 12/01/12 .............................................................................. 3,000,000 3,085,680
Hampton Redevelopment and Housing Authority Senior Living Association Revenue, Refunding,
Series A, GNMA Secured,
6.00%, 1/20/26 ................................................................................... 1,060,000 1,051,658
Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16 ............. 1,500,000 1,556,760
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA Insured,
5.00%, 7/01/28 ............................................................................... 10,000,000 8,442,000
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26 ...................... 4,175,000 3,686,066
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Henrico County IDAR, Solid Waste, Browning-Ferris Industries, South Atlantic Inc.,
Series A, 5.875%, 3/01/17 ................................................... $1,000,000 $ 852,140
Henry County IDA, Hospital Revenue, Memorial Hospital of Martinsville and Henry,
Refunding, 6.00%, 1/01/27 .................................................... 1,250,000 1,174,000
Leesburg Utilities System Revenue, Refunding, MBIA Insured, 5.125%, 7/01/22 ...... 3,750,000 3,298,688
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured,
5.80%, 6/01/26 ............................................................... 3,000,000 2,917,020
Loudoun County Sanitation Authority Water and Sewer Revenue,
Refunding, FGIC Insured, 5.125%, 1/01/26 ...................................... 3,795,000 3,290,075
Refunding, FGIC Insured, 5.125%, 1/01/30 ...................................... 5,250,000 4,505,498
Series 96, FGIC Insured, 5.25%, 1/01/26 ....................................... 6,500,000 5,777,850
Series 96, FGIC Insured, 5.25%, 1/01/30 ....................................... 1,000,000 875,140
Lynchburg IDA, Healthcare Facilities Revenue, Centra Health, Refunding,
5.20%, 1/01/28 ............................................................... 8,000,000 6,686,960
Lynchburg Redevelopment and Housing Authority Revenue, Waldon Pond III,
Refunding, Series A, GNMA Secured, 6.20%, 7/20/27 ............................ 1,000,000 1,009,880
Mecklenburg County IDAR, Exempt Facility, Series A, 7.35%, 5/01/08 ............... 4,500,000 4,642,470
Metropolitan Washington D.C. Airports Authority General Airport Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 10/01/27 ............................ 5,000,000 4,171,500
Series A, 7.60%, 10/01/14 ..................................................... 1,000,000 1,033,600
Series A, 5.375%, 10/01/23 .................................................... 3,985,000 3,621,409
Series B, 5.75%, 10/01/20 ..................................................... 6,000,000 5,701,500
Middlesex County IDA, Lease Revenue, School Facilities Project, MBIA Insured,
5.875%, 8/01/21 ............................................................... 1,420,000 1,391,969
6.10%, 8/01/26 ................................................................ 1,725,000 1,724,879
Newport News IDA, Mortgage Revenue, Mennowood Communities Inc., Series A,
GNMA Secured, 6.25%, 8/01/36 ................................................. 2,990,000 3,027,943
Newport News Redevelopment and Housing Authority Revenue, Refunding, Series A,
GNMA Secured, 5.85%, 12/20/30 ................................................ 4,060,000 3,892,200
Norfolk IDAR,
Children's Hospital of the Kings' Group Inc., AMBAC Insured, Pre-Refunded,
7.00%, 6/01/11 ............................................................... 3,000,000 3,146,280
Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26 ....... 3,000,000 2,635,170
Medical Center Hospital Project, Series A, 7.00%, 11/01/07 .................... 20,000 20,032
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27 ..................... 4,475,000 4,168,060
Norfolk Water Revenue, MBIA Insured, 5.90%, 11/01/25 ............................. 5,900,000 5,822,651
Northern Virginia Transportation District Commission Commuter Rail Revenue,
Railway Express Project, FSA Insured, Pre-Refunded, 7.00%, 7/01/05 .......... 360,000 370,483
Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 7/15/11 ........ 1,000,000 1,044,180
Peninsula Ports Authority Coal Terminal Revenue, Coal Terminal Association
Project, Refunding, 7.375%, 6/01/20 .......................................... 5,480,000 5,644,400
Peninsula Ports Authority Health System Revenue, Riverside Health System
Project, Series A, Pre-Refunded, 6.625%, 7/01/18.............................. 6,000,000 6,344,040
Peninsula Ports Authority Hospital Facilities Revenue, Whittaker Memorial
Hospital Project, Refunding, FHA Insured, 8.70%, 8/01/23 ..................... 50,000 54,041
Prince William County Service Authority Water and Sewer Systems Revenue,
FGIC Insured, 5.50%, 7/01/29 ................................................. 5,000,000 4,611,300
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 ........................................ 1,000,000 1,033,010
Series Y, 5.50%, 7/01/36 ...................................................... 2,000,000 1,822,560
Series Y, Pre-Refunded, 6.00%, 7/01/22 ........................................ 2,000,000 2,125,780
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax
Revenue, Series A,
7.90%, 7/01/07 ................................................................ 100,000 101,230
7.75%, 7/01/08 ................................................................ 350,000 354,998
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Z, 5.25%, 7/01/21 ........................................... 1,500,000 1,340,670
Series P, Pre-Refunded, 7.00%, 7/01/21 ........................................ 1,500,000 1,578,960
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22..................................... 2,055,000 2,098,052
Sixth Portfolio, Section 8, Assisted Project, FHA Mortgage Insured,
Pre-Refunded, 7.75%, 12/01/26 ................................................. 20,000 22,940
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 .. 40,000 41,104
Richmond GO, Refunding and Improvement, Series A, FSA Insured, 5.125%, 1/15/24 ... 2,000,000 1,758,640
Richmond Metropolitan Authority Expressway Revenue,
Refunding, Series B, FGIC Insured, 6.25%, 7/15/22 ............................. 5,000,000 5,091,050
Series A, FGIC Insured, Pre-Refunded, 6.375%, 7/15/16 ......................... 2,500,000 2,633,925
South Boston IDAR, Halifax Community Hospital Inc. Project, 7.375%, 9/01/11 ...... 4,250,000 4,488,340
Spotsylvania County Water and Sewer System Revenue, MBIA Insured,
5.25%, 6/01/22 ................................................................ 6,500,000 5,853,445
5.40%, 6/01/27 ................................................................ 7,800,000 7,107,126
Staunton IDA, Facilities Revenue, Mary Baldwin College, Series B,
Pre-Refunded, 8.00%, 11/01/17 ................................................ 820,000 864,247
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Tazewell County IDA, Lease Revenue, Courthouse Project, MBIA Insured, 5.30%, 1/01/27 $ 500,000 $ 449,280
University of Virginia Revenue, Refunding, Series A, 5.00%, 6/01/24 ................. 3,000,000 2,587,590
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ......................................................................... 1,500,000 1,362,540
10/01/18 ......................................................................... 1,500,000 1,326,195
Virginia College Building Authority Educational Facilities Revenue,
(b) Hampton University Project, 6.00%, 4/01/20 ..................................... 1,500,000 1,499,910
Marymount University Project, Pre-Refunded, 7.00%, 7/01/22 ....................... 1,750,000 1,862,630
Washington and Lee University, 5.75%, 1/01/19 .................................... 50,000 49,261
Virginia State HDA,
Commonwealth Mortgage, Series A, 7.10%, 1/01/17 .................................. 1,000,000 1,025,010
Commonwealth Mortgage, Series A, 7.15%, 1/01/33 .................................. 4,440,000 4,555,440
Commonwealth Mortgage, Series A, Sub Series A-1, 8.10%, 1/01/17 .................. 5,000 5,004
Commonwealth Mortgage, Series B, Sub Series B-3, 7.375%, 7/01/17 ................. 45,000 45,724
Commonwealth Mortgage, Series C, Sub Series C-3, 6.00%, 1/01/17 .................. 2,000,000 2,005,000
Commonwealth Mortgage, Series D, Sub Series D-1, 6.40%, 7/01/17 .................. 2,300,000 2,358,052
Commonwealth Mortgage, Series D, Sub Series D-2, 7.35%, 7/01/17 .................. 155,000 155,552
MFH, Series C, 5.30%, 11/01/16 ................................................... 2,830,000 2,650,097
MFH, Series F, 7.10%, 5/01/13 .................................................... 9,000,000 9,291,690
MFH, Series H, 5.55%, 5/01/15 .................................................... 1,000,000 955,080
Rental Housing, Series J, 5.80%, 2/01/19 ......................................... 2,000,000 1,926,580
Rental Housing, Series L, 5.75%, 2/01/15 ......................................... 1,000,000 979,380
Virginia State Resources Authority Water and Sewer System Revenue,
Pooled Loan Program, Series A, ETM, 7.35%, 11/01/16 .............................. 45,000 45,159
Pooled Loan Program, Series A, ETM, 7.45%, 11/01/16 .............................. 10,000 10,035
Rapidan Service Authority, Refunding, 5.30%, 10/01/18 ............................ 1,610,000 1,494,917
Virginia State Resources Authority Water System Revenue, Refunding, Series A,
6.125%, 4/01/19 ................................................................. 1,000,000 1,003,890
Virginia State Transportation Board Transportation Contract Revenue, U.S. Route 28
Project, Refunding, 6.50%, 4/01/18 .............................................. 9,000,000 9,287,820
Washington County IDA,
College Facilities Revenue, Emory and Henry College Project, 6.375%, 4/01/23 ..... 3,295,000 3,298,328
Hospital Facilities Revenue, First Mortgage, Johnston Memorial Hospital,
Pre-Refunded, 7.00%, 7/01/22 .................................................... 3,000,000 3,196,500
West Point IDA, Solid Waste Disposal Revenue, Chesapeake Corp. Project, Refunding,
Series B, 6.25%, 3/01/19 ........................................................ 5,450,000 5,029,478
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University
Project, Asset Guaranteed, 6.80%, 10/01/24 ...................................... 185,000 196,873
Pre-Refunded, 6.80%, 10/01/24 .................................................... 1,000,000 1,091,320
York County Sewer Revenue, 5.875%,
6/01/24 .......................................................................... 500,000 494,530
6/01/29 .......................................................................... 1,500,000 1,472,100
------------
TOTAL LONG TERM INVESTMENTS (COST $356,927,115) ..................................... 345,901,803
------------
(a) SHORT TERM INVESTMENTS .1%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.35%, 12/01/15
(COST $200,000) ..................................................................... 200,000 200,000
------------
TOTAL INVESTMENTS (COST $357,127,115) 99.3% ......................................... 346,101,803
OTHER ASSETS, LESS LIABILITIES .7% .................................................. 2,587,295
------------
NET ASSETS 100.0% ................................................................... $348,689,098
------------
</TABLE>
See glossary of terms on page 109.
(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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
GLOSSARY OF TERMS
ACES - Adjustable Convertible Exempt Securities
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989
and no longer does business under this name).
CDA - Community Development Authority/Agency
CDAR - Community Development Authority Revenue
CDD - Community Development District
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
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
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
IDC - Industrial Development Corp.
IDR - Industrial Development Revenue
ISD - Independent School District
LLC - Limited Liability Corporation
LP - Limited Partnership
MAC - Municipal Assistance Corporation
MBIA - Municipal Bond Investors Assurance Corp.
MF - Multi-Family
MFH - Multi-Family Housing
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
SFM - Single Family Mortgage
SFHR - Single Family Housing Revenue
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VRDN - Variable Rate Demand Notes
WTS. - Warrants
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY
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 ................................................. $ 225,982,925 $ 1,626,937,639 $169,225,273 $65,754,789
====================================================================
Value ................................................ 214,696,542 1,610,064,936 164,723,744 63,115,586
Cash ................................................ 48,687 1,975,850 -- 26,477
Receivables:
Investment securities sold .......................... -- 470,760 -- --
Capital shares sold ................................. 51,399 1,012,611 73,333 203,622
Interest ............................................ 3,727,960 27,639,200 2,713,370 995,138
--------------------------------------------------------------------
Total assets ..................................... 218,524,588 1,641,163,357 167,510,447 64,340,823
--------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ...................... -- 48,273,389 -- --
Capital shares redeemed .............................. 567,688 6,578,260 501,186 223,424
Affiliates ........................................... 136,590 855,580 111,295 21,862
Shareholders ......................................... 126,163 763,644 76,031 17,999
Distributions to shareholders ....................... 363,762 2,575,752 284,098 103,714
Funds advanced by custodian ......................... -- -- 42,123 --
Other liabilities ................................... 17,882 53,478 15,023 9,478
--------------------------------------------------------------------
Total liabilities ................................ 1,212,085 59,100,103 1,029,756 376,477
--------------------------------------------------------------------
Net assets, at value ............................. $ 217,312,503 $ 1,582,063,254 $166,480,691 $63,964,346
====================================================================
Net assets consist of:
Accumulated distributions in excess of net
investment income .................................. $ (45,732) $ (711,559) $ (180,263) $ (53,893)
Net unrealized depreciation ......................... (11,286,383) (16,872,703) (4,501,529) (2,639,203)
Accumulated net realized loss ....................... (1,941,746) (16,458,672) (2,138,833) (1,126,595)
Capital shares ...................................... 230,586,364 1,616,106,188 173,301,316 67,784,037
--------------------------------------------------------------------
Net assets, at value ................................ $ 217,312,503 $ 1,582,063,254 $166,480,691 $63,964,346
====================================================================
CLASS A:
Net assets, at value ................................ $ 203,256,171 $ 1,509,624,347 $151,669,782 $63,964,346
====================================================================
Shares outstanding .................................. 19,133,311 138,687,925 13,756,183 6,136,727
====================================================================
Net asset value per share* .......................... $ 10.62 $ 10.89 $ 11.03 $ 10.42
====================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ................ $ 11.09 $ 11.37 $ 11.52 $ 10.88
====================================================================
CLASS B:
Net assets, at value ................................ -- $ 303,568 -- --
====================================================================
Shares outstanding .................................. -- 27,846 -- --
====================================================================
Net asset value and maximum offering price per share* -- $ 10.90 -- --
====================================================================
CLASS C:
Net assets, at value ................................ $ 14,056,332 $ 72,135,339 $ 14,810,909 --
====================================================================
Shares outstanding .................................. 1,315,805 6,569,340 1,334,715 --
====================================================================
Net asset value per share* .......................... $ 10.68 $ 10.98 $ 11.10 --
====================================================================
Maximum offering price per share
(net asset value per share / 99%) ................... $ 10.79 $ 11.09 $ 11.21 --
====================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
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 .................................... $ 158,939,552 $ 243,219,553 $ 392,775,487 $ 361,032,505
==============================================================================
Value ................................... 152,830,300 234,724,029 375,519,846 349,222,018
Cash .................................... 79,766 104,901 161,365 87,162
Receivables:
Investment securities sold .............. -- 464,822 -- --
Capital shares sold ..................... 49,773 299,976 122,200 199,942
Interest ................................ 2,796,593 3,858,522 6,456,689 6,039,867
------------------------------------------------------------------------------
Total assets .......................... 155,756,432 239,452,250 382,260,100 355,548,989
==============================================================================
Liabilities:
Payables:
Investment securities purchased ......... -- -- 10,526,119 --
Capital shares redeemed ................. 308,295 340,621 394,036 950,747
Affiliates .............................. 101,081 155,460 228,736 221,758
Shareholders ............................ 49,850 96,612 314,370 120,135
Distributions to shareholders ........... 251,923 368,245 588,492 554,209
Other liabilities ........................ 15,802 17,367 22,634 24,776
------------------------------------------------------------------------------
Total liabilities ..................... 726,951 978,305 12,074,387 1,871,625
------------------------------------------------------------------------------
Net assets, at value .................. $ 155,029,481 $ 238,473,945 $ 370,185,713 $ 353,677,364
------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ...... $ -- $ -- $ 15,520 $ 88,692
Accumulated distributions in excess of net
investment income .................. (142,213) (19,286) -- --
Net unrealized depreciation .............. (6,109,252) (8,495,524) (17,255,641) (11,810,487)
Accumulated net realized loss ............ (1,702,168) (1,257,750) (1,295,524) (5,044,180)
Capital shares ........................... 162,983,114 248,246,505 388,721,358 370,443,339
------------------------------------------------------------------------------
Net assets, at value .................. $ 155,029,481 $ 238,473,945 $ 370,185,713 $ 353,677,364
==============================================================================
CLASS A:
Net assets, at value ..................... $ 144,299,284 $ 221,175,662 $ 346,648,613 $ 315,100,690
==============================================================================
Shares outstanding ....................... 13,675,987 20,806,924 31,464,686 28,531,770
==============================================================================
Net asset value per share* ............... $ 10.55 $ 10.63 $ 11.02 $ 11.04
==============================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ..... $ 11.02 $ 11.10 $ 11.51 $ 11.53
==============================================================================
CLASS C:
Net assets, at value ..................... $ 10,730,197 $ 17,298,283 $ 23,537,100 $ 38,576,674
==============================================================================
Shares outstanding ....................... 1,010,271 1,613,543 2,127,741 3,469,419
==============================================================================
Net asset value per share* ............... $ 10.62 $ 10.72 $ 11.06 $ 11.12
==============================================================================
Maximum offering price per share
(net asset value per share / 99%) ....... $ 10.73 $ 10.83 $ 11.17 $ 11.23
==============================================================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND
--------------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost ................................................................. $ 112,045,433 $ 357,127,115
====================================
Value ................................................................ 107,442,633 346,101,803
Cash ................................................................. 374,157 93,929
Receivables:
Investment securities sold ........................................... -- 7,974,308
Capital shares sold .................................................. 39,422 242,827
Interest ............................................................. 1,766,426 5,455,776
------------------------------------
Total assets ....................................................... 109,622,638 359,868,643
------------------------------------
Liabilities:
Payables:
Investment securities purchased ...................................... -- 9,470,038
Capital shares redeemed .............................................. 237,048 794,984
Affiliates ........................................................... 74,269 213,622
Shareholders ......................................................... 36,400 130,425
Distributions to shareholders ........................................ 180,370 551,536
Other liabilities .................................................... 12,264 18,940
------------------------------------
Total liabilities .................................................. 540,351 11,179,545
------------------------------------
Net assets, at value ............................................... $ 109,082,287 $ 348,689,098
====================================
Net assets consist of:
Accumulated distributions in excess of net investment income .......... $ (159,067) $ (32,774)
Net unrealized depreciation ........................................... (4,602,800) (11,025,312)
Accumulated net realized loss ......................................... (1,122,896) (3,776,718)
Capital shares ........................................................ 114,967,050 363,523,902
------------------------------------
Net assets, at value .................................................. $ 109,082,287 $ 348,689,098
====================================
CLASS A:
Net assets, at value .................................................. $ 104,432,781 $ 327,235,278
====================================
Shares outstanding .................................................... 10,220,510 30,339,821
====================================
Net asset value per share* ............................................ $ 10.22 $ 10.79
====================================
Maximum offering price per share (net asset value per share / 95.75%).. $ 10.67 $ 11.27
====================================
CLASS C:
Net assets, at value .................................................. $ 4,649,506 $ 21,453,820
====================================
Shares outstanding .................................................... 448,994 1,975,005
====================================
Net asset value per share* ............................................ $ 10.36 $ 10.86
====================================
Maximum offering price per share (net asset value per share / 99%) .... $ 10.46 $ 10.97
====================================
</TABLE>
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................... $ 14,880,186 $ 104,530,744 $ 10,412,014 $ 3,804,565
----------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 1,322,835 8,076,283 1,008,098 412,900
Distribution fees (Note 3)
Class A ........................................... 219,495 1,594,536 159,306 66,015
Class B ........................................... -- 100 -- --
Class C ........................................... 101,358 526,967 114,527 --
Transfer agent fees (Note 3) ...................... 97,536 588,410 86,804 28,236
Custodian fees .................................... 2,429 17,840 1,769 693
Reports to shareholders ........................... 23,941 153,368 16,899 5,755
Registration and filing fees ...................... 12,728 58,610 10,566 3,650
Professional fees ................................. 8,574 37,325 7,208 5,242
Trustees' fees and expenses ....................... 2,392 17,356 1,756 654
Other ............................................. 20,723 77,346 16,838 8,958
----------------------------------------------------------------------
Total expenses ................................. 1,812,011 11,148,141 1,423,771 532,103
Expenses waived/paid by affiliate (Note 3) ..... -- -- -- (235,194)
----------------------------------------------------------------------
Net expenses ................................. 1,812,011 11,148,141 1,423,771 296,909
----------------------------------------------------------------------
Net investment income ...................... 13,068,175 93,382,603 8,988,243 3,507,656
----------------------------------------------------------------------
Realized and unrealized losses:
Net realized loss from investments ................ (1,941,746) (16,458,672) (2,138,833) (284,008)
Net unrealized depreciation on investments ........ (21,033,255) (142,566,112) (13,879,003) (6,088,136)
----------------------------------------------------------------------
Net realized and unrealized loss ................... (22,975,001) (159,024,784) (16,017,836) (6,372,144)
----------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (9,906,826) $ (65,642,181) $ (7,029,593) $ (2,864,488)
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................... $ 9,937,228 $ 15,201,174 $ 23,371,403 $ 22,418,627
-------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 946,909 1,424,210 2,044,766 1,968,656
Distribution fees (Note 3)
Class A ........................................... 149,922 241,085 367,512 330,237
Class C ........................................... 75,358 118,394 154,685 264,937
Transfer agent fees (Note 3) ...................... 61,611 135,643 185,811 162,186
Custodian fees .................................... 1,659 2,668 4,105 3,960
Reports to shareholders ........................... 12,643 27,044 36,561 34,884
Registration and filing fees ...................... 11,066 16,165 30,342 22,209
Professional fees ................................. 7,241 8,978 11,590 11,236
Trustees' fees and expenses ....................... 1,635 2,602 3,967 3,798
Other ............................................. 14,645 18,860 27,870 27,835
-------------------------------------------------------------------------
Total expenses ................................. 1,282,689 1,995,649 2,867,209 2,829,938
-------------------------------------------------------------------------
Net investment income ........................ 8,654,539 13,205,525 20,504,194 19,588,689
-------------------------------------------------------------------------
Realized and unrealized losses:
Net realized loss from investments ................ (736,633) (1,257,750) (1,294,847) (4,497,133)
Net unrealized depreciation on investments ........ (14,692,161) (22,644,506) (38,852,616) (32,761,195)
-------------------------------------------------------------------------
Net realized and unrealized loss ................... (15,428,794) (23,902,256) (40,147,463) (37,258,328)
-------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (6,774,255) $(10,696,731) $(19,643,269) $(17,669,639)
=========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND
-----------------------------------------
<S> <C> <C>
Investment income:
Interest ................................................................... $ 7,516,587 $ 22,553,331
--------------------------------------
Expenses:
Management fees (Note 3) ................................................... 733,060 1,969,003
Distribution fees (Note 3)
Class A .................................................................... 104,439 349,821
Class C .................................................................... 31,728 150,717
Transfer agent fees (Note 3) ............................................... 60,224 176,905
Custodian fees ............................................................. 1,266 3,786
Reports to shareholders .................................................... 12,827 35,390
Registration and filing fees ............................................... 13,083 19,422
Professional fees .......................................................... 6,350 11,293
Trustees' fees and expenses ................................................ 1,189 3,811
Other ...................................................................... 22,079 24,602
--------------------------------------
Total expenses .......................................................... 986,245 2,744,750
--------------------------------------
Net investment income ................................................. 6,530,342 19,808,581
--------------------------------------
Realized and unrealized losses:
Net realized loss from investments ......................................... (1,122,896) (3,765,083)
Net unrealized depreciation on investments ................................. (12,032,853) (33,598,028)
--------------------------------------
Net realized and unrealized loss ............................................ (13,155,749) (37,363,111)
--------------------------------------
Net decrease in net assets resulting from operations ........................ $ (6,625,407) $(17,554,530)
======================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................ $ 13,068,175 $ 12,470,697 $ 93,382,603 $ 91,429,588
Net realized gain (loss) from investments .................... (1,941,746) 818,129 (16,458,672) 2,085,930
Net unrealized appreciation (depreciation) on investments .... (21,033,255) (5,618,719) (142,566,112) 5,208,364
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations ................................................ (9,906,826) 7,670,107 (65,642,181) 98,723,882
Distributions to shareholders from:
Net investment income:
Class A .................................................... (12,239,187) (11,939,099) (88,822,812) (88,302,683)
Class B .................................................... -- -- (671) --
Class C .................................................... (756,383) (559,627) (3,823,746) (3,126,905)
In excess of net investment income:
Class A .................................................... -- (113,035) -- (71,693)
Class C .................................................... -- (5,302) -- (2,539)
Net realized gains:
Class A .................................................... (148,882) (917,072) (135,167) (1,175,768)
Class C .................................................... (10,265) (51,296) (6,472) (52,335)
-----------------------------------------------------------------
Total distributions to shareholders .......................... (13,154,717) (13,585,431) (92,788,868) (92,731,923)
Capital share transactions: (Note 2)
Class A .................................................... (13,868,546) 27,324,497 (125,007,930) 129,875,026
Class B .................................................... -- -- 302,068 --
Class C .................................................... 677,121 5,704,773 (3,115,486) 26,353,188
-----------------------------------------------------------------
Total capital share transactions ............................. (13,191,425) 33,029,270 (127,821,348) 156,228,214
Net increase (decrease) in net assets ...................... (36,252,968) 27,113,946 (286,252,397) 162,220,173
Net assets:
Beginning of year ............................................ 253,565,471 226,451,525 1,868,315,651 1,706,095,478
-----------------------------------------------------------------
End of year .................................................. $217,312,503 $253,565,471 $1,582,063,254 $1,868,315,651
=================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of year ................................................. $ (45,732) $ (118,337) $ (711,559) $ (1,446,933)
=================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 8,988,243 $ 8,518,942 $ 3,507,656 $ 3,066,223
Net realized gain (loss) from investments ................... (2,138,833) 628,282 (284,008) 77,954
Net unrealized appreciation (depreciation) on investments ... (13,879,003) (506,735) (6,088,136) 73,621
-------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (7,029,593) 8,640,489 (2,864,488) 3,217,798
Distributions to shareholders from:
Net investment income:
Class A .................................................... (8,186,323) (7,931,954) (3,507,656) (3,089,344)
Class C .................................................... (801,920) (586,988) -- --
In excess of net investment income:
Class A .................................................... (100,850) (51,167) (34,103) (19,790)
Class C .................................................... (9,879) (3,786) -- --
Net realized gains:
Class A .................................................... (23,508) (739,309) -- --
Class C .................................................... (3,091) (67,075) -- --
-------------------------------------------------------------
Total distributions to shareholders .......................... (9,125,571) (9,380,279) (3,541,759) (3,109,134)
Capital share transactions: (Note 2)
Class A .................................................... 1,509,896 15,711,376 5,854,989 10,196,210
Class C .................................................... (820,507) 8,225,919 -- --
-------------------------------------------------------------
Total capital share transactions ............................. 689,389 23,937,295 5,854,989 10,196,210
Net increase (decrease) in net assets ................... (15,465,775) 23,197,505 (551,258) 10,304,874
Net assets:
Beginning of year ............................................ 181,946,466 158,748,961 64,515,604 54,210,730
-------------------------------------------------------------
End of year .................................................. $166,480,691 $181,946,466 $63,964,346 $64,515,604
-------------------------------------------------------------
Accumulated distributions in excess of net investment
income included in net assets:
End of year ................................................. $ (180,263) $ (69,534) $ (53,893) $ (19,790)
-------------------------------------------------------------
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 8,654,539 $ 7,936,886 $ 13,205,525 $ 12,055,275
Net realized gain (loss) from investments ................... (736,633) 488,946 (1,257,750) 1,358,390
Net unrealized depreciation on investments .................. (14,692,161) (690,249) (22,644,506) (76,966)
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,774,255) 7,735,583 (10,696,731) 13,336,699
Distributions to shareholders from:
Net investment income:
Class A .................................................... (8,110,734) (7,761,641) (12,280,580) (11,448,258)
Class C .................................................... (543,805) (350,878) (811,996) (607,017)
In excess of net investment income:
Class A .................................................... (125,703) (7,732) -- (84,177)
Class C .................................................... (8,428) (350) -- (4,463)
Net realized gains:
Class A .................................................... -- -- (671,937) (871,879)
Class C .................................................... -- -- (49,584) (56,008)
----------------------------------------------------------------
Total distributions to shareholders .......................... (8,788,670) (8,120,601) (13,814,097) (13,071,802)
Capital share transactions: (Note 2)
Class A .................................................... 651,808 23,548,340 (9,036,275) 39,756,722
Class C .................................................... 1,859,055 5,527,638 2,181,571 6,298,607
----------------------------------------------------------------
Total capital share transactions ............................. 2,510,863 29,075,978 (6,854,704) 46,055,329
Net increase (decrease) in net assets ..................... (13,052,062) 28,690,960 (31,365,532) 46,320,226
Net assets:
Beginning of year ............................................ 168,081,543 139,390,583 269,839,477 223,519,251
----------------------------------------------------------------
End of year .................................................. $155,029,481 $168,081,543 $ 238,473,945 $269,839,477
================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of year ................................................ $ (142,213) $ (8,082) $ (19,286) $ (132,235)
================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 20,504,194 $ 17,579,385 $ 19,588,689 $ 17,127,841
Net realized gain (loss) from investments ................... (1,294,847) 490,267 (4,497,133) 832,636
Net unrealized appreciation (depreciation) on investments ... (38,852,616) (605,052) (32,761,195) 413,367
---------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (19,643,269) 17,464,600 (17,669,639) 18,373,844
Distributions to shareholders from:
Net investment income:
Class A .................................................... (19,673,225) (17,097,301) (17,719,073) (15,908,188)
Class C .................................................... (1,107,347) (677,489) (1,865,114) (1,292,262)
Net realized gains:
Class A .................................................... (440,938) (848,423) -- --
Class C .................................................... (27,138) (35,015) -- --
---------------------------------------------------------------
Total distributions to shareholders .......................... (21,248,648) (18,658,228) (19,584,187) (17,200,450)
Capital share transactions: (Note 2)
Class A .................................................... (1,853,841) 80,047,632 (1,025,431) 50,945,959
Class C .................................................... 5,587,652 10,400,259 4,366,780 18,021,556
---------------------------------------------------------------
Total capital share transactions ............................. 3,733,811 90,447,891 3,341,349 68,967,515
Net increase (decrease) in net assets ..................... (37,158,106) 89,254,263 (33,912,477) 70,140,909
Net assets:
Beginning of year ............................................ 407,343,819 318,089,556 387,589,841 317,448,932
---------------------------------------------------------------
End of year .................................................. $ 370,185,713 $ 407,343,819 $353,677,364 $ 387,589,841
================================================================
Undistributed net investment income included in net assets:
End of year .................................................. $ 15,520 $ 291,898 $ 88,692 $ 84,190
================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 6,530,342 $ 6,806,106 $ 19,808,581 $ 18,677,118
Net realized gain (loss) from investments ................... (1,122,896) 1,167,854 (3,765,083) 267,647
Net unrealized appreciation (depreciation) on investments ... (12,032,853) (1,644,556) (33,598,028) 703,456
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,625,407) 6,329,404 (17,554,530) 19,648,221
Distributions to shareholders from:
Net investment income:
Class A .................................................... (6,300,306) (6,648,209) (18,739,563) (18,091,651)
Class C .................................................... (230,036) (157,897) (1,069,018) (779,882)
In excess of net investment income:
Class A .................................................... (28,407) (6,115) (13,986) (17,247)
Class C .................................................... (1,037) (145) (798) (743)
Net realized gains:
Class A .................................................... (440,542) (2,340,989) -- (789,058)
Class C .................................................... (17,396) (58,681) -- (38,432)
----------------------------------------------------------------
Total distributions to shareholders .......................... (7,017,724) (9,212,036) (19,823,365) (19,717,013)
Capital share transactions: (Note 2)
Class A .................................................... (10,195,252) (25,786) (17,320,792) 47,531,270
Class C .................................................... (47,324) 3,223,143 922,447 9,617,382
----------------------------------------------------------------
Total capital share transactions ............................. (10,242,576) 3,197,357 (16,398,345) 57,148,652
Net increase (decrease) in net assets ..................... (23,885,707) 314,725 (53,776,240) 57,079,860
Net assets:
Beginning of year ............................................ 132,967,994 132,653,269 402,465,338 345,385,478
----------------------------------------------------------------
End of year .................................................. $ 109,082,287 $ 132,967,994 $ 348,689,098 $402,465,338
================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of year ................................................ $ (159,067) $ (129,623) $ (32,774) $ (17,990)
================================================================
</TABLE>
See notes to financial statements.
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-six separate
series (the Funds). All funds included in this report are diversified except the
Franklin Maryland Tax-Free Income Fund. The investment objective of the Funds
included in this report 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 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. Dividends from net investment
income are normally declared daily and distributed monthly to shareholders.
Other 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 classes of shares offered within each of the funds are indicated below.
Effective February 1, 2000, the Franklin Florida Tax-Free Income Fund began
offering a new class of shares, Class B. Each class of shares differs by its
initial sales load, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
<TABLE>
<CAPTION>
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS C
- ------- ----------------- --------------------------
<S> <C> <C>
Franklin Kentucky Tax-Free Income Fund Franklin Alabama Tax-Free Income Fund Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At February 29, 2000, 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
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended February 29, 2000
Shares sold .................................. 2,399,225 $ 26,789,775 21,137,612 $ 239,501,543
Shares issued in reinvestment of distributions 482,356 5,367,050 2,375,589 26,959,339
Shares redeemed .............................. (4,177,102) (46,025,371) (34,783,132) (391,468,812)
------------------------------------------------------------------------
Net decrease ................................. (1,295,521) $ (13,868,546) (11,269,931) $(125,007,930)
========================================================================
Year ended February 28, 1999
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)
------------------------------------------------------------------------
Net increase ................................. 2,318,707 $ 27,324,497 10,888,882 $ 129,875,026
========================================================================
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold .................................. 27,828 $ 301,871
Shares issued in reinvestment of distributions 18 197
----------------------------------
Net increase ................................. 27,846 $ 302,068
==================================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold .................................. 390,702 $ 4,467,749 2,081,506 $ 23,947,774
Shares issued in reinvestment of distributions 35,295 394,071 163,436 1,870,794
Shares redeemed .............................. (378,434) (4,184,699) (2,555,186) (28,934,054)
------------------------------------------------------------------------
Net increase (decrease) ...................... 47,563 $ 677,121 (310,244) $ (3,115,486)
========================================================================
Year ended February 28, 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
========================================================================
</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>
Year ended February 29, 2000
Shares sold .................................. 2,497,114 $ 28,656,069 1,478,222 $ 16,168,821
Shares issued in reinvestment of distributions 353,690 4,061,709 142,345 1,546,010
Shares redeemed .............................. (2,735,508) (31,207,882) (1,106,522) (11,859,842)
-------------------------------------------------------------------------
Net increase ................................. 115,296 $ 1,509,896 514,045 $ 5,854,989
=========================================================================
Year ended February 28, 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
=========================================================================
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
122
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN GEORGIA
TAX-FREE INCOME FUND
-----------------------
CLASS C SHARES: SHARES AMOUNT
-----------------------
<S> <C> <C>
Year ended February 29, 2000
Shares sold 448,683 $ 5,275,014
Shares issued in reinvestment of distributions 43,533 503,598
Shares redeemed (580,095) (6,599,119)
-----------------------
Net decrease (87,879) $ (820,507)
=======================
Year ended February 28, 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
=======================
</TABLE>
<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>
Year ended February 29, 2000
Shares sold 2,685,181 $29,641,117 3,302,280 $37,011,337
Shares issued in reinvestment of distributions 319,374 3,517,152 636,056 7,056,396
Shares redeemed (2,974,900) (32,506,461) (4,838,887) (53,104,008)
----------------------------------------------------------
Net increase (decrease) 29,655 $ 651,808 (900,551) $(9,036,275)
==========================================================
Year ended February 28, 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
==========================================================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold 381,722 $ 4,325,045 681,928 $ 7,738,010
Shares issued in reinvestment of distributions 26,588 293,431 56,260 627,649
Shares redeemed (254,457) (2,759,421) (556,842) (6,184,088)
----------------------------------------------------------
Net increase 153,853 $ 1,859,055 181,346 $ 2,181,571
==========================================================
Year ended February 28, 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
==========================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<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>
Year ended February 29, 2000
Shares sold 6,494,303 $ 76,370,895 4,382,152 $51,337,018
Shares issued in reinvestment of distributions 818,171 9,445,218 786,567 9,069,123
Shares redeemed (7,591,973) (87,669,954) (5,373,727) (61,431,572)
-----------------------------------------------------------
Net decrease (279,499) $ (1,853,841) (205,008) $(1,025,431)
===========================================================
Year ended February 28, 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
===========================================================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold 810,961 $ 9,566,419 1,032,335 $12,186,205
Shares issued in reinvestment of distributions 70,575 815,455 104,510 1,211,441
Shares redeemed (420,708) (4,794,222) (787,124) (9,030,866)
-----------------------------------------------------------
Net increase 460,828 $ 5,587,652 349,721 $ 4,366,780
===========================================================
Year ended February 28, 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
===========================================================
</TABLE>
<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>
Year ended February 29, 2000
Shares sold .................................. 973,334 $ 10,465,451 4,367,019 $ 49,467,973
Shares issued in reinvestment of distributions 272,275 2,952,986 823,029 9,274,451
Shares redeemed .............................. (2,208,408) (23,613,689) (6,821,066) (76,063,216)
-------------------------------------------------------------
Net decrease ................................. (962,799) $(10,195,252) (1,631,018) $(17,320,792)
=============================================================
Year ended February 28, 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
=============================================================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold .................................. 95,114 $ 1,047,635 551,909 $ 6,345,196
Shares issued in reinvestment of distributions 14,473 158,665 58,280 660,565
Shares redeemed .............................. (112,691) (1,253,624) (542,036) (6,083,314)
-------------------------------------------------------------
Net increase (decrease) ...................... (3,104) $ (47,324) 68,153 $ 922,447
=============================================================
Year ended February 28, 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
=============================================================
</TABLE>
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 Kentucky
Tax-Free Income Fund, as noted in the Statement 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.
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) ....... $ (39,572) $(369,016) $ (65,325) $ 12,691 $ (62,970)
Contingent deferred sales charges ..... $ 9,329 $ 111,775 $ 17,239 $ -- $ 41,092
</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 (paid) .............. $ (67,116) $ (76,099) $(128,586) $ (12,481) $ (3,679)
Contingent deferred sales charges ... $ 19,255 $ 30,196 $ 40,672 $ 6,270 $ 42,643
</TABLE>
The funds paid transfer agent fees of $1,583,366, of which $1,303,117 was paid
to Investor Services.
4. INCOME TAXES
At February 29, 2000, the funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in:
2003 ................................ $ -- $ -- $ -- $ 450,595 $ 965,535
2004 ................................ -- -- -- 65,389 --
2005 ................................ -- -- -- 294,278 --
2008 ................................ 1,941,746 5,064,848 1,554,485 305,529 545,898
------------------------------------------------------------------------------
$ 1,941,746 $ 5,064,848 $ 1,554,485 $1,115,791 $1,511,433
==============================================================================
</TABLE>
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
------------------------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C> <C>
2003 $ -- $ -- $357,415 $ -- $ --
2005 -- -- 187,812 -- --
2008 558,734 642,873 405,350 839,227 2,299,181
------------------------------------------------------------------------------
$ 558,734 $ 642,873 $950,577 $ 839,227 $2,299,181
==============================================================================
</TABLE>
At February 29, 2000, the following funds have deferred capital losses occurring
subsequent to October 31, 1999. For tax purposes, such losses will be reflected
in the year ending February 28, 2001.
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
FLORIDA GEORGIA KENTUCKY LOUISIANA MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11,393,824 $584,348 $10,804 $190,735 $699,016 $652,651 $4,093,603 $283,669 $1,477,537
</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 investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities.
At February 29, 2000, the net unrealized depreciation 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 $225,982,925 $1,626,937,639 $169,225,273 $65,754,789 $158,939,552
=================================================================================
Unrealized appreciation $ 2,560,306 $ 40,900,472 $ 2,490,326 $ 889,582 $ 2,297,115
Unrealized depreciation (13,846,689) (57,773,175) (6,991,855) (3,528,785) (8,406,367)
---------------------------------------------------------------------------------
Net unrealized depreciation $(11,286,383) $ (16,872,703) $ (4,501,529) $(2,639,203) $ (6,109,252)
=================================================================================
</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>
Investments at cost $243,219,553 $392,775,487 $361,032,505 $112,045,433 $357,127,115
===============================================================================
Unrealized appreciation $ 2,945,177 $ 5,006,122 $ 5,764,213 $ 1,585,783 $ 5,302,212
Unrealized depreciation (11,440,701) (22,261,763) (17,574,700) (6,188,583) (16,327,524)
-------------------------------------------------------------------------------
Net unrealized depreciation $ (8,495,524) $(17,255,641) $(11,810,487) $ (4,602,800) $(11,025,312)
===============================================================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 29, 2000 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 $49,520,470 $459,710,510 $84,205,925 $16,279,343 $47,395,863
Sales $62,619,873 $565,647,330 $81,334,140 $10,596,363 $44,199,619
</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 $32,646,713 $91,027,741 $83,575,507 $25,336,131 $85,507,435
Sales $30,032,878 $72,490,600 $79,627,318 $38,320,092 $98,665,202
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
At February 29, 2000, the Franklin Florida Tax-Free Income Fund held defaulted
securities with a value aggregating $9,180,000 representing .58% 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.
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including the Franklin Tax-Free Trust, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Funds' borrowing at market rates. At February 29,
2000, the Trust had not utilized this credit facility.
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 of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Tax-Free Trust (hereafter referred to
as the "Trust") at February 29, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States 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 29, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 3, 2000
FRANKLIN TAX-FREE TRUST
Tax Designation
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 29, 2000.
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Tax-Free Trust covers the 12 months ended
February 29, 2000.
The year under review was marked by economic strength, as U.S. gross domestic
product (GDP) rose 4.2%, consumer confidence remained strong and unemployment
hit a 30-year low. In fact, the domestic economy grew for a record 107th month
in a row, and domestic stock markets surged to all-time highs. Even in the face
of such economic expansion, inflation as measured by the Consumer Price Index
was 2.7% for calendar year 1999, lower than many feared. In spite of the surging
economy, some large market segments were left out or actually suffered through
the period. The Standard and Poor's 500(R) (S&P 500(R)) Index rose 11.7%
from March 1, 1999, through February 29, 2000; however, 66% of the stocks that
comprise the index were down. Meanwhile, the Nasdaq(R) Index more than doubled
during the same period, advancing 105.8%, although 40% of the index's shares
declined.(1)
Bond markets experienced similar contrasts. They started the period in what
looked to be a potentially positive year due to the interest-rate environment.
However, the Federal Reserve Board (the Fed) raised interest rates 0.25% on four
separate occasions due to inflation fears. This contributed to one of the worst
years that bond markets have ever experienced. The yield on the 30-year Treasury
rose from 5.58% on February 28, 1999, to 6.14% on February 29, 2000, reaching a
high of 6.75% on January 20, 2000. The price on the Bond Buyer Municipal Bond
Index (Bond Buyer 40), an indicator of the municipal bond market, dropped 13.1%
during the reporting period. As interest rates and yields increased, the dollar
value of bonds decreased, meaning bond funds in general depreciated in value.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .................................................... 1
Fund Reports
Franklin Arizona
Tax-Free Income Fund .................................................. 4
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 New Jersey
Tax-Free Income Fund .................................................. 32
Franklin Oregon
Tax-Free Income Fund .................................................. 39
Franklin Pennsylvania
Tax-Free Income Fund .................................................. 45
Franklin Puerto Rico
Tax-Free Income Fund .................................................. 51
Municipal Bond Ratings ................................................ 56
Financial Highlights & Statement of Investments ....................... 58
Financial Statements .................................................. 124
Notes to Financial Statements ......................................... 135
Independent Auditors' Report .......................................... 142
Tax Designation ....................................................... 143
</TABLE>
[PYRAMID GRAPH]
(1.) Based on securities held in the Nasdaq Index for at least the 12 months
ended 2/29/00.
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.
Municipal bond supply in 1999 added pressure to the already volatile municipal
bond market. Although less than in 1998, the $225 billion issuance in 1999 was
the fourth-highest on record. Looking forward, we anticipate decreased new
issuance in 2000. The near-record volume did have some benefit, as it helped
municipal bonds remain cheap relative to Treasuries. During the year under
review, municipal bonds, as measured by the Bond Buyer 40, yielded as much as
101% of a comparable Treasury bond's yield. Historically, this ratio is about
90%. Because municipal bonds are tax-exempt, generally they yield less than
Treasuries, which are subject to federal income tax. When municipals are
yielding nearly the same as Treasuries, investors are able to take advantage of
the tax exemption at little extra cost.
Please keep in mind that municipal bond funds continue to be an attractive
investment for those investors seeking tax-free income. 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 tax-free
investment.
Looking forward, we anticipate that the Fed will monitor inflationary tendencies
closely and probably raise interest rates again. If, as a result, the economy
slows toward the end of 2000, the bond markets could begin to experience less
volatility.
The last few times municipal bonds lost ground, they enjoyed sharp rebounds in
the following year. For example, in 1994, when the Fed raised interest rates six
times, the average general municipal bond fund lost 6.5% in total return. In the
following year, rates declined, and the average municipal bond fund gained
nearly 17%. Although there is no guarantee that bond markets and municipal bond
funds will repeat past behavior, markets do go through up and down cycles.
Predicting these cycles is very difficult, even for professional economists --
which is why we recommend investing for the long term. It is important to
remember that over time, the tax-free income received from municipal bond funds
will ultimately drive the fund's total return performance.
(*)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.
We encourage you to discuss your financial goals with your investment
representative, who can address concerns about volatility and help you diversify
your investments and stay focused on the long term. 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/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
CREDIT QUALITY BREAKDOWN(*)
Franklin Arizona Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
[PIECHART]
<TABLE>
<S> <C>
AAA 49.7%
AA 15.0%
A 18.6%
BBB 12.1%
Below Investment Grade 4.6%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
FRANKLIN ARIZONA 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
[STATE OF ARIZONA GRAPHIC]
Arizona's economy retained its positive growth trend throughout the one-year
review period, with the nation's third-highest employment growth rate for the 12
months ended October 1999.(2) Despite the state's rapid population growth rate,
the second-highest in the nation after Nevada's, unemployment remained in line
with the national average, as demonstrated by December's 4.1% rate for Arizona
and the U.S.(3,4)
On the trade front, the state's 2.39% jump in exports for the first nine months
of 1999 compared favorably with the 0.68% average gain for all states during the
same period. Arizona should benefit from growth in California and Mexico, its
leading domestic and international trading partners, respectively, as well as
the upturn in Asia, a major market for the state's high-tech manufacturing.
After California and Texas, Arizona ranked third in the nation for semiconductor
and integrated circuits exports.(3)
The state maintained a healthy financial outlook during the review period.
Rising employment and vibrant economic activity resulted in revenue growth,
which outpaced increased spending and more than offset recent income tax cuts.
The state's $353 net tax-supported per capita debt rate registered well below
the $540 national median for 1999.(5) In addition, fiscal year 1999 revenues
exceeded the budgeted forecast by $99.4 million, and fiscal year 2000-2001
revenues are expected to outpace the biennial budget estimates by $303
million.(6) With personal income, employment and population projected to grow
faster than the national average, we anticipate a bright future for Arizona
bonds.
(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: Arizona Department of Commerce, The Gold Sheet, Winter 2000.
(3.) Source: Standard & Poor's Ratings Direct, 8/19/99.
(4.) Source: Bureau of Labor Statistics, 2/18/2000.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 60.
PORTFOLIO NOTES
During the 12-month reporting period, we attempted to take advantage of the
higher interest-rate environment to restructure the fund's portfolio, seeking to
improve the fund's income-producing potential. We sold shorter maturity
securities (in the 2015-2020 year range) and bought bonds with higher original
issue discount (OID), or discount from par value at time of issuance. In
addition, we booked tax losses, which can be carried forward in the portfolio to
help offset taxable capital gains in the future and potentially lower
shareholders' future tax liabilities.
The supply of Arizona bonds in 1999 was $3.307 billion, down 20.8% from 1998.(7)
Franklin Arizona Tax-Free Income Fund participated in the year's largest Arizona
issue, the $366 million Mesa Industrial and Development Agency Revenue (IDAR)
bonds for Discovery Health, during the reporting period. We made this issue one
of the portfolio's core positions, as the bonds were insured and offered at
extremely attractive yields for Arizona. This purchase increased the portfolio's
hospital/health care sector exposure from 16.7% on February 28, 1999, to 20.1%
at the end of the reporting period. Other notable purchases during the period
included Arizona Student Loan Acquisition Authority Revenue and Arizona State
Transportation Board Highway Revenue.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 9.4%.(8)
PORTFOLIO BREAKDOWN
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------ -----------
<S> <C>
Utilities 23.8%
Hospital & Health Care 20.1%
Prerefunded 13.5%
General Obligation 9.9%
Transportation 7.3%
Tax-Supported Debt 6.3%
Housing 5.3%
Corporate-Backed 4.9%
Subject to Government Appropriation 3.9%
Higher Education 2.5%
Other Revenue 2.5%
</TABLE>
(5.) Source: Moody's Investors Service.
(6.) Source: Joint Legislative Budget Committee Fiscal Policy Analysis for the
Arizona Legislature, 1/2000.
(7.) Source: The Bond Buyer, 1/3/00.
(8.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. On page 9, the Performance Summary shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.31%, based
on an annualization of the current 4.77 cent ($0.0477) per share dividend and
the maximum offering price of $10.77 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Arizona state personal income
tax bracket of 42.64% would need to earn 9.26% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
distribution rates and taxable equivalent distribution rates for Class B and C
shares.
Going forward, Arizona's municipal bond supply for the remainder of 2000 is
expected to remain stable, which should continue to make them attractive
investments for investors seeking tax-free income. The fund will maintain its
conservative portfolio management strategy while seeking to provide a high
level of current income with a relatively stable share price.
DIVIDEND DISTRIBUTIONS(*)
FRANKLIN ARIZONA TAX-FREE INCOME FUND
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------------------------------
MONTH CLASS A CLASS B** CLASS C
<S> <C> <C> <C>
March 4.75 cents -- 4.24 cents
April 4.75 cents -- 4.24 cents
May 4.75 cents -- 4.24 cents
June 4.75 cents -- 4.27 cents
July 4.75 cents -- 4.27 cents
August 4.75 cents -- 4.27 cents
September 4.75 cents -- 4.23 cents
October 4.75 cents -- 4.23 cents
November 4.75 cents -- 4.23 cents
December 4.75 cents -- 4.27 cents
January 4.75 cents -- 4.27 cents
February 4.75 cents 2.71 cents 4.27 cents
----------- ---------- -----------
TOTAL 57.00 CENTS 2.71 CENTS 51.03 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.
(**)Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -4.15%
Net Asset Value (NAV) $10.31 (2/29/00) $11.38 (2/28/99)
Change in NAV -$1.07
Distributions (3/1/99-2/29/00) Dividend Income $0.5700
Long-Term Capital Gain $0.0346
-----------------------------------
Total $0.6046
CLASS B
Aggregate Total Return +1.21%
Net Asset Value (NAV) $10.32 (2/29/00) $10.24 (2/1/00)
Change in NAV +$0.08
Distributions (2/1/00-2/29/00) Dividend Income $0.0271
CLASS C
One-Year Total Return -4.65%
Net Asset Value (NAV) $10.38 (2/29/00) $11.45 (2/28/99)
Change in NAV -$1.07
Distributions (3/1/99-2/29/00) Dividend Income $0.5103
Long-Term Capital Gain $0.0346
-----------------------------------
Total $0.5449
</TABLE>
Franklin Arizona Tax-Free Income Fund paid distributions derived from long-term
capital gains of 3.46 cents ($0.0346) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -4.15% +25.54% +82.39% +123.76%
Average Annual Total Return(2) -8.26% +3.76% +5.73% +6.29%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
- -------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +1.21%
Aggregate Total Return(2) -2.79%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -4.65% +7.32% +21.12%
Average Annual Total Return(2) -6.54% +2.05% +3.83%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.31% 4.99% 4.92%
Taxable Equivalent Distribution Rate(4) 9.26% 8.70% 8.58%
30-Day Standardized Yield(5) 5.13% 4.86% 4.76%
Taxable Equivalent Yield(4) 8.94% 8.47% 8.30%
</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, aggregate total return for that class represents
total return since inception, including the maximum sales charge.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Arizona state
personal income tax bracket of 42.64%, 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 month ended February 29, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.26%
5-Year +3.76%
10-Year +5.73%
Since Inception (9/1/87) +6.29%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year -6.54%
3-Year +2.05%
Since Inception (5/1/95) +3.83%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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 3/1/90
to 2/29/00.
<TABLE>
<CAPTION>
Franklin Arizona Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class A Index* CPI*
- ---- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,576 $10,000 $10,000
03/31/1990 0.04% $9,580 0.03% $10,003 0.55% $10,055
04/30/1990 -0.54% $9,528 -0.72% $9,931 0.16% $10,071
05/31/1990 2.07% $9,725 2.18% $10,147 0.23% $10,094
06/30/1990 1.00% $9,823 0.88% $10,237 0.54% $10,149
07/31/1990 1.66% $9,986 1.47% $10,387 0.38% $10,187
08/31/1990 -2.60% $9,726 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.06% $9,720 0.06% $10,243 0.84% $10,367
10/31/1990 1.51% $9,867 1.82% $10,429 0.60% $10,430
11/30/1990 2.18% $10,082 2.01% $10,639 0.22% $10,453
12/31/1990 0.04% $10,086 0.43% $10,685 0.00% $10,453
01/31/1991 1.77% $10,265 1.34% $10,828 0.60% $10,515
02/28/1991 0.98% $10,365 0.87% $10,922 0.15% $10,531
03/31/1991 0.23% $10,389 0.03% $10,925 0.15% $10,547
04/30/1991 1.37% $10,531 1.34% $11,072 0.15% $10,563
05/31/1991 0.70% $10,605 0.89% $11,170 0.30% $10,594
06/30/1991 -0.18% $10,586 -0.10% $11,159 0.29% $10,625
07/31/1991 1.52% $10,747 1.22% $11,295 0.15% $10,641
08/31/1991 1.04% $10,859 1.32% $11,444 0.29% $10,672
09/30/1991 1.41% $11,012 1.30% $11,593 0.44% $10,719
10/31/1991 0.56% $11,073 0.90% $11,697 0.15% $10,735
11/30/1991 0.37% $11,114 0.28% $11,730 0.29% $10,766
12/31/1991 1.86% $11,321 2.15% $11,982 0.07% $10,774
01/31/1992 0.53% $11,381 0.23% $12,010 0.15% $10,790
02/29/1992 -0.04% $11,377 0.03% $12,013 0.36% $10,829
03/31/1992 0.08% $11,386 0.03% $12,017 0.51% $10,884
04/30/1992 0.77% $11,473 0.89% $12,124 0.14% $10,899
05/31/1992 1.24% $11,616 1.18% $12,267 0.14% $10,914
06/30/1992 1.25% $11,761 1.68% $12,473 0.36% $10,954
07/31/1992 3.64% $12,189 3.00% $12,847 0.21% $10,977
08/31/1992 -1.09% $12,056 -0.97% $12,723 0.28% $11,007
09/30/1992 0.75% $12,146 0.65% $12,805 0.28% $11,038
10/31/1992 -1.10% $12,013 -0.98% $12,680 0.35% $11,077
11/30/1992 2.35% $12,295 1.79% $12,907 0.14% $11,092
12/31/1992 1.30% $12,455 1.02% $13,039 -0.07% $11,085
01/31/1993 1.27% $12,613 1.16% $13,190 0.49% $11,139
02/28/1993 2.37% $12,912 3.62% $13,667 0.35% $11,178
03/31/1993 -0.47% $12,851 -1.06% $13,522 0.35% $11,217
04/30/1993 0.59% $12,927 1.01% $13,659 0.28% $11,248
05/31/1993 0.54% $12,997 0.56% $13,735 0.14% $11,264
06/30/1993 1.64% $13,210 1.67% $13,965 0.14% $11,280
07/31/1993 -0.03% $13,206 0.13% $13,983 0.00% $11,280
08/31/1993 1.99% $13,469 2.08% $14,274 0.28% $11,311
09/30/1993 1.05% $13,610 1.14% $14,437 0.21% $11,335
10/31/1993 0.27% $13,647 0.19% $14,464 0.41% $11,382
11/30/1993 -0.47% $13,583 -0.88% $14,337 0.07% $11,390
12/31/1993 1.97% $13,851 2.11% $14,639 0.00% $11,390
01/31/1994 0.98% $13,986 1.14% $14,806 0.27% $11,420
02/28/1994 -2.12% $13,690 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.20% $13,252 -4.07% $13,836 0.34% $11,498
04/30/1994 0.47% $13,314 0.85% $13,953 0.14% $11,514
05/31/1994 0.50% $13,381 0.87% $14,075 0.07% $11,522
06/30/1994 -0.27% $13,345 -0.61% $13,989 0.34% $11,562
07/31/1994 1.55% $13,551 1.83% $14,245 0.27% $11,593
08/31/1994 0.40% $13,606 0.35% $14,295 0.40% $11,639
09/30/1994 -0.94% $13,478 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.42% $13,286 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.85% $13,041 -1.81% $13,583 0.13% $11,694
12/31/1994 1.93% $13,292 2.20% $13,882 0.00% $11,694
01/31/1995 2.20% $13,585 2.86% $14,279 0.40% $11,741
02/28/1995 2.46% $13,919 2.91% $14,695 0.40% $11,788
03/31/1995 1.07% $14,068 1.15% $14,864 0.33% $11,827
04/30/1995 0.27% $14,106 0.12% $14,882 0.33% $11,866
05/31/1995 2.48% $14,456 3.19% $15,356 0.20% $11,889
06/30/1995 -0.65% $14,362 -0.87% $15,223 0.20% $11,913
07/31/1995 0.67% $14,458 0.95% $15,367 0.00% $11,913
08/31/1995 1.00% $14,602 1.27% $15,563 0.26% $11,944
09/30/1995 0.46% $14,670 0.63% $15,661 0.20% $11,968
10/31/1995 1.39% $14,873 1.45% $15,888 0.33% $12,007
11/30/1995 1.51% $15,098 1.66% $16,151 -0.07% $11,999
12/31/1995 0.89% $15,232 0.96% $16,306 -0.07% $11,991
01/31/1996 0.49% $15,307 0.76% $16,430 0.59% $12,061
02/29/1996 -0.66% $15,206 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.13% $15,034 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.14% $15,013 -0.28% $16,065 0.39% $12,210
05/31/1996 0.16% $15,037 -0.04% $16,058 0.19% $12,234
06/30/1996 1.18% $15,215 1.09% $16,233 0.06% $12,241
07/31/1996 0.68% $15,318 0.90% $16,379 0.19% $12,264
08/31/1996 0.08% $15,330 -0.02% $16,376 0.19% $12,287
09/30/1996 1.39% $15,543 1.40% $16,605 0.32% $12,327
10/31/1996 0.91% $15,685 1.13% $16,793 0.32% $12,366
11/30/1996 1.43% $15,909 1.83% $17,100 0.19% $12,390
12/31/1996 -0.22% $15,874 -0.42% $17,028 0.00% $12,390
01/31/1997 0.19% $15,904 0.19% $17,061 0.32% $12,429
02/28/1997 0.81% $16,033 0.92% $17,218 0.31% $12,468
03/31/1997 -1.12% $15,854 -1.33% $16,989 0.25% $12,499
04/30/1997 0.80% $15,980 0.84% $17,131 0.12% $12,514
05/31/1997 1.22% $16,175 1.51% $17,390 -0.06% $12,507
06/30/1997 0.93% $16,326 1.07% $17,576 0.12% $12,522
07/31/1997 2.31% $16,703 2.77% $18,063 0.12% $12,537
08/31/1997 -0.70% $16,586 -0.94% $17,893 0.19% $12,560
09/30/1997 1.08% $16,765 1.19% $18,106 0.25% $12,592
10/31/1997 0.58% $16,862 0.64% $18,222 0.25% $12,623
11/30/1997 0.60% $16,964 0.59% $18,330 -0.06% $12,616
12/31/1997 1.30% $17,184 1.46% $18,597 -0.12% $12,601
01/31/1998 0.81% $17,323 1.03% $18,789 0.19% $12,624
02/28/1998 0.10% $17,341 0.03% $18,794 0.19% $12,648
03/31/1998 0.03% $17,346 0.09% $18,811 0.19% $12,672
04/30/1998 -0.20% $17,311 -0.45% $18,727 0.18% $12,695
05/31/1998 1.22% $17,522 1.58% $19,023 0.18% $12,718
06/30/1998 0.29% $17,573 0.39% $19,097 0.12% $12,733
07/31/1998 0.31% $17,628 0.25% $19,145 0.12% $12,749
08/31/1998 1.23% $17,844 1.55% $19,441 0.12% $12,764
09/30/1998 1.18% $18,055 1.25% $19,684 0.12% $12,779
10/31/1998 -0.08% $18,041 0.00% $19,684 0.24% $12,810
11/30/1998 0.34% $18,102 0.35% $19,753 0.00% $12,810
12/31/1998 0.10% $18,120 0.25% $19,803 -0.06% $12,802
01/31/1999 1.04% $18,308 1.19% $20,038 0.24% $12,833
02/28/1999 -0.38% $18,239 -0.44% $19,950 0.12% $12,848
03/31/1999 0.40% $18,312 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $18,339 0.25% $20,028 0.73% $12,981
05/31/1999 -0.42% $18,262 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.47% $17,994 -1.44% $19,625 0.00% $12,981
07/31/1999 0.23% $18,035 0.36% $19,696 0.30% $13,020
08/31/1999 -1.26% $17,808 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.13% $17,785 0.04% $19,546 0.48% $13,114
10/31/1999 -1.83% $17,459 -1.08% $19,335 0.18% $13,137
11/30/1999 0.78% $17,596 1.06% $19,540 0.06% $13,145
12/31/1999 -0.97% $17,425 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.80% $17,285 -0.44% $19,308 0.24% $13,177
02/29/2000 1.13% $17,458 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Franklin Arizona Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class C Index* CPI*
---- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,902 $10,000 $10,000
05/31/1995 2.68% $10,167 3.19% $10,319 0.20% $10,020
06/30/1995 -0.71% $10,095 -0.87% $10,229 0.20% $10,040
07/31/1995 0.61% $10,157 0.95% $10,326 0.00% $10,040
08/31/1995 1.04% $10,262 1.27% $10,458 0.26% $10,066
09/29/1995 0.50% $10,314 0.63% $10,523 0.20% $10,086
10/31/1995 1.24% $10,442 1.45% $10,676 0.33% $10,120
11/30/1995 1.54% $10,602 1.66% $10,853 -0.07% $10,112
12/29/1995 0.75% $10,682 0.96% $10,957 -0.07% $10,105
01/31/1996 0.52% $10,737 0.76% $11,041 0.59% $10,165
02/29/1996 -0.78% $10,654 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.08% $10,539 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.19% $10,519 -0.28% $10,795 0.39% $10,291
05/31/1996 0.10% $10,529 -0.04% $10,791 0.19% $10,310
06/28/1996 1.04% $10,639 1.09% $10,908 0.06% $10,316
07/31/1996 0.71% $10,714 0.90% $11,006 0.19% $10,336
08/30/1996 0.02% $10,716 -0.02% $11,004 0.19% $10,356
09/30/1996 1.33% $10,859 1.40% $11,158 0.32% $10,389
10/31/1996 0.94% $10,961 1.13% $11,284 0.32% $10,422
11/29/1996 1.37% $11,111 1.83% $11,491 0.19% $10,442
12/31/1996 -0.27% $11,081 -0.42% $11,443 0.00% $10,442
01/31/1997 0.06% $11,088 0.19% $11,464 0.32% $10,475
02/28/1997 0.79% $11,175 0.92% $11,570 0.31% $10,508
03/31/1997 -1.07% $11,056 -1.33% $11,416 0.25% $10,534
04/30/1997 0.75% $11,139 0.84% $11,512 0.12% $10,547
05/31/1997 1.16% $11,268 1.51% $11,686 -0.06% $10,540
06/30/1997 0.79% $11,357 1.07% $11,811 0.12% $10,553
07/31/1997 2.26% $11,614 2.77% $12,138 0.12% $10,565
08/31/1997 -0.65% $11,538 -0.94% $12,024 0.19% $10,586
09/30/1997 1.02% $11,656 1.19% $12,167 0.25% $10,612
10/31/1997 0.52% $11,716 0.64% $12,245 0.25% $10,639
11/30/1997 0.55% $11,781 0.59% $12,317 -0.06% $10,632
12/31/1997 1.24% $11,927 1.46% $12,497 -0.12% $10,619
01/31/1998 0.85% $12,028 1.03% $12,626 0.19% $10,640
02/28/1998 0.05% $12,034 0.03% $12,629 0.19% $10,660
03/31/1998 -0.02% $12,032 0.09% $12,641 0.19% $10,680
04/30/1998 -0.33% $11,992 -0.45% $12,584 0.18% $10,699
05/31/1998 1.17% $12,132 1.58% $12,783 0.18% $10,719
06/30/1998 0.33% $12,173 0.39% $12,832 0.12% $10,731
07/31/1998 0.16% $12,192 0.25% $12,865 0.12% $10,744
08/31/1998 1.27% $12,347 1.55% $13,064 0.12% $10,757
09/30/1998 1.22% $12,497 1.25% $13,227 0.12% $10,770
10/31/1998 -0.22% $12,470 0.00% $13,227 0.24% $10,796
11/30/1998 0.28% $12,505 0.35% $13,274 0.00% $10,796
12/31/1998 0.05% $12,511 0.25% $13,307 -0.06% $10,789
01/31/1999 0.98% $12,634 1.19% $13,465 0.24% $10,815
02/28/1999 -0.42% $12,581 -0.44% $13,406 0.12% $10,828
03/31/1999 0.43% $12,635 0.14% $13,425 0.30% $10,861
04/30/1999 0.10% $12,647 0.25% $13,458 0.73% $10,940
05/31/1999 -0.54% $12,579 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.50% $12,390 -1.44% $13,187 0.00% $10,940
07/31/1999 0.18% $12,413 0.36% $13,235 0.30% $10,973
08/31/1999 -1.30% $12,251 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.17% $12,231 0.04% $13,134 0.48% $11,052
10/31/1999 -1.86% $12,003 -1.08% $12,992 0.18% $11,072
11/30/1999 0.72% $12,089 1.06% $13,130 0.06% $11,079
12/31/1999 -1.01% $11,967 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.84% $11,867 -0.44% $12,974 0.24% $11,105
02/29/2000 1.08% $11,994 1.16% $13,125 0.59% $11,171
</TABLE>
(*)Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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 seems to be on many people's minds these days, as its population has
swelled by 11.4% since 1993. Strong employment growth throughout the '90s has
driven this net in-migration, as the state even expanded in the 1991-1992
national recession. Estimates for 1999 employment growth are 3.3% and 2000's are
forecasted to be 2.1%.(2) Even more impressive is the state's low unemployment
level, at 3.0% in December 1999, compared with 4.1% for the nation, despite the
tremendous increase in new residents.(3)
The economy has become much more diversified in the past decade as the state
added more than 380,000 jobs in services, trade, finance, construction and
telecommunications from 1993 to 1998. The economy now has a similar composition
to that of the nation's, with services comprising approximately 30% of
employment, trade 24% and manufacturing 10%. Mining, which at one time was a key
aspect of the economy, now makes up less than 1% of employment.(2)
Additionally, Colorado is in a stronger financial position as a result of the
robust economy and the taxpayer bill of rights (TABOR) voter initiative. In
recent years, revenues have consistently surpassed budget projections. TABOR has
created very low debt levels with overall tax-supported debt of 0.08% of
personal income or just $24 per capita compared with the $540 national
median.(4)
CREDIT QUALITY BREAKDOWN*
Franklin Colorado Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
[PIECHART]
<TABLE>
<S> <C>
AAA 59.2%
AA 13.3%
A 13.8%
BBB 13.7%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit 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 and Poor's Ratings Direct, 11/99. This does not indicate
Standard and Poor's rating of the fund.
(3.) Source: Bureau of Labor Statistics, 12/99.
(4.) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 66.
PORTFOLIO BREAKDOWN
Franklin Colorado
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 30.6%
Utilities 15.3%
Housing 12.8%
Transportation 11.6%
Tax-Supported Debt 7.2%
Subject to Government Appropriation 6.6%
Prerefunded 5.8%
Higher Education 3.8%
Corporate-Backed 3.1%
General Obligation 2.3%
Other Revenue 0.9%
</TABLE>
Colorado's outlook is stable and Standard & Poor's, an independent credit rating
agency, has assigned it an A rating.(2) The state should continue to outperform
other states and the overall nation, driven by a solid economy and its sound
financial position.
PORTFOLIO NOTES
During the 12-month reporting period, we attempted to take advantage of the
higher interest-rate environment to restructure the fund's portfolio, seeking to
improve the fund's income-earning potential. We generally sold shorter maturity
bonds, maturing in the 2015-2020 year range, and bought bonds with higher book
yields. In addition, we booked tax losses, which can be carried forward in the
portfolio to help offset taxable capital gains in the future and potentially
lower shareholders' future tax liabilities.
The supply of Colorado bonds in 1999 was up 32.0%, to $4.267 billion, from
$3.233 billion in 1998.(5) We found value in the hospital/health care sector and
made a number of purchases, including University of Northern Colorado Medical
Center, which increased the sector's weighting to 30.6% of total long-term
investments on February 29, 2000, from 23.7% at the beginning of the reporting
period. Other significant purchases during the period included Broomfield COPs,
Boulder County MFHRs and Pueblo Board Waterworks Water Revenue.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 9.5%.(6)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. The Performance Summary on page 14 shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.22%, based
on an annualization of the current 4.95 cent ($0.0495) per share dividend and
the maximum offering price of $11.38 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Colorado state personal income
tax bracket of 42.47% would need to earn 9.07% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
the distribution rate and taxable equivalent distribution rate for Class C
shares.
(5.) Source: The Bond Buyer, 1/3/00.
(6.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
DIVIDEND DISTRIBUTIONS(*)
Franklin Colorado Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.95 cents 4.38 cents
April 4.95 cents 4.38 cents
May 4.95 cents 4.38 cents
June 4.95 cents 4.42 cents
July 4.95 cents 4.42 cents
August 4.95 cents 4.42 cents
September 4.95 cents 4.42 cents
October 4.95 cents 4.42 cents
November 4.95 cents 4.42 cents
December 4.95 cents 4.46 cents
January 4.95 cents 4.46 cents
February 4.95 cents 4.46 cents
- --------------------------------------------------------------------------------
Total 59.40 cents 53.04 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.
Going forward, Colorado's municipal bond supply for the remainder of 2000 is
expected to remain stable, which should continue to make them attractive
investments for investors seeking tax-free income. The fund will maintain its
conservative portfolio management strategy of seeking to provide a high level of
current tax-free income with a relatively stable share price.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN COLORADO
TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -4.57%
Net Asset Value (NAV) $10.90 (2/29/00) $12.05 (2/28/99)
Change in NAV -$1.15
Distributions (3/1/99-2/29/00) Dividend Income $0.5940
Long-Term Capital Gain $0.0118
-----------------------------------
Total $0.6058
CLASS C
One-Year Total Return -5.08%
Net Asset Value (NAV) $10.96 (2/29/00) $12.11 (2/28/99)
Change in NAV -$1.15
Distributions (3/1/99-2/29/00) Dividend Income $0.5304
Long-Term Capital Gain $0.0118
-----------------------------------
Total $0.5422
</TABLE>
CLASS A: 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: 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.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -4.57% +26.94% +85.66% +130.17%
Average Annual Total Return(2) -8.59% +3.97% +5.93% +6.53%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -5.08% +7.65% +22.64%
Average Annual Total Return(2) -6.90% +2.14% +4.09%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- -----------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.22% 4.85%
Taxable Equivalent Distribution Rate(4) 9.07% 8.43%
30-Day Standardized Yield(5) 5.06% 4.68%
Taxable Equivalent Yield(4) 8.80% 8.13%
</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
29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Colorado state
personal income tax bracket of 42.47%, 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 month ended February 29, 2000.
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 Colorado Tax-Free Income Fund paid distributions derived from long-term
capital gains of 1.18 cents ($0.0118) per share in June 1999. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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 3/1/90
to 2/29/00.
<TABLE>
<CAPTION>
Franklin Colorado Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class A Index* CPI*
- ---- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,573 $10,000 $10,000
03/31/1990 -0.07% $9,566 0.03% $10,003 0.55% $10,055
04/30/1990 -0.73% $9,496 -0.72% $9,931 0.16% $10,071
05/31/1990 2.13% $9,699 2.18% $10,147 0.23% $10,094
06/30/1990 1.16% $9,811 0.88% $10,237 0.54% $10,149
07/31/1990 1.62% $9,970 1.47% $10,387 0.38% $10,187
08/31/1990 -2.48% $9,723 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.07% $9,716 0.06% $10,243 0.84% $10,367
10/31/1990 1.28% $9,840 1.82% $10,429 0.60% $10,430
11/30/1990 2.32% $10,069 2.01% $10,639 0.22% $10,453
12/31/1990 -0.16% $10,053 0.43% $10,685 0.00% $10,453
01/31/1991 1.35% $10,188 1.34% $10,828 0.60% $10,515
02/28/1991 0.87% $10,277 0.87% $10,922 0.15% $10,531
03/31/1991 0.40% $10,318 0.03% $10,925 0.15% $10,547
04/30/1991 1.43% $10,466 1.34% $11,072 0.15% $10,563
05/31/1991 0.87% $10,557 0.89% $11,170 0.30% $10,594
06/30/1991 0.03% $10,560 -0.10% $11,159 0.29% $10,625
07/31/1991 1.52% $10,720 1.22% $11,295 0.15% $10,641
08/31/1991 0.86% $10,813 1.32% $11,444 0.29% $10,672
09/30/1991 1.32% $10,955 1.30% $11,593 0.44% $10,719
10/31/1991 0.49% $11,009 0.90% $11,697 0.15% $10,735
11/30/1991 0.49% $11,063 0.28% $11,730 0.29% $10,766
12/31/1991 2.09% $11,294 2.15% $11,982 0.07% $10,774
01/31/1992 0.15% $11,311 0.23% $12,010 0.15% $10,790
02/29/1992 0.16% $11,329 0.03% $12,013 0.36% $10,829
03/31/1992 0.28% $11,361 0.03% $12,017 0.51% $10,884
04/30/1992 0.86% $11,459 0.89% $12,124 0.14% $10,899
05/31/1992 1.42% $11,621 1.18% $12,267 0.14% $10,914
06/30/1992 1.34% $11,777 1.68% $12,473 0.36% $10,954
07/31/1992 3.77% $12,221 3.00% $12,847 0.21% $10,977
08/31/1992 -1.04% $12,094 -0.97% $12,723 0.28% $11,007
09/30/1992 0.23% $12,122 0.65% $12,805 0.28% $11,038
10/31/1992 -1.67% $11,919 -0.98% $12,680 0.35% $11,077
11/30/1992 2.71% $12,242 1.79% $12,907 0.14% $11,092
12/31/1992 1.49% $12,425 1.02% $13,039 -0.07% $11,085
01/31/1993 1.10% $12,561 1.16% $13,190 0.49% $11,139
02/28/1993 3.31% $12,977 3.62% $13,667 0.35% $11,178
03/31/1993 -0.52% $12,910 -1.06% $13,522 0.35% $11,217
04/30/1993 0.78% $13,010 1.01% $13,659 0.28% $11,248
05/31/1993 0.47% $13,072 0.56% $13,735 0.14% $11,264
06/30/1993 1.53% $13,272 1.67% $13,965 0.14% $11,280
07/31/1993 0.23% $13,302 0.13% $13,983 0.00% $11,280
08/31/1993 2.03% $13,572 2.08% $14,274 0.28% $11,311
09/30/1993 1.20% $13,735 1.14% $14,437 0.21% $11,335
10/31/1993 0.36% $13,784 0.19% $14,464 0.41% $11,382
11/30/1993 -0.27% $13,747 -0.88% $14,337 0.07% $11,390
12/31/1993 1.91% $14,010 2.11% $14,639 0.00% $11,390
01/31/1994 1.03% $14,154 1.14% $14,806 0.27% $11,420
02/28/1994 -2.14% $13,851 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.93% $13,307 -4.07% $13,836 0.34% $11,498
04/30/1994 0.21% $13,335 0.85% $13,953 0.14% $11,514
05/31/1994 0.69% $13,427 0.87% $14,075 0.07% $11,522
06/30/1994 -0.69% $13,334 -0.61% $13,989 0.34% $11,562
07/31/1994 1.89% $13,586 1.83% $14,245 0.27% $11,593
08/31/1994 0.24% $13,619 0.35% $14,295 0.40% $11,639
09/30/1994 -1.26% $13,447 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.65% $13,225 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.90% $12,974 -1.81% $13,583 0.13% $11,694
12/31/1994 2.11% $13,248 2.20% $13,882 0.00% $11,694
01/31/1995 3.11% $13,660 2.86% $14,279 0.40% $11,741
02/28/1995 2.50% $14,001 2.91% $14,695 0.40% $11,788
03/31/1995 0.88% $14,125 1.15% $14,864 0.33% $11,827
04/30/1995 0.27% $14,163 0.12% $14,882 0.33% $11,866
05/31/1995 2.61% $14,532 3.19% $15,356 0.20% $11,889
06/30/1995 -0.63% $14,441 -0.87% $15,223 0.20% $11,913
07/31/1995 0.57% $14,523 0.95% $15,367 0.00% $11,913
08/31/1995 1.42% $14,729 1.27% $15,563 0.26% $11,944
09/30/1995 0.46% $14,797 0.63% $15,661 0.20% $11,968
10/31/1995 1.36% $14,998 1.45% $15,888 0.33% $12,007
11/30/1995 1.56% $15,232 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,375 0.96% $16,306 -0.07% $11,991
01/31/1996 0.48% $15,449 0.76% $16,430 0.59% $12,061
02/29/1996 -0.21% $15,417 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.90% $15,278 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.04% $15,272 -0.28% $16,065 0.39% $12,210
05/31/1996 0.07% $15,283 -0.04% $16,058 0.19% $12,234
06/30/1996 0.88% $15,417 1.09% $16,233 0.06% $12,241
07/31/1996 0.75% $15,533 0.90% $16,379 0.19% $12,264
08/31/1996 0.04% $15,539 -0.02% $16,376 0.19% $12,287
09/30/1996 1.35% $15,749 1.40% $16,605 0.32% $12,327
10/31/1996 0.98% $15,903 1.13% $16,793 0.32% $12,366
11/30/1996 1.48% $16,138 1.83% $17,100 0.19% $12,390
12/31/1996 -0.18% $16,109 0.42% $17,028 0.00% $12,390
01/31/1997 0.12% $16,129 0.19% $17,061 0.32% $12,429
02/28/1997 0.80% $16,258 0.92% $17,218 0.31% $12,468
03/31/1997 -1.13% $16,074 -1.33% $16,989 0.25% $12,499
04/30/1997 0.79% $16,201 0.84% $17,131 0.12% $12,514
05/31/1997 1.19% $16,394 1.51% $17,390 -0.06% $12,507
06/30/1997 1.07% $16,569 1.07% $17,576 0.12% $12,522
07/31/1997 2.48% $16,980 2.77% $18,063 0.12% $12,537
08/31/1997 -0.90% $16,827 -0.94% $17,893 0.19% $12,560
09/30/1997 1.37% $17,058 1.19% $18,106 0.25% $12,592
10/31/1997 0.63% $17,165 0.64% $18,222 0.25% $12,623
11/30/1997 0.65% $17,277 0.59% $18,330 -0.06% $12,616
12/31/1997 1.48% $17,533 1.46% $18,597 -0.12% $12,601
01/31/1998 1.02% $17,711 1.03% $18,789 0.19% $12,624
02/28/1998 -0.07% $17,699 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $17,736 0.09% $18,811 0.19% $12,672
04/30/1998 -0.34% $17,676 -0.45% $18,727 0.18% $12,695
05/31/1998 1.50% $17,941 1.58% $19,023 0.18% $12,718
06/30/1998 0.39% $18,011 0.39% $19,097 0.12% $12,733
07/31/1998 0.21% $18,049 0.25% $19,145 0.12% $12,749
08/31/1998 1.25% $18,274 1.55% $19,441 0.12% $12,764
09/30/1998 1.13% $18,481 1.25% $19,684 0.12% $12,779
10/31/1998 -0.22% $18,440 0.00% $19,684 0.24% $12,810
11/30/1998 0.42% $18,518 0.35% $19,753 0.00% $12,810
12/31/1998 0.12% $18,540 0.25% $19,803 -0.06% $12,802
01/31/1999 0.91% $18,709 1.19% $20,038 0.24% $12,833
02/28/1999 -0.42% $18,630 -0.44% $19,950 0.12% $12,848
03/31/1999 0.39% $18,703 0.14% $19,978 0.30% $12,887
04/30/1999 0.07% $18,716 0.25% $20,028 0.73% $12,981
05/31/1999 -0.63% $18,598 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.40% $18,338 -1.44% $19,625 0.00% $12,981
07/31/1999 0.06% $18,349 0.36% $19,696 0.30% $13,020
08/31/1999 -1.34% $18,103 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.19% $18,068 0.04% $19,546 0.48% $13,114
10/31/1999 -1.80% $17,743 -1.08% $19,335 0.18% $13,137
11/30/1999 1.03% $17,926 1.06% $19,540 0.06% $13,145
12/31/1999 -1.17% $17,716 -0.75% $19,393 0.00% $13,145
01/31/2000 -1.01% $17,537 -0.44% $19,308 0.24% $13,177
02/29/2000 1.36% $17,784 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Franklin Colorado Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class C Index* CPI*
- ---- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,896 $10,000 $10,000
05/31/1995 2.64% $10,157 3.19% $10,319 0.20% $10,020
06/30/1995 -0.60% $10,096 -0.87% $10,229 0.20% $10,040
07/31/1995 0.52% $10,149 0.95% $10,326 0.00% $10,040
08/31/1995 1.37% $10,288 1.27% $10,458 0.26% $10,066
09/29/1995 0.41% $10,330 0.63% $10,523 0.20% $10,086
10/31/1995 1.39% $10,474 1.45% $10,676 0.33% $10,120
11/30/1995 1.51% $10,632 1.66% $10,853 -0.07% $10,112
12/29/1995 0.89% $10,726 0.96% $10,957 -0.07% $10,105
01/31/1996 0.43% $10,773 0.76% $11,041 0.59% $10,165
02/29/1996 0.26% $10,745 -0.68% $10,966 0.32% $10,198
03/29/1996 0.95% $10,642 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.09% $10,633 -0.28% $10,795 0.39% $10,291
05/31/1996 0.02% $10,635 -0.04% $10,791 0.19% $10,310
06/28/1996 0.92% $10,733 1.09% $10,908 0.06% $10,316
07/31/1996 0.61% $10,798 0.90% $11,006 0.19% $10,336
08/30/1996 0.09% $10,808 -0.02% $11,004 0.19% $10,356
09/30/1996 1.30% $10,949 1.40% $11,158 0.32% $10,389
10/31/1996 0.93% $11,050 1.13% $11,284 0.32% $10,422
11/29/1996 1.43% $11,208 1.83% $11,491 0.19% $10,442
12/31/1996 -0.23% $11,183 -0.42% $11,443 0.00% $10,442
01/31/1997 0.07% $11,190 0.19% $11,464 0.32% $10,475
02/28/1997 0.75% $11,274 0.92% $11,570 0.31% $10,508
03/31/1997 -1.18% $11,141 -1.33% $11,416 0.25% $10,534
04/30/1997 0.74% $11,224 0.84% $11,512 0.12% $10,547
05/31/1997 1.13% $11,351 1.51% $11,686 -0.06% $10,540
06/30/1997 1.10% $11,475 1.07% $11,811 0.12% $10,553
07/31/1997 2.34% $11,744 2.77% $12,138 0.12% $10,565
08/31/1997 0.85% $11,644 -0.94% $12,024 0.19% $10,586
09/30/1997 1.23% $11,787 1.19% $12,167 0.25% $10,612
10/31/1997 0.58% $11,856 0.64% $12,245 0.25% $10,639
11/30/1997 0.69% $11,938 0.59% $12,317 -0.06% $10,632
12/31/1997 1.43% $12,108 1.46% $12,497 -0.12% $10,619
01/31/1998 0.96% $12,224 1.03% $12,626 0.19% $10,640
02/28/1998 -0.03% $12,221 0.03% $12,629 0.19% $10,660
03/31/1998 0.07% $12,229 0.09% $12,641 0.19% $10,680
04/30/1998 -0.38% $12,183 -0.45% $12,584 0.18% $10,699
05/31/1998 1.45% $12,360 1.58% $12,783 0.18% $10,719
06/30/1998 0.34% $12,402 0.39% $12,832 0.12% $10,731
07/31/1998 0.23% $12,430 0.25% $12,865 0.12% $10,744
08/31/1998 1.20% $12,579 1.55% $13,064 0.12% $10,757
09/30/1998 1.08% $12,715 1.25% $13,227 0.12% $10,770
10/31/1998 -0.27% $12,681 0.00% $13,227 0.24% $10,796
11/30/1998 0.37% $12,728 0.35% $13,274 0.00% $10,796
12/31/1998 0.08% $12,738 0.25% $13,307 -0.06% $10,789
01/31/1999 0.86% $12,847 1.19% $13,465 0.24% $10,815
02/28/1999 -0.47% $12,787 -0.44% $13,406 0.12% $10,828
03/31/1999 0.34% $12,831 0.14% $13,425 0.30% $10,861
04/30/1999 0.03% $12,834 0.25% $13,458 0.73% $10,940
05/31/1999 -0.59% $12,759 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.52% $12,565 -1.44% $13,187 0.00% $10,940
07/31/1999 0.02% $12,567 0.36% $13,235 0.30% $10,973
08/31/1999 -1.39% $12,393 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.32% $12,353 0.04% $13,134 0.48% $11,052
10/31/1999 -1.84% $12,126 -1.08% $12,992 0.18% $11,072
11/30/1999 0.97% $12,243 1.06% $13,130 0.06% $11,079
12/31/1999 -1.12% $12,106 -0.75% $13,032 0.00% $11,079
01/31/2000 -1.05% $11,979 -0.44% $12,974 0.24% $11,105
02/29/2000 1.31% $12,136 1.16% $13,125 0.59% $11,171
</TABLE>
(*)Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN(*)
Franklin Connecticut Tax-Free
Income Fund
Based on Total Long-Term Investments
2/29/00
[PIECHART]
<TABLE>
<S> <C>
AAA 41.2%
AA 23.0%
A 7.0%
BBB 28.8%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
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
[CONNECTICUT STATE GRAPHIC]
Connecticut continues to benefit from the robust U.S. stock market and its
location as a home for many Wall Street employees. Partly as a result of the
financial markets' strength and the larger personal income taxes it has created,
the state recorded a $312.9 million budgetary surplus in fiscal 1998.
Furthermore, the state estimates that through June 1999, revenues exceeded
budget projections by more than $610 million. However, Connecticut has
appropriated a majority of the surplus to one-time expenses, including debt
reduction, lowering the fiscal year 1999 estimated net surplus to $61
million.(2)
Lowering the state's debt would indeed be favorable. At $2,366 per capita,
Connecticut's debt levels are much higher than the $540 national median.(3) In
addition, per-capita debt as a proportion of income is also high, at 6.3%,
although the state is the nation's wealthiest with per-capita personal income
estimated at 143.7% of the national average.(2)
Overall, Connecticut's outlook remains positive, as evidenced by its AAA rating
from Standard & Poor's, an independent credit rating agency. This reflects
Connecticut's diversifying economic base, conservative financial practices and
continued moderate but steady growth.(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.
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 and Poor's Ratings Direct, 10/99. This does not indicate
Standard and Poor's rating of the fund.
(3) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 70.
PORTFOLIO NOTES
Connecticut's new municipal bond issuance remained sparse during the period,
decreasing 20% in 1999 compared with 1998, to $3.16 billion.(4) The limited
supply somewhat hindered our ability to follow our strategy of selling
lower-coupon bonds, booking the tax losses and then investing those resources
into bonds with higher yields. We were able to purchase a number of AAA-rated
securities during the year under review, which resulted in a noticeable increase
in the portfolio's quality. On February 29, 2000, the portfolio had 41.2% of
total long-term investments in AAA-rated securities, compared with 29.0% at the
beginning of the period.
We found yield opportunities in the hospital and health care sector during the
period, and this sector continued to make up the portfolio's largest weighting,
at 31.5% of total long-term investments on February 29, 2000. However, we bought
issues in a number of different sectors, maintaining the fund's broad
diversification. Important purchases during the period included Connecticut
State Development Authority Baptist Homes, Connecticut State Housing Finance
Authority, Connecticut State Higher Education Supplement Loan Authority Revenue
and Connecticut State Health and Education Facilities Authority Revenue for
Eastern Connecticut Health Network.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 10.7%.(5)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. The Performance Summary on page 19 shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.29%, based
on an annualization of the current 4.63 cent ($0.0463) per share dividend and
the maximum offering price of $10.51 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Connecticut state personal
income tax bracket of 42.32% would need to earn 9.17% from a taxable investment
to match the fund's tax-free distribution rate. The Performance Summary also
shows the distribution rate and taxable equivalent distribution rate for Class C
shares.
PORTFOLIO BREAKDOWN
Franklin Connecticut
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 31.5%
Prerefunded 22.5%
Housing 13.7%
Higher Education 11.9%
Utilities 10.3%
Other Revenue 2.4%
Tax-Supported Debt 1.9%
Subject to Government Appropriation 1.8%
Transportation 1.6%
General Obligation 1.5%
Corporate-Backed 0.9%
</TABLE>
(4.) Source: The Bond Buyer, 1/3/00.
(5.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
DIVIDEND DISTRIBUTIONS(*)
Franklin Connecticut Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.65 cents 4.12 cents
April 4.65 cents 4.12 cents
May 4.65 cents 4.12 cents
June 4.65 cents 4.14 cents
July 4.65 cents 4.14 cents
August 4.65 cents 4.14 cents
September 4.63 cents 4.14 cents
October 4.63 cents 4.14 cents
November 4.63 cents 4.14 cents
December 4.63 cents 4.16 cents
January 4.63 cents 4.16 cents
February 4.63 cents 4.16 cents
- --------------------------------------------------------------------------------
Total 55.68 cents 49.68 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.
Looking forward, we remain positive on the outlook for Connecticut, its
municipal bonds and Franklin Connecticut Tax-Free Income Fund. The reduced
new-issue supply combined with strong demand for Connecticut municipal bonds
continue to make such bonds attractive investments.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
One-Year Total Return -5.90%
Net Asset Value (NAV) $10.06 (2/29/00) $11.27 (2/28/99)
Change in NAV -$1.21
Distributions (3/1/99-2/29/00) Dividend Income $0.5568
CLASS C
One-Year Total Return -6.32%
Net Asset Value (NAV) $10.10 (2/29/00) $11.30 (2/28/99)
Change in NAV -$1.20
Distributions (3/1/99-2/29/00) Dividend Income $0.4968
</TABLE>
CLASS A: 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: 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.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -5.90% +24.23% +73.26% +92.84%
Average Annual Total Return(2) -9.89% +3.54% +5.19% +5.52%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -6.32% +6.34% +20.04%
Average Annual Total Return(2) -8.10% +1.73% +3.63%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
-------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.29% 4.92%
Taxable Equivalent Distribution Rate(4) 9.17% 8.53%
30-Day Standardized Yield(5) 4.95% 4.58%
Taxable Equivalent Yield(4) 8.58% 7.94%
</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
29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Connecticut state
personal income tax bracket of 42.32%, based on the federal income tax rate of
39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year -9.89%
5-Year +3.54%
10-Year +5.19%
Since Inception (10/3/88) +5.52%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.10%
3-Year +1.73%
Since Inception (5/1/95) +3.63%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Franklin Connecticut Lehman Brothers
Tax-Free Income Municipal Bond
Date Fund-Class A Index* CPI*
- ---- ------------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,554 10,000 10,000
03/31/1990 -0.22% $9,533 0.03% 10,003 0.55% 10,055
04/30/1990 -0.71% $9,465 -0.72% 9,931 0.16% 10,071
05/31/1990 2.24% $9,677 2.18% 10,147 0.23% 10,094
06/30/1990 0.94% $9,768 0.88% 10,237 0.54% 10,149
07/31/1990 1.52% $9,917 1.47% 10,387 0.38% 10,187
08/31/1990 -2.52% $9,667 -1.45% 10,237 0.92% 10,281
09/30/1990 -0.33% $9,635 0.06% 10,243 0.84% 10,367
10/31/1990 1.27% $9,757 1.82% 10,429 0.60% 10,430
11/30/1990 2.34% $9,986 2.01% 10,639 0.22% 10,453
12/31/1990 0.13% $9,973 0.43% 10,685 0.00% 10,453
01/31/1991 1.64% $10,136 1.34% 10,828 0.60% 10,515
02/28/1991 0.55% $10,192 0.87% 10,922 0.15% 10,531
03/31/1991 0.36% $10,229 0.03% 10,925 0.15% 10,547
04/30/1991 1.23% $10,354 1.34% 11,072 0.15% 10,563
05/31/1991 0.74% $10,431 0.89% 11,170 0.30% 10,594
06/30/1991 -1.27% $10,299 -0.10% 11,159 0.29% 10,625
07/31/1991 1.44% $10,447 1.22% 11,295 0.15% 10,641
08/31/1991 1.23% $10,575 1.32% 11,444 0.29% 10,672
09/30/1991 1.42% $10,726 1.30% 11,593 0.44% 10,719
10/31/1991 0.64% $10,794 0.90% 11,697 0.15% 10,735
11/30/1991 0.45% $10,843 0.28% 11,730 0.29% 10,766
12/31/1991 1.88% $11,047 2.15% 11,982 0.07% 10,774
01/31/1992 0.21% $11,070 0.23% 12,010 0.15% 10,790
02/29/1992 -0.17% $11,051 0.03% 12,013 0.36% 10,829
03/31/1992 0.14% $11,066 0.03% 12,017 0.51% 10,884
04/30/1992 0.71% $11,145 0.89% 12,124 0.14% 10,899
05/31/1992 1.45% $11,307 1.18% 12,267 0.14% 10,914
06/30/1992 1.17% $11,439 1.68% 12,473 0.36% 10,954
07/31/1992 3.24% $11,810 3.00% 12,847 0.21% 10,977
08/31/1992 -1.25% $11,662 -0.97% 12,723 0.28% 11,007
09/30/1992 0.22% $11,688 0.65% 12,805 0.28% 11,038
10/31/1992 -1.56% $11,505 -0.98% 12,680 0.35% 11,077
11/30/1992 2.31% $11,771 1.79% 12,907 0.14% 11,092
12/31/1992 1.65% $11,965 1.02% 13,039 -0.07% 11,085
01/31/1993 1.30% $12,121 1.16% 13,190 0.49% 11,139
02/28/1993 2.90% $12,472 3.62% 13,667 0.35% 11,178
03/31/1993 -0.43% $12,419 -1.06% 13,522 0.35% 11,217
04/30/1993 0.77% $12,514 1.01% 13,659 0.28% 11,248
05/31/1993 0.36% $12,559 0.56% 13,735 0.14% 11,264
06/30/1993 1.76% $12,780 1.67% 13,965 0.14% 11,280
07/31/1993 0.02% $12,783 0.13% 13,983 0.00% 11,280
08/31/1993 2.19% $13,063 2.08% 14,274 0.28% 11,311
09/30/1993 1.18% $13,217 1.14% 14,437 0.21% 11,335
10/31/1993 0.24% $13,249 0.19% 14,464 0.41% 11,382
11/30/1993 -0.43% $13,192 -0.88% 14,337 0.07% 11,390
12/31/1993 1.90% $13,442 2.11% 14,639 0.00% 11,390
01/31/1994 0.89% $13,562 1.14% 14,806 0.27% 11,420
02/28/1994 -2.14% $13,272 -2.59% 14,423 0.34% 11,459
03/31/1994 -3.51% $12,806 -4.07% 13,836 0.34% 11,498
04/30/1994 -0.11% $12,792 0.85% 13,953 0.14% 11,514
05/31/1994 0.95% $12,913 0.87% 14,075 0.07% 11,522
06/30/1994 -0.64% $12,831 -0.61% 13,989 0.34% 11,562
07/31/1994 1.78% $13,059 1.83% 14,245 0.27% 11,593
08/31/1994 0.21% $13,087 0.35% 14,295 0.40% 11,639
09/30/1994 -1.18% $12,932 -1.47% 14,084 0.27% 11,671
10/31/1994 -1.87% $12,690 -1.78% 13,834 0.07% 11,679
11/30/1994 -2.54% $12,368 -1.81% 13,583 0.13% 11,694
12/31/1994 2.80% $12,714 2.20% 13,882 0.00% 11,694
01/31/1995 2.56% $13,040 2.86% 14,279 0.40% 11,741
02/28/1995 2.18% $13,324 2.91% 14,695 0.40% 11,788
03/31/1995 0.71% $13,419 1.15% 14,864 0.33% 11,827
04/30/1995 0.35% $13,466 0.12% 14,882 0.33% 11,866
05/31/1995 2.38% $13,786 3.19% 15,356 0.20% 11,889
06/30/1995 0.81% $13,674 -0.87% 15,223 0.20% 11,913
07/31/1995 0.58% $13,754 0.95% 15,367 0.00% 11,913
08/31/1995 1.30% $13,933 1.27% 15,563 0.26% 11,944
09/30/1995 0.82% $14,047 0.63% 15,661 0.20% 11,968
10/31/1995 1.22% $14,218 1.45% 15,888 0.33% 12,007
11/30/1995 1.31% $14,404 1.66% 16,151 -0.07% 11,999
12/31/1995 0.90% $14,534 0.96% 16,306 -0.07% 11,991
01/31/1996 0.49% $14,605 0.76% 16,430 0.59% 12,061
02/29/1996 -0.53% $14,528 -0.68% 16,319 0.32% 12,100
03/31/1996 -0.91% $14,396 -1.28% 16,110 0.52% 12,163
04/30/1996 0.11% $14,412 -0.28% 16,065 0.39% 12,210
05/31/1996 0.24% $14,446 -0.04% 16,058 0.19% 12,234
06/30/1996 1.01% $14,592 1.09% 16,233 0.06% 12,241
07/31/1996 0.68% $14,691 0.90% 16,379 0.19% 12,264
08/31/1996 0.28% $14,732 -0.02% 16,376 0.19% 12,287
09/30/1996 1.03% $14,884 1.40% 16,605 0.32% 12,327
10/31/1996 0.78% $15,000 1.13% 16,793 0.32% 12,366
11/30/1996 1.28% $15,192 1.83% 17,100 0.19% 12,390
12/31/1996 -0.06% $15,183 -0.42% 17,028 0.00% 12,390
01/31/1997 0.22% $15,217 0.19% 17,061 0.32% 12,429
02/28/1997 0.74% $15,329 0.92% 17,218 0.31% 12,468
03/31/1997 -0.79% $15,208 -1.33% 16,989 0.25% 12,499
04/30/1997 0.63% $15,304 0.84% 17,131 0.12% 12,514
05/31/1997 1.34% $15,509 1.51% 17,390 -0.06% 12,507
06/30/1997 0.92% $15,652 1.07% 17,576 0.12% 12,522
07/31/1997 2.26% $16,005 2.77% 18,063 0.12% 12,537
08/31/1997 -0.64% $15,903 -0.94% 17,893 0.19% 12,560
09/30/1997 1.09% $16,076 1.19% 18,106 0.25% 12,592
10/31/1997 0.48% $16,153 0.64% 18,222 0.25% 12,623
11/30/1997 0.69% $16,265 0.59% 18,330 -0.06% 12,616
12/31/1997 1.27% $16,471 1.46% 18,597 -0.12% 12,601
01/31/1998 0.81% $16,605 1.03% 18,789 0.19% 12,624
02/28/1998 0.26% $16,648 0.03% 18,794 0.19% 12,648
03/31/1998 0.11% $16,666 0.09% 18,811 0.19% 12,672
04/30/1998 0.05% $16,675 -0.45% 18,727 0.18% 12,695
05/31/1998 1.23% $16,880 1.58% 19,023 0.18% 12,718
06/30/1998 0.41% $16,949 0.39% 19,097 0.12% 12,733
07/31/1998 0.38% $17,013 0.25% 19,145 0.12% 12,749
08/31/1998 1.06% $17,194 1.55% 19,441 0.12% 12,764
09/30/1998 0.93% $17,354 1.25% 19,684 0.12% 12,779
10/31/1998 -0.08% $17,340 0.00% 19,684 0.24% 12,810
11/30/1998 0.34% $17,399 0.35% 19,753 0.00% 12,810
12/31/1998 0.32% $17,454 0.25% 19,803 -0.06% 12,802
01/31/1999 1.05% $17,638 1.19% 20,038 0.24% 12,833
02/28/1999 -0.30% $17,585 -0.44% 19,950 0.12% 12,848
03/31/1999 0.29% $17,636 0.14% 19,978 0.30% 12,887
04/30/1999 -0.04% $17,629 0.25% 20,028 0.73% 12,981
05/31/1999 -0.42% $17,555 -0.58% 19,912 0.00% 12,981
06/30/1999 -1.63% $17,269 -1.44% 19,625 0.00% 12,981
07/31/1999 0.22% $17,306 0.36% 19,696 0.30% 13,020
08/31/1999 -1.48% $17,050 -0.80% 19,538 0.24% 13,051
09/30/1999 -0.24% $17,009 0.04% 19,546 0.48% 13,114
10/31/1999 -1.85% $16,695 -1.08% 19,335 0.18% 13,137
11/30/1999 0.78% $16,825 1.06% 19,540 0.06% 13,145
12/31/1999 -1.28% $16,610 -0.75% 19,393 0.00% 13,145
01/31/2000 -1.22% $16,407 -0.44% 19,308 0.24% 13,177
02/29/2000 0.84% $16,590 1.16% 19,532 0.59% 13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Franklin Connecticut
Tax-Free Income Lehman Brothers
Date Fund-Class C Municipal Bond Index* CPI*
- ---- ------------ --------------------- ----
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,898 $10,000 $10,000
05/31/1995 2.41% $10,137 3.19% $10,319 0.20% $10,020
06/30/1995 -0.77% $10,058 -0.87% $10,229 0.20% $10,040
07/31/1995 0.52% $10,111 0.95% $10,326 0.00% $10,040
08/31/1995 1.34% $10,246 1.27% $10,458 0.26% $10,066
09/29/1995 0.86% $10,334 0.63% $10,523 0.20% $10,086
10/31/1995 1.16% $10,454 1.45% $10,676 0.33% $10,120
11/30/1995 1.25% $10,585 1.66% $10,853 -0.07% $10,112
12/29/1995 0.66% $10,655 0.96% $10,957 -0.07% $10,105
01/31/1996 0.43% $10,701 0.76% $11,041 0.59% $10,165
02/29/1996 -0.61% $10,635 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.96% $10,533 -1.28% $10,825 0.52% $10,251
04/30/1996 0.15% $10,549 -0.28% $10,795 0.39% $10,291
05/31/1996 0.18% $10,568 -0.04% $10,791 0.19% $10,310
06/28/1996 0.69% $10,641 1.09% $10,908 0.06% $10,316
07/31/1996 0.73% $10,719 0.90% $11,006 0.19% $10,336
08/30/1996 0.43% $10,765 -0.02% $11,004 0.19% $10,356
09/30/1996 0.99% $10,871 1.40% $11,158 0.32% $10,389
10/31/1996 0.73% $10,951 1.13% $11,284 0.32% $10,422
11/29/1996 1.23% $11,085 1.83% $11,491 0.19% $10,442
12/31/1996 -0.20% $11,063 -0.42% $11,443 0.00% $10,442
01/31/1997 0.17% $11,082 0.19% $11,464 0.32% $10,475
02/28/1997 0.80% $11,171 0.92% $11,570 0.31% $10,508
03/31/1997 -0.84% $11,077 -1.33% $11,416 0.25% $10,534
04/30/1997 0.59% $11,142 0.84% $11,512 0.12% $10,547
05/31/1997 1.29% $11,286 1.51% $11,686 -0.06% $10,540
06/30/1997 0.97% $11,395 1.07% $11,811 0.12% $10,553
07/31/1997 2.12% $11,637 2.77% $12,138 0.12% $10,565
08/31/1997 -0.69% $11,557 -0.94% $12,024 0.19% $10,586
09/30/1997 1.13% $11,687 1.19% $12,167 0.25% $10,612
10/31/1997 0.34% $11,727 0.64% $12,245 0.25% $10,639
11/30/1997 0.74% $11,814 0.59% $12,317 -0.06% $10,632
12/31/1997 1.22% $11,958 1.46% $12,497 -0.12% $10,619
01/31/1998 0.76% $12,049 1.03% $12,626 0.19% $10,640
02/28/1998 0.22% $12,075 0.03% $12,629 0.19% $10,660
03/31/1998 0.06% $12,083 0.09% $12,641 0.19% $10,680
04/30/1998 0.01% $12,084 -0.45% $12,584 0.18% $10,699
05/31/1998 1.18% $12,226 1.58% $12,783 0.18% $10,719
06/30/1998 0.36% $12,270 0.39% $12,832 0.12% $10,731
07/31/1998 0.33% $12,311 0.25% $12,865 0.12% $10,744
08/31/1998 1.01% $12,435 1.55% $13,064 0.12% $10,757
09/30/1998 0.88% $12,545 1.25% $13,227 0.12% $10,770
10/31/1998 -0.13% $12,528 0.00% $13,227 0.24% $10,796
11/30/1998 0.29% $12,565 0.35% $13,274 0.00% $10,796
12/31/1998 0.27% $12,599 0.25% $13,307 -0.06% $10,789
01/31/1999 1.00% $12,725 1.19% $13,465 0.24% $10,815
02/28/1999 -0.34% $12,681 -0.44% $13,406 0.12% $10,828
03/31/1999 0.24% $12,712 0.14% $13,425 0.30% $10,861
04/30/1999 0.00% $12,712 0.25% $13,458 0.73% $10,940
05/31/1999 -0.55% $12,642 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.67% $12,431 -1.44% $13,187 0.00% $10,940
07/31/1999 0.27% $12,464 0.36% $13,235 0.30% $10,973
08/31/1999 -1.61% $12,264 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.28% $12,229 0.04% $13,134 0.48% $11,052
10/31/1999 -1.88% $11,999 -1.08% $12,992 0.18% $11,072
11/30/1999 0.73% $12,087 1.06% $13,130 0.06% $11,079
12/31/1999 -1.32% $11,927 -0.75% $13,032 0.00% $11,079
01/31/2000 -1.26% $11,777 -0.44% $12,974 0.24% $11,105
02/29/2000 0.90% $11,881 1.16% $13,125 0.59% $11,171
</TABLE>
Past performance does not guarantee future results.
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 year under review, the municipal bond market continued to face
challenging and volatile times. The yield on the benchmark 30-year U.S. Treasury
bond increased from 5.58% on February 28, 1999, to 6.14% on February 29, 2000,
but reached a high of 6.75% on January 20, 2000. The municipal bond market
generally trended with the 30-year Treasury bond, and like its counterpart, saw
yields increase. Overall, fixed-income investors were cautious during the 12
months under review, as the Federal Reserve Board (the Fed) took a more
aggressive posture regarding the outlook for potential domestic inflationary
tendencies. At its June 1999 meeting, the Fed increased the federal funds target
rate by 25 basis points to 5.00% -- the first of four increases during the
reporting period -- leaving the federal funds target rate at 5.75% on February
29, 2000, with a bias toward further increases.
The rise in interest rates during the 12-month period resulted in decreasing
bond prices, presenting challenges for municipal bond investors. For the 12
months ended February 29, 2000, the 10-year Treasury bond price fell 9.09%, and
the fund's benchmark, the Lehman Brothers Municipal 10-Year Bond Index, was off
7.08%. By comparison, your fund's Class A share price, as measured by net asset
value, declined 6.9%.(2)
(1.) These dividends are generally subject to state and local income tax, if
any. For investors subject to the federal or state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
A non-diversified fund may be subject to greater risk of adverse economic or
regulatory developments than a fund with broader diversification.
(2.) Source: Lehman Brothers. Treasuries, if held to maturity, offer a fixed
rate of return and fixed principal value; their interest payments and principal
are guaranteed. The fund's investment return and share price fluctuate with
market conditions. Index is unmanaged and includes reinvested interest. One
cannot invest directly in an index.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 73.
CREDIT QUALITY BREAKDOWN(*)
Franklin Federal Intermediate-Term Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
[PIE CHART]
<TABLE>
<S> <C>
AAA 15.3%
AA 7.0%
A 20.5%
BBB 54.5%
Below Investment Grade 2.7%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
PORTFOLIO BREAKDOWN
Franklin Federal Intermediate-Term Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Utilities 23.7%
Hospital & Health Care 17.4%
Corporate-Backed 14.9%
Subject to Government Appropriation 9.0%
Tax-Supported Debt 8.1%
General Obligation 6.9%
Housing 6.3%
Transportation 5.2%
Prerefunded 3.8%
Higher Education 3.7%
Other Revenue 1.0%
</TABLE>
DIVIDEND DISTRIBUTIONS(*)
Franklin Federal Intermediate-Term Tax-Free Income Fund - Class A
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
- ---------------------------------
<S> <C>
March 4.15 cents
April 4.15 cents
May 4.15 cents
June 4.15 cents
July 4.15 cents
August 4.15 cents
September 4.25 cents
October 4.25 cents
November 4.25 cents
December 4.30 cents
January 4.30 cents
February 4.30 cents
- ---------------------------------
TOTAL 50.55 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.
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. The Performance Summary on page 23 shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 4.80%, based
on an annualization of the current 4.3 cent ($0.043) per share dividend and the
maximum offering price of $10.76 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal personal income tax bracket of 39.6% would
need to earn 7.95% from a taxable investment to match the fund's tax-free
distribution rate.
During the period, we made a majority of our purchases in the new issue market,
as issuers and underwriters were under market pressures to price deals
attractively. Purchases into the fund included Arkansas Conway Hospital Revenue,
North Carolina Eastern Municipal Power Agency and Massachusetts State
Development Finance Agency - Waste Management Inc. Furthermore, we looked for
opportunities to sell bonds in the secondary market, offering us the opportunity
to take tax losses, which can be used to offset current or future capital gains
and potentially lessen shareholders' future tax liabilities.
The rise in rates presented opportunities to restructure the fund to increase
its income-earning potential by allowing us to add more non-insured bonds, as
the interest rate increase caused yield spreads between AAA- and BBB-rated
securities to widen. To meet redemptions, the fund sought to sell primarily
securities that were trading at relatively favorable market prices, which were
mostly high-grade, liquid bonds.
Going forward, we are positive for the outlook for fixed-income markets, yet
expect the markets to remain somewhat volatile. In the near term, the strength
of the economy and inflationary pressures will determine the level of volatility
that will persist. However, longer term we feel that the continued economic
expansion and smaller supply of new-issue bonds should make municipal bonds
attractive investments.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return -2.43%
Net Asset Value (NAV) $10.52 (2/29/00) $11.30(2/28/99)
Change in NAV -$ 0.78
Distributions (3/1/99-2/29/00) Dividend Income $0.5055
</TABLE>
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (9/21/92)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -2.43% +28.11% +50.08%
Average Annual Total Return(2) -4.63% +4.60% +5.29%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A
- --------------------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.80%
Taxable Equivalent Distribution Rate(4) 7.95%
30-Day Standardized Yield(5) 4.80%
Taxable Equivalent Yield(4) 7.95%
</TABLE>
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
CLASS A: Subject to the maximum 2.25% initial sales charge.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 maximum sales
charge.
(3.) Distribution rate is based on an annualization of the current 4.3 cent per
share monthly dividend and the maximum offering price of $10.76 on February 29,
2000.
(4.) Taxable equivalent distribution rate and yield assume the 2000 maximum
federal personal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- -----------------------------------
<S> <C>
1-Year -4.63%
5-Year +4.60%
Since Inception (9/21/92) +5.29%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which includes
approximately 7,000 municipal securities from across the country, differs from
the fund in composition, does not pay management fees or expenses and includes
reinvested interest. One cannot invest directly in an index. For the periods
shown, performance of the fund's shares exceeded the rate of inflation as
measured by the Consumer Price Index (CPI).
CLASS A (9/23/92 - 2/29/00)
The following line graph compares the performance of Franklin Federal
Intermediate-Term Tax-Free Income Fund's Class A share to that of the Lehman
Brothers Municipal 10-Year Bond Index, and to the Consumer Price Index based on
a $10,000 investment from 9/21/92 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Federal Lehman Brothers CPI*
Intermediate-Term Municipal 10-Year
Tax-Free Income Bond Index*
Fund-Class A
<S> <C> <C> <C> <C> <C> <C>
09/23/1992 $9,775 $10,000 $10,000
09/30/1992 $9,785 0.19% $10,019 0.07% $10,007
10/31/1992 -0.40% $9,746 -1.02% $9,917 0.35% $10,042
11/30/1992 1.91% $9,932 1.83% $10,098 0.14% $10,056
12/31/1992 0.94% $10,025 1.16% $10,215 -0.07% $10,049
01/31/1993 0.81% $10,107 1.68% $10,387 0.49% $10,098
02/28/1993 2.92% $10,402 3.66% $10,767 0.35% $10,133
03/31/1993 0.32% $10,435 -1.46% $10,610 0.35% $10,169
04/30/1993 0.74% $10,512 0.95% $10,711 0.28% $10,197
05/31/1993 0.31% $10,545 0.35% $10,748 0.14% $10,211
06/30/1993 1.49% $10,702 1.97% $10,960 0.14% $10,226
07/31/1993 0.53% $10,759 0.25% $10,987 0.00% $10,226
08/31/1993 1.77% $10,949 2.07% $11,215 0.28% $10,254
09/30/1993 0.96% $11,054 1.23% $11,353 0.21% $10,276
10/31/1993 0.58% $11,118 0.16% $11,371 0.41% $10,318
11/30/1993 -0.59% $11,053 -0.82% $11,278 0.07% $10,325
12/31/1993 2.20% $11,296 2.13% $11,518 0.00% $10,325
01/31/1994 1.14% $11,425 1.23% $11,660 0.27% $10,353
02/28/1994 -1.83% $11,216 -2.74% $11,340 0.34% $10,388
03/31/1994 -3.07% $10,871 -3.82% $10,907 0.34% $10,424
04/30/1994 0.51% $10,927 1.10% $11,027 0.14% $10,438
05/31/1994 0.83% $11,017 0.80% $11,115 0.07% $10,445
06/30/1994 -0.27% $10,988 -0.43% $11,067 0.34% $10,481
07/31/1994 1.37% $11,138 1.68% $11,253 0.27% $10,509
08/31/1994 0.72% $11,218 0.39% $11,297 0.40% $10,551
09/30/1994 -0.80% $11,129 -1.34% $11,146 0.27% $10,580
10/31/1994 -1.30% $10,984 -1.46% $10,983 0.07% $10,587
11/30/1994 -1.36% $10,835 -1.89% $10,775 0.13% $10,601
12/31/1994 1.44% $10,991 1.80% $10,969 0.00% $10,601
01/31/1995 2.33% $11,247 2.59% $11,254 0.40% $10,643
02/28/1995 1.83% $11,452 2.83% $11,572 0.40% $10,686
03/31/1995 0.95% $11,561 1.35% $11,728 0.33% $10,721
04/30/1995 0.20% $11,584 0.12% $11,742 0.33% $10,757
05/31/1995 2.54% $11,879 3.17% $12,115 0.20% $10,778
06/30/1995 -0.50% $11,819 -0.62% $12,039 0.20% $10,800
07/31/1995 0.90% $11,926 1.47% $12,216 0.00% $10,800
08/31/1995 1.36% $12,088 1.36% $12,383 0.26% $10,828
09/30/1995 0.88% $12,194 0.64% $12,462 0.20% $10,849
10/31/1995 1.19% $12,339 1.15% $12,605 0.33% $10,885
11/30/1995 1.23% $12,491 1.34% $12,774 -0.07% $10,878
12/31/1995 0.67% $12,575 0.61% $12,852 -0.07% $10,870
01/31/1996 0.62% $12,653 1.01% $12,982 0.59% $10,934
02/29/1996 -0.49% $12,591 -0.41% $12,929 0.32% $10,969
03/31/1996 1.51% $12,781 -1.24% $12,768 0.52% $11,026
04/30/1996 -0.03% $12,777 -0.35% $12,724 0.39% $11,069
05/31/1996 -0.09% $12,765 -0.28% $12,688 0.19% $11,090
06/30/1996 0.95% $12,887 0.95% $12,808 0.06% $11,097
07/31/1996 0.62% $12,967 0.96% $12,931 0.19% $11,118
08/31/1996 0.06% $12,974 0.00% $12,931 0.19% $11,139
09/30/1996 0.99% $13,103 1.03% $13,065 0.32% $11,175
10/31/1996 1.05% $13,240 1.26% $13,229 0.32% $11,210
11/30/1996 1.31% $13,414 2.02% $13,496 0.19% $11,232
12/31/1996 -0.01% $13,413 -0.45% $13,436 0.00% $11,232
01/31/1997 -2.19% $13,119 0.39% $13,488 0.32% $11,268
02/28/1997 0.87% $13,233 0.94% $13,615 0.31% $11,303
03/31/1997 -0.94% $13,109 -1.34% $13,432 0.25% $11,331
04/30/1997 0.77% $13,209 0.74% $13,532 0.12% $11,344
05/31/1997 0.64% $13,294 1.42% $13,724 -0.06% $11,338
06/30/1997 1.16% $13,448 1.10% $13,875 0.12% $11,351
07/31/1997 2.23% $13,748 2.81% $14,265 0.12% $11,365
08/31/1997 -0.50% $13,679 -0.97% $14,126 0.19% $11,386
09/30/1997 0.78% $13,786 1.27% $14,306 0.25% $11,415
10/31/1997 0.54% $13,861 0.53% $14,382 0.25% $11,443
11/30/1997 0.56% $13,938 0.46% $14,448 -0.06% $11,437
12/31/1997 1.31% $14,121 1.58% $14,676 -0.12% $11,423
01/31/1998 1.21% $14,292 1.11% $14,839 0.19% $11,445
02/28/1998 0.03% $14,296 -0.01% $14,838 0.19% $11,466
03/31/1998 0.06% $14,304 -0.07% $14,827 0.19% $11,488
04/30/1998 -0.17% $14,280 -0.55% $14,746 0.18% $11,509
05/31/1998 1.28% $14,463 1.70% $14,996 0.18% $11,530
06/30/1998 0.29% $14,505 0.37% $15,052 0.12% $11,543
07/31/1998 0.34% $14,554 0.16% $15,076 0.12% $11,557
08/31/1998 1.11% $14,716 1.74% $15,338 0.12% $11,571
09/30/1998 0.98% $14,860 1.49% $15,567 0.12% $11,585
10/31/1998 -0.03% $14,856 0.04% $15,573 0.24% $11,613
11/30/1998 0.30% $14,900 0.30% $15,620 0.00% $11,613
12/31/1998 0.27% $14,940 0.31% $15,668 -0.06% $11,606
01/31/1999 1.17% $15,115 1.53% $15,908 0.24% $11,634
02/28/1999 -0.52% $15,037 -0.90% $15,765 0.12% $11,648
03/31/1999 0.07% $15,047 -0.05% $15,757 0.30% $11,683
04/30/1999 0.36% $15,101 0.27% $15,799 0.73% $11,768
05/31/1999 -0.56% $15,017 -0.70% $15,689 0.00% $11,768
06/30/1999 -1.13% $14,847 -1.86% $15,397 0.00% $11,768
07/31/1999 0.27% $14,887 0.67% $15,500 0.30% $11,803
08/31/1999 -0.59% $14,799 -0.37% $15,443 0.24% $11,831
09/30/1999 0.20% $14,829 0.34% $15,495 0.48% $11,888
10/31/1999 -1.11% $14,664 -0.71% $15,385 0.18% $11,910
11/30/1999 0.62% $14,755 1.09% $15,553 0.06% $11,917
12/31/1999 -0.62% $14,664 -0.52% $15,472 0.00% $11,917
01/31/2000 -0.64% $14,570 -0.41% $15,409 0.24% $11,945
02/29/2000 0.68% $14,671 0.79% $15,530 0.59% $12,016
</TABLE>
(*)Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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
During the year under review, the U.S. bond markets continued to experience
challenging times. The yield on the 30-year Treasury bond fluctuated
significantly during the period, beginning at 5.58%, then rising to a high of
6.75% on January 20, 2000, before closing the period at 6.14%. The municipal
bond market trended in the same general direction as the Treasury market,
although the volatility was not nearly as great.
Many of the same themes that existed in the municipal bond market in 1999
continued to persist in the first two months of 2000. In the semiannual report,
we pointed out that certain sectors of the municipal bond market had not fared
as well as others. For example, the health care sector was among the poorest
performing sectors in 1999 and continued to struggle in 2000. A reduction in
federal funding to hospitals as well as an extremely competitive environment
contributed to this sector's weakness. However, this environment provided the
fund with opportunities to find and purchase certain health care securities that
we felt were undervalued, as well as sell certain holdings that we believed on a
relative basis were overvalued. Nonetheless, it also created pressure on several
of the fund's health care positions.
During the 12-month reporting period, the fund's share price fell as interest
rates increased. It should be noted that the fund's share price decline was not
a result of any change to our investment philosophy or strategy, but instead
representative of the decline in market value of the portfolio's securities
attributed to rising interest rates. In fact, the fund's diversification and
overall composition helped protect our shareholders compared to individual bond
investors.
CREDIT QUALITY BREAKDOWN(*)
Franklin High Yield Tax-Free Income Fund Based on Total Long-Term Investments
2/29/00
[PIE CHART]
<TABLE>
<S> <C>
AAA - 23.5%
AA - 2.9%
A - 8.7%
BBB - 27.6%
Below Investment Grade - 37.3%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
(1.) These dividends are generally subject to state and local income tax, if
any. For investors subject to the federal or state alternative minimum tax, a
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 81.
PORTFOLIO BREAKDOWN
Franklin High Yield Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Utilities 28.2%
Prerefunded 14.7%
Hospital & Health Care 13.8%
Tax-Supported Debt 12.1%
Transportation 8.8%
Corporate-Backed 7.7%
General Obligation 5.0%
Housing 3.4%
Other Revenue 3.4%
Subject to Government
Appropriation 2.7%
Higher Education 0.2%
</TABLE>
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. On page 29, the Performance Summary shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.96%, based
on an annualization of the current 5.4 cent ($0.054) per share dividend and the
maximum offering price of $10.87 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal personal income tax bracket of 39.6% would
need to earn 9.87% from a taxable investment to match the fund's tax-free
distribution rate. The Performance Summary also shows the distribution rates and
taxable equivalent distribution rates for Class B and C shares.
The rise in rates presented opportunities to restructure the fund to increase
its income-earning potential. In addition, we sought to take advantage of the
higher interest-rate environment to book tax losses by selling lower yielding
securities, and reinvesting the proceeds at prevailing higher rates. These
losses help to offset any potential capital gains in the portfolio, can be
carried forward for several years, possibly lowering shareholders' future tax
liabilities.
There were several bright spots during the period. The fund was the beneficiary
of certain credit upgrades, resulting in improved prices for several holdings.
Three of the fund's major utility holdings -- Public Service Co. of New Mexico,
Tucson Electric Power Co. and Public Service Co. of New Hampshire -- were
upgraded during the year under review. In addition, in the fall of 1999, the
fund was able to add a major holding, New Jersey EDA for Continental Airlines.
The bonds financed a third concourse for Continental at Newark International
Airport, the airline's largest hub and the busiest airport serving New York City
and the tri-state area.
Looking forward, in our opinion municipal securities represent one of the most
undervalued sectors of the fixed-income market. Municipals have been cheap
compared with Treasuries during the past year due to several factors, most
notably, as rates have risen, investors have shunned the market, or moved money
into other investments. At the end of the period, the Bond Buyer Municipal Bond
Index (Bond Buyer 40) yielded 6.17%, and the 30-year U.S. Treasury bond yielded
6.14%, resulting in a municipal-to-Treasury yield ratio of 101%, compared with
an average ratio over the past 10 years of 90%. This means that municipal
securities have significant potential for price increases to return to their
historical average. Another positive sign is that municipal bond supply has been
considerably lower through the first two months of 2000 compared with the same
period in 1999, which should make municipal securities attractive investments.
Due to these factors, we remain optimistic about the high yield municipal bond
market for the near and long term.
DIVIDEND DISTRIBUTIONS(*)
Franklin High Yield Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
---------------------------------------------
MONTH CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.4 cents 4.84 cents 4.79 cents
April 5.4 cents 4.84 cents 4.79 cents
May 5.4 cents 4.84 cents 4.79 cents
June 5.4 cents 4.84 cents 4.90 cents
July 5.4 cents 4.84 cents 4.90 cents
August 5.4 cents 4.84 cents 4.90 cents
September 5.4 cents 4.86 cents 4.92 cents
October 5.4 cents 4.86 cents 4.92 cents
November 5.4 cents 4.86 cents 4.92 cents
December 5.4 cents 4.90 cents 4.91 cents
January 5.4 cents 4.90 cents 4.91 cents
February 5.4 cents 4.90 cents 4.91 cents
- --------------------------------------------------------------------------------
TOTAL 64.8 CENTS 58.32 CENTS 58.56 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -3.81%
Net Asset Value (NAV) $10.41 (2/29/00) $11.49(2/28/99)
Change in NAV -$ 1.08
Distributions (3/1/99-2/29/00) Dividend Income $0.6480
Long-Term Capital Gain $0.0028
------------------------------------
Total $0.6508
CLASS B
One-Year Total Return -4.27%
Net Asset Value (NAV) $10.45 (2/29/00) $11.52(2/28/99)
Change in NAV -$ 1.07
Distributions (3/1/99-2/29/00) Dividend Income $0.5832
Long-Term Capital Gain $0.0028
------------------------------------
Total $0.5860
CLASS C
One-Year Total Return -4.41%
Net Asset Value (NAV) $10.48 (2/29/00) $11.57(2/28/99)
Change in NAV -$1.09
Distributions (3/1/99-2/29/00) Dividend Income $0.5856
Long-Term Capital Gain $0.0028
------------------------------------
Total $0.5884
</TABLE>
Franklin High Yield Tax-Free Income Fund paid distributions derived from
long-term capital gains of 0.28 cents ($0.0028) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/18/86)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.81% +32.16% +96.02% +173.92%
Average Annual Total Return(2) -7.89% +4.81% +6.50% +7.16%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) -4.27% -3.36%
Average Annual Total Return(2) -7.90% -6.05%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) -4.41% +9.18% +26.88%
Average Annual Total Return(2) -6.29% +2.64% +4.83%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.96% 5.67% 5.58%
Taxable Equivalent Distribution Rate(4) 9.87% 9.39% 9.24%
30-Day Standardized Yield(5) 5.86% 5.56% 5.52%
Taxable Equivalent Yield(4) 9.70% 9.21% 9.14%
</TABLE>
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
(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 (net asset value price
for Class B) per share on February 29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the 2000 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 month ended February 29, 2000.
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 HIGH YIELD TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS A
- ----------------------------------
<S> <C>
1-Year -7.89%
5-Year +4.81%
10-Year +6.50%
Since Inception (3/18/86) +7.16%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------
<S> <C>
1-Year -7.90%
Since Inception (1/1/99) -6.05%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index.
CLASS A (3/1/90 - 2/29/00)
<TABLE>
<CAPTION>
Date Franklin High Yield Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,564 $10,000 $10,000
03/31/1990 -0.10% $9,554 0.03% $10,003 0.55% $10,055
04/30/1990 -0.77% $9,481 -0.72% $9,931 0.16% $10,071
05/31/1990 2.13% $9,683 2.18% $10,147 0.23% $10,094
06/30/1990 1.15% $9,794 0.88% $10,237 0.54% $10,149
07/31/1990 1.43% $9,934 1.47% $10,387 0.38% $10,187
08/31/1990 -1.80% $9,755 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.10% $9,746 0.06% $10,243 0.84% $10,367
10/31/1990 0.88% $9,831 1.82% $10,429 0.60% $10,430
11/30/1990 1.66% $9,995 2.01% $10,639 0.22% $10,453
12/31/1990 -0.19% $9,976 0.43% $10,685 0.00% $10,453
01/31/1991 1.27% $10,102 1.34% $10,828 0.60% $10,515
02/28/1991 0.38% $10,141 0.87% $10,922 0.15% $10,531
03/31/1991 0.49% $10,190 0.03% $10,925 0.15% $10,547
04/30/1991 1.46% $10,339 1.34% $11,072 0.15% $10,563
05/31/1991 0.87% $10,429 0.89% $11,170 0.30% $10,594
06/30/1991 0.39% $10,470 -0.10% $11,159 0.29% $10,625
07/31/1991 1.35% $10,611 1.22% $11,295 0.15% $10,641
08/31/1991 1.06% $10,724 1.32% $11,444 0.29% $10,672
09/30/1991 1.44% $10,878 1.30% $11,593 0.44% $10,719
10/31/1991 0.67% $10,951 0.90% $11,697 0.15% $10,735
11/30/1991 0.38% $10,993 0.28% $11,730 0.29% $10,766
12/31/1991 2.00% $11,212 2.15% $11,982 0.07% $10,774
01/31/1992 -0.10% $11,201 0.23% $12,010 0.15% $10,790
02/29/1992 -0.12% $11,188 0.03% $12,013 0.36% $10,829
03/31/1992 0.49% $11,243 0.03% $12,017 0.51% $10,884
04/30/1992 1.06% $11,362 0.89% $12,124 0.14% $10,899
05/31/1992 1.49% $11,531 1.18% $12,267 0.14% $10,914
06/30/1992 1.46% $11,699 1.68% $12,473 0.36% $10,954
07/31/1992 3.43% $12,101 3.00% $12,847 0.21% $10,977
08/31/1992 -1.51% $11,918 -0.97% $12,723 0.28% $11,007
09/30/1992 0.15% $11,936 0.65% $12,805 0.28% $11,038
10/31/1992 -1.35% $11,775 -0.98% $12,680 0.35% $11,077
11/30/1992 2.43% $12,061 1.79% $12,907 0.14% $11,092
12/31/1992 1.58% $12,251 1.02% $13,039 -0.07% $11,085
01/31/1993 1.31% $12,412 1.16% $13,190 0.49% $11,139
02/28/1993 2.82% $12,762 3.62% $13,667 0.35% $11,178
03/31/1993 -0.22% $12,734 -1.06% $13,522 0.35% $11,217
04/30/1993 0.70% $12,823 1.01% $13,659 0.28% $11,248
05/31/1993 0.55% $12,893 0.56% $13,735 0.14% $11,264
06/30/1993 1.79% $13,124 1.67% $13,965 0.14% $11,280
07/31/1993 0.12% $13,140 0.13% $13,983 0.00% $11,280
08/31/1993 2.13% $13,420 2.08% $14,274 0.28% $11,311
09/30/1993 1.12% $13,570 1.14% $14,437 0.21% $11,335
10/31/1993 0.18% $13,595 0.19% $14,464 0.41% $11,382
11/30/1993 0.39% $13,648 -0.88% $14,337 0.07% $11,390
12/31/1993 1.67% $13,876 2.11% $14,639 0.00% $11,390
01/31/1994 1.10% $14,028 1.14% $14,806 0.27% $11,420
02/28/1994 -1.18% $13,863 -2.59% $14,423 0.34% $11,459
03/31/1994 -2.94% $13,455 -4.07% $13,836 0.34% $11,498
04/30/1994 0.08% $13,466 0.85% $13,953 0.14% $11,514
05/31/1994 0.59% $13,545 0.87% $14,075 0.07% $11,522
06/30/1994 0.21% $13,574 -0.61% $13,989 0.34% $11,562
07/31/1994 1.30% $13,750 1.83% $14,245 0.27% $11,593
08/31/1994 0.31% $13,793 0.35% $14,295 0.40% $11,639
09/30/1994 -0.71% $13,695 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.01% $13,557 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.64% $13,334 -1.81% $13,583 0.13% $11,694
12/31/1994 1.36% $13,516 2.20% $13,882 0.00% $11,694
01/31/1995 2.44% $13,845 2.86% $14,279 0.40% $11,741
02/28/1995 2.45% $14,185 2.91% $14,695 0.40% $11,788
03/31/1995 1.37% $14,379 1.15% $14,864 0.33% $11,827
04/30/1995 0.43% $14,441 0.12% $14,882 0.33% $11,866
05/31/1995 2.44% $14,793 3.19% $15,356 0.20% $11,889
06/30/1995 0.12% $14,811 -0.87% $15,223 0.20% $11,913
07/31/1995 0.66% $14,909 0.95% $15,367 0.00% $11,913
08/31/1995 1.00% $15,058 1.27% $15,563 0.26% $11,944
09/30/1995 0.80% $15,178 0.63% $15,661 0.20% $11,968
10/31/1995 1.29% $15,374 1.45% $15,888 0.33% $12,007
11/30/1995 1.28% $15,571 1.66% $16,151 -0.07% $11,999
12/31/1995 0.96% $15,720 0.96% $16,306 -0.07% $11,991
01/31/1996 0.56% $15,808 0.76% $16,430 0.59% $12,061
02/29/1996 -0.08% $15,796 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.99% $15,639 -1.28% $16,110 0.52% $12,163
04/30/1996 0.10% $15,655 -0.28% $16,065 0.39% $12,210
05/31/1996 0.23% $15,691 -0.04% $16,058 0.19% $12,234
06/30/1996 0.98% $15,845 1.09% $16,233 0.06% $12,241
07/31/1996 0.75% $15,963 0.90% $16,379 0.19% $12,264
08/31/1996 0.36% $16,021 -0.02% $16,376 0.19% $12,287
09/30/1996 1.37% $16,240 1.40% $16,605 0.32% $12,327
10/31/1996 1.31% $16,453 1.13% $16,793 0.32% $12,366
11/30/1996 1.51% $16,702 1.83% $17,100 0.19% $12,390
12/31/1996 -0.07% $16,690 -0.42% $17,028 0.00% $12,390
01/31/1997 0.30% $16,740 0.19% $17,061 0.32% $12,429
02/28/1997 0.89% $16,889 0.92% $17,218 0.31% $12,468
03/31/1997 -0.79% $16,756 -1.33% $16,989 0.25% $12,499
04/30/1997 0.75% $16,881 0.84% $17,131 0.12% $12,514
05/31/1997 1.27% $17,096 1.51% $17,390 -0.06% $12,507
06/30/1997 1.23% $17,306 1.07% $17,576 0.12% $12,522
07/31/1997 2.53% $17,744 2.77% $18,063 0.12% $12,537
08/31/1997 -0.57% $17,643 -0.94% $17,893 0.19% $12,560
09/30/1997 1.65% $17,934 1.19% $18,106 0.25% $12,592
10/31/1997 0.71% $18,061 0.64% $18,222 0.25% $12,623
11/30/1997 0.64% $18,177 0.59% $18,330 -0.06% $12,616
12/31/1997 1.55% $18,458 1.46% $18,597 -0.12% $12,601
01/31/1998 1.10% $18,661 1.03% $18,789 0.19% $12,624
02/28/1998 0.23% $18,704 0.03% $18,794 0.19% $12,648
03/31/1998 0.08% $18,719 0.09% $18,811 0.19% $12,672
04/30/1998 -0.07% $18,706 -0.45% $18,727 0.18% $12,695
05/31/1998 1.25% $18,940 1.58% $19,023 0.18% $12,718
06/30/1998 0.45% $19,025 0.39% $19,097 0.12% $12,733
07/31/1998 0.17% $19,058 0.25% $19,145 0.12% $12,749
08/31/1998 1.17% $19,281 1.55% $19,441 0.12% $12,764
09/30/1998 0.60% $19,396 1.25% $19,684 0.12% $12,779
10/31/1998 -0.11% $19,375 0.00% $19,684 0.24% $12,810
11/30/1998 -0.30% $19,317 0.35% $19,753 0.00% $12,810
12/31/1998 0.15% $19,346 0.25% $19,803 -0.06% $12,802
01/31/1999 0.82% $19,504 1.19% $20,038 0.24% $12,833
02/28/1999 -0.06% $19,493 -0.44% $19,950 0.12% $12,848
03/31/1999 0.36% $19,563 0.14% $19,978 0.30% $12,887
04/30/1999 0.37% $19,635 0.25% $20,028 0.73% $12,981
05/31/1999 -0.43% $19,551 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.06% $19,344 -1.44% $19,625 0.00% $12,981
07/31/1999 0.46% $19,433 0.36% $19,696 0.30% $13,020
08/31/1999 -1.09% $19,221 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.08% $19,205 0.04% $19,546 0.48% $13,114
10/31/1999 -1.81% $18,858 -1.08% $19,335 0.18% $13,137
11/30/1999 0.83% $19,014 1.06% $19,540 0.06% $13,145
12/31/1999 1.45% $18,739 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.92% $18,566 -0.44% $19,308 0.24% $13,177
02/29/2000 0.98% $18,765 1.16% $19,532 0.59% $13,255
</TABLE>
The following line graph compares the performance of Franklin High Yield
Tax-Free Income Fund's Class B shares to that of the Lehman Brothers Municipal
Bond Index, and to the Consumer Price Index based on a $10,000 investment from
1/1/99 to 2/29/00.
CLASS B (1/1/99 - 2/29/00)
<TABLE>
<CAPTION>
Date Franklin High Yield Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class B Index*
<S> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $10,095 1.19% $10,119 0.24% $10,024
02/28/1999 $10,085 -0.44% $10,074 0.12% $10,036
03/31/1999 $10,110 0.14% $10,089 0.30% $10,066
04/30/1999 $10,143 0.25% $10,114 0.73% $10,140
05/31/1999 $10,098 -0.58% $10,055 0.00% $10,140
06/30/1999 $9,981 -1.44% $9,910 0.00% $10,140
07/31/1999 $10,033 0.36% $9,946 0.30% $10,170
08/31/1999 $9,915 -0.80% $9,866 0.24% $10,194
09/30/1999 $9,905 0.04% $9,870 0.48% $10,243
10/31/1999 $9,723 -1.08% $9,764 0.18% $10,262
11/30/1999 $9,794 1.06% $9,867 0.06% $10,268
12/31/1999 $9,647 -0.75% $9,793 0.00% $10,268
01/31/2000 $9,555 -0.44% $9,750 0.24% $10,293
02/29/2000 $9,301 1.16% $9,863 0.59% $10,353
</TABLE>
* Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
CLASS C (5/1/95 - 2/29/00)
[LINE GRAPH]
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin High Yield Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class C Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,899 $10,000 $10,000
05/31/1995 2.56% $10,152 3.19% $10,319 0.20% $10,020
06/30/1995 0.15% $10,168 -0.87% $10,229 0.20% $10,040
07/31/1995 0.70% $10,239 0.95% $10,326 0.00% $10,040
08/31/1995 0.94% $10,335 1.27% $10,458 0.26% $10,066
09/29/1995 0.74% $10,412 0.63% $10,523 0.20% $10,086
10/31/1995 1.23% $10,540 1.45% $10,676 0.33% $10,120
11/30/1995 1.31% $10,678 1.66% $10,853 -0.07% $10,112
12/29/1995 0.91% $10,775 0.96% $10,957 -0.07% $10,105
01/31/1996 0.51% $10,830 0.76% $11,041 0.59% $10,165
02/29/1996 -0.12% $10,817 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.03% $10,705 -1.28% $10,825 0.52% $10,251
04/30/1996 0.05% $10,711 -0.28% $10,795 0.39% $10,291
05/31/1996 0.17% $10,729 -0.04% $10,791 0.19% $10,310
06/28/1996 0.93% $10,829 1.09% $10,908 0.06% $10,316
07/31/1996 0.70% $10,905 0.90% $11,006 0.19% $10,336
08/30/1996 0.31% $10,938 -0.02% $11,004 0.19% $10,356
09/30/1996 1.32% $11,083 1.40% $11,158 0.32% $10,389
10/31/1996 1.25% $11,221 1.13% $11,284 0.32% $10,422
11/29/1996 1.46% $11,385 1.83% $11,491 0.19% $10,442
12/31/1996 -0.12% $11,371 -0.42% $11,443 0.00% $10,442
01/31/1997 0.34% $11,410 0.19% $11,464 0.32% $10,475
02/28/1997 0.83% $11,505 0.92% $11,570 0.31% $10,508
03/31/1997 -0.83% $11,409 -1.33% $11,416 0.25% $10,534
04/30/1997 0.70% $11,489 0.84% $11,512 0.12% $10,547
05/31/1997 1.21% $11,628 1.51% $11,686 -0.06% $10,540
06/30/1997 1.18% $11,765 1.07% $11,811 0.12% $10,553
07/31/1997 2.47% $12,056 2.77% $12,138 0.12% $10,565
08/31/1997 -0.61% $11,982 -0.94% $12,024 0.19% $10,586
09/30/1997 1.68% $12,184 1.19% $12,167 0.25% $10,612
10/31/1997 0.57% $12,253 0.64% $12,245 0.25% $10,639
11/30/1997 0.59% $12,325 0.59% $12,317 -0.06% $10,632
12/31/1997 1.58% $12,520 1.46% $12,497 -0.12% $10,619
01/31/1998 1.05% $12,652 1.03% $12,626 0.19% $10,640
02/28/1998 0.18% $12,674 0.03% $12,629 0.19% $10,660
03/31/1998 0.03% $12,678 0.09% $12,641 0.19% $10,680
04/30/1998 -0.11% $12,664 -0.45% $12,584 0.18% $10,699
05/31/1998 1.19% $12,815 1.58% $12,783 0.18% $10,719
06/30/1998 0.40% $12,866 0.39% $12,832 0.12% $10,731
07/31/1998 0.21% $12,893 0.25% $12,865 0.12% $10,744
08/31/1998 1.03% $13,026 1.55% $13,064 0.12% $10,757
09/30/1998 0.55% $13,098 1.25% $13,227 0.12% $10,770
10/31/1998 -0.07% $13,089 0.00% $13,227 0.24% $10,796
11/30/1998 0.35% $13,043 0.35% $13,274 0.00% $10,796
12/31/1998 0.02% $13,045 0.25% $13,307 -0.06% $10,789
01/31/1999 0.85% $13,156 1.19% $13,465 0.24% $10,815
02/28/1999 -0.11% $13,142 -0.44% $13,406 0.12% $10,828
03/31/1999 0.30% $13,181 0.14% $13,425 0.30% $10,861
04/30/1999 0.32% $13,223 0.25% $13,458 0.73% $10,940
05/31/1999 -0.56% $13,149 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.10% $13,005 -1.44% $13,187 0.00% $10,940
07/31/1999 0.50% $13,070 0.36% $13,235 0.30% $10,973
08/31/1999 -1.22% $12,910 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.03% $12,906 0.04% $13,134 0.48% $11,052
10/31/1999 -1.84% $12,669 -1.08% $12,992 0.18% $11,072
11/30/1999 0.68% $12,755 1.06% $13,130 0.06% $11,079
12/31/1999 -1.48% $12,566 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.96% $12,446 -0.44% $12,974 0.24% $11,105
02/29/2000 0.93% $12,561 1.16% $13,125 0.59% $11,171
</TABLE>
(*)Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURN
2/29/00
<TABLE>
<CAPTION>
CLASS C
- --------------------------------
<S> <C>
1-Year -6.29%
3-Year +2.64%
Since Inception (5/1/95) +4.83%
</TABLE>
CREDIT QUALITY BREAKDOWN(*)
Franklin New Jersey Tax-Free Income Fund
Based on Total Long-Term Investments
2/29/00
[PIE CHART]
<TABLE>
<S> <C>
AAA - 73.3%
AA - 7.8%
A - 5.4%
BBB - 12.3%
Below Investment Grade - 1.2%
</TABLE>
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
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
[NEW JERSEY STATE GRAPHIC]
New Jersey is taking advantage of its strategic location to propel its economy
forward. Situated adjacent to New York and Pennsylvania, New Jersey's residents
have ready access to the well-paying employment opportunities those states
offer. The state also has benefited significantly from its proximity to New York
City, as many of the City's business and financial services companies have moved
to northern New Jersey to reduce costs. Partially as a result, New Jersey's
economic base is among the nation's most diverse and is growing at a rate above
the region's. Furthermore, as of June 1999, New Jersey boasted the nation's
second-highest per-capita personal income, at $33,937.(2)
The robust economy has contributed to the state's solid fiscal operations over
the past few years. Due to stronger-than-expected revenue growth, New Jersey
ended fiscal year 1999 with a budgetary fund balance of more than $1.05 billion,
after generating a surplus of $131 million in 1998. This is even more impressive
when taking into account the 30% personal income tax reduction in recent
years.(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 and Poor's Ratings Direct, 11/99. This does not indicate
Standard and Poor's rating of the fund.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 105.
Counterbalancing this rosy scenario somewhat is the state's moderate but growing
debt level. Recently, debt levels, at $1,658 per capita, were high compared with
the $540 national median.(3) In the future, these levels are expected to rise as
the state issues up to $7 billion in debt to finance improved education, a more
modern transportation system and the acquisition of open space for parks and
outdoor recreation.(2)
New Jersey's outlook remains stable, earning the state an AA+ rating from
Standard & Poor's, an independent credit rating agency.(2) With a solid economy
and prudent fiscal planning, New Jersey should be able to manage the increased
debt load.
PORTFOLIO NOTES
During the period, we attempted to take advantage of the higher interest-rate
environment to restructure the fund's portfolio, seeking to improve the fund's
income-producing potential. We generally sold shorter maturity bonds and bought
longer maturity bonds to capture higher yields. In addition, we booked tax
losses, which can be carried forward in the portfolio to help offset taxable
capital gains in the future and potentially lower shareholders' future tax
liabilities.
New Jersey's new municipal bond issuance remained relatively steady, declining
only slightly by 1.7% in 1999, to $8.52 billion.(4) During the 12-month
reporting period, the fund primarily purchased insured bonds, which helped
maintain the portfolio's high quality, as many insured bonds are rated AAA. At
the end of the period, 73.3% of the fund's total long-term investments were
rated AAA. Important purchases during the period included Delaware River Port
Authority, Passaic Valley Sewer Commission, New Jersey State Transportation
Corp. and New Jersey EDA International Center for Public Health Project.
(3.) Source: Moody's Investors Service.
(4.) Source: The Bond Buyer, 1/3/00.
PORTFOLIO BREAKDOWN
Franklin New Jersey Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 18.5%
Prerefunded 18.1%
Transportation 17.1%
Utilities 15.2%
Housing 10.9%
General Obligation 5.5%
Higher Education 4.9%
Subject to Government Appropriation 3.5%
Corporate-Backed 2.5%
Other Revenue 2.5%
Tax-Supported Debt 1.3%
</TABLE>
WHAT IS A PREREFUNDED BOND?
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 pre-refunded 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.
Despite the higher interest-rate environment, some issuers were able to lower
their interest costs by prerefunding older debt. In addition, many issuers
called their higher-coupon bonds, which placed some pressure on the fund's
average coupon.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 8.1%.(5)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. On page 37, the Performance Summary shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.23%, based
on an annualization of the current 5 cent ($0.05) per share dividend and the
maximum offering price of $11.48 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and New Jersey state personal income
tax bracket of 43.45% would need to earn 9.25% from a taxable investment to
match the fund's tax-free distribution rate. The Performance Summary also shows
distribution rates and taxable equivalent distribution rates for Class B and C
shares.
Going forward, New Jersey's municipal bond supply for the remainder of 2000 is
expected to decline slightly, which should make them attractive investments for
investors seeking tax-free income. The fund will maintain its conservative
portfolio management strategy while seeking to provide a high level of current
income with a relatively stable share price.
(5.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
DIVIDEND DISTRIBUTIONS(*)
Franklin New Jersey Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------------------------
MONTH CLASS A CLASS B** CLASS C
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5 cents -- 4.43 cents
April 5 cents -- 4.43 cents
May 5 cents -- 4.43 cents
June 5 cents -- 4.46 cents
July 5 cents -- 4.46 cents
August 5 cents -- 4.46 cents
September 5 cents -- 4.47 cents
October 5 cents -- 4.47 cents
November 5 cents -- 4.47 cents
December 5 cents -- 4.50 cents
January 5 cents -- 4.50 cents
February 5 cents 3.03 cents 4.50 cents
- ----------------------------------------------------------------------------------------
TOTAL 60 CENTS 3.03 CENTS 53.58 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.
(**)Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -3.08%
Net Asset Value (NAV) $10.99 (2/29/00) $11.96 (2/28/99)
Change in NAV -$0.97
Distributions (3/1/99-2/29/00) Dividend Income $0.6000
Long-Term Capital Gain $0.0032
---------------------------------
Total $0.6032
CLASS B
Aggregate Total Return +1.44%
Net Asset Value (NAV) $11.00 (2/29/00) $10.89 (2/1/00)
Change in NAV +$0.11
Distributions (2/1/00-2/29/00) Dividend Income $0.0303
CLASS C
One-Year Total Return -3.69%
Net Asset Value (NAV) $11.05 (2/29/00) $12.03 (2/28/99)
Change in NAV -$0.98
Distributions (3/1/99-2/29/00) Dividend Income $0.5358
Long-Term Capital Gain $0.0032
---------------------------------
Total $0.5390
</TABLE>
Franklin New Jersey Tax-Free Income Fund paid distributions derived from
long-term capital gains of 0.32 cents ($0.0032) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (5/12/88)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -3.08% +27.62% +84.49% +119.61%
Average Annual Total Return(2) -7.19% +4.09% +5.86% +6.50%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
- --------------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +1.44%
Aggregate Total Return(2) -2.56%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.69% +9.14% +23.29%
Average Annual Total Return(2) -5.55% +2.61% +4.22%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.23% 4.90% 4.85%
Taxable Equivalent Distribution Rate(4) 9.25% 8.66% 8.58%
30-Day Standardized Yield(5) 5.08% 4.88% 4.71%
Taxable Equivalent Yield(4) 8.98% 8.63% 8.33%
</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, aggregate total return for that class represents
total return since inception, including the maximum sales charge.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and New Jersey state
personal income tax bracket of 43.45%, based on the federal income tax rate of
39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS A
- ----------------------------------
<TABLE>
<S> <C>
1-Year -7.19%
5-Year +4.09%
10-Year +5.86%
Since Inception (5/12/88) +6.50%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS C
- ---------------------------------
<TABLE>
<S> <C>
1-Year -5.55%
3-Year +2.61%
Since Inception (5/1/95) +4.22%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
[LINE GRAPH]
The following line graph compares the performance of 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin New Jersey Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,565 $10,000 $10,000
03/31/1990 -0.14% $9,552 0.03% $10,003 0.55% $10,055
04/30/1990 -0.71% $9,484 -0.72% $9,931 0.16% $10,071
05/31/1990 2.06% $9,679 2.18% $10,147 0.23% $10,094
06/30/1990 1.09% $9,785 0.88% $10,237 0.54% $10,149
07/31/1990 1.83% $9,964 1.47% $10,387 0.38% $10,187
08/31/1990 -2.55% $9,710 -1.45% $10,237 0.92% $10,281
09/30/1990 0.14% $9,723 0.06% $10,243 0.84% $10,367
10/31/1990 1.88% $9,906 1.82% $10,429 0.60% $10,430
11/30/1990 2.30% $10,134 2.01% $10,639 0.22% $10,453
12/31/1990 0.21% $10,155 0.43% $10,685 0.00% $10,453
01/31/1991 1.62% $10,320 1.34% $10,828 0.60% $10,515
02/28/1991 1.13% $10,436 0.87% $10,922 0.15% $10,531
03/31/1991 0.30% $10,468 0.03% $10,925 0.15% $10,547
04/30/1991 1.22% $10,595 1.34% $11,072 0.15% $10,563
05/31/1991 0.85% $10,685 0.89% $11,170 0.30% $10,594
06/30/1991 0.08% $10,694 -0.10% $11,159 0.29% $10,625
07/31/1991 1.55% $10,860 1.22% $11,295 0.15% $10,641
08/31/1991 0.89% $10,956 1.32% $11,444 0.29% $10,672
09/30/1991 1.35% $11,104 1.30% $11,593 0.44% $10,719
10/31/1991 0.61% $11,172 0.90% $11,697 0.15% $10,735
11/30/1991 0.43% $11,220 0.28% $11,730 0.29% $10,766
12/31/1991 1.79% $11,421 2.15% $11,982 0.07% $10,774
01/31/1992 0.40% $11,467 0.23% $12,010 0.15% $10,790
02/29/1992 0.05% $11,472 0.03% $12,013 0.36% $10,829
03/31/1992 0.17% $11,492 0.03% $12,017 0.51% $10,884
04/30/1992 0.88% $11,593 0.89% $12,124 0.14% $10,899
05/31/1992 1.22% $11,734 1.18% $12,267 0.14% $10,914
06/30/1992 1.40% $11,899 1.68% $12,473 0.36% $10,954
07/31/1992 3.52% $12,317 3.00% $12,847 0.21% $10,977
08/31/1992 -1.22% $12,167 -0.97% $12,723 0.28% $11,007
09/30/1992 0.08% $12,177 0.65% $12,805 0.28% $11,038
10/31/1992 -1.15% $12,037 -0.98% $12,680 0.35% $11,077
11/30/1992 2.29% $12,312 1.79% $12,907 0.14% $11,092
12/31/1992 1.29% $12,471 1.02% $13,039 -0.07% $11,085
01/31/1993 0.91% $12,585 1.16% $13,190 0.49% $11,139
02/28/1993 2.86% $12,945 3.62% $13,667 0.35% $11,178
03/31/1993 -0.53% $12,876 -1.06% $13,522 0.35% $11,217
04/30/1993 0.68% $12,964 1.01% $13,659 0.28% $11,248
05/31/1993 0.46% $13,023 0.56% $13,735 0.14% $11,264
06/30/1993 1.70% $13,245 1.67% $13,965 0.14% $11,280
07/31/1993 0.13% $13,262 0.13% $13,983 0.00% $11,280
08/31/1993 1.84% $13,506 2.08% $14,274 0.28% $11,311
09/30/1993 0.98% $13,638 1.14% $14,437 0.21% $11,335
10/31/1993 0.27% $13,675 0.19% $14,464 0.41% $11,382
11/30/1993 -0.45% $13,614 -0.88% $14,337 0.07% $11,390
12/31/1993 1.68% $13,842 2.11% $14,639 0.00% $11,390
01/31/1994 0.89% $13,966 1.14% $14,806 0.27% $11,420
02/28/1994 -2.08% $13,675 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.63% $13,179 -4.07% $13,836 0.34% $11,498
04/30/1994 0.28% $13,216 0.85% $13,953 0.14% $11,514
05/31/1994 0.76% $13,316 0.87% $14,075 0.07% $11,522
06/30/1994 -0.66% $13,228 -0.61% $13,989 0.34% $11,562
07/31/1994 1.64% $13,445 1.83% $14,245 0.27% $11,593
08/31/1994 0.41% $13,500 0.35% $14,295 0.40% $11,639
09/30/1994 -1.28% $13,327 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.76% $13,093 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.11% $12,817 -1.81% $13,583 0.13% $11,694
12/31/1994 2.38% $13,122 2.20% $13,882 0.00% $11,694
01/31/1995 2.91% $13,503 2.86% $14,279 0.40% $11,741
02/28/1995 2.45% $13,834 2.91% $14,695 0.40% $11,788
03/31/1995 0.96% $13,967 1.15% $14,864 0.33% $11,827
04/30/1995 0.17% $13,991 0.12% $14,882 0.33% $11,866
05/31/1995 2.61% $14,356 3.19% $15,356 0.20% $11,889
06/30/1995 -0.57% $14,274 -0.87% $15,223 0.20% $11,913
07/31/1995 0.56% $14,354 0.95% $15,367 0.00% $11,913
08/31/1995 1.06% $14,506 1.27% $15,563 0.26% $11,944
09/30/1995 0.61% $14,595 0.63% $15,661 0.20% $11,968
10/31/1995 1.43% $14,803 1.45% $15,888 0.33% $12,007
11/30/1995 1.50% $15,025 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,167 0.96% $16,306 -0.07% $11,991
01/31/1996 0.46% $15,236 0.76% $16,430 0.59% $12,061
02/29/1996 -0.65% $15,137 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.10% $14,971 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.15% $14,948 -0.28% $16,065 0.39% $12,210
05/31/1996 0.07% $14,959 -0.04% $16,058 0.19% $12,234
06/30/1996 1.06% $15,117 1.09% $16,233 0.06% $12,241
07/31/1996 0.83% $15,243 0.90% $16,379 0.19% $12,264
08/31/1996 -0.15% $15,220 -0.02% $16,376 0.19% $12,287
09/30/1996 1.43% $15,438 1.40% $16,605 0.32% $12,327
10/31/1996 0.93% $15,581 1.13% $16,793 0.32% $12,366
11/30/1996 1.57% $15,826 1.83% $17,100 0.19% $12,390
12/31/1996 -0.30% $15,778 -0.42% $17,028 0.00% $12,390
01/31/1997 0.06% $15,788 0.19% $17,061 0.32% $12,429
02/28/1997 0.80% $15,914 0.92% $17,218 0.31% $12,468
03/31/1997 -0.90% $15,771 -1.33% $16,989 0.25% $12,499
04/30/1997 0.79% $15,896 0.84% $17,131 0.12% $12,514
05/31/1997 1.11% $16,072 1.51% $17,390 -0.06% $12,507
06/30/1997 0.90% $16,217 1.07% $17,576 0.12% $12,522
07/31/1997 2.43% $16,611 2.77% $18,063 0.12% $12,537
08/31/1997 -0.83% $16,473 -0.94% $17,893 0.19% $12,560
09/30/1997 1.13% $16,659 1.19% $18,106 0.25% $12,592
10/31/1997 0.65% $16,767 0.64% $18,222 0.25% $12,623
11/30/1997 0.67% $16,880 0.59% $18,330 -0.06% $12,616
12/31/1997 1.30% $17,099 1.46% $18,597 -0.12% $12,601
01/31/1998 0.86% $17,246 1.03% $18,789 0.19% $12,624
02/28/1998 0.02% $17,250 0.03% $18,794 0.19% $12,648
03/31/1998 0.21% $17,286 0.09% $18,811 0.19% $12,672
04/30/1998 -0.27% $17,239 -0.45% $18,727 0.18% $12,695
05/31/1998 1.36% $17,474 1.58% $19,023 0.18% $12,718
06/30/1998 0.50% $17,561 0.39% $19,097 0.12% $12,733
07/31/1998 0.23% $17,601 0.25% $19,145 0.12% $12,749
08/31/1998 1.28% $17,827 1.55% $19,441 0.12% $12,764
09/30/1998 0.98% $18,001 1.25% $19,684 0.12% $12,779
10/31/1998 0.28% $18,052 0.00% $19,684 0.24% $12,810
11/30/1998 0.18% $18,084 0.35% $19,753 0.00% $12,810
12/31/1998 0.32% $18,142 0.25% $19,803 -0.06% $12,802
01/31/1999 0.84% $18,294 1.19% $20,038 0.24% $12,833
02/28/1999 -0.42% $18,218 -0.44% $19,950 0.12% $12,848
03/31/1999 0.39% $18,289 0.14% $19,978 0.30% $12,887
04/30/1999 0.24% $18,333 0.25% $20,028 0.73% $12,981
05/31/1999 -0.53% $18,235 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.13% $18,029 -1.44% $19,625 0.00% $12,981
07/31/1999 0.32% $18,087 0.36% $19,696 0.30% $13,020
08/31/1999 -1.35% $17,843 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.37% $17,777 0.04% $19,546 0.48% $13,114
10/31/1999 -1.25% $17,555 -1.08% $19,335 0.18% $13,137
11/30/1999 0.85% $17,704 1.06% $19,540 0.06% $13,145
12/31/1999 -0.98% $17,530 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.64% $17,418 -0.44% $19,308 0.24% $13,177
02/29/2000 1.36% $17,672 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
[LINE GRAPH]
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin New Jersey Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class C Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.73% $10,174 3.19% $10,319 0.20% $10,020
06/30/1995 -0.62% $10,111 -0.87% $10,229 0.20% $10,040
07/31/1995 0.60% $10,172 0.95% $10,326 0.00% $10,040
08/31/1995 1.01% $10,275 1.27% $10,458 0.26% $10,066
09/29/1995 0.65% $10,341 0.63% $10,523 0.20% $10,086
10/31/1995 1.36% $10,482 1.45% $10,676 0.33% $10,120
11/30/1995 1.46% $10,635 1.66% $10,853 -0.07% $10,112
12/29/1995 0.89% $10,730 0.96% $10,957 -0.07% $10,105
01/31/1996 0.50% $10,783 0.76% $11,041 0.59% $10,165
02/29/1996 -0.77% $10,700 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.15% $10,577 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.19% $10,557 -0.28% $10,795 0.39% $10,291
05/31/1996 0.10% $10,568 -0.04% $10,791 0.19% $10,310
06/28/1996 1.01% $10,675 1.09% $10,908 0.06% $10,316
07/31/1996 0.79% $10,759 0.90% $11,006 0.19% $10,336
08/30/1996 -0.28% $10,729 -0.02% $11,004 0.19% $10,356
09/30/1996 1.38% $10,877 1.40% $11,158 0.32% $10,389
10/31/1996 0.86% $10,970 1.13% $11,284 0.32% $10,422
11/29/1996 1.50% $11,135 1.83% $11,491 0.19% $10,442
12/31/1996 -0.36% $11,095 -0.42% $11,443 0.00% $10,442
01/31/1997 0.00% $11,095 0.19% $11,464 0.32% $10,475
02/28/1997 0.85% $11,189 0.92% $11,570 0.31% $10,508
03/31/1997 -0.94% $11,084 -1.33% $11,416 0.25% $10,534
04/30/1997 0.74% $11,166 0.84% $11,512 0.12% $10,547
05/31/1997 1.05% $11,283 1.51% $11,686 -0.06% $10,540
06/30/1997 0.86% $11,380 1.07% $11,811 0.12% $10,553
07/31/1997 2.38% $11,651 2.77% $12,138 0.12% $10,565
08/31/1997 -0.78% $11,560 -0.94% $12,024 0.19% $10,586
09/30/1997 0.99% $11,675 1.19% $12,167 0.25% $10,612
10/31/1997 0.59% $11,744 0.64% $12,245 0.25% $10,639
11/30/1997 0.62% $11,816 0.59% $12,317 -0.06% $10,632
12/31/1997 1.33% $11,974 1.46% $12,497 -0.12% $10,619
01/31/1998 0.73% $12,061 1.03% $12,626 0.19% $10,640
02/28/1998 0.05% $12,067 0.03% $12,629 0.19% $10,660
03/31/1998 0.16% $12,086 0.09% $12,641 0.19% $10,680
04/30/1998 -0.39% $12,039 -0.45% $12,584 0.18% $10,699
05/31/1998 1.39% $12,207 1.58% $12,783 0.18% $10,719
06/30/1998 0.37% $12,252 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $12,272 0.25% $12,865 0.12% $10,744
08/31/1998 1.31% $12,433 1.55% $13,064 0.12% $10,757
09/30/1998 0.93% $12,549 1.25% $13,227 0.12% $10,770
10/31/1998 0.23% $12,578 0.00% $13,227 0.24% $10,796
11/30/1998 0.13% $12,594 0.35% $13,274 0.00% $10,796
12/31/1998 0.27% $12,628 0.25% $13,307 -0.06% $10,789
01/31/1999 0.79% $12,728 1.19% $13,465 0.24% $10,815
02/28/1999 -0.38% $12,680 -0.44% $13,406 0.12% $10,828
03/31/1999 0.25% $12,711 0.14% $13,425 0.30% $10,861
04/30/1999 0.19% $12,735 0.25% $13,458 0.73% $10,940
05/31/1999 -0.49% $12,673 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.26% $12,513 -1.44% $13,187 0.00% $10,940
07/31/1999 0.27% $12,547 0.36% $13,235 0.30% $10,973
08/31/1999 -1.39% $12,373 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.41% $12,322 0.04% $13,134 0.48% $11,052
10/31/1999 -1.29% $12,163 -1.08% $12,992 0.18% $11,072
11/30/1999 0.79% $12,259 1.06% $13,130 0.06% $11,079
12/31/1999 -1.02% $12,134 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.78% $12,039 -0.44% $12,974 0.24% $11,105
02/29/2000 1.40% $12,210 1.16% $13,125 0.59% $11,171
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
FRANKLIN OREGON TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
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
[OREGON STATE GRAPHIC]
Oregon appears to be back on the road to health after a short period of illness.
With an economy moderately dependent on exports to Asia -- Japan and Korea are
its second- and third-largest trading partners -- Oregon directly felt the
symptoms of the 1997-98 "Asian flu."(2) However, as Asian countries' economies
began to improve, so did the vital export-oriented sectors of the Oregon
economy.
In fact, the state's economy and job growth have been the envy of much of the
nation for most of the past 10 years. No longer primarily dependent on the
once-important timber industry, Oregon now possesses an economy based largely on
high-technology manufacturing, with computer chip and software production the
most important industries in this sector. After slowing down due to the Asian
economic crisis, nonagricultural employment is again picking up and increased
2.47% for the first quarter of 1999.(2)
Overall debt levels remain manageable even given recent increases in capital
needs connected to the state's population growth. In November 1999, debt per
capita was $1,622, compared with the $540 national median and this figure should
not rise much if the state adheres to its target of issuing no more than $350
million debt annually.(2,3)
(1.) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2.) Source: Standard and Poor's Ratings Direct, 11/99. This does not indicate
Standard and Poor's rating of the fund.
(3.) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 110.
CREDIT QUALITY BREAKDOWN*
Franklin Oregon Tax-Free Income Fund Based on Total Long-Term Investments
2/29/00
[PIE CHART]
<TABLE>
<S> <C>
AAA 39.2%
AA 29.5%
A 14.9%
BBB 15.0%
Below Investment Grade 1.4%
</TABLE>
(*) Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
PORTFOLIO BREAKDOWN
Franklin Oregon Tax-Free Income Fund 2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- ------------------------------------
<S> <C>
Transportation 15.7%
Housing 14.7%
Hospital & Health Care 14.6%
General Obligation 13.1%
Prerefunded 12.9%
Corporate-Backed 10.3%
Subject to Government
Appropriation 7.8%
Utilities 6.3%
Higher Education 2.5%
Tax-Supported Debt 2.1%
</TABLE>
Oregon's outlook is stable, reflected in the AA rating assigned to it by
Standard & Poor's, an independent credit rating agency.(2) The state's heady
growth should continue, owing to comparatively affordable land prices and a
skilled workforce.
PORTFOLIO NOTES
Generally rising interest rates during the 12-month reporting period presented
challenges for the bond market, as bond prices fall when interest rates rise.
Municipal bonds declined more than the Treasury market during the period, as the
30-year Treasury bond price fell 10.1% while the Bond Buyer Municipal Bond Index
(Bond Buyer 40) was off 13.1%. By comparison, Franklin Oregon Tax-Free Income
Fund's Class A share price, as measured by net asset value, declined 8.6% for
the 12-month period.(4)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. The Performance Summary on page 43 shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.14%, based
on an annualization of the current 4.84 cent ($0.0484) per share dividend and
the maximum offering price of $11.29 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Oregon state personal income tax
bracket of 45.04% would need to earn 9.35% from a taxable investment to match
the fund's tax-free distribution rate. The Performance Summary also shows the
distribution rate and taxable equivalent distribution rate for Class C shares.
The portfolio's conservative buy-and-hold, income-oriented investment philosophy
contributed to its superior performance, relative to the entire fixed-income
market. The fund continued to hold a significant percentage of higher coupon
bonds from previous, higher interest-rate periods. Over time, this strategy can
lower share price volatility and provide greater current income. Our
shareholders can thus benefit from this practice, not only for income and lower
volatility, but for tax efficiency and after-tax total return.
(4.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
During the reporting period, we were able to take advantage of the rising
interest-rate environment to improve the portfolio's structure, increase the
fund's income-earning potential, extend call protection and book tax losses.
These losses can then be carried forward to help offset any current or future
taxable capital gains, possibly lowering shareholders' future tax liabilities.
As the largest municipal bond fund in Oregon with $467 million in total net
assets, Franklin Oregon Tax-Free Income Fund is able to use its size and
Franklin's significant presence in the municipal bond market to structure issues
to fit the portfolio's needs. Furthermore, the fund sought to take advantage of
strong retail demand in the resale market to help stabilize the fund's share
price. During the period, we attempted to maintain the fund's high quality, and
on February 29, 2000, more than 68% of the fund's total long-term investments
were rated AA or higher. Important purchases during the period included Port of
Portland International Airport and Oregon State Department of Administrative
Services.
The end of the reporting period comes near the close of two years with very
large municipal issuance. In 1999, new supply was strong nationally, with $225
billion in supply, as well as in Oregon, which saw issuance climb 34.7% from
1998's level, to $3.4 billion.(5) Going forward, supply should slow, though, as
the higher interest-rate environment significantly reduces refunding
opportunities. Diminishing expectations for primary and secondary bond issuance
should result in continued solid demand for institutional and retail Oregon
municipal bonds. With the Oregon municipal bond-to-Treasury yield ratio
above 100% at the reporting period's end, we believe the fund is well positioned
to perform favorably in the future.
(5.) Source: The Bond Buyer, 1/3/00.
DIVIDEND DISTRIBUTIONS(*)
FRANKLIN OREGON TAX-FREE INCOME FUND
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------
<S> <C> <C>
March 4.85 cents 4.28 cents
April 4.85 cents 4.28 cents
May 4.85 cents 4.28 cents
June 4.80 cents 4.26 cents
July 4.80 cents 4.26 cents
August 4.80 cents 4.26 cents
September 4.80 cents 4.28 cents
October 4.80 cents 4.28 cents
November 4.80 cents 4.28 cents
December 4.80 cents 4.31 cents
January 4.80 cents 4.31 cents
February 4.80 cents 4.31 cents
--------------------------------------------------------------
TOTAL 57.75 CENTS 51.39 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.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
CLASS A
One-Year Total Return -3.76%
Net Asset Value (NAV) $10.81 (2/29/00) $11.83 (2/28/99)
Change in NAV -$1.02
Distributions (3/1/99-2/29/00) Dividend Income $0.5775
CLASS C
One-Year Total Return -4.36%
Net Asset Value (NAV) $10.88 (2/29/00) $11.91 (2/28/99)
Change in NAV -$1.03
Distributions (3/1/99-2/29/00) Dividend Income $0.5139
ADDITIONAL PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
- ----------------------------------------------------------------------------
Cumulative Total Return(1) -3.76% +25.66% +79.98% +117.16%
Average Annual Total Return(2) -7.89% +3.77% +5.59% +6.03%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------
Cumulative Total Return(1) -4.36% +7.69% +21.53%
Average Annual Total Return(2) -6.22% +2.15% +3.91%
SHARE CLASS A C
- ---------------------------------------------------------------------------
Distribution Rate(3) 5.14% 4.76%
Taxable Equivalent Distribution Rate(4) 9.35% 8.66%
30-Day Standardized Yield(5) 4.99% 4.61%
Taxable Equivalent Yield(4) 9.08% 8.39%
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN OREGON TAX-FREE INCOME FUND
CLASS A: 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: 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
29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Oregon state personal
income tax bracket of 45.04%, based on the federal income tax rate of 39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 OREGON TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS A
- --------------------------------------
1-Year -7.89%
5-Year +3.77%
10-Year +5.59%
Since Inception (9/1/87) +6.03%
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS C
- --------------------------------------
1-Year -6.22%
3-Year +2.15%
Since Inception (5/1/95) +3.91%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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 3/1/90
to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Oregon Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class A Index*
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,574 $10,000 $10,000
03/31/1990 -0.01% $9,573 0.03% $10,003 0.55% $10,055
04/30/1990 -0.96% $9,481 -0.72% $9,931 0.16% $10,071
05/31/1990 2.21% $9,691 2.18% $10,147 0.23% $10,094
06/30/1990 1.13% $9,800 0.88% $10,237 0.54% $10,149
07/31/1990 1.60% $9,957 1.47% $10,387 0.38% $10,187
08/31/1990 -2.26% $9,732 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.20% $9,712 0.06% $10,243 0.84% $10,367
10/31/1990 1.54% $9,862 1.82% $10,429 0.60% $10,430
11/30/1990 2.20% $10,079 2.01% $10,639 0.22% $10,453
12/31/1990 -0.10% $10,069 0.43% $10,685 0.00% $10,453
01/31/1991 1.61% $10,231 1.34% $10,828 0.60% $10,515
02/28/1991 1.21% $10,355 0.87% $10,922 0.15% $10,531
03/31/1991 0.46% $10,402 0.03% $10,925 0.15% $10,547
04/30/1991 1.30% $10,538 1.34% $11,072 0.15% $10,563
05/31/1991 0.83% $10,625 0.89% $11,170 0.30% $10,594
06/30/1991 -0.01% $10,624 -0.10% $11,159 0.29% $10,625
07/31/1991 1.20% $10,752 1.22% $11,295 0.15% $10,641
08/31/1991 1.10% $10,870 1.32% $11,444 0.29% $10,672
09/30/1991 1.37% $11,019 1.30% $11,593 0.44% $10,719
10/31/1991 0.63% $11,088 0.90% $11,697 0.15% $10,735
11/30/1991 0.36% $11,128 0.28% $11,730 0.29% $10,766
12/31/1991 1.91% $11,341 2.15% $11,982 0.07% $10,774
01/31/1992 0.40% $11,386 0.23% $12,010 0.15% $10,790
02/29/1992 -0.06% $11,379 0.03% $12,013 0.36% $10,829
03/31/1992 0.33% $11,417 0.03% $12,017 0.51% $10,884
04/30/1992 0.69% $11,496 0.89% $12,124 0.14% $10,899
05/31/1992 1.03% $11,614 1.18% $12,267 0.14% $10,914
06/30/1992 1.40% $11,777 1.68% $12,473 0.36% $10,954
07/31/1992 3.28% $12,163 3.00% $12,847 0.21% $10,977
08/31/1992 -1.36% $11,997 -0.97% $12,723 0.28% $11,007
09/30/1992 0.23% $12,025 0.65% $12,805 0.28% $11,038
10/31/1992 1.29% $11,870 -0.98% $12,680 0.35% $11,077
11/30/1992 2.21% $12,132 1.79% $12,907 0.14% $11,092
12/31/1992 1.59% $12,325 1.02% $13,039 -0.07% $11,085
01/31/1993 1.16% $12,468 1.16% $13,190 0.49% $11,139
02/28/1993 2.95% $12,836 3.62% $13,667 0.35% $11,178
03/31/1993 -0.48% $12,774 -1.06% $13,522 0.35% $11,217
04/30/1993 0.75% $12,870 1.01% $13,659 0.28% $11,248
05/31/1993 0.44% $12,927 0.56% $13,735 0.14% $11,264
06/30/1993 1.26% $13,090 1.67% $13,965 0.14% $11,280
07/31/1993 0.21% $13,117 0.13% $13,983 0.00% $11,280
08/31/1993 1.51% $13,315 2.08% $14,274 0.28% $11,311
09/30/1993 1.31% $13,490 1.14% $14,437 0.21% $11,335
10/31/1993 0.34% $13,535 0.19% $14,464 0.41% $11,382
11/30/1993 0.64% $13,449 -0.88% $14,337 0.07% $11,390
12/31/1993 1.65% $13,671 2.11% $14,639 0.00% $11,390
01/31/1994 0.94% $13,799 1.14% $14,806 0.27% $11,420
02/28/1994 -1.97% $13,527 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.54% $13,048 -4.07% $13,836 0.34% $11,498
04/30/1994 0.25% $13,081 0.85% $13,953 0.14% $11,514
05/31/1994 0.64% $13,165 0.87% $14,075 0.07% $11,522
06/30/1994 -0.53% $13,095 -0.61% $13,989 0.34% $11,562
07/31/1994 1.62% $13,307 1.83% $14,245 0.27% $11,593
08/31/1994 0.38% $13,358 0.35% $14,295 0.40% $11,639
09/30/1994 -1.31% $13,183 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.89% $12,934 -1.78% $13,834 0.07% $11,679
11/30/1994 -2.06% $12,667 -1.81% $13,583 0.13% $11,694
12/31/1994 2.58% $12,994 2.20% $13,882 0.00% $11,694
01/31/1995 2.83% $13,362 2.86% $14,279 0.40% $11,741
02/28/1995 2.64% $13,714 2.91% $14,695 0.40% $11,788
03/31/1995 0.95% $13,845 1.15% $14,864 0.33% $11,827
04/30/1995 0.16% $13,867 0.12% $14,882 0.33% $11,866
05/31/1995 2.53% $14,218 3.19% $15,356 0.20% $11,889
06/30/1995 -0.75% $14,111 -0.87% $15,223 0.20% $11,913
07/31/1995 0.65% $14,203 0.95% $15,367 0.00% $11,913
08/31/1995 1.24% $14,379 1.27% $15,563 0.26% $11,944
09/30/1995 0.52% $14,454 0.63% $15,661 0.20% $11,968
10/31/1995 1.34% $14,647 1.45% $15,888 0.33% $12,007
11/30/1995 1.42% $14,855 1.66% $16,151 -0.07% $11,999
12/31/1995 0.68% $14,956 0.96% $16,306 -0.07% $11,991
01/31/1996 0.63% $15,051 0.76% $16,430 0.59% $12,061
02/29/1996 0.50% $14,975 -0.68% $16,319 0.32% $12,100
03/31/1996 -1.03% $14,821 -1.28% $16,110 0.52% $12,163
04/30/1996 0.02% $14,824 -0.28% $16,065 0.39% $12,210
05/31/1996 0.13% $14,843 -0.04% $16,058 0.19% $12,234
06/30/1996 1.05% $14,999 1.09% $16,233 0.06% $12,241
07/31/1996 0.64% $15,095 0.90% $16,379 0.19% $12,264
08/31/1996 0.09% $15,109 -0.02% $16,376 0.19% $12,287
09/30/1996 1.16% $15,284 1.40% $16,605 0.32% $12,327
10/31/1996 0.83% $15,411 1.13% $16,793 0.32% $12,366
11/30/1996 1.30% $15,611 1.83% $17,100 0.19% $12,390
12/31/1996 -0.06% $15,602 -0.42% $17,028 0.00% $12,390
01/31/1997 0.12% $15,621 0.19% $17,061 0.32% $12,429
02/28/1997 0.79% $15,744 0.92% $17,218 0.31% $12,468
03/31/1997 -0.75% $15,626 -1.33% $16,989 0.25% $12,499
04/30/1997 0.69% $15,734 0.84% $17,131 0.12% $12,514
05/31/1997 1.10% $15,907 1.51% $17,390 -0.06% $12,507
06/30/1997 0.80% $16,034 1.07% $17,576 0.12% $12,522
07/31/1997 2.16% $16,380 2.77% $18,063 0.12% $12,537
08/31/1997 -0.34% $16,325 -0.94% $17,893 0.19% $12,560
09/30/1997 0.96% $16,481 1.19% $18,106 0.25% $12,592
10/31/1997 0.56% $16,574 0.64% $18,222 0.25% $12,623
11/30/1997 0.67% $16,685 0.59% $18,330 -0.06% $12,616
12/31/1997 1.22% $16,888 1.46% $18,597 -0.12% $12,601
01/31/1998 0.78% $17,020 1.03% $18,789 0.19% $12,624
02/28/1998 0.10% $17,037 0.03% $18,794 0.19% $12,648
03/31/1998 0.05% $17,046 0.09% $18,811 0.19% $12,672
04/30/1998 -0.10% $17,029 -0.45% $18,727 0.18% $12,695
05/31/1998 1.20% $17,233 1.58% $19,023 0.18% $12,718
06/30/1998 0.34% $17,292 0.39% $19,097 0.12% $12,733
07/31/1998 0.23% $17,331 0.25% $19,145 0.12% $12,749
08/31/1998 1.29% $17,555 1.55% $19,441 0.12% $12,764
09/30/1998 0.99% $17,729 1.25% $19,684 0.12% $12,779
10/31/1998 -0.22% $17,690 0.00% $19,684 0.24% $12,810
11/30/1998 0.43% $17,766 0.35% $19,753 0.00% $12,810
12/31/1998 0.23% $17,807 0.25% $19,803 -0.06% $12,802
01/31/1999 0.93% $17,972 1.19% $20,038 0.24% $12,833
02/28/1999 -0.35% $17,909 -0.44% $19,950 0.12% $12,848
03/31/1999 0.30% $17,963 0.14% $19,978 0.30% $12,887
04/30/1999 0.15% $17,990 0.25% $20,028 0.73% $12,981
05/31/1999 -0.55% $17,891 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.53% $17,617 -1.44% $19,625 0.00% $12,981
07/31/1999 0.31% $17,672 0.36% $19,696 0.30% $13,020
08/31/1999 -1.30% $17,442 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.21% $17,406 0.04% $19,546 0.48% $13,114
10/31/1999 -1.64% $17,120 -1.08% $19,335 0.18% $13,137
11/30/1999 1.03% $17,296 1.06% $19,540 0.06% $13,145
12/31/1999 -1.01% $17,122 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.58% $17,022 -0.44% $19,308 0.24% $13,177
02/29/2000 1.27% $17,233 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Oregon Lehman Brothers CPI*
Tax-Free Income Municipal Bond
Fund-Class C Index*
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,903 $10,000 $10,000
05/31/1995 2.73% $10,173 3.19% $10,319 0.20% $10,020
06/30/1995 -0.81% $10,091 -0.87% $10,229 0.20% $10,040
07/31/1995 0.59% $10,150 0.95% $10,326 0.00% $10,040
08/31/1995 1.27% $10,279 1.27% $10,458 0.26% $10,066
09/29/1995 0.47% $10,328 0.63% $10,523 0.20% $10,086
10/31/1995 1.28% $10,460 1.45% $10,676 0.33% $10,120
11/30/1995 1.36% $10,602 1.66% $10,853 -0.07% $10,112
12/29/1995 0.71% $10,677 0.96% $10,957 -0.07% $10,105
01/31/1996 0.58% $10,739 0.76% $11,041 0.59% $10,165
02/29/1996 -0.51% $10,685 -0.68% $10,966 0.32% $10,198
03/29/1996 -1.07% $10,570 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.12% $10,558 -0.28% $10,795 0.39% $10,291
05/31/1996 0.17% $10,576 -0.04% $10,791 0.19% $10,310
06/28/1996 1.00% $10,681 1.09% $10,908 0.06% $10,316
07/31/1996 0.59% $10,744 0.90% $11,006 0.19% $10,336
08/30/1996 0.05% $10,750 -0.02% $11,004 0.19% $10,356
09/30/1996 1.11% $10,869 1.40% $11,158 0.32% $10,389
10/31/1996 0.78% $10,954 1.13% $11,284 0.32% $10,422
11/29/1996 1.34% $11,101 1.83% $11,491 0.19% $10,442
12/31/1996 -0.19% $11,079 -0.42% $11,443 0.00% $10,442
01/31/1997 0.16% $11,097 0.19% $11,464 0.32% $10,475
02/28/1997 0.72% $11,177 0.92% $11,570 0.31% $10,508
03/31/1997 -0.79% $11,089 -1.33% $11,416 0.25% $10,534
04/30/1997 0.64% $11,160 0.84% $11,512 0.12% $10,547
05/31/1997 1.04% $11,276 1.51% $11,686 -0.06% $10,540
06/30/1997 0.75% $11,360 1.07% $11,811 0.12% $10,553
07/31/1997 2.11% $11,600 2.77% $12,138 0.12% $10,565
08/31/1997 -0.30% $11,565 -0.94% $12,024 0.19% $10,586
09/30/1997 0.91% $11,671 1.19% $12,167 0.25% $10,612
10/31/1997 0.51% $11,730 0.64% $12,245 0.25% $10,639
11/30/1997 0.54% $11,793 0.59% $12,317 -0.06% $10,632
12/31/1997 1.25% $11,941 1.46% $12,497 -0.12% $10,619
01/31/1998 0.73% $12,028 1.03% $12,626 0.19% $10,640
02/28/1998 0.05% $12,034 0.03% $12,629 0.19% $10,660
03/31/1998 0.00% $12,034 0.09% $12,641 0.19% $10,680
04/30/1998 -0.22% $12,008 -0.45% $12,584 0.18% $10,699
05/31/1998 1.23% $12,155 1.58% $12,783 0.18% $10,719
06/30/1998 0.29% $12,190 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $12,211 0.25% $12,865 0.12% $10,744
08/31/1998 1.24% $12,363 1.55% $13,064 0.12% $10,757
09/30/1998 0.94% $12,479 1.25% $13,227 0.12% $10,770
10/31/1998 -0.27% $12,445 0.00% $13,227 0.24% $10,796
11/30/1998 0.38% $12,492 0.35% $13,274 0.00% $10,796
12/31/1998 0.19% $12,516 0.25% $13,307 -0.06% $10,789
01/31/1999 0.88% $12,626 1.19% $13,465 0.24% $10,815
02/28/1999 -0.31% $12,587 -0.44% $13,406 0.12% $10,828
03/31/1999 0.16% $12,607 0.14% $13,425 0.30% $10,861
04/30/1999 0.18% $12,630 0.25% $13,458 0.73% $10,940
05/31/1999 -0.68% $12,544 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.49% $12,357 -1.44% $13,187 0.00% $10,940
07/31/1999 0.18% $12,379 0.36% $13,235 0.30% $10,973
08/31/1999 -1.26% $12,223 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.35% $12,181 0.04% $13,134 0.48% $11,052
10/31/1999 -1.59% $11,987 -1.08% $12,992 0.18% $11,072
11/30/1999 0.88% $12,092 1.06% $13,130 0.06% $11,079
12/31/1999 -0.96% $11,976 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.71% $11,891 -0.44% $12,974 0.24% $11,105
02/29/2000 1.22% $12,035 1.16% $13,125 0.59% $11,171
</TABLE>
*Source: Standard & Poor's Micropal.
Past performance does not guarantee future results.
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
[PENNSYLVANIA GRAPHIC]
Through careful integration of the old and new, Pennsylvania has been able to
greatly improve its economic performance. While sectors of the old economy such
as steel, coal mining, and paper remain important to the commonwealth's economy,
the booming high-technology industries are becoming ever more vital. Since 1995,
high-tech employment has grown 5.3% annually, compared with a 1.8% increase for
the overall state employment in 1998. Pharmaceuticals, biotechnology and
computer software are among the most important areas of Pennsylvania's new
economy.(2)
The strong economy combined with careful fiscal management has also placed
Pennsylvania on a solid financial footing. Fiscal year 1999 saw a budget surplus
of $703 million, even with a fourth straight year of reduced business taxes. The
debt burden remains low by national standards, at $410 per capita, compared with
the $540 national median.(3) The commonwealth continues to follow conservative
fiscal planning and has shown a great deal of restraint in increasing spending.
Pennsylvania's AA rating by Standard & Poor's, an independent credit rating
agency, reflects this stable outlook.(2) With a diverse economic base, modern
and expansive transportation systems and leading educational institutions, the
commonwealth should continue its solid growth as it balances the past with 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. The fund's shares are free from Pennsylvania personal property tax and
income is free from Philadelphia School Investment Net Income Tax.
(2.) Source: Standard and Poor's Ratings Direct, 11/99. This does not indicate
Standard and Poor's rating of the fund.
(3.) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 116.
CREDIT QUALITY BREAKDOWN(*)
Franklin Pennsylvania Tax-Free
Income Fund
Based on Total Long-Term Investments
2/29/00
[PIE CHART]
AAA - 63.8%
AA - 8.3%
A - 11.5%
BBB - 14.1%
Below Investment
Grade - 2.3%
(*)Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
PORTFOLIO BREAKDOWN
Franklin Pennsylvania Tax-Free Income Fund
2/29/00
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- --------------------------------------
Hospital & Health Care 20.2%
Utilities 16.6%
Prerefunded 13.7%
General Obligation 10.4%
Higher Education 10.1%
Corporate-Backed 9.0%
Housing 8.9%
Transportation 4.9%
Other Revenue 4.7%
Subject to Government
Appropriation 1.0%
Tax-Supported Debt 0.5%
PORTFOLIO NOTES
Pennsylvania's new municipal bond issuance decreased significantly in 1999, down
28.2% compared with the previous year, as higher interest rates limited
refunding opportunities.(4) Many issuers enhanced their debt's credit quality by
purchasing insurance for their upcoming issues, improving their bonds'
marketability and giving them greater access to new money or better
opportunities to refinance existing debt.
During the year under review, the fund purchased primarily insured bonds, which
slightly improved the portfolio's quality as insured bonds are generally rated
AAA. As a result, 63.8% of the fund's total long-term investments were rated AAA
at the end of the reporting period, compared with 60.3% on February 28, 1999.
Important purchases during the period included Norwin School District, Allegheny
County Pittsburgh International Airport, Allegheny County Port Authority Special
Revenue and Washington County Authority Revenue - Capital Projects and Equipment
Program.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 9.2%.(5)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. On page 49, the Performance Summary shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.30%, based
on an annualization of the current 4.4 cent ($0.044) per share dividend and the
maximum offering price of $9.97 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum combined federal and Pennsylvania state personal
income tax bracket of 41.29% would need to earn 9.03% from a taxable investment
to match the fund's tax-free distribution rate. The Performance Summary also
shows distribution rates and taxable equivalent distribution rates for Class B
and C shares.
(4.) Source: The Bond Buyer, 1/3/00.
(5.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
DIVIDEND DISTRIBUTIONS(*)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
3/1/99 - 2/29/00
DIVIDEND PER SHARE
-------------------------------------------
MONTH CLASS A CLASS B(**) CLASS C
- ------------------------------------------------------------------------------
March 4.4 cents -- 3.89 cents
April 4.4 cents -- 3.89 cents
May 4.4 cents -- 3.89 cents
June 4.4 cents -- 3.93 cents
July 4.4 cents -- 3.93 cents
August 4.4 cents -- 3.93 cents
September 4.4 cents -- 3.94 cents
October 4.4 cents -- 3.94 cents
November 4.4 cents -- 3.94 cents
December 4.4 cents -- 3.97 cents
January 4.4 cents -- 3.97 cents
February 4.4 cents 2.51 cents 3.97 cents
- ------------------------------------------------------------------------------
Total 52.8 cents 2.51 cents 47.19 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.
(**) Effective February 1, 2000, the fund began offering Class B shares to
investors. See the prospectus for details.
Going forward, we remain positive about the outlook for Pennsylvania, its
municipal bonds and Franklin Pennsylvania Tax-Free Income Fund. Our shareholders
will continue to benefit from our practice of holding onto premium bonds to
maximize income, lower volatility, and increase tax efficiency and after-tax
yield.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no guarantee
of future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
CLASS A: 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 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: 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.
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year and aggregate total returns do not include sales charges. 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.
CLASS A
One-Year Total Return -4.24%
Net Asset Value (NAV) $9.55 (2/29/00) $10.52 (2/28/99)
Change in NAV -$0.97
Distributions (3/1/99-2/29/00) Dividend Income $0.5280
Long-Term Capital Gain $0.0002
-------------------------------------------
Total $0.5282
CLASS B
Aggregate Total Return +1.27%
Net Asset Value (NAV) $9.55 (2/29/00) $9.47 (2/1/00)
Change in NAV +$0.08
Distributions (2/1/00-2/29/00) Dividend Income $0.0251
CLASS C
One-Year Total Return -4.76%
Net Asset Value (NAV) $9.60 (2/29/00) $10.57 (2/28/99)
Change in NAV -$0.97
Distributions (3/1/99-2/29/00) Dividend Income $0.4719
Long-Term Capital Gain $0.0002
-------------------------------------------
Total $0.4721
Franklin Pennsylvania Tax-Free Income Fund paid distributions derived from
long-term capital gains of 0.02 cents ($0.0002) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (12/1/86)
- -------------------------------------------------------------------------------
Cumulative Total Return(1) -4.24% +26.26% +84.80% +122.95%
Average Annual Total Return(2) -8.34% +3.87% +5.87% +5.89%
INCEPTION
CLASS B (2/1/00)
- -------------------------------------------------------------------------------
Cumulative Total Return(1) +1.27%
Aggregate Total Return(2) -2.73%
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -------------------------------------------------------------------------------
Cumulative Total Return(1) -4.76% +7.84% +21.94%
Average Annual Total Return(2) -6.64% +2.19% +3.98%
SHARE CLASS A B C
- -------------------------------------------------------------------------------
Distribution Rate(3) 5.30% 4.98% 4.91%
Taxable Equivalent Distribution Rate(4) 9.03% 8.48% 8.36%
30-Day Standardized Yield(5) 5.15% 4.85% 4.78%
Taxable Equivalent Yield(4) 8.77% 8.26% 8.14%
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
(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, aggregate total return for that class represents
total return since inception, including the maximum sales charge.
(3.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (net asset value price
for Class B) per share on February 29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of March 15, 2000, for the maximum combined federal and Pennsylvania state
personal income tax bracket of 41.29%, based on the federal income tax rate of
39.6%.
(5.) Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the month ended February 29, 2000.
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 PENNSYLVANIA TAX-FREE INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS A
- ----------------------------------------
1-Year -8.34%
5-Year +3.87%
10-Year +5.87%
Since Inception (12/1/86) +5.89%
AVERAGE ANNUAL TOTAL RETURN
2/29/00
CLASS C
- --------------------------------------
1-Year -6.64%
3-Year +2.19%
Since Inception (5/1/95) +3.98%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Lehman Brothers CPI*
Pennsylvania Municipal Bond
Tax-Free Income Index*
Fund-Class A
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,573 $10,000 $10,000
03/31/1990 0.00% $9,573 0.03% $10,003 0.55% $10,055
04/30/1990 -0.94% $9,483 -0.72% $9,931 0.16% $10,071
05/31/1990 2.33% $9,704 2.18% $10,147 0.23% $10,094
06/30/1990 0.73% $9,775 0.88% $10,237 0.54% $10,149
07/31/1990 1.57% $9,928 1.47% $10,387 0.38% $10,187
08/31/1990 -2.79% $9,651 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.64% $9,590 0.06% $10,243 0.84% $10,367
10/31/1990 1.63% $9,746 1.82% $10,429 0.60% $10,430
11/30/1990 2.14% $9,954 2.01% $10,639 0.22% $10,453
12/31/1990 -0.21% $9,933 0.43% $10,685 0.00% $10,453
01/31/1991 1.60% $10,092 1.34% $10,828 0.60% $10,515
02/28/1991 0.63% $10,156 0.87% $10,922 0.15% $10,531
03/31/1991 0.42% $10,199 0.03% $10,925 0.15% $10,547
04/30/1991 1.59% $10,361 1.34% $11,072 0.15% $10,563
05/31/1991 0.79% $10,443 0.89% $11,170 0.30% $10,594
06/30/1991 0.27% $10,471 -0.10% $11,159 0.29% $10,625
07/31/1991 1.52% $10,630 1.22% $11,295 0.15% $10,641
08/31/1991 1.09% $10,746 1.32% $11,444 0.29% $10,672
09/30/1991 1.50% $10,907 1.30% $11,593 0.44% $10,719
10/31/1991 0.67% $10,980 0.90% $11,697 0.15% $10,735
11/30/1991 0.56% $11,042 0.28% $11,730 0.29% $10,766
12/31/1991 2.10% $11,273 2.15% $11,982 0.07% $10,774
01/31/1992 0.33% $11,311 0.23% $12,010 0.15% $10,790
02/29/1992 -0.06% $11,304 0.03% $12,013 0.36% $10,829
03/31/1992 0.29% $11,337 0.03% $12,017 0.51% $10,884
04/30/1992 0.94% $11,443 0.89% $12,124 0.14% $10,899
05/31/1992 1.14% $11,574 1.18% $12,267 0.14% $10,914
06/30/1992 1.64% $11,764 1.68% $12,473 0.36% $10,954
07/31/1992 3.45% $12,169 3.00% $12,847 0.21% $10,977
08/31/1992 -0.93% $12,056 -0.97% $12,723 0.28% $11,007
09/30/1992 0.39% $12,103 0.65% $12,805 0.28% $11,038
10/31/1992 -1.04% $11,977 -0.98% $12,680 0.35% $11,077
11/30/1992 2.15% $12,235 1.79% $12,907 0.14% $11,092
12/31/1992 1.21% $12,383 1.02% $13,039 -0.07% $11,085
01/31/1993 1.37% $12,553 1.16% $13,190 0.49% $11,139
02/28/1993 2.78% $12,901 3.62% $13,667 0.35% $11,178
03/31/1993 -0.27% $12,867 -1.06% $13,522 0.35% $11,217
04/30/1993 0.62% $12,946 1.01% $13,659 0.28% $11,248
05/31/1993 0.57% $13,020 0.56% $13,735 0.14% $11,264
06/30/1993 1.57% $13,225 1.67% $13,965 0.14% $11,280
07/31/1993 -0.06% $13,217 0.13% $13,983 0.00% $11,280
08/31/1993 1.96% $13,476 2.08% $14,274 0.28% $11,311
09/30/1993 1.13% $13,628 1.14% $14,437 0.21% $11,335
10/31/1993 0.28% $13,666 0.19% $14,464 0.41% $11,382
11/30/1993 -0.35% $13,618 -0.88% $14,337 0.07% $11,390
12/31/1993 1.55% $13,829 2.11% $14,639 0.00% $11,390
01/31/1994 0.85% $13,947 1.14% $14,806 0.27% $11,420
02/28/1994 -1.72% $13,707 -2.59% $14,423 0.34% $11,459
03/31/1994 -2.78% $13,326 -4.07% $13,836 0.34% $11,498
04/30/1994 0.10% $13,339 0.85% $13,953 0.14% $11,514
05/31/1994 0.73% $13,437 0.87% $14,075 0.07% $11,522
06/30/1994 -0.22% $13,407 -0.61% $13,989 0.34% $11,562
07/31/1994 1.48% $13,606 1.83% $14,245 0.27% $11,593
08/31/1994 0.32% $13,649 0.35% $14,295 0.40% $11,639
09/30/1994 -0.95% $13,519 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.28% $13,346 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.84% $13,101 -1.81% $13,583 0.13% $11,694
12/31/1994 2.09% $13,375 2.20% $13,882 0.00% $11,694
01/31/1995 2.39% $13,694 2.86% $14,279 0.40% $11,741
02/28/1995 2.36% $14,018 2.91% $14,695 0.40% $11,788
03/31/1995 0.96% $14,152 1.15% $14,864 0.33% $11,827
04/30/1995 0.18% $14,178 0.12% $14,882 0.33% $11,866
05/31/1995 2.40% $14,518 3.19% $15,356 0.20% $11,889
06/30/1995 -0.35% $14,467 -0.87% $15,223 0.20% $11,913
07/31/1995 0.61% $14,555 0.95% $15,367 0.00% $11,913
08/31/1995 0.88% $14,683 1.27% $15,563 0.26% $11,944
09/30/1995 0.59% $14,770 0.63% $15,661 0.20% $11,968
10/31/1995 1.12% $14,935 1.45% $15,888 0.33% $12,007
11/30/1995 1.44% $15,150 1.66% $16,151 -0.07% $11,999
12/31/1995 0.94% $15,293 0.96% $16,306 -0.07% $11,991
01/31/1996 0.51% $15,371 0.76% $16,430 0.59% $12,061
02/29/1996 -0.46% $15,300 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.86% $15,169 -1.28% $16,110 0.52% $12,163
04/30/1996 -0.08% $15,156 -0.28% $16,065 0.39% $12,210
05/31/1996 0.24% $15,193 -0.04% $16,058 0.19% $12,234
06/30/1996 0.95% $15,337 1.09% $16,233 0.06% $12,241
07/31/1996 0.70% $15,445 0.90% $16,379 0.19% $12,264
08/31/1996 0.00% $15,445 -0.02% $16,376 0.19% $12,287
09/30/1996 1.29% $15,644 1.40% $16,605 0.32% $12,327
10/31/1996 0.87% $15,780 1.13% $16,793 0.32% $12,366
11/30/1996 1.34% $15,991 1.83% $17,100 0.19% $12,390
12/31/1996 -0.07% $15,980 -0.42% $17,028 0.00% $12,390
01/31/1997 0.28% $16,025 0.19% $17,061 0.32% $12,429
02/28/1997 0.76% $16,147 0.92% $17,218 0.31% $12,468
03/31/1997 -0.95% $15,993 -1.33% $16,989 0.25% $12,499
04/30/1997 0.85% $16,129 0.84% $17,131 0.12% $12,514
05/31/1997 1.20% $16,323 1.51% $17,390 -0.06% $12,507
06/30/1997 0.99% $16,484 1.07% $17,576 0.12% $12,522
07/31/1997 2.30% $16,863 2.77% $18,063 0.12% $12,537
08/31/1997 -0.69% $16,747 -0.94% $17,893 0.19% $12,560
09/30/1997 1.04% $16,921 1.19% $18,106 0.25% $12,592
10/31/1997 0.68% $17,036 0.64% $18,222 0.25% $12,623
11/30/1997 0.71% $17,157 0.59% $18,330 -0.06% $12,616
12/31/1997 1.48% $17,411 1.46% $18,597 -0.12% $12,601
01/31/1998 1.03% $17,591 1.03% $18,789 0.19% $12,624
02/28/1998 -0.02% $17,587 0.03% $18,794 0.19% $12,648
03/31/1998 0.09% $17,603 0.09% $18,811 0.19% $12,672
04/30/1998 -0.15% $17,576 -0.45% $18,727 0.18% $12,695
05/31/1998 1.10% $17,770 1.58% $19,023 0.18% $12,718
06/30/1998 0.53% $17,864 0.39% $19,097 0.12% $12,733
07/31/1998 0.20% $17,900 0.25% $19,145 0.12% $12,749
08/31/1998 1.12% $18,100 1.55% $19,441 0.12% $12,764
09/30/1998 1.07% $18,294 1.25% $19,684 0.12% $12,779
10/31/1998 -0.20% $18,257 0.00% $19,684 0.24% $12,810
11/30/1998 0.44% $18,338 0.35% $19,753 0.00% $12,810
12/31/1998 0.16% $18,367 0.25% $19,803 -0.06% $12,802
01/31/1999 0.90% $18,532 1.19% $20,038 0.24% $12,833
02/28/1999 -0.25% $18,486 -0.44% $19,950 0.12% $12,848
03/31/1999 0.20% $18,523 0.14% $19,978 0.30% $12,887
04/30/1999 0.32% $18,582 0.25% $20,028 0.73% $12,981
05/31/1999 -0.67% $18,458 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.19% $18,238 -1.44% $19,625 0.00% $12,981
07/31/1999 0.21% $18,276 0.36% $19,696 0.30% $13,020
08/31/1999 -1.49% $18,004 -0.80% $19,538 0.24% $13,051
09/30/1999 -0.27% $17,955 0.04% $19,546 0.48% $13,114
10/31/1999 -1.91% $17,612 -1.08% $19,335 0.18% $13,137
11/30/1999 1.12% $17,810 1.06% $19,540 0.06% $13,145
12/31/1999 -1.08% $17,617 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.80% $17,476 -0.44% $19,308 0.24% $13,177
02/29/2000 1.29% $17,691 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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 2/29/00.
<TABLE>
<CAPTION>
Date Franklin Lehman Brothers CPI*
Pennsylvania Municipal Bond
Tax-Free Income Index*
Fund-Class C
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,903 $10,000 $10,000
05/31/1995 2.55% $10,156 3.19% $10,319 0.20% $10,020
06/30/1995 -0.40% $10,115 -0.87% $10,229 0.20% $10,040
07/31/1995 0.56% $10,172 0.95% $10,326 0.00% $10,040
08/31/1995 0.83% $10,256 1.27% $10,458 0.26% $10,066
09/29/1995 0.64% $10,322 0.63% $10,523 0.20% $10,086
10/31/1995 1.06% $10,431 1.45% $10,676 0.33% $10,120
11/30/1995 1.30% $10,567 1.66% $10,853 -0.07% $10,112
12/29/1995 0.99% $10,671 0.96% $10,957 -0.07% $10,105
01/31/1996 0.46% $10,720 0.76% $11,041 0.59% $10,165
02/29/1996 -0.50% $10,667 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.90% $10,571 -1.28% $10,825 0.52% $10,251
04/30/1996 -0.13% $10,557 -0.28% $10,795 0.39% $10,291
05/31/1996 0.29% $10,588 -0.04% $10,791 0.19% $10,310
06/28/1996 0.80% $10,672 1.09% $10,908 0.06% $10,316
07/31/1996 0.75% $10,752 0.90% $11,006 0.19% $10,336
08/30/1996 -0.14% $10,737 -0.02% $11,004 0.19% $10,356
09/30/1996 1.23% $10,869 1.40% $11,158 0.32% $10,389
10/31/1996 0.91% $10,968 1.13% $11,284 0.32% $10,422
11/29/1996 1.28% $11,109 1.83% $11,491 0.19% $10,442
12/31/1996 -0.13% $11,094 -0.42% $11,443 0.00% $10,442
01/31/1997 0.23% $11,120 0.19% $11,464 0.32% $10,475
02/28/1997 0.71% $11,199 0.92% $11,570 0.31% $10,508
03/31/1997 -0.99% $11,088 -1.33% $11,416 0.25% $10,534
04/30/1997 0.80% $11,177 0.84% $11,512 0.12% $10,547
05/31/1997 1.14% $11,304 1.51% $11,686 -0.06% $10,540
06/30/1997 0.94% $11,410 1.07% $11,811 0.12% $10,553
07/31/1997 2.24% $11,666 2.77% $12,138 0.12% $10,565
08/31/1997 -0.73% $11,581 -0.94% $12,024 0.19% $10,586
09/30/1997 0.98% $11,694 1.19% $12,167 0.25% $10,612
10/31/1997 0.63% $11,768 0.64% $12,245 0.25% $10,639
11/30/1997 0.76% $11,857 0.59% $12,317 -0.06% $10,632
12/31/1997 1.42% $12,026 1.46% $12,497 -0.12% $10,619
01/31/1998 0.88% $12,131 1.03% $12,626 0.19% $10,640
02/28/1998 0.02% $12,134 0.03% $12,629 0.19% $10,660
03/31/1998 0.04% $12,139 0.09% $12,641 0.19% $10,680
04/30/1998 -0.29% $12,103 -0.45% $12,584 0.18% $10,699
05/31/1998 1.15% $12,243 1.58% $12,783 0.18% $10,719
06/30/1998 0.48% $12,301 0.39% $12,832 0.12% $10,731
07/31/1998 0.06% $12,309 0.25% $12,865 0.12% $10,744
08/31/1998 1.16% $12,452 1.55% $13,064 0.12% $10,757
09/30/1998 0.93% $12,567 1.25% $13,227 0.12% $10,770
10/31/1998 -0.15% $12,549 0.00% $13,227 0.24% $10,796
11/30/1998 0.39% $12,597 0.35% $13,274 0.00% $10,796
12/31/1998 0.11% $12,611 0.25% $13,307 -0.06% $10,789
01/31/1999 0.85% $12,719 1.19% $13,465 0.24% $10,815
02/28/1999 -0.29% $12,682 -0.44% $13,406 0.12% $10,828
03/31/1999 0.24% $12,712 0.14% $13,425 0.30% $10,861
04/30/1999 0.17% $12,734 0.25% $13,458 0.73% $10,940
05/31/1999 -0.71% $12,643 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.23% $12,488 -1.44% $13,187 0.00% $10,940
07/31/1999 0.17% $12,509 0.36% $13,235 0.30% $10,973
08/31/1999 -1.54% $12,316 -0.80% $13,129 0.24% $10,999
09/30/1999 -0.32% $12,277 0.04% $13,134 0.48% $11,052
10/31/1999 -1.94% $12,039 -1.08% $12,992 0.18% $11,072
11/30/1999 1.06% $12,166 1.06% $13,130 0.06% $11,079
12/31/1999 -1.12% $12,030 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.84% $11,929 -0.44% $12,974 0.24% $11,105
02/29/2000 1.24% $12,075 1.16% $13,125 0.59% $11,171
</TABLE>
(*)Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
'FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
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
[PUERTO RICO GRAPHIC]
This island commonwealth is no longer just a tourist destination. Echoing the
U.S. economy, the commonwealth's gross national product (GNP) grew by an average
of 3.1% from 1994-98, and because of increased construction due to Hurricane
Georges, is estimated to have expanded by 3.4% in 1999. Job growth remains
steady albeit moderate led by the key construction, trade and services sectors.
Additionally, unemployment is near record lows, although at 12% to 13% it is
still much higher than in the U.S. Manufacturing continues to grow in
importance, recently contributing 43% to the island's GNP and employing 13% of
its workforce.(2)
Still, tourism remains essential to Puerto Rico, providing an important
counterbalance to the cyclical manufacturing sector. Recent activity has also
been impressive in this area as almost 1.5 million tourists visited the island
from July 1998 to June 1999, surpassing the record set in the same time period a
year earlier. A number of new hotel openings in the past few years added more
than 2,000 rooms, and construction continues with two more hotels under way.(2)
However, overall per-capita debt remains high at $2,600, compared with the $540
national median, and debt service was recently at 12% of expenditures, lofty
relative to most U.S. states.(2,3) In addition, the phasing out of Section 936,
which gave tax breaks to U.S. corporations with operations in Puerto Rico, is
causing the commonwealth to use other measures to maintain its healthy
manufacturing base. Despite this setback, manufacturing is still fairly well
established and should weather this without too many problems.
CREDIT QUALITY BREAKDOWN*
Franklin Puerto Rico Tax-Free
Income Fund
Based on Total Long-Term Investments
2/29/00
[CREDIT QUALITY PIE CHART]
<TABLE>
<S> <C>
AAA 51.7%
AA 1.0%
A 4.4%
BBB 42.9%
</TABLE>
(*) Quality breakdown may include internal ratings for bonds not rated by an
independent credit rating agency.
(1.) For investors subject to the federal and state 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 and Poor's Ratings Direct, 9/99. This does not indicate
Standard and Poor's rating of the fund.
(3.) Source: Moody's Investors Service.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), a complete listing of
the fund's portfolio holdings, including dollar value and number of shares or
principal amount. The SOI begins on page 121.
PORTFOLIO BREAKDOWN
Franklin Puerto Rico
Tax-Free Income Fund
2/29/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
SECTOR INVESTMENTS
- -----------------------------------------------------------------------------------
<S> <C>
Prerefunded 25.4%
Transportation 16.4%
Hospital & Health Care 11.9%
Housing 7.8%
Tax-Supported Debt 7.6%
General Obligation 7.5%
Utilities 7.3%
Subject to Government Appropriation 6.2%
Higher Education 5.4%
Other Revenue 3.1%
Corporate-Backed 1.4%
</TABLE>
Puerto Rico's outlook is stable, and Standard & Poor's, an independent credit
rating agency, has assigned it an A rating.(2) With continued economic growth
and a diversifying economy, the commonwealth should continue to experience solid
growth.
PORTFOLIO NOTES
During the 12-month reporting period, we attempted to take advantage of the
higher interest-rate environment to restructure the fund's portfolio. We
generally bought bonds with higher original issue discount (OID), or discount
from par value at time of issuance. In addition, we booked tax losses, which can
be carried forward in the portfolio to help offset taxable capital gains in the
future and potentially lower shareholders' future tax liabilities.
Puerto Rico issuance was down significantly during 1999. Supply decreased 67.0%,
from $5.042 billion in 1998, to $1.662 billion in 1999.(4) However, we were able
to find bonds providing attractive value during the period. One example was the
$857 million Puerto Rico Municipal Finance Agency we purchased in November. The
bonds are insured, with a coupon of 5.5%; however, because we were able to buy
them at a discount, they were yielding 5.82% at the time of purchase.
The rise in interest rates during the period resulted in decreasing bond prices,
presenting challenges for municipal bond investors. For the 12 months ended
February 29, 2000, the 30-year Treasury bond price fell 10.1%, and the Bond
Buyer Municipal Bond Index (Bond Buyer 40) was off 13.1%. By comparison, your
fund's Class A share price, as measured by net asset value, declined 7.8%.(5)
In addition, your fund offers a notable tax advantage over a comparable taxable
investment. The Performance Summary on page 54 shows that at the end of this
reporting period, the fund's Class A shares' distribution rate was 5.09%, based
on an annualization of the current 4.85 cent ($0.0485) per share dividend and
the maximum offering price of $11.44 on February 29, 2000. This tax-free rate is
generally higher than the after-tax return on a comparable taxable investment.
An investor in the maximum federal tax bracket of 39.6% would need to earn 8.43%
from a taxable investment to match the fund's tax-free distribution rate. The
Performance Summary also shows the distribution rate and taxable equivalent
distribution rate for Class C shares.
(4.) Source: The Bond Buyer, 1/3/00.
(5.) Sources: Lehman Brothers; The Bond Buyer. Treasuries, if held to maturity,
offer a fixed rate of return and fixed principal value; their interest payments
and principal are guaranteed. The fund's investment return and share price
fluctuate with market conditions. Index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
DIVIDEND DISTRIBUTIONS(*)
Franklin Puerto Rico Tax-Free Income Fund
3/1/99 - 2/29/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
March 4.75 cents 4.18 cents
April 4.75 cents 4.18 cents
May 4.75 cents 4.18 cents
June 4.75 cents 4.22 cents
July 4.75 cents 4.22 cents
August 4.75 cents 4.22 cents
September 4.75 cents 4.21 cents
October 4.75 cents 4.21 cents
November 4.75 cents 4.21 cents
December 4.80 cents 4.29 cents
January 4.80 cents 4.29 cents
February 4.80 cents 4.29 cents
- --------------------------------------------------------------------------------
Total 57.15 cents 50.70 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.
Going forward, Puerto Rico's municipal bond supply for the remainder of 2000 is
expected to remain relatively sparse, which should make them attractive
investments for investors seeking tax-free income given their relatively stable
demand. The fund will maintain its conservative portfolio management strategy
while seeking to provide a high level of current income with a relatively stable
share price.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any industry, security or the fund.
Our strategies and the fund's portfolio composition will change depending on
market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
ONE-YEAR PERFORMANCE SUMMARY AS OF 2/29/00
One-year total return does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return -2.91%
Net Asset Value (NAV) $10.95 (2/29/00) $11.88 (2/28/99)
Change in NAV -$0.93
Distributions (3/1/99-2/29/00) Dividend Income $0.5715
Long-Term Capital Gain $0.0156
-----------------------------------
Total $0.5871
CLASS C
One-Year Total Return -3.37%
Net Asset Value (NAV) $10.97 (2/29/00) $11.89 (2/28/99)
Change in NAV -$0.92
Distributions (3/1/99-2/29/00) Dividend Income $0.5070
Long-Term Capital Gain $0.0156
-----------------------------------
Total $0.5226
</TABLE>
CLASS A: 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: 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.
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -2.91% +28.62% +84.82% +178.33%
Average Annual Total Return(2) -7.06% +4.26% +5.87% +6.80%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.37% +9.74% +23.93%
Average Annual Total Return(2) -5.25% +2.79% +4.33%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A C
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.09% 4.74%
Taxable Equivalent Distribution Rate(4) 8.43% 7.85%
30-Day Standardized Yield(5) 4.86% 4.48%
Taxable Equivalent Yield(4) 8.05% 7.42%
</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
29, 2000.
(4.) Taxable equivalent distribution rate and yield assume the 2000 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 month ended February 29, 2000.
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 Puerto Rico Tax-Free Income Fund paid distributions derived from
long-term capital gains of 1.56 cents ($0.0156) per share in June 1999. The fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
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. The unmanaged index, which
includes approximately 38,000 municipal securities from across the country,
differs from the fund in composition, does not pay management fees or expenses
and includes reinvested interest. One cannot invest directly in an index. For
the periods shown, performance of the fund's shares exceeded the rate of
inflation as measured by the Consumer Price Index (CPI).
CLASS A (3/1/90 - 2/29/00)
The following line graph compares the performance of 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
3/1/90 to 2/29/00.
<TABLE>
<CAPTION>
Franklin Puerto Lehman Brothers
Rico Tax-Free Municipal Bond
Date Income Fund-Class A Index* CPI*
- ---- ------------------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
03/01/1990 $9,564 $10,000 $10,000
03/31/1990 -0.09% $9,555 0.03% $10,003 0.55% $10,055
04/30/1990 -0.56% $9,502 -0.72% $9,931 0.16% $10,071
05/31/1990 2.08% $9,700 2.18% $10,147 0.23% $10,094
06/30/1990 0.93% $9,790 0.88% $10,237 0.54% $10,149
07/31/1990 1.58% $9,944 1.47% $10,387 0.38% $10,187
08/31/1990 -1.94% $9,751 -1.45% $10,237 0.92% $10,281
09/30/1990 -0.47% $9,706 0.06% $10,243 0.84% $10,367
10/31/1990 1.43% $9,844 1.82% $10,429 0.60% $10,430
11/30/1990 2.27% $10,068 2.01% $10,639 0.22% $10,453
12/31/1990 -0.37% $10,031 0.43% $10,685 0.00% $10,453
01/31/1991 1.69% $10,200 1.34% $10,828 0.60% $10,515
02/28/1991 1.02% $10,304 0.87% $10,922 0.15% $10,531
03/31/1991 0.37% $10,342 0.03% $10,925 0.15% $10,547
04/30/1991 1.39% $10,486 1.34% $11,072 0.15% $10,563
05/31/1991 0.74% $10,564 0.89% $11,170 0.30% $10,594
06/30/1991 0.10% $10,574 -0.10% $11,159 0.29% $10,625
07/31/1991 1.29% $10,711 1.22% $11,295 0.15% $10,641
08/31/1991 0.91% $10,808 1.32% $11,444 0.29% $10,672
09/30/1991 1.28% $10,946 1.30% $11,593 0.44% $10,719
10/31/1991 0.72% $11,025 0.90% $11,697 0.15% $10,735
11/30/1991 0.54% $11,085 0.28% $11,730 0.29% $10,766
12/31/1991 1.60% $11,262 2.15% $11,982 0.07% $10,774
01/31/1992 0.31% $11,297 0.23% $12,010 0.15% $10,790
02/29/1992 -0.03% $11,294 0.03% $12,013 0.36% $10,829
03/31/1992 0.36% $11,334 0.03% $12,017 0.51% $10,884
04/30/1992 0.76% $11,421 0.89% $12,124 0.14% $10,899
05/31/1992 1.21% $11,559 1.18% $12,267 0.14% $10,914
06/30/1992 1.49% $11,731 1.68% $12,473 0.36% $10,954
07/31/1992 3.01% $12,084 3.00% $12,847 0.21% $10,977
08/31/1992 -0.87% $11,979 -0.97% $12,723 0.28% $11,007
09/30/1992 0.13% $11,994 0.65% $12,805 0.28% $11,038
10/31/1992 -1.23% $11,847 -0.98% $12,680 0.35% $11,077
11/30/1992 2.14% $12,100 1.79% $12,907 0.14% $11,092
12/31/1992 1.56% $12,289 1.02% $13,039 -0.07% $11,085
01/31/1993 1.08% $12,422 1.16% $13,190 0.49% $11,139
02/28/1993 2.51% $12,734 3.62% $13,667 0.35% $11,178
03/31/1993 -0.61% $12,656 -1.06% $13,522 0.35% $11,217
04/30/1993 0.77% $12,754 1.01% $13,659 0.28% $11,248
05/31/1993 0.63% $12,834 0.56% $13,735 0.14% $11,264
06/30/1993 1.36% $13,008 1.67% $13,965 0.14% $11,280
07/31/1993 -0.01% $13,007 0.13% $13,983 0.00% $11,280
08/31/1993 1.80% $13,241 2.08% $14,274 0.28% $11,311
09/30/1993 1.30% $13,413 1.14% $14,437 0.21% $11,335
10/31/1993 0.19% $13,439 0.19% $14,464 0.41% $11,382
11/30/1993 -0.27% $13,403 -0.88% $14,337 0.07% $11,390
12/31/1993 1.78% $13,641 2.11% $14,639 0.00% $11,390
01/31/1994 0.90% $13,764 1.14% $14,806 0.27% $11,420
02/28/1994 -1.74% $13,524 -2.59% $14,423 0.34% $11,459
03/31/1994 -3.44% $13,059 -4.07% $13,836 0.34% $11,498
04/30/1994 0.49% $13,123 0.85% $13,953 0.14% $11,514
05/31/1994 0.70% $13,215 0.87% $14,075 0.07% $11,522
06/30/1994 -0.67% $13,126 -0.61% $13,989 0.34% $11,562
07/31/1994 1.56% $13,331 1.83% $14,245 0.27% $11,593
08/31/1994 0.52% $13,401 0.35% $14,295 0.40% $11,639
09/30/1994 -1.15% $13,246 -1.47% $14,084 0.27% $11,671
10/31/1994 -1.72% $13,019 -1.78% $13,834 0.07% $11,679
11/30/1994 -1.98% $12,761 -1.81% $13,583 0.13% $11,694
12/31/1994 2.32% $13,057 2.20% $13,882 0.00% $11,694
01/31/1995 2.40% $13,370 2.86% $14,279 0.40% $11,741
02/28/1995 2.81% $13,746 2.91% $14,695 0.40% $11,788
03/31/1995 0.64% $13,834 1.15% $14,864 0.33% $11,827
04/30/1995 0.47% $13,899 0.12% $14,882 0.33% $11,866
05/31/1995 2.64% $14,266 3.19% $15,356 0.20% $11,889
06/30/1995 -1.15% $14,102 -0.87% $15,223 0.20% $11,913
07/31/1995 0.76% $14,209 0.95% $15,367 0.00% $11,913
08/31/1995 1.09% $14,364 1.27% $15,563 0.26% $11,944
09/30/1995 0.64% $14,456 0.63% $15,661 0.20% $11,968
10/31/1995 1.38% $14,655 1.45% $15,888 0.33% $12,007
11/30/1995 1.23% $14,836 1.66% $16,151 -0.07% $11,999
12/31/1995 0.78% $14,951 0.96% $16,306 -0.07% $11,991
01/31/1996 0.66% $15,050 0.76% $16,430 0.59% $12,061
02/29/1996 -0.73% $14,940 -0.68% $16,319 0.32% $12,100
03/31/1996 -0.66% $14,842 -1.28% $16,110 0.52% $12,163
04/30/1996 0.04% $14,847 -0.28% $16,065 0.39% $12,210
05/31/1996 0.07% $14,858 -0.04% $16,058 0.19% $12,234
06/30/1996 1.24% $15,042 1.09% $16,233 0.06% $12,241
07/31/1996 0.66% $15,141 0.90% $16,379 0.19% $12,264
08/31/1996 0.12% $15,160 -0.02% $16,376 0.19% $12,287
09/30/1996 1.45% $15,379 1.40% $16,605 0.32% $12,327
10/31/1996 0.90% $15,518 1.13% $16,793 0.32% $12,366
11/30/1996 1.49% $15,749 1.83% $17,100 0.19% $12,390
12/31/1996 -0.25% $15,710 -0.42% $17,028 0.00% $12,390
01/31/1997 0.03% $15,714 0.19% $17,061 0.32% $12,429
02/28/1997 0.81% $15,842 0.92% $17,218 0.31% $12,468
03/31/1997 -0.99% $15,685 -1.33% $16,989 0.25% $12,499
04/30/1997 0.80% $15,810 0.84% $17,131 0.12% $12,514
05/31/1997 1.46% $16,041 1.51% $17,390 -0.06% $12,507
06/30/1997 0.83% $16,174 1.07% $17,576 0.12% $12,522
07/31/1997 2.42% $16,566 2.77% $18,063 0.12% $12,537
08/31/1997 -0.60% $16,466 -0.94% $17,893 0.19% $12,560
09/30/1997 1.13% $16,652 1.19% $18,106 0.25% $12,592
10/31/1997 0.55% $16,744 0.64% $18,222 0.25% $12,623
11/30/1997 0.75% $16,869 0.59% $18,330 -0.06% $12,616
12/31/1997 1.30% $17,089 1.46% $18,597 -0.12% $12,601
01/31/1998 0.69% $17,207 1.03% $18,789 0.19% $12,624
02/28/1998 0.18% $17,238 0.03% $18,794 0.19% $12,648
03/31/1998 0.37% $17,301 0.09% $18,811 0.19% $12,672
04/30/1998 -0.19% $17,269 -0.45% $18,727 0.18% $12,695
05/31/1998 1.35% $17,502 1.58% $19,023 0.18% $12,718
06/30/1998 0.32% $17,558 0.39% $19,097 0.12% $12,733
07/31/1998 0.22% $17,596 0.25% $19,145 0.12% $12,749
08/31/1998 1.19% $17,806 1.55% $19,441 0.12% $12,764
09/30/1998 1.15% $18,010 1.25% $19,684 0.12% $12,779
10/31/1998 -0.14% $17,985 0.00% $19,684 0.24% $12,810
11/30/1998 0.34% $18,046 0.35% $19,753 0.00% $12,810
12/31/1998 0.13% $18,070 0.25% $19,803 -0.06% $12,802
01/31/1999 1.00% $18,251 1.19% $20,038 0.24% $12,833
02/28/1999 -0.19% $18,216 -0.44% $19,950 0.12% $12,848
03/31/1999 0.55% $18,316 0.14% $19,978 0.30% $12,887
04/30/1999 0.23% $18,358 0.25% $20,028 0.73% $12,981
05/31/1999 -0.32% $18,299 -0.58% $19,912 0.00% $12,981
06/30/1999 -1.31% $18,060 -1.44% $19,625 0.00% $12,981
07/31/1999 0.30% $18,114 0.36% $19,696 0.30% $13,020
08/31/1999 -1.20% $17,897 -0.80% $19,538 0.24% $13,051
09/30/1999 0.05% $17,906 0.04% $19,546 0.48% $13,114
10/31/1999 -1.20% $17,691 -1.08% $19,335 0.18% $13,137
11/30/1999 0.74% $17,822 1.06% $19,540 0.06% $13,145
12/31/1999 -1.00% $17,643 -0.75% $19,393 0.00% $13,145
01/31/2000 -0.93% $17,479 -0.44% $19,308 0.24% $13,177
02/29/2000 1.16% $17,693 1.16% $19,532 0.59% $13,255
</TABLE>
CLASS C (5/1/95 - 2/29/00)
The following line graph compares the performance of 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
5/1/95 to 2/29/00.
<TABLE>
<CAPTION>
Franklin Puerto Lehman Brothers
Rico Tax-Free Municipal Bond
Date Income Fund-Class C Index* CPI*
- ---- ------------------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
05/01/1995 $9,904 $10,000 $10,000
05/31/1995 2.67% $10,168 3.19% $10,319 0.20% $10,020
06/30/1995 -1.21% $10,045 -0.87% $10,229 0.20% $10,040
07/31/1995 0.79% $10,125 0.95% $10,326 0.00% $10,040
08/31/1995 1.03% $10,229 1.27% $10,458 0.26% $10,066
09/29/1995 0.59% $10,289 0.63% $10,523 0.20% $10,086
10/31/1995 1.32% $10,425 1.45% $10,676 0.33% $10,120
11/30/1995 1.27% $10,558 1.66% $10,853 -0.07% $10,112
12/29/1995 0.65% $10,626 0.96% $10,957 -0.07% $10,105
01/31/1996 0.69% $10,700 0.76% $11,041 0.59% $10,165
02/29/1996 -0.76% $10,618 -0.68% $10,966 0.32% $10,198
03/29/1996 -0.79% $10,534 -1.28% $10,825 0.52% $10,251
04/30/1996 0.08% $10,543 -0.28% $10,795 0.39% $10,291
05/31/1996 -0.07% $10,535 -0.04% $10,791 0.19% $10,310
06/28/1996 1.19% $10,661 1.09% $10,908 0.06% $10,316
07/31/1996 0.62% $10,727 0.90% $11,006 0.19% $10,336
08/30/1996 0.17% $10,745 -0.02% $11,004 0.19% $10,356
09/30/1996 1.32% $10,887 1.40% $11,158 0.32% $10,389
10/31/1996 0.85% $10,979 1.13% $11,284 0.32% $10,422
11/29/1996 1.36% $11,129 1.83% $11,491 0.19% $10,442
12/31/1996 -0.30% $11,095 -0.42% $11,443 0.00% $10,442
01/31/1997 0.07% $11,103 0.19% $11,464 0.32% $10,475
02/28/1997 0.76% $11,188 0.92% $11,570 0.31% $10,508
03/31/1997 -1.22% $11,051 -1.33% $11,416 0.25% $10,534
04/30/1997 0.84% $11,144 0.84% $11,512 0.12% $10,547
05/31/1997 1.41% $11,301 1.51% $11,686 -0.06% $10,540
06/30/1997 0.78% $11,389 1.07% $11,811 0.12% $10,553
07/31/1997 2.38% $11,660 2.77% $12,138 0.12% $10,565
08/31/1997 -0.65% $11,584 -0.94% $12,024 0.19% $10,586
09/30/1997 1.08% $11,710 1.19% $12,167 0.25% $10,612
10/31/1997 0.50% $11,768 0.64% $12,245 0.25% $10,639
11/30/1997 0.62% $11,841 0.59% $12,317 -0.06% $10,632
12/31/1997 1.33% $11,999 1.46% $12,497 -0.12% $10,619
01/31/1998 0.64% $12,075 1.03% $12,626 0.19% $10,640
02/28/1998 0.13% $12,091 0.03% $12,629 0.19% $10,660
03/31/1998 0.41% $12,141 0.09% $12,641 0.19% $10,680
04/30/1998 -0.23% $12,113 -0.45% $12,584 0.18% $10,699
05/31/1998 1.22% $12,260 1.58% $12,783 0.18% $10,719
06/30/1998 0.28% $12,295 0.39% $12,832 0.12% $10,731
07/31/1998 0.17% $12,316 0.25% $12,865 0.12% $10,744
08/31/1998 1.23% $12,467 1.55% $13,064 0.12% $10,757
09/30/1998 1.02% $12,594 1.25% $13,227 0.12% $10,770
10/31/1998 -0.19% $12,570 0.00% $13,227 0.24% $10,796
11/30/1998 0.37% $12,617 0.35% $13,274 0.00% $10,796
12/31/1998 0.09% $12,628 0.25% $13,307 -0.06% $10,789
01/31/1999 0.87% $12,738 1.19% $13,465 0.24% $10,815
02/28/1999 -0.24% $12,708 -0.44% $13,406 0.12% $10,828
03/31/1999 0.58% $12,781 0.14% $13,425 0.30% $10,861
04/30/1999 0.10% $12,794 0.25% $13,458 0.73% $10,940
05/31/1999 -0.36% $12,748 -0.58% $13,380 0.00% $10,940
06/30/1999 -1.27% $12,586 -1.44% $13,187 0.00% $10,940
07/31/1999 0.26% $12,619 0.36% $13,235 0.30% $10,973
08/31/1999 -1.24% $12,462 -0.80% $13,129 0.24% $10,999
09/30/1999 0.01% $12,464 0.04% $13,134 0.48% $11,052
10/31/1999 -1.33% $12,298 -1.08% $12,992 0.18% $11,072
11/30/1999 0.68% $12,381 1.06% $13,130 0.06% $11,079
12/31/1999 -0.95% $12,264 -0.75% $13,032 0.00% $11,079
01/31/2000 -0.97% $12,145 -0.44% $12,974 0.24% $11,105
02/29/2000 1.11% $12,274 1.16% $13,125 0.59% $11,171
</TABLE>
(*)Source: Standard and Poor's Micropal.
Past performance does not guarantee future results.
MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Best quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what generally are known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered upper medium-
grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba: Contain speculative elements. Often the protection of interest and principal
payments may be very moderate and, thereby, not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa: Poor standing. Such issues may be in default, or elements of danger with
respect to principal or interest may be present.
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally regarded as upper medium-grade. They have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. BB indicates the lowest degree of speculation and
CC the highest degree of speculation. While such bonds likely will have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: Reserved for income bonds on which no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ARIZONA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------
CLASS A 2000(a,d) 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,beginning of year ......... $ 11.38 $ 11.44 $ 11.24 $ 11.34 $ 11.11
-----------------------------------------------------------------
Income from investment operations:
Net investment income .................... .57 .59 .61 .62 .64
Net realized and unrealized gains (losses) (1.02) (.01) .29 (.04) .36
-----------------------------------------------------------------
Total from investment operations .......... (.45) .58 .90 .58 1.00
-----------------------------------------------------------------
Less distributions from:
Net investment income .................... (.58)(e) (.59)(f) (.61) (.63) (.65)
In excess of net investment income ....... -- -- (.01) -- --
Net realized gains ....................... (.04) (.05) (.08) (.05) (.12)
-----------------------------------------------------------------
Total distributions ....................... (.62) (.64) (.70) (.68) (.77)
-----------------------------------------------------------------
Net asset value,end of year ............... $ 10.31 $ 11.38 $ 11.44 $ 11.24 $ 11.34
-----------------------------------------------------------------
Total return(b) ........................... (4.15)% 5.17% 8.23% 5.33% 9.24%
RATIOS/SUPPLEMENTAL DATA
Net assets,end of year (000's) ............ $ 756,274 $ 861,020 $ 810,250 $ 752,335 $ 750,797
Ratios to average net assets:
Expenses ................................. .62% .63% .63% .62% .62%
Net investment income .................... 5.30% 5.11% 5.40% 5.59% 5.67%
Portfolio turnover rate ................... 20.55% 14.11% 20.02% 16.57% 25.12%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- ------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value,beginning of period ....................... $ 10.24
-------
Income from investment operations:
Net investment income .................................... .05
Net realized and unrealized gains ........................ .07
-------
Total from investment operations .......................... .12
-------
Less distributions from net investment income ............. (.04)
-------
Net asset value,end of period ............................. $ 10.32
-------
Total return(b) ........................................... 1.21%
RATIOS/SUPPLEMENTAL DATA
Net assets,end of period (000's) .......................... $ 176
Ratios to average net assets:
Expenses ................................................. 1.18%(c)
Net investment income .................................... 5.26%(c)
Portfolio turnover rate ................................... 20.55%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges,and is not annualized for periods less than one year.
(c)Annualized
(d)For the period February 1,2000 (effective date) to February 29,2000 for Class
B.
(e)Includes distributions in excess of net investment income in the amount of
$.001.
(f)Includes distributions in excess of net investment income in the amount of
$.002.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN ARIZONA TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------
CLASS C 2000(a) 1999 1998 1997 1996(d)
- -------------------------------------------------------------------------------------------------------------
<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 $ 11.51 $ 11.30 $ 11.38 $ 11.15
-----------------------------------------------------------
Income from investment operations:
Net investment income .................... .52 .52 .56 .57 .49
Net realized and unrealized gains (losses) (1.03) (.01) .29 (.03) .34
-----------------------------------------------------------
Total from investment operations .......... (.51) .51 .85 .54 .83
-----------------------------------------------------------
Less distributions from:
Net investment income .................... (.52)(e) (.52)(e) (.56) (.57) (.48)
Net realized gains ....................... (.04) (.05) (.08) (.05) (.12)
-----------------------------------------------------------
Total distributions ....................... (.56) (.57) (.64) (.62) (.60)
-----------------------------------------------------------
Net asset value,end of year ............... $ 10.38 $ 11.45 $ 11.51 $ 11.30 $ 11.38
-----------------------------------------------------------
Total return(b) ........................... (4.65)% 4.54% 7.67% 4.89% 7.60%
RATIOS/SUPPLEMENTAL DATA
Net assets,end of year (000's) ............ $ 22,671 $ 23,871 $ 14,537 $ 5,486 $ 1,892
Ratios to average net assets:
Expenses ................................. 1.18% 1.19% 1.19% 1.19% 1.20%(c)
Net investment income .................... 4.75% 4.55% 4.82% 5.01% 5.05%(c)
Portfolio turnover rate ................... 20.55% 14.11% 20.02% 16.57% 25.12%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges,and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1,1995 (effective date) to February 29,1996.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29,2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.9%
Apache Junction Water Utilities Community, FSA Insured, 5.80%, 7/01/17 ........................... $ 1,200,000 $ 1,198,584
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05 ............................................................... 10,000,000 10,268,300
Series B, 7.00%, 3/01/03 ..................................................................... 1,000,000 1,042,520
Series B, 7.00%, 3/01/05 ..................................................................... 1,000,000 1,041,550
Series B, MBIA Insured, 7.35%, 9/01/04 ....................................................... 1,000,000 1,020,000
Series B, MBIA Insured, 7.375%, 9/01/05 ...................................................... 775,000 790,500
Sub Series, 6.625%, 9/01/05 .................................................................. 1,000,000 1,039,120
Arizona Health Facilities Authority Hospital System Revenue, Phoenix Baptist
Hospital, MBIA Insured, ETM, 6.25%, 9/01/11 .................................................... 2,000,000 2,086,400
Arizona State COP,
FSA Insured, 6.625%, 9/01/08 ................................................................. 5,000,000 5,229,150
Refunding, Series B, AMBAC Insured, 6.25%, 9/01/10 ........................................... 5,000,000 5,254,950
Arizona State Municipal Financing Program COP,
Dysart School, Series 22, BIG Insured, ETM, 7.875%, 8/01/05 .................................. 1,350,000 1,531,251
Peoria School, Series 19, BIG Insured, ETM, 7.75%, 8/01/04 ................................... 500,000 555,675
Series 20, BIG Insured, ETM, 7.625%, 8/01/06 ................................................. 3,250,000 3,530,995
Series 25, BIG Insured, 7.875%, 8/01/14 ...................................................... 500,000 614,820
Arizona State Transportation Board Highway Revenue, Refunding, 5.75%,
7/01/17 ...................................................................................... 6,975,000 6,979,325
7/01/18 ...................................................................................... 3,890,000 3,880,897
7/01/19 ...................................................................................... 7,025,000 6,967,746
Arizona State Wastewater Management Authority Wastewater Treatment Financial
Assistance Revenue,
6.80%, 7/01/11 ............................................................................... 4,000,000 4,251,880
Series A, AMBAC Insured, Pre-Refunded, 5.625%, 7/01/15 ....................................... 1,000,000 1,042,550
Arizona Student Loan Acquisition Authority Student Loan Revenue, Refunding,
junior subordinate, Series B-1, 6.15%, 5/01/29 ............................................... 1,000,000 961,950
Senior Series A-1, 5.90%, 5/01/24 ............................................................ 1,500,000 1,451,160
Casa Grande Excise Tax Revenue, FGIC Insured, 6.20%, 4/01/15 ..................................... 930,000 950,200
Casa Grande IDA,
IDR, Frito Lay/PepsiCo, 6.65%, 12/01/14 ...................................................... 500,000 528,120
PCR, Frito Lay/PepsiCo, 6.60%, 12/01/10 ...................................................... 1,800,000 1,898,982
Chandler GO, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 775,000 804,698
Pre-Refunded, 7.00%, 7/01/12 ................................................................. 225,000 234,214
Pre-Refunded, 6.80%, 7/01/13 ................................................................. 1,750,000 1,891,575
Pre-Refunded, 6.85%, 7/01/14 ................................................................. 1,625,000 1,759,599
Chandler IDA, MFHR, Hacienda Apartments Project, Refunding, Series A, GNMA Secured, 6.05%, 7/20/30 4,055,000 4,032,333
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 .................. 1,250,000 1,353,538
Chandler Water and Sewer Revenue, Refunding, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 6,715,000 6,930,216
6.25%, 7/01/13 ............................................................................... 2,165,000 2,224,061
Coconino County Flagstaff USD, No.1, AMBAC Insured, 6.20%, 7/01/06 ............................... 1,095,000 1,110,472
Coconino County PCR,
Arizona Public Service Co., Refunding, Series A, MBIA Insured, 5.875%, 8/15/28 ............... 5,275,000 5,178,309
Nevada Power Co., 6.375%, 10/01/36 ........................................................... 3,500,000 3,233,965
Nevada Power Co., Refunding, Series E, 5.35%, 10/01/22 ....................................... 7,265,000 6,020,723
Nevada Power Co., Series B, 5.80%, 11/01/32 .................................................. 6,500,000 5,534,425
Eloy Municipal Property Corp. Facilities Revenue, 7.80%, 7/01/09 ................................. 1,475,000 1,502,907
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ......................................... 45,900,000 35,358,147
Gilbert ID No.11, FGIC Insured, 7.60%, 1/01/05 ................................................... 1,500,000 1,537,410
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 ...................................................................................... 1,500,000 1,593,765
7/01/22 ...................................................................................... 3,250,000 3,390,108
Glendale IDA,
Educational Facilities Revenue, American Graduate School
International, Connie Lee Insured, Pre-Refunded, 7.00%, 7/01/14 ............................ 1,000,000 1,099,640
Educational Facilities Revenue, American Graduate School
International, Connie Lee Insured, Pre-Refunded, 7.125%, 7/01/20 ........................... 1,250,000 1,381,775
Educational Facilities Revenue, American Graduate School
International, Refunding, Connie Lee Insured, 5.875%, 7/01/15 .............................. 2,200,000 2,219,976
Midwestern University, Series A, 5.375%, 5/15/28 ............................................. 15,000,000 12,761,700
Midwestern University, Series A, Connie Lee Insured, 6.00%, 5/15/16 .......................... 455,000 460,824
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
Glendale IDA, (cont.)
Midwestern University, Series A, Connie Lee Insured, 6.00%, 5/15/26 ............... $ 340,000 $ 339,517
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/16 ..................... 1,485,000 1,576,877
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/26 ..................... 1,660,000 1,762,704
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.30%,
10/01/12 .......................................................................... 3,630,000 3,832,808
10/01/22 .......................................................................... 4,000,000 4,233,480
Lake Havasu City Wastewater COP, FGIC Insured, 7.00%, 6/01/05 ........................ 2,700,000 2,805,759
Maricopa County COP, 6.00%, 6/01/04 .................................................. 8,000,000 8,160,160
Maricopa County GO,
School District No. 4, Mesa Unified, FGIC Insured, Pre-Refunded, 5.65%, 7/01/11 ... 500,000 522,445
School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14.. 3,500,000 3,565,380
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10... 6,300,000 6,529,950
School District No. 11, Peoria Unified, Refunding, MBIA Insured, 7.00%, 7/01/10 ... 2,800,000 2,898,140
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14.. 2,000,000 2,034,020
School District No. 98, Fountain Hills Unified, FGIC Insured, 6.625%, 7/01/10 ..... 475,000 489,388
School District No. 98, Fountain Hills Unified, FGIC Insured,
Pre-Refunded, 6.625%, 7/01/10 ................................................... 825,000 854,840
UHSD No. 210, Series A, Pre-Refunded, 5.70%, 7/01/15 .............................. 500,000 519,760
USD No. 41, Gilbert, 6.25%, 7/01/15 ............................................... 2,000,000 2,015,260
USD No. 65, Littleton School Improvement, Series B, FGIC Insured, 6.40%, 7/01/14... 1,175,000 1,218,781
USD No. 69, Paradise Valley, Series A, Pre-Refunded, 7.10%, 7/01/05 ............... 1,000,000 1,093,870
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 6.00%, 7/01/13 .................. 1,600,000 1,685,424
USD No. 89, Dysart, Refunding and Improvement, FGIC Insured, 6.70%, 7/01/05 ....... 240,000 243,934
USD No. 89, Dysart, Refunding and Improvement, FGIC Insured, 6.75%, 7/01/06 ....... 1,760,000 1,787,966
Maricopa County Hospital Revenue, Sun Health Corp.,
5.30%, 4/01/29 .................................................................... 15,595,000 11,747,869
Refunding, 5.80%, 4/01/08 ......................................................... 3,870,000 3,777,352
Refunding, 5.90%, 4/01/09 ......................................................... 2,120,000 2,064,774
Refunding, 6.125%, 4/01/18 ........................................................ 15,650,000 14,020,835
Maricopa County IDA,
Health Facilities Revenue, Catholic Healthcare West Project, Refunding,
Series A, 5.00%, 7/01/16 ........................................................ 13,100,000 10,209,354
Health Facilities Revenue, Catholic Healthcare West Project, Refunding,
Series A, 5.00%, 7/01/21 ........................................................ 17,600,000 13,007,280
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13 ........................... 1,445,000 1,498,985
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13 ............. 1,305,000 1,363,203
Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 .................. 20,475,000 17,287,452
Hospital Facility Revenue, Samaritan Health Services, Refunding, Series A, MBIA
Insured, ETM, 7.00%, 12/01/13 ................................................... 17,800,000 18,400,928
Hospital Facility Revenue, Samaritan Health Services, Refunding, Series A, MBIA
Insured, ETM, 7.00%, 12/01/16 ................................................... 1,890,000 2,148,212
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ............................... 5,000,000 4,886,150
MFHR, Arborwood Apartments Project, Series A, MBIA Insured, 5.05%, 10/01/29 ....... 1,750,000 1,496,093
MFHR, Madera Pointe Apartments Project, Refunding, FSA Insured, 5.90%, 6/01/26 .... 2,105,000 2,071,657
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ... 1,235,000 1,100,274
Water System Revenue, Improvement, Chaparral Water Co., Series A, AMBAC
Insured, 5.40%, 12/01/22 ........................................................ 1,000,000 912,110
Maricopa County IDAR, SFMR, GNMA Secured, 8.00%, 9/01/09 ............................. 405,000 410,678
Maricopa County Stadium District Revenue, MBIA Insured, 5.75%, 7/01/16 ............... 3,000,000 2,984,040
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 .................................................................... 45,000,000 43,665,750
5.625%, 1/01/29 ................................................................... 4,000,000 3,738,120
Mohave County Hospital District No. 1 GO, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 ...................................................... 1,500,000 1,545,990
Pre-Refunded, 8.375%, 6/01/15 ..................................................... 6,350,000 6,538,151
Mohave County IDA,
Health Care Revenue, Refunding, GNMA Secured, 6.375%, 11/01/31 .................... 1,585,000 1,594,145
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21 .......... 1,500,000 1,393,005
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26 .......... 4,675,000 4,485,008
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ............................... 4,100,000 4,218,408
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 ..................... 10,000,000 10,104,500
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 ..................... 5,000,000 5,052,250
Navajo County PCR, Arizona Public Service Co., Series A,
MBIA Insured, 5.875%, 8/15/28 ..................................................... 3,000,000 2,965,140
Refunding, 5.875%, 8/15/28 ........................................................ 54,500,000 50,973,850
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
Nogales Municipal Development Authority Inc. Municipal Facilities Revenue,
Refunding, MBIA Insured, 7.20%, 6/01/08 .............................................. $ 6,350,000 $ 6,597,460
Northern Arizona University System Revenue, Refunding, FGIC Insured, 6.40%, 6/01/07 .... 2,750,000 2,859,890
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.85%, 3/15/28 ............................................................. 8,785,000 8,467,510
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA
Insured, 5.75%, 7/01/17 .............................................................. 1,000,000 989,110
Peoria Municipal Development Authority Water and Sewer Revenue, Refunding, FGIC
Insured, 6.625%, 7/01/06 ............................................................. 1,000,000 1,016,420
Phoenix Airport Revenue,
Refunding, Series B, MBIA Insured, 6.20%, 7/01/10 ................................... 700,000 736,505
Refunding, Series C, MBIA Insured, 6.30%, 7/01/10 ................................... 1,680,000 1,770,098
Refunding, Series C, MBIA Insured, 6.40%, 7/01/11 ................................... 1,785,000 1,882,372
Refunding, Series C, MBIA Insured, 6.40%, 7/01/12 ................................... 570,000 601,407
Series D, MBIA Insured, 6.30%, 7/01/10 .............................................. 1,800,000 1,896,534
Series D, MBIA Insured, 6.40%, 7/01/11 .............................................. 3,825,000 4,033,654
Series D, MBIA Insured, 6.40%, 7/01/12 .............................................. 820,000 865,182
Phoenix Civic Improvement Corp. Excise Tax Revenue,
Adams Street Garage Project, senior lien, Series B, 5.30%, 7/01/20 .................. 690,000 639,685
Adams Street Garage Project, senior lien, Series B, 5.35%, 7/01/24 .................. 2,985,000 2,757,095
Adams Street Garage Project, senior lien, Series B, 5.375%, 7/01/29 ................. 4,730,000 4,308,557
Municipal Courthouse Project, senior lien, Series A, 5.25%, 7/01/18 ................. 2,535,000 2,348,830
Municipal Courthouse Project, senior lien, Series A, 5.25%, 7/01/20 ................. 4,075,000 3,728,381
Municipal Courthouse Project, senior lien, Series A, 5.25%, 7/01/24 ................. 3,860,000 3,490,714
Municipal Courthouse Project, senior lien, Series A, 5.375%, 7/01/29 ................ 18,310,000 16,603,874
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, MBIA
Insured, Pre-Refunded, 6.90%, 7/01/21 ................................................ 1,000,000 1,092,860
Phoenix Civic Improvement Corp. Water System Revenue,
junior lien, FGIC Insured, 5.50%, 7/01/24 ........................................... 1,000,000 925,540
junior lien, MBIA Insured, 5.375%, 7/01/22 .......................................... 8,130,000 7,427,487
Pre-Refunded, 5.95%, 7/01/15 ........................................................ 1,090,000 1,139,486
Pre-Refunded, 5.95%, 7/01/16 ........................................................ 3,665,000 3,831,391
Pre-Refunded, 6.00%, 7/01/19 ........................................................ 3,000,000 3,144,210
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14 ..................................... 4,300,000 4,406,296
Phoenix GO,
5.25%, 7/01/20 ...................................................................... 2,000,000 1,833,780
Refunding, 6.375%, 7/01/13 .......................................................... 5,000,000 5,166,000
Refunding, Series A, 5.00%, 7/01/19 ................................................. 3,500,000 3,117,135
Phoenix HFC, Mortgage Revenue,
Project A, Refunding, MBIA Insured, 6.50%, 7/01/24 .................................. 2,750,000 2,787,318
Section 8 Project, Refunding, Series A, MBIA Insured, 6.90%, 1/01/23 ................ 1,750,000 1,781,920
Section 8 Project, Refunding, Series A, MBIA Insured, 7.25%, 1/01/23 ................ 2,260,000 2,279,526
Phoenix IDA,
Hospital Revenue, Refunding, Series B, Connie Lee Insured, 5.75%, 12/01/16 .......... 3,500,000 3,422,440
SFMR, FNMA Insured, 6.30%, 12/01/12 ................................................. 650,000 663,923
SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 ............................. 2,000,000 1,791,700
Phoenix Municipal Housing Revenue, Fillmore Gardens Project, Refunding, 6.30%, 6/01/09.. 1,500,000 1,533,105
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03 ................................................................. 1,000,000 1,060,750
Refunding, 6.60%, 7/01/07 ........................................................... 5,000,000 5,241,000
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 65,992
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's Hospital,
MBIA Insured, 6.75%, 7/01/10 ...................................................... 2,250,000 2,347,245
MFR, Series A, FNMA Insured, 6.00%, 12/01/21 ........................................ 2,720,000 2,674,331
SFMR, GNMA Secured, 6.40%, 11/01/09 ................................................. 775,000 792,290
SFMR, GNMA Secured, 8.125%, 9/01/20 ................................................. 780,000 789,165
SFMR, GNMA Secured, 6.75%, 11/01/27 ................................................. 3,490,000 3,566,989
SFMR, Refunding, Series A, 7.625%, 2/01/12 .......................................... 2,280,000 2,341,378
SFMR, Refunding, Series A, 6.50%, 2/01/17 ........................................... 640,000 648,954
Pima County IDAR,
MFHR, Housing Ria Nova and Villa Projects, GNMA Secured, 5.20%, 12/20/31 ............ 2,370,000 2,047,135
Refunding, Series A, MBIA Insured, 5.625%, 4/01/14 .................................. 2,250,000 2,225,115
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ..................... 1,410,000 1,454,951
Pima County USD, Tucson Project No. 1, FGIC Insured, 5.875%, 7/01/14 ................... 21,000,000 21,302,190
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
Pinal County USD, No. 43, Apache Junction Improvement,
FGIC Insured, 7.15%, 7/01/05 ........................................................... $ 355,000 $ 359,842
Refunding, Series A, FGIC Insured, 5.85%, 7/01/15 ...................................... 2,500,000 2,516,125
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA
Insured, Pre-Refunded, 9.00%, 7/01/09 ................................................... 75,000 85,756
Puerto Rico Commonwealth GO, Pre-Refunded, 6.50%, 7/01/23 ................................. 4,850,000 5,239,455
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, 5.00%, 7/01/38 ............................................................... 2,000,000 1,640,100
Series Y, 5.00%, 7/01/36 ............................................................... 9,000,000 7,424,730
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.75%, 7/01/08 ......................................................................... 1,550,000 1,572,134
7.50%, 7/01/09 ......................................................................... 335,000 339,000
Puerto Rico Electric Power Authority Revenue,
Series AA, MBIA Insured, 5.375%, 7/01/27 ............................................... 5,000,000 4,620,000
Series X, Pre-Refunded, 6.125%, 7/01/21 ................................................ 17,000,000 18,277,380
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................................. 1,215,000 1,240,454
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded, 7.75%, 12/01/26 40,000 45,879
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ........... 220,000 226,074
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 5,238,690
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%, 7/01/24 .............. 1,950,000 1,987,713
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Revenue, San Lucas and Cristo Project, Refunding, Series A, 5.75%, 6/01/29 ... 2,000,000 1,599,080
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Refunding, Series A, 5.75%, 1/01/13 .................................................... 2,435,000 2,443,936
Refunding, Series A, 5.00%, 1/01/20 .................................................... 7,500,000 6,534,375
Series A, 6.00%, 1/01/31 ............................................................... 4,600,000 4,567,570
Series A, MBIA Insured, 6.00%, 1/01/31 ................................................. 1,845,000 1,826,901
Series C, 6.20%, 1/01/12 ............................................................... 5,925,000 6,171,362
Series C, 6.25%, 1/01/19 ............................................................... 9,975,000 10,146,670
Series D, 6.25%, 1/01/27 ............................................................... 4,890,000 4,935,722
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 .................... 8,000,000 8,231,040
Scottsdale GO,
5.50%, 7/01/22 ......................................................................... 3,000,000 2,837,640
5.00%, 7/01/24 ......................................................................... 8,225,000 7,084,933
Scottsdale IDA Hospital Revenue, Scottsdale Memorial Hospital, Refunding,
Series A, AMBAC Insured, 5.70%,
9/01/15 ................................................................................ 1,250,000 1,243,638
9/01/18 ................................................................................ 4,045,000 3,954,635
Sedona Sewer Sales Tax Revenue, Refunding,
6.75%, 7/01/07 ......................................................................... 3,800,000 4,026,936
7.00%, 7/01/12 ......................................................................... 5,000,000 5,232,050
Tucson Airport Authority Revenue,
Series A, MBIA Insured, 6.875%, 6/01/20 ................................................ 1,090,000 1,114,983
Series B, MBIA Insured, 7.125%, 6/01/15 ................................................ 1,175,000 1,203,835
Series B, MBIA Insured, 7.25%, 6/01/20 ................................................. 1,125,000 1,152,494
Tucson GO, Series A, 5.375%, 7/01/20 ...................................................... 1,800,000 1,670,705
Tucson IDA, MFR,
La Entrada, Refunding, 7.40%, 7/01/26 .................................................. 1,800,000 1,843,037
Los Portales Apartments, Refunding, GNMA Secured, 5.90%, 12/20/31 ...................... 2,000,000 1,924,940
University of Arizona System Revenue, Pre-Refunded,
6.25%, 6/01/11 ......................................................................... 1,000,000 1,064,980
6.35%, 6/01/14 ......................................................................... 1,300,000 1,389,400
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ............................................................................... 2,500,000 2,332,100
10/01/22 ............................................................................... 3,750,000 3,233,700
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%, 7/01/18 2,475,000 2,232,845
Virgin Islands Water and Power Authority Water System Revenue, Refunding, 5.50%, 7/01/17 .. 1,500,000 1,314,164
Yavapai County IDA, IDR, Citizens Utilities Co. Project, 5.45%, 6/01/33 ................... 6,000,000 5,189,160
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENT (CONT.)
Yuma IDA, Hospital Revenue, Regency Apartments, Refunding, Series A, GNMA
Secured, 5.50%, 12/20/32 .................................................... $ 2,000,000 $ 1,812,400
Yuma Regional Medical Center, Refunding, MBIA Insured, 5.50%, 8/01/17 .......... 4,000,000 3,827,120
------------
TOTAL LONG TERM INVESTMENTS (COST $798,910,106) ................................ 771,013,594
------------
(a)SHORT TERM INVESTMENTS .1%
Maricopa County PCC, PCR, Arizona Public Service Co., Refunding, Series A, Daily
VRDN and Put, 3.75%, 5/01/29 ................................................ 250,000 250,000
Maricopa County PCR, El Paso Electric Co. Project, Series A, Weekly VRDN and
Put, 3.95%, 7/01/14 ......................................................... 350,000 350,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $600,000) .................................. 600,000
------------
TOTAL INVESTMENTS (COST $799,510,106) 99.0% ................................... 771,613,594
OTHER ASSETS, LESS LIABILITIES 1.0% ........................................... 7,507,084
------------
NET ASSETS 100.0% ............................................................. $779,120,678
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN COLORADO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 29,
-------------------------------------------------------------------------------
Class A 2000(a) 1999 1998 1997 1996(d)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.05 $ 12.11 $ 11.80 $ 11.84 $ 11.38
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .60 .63 .66 .67
Net realized and unrealized gains (losses) . (1.13) .02 .39 (.04) .45
-------------------------------------------------------------------------------
Total from investment operations ............ (.54) .62 1.02 .62 1.12
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.60)(e) (.60) (.64) (.66) (.66)
Net realized gains ......................... (.01) (.08) (.07) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.61) (.68) (.71) (.66) (.66)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.90 $ 12.05 $ 12.11 $ 11.80 $ 11.84
===============================================================================
Total return(b) ............................. (4.57)% 5.24% 8.86% 5.44% 10.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $264,563 $301,381 $266,599 $236,609 $215,609
Ratios to average net assets:
Expenses ................................... .70% .70% .71% .71% .71%
Net investment income ...................... 5.18% 4.93% 5.28% 5.59% 5.73%
Portfolio turnover rate ..................... 29.30% 12.60% 22.97% 14.13% 17.58%
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 12.11 $ 12.17 $ 11.84 $ 11.87 $ 11.40
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .54 .57 .59 .50
Net realized and unrealized gains (losses) . (1.14) .02 .40 (.02) .46
-------------------------------------------------------------------------------
Total from investment operations ............ (.61) .56 .97 .57 .96
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.53)(f) (.54) (.57) (.60) (.49)
Net realized gains ......................... (.01) (.08) (.07) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.54) (.62) (.64) (.60) (.49)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.96 $ 12.11 $ 12.17 $ 11.84 $ 11.87
===============================================================================
Total return(b) ............................. (5.08)% 4.63% 8.39% 4.93% 8.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 20,564 $ 21,899 $ 10,855 $ 5,654 $ 1,656
Ratios to average net assets:
Expenses ................................... 1.25% 1.26% 1.27% 1.28% 1.29%(c)
Net investment income ...................... 4.63% 4.38% 4.72% 4.99% 5.12%(c)
Portfolio turnover rate ..................... 29.30% 12.60% 22.97% 14.13% 17.58%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(e) Includes distributions in excess of net investment income in the amount
of $.006.
(f) Includes distributions in excess of net investment income in the amount
of $.005.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.6%
Arapahoe County Capital Improvements Transportation Fund Highway Revenue, Vehicle
Registration, Series A, MBIA Insured, 6.15%, 8/31/26 .......................... $ 8,000,000 $ 8,020,960
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 .................... 805,000 834,415
Arvada IDR, Wanco Inc. Project,
5.25%, 12/01/07 ............................................................... 100,000 95,876
5.80%, 12/01/17 ............................................................... 480,000 448,694
Arvada MFHR, Springwood Community Project, Refunding, 6.35%, 8/20/16 ............. 1,000,000 1,008,720
Aurora COP, Refunding, 6.25%, 12/01/09 ........................................... 2,850,000 2,947,869
Bayfield School District No. 10, MBIA Insured, Pre-Refunded, 6.65%, 6/01/15 ...... 1,000,000 1,073,290
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.50%, 12/01/12 ............................................................... 1,000,000 907,680
5.80%, 12/01/13 ............................................................... 2,000,000 1,841,360
5.60%, 12/01/17 ............................................................... 3,385,000 2,882,768
5.875%, 12/01/20 .............................................................. 1,285,000 1,112,707
Pre-Refunded, 8.20%, 12/01/20 ................................................. 3,000,000 3,118,080
Boulder County MFHR, Cloverbasin Village II Apartments, Series A, FSA Insured,
6.10%, 10/01/24 ............................................................... 1,280,000 1,252,826
6.15%, 10/01/31 ............................................................... 2,830,000 2,787,182
Broomfield COP, AMBAC Insured, 6.00%, 12/01/29 ................................... 2,000,000 1,997,020
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 .............. 1,615,000 1,637,368
Boulder Community Hospital, Refunding, Series B, MBIA Insured, 5.875%, 10/01/23 1,500,000 1,452,540
Catholic Health Initiatives, Series A, 5.00%, 12/01/28 ........................ 1,800,000 1,415,592
Children's Hospital Association Project, MBIA Insured, 5.25%, 10/01/26 ........ 1,000,000 872,280
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 ........... 954,000 989,308
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.25%, 7/15/17 . 6,570,000 6,864,730
Covenant Retirement Communities, 6.75%, 12/01/15 .............................. 1,750,000 1,776,058
Covenant Retirement Communities, 6.75%, 12/01/25 .............................. 4,950,000 4,883,918
Hospital Improvement, NCMC Inc. Project, FSA Insured, 5.75%, 5/15/24 .......... 5,000,000 4,755,400
Kaiser Permanente, Series A, 5.35%, 11/01/16 .................................. 8,000,000 6,888,960
Mercy Medical Center Durango, 6.20%, 11/15/15 ................................. 1,250,000 1,256,925
National Benevolent Association, Refunding, Series A, 5.20%, 1/01/18 .......... 700,000 543,025
National Benevolent Association, Refunding, Series A, 5.25%, 1/01/27 .......... 1,180,000 861,164
National Benevolent Association, Series B, 5.25%, 2/01/18 ..................... 750,000 585,128
National Benevolent Association, Series B, 5.25%, 2/01/28 ..................... 2,500,000 1,816,450
Oakbrook Manor, Series A, GNMA Secured, 7.25%, 4/01/11 ........................ 350,000 357,616
Oakbrook Manor, Series A, GNMA Secured, 7.625%, 4/01/26 ....................... 885,000 897,257
Parkview Medical Center Inc. Project, 5.25%, 9/01/18 .......................... 1,660,000 1,327,950
Parkview Medical Center Inc. Project, 5.30%, 9/01/25 .......................... 1,615,000 1,253,547
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21 ............. 1,000,000 1,058,340
Colorado HFA,
GO, Series A, 7.50%, 5/01/29 .................................................. 1,000,000 1,029,470
MF, Series A, 6.80%, 8/01/14 .................................................. 3,030,000 3,104,871
MF, Series A, 6.85%, 8/01/24 .................................................. 5,790,000 5,921,723
MF, Series A, 6.875%, 8/01/30 ................................................. 2,300,000 2,350,071
MF, Series A-2, 6.00%, 10/01/28 ............................................... 1,000,000 973,320
MF, Series A-2, FHA Insured, 5.45%, 10/01/29 .................................. 1,000,000 897,090
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23 ............. 4,000,000 3,796,840
SF Program, Series A-2, 7.70%, 2/01/23 ........................................ 200,000 205,458
SF Program, Series A-3, 7.90%, 8/01/21 ........................................ 80,000 81,800
SF Program, Series C-2, 7.375%, 8/01/10 ....................................... 475,000 486,367
Colorado Public Highway Authority Revenue, Highway E-470, Refunding,
Senior Series A, MBIA Insured, 5.25%, 9/01/18 ................................. 3,000,000 2,760,060
Series A, MBIA Insured, 5.00%, 9/01/26 ........................................ 3,120,000 2,628,787
Colorado Springs Airport Revenue, Series A, MBIA Insured, 5.25%, 1/01/22 ......... 2,500,000 2,239,725
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%,
12/15/15 ...................................................................... 5,575,000 5,643,461
12/15/24 ...................................................................... 10,955,000 10,773,476
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Colorado Springs Utilities Revenue,
Refunding and Improvement, Series A, 5.25%, 11/15/22 ................................... $ 1,000,000 $ 898,440
Refunding and Improvement, Series A, 5.375%, 11/15/26 .................................. 16,920,000 15,394,324
Series A, 5.75%, 11/15/23 .............................................................. 1,450,000 1,407,878
sub. lien, Series A, 5.75%, 11/15/28 ................................................... 11,720,000 11,273,468
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 1,140,892
Colorado Water Resource and Power Development Authority Clean Water Revenue, Series A,
6.15%, 9/01/11 ......................................................................... 1,765,000 1,852,597
6.30%, 9/01/14 ......................................................................... 1,000,000 1,045,170
5.80%, 9/01/17 ......................................................................... 2,000,000 2,014,500
Colorado Water Resource and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured,
6.70%, 11/01/12 ........................................................................ 750,000 785,520
(b)5.80%, 11/01/20 ......................................................................... 2,000,000 1,980,820
Denver City and County Airport Revenue,
Series A, 7.50%, 11/15/23 .............................................................. 3,315,000 3,516,784
Series A, 8.50%, 11/15/23 .............................................................. 3,645,000 3,786,462
Series A, MBIA Insured, 5.60%, 11/15/20 ................................................ 2,000,000 1,887,600
Series A, Pre-Refunded, 7.50%, 11/15/12 ................................................ 3,000,000 3,258,510
Series A, Pre-Refunded, 7.50%, 11/15/23 ................................................ 685,000 763,981
Series A, Pre-Refunded, 8.50%, 11/15/23 ................................................ 355,000 372,281
Series D, 7.75%, 11/15/13 .............................................................. 1,000,000 1,135,580
Series E, MBIA Insured, 5.50%, 11/15/25 ................................................ 3,750,000 3,468,638
Denver City and County IDR, University of Denver Project, 7.50%, 3/01/11 .................. 1,880,000 1,947,266
Denver City and County MFHR, The Boston Lofts Project, Series A, FHA Insured,
5.75%, 10/01/27 ......................................................................... 1,500,000 1,403,760
Denver City and County Revenue, Children's Hospital Association Project, FGIC
Insured, 6.00%, 10/01/15 ................................................................ 3,150,000 3,172,019
Denver City and County Special Facilities Airport Revenue, United Airlines Inc. ...........
Project, Series A, 6.875%, 10/01/32 ..................................................... 2,000,000 1,947,940
Donala Water and Sanitary District GO, Improvement, Series B, Pre-Refunded, 6.50%, 12/01/14 995,000 1,043,775
Douglas County MFR, Housing Mortgage, Parker Hilltop Project, FHA Insured, 5.45%, 8/01/28 . 2,000,000 1,798,760
Douglas County School District No. 1 GO, Douglas and Elbert Counties, Improvement,
Series A, MBIA Insured,
6.50%, 12/15/16 ........................................................................ 230,000 238,933
Pre-Refunded, 6.50%, 12/15/16 .......................................................... 2,000,000 2,147,120
El Paso County School District GO, No. 38, 6.00%, 12/01/24 ................................ 1,500,000 1,502,190
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ................... 5,000,000 4,930,350
Fremont County COP, Lease Purchase, MBIA Insured, 5.30%, 12/15/17 ......................... 1,000,000 933,330
Frisco Fire Protection District, Refunding and Improvement, 7.20%, 12/01/05 ............... 30,000 30,000
Garfield County Building Corp. COP, AMBAC Insured, 5.75%,
12/01/19 ............................................................................... 1,500,000 1,450,065
12/01/24 ............................................................................... 1,000,000 950,600
Greeley MFR, Housing Mortgage, Creek Stone Project, FHA Insured, 5.95%, 7/01/28 ........... 1,000,000 951,400
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 .................................................. 400,000 414,848
Series A, 6.50%, 10/01/23 .............................................................. 800,000 830,552
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.375%, 10/01/08 .................... 1,000,000 1,057,670
Jefferson County District Wide Sales Tax Revenue, Local ID, MBIA Insured, 6.30%, 6/01/22 .. 7,450,000 7,501,182
Jefferson County Open Space Sales Tax Revenue, FGIC Insured, 5.00%, 11/01/18 .............. 1,000,000 892,680
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ................ 200,000 206,594
La Junta Hospital Revenue, Ark Valley Regional Medical Center Project,
5.75%, 4/01/14 ......................................................................... 2,090,000 1,826,138
6.00%, 4/01/19 ......................................................................... 1,000,000 842,780
6.10%, 4/01/24 ......................................................................... 1,000,000 828,650
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25 ........................................................................ 1,235,000 1,261,392
6.70%, 10/01/36 ........................................................................ 3,025,000 3,085,893
Larimer County COP, School District No. R1, Poudre, MBIA Insured, 5.65%, 12/01/16 ......... 2,300,000 2,263,131
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08 ........................................................................ 1,000,000 1,030,440
6.20%, 12/01/10 ........................................................................ 935,000 966,584
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Logan County SFMR, Refunding, Series A, 8.50%, 11/01/11 .................................. $ 105,000 $ 106,747
Metex Metropolitan District GO, Refunding, Series A, MBIA Insured, 5.80%, 12/01/16 ....... 500,000 500,315
Montrose County COP, 6.35%, 6/15/06 ...................................................... 1,850,000 1,914,214
Mountain College Residence Hall Revenue Authority, MBIA Insured, 5.75%, 6/01/23 .......... 3,000,000 2,877,330
Postsecondary Educational Facilities Authority Revenue, Auraria Foundation Project,
FSA Insured, 6.00%, 9/01/15 ............................................................ 1,000,000 1,011,630
Pueblo Board Waterworks Water Revenue, Improvement, Series A, FSA Insured, 6.00%, 11/01/21 4,300,000 4,299,570
Pueblo County, MBIA Insured, 6.00%, 6/01/16 .............................................. 4,395,000 4,440,049
Pueblo County COP, Public Parking, 6.90%, 7/01/15 ........................................ 500,000 498,065
Pueblo County School District No. 70 GO, Pueblo Rural, AMBAC Insured, Pre-Refunded,
6.40%, 12/01/14 ........................................................................ 1,000,000 1,060,990
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding, AMBAC Insured, 6.10%,
12/01/15 ............................................................................... 1,000,000 1,014,250
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ........................................................... 55,000 62,888
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 1,202,581
Regional Transportation District Sales Tax Revenue, FGIC Insured, 6.25%, 11/01/12 ........ 160,000 165,910
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11 .................................. 285,000 291,398
Stonegate Village Metropolitan District, Refunding and Improvement, Series A,
FSA Insured, 5.60%, 12/01/25 ........................................................... 3,000,000 2,824,650
Summit County SFMR, Series A, 7.50%, 12/01/11 ............................................ 70,000 71,536
Summit County Sports Facilities Revenue, Keystone Resorts Project, Ralston
Purina Co., Refunding, 7.875%, 9/01/08 ................................................. 2,750,000 3,124,523
University of Colorado Hospital Authority Revenue,
Refunding, Series A, AMBAC Insured, 5.25%, 11/15/22 ................................... 10,000,000 8,849,900
Series A, AMBAC Insured, 5.00%, 11/15/29 .............................................. 11,865,000 9,914,038
University of Colorado Revenues, Enterprise System, Refunding, Series A, MBIA
Insured, 5.00%, 6/01/24 ................................................................ 3,375,000 2,892,679
University of Northern Colorado Authority Facilities System Revenue, MBIA
Insured, 5.60%, 6/01/24 ................................................................ 2,000,000 1,876,440
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ....................................................................... 2,500,000 2,341,450
5.50%, 10/01/22 ....................................................................... 2,500,000 2,155,800
Westminster City Sales and Use Tax Revenue,
Refunding and Improvement, FGIC Insured, 7.00%, 12/01/08 .............................. 2,000,000 2,050,460
Storm Project, Refunding and Improvement, Series A, 5.60%, 12/01/16 ................... 1,500,000 1,483,800
Westminster COP, Ice Centre Project, AMBAC Insured, 5.40%, 1/15/23 ....................... 4,400,000 4,032,639
Widefield Water and Sanitary District Water and Sewage Revenue, Refunding and
Improvement, Series A, MBIA Insured,
5.70%, 12/01/16 ........................................................................ 2,000,000 1,978,560
------------
TOTAL LONG TERM INVESTMENTS (COST $289,853,890) .......................................... 281,197,421
------------
(a)SHORT TERM INVESTMENTS .5%
Colorado Health Facility Authority, Hospital Revenue, Boulder County Hospital
Project, Series B, Weekly VRDN and Put, 3.90%, 10/01/14 ................................ 1,170,000 1,170,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.35%, 12/01/15 ................................................... 100,000 100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put,
3.00%, 7/01/28 ....................................................................... 100,000 100,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,370,000) ........................................... 1,370,000
------------
TOTAL INVESTMENTS (COST $291,223,890) 99.1% .............................................. 282,567,421
OTHER ASSETS, LESS LIABILITIES .9% ....................................................... 2,559,924
------------
NET ASSETS 100.0% ........................................................................ $285,127,345
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
------------------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.27 $ 11.23 $ 10.92 $ 10.96 $ 10.64
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .56 .58 .60 .61 .62
Net realized and unrealized gains (losses) . (1.21) .04 .32 (.02) .32
------------------------------------------------------------------------------------
Total from investment operations ............ (.65) .62 .92 .59 .94
------------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.56) (.58)(e) (.60) (.63) (.62)
In excess of net investment income ......... -- -- (.01) -- --
------------------------------------------------------------------------------------
Total distributions ......................... (.56) (.58) (.61) (.63) (.62)
------------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.06 $ 11.27 $ 11.23 $ 10.92 $ 10.96
====================================================================================
Total return(b) ............................. (5.90)% 5.62% 8.62% 5.52% 9.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $207,745 $245,016 $203,643 $183,649 $ 167,045
Ratios to average net assets:
Expenses ................................... .71% .72% .73% .72% .73%
Net investment income ...................... 5.26% 5.08% 5.41% 5.62% 5.70%
Portfolio turnover rate ..................... 30.61% 5.87% 18.54% 14.53% 3.88%
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.30 $ 11.26 $ 10.94 $ 10.97 $ 10.65
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .50 .52 .55 .60 .47
Net realized and unrealized gains (losses) . (1.20) .03 .31 (.07) .31
------------------------------------------------------------------------------------
Total from investment operations ............ (.70) .55 .86 .53 .78
------------------------------------------------------------------------------------
Less distributions from net investment income (.50) (.51)(e) (.54) (.56) (.46)
------------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.10 $ 11.30 $ 11.26 $ 10.94 $ 10.97
====================================================================================
Total return(b) ............................. (6.32)% 5.02% 8.08% 5.03% 7.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 25,007 $ 23,443 $ 8,636 $ 4,149 $ 1,656
Ratios to average net assets:
Expenses ................................... 1.26% 1.28% 1.29% 1.29% 1.30%(c)
Net investment income ...................... 4.73% 4.53% 4.85% 5.01% 5.12%(c)
Portfolio turnover rate ..................... 30.61% 5.87% 18.54% 14.53% 3.88%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(e) Includes distributions in excess of net investment income in the amount
of $.002.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.0%
Bridgeport GO,
Series A, 7.25%, 6/01/00 .............................................................. $ 300,000 $ 302,010
Series A, FGIC Insured, 5.875%, 7/15/19 ............................................... 1,000,000 1,002,970
Series B, 7.55%, 11/15/00 ............................................................. 715,000 719,662
Series B, Pre-Refunded, 7.75%, 11/15/10 ............................................... 3,750,000 3,916,050
Connecticut State Development Authority First Mortgage Gross Revenue, Health Care Project,
Baptist Homes Inc. Project, Refunding, Asset Guaranty, 5.625%, 9/01/22 ................. 2,000,000 1,859,200
Connecticut State Development Authority First Mortgage Revenue, Health Care Project,
Church Homes Inc., Refunding, 5.80%, 4/01/21 .......................................... 4,000,000 3,318,120
Elim Park Baptist Home, Refunding, Series A, 5.375%, 12/01/18 ......................... 1,100,000 885,456
Connecticut State Development Authority Revenue, Life Care Facilities, Seabury Project,
Refunding, Asset Guaranty, 5.00%, 9/01/21 .............................................. 2,000,000 1,660,800
Connecticut State Development Authority Solid Waste Disposal Facilities Revenue, Pfizer
Inc. Project, 7.00%, 7/01/25 ........................................................... 2,000,000 2,162,820
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic Co.
Project,
6.15%, 4/01/35 ........................................................................ 1,000,000 959,780
6.00%, 9/01/36 ........................................................................ 10,000,000 9,384,300
Refunding, 7.25%, 6/01/20 ............................................................. 1,000,000 1,024,290
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14 ........................ 2,000,000 2,021,320
Brunswick School, Series A, MBIA Insured, 5.00%, 7/01/29 .............................. 5,000,000 4,204,450
Capital Assets, Series C, MBIA Insured, 7.00%, 1/01/20 ................................ 1,265,000 1,302,545
Capital Assets, Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20 .................. 200,000 208,274
Catholic Health East, Series F, MBIA Insured, 5.75%, 11/15/29 ......................... 3,250,000 3,111,648
Child Care Facilities Program, Series C, AMBAC Insured, 5.625%, 7/01/29 ............... 1,250,000 1,175,738
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%, 7/01/25 ............ 1,500,000 1,631,085
Danbury Hospital Issue, Refunding, Series G, AMBAC Insured, 5.75%, 7/01/29 ............ 1,500,000 1,436,445
Eastern Connecticut Health Network, Refunding, Series A, Asset Guaranty, 6.00%, 7/01/25 9,195,000 8,995,101
Fairfield University, Series I, MBIA Insured, 5.25%, 7/01/25 .......................... 2,500,000 2,245,225
Fairfield University, Series I, MBIA Insured, 5.50%, 7/01/29 .......................... 8,000,000 7,429,600
Greenwich Hospital, Series A, MBIA Insured, 5.75%, 7/01/16 ............................ 1,000,000 990,520
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ............................ 2,500,000 2,408,400
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ........................... 1,275,000 1,380,430
Hartford University, Series D, 6.80%, 7/01/22 ......................................... 5,000,000 5,010,450
Hebrew Home and Hospital, Series B, FHA Insured, 5.15%, 8/01/28 ....................... 3,800,000 3,216,396
Horace Bushnell Memorial Hall, Series A, MBIA Insured, 5.625%, 7/01/29 ................ 1,000,000 940,590
Hospital for Special Care, Refunding, Series B, 5.375%, 7/01/17 ....................... 7,205,000 5,852,766
Hospital for Special Care, Refunding, Series B, 5.50%, 7/01/27 ........................ 17,000,000 13,070,960
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 ............................. 500,000 571,480
New Britain Memorial Hospital, Series A, Pre-Refunded, 7.75%, 7/01/22 ................. 1,000,000 1,082,980
New Horizons Village Project, 7.30%, 11/01/16 ......................................... 2,905,000 3,171,040
Quinnipiac College, Series C, Pre-Refunded, 7.75%, 7/01/20 ............................ 960,000 989,942
Sacred Heart University, Refunding, Series E, Asset Guaranty, 5.00%, 7/01/28 .......... 4,000,000 3,327,720
Sacred Heart University, Series C, 6.50%, 7/01/16 ..................................... 235,000 239,966
Sacred Heart University, Series C, 6.625%, 7/01/26 .................................... 785,000 790,636
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 ....................... 765,000 825,580
Sacred Heart University, Series C, Pre-Refunded, 6.625%, 7/01/26 ...................... 6,215,000 6,748,496
Sacred Heart University, Series D, Pre-Refunded, 6.20%, 7/01/27 ....................... 1,000,000 1,065,720
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 .............................. 4,615,000 3,685,078
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 ............................. 3,510,000 2,895,996
Taft School, Series A, Pre-Refunded, 7.375%, 7/01/20 .................................. 1,000,000 1,029,990
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 .............................. 3,200,000 3,176,384
University Connecticut Foundation, Series A, 5.375%, 7/01/29 .......................... 1,250,000 1,122,138
Veterans Memorial Medical Center, Series A, MBIA Insured, 5.50%, 7/01/26 .............. 1,000,000 924,220
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 ......................... 8,000,000 6,928,800
Yale New Haven Hospital, Refunding, Series H, MBIA Insured, 5.70%, 7/01/25 ............ 4,500,000 4,296,780
Yale New Haven Hospital, Series F, MBIA Insured, Pre-Refunded, 7.10%, 7/01/25 ......... 7,000,000 7,206,080
Connecticut State HFA, Housing Mortgage Finance Program,
Series B, 6.75%, 11/15/23 ............................................................. 14,705,000 15,397,753
Series C-1, 6.60%, 11/15/23 ........................................................... 440,000 454,617
Series C-2, 6.25%, 11/15/18 ........................................................... 1,500,000 1,531,635
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (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.)
Series C-2, 6.70%, 11/15/22 ........................................................ $ 1,325,000 $ 1,350,957
Series E, 6.30%, 5/15/17 ........................................................... 2,215,000 2,259,522
Sub Series B-1, 6.30%, 5/15/25 ..................................................... 700,000 707,980
Sub Series B-1, 5.30%, 11/15/28 .................................................... 1,700,000 1,527,501
Sub Series C-2, 5.85%, 11/15/28 .................................................... 1,445,000 1,366,334
Sub Series D-1, 5.55%, 11/15/28 .................................................... 1,000,000 920,200
Sub Series E-2, 5.20%, 11/15/21 .................................................... 1,840,000 1,646,487
Sub Series G-1, 6.20%, 11/15/16 .................................................... 1,150,000 1,161,983
Connecticut State Higher Education Supplemental Loan Authority Revenue, Family
Education Loan Program, Series A,
7.00%, 11/15/05 .................................................................... 705,000 723,774
7.20%, 11/15/10 .................................................................... 215,000 220,558
7.50%, 11/15/10 .................................................................... 340,000 344,104
AMBAC Insured, 6.00%, 11/15/18 ..................................................... 2,000,000 2,001,460
Connecticut State Housing Authority, Housing Finance Project, Series B, 6.10%, 11/15/31 2,715,000 2,651,469
Eastern Connecticut Resource Recovery Authority Solid Waste Revenue, Wheelabrator
Lisbon Project, Series A, 5.50%, 1/01/15 ............................................ 8,000,000 6,850,160
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 ............................................ 200,000 225,472
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .................................................................... 250,000 261,943
6.70%, 10/01/23 .................................................................... 1,300,000 1,360,658
Guam Power Authority Revenue,
Refunding, Series A, 5.25%, 10/01/34 ............................................... 4,000,000 3,357,600
Series A, Pre-Refunded, 6.75%, 10/01/24 ............................................ 5,500,000 6,026,735
New Haven GO, Series A, Pre-Refunded, 7.40%, 3/01/12 .................................. 4,545,000 4,856,196
Plainfield GO,
Series 1988, 7.30%, 9/01/10 ........................................................ 150,000 157,895
Series 1991, 7.25%, 9/01/05 ........................................................ 335,000 352,990
Series 1991, 7.30%, 9/01/07 ........................................................ 335,000 352,782
Series 1991, 7.30%, 9/01/09 ........................................................ 335,000 352,979
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series
A, 5.00%, 7/01/38 .................................................................. 2,500,000 2,050,125
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ....... 775,000 795,561
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Warehouse, Series A,
5.15%, 7/01/19 ....................................................................... 4,845,000 4,144,801
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 6.50%, 7/01/19 .......... 5,000,000 5,391,300
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12.............................. 1,130,000 1,184,319
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ........................................................................... 2,500,000 2,332,100
10/01/22 ........................................................................... 2,500,000 2,155,800
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 .......................................................... 1,500,000 1,353,239
Refunding, 5.30%, 7/01/21 .......................................................... 1,000,000 883,459
Series A, Pre-Refunded, 7.40%, 7/01/11 ............................................. 5,780,000 6,085,645
Waterbury GO, Pre-Refunded,
7.25%, 3/01/04 ..................................................................... 785,000 821,564
7.50%, 3/01/07 ..................................................................... 780,000 818,211
------------
TOTAL LONG TERM INVESTMENTS (COST $241,347,443) ....................................... 230,344,295
------------
(a)SHORT TERM INVESTMENTS .1%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.35%, 12/01/15 (COST $200,000) .................................. 200,000 200,000
------------
TOTAL INVESTMENTS (COST $241,547,443) 99.1% ........................................... 230,544,295
OTHER ASSETS, LESS LIABILITIES .9% .................................................... 2,208,349
------------
NET ASSETS 100.0% ..................................................................... $232,752,644
============
</TABLE>
SEE GLOSSARY OF TERMS ON PAGE 123.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
----------------------------------------------------------------------------
2000(a) 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.30 $ 11.25 $ 10.94 $ 10.95 $ 10.48
----------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................. .51 .51 .53 .55 .55
Net realized and unrealized gains (losses) ........ (.78) .06 .33 (.01) .47
----------------------------------------------------------------------------
Total from investment operations ................... (.27) .57 .86 .54 1.02
----------------------------------------------------------------------------
Less distributions from net investment income ...... (.51) (.52) (.55) (.55) (.55)
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 10.52 $ 11.30 $ 11.25 $ 10.94 $ 10.95
===========================================================================
Total return(b)..................................... (2.43)% 5.17% 8.02% 5.12% 9.93%
Ratios/supplemental data
Net assets, end of year (000's) .................... $ 170,907 $ 195,598 $ 139,545 $ 104,715 $ 85,967
Ratios to average net assets:
Expenses .......................................... .73% .75% .75% .68% .65%
Expenses excluding waiver and payments by affiliate .75% .78% .82% .84% .85%
Net investment income ............................. 4.72% 4.53% 4.83% 5.16% 5.12%
Portfolio turnover rate ............................ 31.27% 16.57% 23.32% 22.54% 3.35%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.1%
BONDS 96.9%
ALABAMA .6%
Morgan County Decatur Health Care Authority Hospital Revenue, Refunding, Connie
Lee Insured, 5.80%, 3/01/04 ......................................................................... $ 1,000,000 $ 1,023,200
-----------
ALASKA .3%
Alaska State HFC, Collateral, Veteran's Mortgage Program, First Series, 5.80%, 6/01/04 ................ 375,000 383,865
Anchorage Parking Authority Revenue, 5th Avenue Garage Lease Project, Refunding, 6.50%, 12/01/02 ...... 145,000 149,427
-----------
533,292
-----------
ARIZONA .9%
Maricopa County COP, 5.625%, 6/01/00 .................................................................. 330,000 330,604
Maricopa County GO, School District No. 40, Glendale Improvement, 6.10%, 7/01/08 ...................... 1,000,000 1,044,190
Mohave County IDA, Hospital Systems Revenue, Medical Environments Inc., Phoenix Hospital and
Medical Center, Refunding, ETM, 6.00%, 7/01/00 ...................................................... 200,000 201,254
Phoenix HFC, Mortgage Revenue, Project A, Refunding, MBIA Insured, 6.00%, 7/01/02 ..................... 30,000 30,616
-----------
1,606,664
-----------
ARKANSAS .6%
Conway Hospital Revenue, Conway Regional Medical Improvement, Refunding, Series A, 6.20%, 8/01/17 ..... 1,105,000 1,023,009
-----------
CALIFORNIA 7.0%
ABAG Finance Corp. COP, ABAG XXVI, Series B, 6.30%, 10/01/02 .......................................... 100,000 103,200
Bakersfield PFA Revenue, Refunding, Series A, 5.80%, 9/15/05 .......................................... 3,000,000 3,089,490
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Refunding, Series B, 5.90%, 6/01/03 ................................................................. 1,500,000 1,544,355
California Statewide CDA Revenue, COP, Health Facilities, Barton Memorial Hospital, Refunding,
Series B, 6.40%, 12/01/05 ........................................................................... 300,000 309,216
Coastside County Water District 1915 Act GO, Crystal Springs Project, Refunding,
5.10%, 9/02/03 ..................................................................................... 475,000 472,749
5.30%, 9/02/05 ..................................................................................... 605,000 598,200
Fresno Joint Powers Financing Authority Local Agency Revenue, Refunding, Series A, 6.00%, 9/02/01 ..... 700,000 704,865
Los Angeles County Transport Commission COP, Series B, 5.90%, 7/01/00 ................................. 100,000 100,684
San Diego Port Facilities Revenue, National Steel and Shipbuilding Co., Refunding, 6.60%, 12/01/02 .... 100,000 102,296
San Francisco City and County RDA, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.125%, 7/01/02 40,000 39,983
San Francisco Downtown Parking Corp. Parking Revenue, 6.25%, 4/01/04 .................................. 200,000 210,842
San Joaquin County COP, General Hospital Project, ETM, 5.90%, 9/01/03 ................................. 200,000 208,108
San Ramon Valley USD, COP, Measure A, Capital Project, Series A, 5.95%, 10/01/01 ...................... 1,110,000 1,137,439
Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1,
5.00%, 9/02/06 ..................................................................................... 465,000 445,331
5.25%, 9/02/11 ..................................................................................... 1,000,000 933,160
Snowline Joint USD, COP, ETM,
5.60%, 7/01/01 ..................................................................................... 260,000 263,965
5.70%, 7/01/02 ..................................................................................... 275,000 281,526
5.80%, 7/01/03 ..................................................................................... 290,000 299,880
Solano County COP, Justice Facility and Public Building Project, Refunding, 5.875%, 10/01/05 .......... 400,000 408,500
Southern California Rapid Transit District Revenue, Special Benefit AD A2, 6.00%, 9/01/02 ............. 100,000 102,530
Susanville PFA Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 ..................................................................................... 25,000 25,707
6.00%, 9/01/03 ..................................................................................... 100,000 102,831
Tahoe City PUD, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 ............................. 500,000 507,660
-----------
11,992,517
-----------
COLORADO 1.1%
Denver City and County Airport Revenue, Series C, 6.25%, 11/15/00 ..................................... 335,000 338,276
Montrose County COP, 6.20%, 6/15/03 ................................................................... 1,500,000 1,543,230
-----------
1,881,506
-----------
CONNECTICUT 3.1%
Connecticut State Health and Educational Facilities Authority Revenue, Sacred Heart University,
Refunding, Series C, 6.00%, 7/01/05 ................................................................ 135,000 137,445
Series C, ETM, 6.00%, 7/01/05 ...................................................................... 425,000 440,810
Connecticut State HFA, Housing Mortgage Finance Program, Series C-2, 6.00%, 11/15/10 .................. 2,000,000 2,038,660
Stamford Housing Authority MFR, Fairfield Apartments Project, 4.75%, 12/01/28 ......................... 3,000,000 2,700,270
-----------
5,317,185
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA 5.6%
Alachua County Health Facilities Authority Revenue, Santa Fe Health Systems Project,
Pre-Refunded, 6.875%, 11/15/02 .................................................................. $ 90,000 $ 92,813
(b)Florida State Board of Education Capital Outlay, Public Education, Refunding, Series D, 5.50%,
6/01/08 ....................................................................................... 850,000 846,583
6/01/10 ....................................................................................... 945,000 935,446
6/01/11 ....................................................................................... 200,000 198,328
6/01/12 ....................................................................................... 200,000 197,008
6/01/13 ....................................................................................... 200,000 195,570
6/01/14 ....................................................................................... 200,000 194,974
Meadow Pointe II CDD, Capital Improvement Revenue, Series A, 5.25%, 8/01/03 ...................... 1,755,000 1,694,470
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 .......................... 1,000,000 1,005,420
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31,
Program 1, Refunding, 6.60%, 11/01/03 ......................................................... 405,000 413,772
Program 2, Refunding, 6.60%, 11/01/03 ......................................................... 320,000 326,931
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care Inc. Project,
6.20%, 12/01/08 ............................................................................... 275,000 274,236
6.30%, 12/01/09 ............................................................................... 580,000 579,304
(c)Palm Beach County Solid Waste IDR, Okeelanta Power and Light Co. Project, Series A,
6.375%, 2/15/07 ................................................................................. 1,400,000 840,000
Pembroke Pines Special Assessment, No. 94-1, 5.75%, 11/01/05 ..................................... 785,000 795,134
Tampa Bay Water Utility System Revenue, FGIC Insured, 5.75%, 10/01/15 ............................ 1,000,000 1,008,360
---------
9,598,349
---------
GEORGIA 2.4%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.30%, 12/01/13 ....... 1,020,000 862,798
Fulton County Development Authority Special Facilities Revenue, Delta Airlines Inc. Project,
Refunding, 6.85%, 11/01/07 ...................................................................... 100,000 103,278
Wayne County Development Authority PCR, ITT Rayonier Inc. Project, Refunding, 6.10%, 11/01/07 .... 3,105,000 3,127,883
---------
4,093,959
---------
HAWAII 1.8%
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Kaiser Permanente, Series A, 5.10%, 3/01/14 ................................................... 3,000,000 2,568,420
Kapi 'Olani Health Obligation, 5.60%, 7/01/06 ................................................. 500,000 491,095
---------
3,059,515
---------
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 1,725,740
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 ............ 700,000 712,257
Illinois HDA Revenue, Homeowner Mortgage, Sub Series A-1, 6.10%, 2/01/05 ......................... 360,000 369,788
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 ...................................................... 375,000 374,288
Victory Health Services, Series A, 5.25%, 8/15/09 ............................................. 1,170,000 1,082,683
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center, 5.75%, 7/01/06............................................................... 1,000,000 1,023,630
---------
5,288,386
---------
INDIANA 3.3%
Franklin EDR, Hoover Universal Inc. Project, Johnson Controls, Refunding, 6.10%, 12/01/04 ........ 2,000,000 2,057,700
Indianapolis Local Public Improvement Bond, Refunding, Series D, 6.10%, 2/01/02 .................. 100,000 102,470
Sullivan PCR, Indiana-Michigan Power Co. Project, Refunding, Series C, 5.95%, 5/01/09 ............ 3,500,000 3,439,205
---------
5,599,375
---------
IOWA .1%
Iowa State Financial Authority Hospital Facilities Revenue, Trinity Regional Hospital Project,
Refunding, ETM, 6.50%, 7/01/00................................................................... 100,000 100,397
---------
KENTUCKY 2.7%
Ashland PCR, Ashland Inc. Project, Refunding, 5.70%, 11/01/09 .................................... 2,500,000 2,441,800
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project, Series A,
6.75%, 2/01/02 .................................................................................. 100,000 102,105
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian Regional
Health Center Facility, Refunding and Improvement,
5.70%, 10/01/10 ............................................................................... 1,000,000 841,610
5.75%, 10/01/11 ............................................................................... 1,500,000 1,244,175
---------
4,629,690
---------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
LOUISIANA 2.2%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series B, 6.375%, 11/01/02 ...... $ 5,000 $ 5,118
Louisiana Public Facilities Authority Revenue, Student Loan, Refunding, Series A-1,
6.20%, 3/01/01 ...................................................................................... 80,000 81,308
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, First Stage, Loop Inc.,
Refunding, Series B, 6.20%, 9/01/03 ................................................................. 100,000 102,516
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ......................... 4,000,000 3,549,000
-----------
3,737,942
-----------
MARYLAND .1%
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A,
6.75%, 8/01/02 ...................................................................................... 125,000 127,350
-----------
MASSACHUSETTS 8.3%
Massachusetts State Development Finance Agency Resource, Recovery Revenue, Waste Management Inc.
Project, Series B, 6.90%, 12/01/29 .................................................................. 3,000,000 2,962,200
Massachusetts State Development Finance Agency Revenue, Loomis Community Project,
First Mortgage, Refunding, Series A, 5.50%, 7/01/08 ................................................. 3,225,000 2,976,836
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Ogden Haverhill Project,
Refunding, Series A,
4.95%, 12/01/06 ................................................................................... 2,500,000 2,337,475
5.15%, 12/01/07 ................................................................................... 2,000,000 1,867,520
5.20%, 12/01/08 ................................................................................... 2,000,000 1,848,540
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care, 5.50%, 10/01/12 ....... 1,745,000 1,685,042
New England Educational Loan Marketing Corp. Student Loan Revenue, Refunding, Series B,
5.60%, 6/01/02 ...................................................................................... 415,000 423,366
-----------
14,100,979
-----------
MICHIGAN 1.9%
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial Hospital,
Refunding, Series B,
5.30%, 11/01/07 ................................................................................... 815,000 753,851
5.625%, 11/01/14 .................................................................................. 350,000 298,004
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 ..................................................... 1,000,000 1,043,580
Michigan State Hospital Finance Authority Revenue, Ascension Health Credit, Series A,
MBIA Insured, 6.00%, 11/15/13 ....................................................................... 1,200,000 1,225,524
-----------
3,320,959
-----------
MINNESOTA .1%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund, Series 91-5A, 7.20%, 12/01/04 ...... 200,000 208,584
-----------
MISSISSIPPI 1.3%
Perry County PCR, Leaf River Forest Project, Refunding, 5.20%, 10/01/12 .............................. 2,500,000 2,281,675
-----------
MISSOURI 1.9%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue, Refunding, 5.00%, 12/01/08 .......... 3,000,000 2,774,790
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Refunding, 5.00%, 11/15/04 ......... 560,000 519,966
-----------
3,294,756
-----------
NEBRASKA .8%
Omaha Stadium Facilities Corp. Lease Revenue, Rosenblatt Stadium Project, Series A, 4.90%, 11/01/13 .. 1,100,000 1,008,359
Wayne State College Revenue, Student Fees and Facilities, Refunding, MBIA Insured, 5.05%, 7/01/10 .... 365,000 355,525
-----------
1,363,884
-----------
NEW HAMPSHIRE .7%
New Hampshire Higher Education and Health Facilities Authority Revenue, New Hampshire Catholic
Charities, Refunding, Series A, 5.10%, 8/01/04 ..................................................... 1,160,000 1,118,263
-----------
NEW JERSEY 3.3%
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue, Waste Management Inc.,
Refunding, Project Series A, 6.85%, 12/01/29 ....................................................... 2,625,000 2,609,906
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding, Series 1,
5.90%, 1/01/15 ...................................................................................... 975,000 917,105
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 ............................. 55,000 55,658
New Jersey Health Care Facilities Financing Authority Revenue, Monmouth Medical Center, Refunding,
Series C, FSA Insured, ETM, 5.80%, 7/01/04 ......................................................... 1,000,000 1,033,060
New Jersey State Housing and Mortgage Finance Agency Revenue, SFMR, Home Buyer, Series Z,
MBIA Insured, 5.35%, 4/01/11 ........................................................................ 1,000,000 986,820
-----------
5,602,549
-----------
NEW YORK 11.6%
MTA Commuter Facilities Revenue, Services Contract, Refunding, Series R, 5.50%, 7/01/11 .............. 2,215,000 2,194,578
MTA Transportation Facilities Revenue, Series A, 6.00%, 7/01/15 ...................................... 1,500,000 1,511,565
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
New York City GO,
Pre-Refunded, 6.50%, 8/01/04 ...................................................................... $ 105,000 $ 110,590
Refunding, Series H, 5.90%, 8/01/09 ............................................................... 500,000 515,255
Refunding, Series J, 6.00%, 8/01/08 ............................................................... 3,000,000 3,116,130
Series B, 6.25%, 10/01/01 ......................................................................... 75,000 76,848
Series B, ETM, 6.25%, 10/01/01 .................................................................... 25,000 25,612
Series C, 6.50%, 8/01/04 .......................................................................... 410,000 428,671
Series C, 6.50%, 8/01/07 .......................................................................... 1,490,000 1,554,755
Series C, Pre-Refunded, 6.50%, 8/01/07 ............................................................ 360,000 379,166
Series H, 7.00%, 2/01/05 .......................................................................... 30,000 31,539
Series H, Pre-Refunded, 7.00%, 2/01/05 ............................................................ 220,000 232,360
Series J, 6.00%, 2/15/04 .......................................................................... 1,000,000 1,031,440
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.00%, 2/15/06 ................. 2,500,000 2,463,150
New York City IDA, Civic Facility Revenue, New York Blood Center Inc. Project, ETM, 6.80%, 5/01/02 ... 90,000 91,868
New York State Dormitory Authority Revenue, Mental Health Services Facilities Improvement, Refunding,
Series D, 5.60%, 2/15/07 ............................................................................ 140,000 142,086
New York State HFAR, Health Facilities, New York City, Refunding, Series A, 5.90%, 5/01/05 ........... 1,000,000 1,008,740
New York State Tollway Authority Service Contract Revenue, Local Highway and Bridge,
5.75%, 4/01/08 .................................................................................... 500,000 510,655
5.75%, 4/01/09 .................................................................................... 1,150,000 1,169,987
Pre-Refunded, 5.90%, 4/01/08 ...................................................................... 1,000,000 1,054,980
Oneida-Herkimer Solid Waste Management Authority Solid Waste Systems Revenue, Refunding,
6.20%, 4/01/00 ...................................................................................... 100,000 100,165
Port Authority of New York and New Jersey Special Obligation Revenue, 3rd Installment,
7.00%, 10/01/07 ..................................................................................... 1,000,000 1,046,500
Ulster County Resource Recovery Agency Solid Waste System Revenue, 5.90%, 3/01/07 .................... 1,100,000 1,111,341
-----------
19,907,981
-----------
NORTH CAROLINA 4.2%
Eastern Municipal Power Agency Power System Revenue,
Refunding, Series D, 6.00%, 1/01/09 ............................................................... 1,000,000 993,820
Series D, 6.45%, 1/01/14 .......................................................................... 1,000,000 994,470
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, Refunding,
Series B, 6.50%, 1/01/09 ............................................................................ 5,000,000 5,151,600
-----------
7,139,890
-----------
OHIO 2.1%
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services, Refunding,
5.25%, 7/01/08 .................................................................................... 575,000 521,358
5.40%, 7/01/10 .................................................................................... 775,000 671,933
5.50%, 7/01/11 .................................................................................... 500,000 431,380
University of Akron General Receipts, FGIC Insured, 5.75%, 1/01/14 ................................... 2,000,000 2,022,320
-----------
3,646,991
-----------
OKLAHOMA 2.9%
Jackson County Memorial Hospital Authority Revenue, Jackson County Memorial Hospital Project,
Refunding, 6.75%, 8/01/04 ........................................................................... 1,525,000 1,504,397
Okmulgee County Governmental Building Authority Sales Tax Revenue, First Mortgage,
MBIA Insured,
5.60%, 3/01/10 .................................................................................... 1,825,000 1,865,625
6.00%, 3/01/15 700,000 703,563
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
5.75%, 8/15/06 ...................................................................................... 895,000 860,507
-----------
4,934,092
-----------
OREGON .8%
Clackamas County Hospital Facilities Authority Revenue, Willamette View Inc. Project, Refunding,
6.00%, 11/01/06 ..................................................................................... 500,000 482,165
Hillsborough Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ....................... 1,000,000 939,430
-----------
1,421,595
-----------
PENNSYLVANIA 4.7%
Cambria County Hospital Development Authority Revenue, Conemaugh Valley Memorial Hospital,
Refunding and Improvement, Series B, Connie Lee Insured, Pre-Refunded, 5.90%, 7/01/03 ............... 100,000 104,044
Chartiers Valley Industrial and Commercial Development Authority Revenue, First Mortgage,
Asbury Place Project, 6.25%, 2/01/06 ................................................................ 200,000 200,084
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding, 5.40%, 7/01/07 ....... 1,135,000 1,037,628
Delaware County IDA, PCR, Peco Energy Co. Project, Mandatory Put Refunding, Series A,
5.20%, 4/01/21 ...................................................................................... 1,000,000 978,870
Montgomery County IDA, PCR, Series B, 5.30%, 10/01/34 ................................................ 1,500,000 1,479,015
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
Northeastern Hospital and Educational Authority College Revenue, Kings College Project,
Refunding, Series B, 5.60%, 7/15/03 ................................................................. $ 410,000 $ 412,464
Pennsylvania State Higher Educational Facilities Authority Health Services Revenue, University of
Pennsylvania Health Services, Refunding, Series A,
5.75%, 1/01/12 .................................................................................... 1,000,000 921,830
5.875%, 1/01/15 ................................................................................... 800,000 714,552
Philadelphia Gas Works Revenue, Refunding, Series A,
5.70%, 7/01/00 .................................................................................... 300,000 301,170
5.80%, 7/01/01 .................................................................................... 300,000 303,330
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc., 6.50%, 1/01/10 ... 1,615,000 1,587,270
-----------
8,040,257
-----------
SOUTH CAROLINA .6%
Charleston County Resource Recovery Revenue, Foster Wheeler Charleston, Refunding,
AMBAC Insured, 5.25%, 1/01/10 ....................................................................... 1,000,000 979,650
-----------
SOUTH DAKOTA .6%
South Dakota HDA Revenue, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ........................... 955,000 986,744
-----------
TENNESSEE .4%
Metropolitan Government of Nashville and Davidson County IDBR, Osco Treatment Inc., Refunding and
Improvement, 6.00%, 5/01/03 ......................................................................... 750,000 752,708
-----------
TEXAS 3.5%
Abilene Higher Educational Facilities Corp.,
ETM, 5.90%, 10/01/05 .............................................................................. 65,000 67,366
Higher Education Revenue, Abilene Christian, Refunding and Improvement, 5.90%, 10/01/05 ........... 720,000 735,019
Houston ISD, Refunding, 5.50%, 8/15/09 ............................................................... 1,000,000 1,004,950
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial Home Project,
Refunding, Series C, 6.10%, 2/15/06 ................................................................. 400,000 391,804
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.35%, 11/01/10 ......... 2,500,000 2,308,250
Travis County Health Facilities Development Corp. Revenue, Ascension Health Credit, Refunding,
Series A, MBIA Insured, 6.25%, 11/15/17 ............................................................. 1,500,000 1,529,130
-----------
6,036,519
-----------
U.S. TERRITORIES 6.4%
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 .............................................................. 385,000 390,586
Series A, ETM, 5.875%, 6/01/05 .................................................................... 315,000 324,768
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Q, 5.90%, 7/01/01 ............................................................... 100,000 101,661
Series T, 6.00%, 7/01/04 .......................................................................... 1,345,000 1,403,561
Virgin Islands PFA Revenue, senior lien, Refunding, Series A, 5.30%, 10/01/11 ........................ 5,000,000 4,678,900
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
4.875%, 7/01/06 ................................................................................... 2,000,000 1,885,820
5.00%, 7/01/09 .................................................................................... 2,400,000 2,209,272
-----------
10,994,568
-----------
UTAH .2%
Salt Lake County College Revenue, Westminster College Project, 5.50%, 10/01/12 ....................... 340,000 318,998
VIRGINIA 3.6%
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 5.85%, 9/01/04 ............... 2,800,000 2,856,392
Virginia State HDA, Commonwealth Mortgage, Sub Series C-7,
5.60%, 1/01/03 .................................................................................... 1,695,000 1,726,290
5.70%, 1/01/04 .................................................................................... 1,475,000 1,507,878
-----------
6,090,560
-----------
WASHINGTON 1.0%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ......................... 600,000 617,202
Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Refunding,
Series A, AMBAC Insured, 5.70%, 7/01/09 ............................................................. 1,000,000 1,013,800
-----------
1,631,002
-----------
WEST VIRGINIA .8%
West Virginia Public Energy Authority Energy Revenue, Morgantown Association Project,
Series A, 5.05%, 7/01/08 ............................................................................ 1,390,000 1,390,778
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WISCONSIN .3%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 .......................................... $ 500,000 $ 503,190
------------
TOTAL BONDS ....................................................................................... 165,679,508
------------
ZERO COUPON BONDS 2.2%
Champaign County USD No. 116, Urbana, Series C, FGIC Insured, 1/01/10 ............................. 3,305,000 1,904,176
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, Refunding,
Series A, 1/15/17 ................................................................................ 3,000,000 1,855,530
------------
TOTAL ZERO COUPON BONDS ........................................................................... 3,759,706
------------
TOTAL LONG TERM INVESTMENTS (COST $174,385,946).................................................... 169,439,214
------------
(a)SHORT TERM INVESTMENTS 1.2%
Community Development Administration MF Development Revenue, Avalon Ridge Apartments Project,
Refunding, FNMA Insured, Weekly VRDN and Put, 3.90%, 6/15/26 ..................................... 200,000 200,000
Connecticut State Health and Educational Facilities Authority Revenue, Yale University, Series T-1,
Weekly VRDN and Put, 3.85%, 7/01/29 .............................................................. 100,000 100,000
Durham County GO, Weekly VRDN and Put, 3.90%, 5/01/08 ............................................. 200,000 200,000
Flint Hospital Building Authority Revenue, Hurley Medical Center, Series B, Weekly VRDN and Put,
3.85%, 7/01/15 ................................................................................... 400,000 400,000
Hapeville IDAR, Hapeville Hotel Ltd., Daily VRDN and Put, 3.80%, 11/01/15 ......................... 400,000 400,000
Maryland State Health and Higher Educational Facilities Authority Revenue, Adjustable Pooled Loan
Program, Series B, Weekly VRDN and Put, 3.85%, 4/01/35 ........................................... 500,000 500,000
Stevenson IDB, Environmental Improvement Revenue, The Mead Corp. Project, Series B,
Weekly VRDN and Put, 3.95%, 4/01/33 .............................................................. 300,000 300,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $2,100,000) .................................................... 2,100,000
------------
TOTAL INVESTMENTS (COST $176,485,946) 100.3% ...................................................... 171,539,214
OTHER ASSETS, LESS LIABILITIES (.3)% .............................................................. (632,011)
------------
NET ASSETS 100.0% ................................................................................. $170,907,203
============
</TABLE>
See glossary of terms on page 123.
(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.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
Year Ended February 29,
-------------------------------------------------------------------------------
CLASS A 2000(a) 1999(d) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.49 $ 11.68 $ 11.21 $ 11.19 $ 10.74
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .65 .66 .69 .71 .74
Net realized and unrealized gains (losses) . (1.08) (.18) .47 .04 .45
-------------------------------------------------------------------------------
Total from investment operations ............ (.43) .48 1.16 .75 1.19
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.65)(e) (.65) (.68) (.73)(f) (.74)
In excess of net investment income ......... -- -- (.01) -- --
Net realized gains ......................... --(g) (.02) -- -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.65) (.67) (.69) (.73) (.74)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $ 10.41 $ 11.49 $ 11.68 $ 11.21 $ 11.19
===============================================================================
Total return(b) ............................. (3.81)% 4.21% 10.64% 7.01% 11.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 5,017,322 $ 5,988,204 $ 5,742,939 $ 4,505,258 $ 3,787,147
Ratios to average net assets:
Expenses ................................... .61% .62% .61% .62% .61%
Net investment income ...................... 5.92% 5.64% 5.98% 6.41% 6.68%
Portfolio turnover rate ..................... 25.35% 18.55% 15.84% 6.98% 9.23%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.52 $ 11.51
---------------------------------
Income from investment operations:
Net investment income ...................... .59 .11
Net realized and unrealized losses ......... (1.07) --
---------------------------------
Total from investment operations ............ (.48) .11
---------------------------------
Less distributions from:
Net investment income ...................... (.59)(e) (.10)
Net realized gains ......................... --(g) --
---------------------------------
Total distributions ........................ (.59) (.10)
---------------------------------
Net asset value, end of year ................ $ 10.45 $ 11.52
=================================
Total return(b) ............................. (4.27)% .96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 92,099 $ 15,487
Ratios to average net assets:
Expenses ................................... 1.17% 1.18%(c)
Net investment income ...................... 5.44% 5.06%(c)
Portfolio turnover rate ..................... 25.35% 18.55%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period January 1, 1999 (effective date) to February 28, 1999 for
Class B.
(e) Includes distributions in excess of net investment income in the amount of
$.003.
(f) Includes distributions in excess of net investment income in the amount of
$.008.
(g) The fund made a capital gain distribution of $.003.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
--------------------------------------------------------------------
CLASS C 2000(a) 1999 1998 1997 1996(d)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.56 $ 11.75 $ 11.26 $ 11.24 $ 10.81
--------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .60 .63 .66 .56
Net realized and unrealized gains (losses).. (1.08) (.18) .48 .03 .42
--------------------------------------------------------------------
Total from investment operations ............ (.49) .42 1.11 .69 .98
--------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.59)(e) (.59) (.62) (.67)(e) (.55)
Net realized gains ......................... --(f) (.02) -- -- --
--------------------------------------------------------------------
Total distributions ......................... (.59) (.61) (.62) (.67) (.55)
--------------------------------------------------------------------
Net asset value, end of year ................ $ 10.48 $ 11.56 $ 11.75 $ 11.26 $ 11.24
====================================================================
Total return(b) ............................. (4.41)% 3.69% 10.15% 6.36% 9.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 540,932 $ 631,974 $ 423,264 $ 194,400 $ 48,163
Ratios to average net assets:
Expenses ................................... 1.17% 1.18% 1.18% 1.18% 1.18%(c)
Net investment income ...................... 5.35% 5.07% 5.38% 5.78% 6.07%(c)
Portfolio turnover rate ..................... 25.35% 18.55% 15.84% 6.98% 9.23%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996.
(e) Includes distributions in excess of net investment income in the amount of
$.003.
(f) The fund made a capital gain distribution of $.003.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.8%
BONDS 94.2%
ALABAMA .7%
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., Boise Cascade Corp.,
6.45%, 12/01/23 ................................................................................ $ 10,400,000 $ 9,684,272
Jefferson County Sewer Revenue, wts., Series D, FGIC Insured, 5.75%, 2/01/27 .................... 5,000,000 4,788,850
Marshall County Health Care Authority Hospital Revenue, Boaz-Albertville Medical Center,
Refunding, 6.20%, 1/01/08 ...................................................................... 3,300,000 3,142,557
Mobile IDB, Solid Waste Disposal Revenue, Mobile Energy Service Co. Project, Refunding,
6.95%, 1/01/20 ................................................................................. 46,500,000 20,460,000
-------------
38,075,679
-------------
ALASKA 1.1%
Alaska Industrial Development and Export Authority Power Revenue, Upper Lynn Canal
Regional Power,
5.70%, 1/01/12 ............................................................................... 2,000,000 1,881,720
5.80%, 1/01/18 ............................................................................... 1,245,000 1,104,440
5.875%, 1/01/32 .............................................................................. 5,100,000 4,343,109
Alaska Industrial Development and Export Authority Revenue, American President Lines Project,
Refunding, 8.00%, 11/01/09 ..................................................................... 6,685,000 6,714,280
Alaska Industrial Development and Export Authority, Revolving Fund, Series A, 6.20%, 4/01/10 .... 745,000 764,482
Alaska State HFC,
Refunding, Series A, MBIA Insured, 6.00%, 12/01/15 ........................................... 3,235,000 3,249,234
Refunding, Series A, MBIA Insured, 5.875%, 12/01/24 .......................................... 5,000,000 4,850,500
Refunding, Series A, MBIA Insured, 5.875%, 12/01/30 .......................................... 12,475,000 11,886,929
Refunding, Series A, MBIA Insured, 6.10%, 12/01/37 ........................................... 22,000,000 21,583,760
Series A, MBIA Insured, 5.85%, 12/01/15 ...................................................... 4,670,000 4,631,613
-------------
61,010,067
-------------
ARIZONA 5.9%
Apache County IDA,
IDR, Tucson Electric Power Co. Project, Series C, 5.85%, 3/01/26 ............................. 16,500,000 13,814,130
PCR, Tucson Electric Power Co. Project, Series A, 5.85%, 3/01/28 ............................. 53,150,000 44,284,049
PCR, Tucson Electric Power Co. Project, Series B, 5.875%, 3/01/33 ............................ 38,950,000 32,267,349
Arizona Health Facilities Authority Revenue, Bethesda Foundation Project, Series A,
6.375%, 8/15/15 .............................................................................. 400,000 362,264
6.40%, 8/15/27 ............................................................................... 4,000,000 3,445,640
Coconino County PCR, Tucson Electric Power Navajo, Refunding,
Series A, 7.125%, 10/01/32 ................................................................... 21,125,000 21,467,225
Series B, 7.00%, 10/01/32 .................................................................... 7,500,000 7,609,050
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ........................................ 4,000,000 3,081,320
Gilbert Water Resources Municipal Property Corp. Water and Wastewater System Revenue,
sub. lien, 6.875%,
4/01/14 ...................................................................................... 1,000,000 1,007,716
4/01/16 ...................................................................................... 1,000,000 1,006,800
Maricopa County IDA, Health Facilities Revenue, Catholic Healthcare West Project, Refunding,
Series A, 5.00%, 7/01/16 ....................................................................... 6,500,000 5,065,710
Maricopa County PCC, PCR, Public Service Co. of Colorado,
Palo Verde, Refunding, Series A, 6.375%, 8/15/23 ............................................. 8,500,000 8,041,085
Refunding, Series A, 5.75%, 11/01/22 ......................................................... 19,800,000 17,227,584
Maricopa County Rural Road ID, Pre-Refunded, 8.625%, 7/01/07 .................................... 3,890,000 4,061,705
Mesa IDAR, Discovery Health System, Series A, MBIA Insured, 5.75%, 1/01/25 ...................... 24,000,000 23,288,400
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25 ..................................................................... 3,990,000 3,455,939
Series B, 6.00%, 9/01/29 ..................................................................... 94,690,000 81,275,268
Series C, 6.00%, 9/01/29 ..................................................................... 53,500,000 45,920,655
Red Hawk Canyon Community Facility Revenue, 7.625%, 6/01/05 ..................................... 13,060,000 13,093,956
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Series A, 6.00%, 1/01/31 ....................................................................... 5,000,000 4,964,750
-------------
334,740,595
-------------
ARKANSAS .3%
Baxter County IDR, Aeroquip/Trinova Corp. Project, Refunding, 5.80%, 10/01/13 ................... 2,400,000 2,344,848
Conway Hospital Revenue, Refunding, 8.375%, 7/01/11 ............................................. 1,000,000 1,033,200
Independence County PCR, Arkansas Power and Light Co. Project, Refunding, 6.25%, 1/01/21 ........ 5,000,000 4,797,400
Jefferson County PCR, Entergy Arkansas Inc. Project, Refunding, 5.60%, 10/01/17 ................. 9,400,000 8,557,384
-------------
16,732,832
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA 7.3%
Adelanto Water Authority Revenue, Water Systems Acquisition Project, sub. lien, Series A,
7.50%, 9/01/28 ................................................................................. $ 21,330,000 $ 25,133,992
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 .............. 12,750,000 13,287,413
Antioch PFA, Reassessment Revenue, sub. lien, Series B, 5.85%, 9/02/15 .......................... 6,940,000 6,481,891
Arroyo Grande Hospital System COP, Vista Hospital Systems,
Refunding, Series A, 7.315%, 7/01/20 ......................................................... 22,515,000 21,164,100
Series A, 6.45%, 7/01/06 ..................................................................... 2,500,000 2,337,500
Avenal PFA Revenue, Refunding,
7.00%, 9/02/10 ............................................................................... 1,585,000 1,575,712
7.25%, 9/02/27 ............................................................................... 3,665,000 3,630,512
Azusa RDA, Tax Allocation, Merged Area Project, Refunding, Series A, 6.75%, 8/01/23 ............. 2,850,000 2,854,703
Beaumont PFA Revenue, Sewer Enterprise Project, Series A, Pre-Refunded, 6.90%, 9/01/23 .......... 4,565,000 4,978,726
Benicia 1915 Act, Fleetside Industrial Park Assessment, Refunding,
5.50%, 9/02/00 ............................................................................... 190,000 190,785
5.65%, 9/02/01 ............................................................................... 205,000 205,203
5.80%, 9/02/02 ............................................................................... 210,000 210,338
5.90%, 9/02/03 ............................................................................... 220,000 220,480
6.00%, 9/02/04 ............................................................................... 240,000 240,655
6.10%, 9/02/05 ............................................................................... 250,000 251,388
6.20%, 9/02/06 ............................................................................... 265,000 267,393
6.30%, 9/02/07 ............................................................................... 285,000 288,731
6.40%, 9/02/08 ............................................................................... 300,000 305,301
6.50%, 9/02/09 ............................................................................... 320,000 327,274
6.60%, 9/02/10 ............................................................................... 340,000 348,796
6.70%, 9/02/11 ............................................................................... 360,000 369,875
6.80%, 9/02/12 ............................................................................... 245,000 252,068
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Series B, 6.125%, 6/01/09 ...................................................................... 3,000,000 3,077,250
California HFAR, MFHR, Series A, AMBAC Insured, 6.05%, 8/01/27 .................................. 2,000,000 1,970,920
California Special Districts Association Finance Corp. COP, Series V, 7.50%, 5/01/13 ............ 790,000 831,072
California Statewide CDA, California State University Northridge, Refunding, AMBAC Insured,
6.00%, 4/01/26 ................................................................................. 2,500,000 2,512,550
Capistrano USD, CFD,
Special Tax No. 9, Pre-Refunded, 6.60%, 9/01/05 .............................................. 285,000 307,780
Special Tax No. 9, Pre-Refunded, 6.70%, 9/01/06 .............................................. 280,000 303,274
Special Tax No. 9, Pre-Refunded, 6.80%, 9/01/07 .............................................. 325,000 353,054
Special Tax No. 9, Pre-Refunded, 6.90%, 9/01/08 .............................................. 260,000 282,833
Special Tax No. 92-1, Pre-Refunded, 7.00%, 9/01/18 ........................................... 1,000,000 1,092,700
Contra Costa County PFA Revenue, Refunding,
6.625%, 9/02/10 .............................................................................. 2,295,000 2,366,811
6.875%, 9/02/16 .............................................................................. 2,610,000 2,692,763
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 ...................................... 7,255,000 8,225,284
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ............................. 8,820,000 11,095,384
Vista Hospital System, Refunding, Series B, 6.45%, 7/01/06 ................................... 11,100,000 10,378,500
Vista Hospital System, Refunding, Series B, 7.315%, 7/01/20 .................................. 10,885,000 10,231,900
Emeryville RDA, MFHR, Emery Bay Apartments II,
Refunding, Series A, 5.85%, 10/01/28 ......................................................... 14,935,000 13,344,721
sub. lien, Refunding, Series B, 6.35%, 10/01/28 .............................................. 3,515,000 3,158,649
sub. lien, Refunding, Series C, 7.875%, 10/01/28 ............................................. 2,075,000 1,897,276
Foothill/Eastern Corridor Agency Toll Road Revenue, senior lien, Series A, Pre-Refunded,
6.50%, 1/01/32 ................................................................................. 37,675,000 41,065,750
Gateway Improvement Authority Revenue, Marin City CFD, Series A, Pre-Refunded, 7.75%,
9/01/25 ........................................................................................ 4,500,000 5,133,420
Hawthorne CRDA, Hawthorne Plaza Project, Refunding, 8.50%, 7/01/20 .............................. 4,175,000 4,219,673
Hesperia PFA Revenue, Series B, 7.375%, 10/01/23 ................................................ 6,365,000 6,501,402
Lake Elsinore 1915 Act, AD No. 93-1, Series A, 7.90%, 9/02/24 ................................... 6,000,000 6,092,460
Long Beach Special Tax, CFD No. 2, 7.50%, 9/01/11 ............................................... 3,065,000 3,069,199
Los Angeles County CFD No. 4 Special Tax, Improvement Area B, Series A, 9.25%, 9/01/22 .......... 29,100,000 29,390,418
Los Angeles MFR, Refunding,
Series J-1A, 7.125%, 1/01/24 ................................................................. 145,000 140,544
Series J-1B, 7.125%, 1/01/24 ................................................................. 675,000 654,257
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Los Angeles MFR, Refunding, (cont.)
Series J-1C, 7.125%, 1/01/24 ................................................................. $ 1,435,000 $ 1,390,902
Series J-2A, 8.50%, 1/01/24 .................................................................. 785,000 785,322
Series J-2B, 8.50%, 1/01/24 .................................................................. 3,325,000 3,326,363
Series J-2C, 8.50%, 1/01/24 .................................................................. 7,090,000 7,092,907
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
Facilities Sub-Lease, International Airport, Refunding, 6.35%, 11/01/25 ...................... 25,000,000 23,553,750
United Airlines, International Airport, Refunding, 6.875%, 11/15/12 .......................... 9,500,000 9,866,415
Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ............................... 2,335,000 2,471,831
Orinda 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 9/02/19 ....................................... 2,784,000 2,807,246
(e)Palmdale Special Tax CFD, No. 93-1 Ritter Ranch Project, Series A, 8.50%, 9/01/24 ............... 23,500,000 22,325,000
Perris PFA, Local Agency Revenue, Series B,
7.125%, 8/15/15 .............................................................................. 2,035,000 2,044,768
7.25%, 8/15/23 ............................................................................... 4,095,000 4,128,210
Riverside County COP, Airforce Village Project West Inc., Series A, Pre-Refunded, 8.125%,
6/15/07 ...................................................................................... 7,160,000 7,832,754
6/15/12 ...................................................................................... 5,290,000 5,787,048
Roseville Special Tax, North Central CFD No. 1,
5.75%, 9/01/23 ............................................................................... 3,000,000 2,534,190
Pre-Refunded, 8.60%, 11/01/17 ................................................................ 12,000,000 13,010,760
San Bernardino County Finance Authority Revenue, Public Improvement, AD, Refunding,
Series A, 6.00%, 9/02/01 ....................................................................... 1,450,000 1,454,713
6.50%, 9/02/04 ............................................................................... 1,285,000 1,298,158
7.00%, 9/02/17 ............................................................................... 2,710,000 2,727,452
San Francisco Downtown Parking Corp. Parking Revenue,
6.55%, 4/01/12 ............................................................................... 1,800,000 1,897,884
6.65%, 4/01/18 ............................................................................... 2,150,000 2,249,416
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, 5.00%, 1/01/33 . 5,930,000 4,688,732
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 .................................. 1,500,000 1,508,820
San Luis Obispo COP, Vista Hospital System Inc., 6.45%, 7/01/29 ................................. 22,000,000 20,350,000
San Ramon 1915 Act, Fostoria Parkway Reassessment District No. 9,
6.30%, 9/02/03 ............................................................................... 120,000 124,590
6.80%, 9/02/15 ............................................................................... 680,000 707,112
South San Francisco RDA Tax Allocation, Gateway Redevelopment Project, Pre-Refunded,
7.60%, 9/01/18 ................................................................................. 2,000,000 2,177,560
Vallejo Special Tax, CFD No. 198, Pre-Refunded, 8.90%, 8/01/21 .................................. 7,500,000 7,798,425
-------------
411,253,008
-------------
COLORADO 2.3%
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 .......................... 2,485,000 2,572,472
Arvada MFHR, Springwood Community Project, 6.45%, 2/20/26 ....................................... 3,000,000 3,024,570
Auraria Higher Education Center, Parking Facilities Revenue, Pre-Refunded,
7.75%, 4/01/09 ............................................................................... 3,450,000 3,459,695
7.875%, 4/01/12 .............................................................................. 1,600,000 1,604,640
Colorado Health Facilities Authority Revenue,
Beneficial Living System Inc., Series A, 10.125%, 10/01/20 ................................... 12,300,000 10,255,125
Rocky Mountain Adventist Health Center, Refunding, 6.25%, 2/01/04 ............................ 1,900,000 1,798,521
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.45%, 7/01/08 ... 1,135,000 1,029,263
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.75%, 7/01/20 ... 3,000,000 2,440,290
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.875%, 7/01/28 .. 5,290,000 4,228,667
Colorado HFA,
SF Program, Series A-2, 9.375%, 8/01/02 ...................................................... 120,000 123,065
SFMR, Series B-3, 9.75%, 8/01/02 ............................................................. 110,000 109,496
SFMR, Series C, 9.20%, 8/01/02 ............................................................... 190,000 194,575
SFMR, Series C, 9.075%, 8/01/03 .............................................................. 420,000 432,566
Denver City and County Airport Revenue,
Series A, 8.25%, 11/15/12 .................................................................... 5,350,000 5,571,651
Series A, 8.50%, 11/15/23 .................................................................... 29,060,000 30,187,819
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
COLORADO (CONT.)
Denver City and County Airport Revenue, (cont.)
Series A, 8.00%, 11/15/25 .................................................................... $ 135,000 $ 139,783
Series A, Pre-Refunded, 8.25%, 11/15/12 ...................................................... 490,000 513,020
Series A, Pre-Refunded, 8.50%, 11/15/23 ...................................................... 2,740,000 2,873,383
Series A, Pre-Refunded, 8.00%, 11/15/25 ...................................................... 10,000 10,453
Series D, 7.75%, 11/15/13 .................................................................... 500,000 567,790
Series D, 7.75%, 11/15/21 .................................................................... 3,425,000 3,605,326
Series D, Pre-Refunded, 7.75%, 11/15/21 ...................................................... 765,000 815,452
Denver City and County Special Facilities Airport Revenue, United Airlines Inc. Project,
Series A, 6.875%, 10/01/32 ..................................................................... 9,235,000 8,994,613
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ................................... 2,305,000 2,347,988
Eagle County Sports and Housing Facilities Revenue, Vail Associate Project, Refunding,
6.95%, 8/01/19 ................................................................................. 41,200,000 40,850,212
Littleton MFHR, Riverpoint, Refunding, Series C, 8.00%, 12/01/29 ................................ 2,990,000 3,053,866
(e)Villages Castle Rock Metropolitan District No. 4, Refunding, 8.50%, 6/01/31 ..................... 3,000,000 1,692,570
-------------
132,496,871
-------------
CONNECTICUT 2.2%
Connecticut State Development Authority First Mortgage Revenue, East Hill Gladeview
Health Project 86, Pre-Refunded, 9.75%, 12/15/16 .............................................. 2,530,000 2,617,563
Connecticut State Development Authority PCR,
Connecticut Light and Power, Refunding, Series B, 5.95%, 9/01/28 ............................. 10,000,000 8,856,200
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 ............................. 74,975,000 66,313,888
Western Massachusetts Electric Co., Refunding, Series A, 5.85%, 9/01/28 ...................... 12,500,000 11,056,000
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic Co.
Project, 6.15%, 4/01/35 ........................................................................ 3,000,000 2,879,340
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Series C, 6.50%, 7/01/16 ............................................ 420,000 428,875
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 .............................. 1,580,000 1,705,120
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ..................................... 5,650,000 4,511,525
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/11 ................................ 2,300,000 2,133,733
Connecticut State HFA, Housing Mortgage Finance Program,
Series C-1, 6.30%, 11/15/17 .................................................................. 19,995,000 20,480,879
Sub Series F-1, 6.00%, 5/15/17 ............................................................... 3,500,000 3,525,340
-------------
124,508,463
-------------
FLORIDA 9.5%
Alachua County Health Facilities Authority Revenue, Shands Teaching Hospital, Series A,
MBIA Insured, 5.80%, 12/01/26 ................................................................ 2,990,000 2,902,782
Beacon Tradeport CDD, Special Assessment,
Commercial Project, Series A, 5.80%, 5/01/04 ................................................. 4,350,000 4,228,722
Commercial Project, Series A, 6.00%, 5/01/16 ................................................. 27,760,000 25,560,853
Commercial Project, Series A, 6.20%, 5/01/22 ................................................. 23,590,000 21,628,963
Industrial Project, Series B, 6.125%, 5/01/17 ................................................ 15,305,000 14,324,868
Industrial Project, Series B, 6.375%, 5/01/22 ................................................ 8,835,000 8,288,732
Brooks of Bonita Springs CDD,
Capital Improvement Revenue, Series A, 6.20%, 5/01/19 ........................................ 11,100,000 10,108,548
District Florida Capital Improvement Revenue, Series B, 5.65%, 5/01/06 ....................... 1,075,000 1,021,938
Broward County Resource Recovery Revenue, Broward Waste Energy Co., LP, North Project,
Series 1984, 7.95%, 12/01/08 ................................................................... 17,055,000 17,600,589
Cape Canaveral Hospital District Revenue COP, Refunding, 5.25%, 1/01/28 ......................... 1,495,000 1,048,877
Capron Trails CDD,
9.375%, 12/01/01 ............................................................................. 765,000 786,504
9.50%, 12/01/10 .............................................................................. 5,795,000 5,974,819
Cedar Hammock CDD, Capital Improvement Revenue, 6.375%, 11/01/04 ................................ 24,315,000 24,181,997
Championsgate CDD, Capital Improvement Revenue,
Series A, 6.25%, 5/01/20 ..................................................................... 2,835,000 2,594,847
Series B, 5.70%, 5/01/05 ..................................................................... 1,520,000 1,466,177
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 ............................................................................... 1,250,000 1,298,813
8.625%, 9/01/11 .............................................................................. 10,565,000 11,006,300
Falcon Trace CDD, Special Assessment,
5.75%, 5/01/09 ............................................................................... 1,700,000 1,579,623
6.00%, 5/01/20 ............................................................................... 3,695,000 3,267,378
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Florida State Board of Education Capital Outlay,
(b)Public Education, Refunding, Series D, 5.75%, 6/01/22 ..................................... $ 5,000,000 $ 4,907,250
(b)Public Education, Refunding, Series D, 6.00%, 6/01/23 ..................................... 5,000,000 5,094,100
Public Education, Series B, 5.875%, 6/01/25 ...................................................... 1,000,000 994,030
Gateway Services District Water Management Benefit Tax Revenue, Second Assessment Area,
Phase One, 8.00%, 5/01/20 ........................................................................ 3,995,000 4,154,960
Halifax Hospital Medical Center Hospital Revenue, Series A, 7.25%,
10/01/24 ..................................................................................... 4,700,000 4,408,976
10/01/29 ..................................................................................... 1,400,000 1,300,824
Heritage Harbor CDD, Special Assessment Revenue,
Series A, 6.70%, 5/01/19 ..................................................................... 1,895,000 1,784,730
Series B, 6.00%, 5/01/03 ..................................................................... 2,325,000 2,295,914
Heritage Isles CDD, Special Assessment Revenue, Series A, 5.75%, 5/01/05 ........................ 2,000,000 1,940,780
Heritage Palms CDD, Capital Improvement Revenue,
5.40%, 11/01/03 .............................................................................. 3,845,000 3,729,650
6.25%, 11/01/04 .............................................................................. 5,000,000 4,925,300
Highlands County Health Facilities Authority Revenue, Adventist Health Systems,
Refunding, 5.25%, 11/15/28 ..................................................................... 8,250,000 6,005,423
Indian Trace CDD,
Water and Sewer Revenue, Expansion, 6.875%, 4/01/10 .......................................... 9,800,000 9,820,972
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/05 .................... 7,510,000 7,976,296
Water Management Special Benefit, Refunding, Sub Series B, 8.25%, 5/01/11 .................... 12,760,000 13,423,520
Indian Trail ID GO, Water Control and Improvement, Unit Development 18,
6.875%, 8/01/10 .............................................................................. 1,085,000 1,072,479
7.00%, 8/01/20 ............................................................................... 2,445,000 2,367,542
7.25%, 8/01/31 ............................................................................... 5,725,000 5,539,109
Indigo CDD, Capital Improvement Revenue,
Refunding, Series A, 7.00%, 5/01/31 .......................................................... 980,000 945,063
Series C, 7.00%, 5/01/30 ..................................................................... 5,315,000 5,127,221
Lakeland Retirement Community Revenue, First Mortgage, Carpenters Home, Refunding,
Series A, 6.75%, 1/01/19 ....................................................................... 15,345,000 14,019,345
Lakewood Ranch CDD 2, Benefit Special Assessment,
6.25%, 5/01/18 ............................................................................... 11,590,000 10,504,597
Series A, 8.125%, 5/01/17 .................................................................... 9,985,000 10,460,386
Series B, 8.125%, 5/01/17 .................................................................... 1,055,000 1,105,229
Lakewood Ranch CDD 3, Special Assessment Revenue, 7.625%, 5/01/18 ............................... 6,050,000 6,168,399
Manatee County IDR, Manatee Hospital and Health System Inc., Pre-Refunded, 9.25%, 3/01/21 ....... 6,500,000 6,931,275
Meadow Pointe II CDD, Capital Improvement Revenue,
Series A, 5.25%, 8/01/03 ..................................................................... 770,000 743,443
Series B, 5.50%, 8/01/05 ..................................................................... 3,675,000 3,501,209
Mediterra South CDD, Capital Improvement Revenue, Series B,
6.25%, 5/01/04 ............................................................................... 10,000,000 9,887,600
6.95%, 5/01/31 ............................................................................... 7,000,000 6,774,390
(b)Miami-Dade County IDAR, Special Facilities, United Airlines Inc. Project, 6.05%, 3/01/35 ......... 8,000,000 8,011,840
Mount Dora County Club CDD, Special Assessment Revenue,
7.125%, 5/01/05 .............................................................................. 3,050,000 3,059,333
7.75%, 5/01/13 ............................................................................... 1,765,000 1,818,321
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01 ............................... 1,390,000 1,385,538
North Springs ID,
Special Assessment Revenue, Parkland Isles Project, Series A, 7.00%, 5/01/19 ................. 1,300,000 1,297,114
Special Assessment Revenue, Parkland Isles Project, Series B, 6.25%, 5/01/05 ................. 3,245,000 3,206,774
Water Management, Series A, Pre-Refunded, 8.20%, 5/01/24 ..................................... 1,920,000 2,173,114
Water Management, Series B, 8.30%, 5/01/24 ................................................... 1,685,000 1,745,239
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 ............................................................................... 2,320,000 2,308,702
Series A, 7.125%, 5/01/00 .................................................................... 150,000 149,940
Series B, 7.60%, 5/01/17 ..................................................................... 1,530,000 1,529,755
Orlando Special Assessment Revenue, Conroy Road Interchange Project, Series A, 5.80%, 5/01/26 ... 3,250,000 2,765,978
Palm Beach County Health Facilities Authority Revenue, Abbey del Ray South Project, Refunding,
8.25%, 10/01/15 ................................................................................ 6,000,000 6,226,620
(c)Palm Beach County Solid Waste IDR, Okeelanta Power and Light Co. Project, Series A,
6.85%, 2/15/21 .............................................................................. 27,000,000 16,200,000
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Pelican Marsh CDD, Special Assessment Revenue,
Refunding, Series A, 5.00%, 5/01/11 .......................................................... $ 6,680,000 $ 6,433,308
Refunding, Series A, 5.50%, 5/01/16 .......................................................... 4,370,000 4,189,126
Refunding, Series B, 5.25%, 5/01/09 .......................................................... 100,000 96,909
Series A, ETM, 8.25%, 5/01/00 ................................................................ 230,000 231,562
Series A, ETM, 8.25%, 5/01/01 ................................................................ 250,000 260,610
Series A, ETM, 8.25%, 5/01/02 ................................................................ 270,000 289,567
Series A, ETM, 8.25%, 5/01/03 ................................................................ 295,000 324,674
Series A, ETM, 8.25%, 5/01/04 ................................................................ 315,000 354,381
Series A, Pre-Refunded, 8.25%, 5/01/16 ....................................................... 6,590,000 7,521,694
Series C, 7.00%, 5/01/19 ..................................................................... 13,400,000 13,231,428
Series D, 6.95%, 5/01/19 ..................................................................... 7,075,000 6,949,348
Piney-Z CDD, Capital Improvement Revenue,
Series A, 7.25%, 5/01/19 ..................................................................... 995,000 945,897
Series B, 6.50%, 5/01/02 ..................................................................... 5,845,000 5,769,483
Reserve CDD,
Capital Improvement Revenue, Stormwater Management, 8.25%, 5/01/14 ........................... 4,180,000 4,303,979
Utility Revenue, Stormwater Management, Refunding, Series A, 6.625%, 12/01/22 ................ 4,400,000 4,109,204
River Ridge CDD, Capital Improvement Revenue, 5.75%, 5/01/08 .................................... 3,100,000 2,910,993
Riverwood Community Development Revenue, Special AD, Series A,
6.75%, 5/01/04 ............................................................................... 3,280,000 3,296,072
7.75%, 5/01/14 ............................................................................... 1,220,000 1,230,053
Saint Lucie West Services District Special Assessment Revenue, Port Saint Lucie, Water
Management Benefit, Refunding, Series B,
6.00%, 5/01/09 ............................................................................... 1,430,000 1,377,548
6.25%, 5/01/25 ............................................................................... 5,080,000 4,677,410
St. John's County IDA, Health Care, Glenmoor St. John's Project, Series A, 8.00%, 1/01/17 ....... 10,375,000 10,176,319
St. Lucie West Services District Capital Improvement Revenue,
Cascades Project, 6.10%, 5/01/18 ............................................................. 2,560,000 2,338,893
Lake Charles Project, 6.375%, 8/01/02 ........................................................ 2,230,000 2,177,305
Lakeforest Project, 6.25%, 10/01/04 .......................................................... 9,180,000 9,008,242
Road Project, 5.875%, 5/01/09 ................................................................ 6,910,000 6,533,405
St. Lucie West Services District Revenue, Port St. Lucie, Pre-Refunded, 7.875%, 5/01/20 ......... 19,420,000 21,502,018
St. Lucie West Services District Water Management Benefit Tax, Pre-Refunded, 7.70%, 5/01/25 ..... 4,885,000 5,456,008
Stoneybrook CDD, Capital Improvement Revenue,
Series A, 6.10%, 5/01/19 ..................................................................... 830,000 766,206
Series B, 5.70%, 5/01/08 ..................................................................... 2,510,000 2,387,462
Sumter County IDAR, Little Sumter Utility Co. Project,
6.75%, 10/01/27 .............................................................................. 2,915,000 2,578,842
7.25%, 10/01/27 .............................................................................. 4,145,000 3,946,123
Tampa Revenue, Aquarium Inc. Project, Pre-Refunded, 7.55%, 5/01/12 .............................. 8,900,000 9,560,380
Village CDD No. 1, Capital Improvement Revenue,
8.40%, 5/01/12 ............................................................................... 545,000 569,928
8.00%, 5/01/15 ............................................................................... 2,425,000 2,506,480
Village Center CDD, Recreational Revenue,
Sub Series B, 6.25%, 1/01/13 ................................................................. 7,665,000 7,259,138
Sub Series B, 8.25%, 1/01/17 ................................................................. 2,615,000 2,693,659
Sub Series C, 7.375%, 1/01/19 ................................................................ 2,640,000 2,537,330
Westchase East CDD, Capital Improvement Revenue, 6.10%, 5/01/20 ................................. 6,200,000 5,673,124
-------------
534,833,718
-------------
GEORGIA .4%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.375%, 12/01/28 ..... 1,470,000 1,091,225
Chatham County Hospital Authority Revenue, Memorial Medical Center, Refunding and
Improvement, Series A, AMBAC Insured, 5.70%, 1/01/19 ........................................... 10,000,000 9,619,700
Forsyth County Hospital Authority Revenue, Anticipation Certificate, Georgia Baptist
Health Care System Project,
6.25%, 10/01/18 .............................................................................. 6,000,000 5,084,640
6.375%, 10/01/28 ............................................................................. 9,000,000 7,391,160
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 ......................................... 1,215,000 1,267,986
-------------
24,454,711
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
HAWAII .2%
Hawaii State Department of Transportation Special Facilities Revenue,
Continental Airlines Inc., 9.70%, 6/01/20 ...................................................... $ 6,500,000 $ 6,676,345
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 ................................... 4,445,000 4,595,108
Hawaiian Home Lands Department Revenue, Pre-Refunded, 7.60%, 7/01/08 ............................ 1,315,000 1,389,008
-------------
12,660,461
-------------
IDAHO .4%
Nez Perce County PCR, Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 ........................ 22,360,000 20,560,244
-------------
ILLINOIS 5.1%
Bryant PCR, Central Illinois Light Co. Project, Refunding, MBIA Insured, 5.90%, 8/01/23 ......... 11,000,000 10,713,560
Chicago O'Hare International Airport Special Facilities Revenue,
American Airlines Inc. Project, 8.20%, 12/01/24 .............................................. 7,830,000 8,507,138
United Airlines Inc. Project, Series A, 8.85%, 5/01/18 ....................................... 14,495,000 15,172,061
United Airlines Inc. Project, Series B, 8.85%, 5/01/18 ....................................... 3,460,000 3,621,617
Illinois Development Finance Authority Hospital Revenue, Adventist Health System,
Sunbelt Obligation,
5.65%, 11/15/24 .............................................................................. 23,750,000 18,891,938
5.50%, 11/15/29 .............................................................................. 15,450,000 11,810,135
Illinois Development Finance Authority PCR, Commonwealth Edison Co. Project,
Refunding, Series 1991, 7.25%, 6/01/11 ......................................................... 7,000,000 7,264,250
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ......................................................................... 2,330,000 2,462,973
Pre-Refunded, 7.25%, 5/15/22 ................................................................. 7,000,000 7,930,650
Illinois Health Facilities Authority Revenue,
Northwestern Medical Center, MBIA Insured, Pre-Refunded, 6.625%, 11/15/25 .................... 6,500,000 7,034,300
Rush Presbyterian Hospital, Refunding, Series A, MBIA Insured, 6.25%, 11/15/20 ............... 9,000,000 9,071,010
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 ............................... 2,000,000 2,136,560
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 ........................ 3,370,000 3,272,641
St. Elizabeth's Hospital, 6.25%, 7/01/16 ..................................................... 1,215,000 1,145,004
St. Elizabeth's Hospital, 6.375%, 7/01/26 .................................................... 6,695,000 6,141,658
Thorek Hospital and Medical Center, Refunding, 5.25%, 8/15/18 ................................ 5,125,000 3,853,590
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 ............................... 8,595,000 6,150,582
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue, McCormick Place
Expansion Project, Refunding, Series A, FGIC Insured, 5.25%, 12/15/28 ......................... 21,000,000 18,159,540
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center,
5.75%, 7/01/06 ............................................................................... 1,650,000 1,688,990
6.25%, 7/01/17 ............................................................................... 11,000,000 11,737,110
7.00%, 7/01/26 ............................................................................... 7,500,000 8,419,800
Robbins Resource Recovery Revenue, Restructuring Project,
Series A, 6.829%, 10/15/16 ................................................................... 72,728,516 38,182,471
Series B, 6.829%, 10/15/16 ................................................................... 28,458,984 14,940,967
Series C, 7.25%, 10/15/09 .................................................................... 11,285,568 11,200,927
Series C, 7.25%, 10/15/24 .................................................................... 48,794,510 46,903,723
Series D, 7.00%, 10/15/09 .................................................................... 11,383,594 10,586,742
Southwestern Development Authority Revenue, Anderson Hospital, 5.625%, 8/15/29 .................. 2,425,000 1,819,696
-------------
288,819,633
-------------
INDIANA .4%
CRAWFORDSVILLE INDUSTRIAL EDR, KROGER CO., REFUNDING, 7.70%, 11/01/12 ........................... 5,000,000 5,351,000
Goshen Industrial Revenue, Greencroft Hospital Association Inc., Refunding, 5.75%,
8/15/19 ...................................................................................... 3,000,000 2,420,010
8/15/28 ...................................................................................... 5,000,000 3,867,050
Indiana Health Facility Financing Authority Hospital Revenue,
Hancock Memorial Hospital Project, Series 1990, Pre-Refunded, 8.30%, 8/15/20 ................. 2,935,000 3,045,121
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17 .......................... 1,500,000 1,149,405
Indiana State Development Finance Authority Environmental Revenue, Refunding, Improvement-
USX Corp. Project, 5.60%, 12/01/32 ............................................................. 8,200,000 6,812,560
White River Elementary Building Corp. First Mortgage, AMBAC Insured, 5.00%, 7/15/16 ............. 1,000,000 905,310
-------------
23,550,456
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
KANSAS .2%
Manhattan Health Care Facility Revenue, Meadowlark Hills Retirement, Series A,
6.375%, 5/15/20 .............................................................................. $ 1,150,000 $ 993,911
6.50%, 5/15/28 ............................................................................... 1,750,000 1,498,788
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 ....................... 5,730,000 6,133,621
-------------
8,626,320
-------------
KENTUCKY .8%
Adair County Public Hospital Corp. Revenue, Refunding and Improvement,
5.40%, 1/01/12 ............................................................................... 460,000 405,798
5.70%, 1/01/19 ............................................................................... 1,100,000 889,570
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project,
8.10%, 12/01/15 .............................................................................. 11,000,000 11,244,200
Series A, 7.50%, 2/01/20 ..................................................................... 11,230,000 11,533,659
Series B, 7.25%, 2/01/22 ..................................................................... 3,595,000 3,645,761
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 .................. 7,835,000 5,948,880
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 .................... 750,000 794,918
Russell Health System Revenue,
Franciscan Health Center, Series B, ETM, 8.10%, 7/01/01 ...................................... 800,000 811,456
Our Lady of Bellefonte, Pre-Refunded, 5.50%, 7/01/15 ......................................... 1,000,000 1,004,440
Pre-Refunded, 8.10%, 7/01/15 ................................................................. 7,500,000 8,463,794
Stanford Health Facilities Revenue, Beverly Project, Refunding, 10.375%, 11/01/09 ............... 800,000 839,608
-------------
45,582,084
-------------
LOUISIANA 1.9%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series A, 7.75%, 6/01/12 ... 1,190,000 1,238,695
Iberville Parish PCR, Entergy Gulf States Inc. Project, Refunding, 5.70%, 1/01/14 ............... 15,500,000 14,050,130
Lake Charles Harbor and Terminal District Port Facilities Revenue, Trunkline Co. Project,
Refunding, 7.75%, 8/15/22 ...................................................................... 35,000,000 37,683,100
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding, 6.70%, 3/01/13 .......... 4,850,000 4,889,043
St. Tammany Public Trust Financing Authority Revenue, Christwood Project, Refunding, 5.70%,
11/15/28 ....................................................................................... 4,000,000 3,064,440
West Feliciana Parish PCR,
Entergy Gulf States Project, Refunding, Series B, 6.60%, 9/01/28 ............................. 15,750,000 14,939,505
Gulf State Utility Co. Project, Series D, 5.80%, 12/01/15 .................................... 4,000,000 3,645,320
Gulf State Utility Co. Project, Series D, 5.80%, 4/01/16 ..................................... 19,600,000 17,806,796
Series A, 7.50%, 5/01/15 ..................................................................... 8,740,000 9,237,219
-------------
106,554,248
-------------
MAINE .7%
Maine State Finance Authority Solid Waste Disposal Revenue, Boise Cascade Corp. Project, 7.90%,
6/01/15 ........................................................................................ 5,000,000 5,085,050
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ............................ 4,800,000 4,728,384
Skowhegan PCR, S.D. Warren Co.,
Series A, 6.65%, 10/15/15 .................................................................... 24,570,000 24,008,821
Series B, 6.65%, 10/15/15 .................................................................... 4,940,000 4,827,170
-------------
38,649,425
-------------
MARYLAND .7%
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding
and Improvement,
Series B, 8.50%, 9/01/03 ..................................................................... 3,605,000 3,830,601
Series B, 8.50%, 9/01/07 ..................................................................... 5,340,000 5,982,509
Series B, Pre-Refunded, 8.50%, 9/01/22 ....................................................... 3,500,000 3,866,730
Series C, FSA Insured, 6.00%, 9/01/21 ........................................................ 5,000,000 4,982,050
Maryland State CDA, Department of Housing and Community Development, Series A, 5.875%,
7/01/16 ........................................................................................ 3,905,000 3,882,351
Maryland State Health and Higher Educational Facilities Authority Revenue, Roland Park Place
Project, Refunding, 5.625%, 7/01/24 ............................................................ 5,000,000 3,786,850
Takoma Park Hospital Facilities Revenue, Washington Adventist Hospital Project, Series B, 8.50%,
9/01/03 ...................................................................................... 3,770,000 3,993,900
9/01/07 ...................................................................................... 6,975,000 7,770,429
-------------
38,095,420
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MASSACHUSETTS 1.8%
Massachusetts Bay Transportation Authority Revenue, General Transportation System, Series A,
7.00%, 3/01/21 ................................................................................. $ 2,000,000 $ 2,222,960
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue,
Series A, 6.75%, 7/01/11 ..................................................................... 4,435,000 4,610,936
Series B, 6.75%, 7/01/17 ..................................................................... 3,170,000 3,240,945
Massachusetts State Development Finance Agency Resource, Recovery Revenue,
Waste Management Inc. Project, Series B, 6.90%, 12/01/29 ...................................... 3,000,000 2,962,200
Massachusetts State Development Finance Agency Revenue,
Berkshire Retirement Project, First Mortgage, 5.60%, 7/01/19 ................................. 1,030,000 829,140
Berkshire Retirement Project, First Mortgage, 5.625%, 7/01/29 ................................ 1,620,000 1,226,356
Loomis Community Project, First Mortgage, Refunding, Series A, 5.75%, 7/01/23 ................ 3,500,000 2,787,540
Loomis Community Project, First Mortgage, Series A, 5.625%, 7/01/15 .......................... 1,850,000 1,635,197
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 .............................. 5,000,000 4,966,800
Framingham Union Hospital, Pre-Refunded, 8.50%, 7/01/10 ...................................... 1,810,000 1,871,305
Saint Memorial Medical Center, Refunding, Series A, 5.75%, 10/01/06 .......................... 3,250,000 2,943,005
Saint Memorial Medical Center, Refunding, Series A, 6.00%, 10/01/23 .......................... 6,235,000 5,026,906
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Semass Project,
Series A, 9.00%, 7/01/15 ..................................................................... 15,490,000 16,528,759
Series B, 9.25%, 7/01/15 ..................................................................... 20,370,000 21,772,882
Massachusetts State Industrial Finance Agency Revenue, Cape Cod Health Systems,
Pre-Refunded, 8.50%, 11/15/20 .................................................................... 4,500,000 4,724,865
(e)Massachusetts State Industrial Finance Agency Solid Waste Disposal Revenue, Massachusetts
Paper Co. Project, senior lien, 8.50%, 11/01/12 .................................................. 42,402,544 22,049,323
-------------
99,399,119
-------------
MICHIGAN 2.6%
Cadillac Local Development Finance Authority Tax Increment Revenue, Refunding, 8.50%, 3/01/10 ... 5,425,000 5,680,355
Detroit GO,
City School District, Series A, AMBAC Insured, Pre-Refunded, 5.85%, 5/01/16 .................. 5,175,000 5,445,032
Refunding, Series B, 6.375%, 4/01/07 ......................................................... 7,535,000 7,860,060
Refunding, Series B, 6.25%, 4/01/08 .......................................................... 3,000,000 3,103,620
Series A, Pre-Refunded, 6.80%, 4/01/15 ....................................................... 5,160,000 5,602,212
Dickinson County, Memorial Hospital System Revenue, Pre-Refunded, 8.125%, 11/01/24 .............. 4,250,000 4,846,063
Garden City Hospital Financing Authority Hospital Revenue, Refunding,
5.625%, 9/01/10 .............................................................................. 2,000,000 1,701,080
5.75%, 9/01/17 ............................................................................... 1,000,000 803,650
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A,
MBIA Insured, Pre-Refunded, 6.125%, 1/15/21 ................................................... 11,770,000 12,500,093
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured, 6.125%, 11/15/23 ................. 18,000,000 17,964,540
Detroit Medical Center Obligation Group, Refunding, Series A, 6.25%, 8/15/13 ................. 7,500,000 6,536,100
Detroit Medical Center Obligation Group, Refunding, Series A, 6.50%, 8/15/18 ................. 30,205,000 26,237,271
Detroit Medical Center Obligation Group, Refunding, Series B, 5.50%, 8/15/23 ................. 500,000 373,615
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/23 ............................ 500,000 356,230
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/28 ............................ 7,000,000 4,834,270
Memorial Healthcare Center, Refunding, 5.75%, 11/15/15 ....................................... 1,000,000 842,640
Memorial Healthcare Center, Refunding, 5.875%, 11/15/21 ...................................... 1,000,000 824,200
Mercy Health Services, Series Q, AMBAC Insured, 5.75%, 8/15/16 ............................... 9,310,000 9,115,980
Sinai Hospital, Refunding, 6.625%, 1/01/16 ................................................... 2,990,000 2,670,818
Sinai Hospital, Refunding, 6.70%, 1/01/26 .................................................... 7,250,000 6,325,045
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 7,894,251
Tawas City Hospital Finance Authority, Tawas St. Joseph's Hospital Project,
Refunding, Series A, 5.60%, 2/15/13 .......................................................... 2,280,000 2,226,648
Series A, 5.75%, 2/15/23 ..................................................................... 4,125,000 3,977,325
Wayne County Downriver Systems Sewer Disposal Revenue, Series A, Pre-Refunded, 7.00%,
11/01/13 ....................................................................................... 1,900,000 2,016,907
Wayne County GO,
IDA, Building Authority, Pre-Refunded, 8.00%, 3/01/17 ........................................ 4,500,000 4,854,420
South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 ............................ 1,550,000 1,550,465
-------------
146,142,890
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MINNESOTA 2.3%
Burnsville Solid Waste Revenue, Freeway Transfer Inc. Project, 9.00%,
10/01/00 ..................................................................................... $ 120,000 $ 121,800
4/01/10 ...................................................................................... 1,500,000 1,548,315
Duluth Commercial Development Revenue, Duluth Radisson Hotel Project, Refunding, 8.00%, 12/01/15 5,000,000 3,927,900
International Falls PCR, Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/22 ................ 10,500,000 8,918,280
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06 .................... 2,200,000 2,033,548
Minneapolis CDA, Supported Development Revenue, Limited Tax,
Series 2, 8.40%, 12/01/12 .................................................................... 2,675,000 2,721,813
Series 3-A, 8.375%, 12/01/19 ................................................................. 600,000 627,450
Minneapolis Revenue, Walker Methodist Senior Services, Series A,
5.875%, 11/15/18 ............................................................................. 2,500,000 2,051,375
6.00%, 11/15/28 .............................................................................. 4,750,000 3,775,110
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 22,365,074
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 .......... 3,205,000 3,180,418
Northwest Multi-County RDAR, Government Housing, Pooled Housing Project, 7.40%, 7/01/26 ......... 5,165,000 3,873,750
Robbinsdale MFHR, Copperfield Phase II Apartments, Refunding, 9.00%, 3/01/25 .................... 4,110,000 3,941,285
Roseville MFHR, Rosepointe I Project, Refunding, Series C, 8.00%, 12/01/29 ...................... 3,415,000 3,331,230
(e)South Central Multi-County Housing and RDAR, Pooled Housing, 8.00%, 2/01/25 ..................... 10,000,000 5,500,000
St. Cloud IDR, Nahan Printing, 9.75%, 6/01/20 ................................................... 5,700,000 6,020,568
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 .......................................... 1,240,000 1,302,744
St. Paul Port Authority Commercial Development, Theole Printing Project, 9.00%, 10/01/21 ........ 560,000 564,323
St. Paul Port Authority IDR,
Brown and Bigelow Co., Series 1979-2, 7.50%, 10/01/09 ........................................ 40,000 37,759
SDA Enterprises, Series K, 10.25%, 10/01/10 .................................................. 1,095,000 1,013,499
Series A-I, 8.50%, 12/01/01 .................................................................. 460,000 451,430
Series A-I, 9.00%, 12/01/02 .................................................................. 260,000 256,183
Series A-I, 9.00%, 12/01/12 .................................................................. 4,300,000 3,766,929
Series A-II, 8.50%, 12/01/01 ................................................................. 450,000 441,617
Series A-II, 9.00%, 12/01/02 ................................................................. 255,000 251,257
Series A-II, 9.00%, 12/01/12 ................................................................. 4,235,000 3,709,987
Series A-III, 8.50%, 12/01/01 ................................................................ 470,000 461,244
Series A-III, 9.00%, 12/01/02 ................................................................ 265,000 261,110
Series A-III, 9.00%, 12/01/12 ................................................................ 4,430,000 3,880,813
Series A-IV, 8.50%, 12/01/01 ................................................................. 365,000 358,200
Series A-IV, 9.00%, 12/01/02 ................................................................. 205,000 201,991
Series A-IV, 9.00%, 12/01/12 ................................................................. 3,375,000 2,956,601
Series C, 10.00%, 12/01/01 ................................................................... 860,000 870,535
Series C, 10.00%, 12/01/02 ................................................................... 715,000 723,759
Series C, 10.00%, 12/01/06 ................................................................... 2,930,000 2,759,064
Series C, 9.875%, 12/01/08 ................................................................... 3,100,000 2,901,321
Series F, 8.00%, 9/01/00 ..................................................................... 25,000 24,866
Series F, 10.25%, 10/01/00 ................................................................... 70,000 69,888
Series F, 8.00%, 9/01/01 ..................................................................... 25,000 24,674
Series F, 10.25%, 10/01/01 ................................................................... 80,000 79,736
Series F, 8.00%, 9/01/02 ..................................................................... 25,000 24,550
Series F, 10.25%, 10/01/02 ................................................................... 90,000 89,151
Series F, 8.00%, 9/01/19 ..................................................................... 1,025,000 792,766
Series I, 10.75%, 12/01/00 ................................................................... 15,000 14,997
Series I, 10.75%, 12/01/01 ................................................................... 15,000 14,999
Series I, 10.75%, 12/01/02 ................................................................... 15,000 14,925
Series J, 9.50%, 12/01/01 .................................................................... 80,000 79,701
Series J, 9.50%, 12/01/02 .................................................................... 95,000 94,079
Series J, 9.50%, 12/01/11 .................................................................... 1,325,000 1,210,653
Series L, 9.50%, 12/01/01 .................................................................... 40,000 39,850
Series L, 9.75%, 12/01/01 .................................................................... 25,000 24,907
Series L, 9.50%, 12/01/02 .................................................................... 45,000 44,564
Series L, 9.75%, 12/01/02 .................................................................... 30,000 29,703
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MINNESOTA (CONT.)
St. Paul Port Authority IDR, (cont.)
Series L, 9.50%, 12/01/14 .................................................................... $ 1,025,000 $ 926,774
Series L, 9.75%, 12/01/14 .................................................................... 1,530,000 1,389,439
Series N, 10.00%, 12/01/01 ................................................................... 65,000 64,736
Series N, 10.75%, 10/01/02 ................................................................... 1,020,000 1,015,553
Series N, 10.00%, 12/01/02 ................................................................... 65,000 64,357
Series N, 10.00%, 12/01/14 ................................................................... 1,405,000 1,283,229
Series S, 9.625%, 12/01/01 ................................................................... 55,000 54,808
Series S, 9.625%, 12/01/02 ................................................................... 60,000 59,411
Series S, 9.625%, 12/01/14 ................................................................... 1,280,000 1,168,998
Series T, 9.625%, 12/01/01 ................................................................... 30,000 29,890
Series T, 9.625%, 12/01/02 ................................................................... 35,000 34,657
Series T, 9.625%, 12/01/14 ................................................................... 910,000 831,085
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 ...................................................................................... 4,930,000 4,747,787
6/01/26 ...................................................................................... 10,660,000 10,169,533
Victoria Private School Facility Revenue, Holy Family Catholic High School, Series A, 5.875%,
9/01/29 ........................................................................................ 4,000,000 3,508,720
-------------
129,131,268
-------------
MISSISSIPPI 1.3%
Claiborne County PCR, Systems Energy Resources Inc., Refunding, 6.20%, 2/01/26 .................. 33,295,000 30,491,561
Corinth and Alcorn County Hospital Revenue, Magnolia Regional Health Center Project,
Refunding, Series A, 5.50%, 10/01/21 ......................................................... 4,000,000 3,043,120
Series B, 5.50%, 10/01/21 .................................................................... 1,000,000 760,780
Lowndes County Hospital Revenue, Golden Triangle Medical Center, 8.50%, 2/01/10 ................. 3,750,000 3,880,350
Mississippi Business Finance Corp. PCR, System Energy Resource Inc. Project,
5.875%, 4/01/22 .............................................................................. 24,900,000 21,301,701
Refunding, 5.90%, 5/01/22 .................................................................... 12,475,000 10,703,176
-------------
70,180,688
-------------
MISSOURI 1.4%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 ................................................................ 1,000,000 1,077,290
Pre-Refunded, 6.40%, 12/01/25 ................................................................ 3,000,000 3,248,310
Refunding, 5.25%, 12/01/20 ................................................................... 12,280,000 10,262,273
Refunding, 5.25%, 12/01/26 ................................................................... 8,875,000 7,207,920
Marshall IDA, Hospital Revenue, John Fitzgibbon Memorial Hospital, Pre-Refunded, 10.00%, 5/01/20 8,500,000 8,747,945
Perry County GO, Perry Memorial Hospital, Pre-Refunded, 9.125%, 6/01/11 ......................... 1,500,000 1,547,220
St. Louis County IDA, Kiel Center, Refunding,
7.625%, 12/01/09 ............................................................................. 8,000,000 8,374,480
7.75%, 12/01/13 .............................................................................. 5,175,000 5,419,933
7.875%, 12/01/24 ............................................................................. 6,000,000 6,287,100
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 ...................... 8,640,000 8,748,691
Refunding, Series A, 6.00%, 7/15/13 .......................................................... 14,250,000 14,457,195
West Plains IDA, Hospital Revenue,
Ozarks Medical Center, 6.30%, 11/15/11 ....................................................... 1,000,000 905,300
Ozarks Medical Center, 6.75%, 11/15/24 ....................................................... 1,870,000 1,635,839
Ozarks Medical Center Project, Refunding, 5.50%, 11/15/12 .................................... 500,000 418,945
-------------
78,338,441
-------------
MONTANA .3%
Montana State Board of Housing SFM,
Senior Bonds, Series B-2, 8.90%, 10/01/00 .................................................... 30,000 30,049
Series A, FHA Insured, 8.275%, 10/01/03 ...................................................... 260,000 267,696
Montana State Board of Investments Resource Recovery Revenue, Yellowstone Energy Project, 7.00%,
12/31/19 ....................................................................................... 20,750,000 19,462,048
-------------
19,759,793
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEBRASKA .3%
Kearney IDR, Great Platte River Road, 6.75%,
1/01/23 ...................................................................................... $ 9,000,000 $ 7,195,500
1/01/28 ...................................................................................... 6,500,000 5,122,585
Scotts Bluff County Hospital Authority No. 1 Hospital Revenue, Regional West Medical Center,
6.375%, 12/15/08 ............................................................................. 1,145,000 1,170,591
Pre-Refunded, 6.375%, 12/15/08 ............................................................... 955,000 1,010,151
-----------
14,498,827
-----------
NEVADA 2.7%
Clark County IDR, Southwest Gas Corp., Series A, 6.50%, 12/01/33 ................................ 13,775,000 13,038,313
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17 ..................................... 7,550,000 7,462,571
Henderson Local ID,
No. 2, 9.50%, 8/01/11 ........................................................................ 5,485,000 5,693,814
No. T-1, Series A, 8.50%, 8/01/13 ............................................................ 21,970,000 23,489,885
No. T-10, 7.50%, 8/01/15 ..................................................................... 7,220,000 7,193,214
No. T-12, Series A, 7.375%, 8/01/18 .......................................................... 49,590,000 49,984,241
Henderson Local Improvement Districts No. T-4C, Green Valley, Refunding, Series A, 5.90%,
11/01/18 ....................................................................................... 3,190,000 2,920,668
Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A, 6.10%, 6/15/14 . 3,500,000 3,479,840
Las Vegas Local Improvement Bond Special Assessment,
ID No. 404, FSA Insured, 5.85%, 11/01/09 ..................................................... 3,340,000 3,411,342
ID No. 707, 6.60%, 6/01/05 ................................................................... 985,000 1,017,899
ID No. 707, 6.70%, 6/01/06 ................................................................... 1,220,000 1,261,041
ID No. 707, 6.80%, 6/01/07 ................................................................... 1,780,000 1,840,306
ID No. 707, 7.10%, 6/01/16 ................................................................... 7,900,000 8,173,261
Las Vegas Special Assessment ID No. 505, Elkhorn Springs, 8.00%, 9/15/13 ........................ 7,300,000 7,522,796
Nevada Housing Division, SF Program, Subordinated,
FI/GML, Series A, 9.30%, 10/01/00 ............................................................ 30,000 30,214
FI/GML, Series A-1, 8.75%, 10/01/04 .......................................................... 185,000 191,281
FI/GML, Series A-2, 9.375%, 10/01/00 ......................................................... 30,000 30,227
FI/GML, Series A-2, 8.65%, 10/01/01 .......................................................... 135,000 136,150
FI/GML, Series A-3, 9.20%, 10/01/00 .......................................................... 55,000 55,359
FI/GML, Series B, 9.50%, 10/01/01 ............................................................ 105,000 106,813
FI/GML, Series B-1, 7.90%, 10/01/05 .......................................................... 505,000 517,706
FI/GML, Series C-1, 7.55%, 10/01/05 .......................................................... 630,000 628,249
Series B-2, 9.65%, 10/01/02 .................................................................. 75,000 74,972
Series C-1, 9.60%, 10/01/02 .................................................................. 145,000 145,467
Washoe County Revenue, Reno-Sparks Convention Center Project, FSA Insured, 6.40%, 7/01/29 ....... 15,415,000 15,436,273
-------------
153,841,902
-------------
NEW HAMPSHIRE 2.6%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Hillcrest Terrace, 7.50%, 7/01/24 ............................................................ 18,450,000 17,750,745
Hospital Littleton Hospital Association, Series B., 5.90%, 5/01/28 ........................... 2,000,000 1,543,240
New Hampshire Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 ........................ 1,300,000 1,175,525
New Hampshire State Business Finance Authority PCR,
Connecticut Light and Power Co., Refunding, Series A, 5.85%, 12/01/22 ........................ 21,000,000 18,162,270
Public Service Co. of New Hampshire, Refunding, Series D, 6.00%, 5/01/21 ..................... 28,000,000 25,329,080
Public Service Co. of New Hampshire, Refunding, Series E, 6.00%, 5/01/21 ..................... 21,800,000 19,720,498
United Illuminating Co., Refunding, Series A, 5.875%, 10/01/33 ............................... 3,000,000 2,703,810
New Hampshire State IDAR, Pollution Control,
Connecticut Light and Power Co., 5.90%, 11/01/16 ............................................. 5,400,000 4,844,934
Connecticut Light and Power Co., 5.90%, 8/01/18 .............................................. 8,000,000 7,096,480
Public Service Co. of New Hampshire Project, Series A, 7.65%, 5/01/21 ........................ 10,970,000 11,252,916
Public Service Co. of New Hampshire Project, Series C, 7.65%, 5/01/21 ........................ 34,635,000 35,528,237
-------------
145,107,735
-------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW JERSEY 3.0%
Health Care Facilities Financing Authority Revenue, Trinitas Hospital
Obligation Group, Refunding, 7.50%, 7/01/30 .................................................... $ 5,000,000 $ 4,899,700
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 ..................................................................... 2,180,000 2,026,637
Series 1, 6.00%, 1/01/29 ..................................................................... 5,000,000 4,520,000
Series 2, 6.125%, 1/01/19 .................................................................... 2,125,000 2,003,769
Series 2, 6.125%, 1/01/29 .................................................................... 5,105,000 4,695,426
New Jersey Economic Development Authority Special Facility Revenue, Continental
Airlines Inc. Project,
6.625%, 9/15/12 .............................................................................. 18,500,000 18,538,480
6.25%, 9/15/19 ............................................................................... 36,220,000 33,051,837
6.40%, 9/15/23 ............................................................................... 73,030,000 66,945,140
6.25%, 9/15/29 ............................................................................... 21,325,000 18,977,118
New Jersey EDA Revenue, First Mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 ................ 1,500,000 1,188,180
New Jersey EDA, Lease Revenue, International Center for Public Health Project, University of
Medicine and Dentistry, AMBAC Insured, 6.00%, 6/01/32 ......................................... 9,965,000 10,001,671
New Jersey Health Care Facilities Financing Authority Revenue, Lutheran Home, Series A,
8.40%, 7/01/19 ............................................................................... 2,100,000 2,120,475
-------------
168,968,433
-------------
NEW MEXICO 3.7%
Farmington PCR,
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.30%, 12/01/16 ..... 24,045,000 22,943,258
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 5.80%, 4/01/22 ...... 8,500,000 7,421,435
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.40%, 8/15/23 ...... 58,250,000 54,629,763
Public Service Co. of New Mexico, San Juan Project, Refunding, Series B, 5.80%, 4/01/22 ...... 19,500,000 17,025,645
Public Service Co. of New Mexico, San Juan Project, Refunding, Series D, 6.375%, 4/01/22 ..... 64,125,000 60,958,508
Public Service Co. Project, Series A, 6.60%, 10/01/29 ........................................ 6,000,000 5,803,080
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 ......................................... 37,000,000 36,050,580
New Mexico Mortgage Finance Authority SFM Program,
Refunding, Series A-1, 7.90%, 7/01/04 ........................................................ 300,000 306,753
Series A, 9.50%, 9/01/00 ..................................................................... 55,000 54,978
Series A, 9.10%, 9/01/03 ..................................................................... 475,000 488,552
Series B, 9.30%, 9/01/00 ..................................................................... 20,000 19,991
Sub Series A, 9.55%, 9/01/02 ................................................................. 380,000 385,160
Rio Rancho Water and Wastewater Revenue, Series A, FSA Insured, Pre-Refunded, 5.90%, 5/15/15 .... 3,620,000 3,766,103
-------------
209,853,806
-------------
NEW YORK 9.9%
MTA Commuter Facilities Revenue, Grand Central Terminal, Refunding, Series 1, FSA Insured,
5.70%, 7/01/24 ................................................................................. 10,000,000 9,704,800
MTA Service Contract Revenue,
Commuter Facilities, Refunding, Series 5, 6.50%, 7/01/16 ..................................... 3,860,000 3,959,048
Commuter Facilities, Refunding, Series N, 6.80%, 7/01/04 ..................................... 3,330,000 3,518,478
Commuter Facilities, Refunding, Series N, 6.90%, 7/01/05 ..................................... 3,050,000 3,225,802
Transit Facilities, Refunding, Series N, 6.80%, 7/01/04 ...................................... 2,330,000 2,461,878
Transit Facilities, Refunding, Series N, 6.90%, 7/01/05 ...................................... 2,470,000 2,612,371
Transit Facilities, Refunding, Series N, 7.125%, 7/01/09 ..................................... 7,830,000 8,333,782
MTA Transit Facilities Revenue, Series A, MBIA Insured, 5.875%, 7/01/27 ......................... 22,700,000 22,469,368
New York City GO,
Refunding, Series F, 6.00%, 8/01/11 .......................................................... 10,000,000 10,305,400
Refunding, Series H, 6.25%, 8/01/15 .......................................................... 25,000,000 25,677,750
Refunding, Series H, 6.125%, 8/01/25 ......................................................... 5,600,000 5,574,632
Refunding, Series J, 6.00%, 8/01/21 .......................................................... 10,000,000 9,857,200
Series A, 6.125%, 8/01/06 .................................................................... 9,955,000 10,392,323
Series A, 6.25%, 8/01/08 ..................................................................... 10,000,000 10,479,800
Series A, 7.25%, 3/15/20 ..................................................................... 100,000 101,568
Series A, 6.25%, 8/01/21 ..................................................................... 845,000 849,132
Series A, Pre-Refunded, 6.125%, 8/01/06 ...................................................... 235,000 249,034
Series A, Pre-Refunded, 7.25%, 3/15/20 ....................................................... 230,000 233,694
Series B, 7.00%, 2/01/18 ..................................................................... 3,255,000 3,400,108
Series B, 7.00%, 2/01/19 ..................................................................... 3,375,000 3,521,678
Series B, 7.00%, 2/01/20 ..................................................................... 3,305,000 3,447,412
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEW YORK (CONT.)
NEW YORK CITY GO, (CONT.)
Series B, 6.00%, 8/15/26 ..................................................................... $ 4,355,000 $ 4,258,885
Series B, Pre-Refunded, 6.75%, 10/01/15 ...................................................... 100,000 106,173
Series B, Pre-Refunded, 7.00%, 2/01/18 ....................................................... 835,000 881,125
Series B, Pre-Refunded, 7.00%, 2/01/19 ....................................................... 1,625,000 1,714,765
Series B, Pre-Refunded, 7.00%, 2/01/20 ....................................................... 2,440,000 2,574,786
Series B, Pre-Refunded, 6.00%, 8/15/26 ....................................................... 645,000 683,539
Series B, Sub Series B-1, Pre-Refunded, 7.00%, 8/15/16 ....................................... 17,070,000 18,653,413
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ....................................... 5,000,000 5,513,250
Series C, Pre-Refunded, 7.25%, 8/15/24 ....................................................... 7,905,000 8,209,975
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/16 ....................................... 55,000 58,612
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/17 ....................................... 370,000 394,302
Series C, Sub Series C-1, Pre-Refunded, 7.50%, 8/01/21 ....................................... 435,000 468,473
Series D, 6.00%, 2/15/10 ..................................................................... 8,155,000 8,397,040
Series D, 7.625%, 2/01/14 .................................................................... 40,000 42,420
Series D, 7.50%, 2/01/18 ..................................................................... 5,000 5,282
Series D, Pre-Refunded, 7.70%, 2/01/11 ....................................................... 150,000 160,326
Series D, Pre-Refunded, 7.625%, 2/01/13 ...................................................... 400,000 426,992
Series D, Pre-Refunded, 7.625%, 2/01/14 ...................................................... 810,000 864,659
Series D, Pre-Refunded, 7.50%, 2/01/18 ....................................................... 380,000 404,784
Series D, Pre-Refunded, 7.50%, 2/01/19 ....................................................... 330,000 351,523
Series E, 6.25%, 2/15/07 ..................................................................... 3,270,000 3,428,824
Series E, 7.50%, 2/01/18 ..................................................................... 45,000 47,536
Series E, Pre-Refunded, 7.50%, 2/01/18 ....................................................... 480,000 511,306
Series F, 7.625%, 2/01/13 .................................................................... 45,000 47,747
Series F, 7.625%, 2/01/15 .................................................................... 15,000 15,893
Series F, 7.50%, 2/01/21 ..................................................................... 110,000 115,891
Series F, Pre-Refunded, 7.625%, 2/01/13 ...................................................... 310,000 330,919
Series F, Pre-Refunded, 7.625%, 2/01/14 ...................................................... 275,000 293,557
Series F, Pre-Refunded, 7.625%, 2/01/15 ...................................................... 15,000 16,012
Series F, Pre-Refunded, 7.50%, 2/01/21 ....................................................... 575,000 612,502
Series F, Pre-Refunded, 6.625%, 2/15/25 ...................................................... 8,625,000 9,296,198
Series G, 5.75%, 8/01/10 ..................................................................... 505,000 510,898
Series G, 6.125%, 10/15/11 ................................................................... 20,480,000 21,349,786
Series G, 6.20%, 10/15/14 .................................................................... 10,000,000 10,276,100
Series G, 7.50%, 2/01/22 ..................................................................... 10,000 10,534
Series G, Pre-Refunded, 7.50%, 2/01/22 ....................................................... 50,000 53,214
Series H, 7.20%, 2/01/15 ..................................................................... 875,000 918,776
Series H, 7.00%, 2/01/22 ..................................................................... 10,000 10,425
Series H, Pre-Refunded, 7.20%, 2/01/14 ....................................................... 625,000 661,781
Series H, Pre-Refunded, 7.20%, 2/01/15 ....................................................... 500,000 529,425
Series H, Pre-Refunded, 7.00%, 2/01/19 ....................................................... 2,245,000 2,371,124
Series H, Pre-Refunded, 7.00%, 2/01/20 ....................................................... 280,000 295,467
Series H, Pre-Refunded, 7.00%, 2/01/22 ....................................................... 25,000 26,381
Series I, 6.25%, 4/15/17 ..................................................................... 23,865,000 24,327,742
Series I, 6.25%, 4/15/27 ..................................................................... 7,705,000 7,736,205
Series I, Pre-Refunded, 6.25%, 4/15/17 ....................................................... 1,505,000 1,612,969
Series I, Pre-Refunded, 6.25%, 4/15/27 ....................................................... 15,215,000 16,306,524
New York City IDA,
Civic Facility Revenue, Amboy Properties Corp. Project, Pre-Refunded, 9.625%, 6/01/15 ........ 6,205,000 6,470,450
Civic Facility Revenue, Amboy Properties Corp. Project, Refunding, 6.75%, 6/01/20 ............ 7,160,000 6,551,042
IDR, La Guardia Association LP Project, Refunding, 6.00%, 11/01/28 ........................... 7,500,000 6,326,775
New York State Dormitory Authority Revenue,
City University System, Third General, Series 2, 6.00%, 7/01/26 .............................. 6,100,000 5,942,010
Mental Health Services Facilities, Refunding, Series B, 5.625%, 2/15/21 ...................... 7,360,000 6,883,440
Mental Health Services Facilities, Series A, 6.00%, 8/15/17 .................................. 11,240,000 11,262,705
Mental Health Services Facilities, Series A, 5.75%, 2/15/27 .................................. 5,000,000 4,713,150
State University Educational Facilities, Pre-Refunded, 6.00%, 5/15/18 ........................ 5,000,000 5,309,350
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
NEW YORK (CONT.)
New York State HFA, Service Contract Obligation Revenue, Series A,
6.00%, 3/15/26 ............................................................................... $ 4,975,000 $ 4,785,055
Pre-Refunded, 7.80%, 9/15/10 ................................................................. 6,850,000 7,121,123
Pre-Refunded, 7.80%, 9/15/20 ................................................................. 9,715,000 10,099,520
New York State HFAR, Refunding, Series A, 5.90%, 11/01/05 ....................................... 12,515,000 12,633,517
New York State Medical Care Facilities Finance Agency Revenue,
Hospital and Nursing, Series B, FHA Insured, 6.95%, 2/15/32 .................................. 3,305,000 3,420,840
Hospital and Nursing, Series B, Pre-Refunded, 6.95%, 2/15/32 ................................. 695,000 737,159
Montefiore Medical Center, Insured Mortgage, Series A, AMBAC/FHA Insured, 5.75%, 2/15/25 ..... 6,175,000 5,953,132
New York State Mortgage Agency Revenue, Homeowners Mortgage,
Series 59, 6.10%, 10/01/15 ................................................................... 2,000,000 2,025,160
Series 59, 6.15%, 10/01/17 ................................................................... 2,750,000 2,784,540
Series 61, 5.80%, 10/01/16 ................................................................... 5,000,000 4,962,950
New York State Urban Development Corp. Revenue, Correctional Capital Facilities, Series 7,
5.70%, 1/01/27 ................................................................................. 21,750,000 20,307,975
Oneida County IDAR, Civic Facility, St. Elizabeth Medical,
Series A, 5.75%, 12/01/19 .................................................................... 1,575,000 1,300,194
Series A, 5.875%, 12/01/29 ................................................................... 2,750,000 2,206,820
Series B, 6.00%, 12/01/19 .................................................................... 2,520,000 2,144,898
Series B, 6.00%, 12/01/29 .................................................................... 7,560,000 6,178,108
Onondaga County IDA Solid Waste Disposal Facility Revenue, Solvay Paperboard LLC
Project, Refunding, 6.80%, 11/01/14 ............................................................ 5,000,000 4,904,100
7.00%, 11/01/30 .............................................................................. 7,000,000 6,776,490
Port Authority of New York and New Jersey Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ............................................................. 1,000,000 1,010,050
3rd Installment, 7.00%, 10/01/07 ............................................................. 8,000,000 8,372,000
4th Installment, Special Project, 6.75%, 10/01/11 ............................................ 925,000 948,504
5th Installment, 6.75%, 10/01/19 ............................................................. 17,500,000 17,555,125
Continental Airlines Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 ...................... 10,000,000 10,426,700
Continental Airport Project, Eastern Project, La Guardia, 9.125%, 12/01/15 ................... 27,650,000 28,854,711
TSASC Inc. New York, TFABS, Series 1, 6.25%,
7/15/27 ...................................................................................... 19,630,000 19,200,496
7/15/34 ...................................................................................... 22,375,000 21,667,279
Ulster County IDA, Civic Facility Revenue, Benedictine Hospital Project, Series A,
6.40%, 6/01/14 ............................................................................... 725,000 640,784
6.45%, 6/01/24 ............................................................................... 1,950,000 1,659,411
Warren and Washington Counties IDAR, Adirondack Resource Recovery Project,
Refunding, Series A, 7.90%, 12/15/07 ........................................................... 1,060,000 1,062,639
-------------
559,457,520
-------------
NORTH CAROLINA 1.3%
Eastern Municipal Power Agency Power System Revenue,
Refunding, Series D, 6.75%, 1/01/26 .......................................................... 5,000,000 4,939,200
Series D, 6.70%, 1/01/19 ..................................................................... 2,000,000 1,995,520
North Carolina Eastern Municipal Power Agency Power System Revenue, Refunding,
Series A, 5.75%, 1/01/26 ..................................................................... 37,500,000 32,531,250
Series B, 5.75%, 1/01/24 ..................................................................... 35,750,000 31,234,060
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16 ...................................................................................... 2,750,000 2,779,288
9/01/17 ...................................................................................... 1,825,000 1,846,754
-------------
75,326,072
-------------
NORTH DAKOTA .4%
Mercer County PCR, Basin Electric Power Corp., Refunding, Second Series, AMBAC
Insured, 6.05%, 1/01/19 ........................................................................ 24,655,000 24,734,389
-------------
OHIO 4.6%
Cleveland Airport Special Revenue, Continental Airlines Inc. Project, Refunding,
5.70%, 12/01/19 ................................................................................ 11,520,000 9,765,619
Cuyahoga County Hospital Revenue, University Hospitals Health System, Refunding,
Series B, MBIA Insured, 5.50%, 1/15/16 ......................................................... 10,065,000 9,693,199
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OHIO (CONT.)
Dayton Special Facilities Revenue, Emery Air Freight Corp.,
Emery Worldwide Air Inc., Refunding,
Series C, 6.05%, 10/01/09 ............................................. $ 7,500,000 $ 7,510,350
Series E, 6.05%, 10/01/09 ............................................. 4,000,000 4,005,520
Franklin County Health Care Facilities Revenue, Presbyterian
Retirement Services,
Refunding, 5.50%, 7/01/17 ............................................. 3,100,000 2,483,348
Refunding, 5.50%, 7/01/21 ............................................. 4,700,000 3,665,389
Series A, 6.625%, 7/01/13 ............................................. 1,000,000 984,700
Lucas County Health Facilities Revenue, Presbyterian Retirement Services,
Refunding, Series A,
6.625%, 7/01/14 ....................................................... 1,000,000 952,420
6.75%, 7/01/20 ........................................................ 2,000,000 1,892,200
Montgomery County Health Systems Revenue,
Franciscan at Saint Leonard, Refunding, 5.50%, 7/01/18 ................ 3,630,000 2,897,357
Franciscan Medical Center-Dayton, Refunding, 5.50%, 7/01/18 ........... 1,900,000 1,516,523
Refunding, Series B, 8.10%, 7/01/01 ................................... 600,000 608,592
Refunding, Series B-1, 8.10%, 7/01/01 ................................. 500,000 507,160
Refunding, Series B-1, 8.10%, 7/01/18 ................................. 1,955,000 2,072,241
Series B-1, Pre-Refunded, 8.10%, 7/01/18 .............................. 4,345,000 5,071,658
Series B-2, 8.10%, 7/01/18 ............................................ 1,995,000 2,114,640
Series B-2, Pre-Refunded, 8.10%, 7/01/18 .............................. 4,505,000 5,271,751
St. Leonard, Series B, 8.10%, 7/01/18 ................................. 3,100,000 3,285,907
St. Leonard, Series B, Pre-Refunded, 8.10%, 7/01/18 ................... 6,500,000 7,606,300
Muskingum County Hospital Facilities Revenue, Franciscan Sisters,
Refunding, Connie Lee Insured, 5.375%, 2/15/12 .......................... 1,200,000 1,181,796
Ohio State Air Quality Development Authority Revenue,
Dayton Power and Light Co. Project, Refunding, 6.10%, 9/01/30 ......... 17,900,000 17,230,003
PCR, Cleveland Electric, Refunding, Series A, 6.10%, 8/01/20 .......... 10,400,000 9,256,312
PCR, Cleveland Electric, Refunding, Series B, 6.00%, 8/01/20 .......... 39,760,000 35,353,399
PCR, Toledo Edison, Refunding, Series A, 6.10%, 8/01/27 ............... 5,000,000 4,383,150
PCR, Toledo Edison, Refunding, Series B, 8.00%, 5/15/19 ............... 5,265,000 5,387,043
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc.,
9.00%, 6/01/21 ........................................................ 16,650,000 8,325,000
Ohio State Water Development Authority PCR, Facilities Revenue,
Cleveland Electric, Refunding, Series A, 6.10%, 8/01/20 ............... 18,000,000 16,020,540
Cleveland Electric, Refunding, Series A, 8.00%, 10/01/23 .............. 27,700,000 29,586,093
Toledo Edison, Series A, 8.00%, 5/15/19 ............................... 6,200,000 6,343,716
Ohio State Water Development Authority Revenue, Fresh Water Service,
AMBAC Insured, 5.90%, 12/01/21 .......................................... 9,250,000 9,193,020
Toledo-Lucas County Port Authority Airport Revenue, Burlington
Air Express,
Project 1, 7.00%, 4/01/04 ............................................. 4,370,000 4,493,977
Project 1, 7.25%, 4/01/09 ............................................. 5,385,000 5,603,900
Project 1, 7.375%, 4/01/14 ............................................ 8,200,000 8,542,432
Project 1, 7.50%, 4/01/19 ............................................. 14,365,000 14,980,828
Series 1, Pre-Refunded, 9.125%, 9/15/01 ............................... 510,000 532,654
Series 1, Pre-Refunded, 9.125%, 9/15/13 ............................... 5,875,000 6,135,968
Toledo-Lucas County Port Authority Development Revenue, Northwest
Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 ............................... 1,065,000 1,106,109
Series B, 9.00%, 11/15/08 ............................................. 765,000 777,370
Series D, Pre-Refunded, 8.25%, 5/15/20 ................................ 2,870,000 2,949,384
Willoughby IDR, Presbyterian Retirement Services, Refunding, Series A,
6.875%, 7/01/16 ......................................................... 1,500,000 1,407,000
------------
260,694,568
------------
OKLAHOMA .3%
Tulsa County Municipal Airport Revenue, American Airlines Inc.,
7.375%, 12/01/20 ........................................................ 12,845,000 12,993,231
Valley View Hospital Authority Revenue, Valley View Regional
Medical Center, Refunding, 6.00%, 8/15/14 ............................... 4,000,000 3,586,280
------------
16,579,511
------------
OREGON 1.4%
Klamath Falls Electric Revenue, Klamath Cogen, senior lien, Refunding,
5.75%, 1/01/13 ........................................................ 8,000,000 7,300,480
5.875%, 1/01/16 ....................................................... 19,400,000 17,109,636
6.00%, 1/01/25 ........................................................ 56,060,000 47,866,270
Oregon State Department of Administrative Services COP, Series A,
AMBAC Insured, 6.00%, 5/01/26 ........................................... 9,400,000 9,399,060
------------
81,675,446
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA 4.8%
Allegheny County Hospital Development Authority Revenue,
Allegheny Valley Health Facilities Management Co., 7.50%, 8/01/13 ... $ 9,100,000 $ 8,565,466
Allegheny Valley Hospital, 7.75%, 8/01/20 ........................... 2,100,000 1,914,465
Allegheny County IDAR, Environmental Improvement, USX Corp.,
Refunding, 6.10%, 7/15/20 ........................................... 6,460,000 5,951,404
Chartiers Valley Industrial and Commercial Development Authority
First Mortgage Revenue, Asbury Health Center, Refunding, 6.375%,
12/01/19 ............................................................ 1,000,000 874,700
12/01/24 ............................................................ 1,750,000 1,483,860
Chartiers Valley Industrial and Commercial Development Authority
Revenue, Asbury Health Center Project, Refunding, 7.40%, 12/01/15 ... 5,250,000 5,849,393
Delaware County IDAR, Resource Recovery Facility, Refunding, Series A,
6.10%, 1/01/04 ...................................................... 1,310,000 1,287,154
6.10%, 1/01/06 ...................................................... 2,140,000 2,066,662
6.50%, 1/01/08 ...................................................... 425,000 411,808
6.10%, 7/01/13 ...................................................... 20,500,000 18,391,370
6.20%, 7/01/19 ...................................................... 6,500,000 5,691,855
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center,
10.375%, 7/01/11 .................................................... 650,000 684,775
Refunding, 10.375%, 7/01/11 ......................................... 2,800,000 2,949,800
Gettysburg IDA Health Facilities Revenue, Encore Nursing Center,
Refunding, 10.375%, 7/01/11 ......................................... 3,000,000 3,160,500
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project,
Refunding, Series A,
MBIA Insured, 6.15%, 8/01/29 ........................................ 4,000,000 4,009,160
Monroeville Hospital Authority Hospital Revenue, Forbes Health Systems,
Refunding,
5.75%, 10/01/05 ..................................................... 1,000,000 943,900
7.00%, 10/01/13 ..................................................... 8,825,000 8,183,776
6.25%, 10/01/15 ..................................................... 4,545,000 4,192,126
Montgomery County Higher Education and Health Authority Revenue,
First Mortgage, Holy Redeemer Long-Term Care, Series A, Pre-Refunded,
8.20%, 6/01/06 ...................................................... 1,465,000 1,563,404
First Mortgage, Holy Redeemer Long-Term Care, Series A, Pre-Refunded,
8.00%, 6/01/22 ...................................................... 3,500,000 3,745,280
St. Joseph's University, Pre-Refunded, 8.30%, 6/01/10 ............... 5,000,000 5,148,800
Montgomery County IDA, Retirement Community Revenue, Act Retirement-Life
Communities, 5.25%, 11/15/28 ........................................ 2,500,000 1,844,975
Montgomery County IDAR, Resource Recovery, 7.50%, 1/01/12 .............. 10,000,000 10,193,900
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
6.25%, 9/01/04 ...................................................... 5,000,000 5,072,100
6.60%, 9/01/09 ...................................................... 16,000,000 16,269,600
6.70%, 9/01/14 ...................................................... 20,760,000 21,163,782
6.75%, 9/01/19 ...................................................... 15,800,000 16,048,218
Pennsylvania EDA, Financing Resources Recovery Revenue, Colver Project,
Series D, 7.125%, 12/01/15 .......................................... 10,000,000 10,193,600
Pennsylvania State Higher Educational Facilities Authority Health
Services Revenue,
Allegheny Delaware Valley Obligation Group, Series A, MBIA Insured,
5.875%, 11/15/16 ................................................... 15,000,000 14,250,600
University of Pennsylvania Health Services, Refunding, Series A,
5.75%, 1/01/12 ..................................................... 5,000,000 4,609,150
University of Pennsylvania Health Services, Refunding, Series A,
5.875%, 1/01/15 .................................................... 1,000,000 893,190
Philadelphia Gas Works Revenue,
14th Series A, Pre-Refunded, 6.375%, 7/01/26 ........................ 885,000 940,189
Refunding, 14th Series, 6.375%, 7/01/26 ............................. 1,965,000 1,924,305
Philadelphia GO, Refunding, Series B, 6.00%, 5/15/05 ................... 3,080,000 3,166,733
Philadelphia IDA, Health Care Facility Revenue, Pauls Run, Series A,
5.85%, 5/15/13 ...................................................... 2,200,000 1,905,486
5.75%, 5/15/18 ...................................................... 1,500,000 1,233,735
5.875%, 5/15/28 ..................................................... 2,500,000 1,987,050
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ................................. 3,500,000 3,381,560
Sub. Series C, 8.625%, 11/15/16 ..................................... 1,555,000 1,632,703
Sub. Series D, 6.25%, 7/15/13 ....................................... 3,000,000 2,951,760
Philadelphia Water and Sewer Revenue, Series 10, ETM, 7.35%, 9/01/04 ... 14,155,000 15,109,896
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy
Resources Inc., 6.50%, 1/01/10 ...................................... 27,190,000 26,723,148
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley
Memorial Hospital Project, Series A, MBIA Insured,
5.75%, 7/01/16 ...................................................... 8,130,000 7,952,603
South Wayne County Water and Sewer Authority Revenue,
Refunding, 8.20%, 4/15/13 ........................................... 8,055,000 8,056,611
Washington County IDA, PCR, West Pennsylvania Power Co., Series G,
AMBAC Insured, 6.05%, 4/01/14 ....................................... 5,025,000 5,128,917
-----------
269,703,469
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
RHODE ISLAND .3%
Rhode Island Housing and Mortgage Finance Corp. Revenue,
Homeownership Opportunity,
Series 17-A, 6.25%, 4/01/17 ......................................... $ 5,000,000 $ 5,068,050
Rhode Island State Health and Educational Building Corp. Revenue,
Hospital Financing Lifespan Obligation Group, MBIA Insured,
5.75%, 5/15/23 ...................................................... 5,000,000 4,736,350
Landmark Medical Center, Asset Guaranteed, 5.875%, 10/01/19 ......... 6,000,000 5,754,060
West Warwick GO, Series A,
7.00%, 8/15/02 ...................................................... 120,000 122,911
7.30%, 7/15/08 ...................................................... 845,000 896,993
----------
16,578,364
----------
SOUTH CAROLINA .3%
Charleston County Hospital Facilities First Mortgage Revenue,
Sandpiper Village Inc.,
8.00%, 11/01/13 ..................................................... 3,410,000 3,212,970
Piedmont Municipal Power Agency Electric Revenue, Refunding,
6.60%, 1/01/21 ...................................................... 3,660,000 3,550,932
Series A, AMBAC Insured, 6.55%, 1/01/16 ............................. 4,110,000 4,061,749
South Carolina Jobs EDA, Health Facilities Revenue, 1st Mortgage
Lutheran Homes, Refunding,
5.65%, 5/01/18 ...................................................... 3,200,000 2,614,848
5.70%, 5/01/26 ...................................................... 4,235,000 3,322,230
----------
16,762,729
----------
SOUTH DAKOTA .2%
South Dakota HDA Revenue, Homeownership Mortgage, Series A,
6.125%, 5/01/17 ..................................................... 5,000,000 5,026,550
South Dakota Health and Educational Facilities Authority Revenue,
Prairie Lakes Health Care,
Pre-Refunded, 7.25%, 4/01/22 ........................................ 2,480,000 2,684,997
Refunding, 7.25%, 4/01/22 ........................................... 1,020,000 1,026,344
----------
8,737,891
----------
TENNESSEE .3%
Johnson City Health and Educational Facilities Board Revenue,
Pine Oaks Assisted Project, Series A, GNMA Secured, 5.90%, 6/20/37 .. 2,620,000 2,403,509
Knox County Health, Educational and Housing Facilities Board MFHR,
East Towne Village Project, GNMA Secured, 8.20%, 7/01/28 ............ 3,020,000 3,087,195
Memphis-Shelby County Airport Authority Special Facilities and
Project Revenue, Federal Express Corp., 7.875%, 9/01/09 ............. 6,000,000 6,333,000
Metropolitan Government of Nashville and Davidson County GO, Public
Improvements, 5.875%, 5/15/26 ....................................... 5,000,000 4,904,500
Shelby County Health and Education Housing Facility Revenue, Beverly
Enterprise, 10.125%, 12/01/11 ....................................... 2,700,000 2,798,334
Tennessee HDA, Mortgage Finance, Series A, 6.90%, 7/01/25 .............. 200,000 207,848
----------
19,734,386
----------
TEXAS 2.8%
Alliance Airport Authority Special Facilities Revenue,
7.50%, 12/01/29 ..................................................... 10,000,000 10,208,500
Bexar County Health Facilities Development Corp. Revenue, Incarnate
Word Health Services, Refunding, FSA Insured, ETM,
6.00%, 11/15/15 ..................................................... 8,750,000 9,205,700
Coppell Special Assessment, Gateway Project, 8.70%, 3/01/12 ............ 4,190,000 4,295,798
Decatur Hospital Authority Hospital Revenue, Series A, 5.75%, 9/01/29 .. 5,000,000 3,832,700
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ................ 3,300,000 3,455,859
Georgetown Health Facilities Development Corp. Revenue, Georgetown
Healthcare System, Refunding, 6.25%, 8/15/29 ........................ 10,975,000 8,895,128
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 14,487,408
5.50%, 6/01/24 ...................................................... 12,000,000 10,966,200
Harris County Health Facilities Development Corp. Special Facilities
Revenue, Medical Center Project, MBIA Insured, 6.00%, 5/15/20 ....... 7,000,000 6,894,650
Nueces River Authority Environmental Improvement Revenue, Asarco Inc.
Project, Refunding, 5.60%, 1/01/27 .................................. 8,640,000 6,811,603
Series A, 5.60%, 4/01/18 ............................................ 4,500,000 3,687,795
Nueces River Authority Water Supply Revenue, Facilities, Corpus Christi
Lake Project, FSA Insured, 5.50%, 3/01/27 ........................... 7,500,000 6,889,425
Red River Authority PCR, West Texas Utilities Co. Project,
Public Service Co. of Oklahoma, Central Power and Light Co.,
Refunding, MBIA Insured, 6.00%, 6/01/20 ............................ 8,000,000 7,971,280
Sabine River Authority PCR, Southwestern Electric Power Co., Refunding,
MBIA Insured, 6.10%, 4/01/18 ........................................ 7,000,000 7,043,890
Sam Rayburn Municipal Power Agency Supply System Revenue, Refunding,
Series A, 6.50%, 10/01/08 ........................................... 755,000 740,595
Series A, 6.75%, 10/01/14 ........................................... 12,990,000 12,660,574
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Sam Rayburn Municipal Power Agency Supply System Revenue,
Refunding, (cont.)
Series A, 6.25%, 10/01/17 ......................................... $ 4,795,000 $ 4,545,372
Series B, 5.75%, 10/01/08 ......................................... 1,315,000 1,258,836
Series B, 6.125%, 10/01/13 ........................................ 5,340,000 5,073,214
Series B, 5.50%, 10/01/20 ......................................... 11,255,000 9,837,208
Texas State GO, Veterans Housing Assistance Fund I, Refunding,
6.15%, 12/01/25 ................................................... 7,430,000 7,433,641
Texas Water Development Board Revenue, State Revolving Fund,
6.00%, 7/15/13 .................................................... 4,000,000 4,120,120
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 ....... 8,750,000 7,441,175
Tyler Health Facilities Development Corp. Hospital Revenue,
East Texas Medical Center Project, Series B, FSA Insured,
5.60%, 11/01/27 ................................................... 3,450,000 3,150,747
-----------
160,907,418
-----------
U.S. TERRITORIES 3.8%
American Samoa EDA, Executive Office Building Revenue,
10.125%, 9/01/08 .................................................. 2,040,000 2,074,435
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 .............................. 3,935,000 3,992,097
Refunding, Series A, 6.00%, 6/01/07 ............................... 10,905,000 11,095,838
Refunding, Series B, 5.25%, 6/01/26 ............................... 5,000,000 4,183,300
Series A, ETM, 5.875%, 6/01/05 .................................... 3,865,000 3,984,854
Series A, ETM, 6.00%, 6/01/07 ..................................... 870,000 904,565
Series A, Pre-Refunded, 6.375%, 6/01/11 ........................... 22,770,000 24,408,302
Series A, Pre-Refunded, 6.375%, 6/01/16 ........................... 27,230,000 29,189,199
Series E, FSA Insured, 6.00%, 6/01/11 ............................. 5,000,000 5,091,550
District of Columbia Hospital Revenue,
Medlantic Healthcare Group, Refunding, Series A, MBIA Insured, ETM,
5.70%, 8/15/08 .................................................... 6,500,000 6,626,295
Medlantic Healthcare Group, Refunding, Series A, MBIA Insured, ETM,
5.875%, 8/15/19 ................................................... 8,850,000 8,964,254
Washington Hospital Center Corp., Series A, Pre-Refunded,
7.00%, 8/15/05 .................................................... 2,000,000 2,107,220
Washington Hospital Center Corp., Series A, Pre-Refunded,
9.00%, 1/01/08 .................................................... 11,480,000 12,129,768
Washington Hospital Center Corp., Series A, Pre-Refunded,
8.75%, 1/01/15 .................................................... 3,750,000 3,956,288
Washington Hospital Center Corp., Series A, Pre-Refunded,
7.125%, 8/15/19 ................................................... 4,500,000 4,807,215
District of Columbia Redevelopment Land Agency Washington D.C.
Sports Arena Special Tax Revenue, 5.625%, 11/01/10 ................ 795,000 801,384
District of Columbia Revenue,
Carnegie Endowment Revenue, 5.75%, 11/15/26 ....................... 5,410,000 5,154,594
Methodist Home Issue, 6.00%, 1/01/29 .............................. 4,750,000 3,908,395
Northern Mariana Islands Commonwealth Ports Authority Airport Revenue,
senior lien, Series A, 6.25%, 3/15/28 ............................. 14,830,000 13,866,643
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.85%, 3/15/28 .......................................... 8,980,000 8,655,463
Puerto Rico Commonwealth Infrastructure Financing Authority
Special Tax Revenue, Series A, 7.75%, 7/01/08 ..................... 700,000 709,996
Virgin Islands PFA Revenue,
Matching Fund Loan Notes, Series A, Pre-Refunded, 7.25%, 10/01/18 . 14,000,000 15,136,940
sub. lien, Fund Loan Notes, Refunding, Series E, 5.75%, 10/01/13 .. 15,000,000 14,253,750
sub. lien, Fund Loan Notes, Refunding, Series E, 5.875%, 10/01/18 . 9,000,000 8,324,820
sub. lien, Fund Loan Notes, Refunding, Series E, 6.00%, 10/01/22 .. 15,000,000 13,785,750
Virgin Islands Water and Power Authority Electric System Revenue,
Series A, Pre-Refunded, 7.40%, 7/01/11 ............................ 360,000 379,037
Virgin Islands Water and Power Authority Water System Revenue,
Series B, Pre-Refunded, 7.60%, 1/01/12 ............................ 4,000,000 4,328,080
-----------
212,820,032
-----------
UTAH .2%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 ............ 2,000,000 2,107,060
Carbon County Solid Waste Disposal Revenue, Laidlaw Environmental
Services, Refunding, Series A, 7.45%, 7/01/17 ..................... 2,500,000 2,574,025
Tooele County PCR, Laidlaw Environmental, Refunding, Series A,
7.55%, 7/01/27 .................................................... 3,500,000 3,579,275
Utah State HFA, SFM,
Series A-2, 9.625%, 7/01/02 ....................................... 15,000 15,001
Series A-2, 9.45%, 7/01/03 ........................................ 20,000 20,044
Series B, 9.50%, 7/01/00 .......................................... 5,000 5,021
Series B-2, 9.50%, 7/01/02 ........................................ 5,000 5,072
Series B-2, 9.45%, 7/01/03 ........................................ 25,000 25,064
Series C-1, 9.375%, 7/01/00 ....................................... 5,000 5,004
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
UTAH (CONT.)
Utah State HFA, SFM, (cont.)
Series C-2, 9.05%, 7/01/03 .......................................... $ 55,000 $ 56,647
Series D-2, 9.00%, 7/01/03 .......................................... 135,000 139,008
Series E, 9.50%, 7/01/00 ............................................ 5,000 5,006
Series E-1, 8.70%, 7/01/03 .......................................... 170,000 174,877
Sub Series B-2, 8.70%, 7/01/04 ...................................... 340,000 350,996
Sub Series D, 8.45%, 7/01/04 ........................................ 145,000 144,404
Weber County Municipal Building Authority Lease Revenue, Refunding,
MBIA Insured, 5.75%, 12/15/19 ....................................... 5,000,000 4,833,400
----------
14,039,904
----------
VIRGINIA .4%
Virginia Beach Development Authority Residential Care Facility Mortgage
Revenue, Westminster Canterbury Project, Series A,
7.125%, 11/01/23 .................................................... 5,000,000 4,830,550
7.25%, 11/01/32 ..................................................... 9,000,000 8,800,830
Virginia State HDA, Commonwealth Mortgage, Series D, Sub Series D-3,
6.125%, 1/01/19 ..................................................... 9,715,000 9,768,044
----------
23,399,424
----------
WASHINGTON .1%
Washington State Public Power Supply System Revenue, Nuclear Project
No. 1, Series C, Pre-Refunded, 8.00%, 7/01/17 ....................... 5,000,000 5,160,850
----------
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 14,232,000
West Virginia State Water Development Authority Revenue, Solid Waste
Management, Series C, 8.125%, 8/01/15 ............................... 2,290,000 2,354,876
----------
16,586,876
----------
WISCONSIN .5%
Wisconsin Housing and EDA, Homeownership Revenue, Series C,
6.15%, 9/01/17 ...................................................... 2,275,000 2,291,645
Wisconsin State Health and Educational Facilities Authority Revenue,
Clement Manor, Refunding, 5.75%, 8/15/24 ............................ 4,000,000 3,161,160
Franciscan Health System Inc. Project, Pre-Refunded, 8.375%, 3/01/05 6,000,000 6,120,000
Franciscan Health System Inc. Project, Pre-Refunded, 8.50%, 3/01/20 . 6,000,000 6,120,000
Franciscan Skemp Medical Center Inc. Project, 6.25%, 11/15/20 ....... 9,510,000 9,612,993
----------
27,305,798
----------
WYOMING .2%
Sweetwater County PCR, Idaho Power Co. Project, Refunding, Series A,
6.05%, 7/15/26 ...................................................... 10,500,000 10,229,310
Teton County Hospital District Hospital Revenue, Refunding and
Improvement, 5.80%, 12/01/17 ........................................ 1,965,000 1,638,260
Wyoming CDA, Housing Revenue, Series 1, 6.15%, 6/01/17 ................. 1,000,000 1,015,040
----------
12,882,610
----------
TOTAL BONDS ............................................................ 5,319,514,394
-------------
ZERO COUPON BONDS 4.6%
CALIFORNIA 3.8%
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, 1/15/31 ............................ 4,000,000 452,000
Capital Appreciation, Refunding, 1/15/36 ............................ 4,000,000 317,520
Capital Appreciation, Refunding, MBIA Insured, 1/15/22 .............. 49,115,000 10,886,831
Convertible Capital Appreciation, Refunding, 1/15/23 ................ 35,000,000 16,281,300
Convertible Capital Appreciation, Refunding, 1/15/34 ................ 4,500,000 411,390
San Francisco City and County RDA, Lease Revenue, George R. Moscone
Center,
7/01/09 ............................................................. 3,750,000 2,270,925
7/01/10 ............................................................. 4,500,000 2,561,805
7/01/12 ............................................................. 4,500,000 2,239,875
7/01/13 ............................................................. 4,250,000 1,973,318
7/01/14 ............................................................. 2,250,000 969,930
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
junior lien, ETM, 1/01/04 ........................................... $ 7,400,000 $ 6,139,114
junior lien, ETM, 1/01/05 ........................................... 8,000,000 6,291,120
junior lien, ETM, 1/01/06 ........................................... 9,000,000 6,699,510
junior lien, ETM, 1/01/07 ........................................... 9,400,000 6,629,538
junior lien, ETM, 1/01/08 ........................................... 10,400,000 6,942,624
junior lien, ETM, 1/01/09 ........................................... 21,900,000 13,812,330
junior lien, ETM, 1/01/10 ........................................... 15,000,000 8,936,400
junior lien, ETM, 1/01/12 ........................................... 30,100,000 15,916,880
junior lien, ETM, 1/01/24 ........................................... 52,700,000 12,473,563
junior lien, ETM, 1/01/25 ........................................... 45,200,000 10,022,196
junior lien, ETM, 1/01/26 ........................................... 131,900,000 27,454,985
junior lien, ETM, 1/01/27 ........................................... 139,100,000 27,175,967
senior lien, Refunding, Series A, 1/15/23 ........................... 20,000,000 11,957,800
senior lien, Refunding, Series A, 1/15/24 ........................... 20,000,000 11,925,000
------------
210,741,921
------------
FLORIDA .1%
Miami-Dade County Special Obligation,
Capital Appreciation, Series B, MBIA Insured, 10/01/28 .............. 11,860,000 1,981,687
Capital Appreciation, Series B, MBIA Insured, 10/01/29 .............. 20,000,000 3,130,000
Capital Appreciation, Series B, MBIA Insured, 10/01/32 .............. 7,780,000 999,263
Capital Appreciation, Series B, MBIA Insured, 10/01/33 .............. 2,000,000 240,400
Capital Appreciation, Series B, MBIA Insured, 10/01/35 .............. 6,765,000 716,752
sub. lien, Series B, MBIA Insured, 10/01/34 ......................... 3,895,000 439,551
------------
7,507,653
------------
NEBRASKA .2%
Kearney IDR, Great Platte River Road, Capital Appreciation, zero cpn. to
1/01/06, 7.00% thereafter,
1/01/11 ............................................................. 4,255,000 2,559,553
1/01/17 ............................................................. 8,895,000 5,156,965
------------
7,716,518
------------
NEW YORK .2%
MAC for City of Troy, Capital Appreciation, Series C, MBIA Insured,
7/15/21 ............................................................. 428,010 115,631
1/15/22 ............................................................. 649,658 169,853
Westchester Tobacco Asset Securitization Corp. Revenue, Capital
Appreciation, zero cpn. to 7/15/02, 6.75% thereafter, 7/15/29 ....... 15,000,000 12,707,250
------------
12,992,734
------------
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 1,561,688
6.40% thereafter, 12/01/06 .......................................... 1,685,000 1,550,419
6.50% thereafter, 12/01/07 .......................................... 1,750,000 1,615,670
6.90% thereafter, 12/01/16 .......................................... 2,500,000 2,395,525
------------
7,123,302
------------
SOUTH CAROLINA
Connector 2000 Association Inc. Toll Road Revenue, Series B,
1/01/30 ............................................................. 750,000 73,943
1/01/33 ............................................................. 20,750,000 1,620,575
------------
1,694,518
------------
TENNESSEE .2%
Johnson City Health and Educational Facilities Board Hospital Revenue,
Refunding, First Mortgage Mountain States Health, Series A, MBIA Insured,
7/01/27 ............................................................. 19,365,000 3,336,202
7/01/28 ............................................................. 19,400,000 3,133,876
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS (CONT.)
TENNESSEE (CONT.)
Johnson City Health and Educational Facilities Board Hospital Revenue,
Refunding, First Mortgage Mountain States Health, Series A,
MBIA Insured, (cont.)
7/01/29 ....................................................................... $ 19,365,000 $ 2,933,217
7/01/30 ....................................................................... 19,370,000 2,751,121
--------------
12,154,416
--------------
TOTAL ZERO COUPON BONDS .......................................................... 259,931,062
--------------
TOTAL LONG TERM INVESTMENTS (COST $5,798,706,843) ................................ 5,579,445,456
--------------
(a)SHORT TERM INVESTMENTS .1%
Fairfax County IDAR, Inova Services Inc., Series A, Weekly VRDN and
Put, 3.80%, 1/15/22 ............................................................. 1,500,000 1,500,000
Long Island Power Authority Electric System Revenue, Sub Series 5,
Daily VRDN and Put, 3.75%, 5/01/33 .............................................. 3,300,000 3,300,000
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc.,
1st Stage, ACES, Refunding, Daily VRDN and Put, 3.80%, 9/01/06 ................ 500,000 500,000
1st Stage, Refunding, Series A, Daily VRDN and Put, 3.75%, 9/01/08 ............ 1,400,000 1,400,000
Lynchburg IDA, Hospital Facility First Mortgage Revenue, VHA Mid-Atlantic/Capital,
Series A, AMBAC Insured, Weekly VRDN and Put, 3.95%, 12/01/25 ................. 200,000 200,000
Series C, AMBAC Insured, Weekly VRDN and Put, 3.95%, 12/01/25 ................. 500,000 500,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $7,400,000) ................................... 7,400,000
--------------
TOTAL INVESTMENTS (COST $5,806,106,843) 98.9% .................................... 5,586,845,456
OTHER ASSETS, LESS LIABILITIES 1.1% .............................................. 63,507,655
--------------
NET ASSETS 100.0% ................................................................ $5,650,353,111
==============
</TABLE>
See glossary of terms on page 123.
(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.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------------
CLASS A 2000(a),(d) 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $11.96 $11.92 $11.61 $11.68 $11.28
---------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .60 .61 .63 .64 .65
Net realized and unrealized gains (losses) ... (.96) .05 .32 (.06) .39
---------------------------------------------------------------------
Total from investment operations .............. (.36) .66 .95 .58 1.04
---------------------------------------------------------------------
Less distributions from net investment income . (.61)(e),(f) (.62) (.64) (.65) (.64)
---------------------------------------------------------------------
Net asset value, end of year .................. $10.99 $11.96 $11.92 $11.61 $11.68
=====================================================================
Total return(b) ............................... (3.08)% 5.63% 8.37% 5.13% 9.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $617,407 $681,818 $636,929 $574,691 $564,864
Ratios to average net assets:
Expenses ..................................... .65% .65% .66% .64% .65%
Net investment income ........................ 5.23% 5.06% 5.34% 5.58% 5.65%
Portfolio turnover rate ....................... 21.21% 5.43% 12.77% 8.87% 12.04%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.89
------
Income from investment operations:
Net investment income ........................ .06
Net realized and unrealized gains ............ .10
------
Total from investment operations .............. .16
------
Less distributions from net investment income . (.05)
------
Net asset value, end of period ................ $11.00
======
Total return(b) ............................... 1.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $226
Ratios to average net assets:
Expenses ..................................... 1.20%(c)
Net investment income ........................ 4.66%(c)
Portfolio turnover rate ....................... 21.21%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e) Includes distributions in excess of net investment income in the amount of
$.006.
(f) The fund made a capital gain distribution of $.003.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
---------------------------------------------------------------------------
CLASS C 2000(a) 1999 1998 1997 1996(d)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $12.03 $11.98 $11.66 $11.72 $11.30
---------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .54 .54 .56 .57 .49
Net realized and unrealized gains (losses).... (.98) .06 .33 (.05) .40
---------------------------------------------------------------------------
Total from investment operations .............. (.44) .60 .89 .52 .89
---------------------------------------------------------------------------
Less distributions from net investment income.. (.54)(e),(f) (.55) (.57) (.58) (.47)
---------------------------------------------------------------------------
Net asset value, end of year .................. $11.05 $12.03 $11.98 $11.66 $11.72
===========================================================================
Total return(b) ............................... (3.69)% 5.09% 7.84% 4.57% 8.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $46,403 $48,715 $28,139 $13,095 $4,542
Ratios to average net assets:
Expenses ..................................... 1.20% 1.21% 1.21% 1.21% 1.23%(c)
Net investment income ........................ 4.67% 4.50% 4.77% 5.01% 5.15%(c)
Portfolio turnover rate ....................... 21.21% 5.43% 12.77% 8.87% 12.04%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period May 1, 1995 (effective date) to February 29, 1996.
(e)The fund made a capital gain distribution of $.003.
(f)Includes distributions in excess of net investment income in the amount of
$.005.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.1%
BONDS 99.1%
Aberdeen Township, Refunding, FGIC Insured,
5.70%, 2/01/22 ........................................................ $4,100,000 $3,994,712
Allamuchy Town Board of Education COP, MBIA Insured,
6.00%, 11/01/14 ....................................................... 1,000,000 1,018,010
Atlantic City Municipal Utilities Authority Revenue, Water
System, Pre-Refunded,
7.75%, 5/01/17 ........................................................ 2,000,000 2,051,420
Atlantic County Improvement Authority Luxury Tax Revenue, Convention
Center Project, MBIA Insured, ETM,
7.40%, 7/01/16 ........................................................ 9,500,000 11,115,760
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 ........................................................ 2,000,000 1,911,820
7.125%, 3/01/16 ....................................................... 6,600,000 6,191,064
Bedminister Township Board of Education COP, Pre-Refunded,
7.125%, 9/01/10 ....................................................... 2,000,000 2,092,760
Bergen County Utility Authority Solid Waste System Revenue, Series A,
FGIC Insured, 6.25%, 6/15/11 .......................................... 1,325,000 1,382,704
Camden County Improvement Authority Health System Revenue,
Catholic Health East, Series B, AMBAC Insured,
5.00%, 11/15/28 ....................................................... 11,600,000 9,757,572
Camden County Municipal Utilities Authority Sewer Revenue,
Refunding, FGIC Insured,
5.25%, 7/15/16 ........................................................ 1,005,000 938,750
5.125%, 7/15/17 ....................................................... 4,560,000 4,167,019
5.25%, 7/15/17 ........................................................ 2,425,000 2,247,248
Cape May County IPC, Financing Authority Revenue, Atlantic City
Electric Co., Refunding, Series A, MBIA Insured,
6.80%, 3/01/21 ........................................................ 5,400,000 6,036,606
Carteret Board of Education COP, MBIA Insured, Pre-Refunded,
6.25%, 4/15/19 ........................................................ 2,750,000 2,940,823
Church Street Corp. Keansburg Elderly Housing Mortgage Revenue, Refunding,
5.625%, 3/01/11 ....................................................... 1,890,000 1,860,365
Delaware River and Bay Authority Revenue, FGIC Insured,
5.25%, 1/01/26 ........................................................ 10,200,000 9,176,430
Delaware River Port Authority Pennsylvania and New Jersey Revenue,
Delaware River Bridges Revenue, FSA Insured, 5.75%, 1/01/22 ........... 8,500,000 8,343,855
Delaware River Bridges Revenue, FSA Insured, 5.75%, 1/01/26 ........... 10,000,000 9,762,600
Series 1995, FGIC Insured, 5.50%, 1/01/26 ............................. 21,000,000 19,812,030
Evesham Municipal Utilities Authority Revenue, Series B, MBIA Insured,
7.00%, 7/01/10 ........................................................ 3,000,000 3,022,410
Gloucester County Improvement Authority Solid Waste Resource
Recovery Revenue, Waste Management Inc., Refunding,
Project Series A, 6.85%, 12/01/29 ..................................... 1,375,000 1,367,094
Project Series B, 7.00%, 12/01/29 ..................................... 1,250,000 1,242,850
Guam Power Authority Revenue, Refunding, Series A,
5.25%, 10/01/34 ....................................................... 4,000,000 3,357,600
Hamilton Township Board of Education COP, Series B, FSA Insured,
7.00%, 12/15/15 ....................................................... 4,670,000 4,845,779
Highland Park School District GO, Refunding, MBIA Insured,
5.125%, 2/15/25 ....................................................... 7,120,000 6,244,098
Howell Township GO, Refunding, FGIC Insured,
6.80%, 1/01/14 ........................................................ 1,750,000 1,838,708
Hudson County Improvement Authorities Facilities Lease Revenue,
Hudson County Lease Project, FGIC Insured, Pre-Refunded,
6.00%, 12/01/25 ....................................................... 2,000,000 2,098,080
Hudson County Improvement Authority Solid Waste Systems Revenue,
Koppers Site Project, Series A,
6.125%, 1/01/29 ....................................................... 6,510,000 5,911,536
(b)Jersey City GO, Series A, FSA Insured,
5.625%, 3/01/20 ....................................................... 1,000,000 974,830
Middlesex County COP, MBIA Insured,
5.30%, 6/15/29 ........................................................ 5,000,000 4,450,000
Pre-Refunded, 6.125%, 2/15/19 ......................................... 2,300,000 2,411,412
Middletown Township GO, Board of Education, MBIA Insured, 5.85%,
8/01/24 ............................................................... 4,295,000 4,250,719
8/01/25 ............................................................... 4,300,000 4,249,303
New Jersey EDA Revenue,
Hillcrest Health Services System Project, Refunding, AMBAC Insured,
5.375%, 1/01/16 ....................................................... 2,500,000 2,368,400
Jewish Community Housing Corp. Metropolitan Project,
5.90%, 12/01/31 ....................................................... 5,110,000 4,836,922
Transportation Project, Sublease, Series A, FSA Insured,
5.25%, 5/01/17 ........................................................ 5,000,000 4,672,300
Transportation Project, Sublease, Series A, FSA Insured,
5.00%, 5/01/18 ........................................................ 2,000,000 1,784,500
New Jersey EDA,
Auto Parking Revenue, Blair Development Co., FGIC Insured,
5.60%, 10/15/26 ....................................................... 2,000,000 1,894,160
EDR, School Revenue, Blair Academy, 1995 Project, Series N,
6.90%, 12/01/11 ....................................................... 3,370,000 3,500,958
EDR, School Revenue, Blair Academy, 1995 Project, Series P,
6.90%, 12/01/11 ....................................................... 375,000 389,573
Heating and Cooling Revenue, Trigen-Trenton Project, Series A,
6.20%, 12/01/10 ....................................................... 6,370,000 6,276,170
Heating and Cooling Revenue, Trigen-Trenton Project, Series B,
6.10%, 12/01/04 ....................................................... 2,910,000 2,894,315
Heating and Cooling Revenue, Trigen-Trenton Project, Series B,
6.20%, 12/01/07 ....................................................... 2,720,000 2,698,294
Lease Revenue, International Center for Public Health Project,
University of Medicine and Dentistry, AMBAC Insured,
6.00%, 6/01/32 ........................................................ 5,000,000 5,018,400
Market Transition Facilities Revenue, senior lien, Series A,
MBIA Insured,
5.875%, 7/01/11 ....................................................... 3,000,000 3,104,490
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project,
Series A, AMBAC Insured,
6.25%, 8/01/24 ........................................................ 8,200,000 8,322,098
PCR, Jersey Central Power and Light,
7.10%, 7/01/15 ........................................................ 550,000 575,905
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16.. 1,640,000 1,607,741
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
New Jersey Eda, (cont.)
State Lease Revenue, Liberty State Park Lease Rental, Refunding,
AMBAC Insured,
5.75%, 3/15/20 ........................................................ $4,605,000 $4,508,433
State Lease Revenue, Liberty State Park Lease Rental, Refunding,
AMBAC Insured,
5.75%, 3/15/22 ........................................................ 3,315,000 3,226,158
Terminal Revenue, GATX Terminals Corp. Project, 6.65%, 9/01/22 ........ 7,440,000 7,552,121
Water Facilities Revenue, Hackensack Water Co. Project, Refunding,
Series A, MBIA Insured,
5.80%, 3/01/24 ........................................................ 1,000,000 975,970
Water Facilities Revenue, Middlesex Water Co. Project, 7.25%, 7/01/21 . 6,000,000 6,234,300
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11 ................ 2,500,000 2,598,075
Atlantic Health Systems, Series A, AMBAC Insured, 5.00%, 7/01/27 ...... 7,500,000 6,324,675
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 . 6,000,000 5,072,820
Burdette Tomlin Memorial Hospital, 5.50%, 7/01/29 ..................... 5,725,000 4,844,495
Cathedral Health Services, Pre-Refunded, 7.25%, 2/15/21 ............... 2,020,000 2,113,627
Cathedral Health Services, Refunding, MBIA Insured, 5.25%, 8/01/21 .... 5,000,000 4,448,600
Cathedral Health, Series A, FHA Insured, Pre-Refunded, 7.25%, 2/15/10 . 9,260,000 9,689,201
Christian Health Care Center, Refunding, Series A, 5.50%, 7/01/18 ..... 1,200,000 970,020
East Orange General Hospital, Series B, 7.75%, 7/01/20 ................ 5,445,000 5,551,504
Elizabeth General Medical Center, Series C, Pre-Refunded,
7.375%, 7/01/15 ....................................................... 4,890,000 5,034,989
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 ....................... 5,150,000 5,224,469
Hackensack Medical Center, FGIC Insured, Pre-Refunded, 6.25%, 7/01/21 . 2,400,000 2,451,816
Holy Name Hospital, 6.00%, 7/01/25 .................................... 3,000,000 2,611,110
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 ..................... 4,380,000 3,939,810
Holy Name Hospital, Series B, AMBAC Insured, Pre-Refunded,
7.00%, 7/01/08 ........................................................ 2,000,000 2,058,240
Jersey Shore Medical Center, Refunding, AMBAC Insured, 5.875%, 7/01/24. 975,000 950,898
JFK Medical Center/Hartwyck, Refunding, MBIA Insured, 5.00%, 7/01/25 .. 7,855,000 6,644,387
John F. Kennedy Health Systems, Obligation Group Revenue, FGIC Insured,
5.70%, 7/01/25 ........................................................ 5,000,000 4,780,400
Medical Center at Princeton Obligation Group, AMBAC Insured,
5.00%, 7/01/28 ........................................................ 7,000,000 5,873,630
Meridian Health Systems Obligation Group, FSA Insured,
5.375%, 7/01/24 ....................................................... 6,500,000 5,836,415
Meridian Health Systems Obligation Group, FSA Insured, 5.25%, 7/01/29.. 20,000,000 17,566,400
Monmouth Medical Center, Series C, FSA Insured, Pre-Refunded,
6.25%, 7/01/16 ........................................................ 4,900,000 5,226,291
Monmouth Medical Center, Series C, FSA Insured, Pre-Refunded,
6.25%, 7/01/24 ........................................................ 8,250,000 8,799,368
New Jersey Geriatric Center of Workmen's Circle Inc.,
Series A, FHA Insured,
8.00%, 2/01/28 ........................................................ 125,000 126,380
Newcomb Medical Center, Series A, 7.875%, 7/01/03 ..................... 2,075,000 2,120,090
Pascack Valley Hospital Association, 5.125%, 7/01/28 .................. 6,000,000 4,276,260
Pascack Valley Hospital, Pre-Refunded, 6.90%, 7/01/21 ................. 3,565,000 3,733,910
Shoreline Behavioral Health, MBIA Insured, 5.50%, 7/01/27 ............. 1,500,000 1,382,745
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 ........... 2,000,000 1,681,440
St. Barnabas Health, Refunding, Series B, MBIA Insured, 5.00%, 7/01/24. 8,000,000 6,764,480
St. Joseph's Hospital and Medical Center, Refunding,
Connie Lee Insured,
5.75%, 7/01/16 ........................................................ 2,050,000 2,026,323
St. Joseph's Hospital and Medical Center, Refunding,
Connie Lee Insured,
6.00%, 7/01/26 ........................................................ 1,000,000 989,460
New Jersey State Building Authority Revenue, Refunding, 5.00%, 6/15/15 ... 5,000,000 4,616,800
New Jersey State Educational Facilities Authority Revenue,
Jersey State College, Series D, MBIA Insured, Pre-Refunded,
6.125%, 7/01/22 ....................................................... 2,000,000 2,095,180
New Jersey Institute of Technology Revenue, Refunding, Series A,
MBIA Insured,
6.00%, 7/01/24 ........................................................ 1,455,000 1,457,124
New Jersey Institute of Technology, Series A, MBIA Insured,
6.00%, 7/01/15 ........................................................ 4,000,000 4,064,760
Princeton University, Series C, 5.25%, 7/01/25 ........................ 1,760,000 1,579,424
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 ................ 3,000,000 3,046,200
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 ................ 9,810,000 9,821,772
Seton Hall University Project, Refunding, Series E, MBIA Insured,
5.60%, 7/01/16 ........................................................ 1,500,000 1,474,680
Seton Hall University Project, Series D, 7.00%, 7/01/21 ............... 2,665,000 2,796,411
Seton Hall University Project, Series D, Pre-Refunded, 7.00%, 7/01/21 . 1,735,000 1,820,553
St. Peters College, Series B, 5.50%, 7/01/27 .......................... 2,000,000 1,736,540
Stevens Institute of Technology, Series I, 5.00%, 7/01/18 ............. 1,100,000 937,233
Stevens Institute of Technology, Series I, 5.00%, 7/01/28 ............. 1,575,000 1,279,420
Trenton State College, Series B, AMBAC Insured, Pre-Refunded,
6.125%, 7/01/24 ....................................................... 7,000,000 7,375,760
University of Medical Dentistry, Series C, AMBAC Insured,
5.20%, 12/01/19 ....................................................... 1,000,000 893,430
University of Medical Dentistry, Series C, AMBAC Insured,
5.125%, 12/01/29 ...................................................... 2,700,000 2,321,379
(b)New Jersey State Facilities Educational Authority Revenue, Bloomfield
College, Series A,
6.85%, 7/01/30 ........................................................ 1,400,000 1,414,168
New Jersey State Highway Authority Garden State Parkway, Senior
Parkway Revenue,
6.20%, 1/01/10 ........................................................ 5,000,000 5,314,950
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
New Jersey State Highway Authority Garden State Parkway, General Revenue,
6.25%, 1/01/14 .................................................................. $2,195,000 $2,238,044
6.00%, 1/01/16 .................................................................. 2,615,000 2,624,597
Pre-Refunded, 6.25%, 1/01/14 .................................................... 305,000 318,603
New Jersey State Housing and Mortgage Finance Agency MFHR,
Montclarion Project, Series J, FHA Insured, 7.70%, 11/01/29 ..................... 2,145,000 2,205,639
Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ............................. 5,000,000 5,054,550
Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ............................. 12,500,000 12,498,750
Regency Park Project, Series H, 7.70%, 11/01/30 ................................. 450,000 457,551
Series A1, FSA Insured, 6.35%, 11/01/31 ......................................... 2,000,000 2,006,000
Series B, FSA Insured, 6.25%, 11/01/26 .......................................... 2,000,000 2,007,360
New Jersey State Housing and Mortgage Finance Agency Revenue,
Home Buyer, Series J, MBIA Insured, 6.20%, 10/01/25 ............................. 4,980,000 5,007,191
Home Buyer, Series N, MBIA Insured, 6.35%, 10/01/27 ............................. 4,000,000 4,026,000
Home Buyer, Series U, MBIA Insured, 5.85%, 4/01/29 .............................. 12,000,000 11,421,120
Section 8, Refunding, Series 1, 6.70%, 11/01/28 ................................. 2,885,000 2,984,677
Section 8, Refunding, Series A, 6.95%, 11/01/13 ................................. 12,400,000 12,926,752
SFMR, Home Buyer, Series Z, MBIA Insured, 5.70%, 10/01/17 ....................... 6,325,000 6,200,967
New Jersey State Sports and Exposition Authority Convention Center
Luxury Tax, Series A, MBIA Insured, Pre-Refunded,
6.60%, 7/01/15 .................................................................. 8,000,000 8,463,440
6.25%, 7/01/20 .................................................................. 6,800,000 7,142,108
New Jersey State Transportation Corp. COP, Federal Transportation
Administration Grants,
Series A, AMBAC Insured, 6.125%, 9/15/15 ........................................ 2,000,000 2,055,880
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 .......................... 3,250,000 3,297,710
North Brunswick Township Board of Education GO, Refunding, FGIC Insured,
5.00%, 2/01/15 ................................................................. 2,000,000 1,813,780
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.85%, 3/15/28 ........................................................ 1,985,000 1,913,262
Orange Township GO, Municipal Utility and Lease, Refunding,
Series C, MBIA Insured, 5.10%, 12/01/17 ......................................... 3,035,000 2,763,641
Passaic Valley Sewer Commissioners GO, Sewer System, Refunding,
Series E, AMBAC Insured, 5.75%, 12/01/22 ........................................ 8,925,000 8,681,437
Passaic Valley Sewer Commissioners Sewer System Revenue, Refunding,
Series D, AMBAC Insured, 5.80%, 12/01/18 ........................................ 7,400,000 7,349,088
Plainfield Board Education, FSA Insured, 5.00%, 8/01/26 ............................ 6,050,000 5,181,825
Port Authority of New York and New Jersey Revenue,
Consolidated 71st Series, 6.50%, 1/15/26 ........................................ 2,500,000 2,536,450
Consolidated 72nd Series, 7.35%, 10/01/27 ....................................... 7,000,000 7,393,610
Consolidated 74th Series, 6.75%, 8/01/26 ........................................ 1,000,000 1,020,760
Consolidated 84th Series, 6.00%, 1/15/28 ........................................ 1,125,000 1,096,684
Consolidated 94th Series, 6.00%, 12/01/16 ....................................... 2,000,000 2,024,080
Consolidated 94th Series, 6.00%, 6/01/17 ........................................ 5,000,000 5,046,300
Consolidated 109th Series, FGIC Insured, 5.375%, 7/15/22 ........................ 4,645,000 4,273,679
Consolidated 109th Series, FSA Insured, 5.375%, 7/15/27 ......................... 2,500,000 2,266,650
Delta Air Lines Special Project, Series 1, 6.95%, 6/01/08 ....................... 5,000,000 5,194,000
Special Obligation Revenue, Consolidated 102nd Series, MBIA Insured,
5.75%, 10/15/23 ................................................................. 5,000,000 4,892,250
Port Authority of New York and New Jersey Special Obligation Revenue,
4th Installment, Special Project, 6.75%, 10/01/11 ............................... 2,500,000 2,563,525
John F. Kennedy International Air Terminal, MBIA Insured,
5.75%, 12/01/22 ................................................................. 8,000,000 7,695,200
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 .......................... 3,000,000 3,235,110
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded,
8.00%, 7/01/18 .................................................................. 8,000,000 8,264,080
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax
Revenue, Series A,
7.90%, 7/01/07 .................................................................. 120,000 121,476
7.75%, 7/01/08 .................................................................. 1,350,000 1,369,278
7.50%, 7/01/09 .................................................................. 100,000 101,194
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation,
Refunding,
7.875%, 10/01/04 ................................................................ 1,000,000 1,021,590
Puerto Rico Electric Power Authority Revenue,
Series T, 6.00%, 7/01/16 ........................................................ 11,535,000 11,612,169
Series X, 6.00%, 7/01/15 ........................................................ 2,000,000 2,021,040
Series X, Pre-Refunded, 6.125%, 7/01/21 ......................................... 5,000,000 5,375,700
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ...................................... 4,185,000 4,272,676
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured, Pre-Refunded,
7.75%, 12/01/26 ................................................................. 125,000 143,373
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured,
7.65%, 10/15/22 ................................................................. 210,000 215,798
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Rutgers State University, Series A, 6.50%, 5/01/18 ..................... $ 4,250,000 $ 4,408,950
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 5,155,550
South Brunswick Township Board of Education GO, Refunding, Series AA,
FGIC Insured, 5.50%, 8/01/24 ......................................... 1,720,000 1,625,125
South Jersey Transportation Authority Transportation Systems Revenue,
AMBAC Insured, 5.00%, 11/01/29 ....................................... 12,000,000 10,248,000
Union County Utilities Authority Solid Waste Revenue, sub. leased,
Ogden Martin, Series A, AMBAC Insured, 5.35%, 6/01/23 ................ 2,900,000 2,580,855
University of Medicine and Dentistry COP, Series A, MBIA Insured,
5.00%, 9/01/22 ....................................................... 1,700,000 1,453,391
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%,
10/01/15 ............................................................. 2,500,000 2,270,900
10/01/18 ............................................................. 3,045,000 2,692,176
10/01/22 ............................................................. 2,000,000 1,724,640
West Orange County Board of Education COP, MBIA Insured,
5.625%, 10/01/29 ..................................................... 2,000,000 1,912,600
------------
TOTAL BONDS .......................................................... 657,734,118
------------
ZERO COUPON BONDS
Middlesex County COP, MBIA Insured, 6/15/24 ........................... 1,000,000 225,430
------------
TOTAL LONG TERM INVESTMENTS (COST $668,911,111) ....................... 657,959,548
------------
(a)SHORT TERM INVESTMENTS .2%
New Jersey EDAR, El Dorado Terminals, Refunding, Series A, Daily VRDN
and Put, 3.65%, 12/02/21 ............................................. 1,200,000 1,200,000
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.35%, 12/01/15 ................... 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, 3.00%, 7/01/28 ......... 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,600,000) ......................... 1,600,000
------------
TOTAL INVESTMENTS (COST $670,511,111) 99.3% ............................ 659,559,548
OTHER ASSETS, LESS LIABILITIES .7% ..................................... 4,477,064
------------
NET ASSETS 100.0% ...................................................... $664,036,612
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN OREGON TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
------------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $11.83 $11.86 $11.55 $11.60 $11.22
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ......................... .58 .59 .62 .63 .63
Net realized and unrealized gains (losses) .... (1.02) (.01) .31 (.05) .38
-----------------------------------------------------------------------------
Total from investment operations ............... (.44) .58 .93 .58 1.01
-----------------------------------------------------------------------------
Less distributions from net investment income .. (.58) (.61) (.62) (.63) (.63)
-----------------------------------------------------------------------------
Net asset value, end of year ................... $10.81 $11.83 $11.86 $11.55 $11.60
=============================================================================
Total return(b) ................................ (3.76)% 5.12% 8.21% 5.13% 9.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $432,675 $483,664 $427,022 $384,003 $375,415
Ratios to average net assets:
Expenses ...................................... .66% .67% .67% .66% .66%
Net investment income ......................... 5.16% 5.00% 5.33% 5.52% 5.51%
Portfolio turnover rate ........................ 24.58% 10.65% 12.18% 4.47% 6.52%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $11.90 $11.92 $11.61 $11.65 $11.23
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income ......................... .52 .53 .56 .56 .47
Net realized and unrealized gains (losses) .... (1.02) -- .31 (.04) .41
-----------------------------------------------------------------------------
Total from investment operations ............... (.50) .53 .87 .52 .88
-----------------------------------------------------------------------------
Less distributions from net investment income .. (.52) (.55) (.56) (.56) (.46)
-----------------------------------------------------------------------------
Net asset value, end of year ................... $10.88 $11.90 $11.92 $11.61 $11.65
=============================================================================
Total return(b) ................................ (4.36)% 4.59% 7.66% 4.59% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $34,071 $32,962 $15,946 $7,100 $2,044
Ratios to average net assets:
Expenses ...................................... 1.21% 1.23% 1.22% 1.23% 1.24%(c)
Net investment income ......................... 4.62% 4.44% 4.74% 4.93% 4.87%(c)
Portfolio turnover rate ........................ 24.58% 10.65% 12.18% 4.47% 6.52%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or contingent deferred sales
charges, and is not annualized for periods less than one year.
(c)Annualized
(d)For the period May 1, 1995 (effective date) to February 29, 1996 for Class C.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.9%
<S> <C> <C>
Bay Area Health District Hospital Facility Authority, Health
Facilities Revenue, Evergreen Court Project, 7.25%, 10/01/14 ........... $ 2,000,000 $ 2,060,480
Benton County Hospital Facilities Authority Revenue, Samaritan Health
Services Project, Refunding,
5.20%, 10/01/17 ....................................................... 4,000,000 3,482,360
5.125%, 10/01/28 ...................................................... 4,500,000 3,588,435
Clackamas County Health Facilities Authority Hospital Revenue,
Adventist Health, Refunding, Series A, MBIA Insured, 6.35%, 3/01/09 ... 4,945,000 5,133,058
Clackamas County Hospital Facilities Authority Revenue,
Gross Willamette Falls, Refunding, 5.75%, 4/01/15 ..................... 2,250,000 2,017,463
Jennings Lodge Project, 7.50%, 10/20/31 ............................... 2,990,000 3,056,827
Kaiser Permanente, Series A, 6.50%, 4/01/11 ........................... 1,635,000 1,675,973
Kaiser Permanente, Series A, 5.375%, 4/01/14 .......................... 2,500,000 2,232,400
Sisters of Providence Project, 8.125%, 10/01/07 ....................... 110,000 110,466
Willamette Falls Hospital Project, 6.00%, 4/01/19 ..................... 1,000,000 889,750
Willamette View Inc. Project, Refunding, 6.10%, 11/01/12 .............. 500,000 454,360
Willamette View Inc. Project, Refunding, 6.30%, 11/01/21 .............. 1,500,000 1,314,300
Clackamas County USD No. 115, AMBAC Insured, Pre-Refunded, 6.15%, 6/01/14 4,000,000 4,247,960
Clairmont Water District Revenue, 6.50%, 2/01/12 ......................... 1,125,000 1,133,303
Deschutes County Hospital Facilities Authority Hospital Revenue,
St. Charles Medical Center, 6.00%, 1/01/13 ............................ 3,000,000 3,008,010
Douglas County Hospital Facilities Authority Revenue, Catholic
Health Facilities, Series B, MBIA Insured, 6.00%, 11/15/15 ............ 1,950,000 1,982,000
Eugene Electric Utility System Revenue, Pre-Refunded,
6.65%, 8/01/10 ........................................................ 655,000 673,111
6.70%, 8/01/11 ........................................................ 700,000 719,824
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 ............ 500,000 497,855
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 ......... 770,000 777,508
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 ....................................................... 750,000 785,828
6.70%, 10/01/23 ....................................................... 1,900,000 1,988,654
Guam Power Authority Revenue,
Refunding, Series A, 5.125%, 10/01/29 ................................. 2,000,000 1,660,980
Refunding, Series A, 5.25%, 10/01/34 .................................. 10,000,000 8,394,000
Series A, Pre-Refunded, 6.30%, 10/01/12 ............................... 825,000 871,093
Hermiston GO, AMBAC Insured, 6.00%, 8/01/15 .............................. 1,000,000 1,011,110
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical
Center Project,
7.00%, 6/01/02 ........................................................ 1,175,000 1,204,375
7.25%, 6/01/06 ........................................................ 2,310,000 2,375,535
Lane County PCR, Weyerhaeuser Co. Project, Refunding, 6.50%, 7/01/09 ..... 11,575,000 12,004,896
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 ................... 2,425,000 2,307,727
Marion County COP, Courthouse Square Project, Series A, MBIA Insured,
5.00%, 6/01/23 ........................................................ 1,000,000 867,540
Marion County Housing Authority Revenue, Elliott Residence Project,
GNMA Secured, 7.50%, 10/20/25 ......................................... 1,225,000 1,311,350
Medford Hospital Facilities Authority Revenue,
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/18 .......... 8,000,000 7,025,120
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/24 .......... 5,300,000 4,540,086
Gross Rogue Valley Health Services, MBIA Insured, Pre-Refunded,
6.75%, 12/01/20 ....................................................... 4,475,000 4,647,556
Metropolitan Service District Convention Center GO, Series A,
6.25%, 1/01/13 ........................................................ 4,865,000 4,935,591
Multnomah County COP, Series A, 4.75%, 8/01/16 ........................... 1,000,000 871,520
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.85%, 3/15/28 .............................................. 3,440,000 3,315,678
Oak Lodge Water District GO, AMBAC Insured,
7.40%, 12/01/08 ....................................................... 215,000 234,073
7.50%, 12/01/09 ....................................................... 215,000 234,494
Ontario Catholic Health Revenue, Dominican Sisters Holy Rosary,
6.10%, 11/15/17 ....................................................... 1,500,000 1,505,295
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 ................ 4,000,000 4,362,800
Oregon State Department of Administrative Services COP,
Series A, AMBAC Insured, 6.00%, 5/01/26 ............................... 2,000,000 1,999,800
Series A, AMBAC Insured, Pre-Refunded, 5.80%, 5/01/24 ................. 5,000,000 5,217,800
Series A, AMBAC Insured, Refunding, 5.00%, 5/01/24 .................... 30,000,000 25,888,200
Series C, MBIA Insured, 5.75%, 5/01/17 ................................ 4,665,000 4,639,436
Oregon State Department of General Services COP,
Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded,
7.50%, 9/01/15 ........................................................ 750,000 777,240
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 ..................... 1,000,000 1,008,180
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 ................. 950,000 984,504
Series G, AMBAC Insured, 6.25%, 9/01/15 ............................... 750,000 766,860
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Oregon State Department of Transportation Revenue, Regional Light Rail
Federal Westside Project, MBIA Insured,
6.10%, 6/01/07 ..................................................... $ 2,000,000 $ 2,101,260
6.20%, 6/01/08 ..................................................... 2,500,000 2,630,250
6.25%, 6/01/09 ..................................................... 1,750,000 1,843,888
Oregon State EDR, Georgia Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 ............................. 1,500,000 1,307,085
Series CLVII, 6.35%, 8/01/25 ....................................... 23,360,000 22,339,168
Oregon State Elderly Housing GO, Series A, 7.125%, 8/01/30 ............ 475,000 485,279
Oregon State GO,
Alternative Energy Project, Refunding, Series D, 5.00%, 1/01/28 .... 4,265,000 3,619,919
Board of Higher Education, 6.50%, 10/01/17 ......................... 750,000 760,583
Board of Higher Education, Baccalaureate, Series A, 5.00%, 8/01/27 . 6,000,000 5,112,000
Board of Higher Education, Series A, 5.65%, 8/01/27 ................ 4,440,000 4,254,941
Board of Higher Education, Series C, 5.65%, 8/01/27 ................ 1,460,000 1,399,147
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/15 ... 910,000 923,568
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/21 ... 455,000 456,047
Elderly and Disabled Housing Authority, Series A, 5.375%, 8/01/28 .. 1,950,000 1,731,464
Elderly and Disabled Housing Authority, Series B, 6.10%, 8/01/17 ... 1,410,000 1,433,871
Elderly and Disabled Housing Authority, Series B, 6.25%, 8/01/23 ... 2,015,000 2,020,118
Elderly and Disabled Housing Authority, Series B, 6.375%, 8/01/24 .. 2,155,000 2,185,773
Elderly and Disabled Housing Authority, Series C, 6.50%, 8/01/22 ... 6,000,000 6,128,280
State Board of Higher Education, Series A, 5.60%, 8/01/25 .......... 8,000,000 7,624,960
State Board of Higher Education, Series A, 5.50%, 8/01/29 .......... 2,000,000 1,857,320
Veteran's Welfare, Series 75, 5.85%, 10/01/15 ...................... 735,000 741,666
Veteran's Welfare, Series 75, 5.875%, 10/01/18 ..................... 420,000 426,514
Veteran's Welfare, Series 75, 6.00%, 4/01/27 ....................... 2,305,000 2,301,796
Veteran's Welfare, Series 76-A, 6.05%, 10/01/28 .................... 2,795,000 2,800,646
Veteran's Welfare, Series 77, 5.30%, 10/01/29 ...................... 4,000,000 3,538,000
Oregon State Health, Housing, Educational and Cultural Facilities
Authority Revenue, Lewis and Clark College Project, Series A,
MBIA Insured, 6.125%, 10/01/24 ..................................... 10,500,000 10,564,155
Oregon State Housing and Community Services Department Finance Housing
Revenue SFM,
Series A, 6.35%, 7/01/14 ........................................... 2,720,000 2,779,269
Series A, 6.40%, 7/01/18 ........................................... 1,260,000 1,284,091
Series A, 6.45%, 7/01/26 ........................................... 2,680,000 2,706,130
Series B, 6.875%, 7/01/28 .......................................... 12,000,000 12,384,480
Series C, 6.20%, 7/01/15 ........................................... 2,060,000 2,074,235
Series C, 6.40%, 7/01/26 ........................................... 985,000 991,747
Series D, 6.80%, 7/01/27 ........................................... 1,750,000 1,787,240
Series E, 5.80%, 7/01/16 ........................................... 755,000 731,716
Oregon State Housing and Community Services Department Finance Housing
Revenue, Multi-Unit,
Series A, 6.80%, 7/01/13 ........................................... 6,710,000 6,902,778
Series A, 6.15%, 7/01/21 ........................................... 910,000 915,196
Series C, 6.85%, 7/01/22 ........................................... 180,000 184,478
Oregon State Housing and Community Services Department, MFHR, Series B,
6.00%, 7/01/31 ..................................................... 5,000,000 4,788,900
Oregon State Solid Waste Disposal Facilities EDR, USG Corp. Project,
Series 192, 6.40%, 12/01/29 ........................................ 3,500,000 3,408,860
Port Astoria GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 ........... 450,000 462,528
Port Astoria PCR, James River Project, Refunding, 6.55%, 2/01/15 ...... 945,000 952,399
Port Morrow PCR, Idaho Power Co., Boardman Project, 7.25%, 8/01/08 .... 2,200,000 2,221,626
Port of Portland International Airport Revenue, Portland International
Airport,
Series A, AMBAC Insured, 5.50%, 7/01/24 ............................ 22,000,000 20,626,540
Series 7A, MBIA Insured, Pre-Refunded, 6.75%, 7/01/09 .............. 1,500,000 1,556,055
Series 7B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 .............. 3,000,000 3,372,588
Series 12C, FGIC Insured, 5.00%, 7/01/18 ........................... 1,500,000 1,328,385
Series 12C, FGIC Insured, 5.00%, 7/01/28 ........................... 2,500,000 2,104,650
Port of Portland International Airport Special Obligation Revenue,
Delta Airlines Inc. Project, 6.20%, 9/01/22 ........................ 4,000,000 3,818,320
Port St. Helens PCR,
Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/27 ............ 7,750,000 6,643,455
Portland General Electric Co. Project, Series A, 5.25%, 8/01/14 .... 3,600,000 3,290,724
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Port Umpqua PCR, International Paper Co. Project, Refunding,
Series B, 5.20%, 6/01/11 .............................................. $ 1,200,000 $1,125,000
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 2,847,685
Portland GO, Central City Streetcar Project, Series A,
4.75%, 4/01/21 ........................................................ 3,600,000 3,001,464
5.00%, 4/01/24 ........................................................ 2,000,000 1,724,120
Portland Hospital Facilities Authority Hospital Revenue, Legacy
Health System, Refunding,
Series A, AMBAC Insured, 6.70%, 5/01/21 ............................... 5,500,000 5,693,655
Series B, AMBAC Insured, 6.70%, 5/01/21 ............................... 8,475,000 8,773,405
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 ...... 1,500,000 1,449,240
Portland Housing Authority Revenue, 7.10%, 7/01/15 ....................... 1,000,000 1,017,650
Portland Hydroelectric Power Revenue, Bull Run Project, Series C,
7.00%, 10/01/16 ....................................................... 635,000 636,010
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 ... 1,000,000 974,660
Portland Oregon, Revenue, Limited Tax, Series A, 5.00%, 4/01/18 .......... 2,880,000 2,567,635
Portland Sewer System Revenue, Series A, Pre-Refunded, 6.25%, 6/01/15 .... 9,100,000 9,624,615
Portland Urban Renewal and Redevelopment, Downtown Waterfront,
Refunding, Series A,
6.40%, 6/01/08 ........................................................ 5,555,000 5,721,206
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 .......................................... 75,000 85,756
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.45%, 7/01/17 .......................................... 1,000,000 1,078,370
Public Improvement, Refunding, 5.375%, 7/01/25 ........................ 1,000,000 907,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded, 8.00%, 7/01/18 ................................ 4,000,000 4,132,040
Series Y, 5.50%, 7/01/26 .............................................. 7,275,000 6,705,877
Series Y, 5.50%, 7/01/36 .............................................. 13,000,000 11,846,640
Puerto Rico Commonwealth Infrastructure Financing Authority Special
Tax Revenue, Series A,
7.75%, 7/01/08 ........................................................ 280,000 283,998
Puerto Rico Electric Power Authority Revenue,
Series R, Pre-Refunded, 6.25%, 7/01/17 ................................ 2,070,000 2,169,546
Series X, 6.00%, 7/01/15 .............................................. 2,500,000 2,526,300
Series X, 5.50%, 7/01/25 .............................................. 2,600,000 2,418,806
Puerto Rico HFC Revenue, Sixth Portfolio, Section 8 Assisted, FHA
Mortgage Insured, Pre-Refunded,
7.75%, 12/01/26 ....................................................... 395,000 453,057
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured,
7.65%, 10/15/22 ....................................................... 130,000 133,589
Puerto Rico Housing Bank and Financing Authority SFMR, Homeownership
Fifth Portfolio, Pre-Refunded,
7.50%, 12/01/15 ....................................................... 500,000 504,205
Puerto Rico PBA Revenue, Government Facilities, Series B,
5.25%, 7/01/21 ........................................................ 3,700,000 3,294,887
Puerto Rico PBA Revenue, Public Education and Health Facilities,
Refunding, Series M, 5.75%, 7/01/15 ................................... 2,500,000 2,503,175
Salem Educational Facilities Revenue, Willamette University,
Refunding, 6.10%, 4/01/14 ............................................. 1,000,000 1,005,980
Salem-Keizer GO, School District No. 24J, 5.00%, 6/01/19 ................. 13,500,000 11,984,085
Taft-Nelscott-Delake Rural Fire Protection District,
6.00%, 6/01/16 ........................................................ 1,110,000 1,115,028
Tri-County Metropolitan Transportation District Revenue, Limited
Obligation, Airport Light Rail, Series 1,
5.65%, 6/01/29 ........................................................ 14,080,000 13,021,043
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes,
Refunding, Series A, 5.50%,
10/01/15 .............................................................. 1,635,000 1,485,169
10/01/18 .............................................................. 2,400,000 2,121,912
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%,
7/01/18 ............................................................... 2,500,000 2,255,400
7/01/21 ............................................................... 1,400,000 1,236,844
Wasco County Hospital Facility Authority Hospital Revenue,
7.375%, 7/01/00 ....................................................... 1,035,000 1,038,850
Washington County Housing Authority MFHR, Bethany Meadows II Project,
5.85%, 9/01/27 ........................................................ 1,435,000 1,374,572
Washington County School District No. 088 GO, J Sherwood, FSA Insured,
6.10%, 6/01/12 ........................................................ 190,000 195,463
Pre-Refunded, 6.10%, 6/01/12 .......................................... 810,000 849,066
Washington County Unified Sewer Agency Revenue, senior lien, Series A,
AMBAC Insured, 6.20%, 10/01/10 ........................................ 470,000 488,711
AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ......................... 1,000,000 1,047,970
Pre-Refunded, 6.20%, 10/01/10 ......................................... 3,530,000 3,710,065
Western Lane Hospital District Hospital Facilities Authority Revenue,
Sisters of St. Joseph of Peace Health and Hospital Services, Refunding,
MBIA Insured,
5.875%, 8/01/12 ....................................................... 4,400,000 4,492,664
Yamhill County GO, USD No. 029J Newberg, FSA Insured, Pre-Refunded,
6.10%, 6/01/11 ........................................................ 5,000,000 5,250,047
-----------
TOTAL LONG TERM INVESTMENTS (COST $476,604,932) .......................... 461,569,312
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Government Development Bank, Refunding,
MBIA Insured, Weekly VRDN and Put, 2.35%, 12/01/15
(COST $400,000) ........................................................... $ 400,000 $ 400,000
------------
TOTAL INVESTMENTS (COST $477,004,932) 99.0% ................................. 461,969,312
OTHER ASSETS, LESS LIABILITIES 1.0% ......................................... 4,776,601
------------
NET ASSETS 100.0% ........................................................... $466,745,913
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
CLASS A 2000(a,d) 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $10.52 $10.56 $10.39 $10.44 $10.16
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .55 .58 .60 .62
Net realized and unrealized gains (losses) . (.97) (.02) .32 (.04) .29
-------------------------------------------------------------------------------
Total from investment operations ............ (.44) .53 .90 .56 .91
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.53)(e) (.55) (.58) (.61) (.63)
In excess of net investment income ......... -- (.01) (.01) -- --
Net realized gains ......................... --(f) (.01) (.14) -- --
-------------------------------------------------------------------------------
Total distributions ......................... (.53) (.57) (.73) (.61) (.63)
-------------------------------------------------------------------------------
Net asset value, end of year ................ $9.55 $10.52 $10.56 $10.39 $10.44
===============================================================================
Total return(b) ............................. (4.24)% 5.11% 8.90% 5.53% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $639,004 $758,942 $713,141 $658,339 $639,847
Ratios to average net assets:
Expenses ................................... .66% .65% .65% .64% .64%
Net investment income ...................... 5.32% 5.17% 5.49% 5.84% 5.96%
Portfolio turnover rate ..................... 24.21% 11.11% 12.74% 22.24% 9.71%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- -------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......... $9.47
-----
Income from investment operations:
Net investment income ....................... .04
Net realized and unrealized gains ........... .08
-----
Total from investment operations ............. .12
-----
Less distributions from net investment income . (.04)
-----
Net asset value, end of period ................ $9.55
=====
Total return(b) ............................... 1.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $186
Ratios to average net assets:
Expenses ..................................... 1.21%(c)
Net investment income ........................ 5.06%(c)
Portfolio turnover rate ....................... 24.21%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(e) Includes distributions in excess of net investment income in the amount
of $.0001.
(f) The fund made a capital gain distribution of $.0002.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
-----------------------------------------------------------------------------
CLASS C 2000(a) 1999 1998 1997 1996(d)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $10.57 $10.61 $10.43 $10.47 $10.17
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income .................... .48 .49 .52 .55 .47
Net realized and unrealized gains (losses) (.97) (.03) .33 (.05) .30
-----------------------------------------------------------------------------
Total from investment operations .......... (.49) .46 .85 .50 .77
-----------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.48)(e) (.49)(f) (.53) (.54) (.47)
Net realized gains ....................... -- (g) (.01) (.14) -- --
-----------------------------------------------------------------------------
Total distributions ....................... (.48) (.50) (.67) (.54) (.47)
-----------------------------------------------------------------------------
Net asset value, end of year .............. $9.60 $10.57 $10.61 $10.43 $10.47
=============================================================================
Total return(b)............................ (4.76)% 4.50% 8.35% 4.98% 7.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $40,973 $41,917 $25,899 $11,935 $3,110
Ratios to average net assets:
Expenses ................................. 1.21% 1.21% 1.21% 1.21% 1.22%(c)
Net investment income .................... 4.77% 4.61% 4.89% 5.22% 5.36%(c)
Portfolio turnover rate ................... 24.21% 11.11% 12.74% 22.24% 9.71%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996.
(e) Includes distributions in excess of net investment income in the amount
of $.0001.
(f) Includes distributions in excess of net investment income in the amount
of $.004.
(g) The fund made a capital gain distribution of $.0002.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.1%
BONDS 98.4%
Abington School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/15/26 .................... $1,000,000 $1,045,620
Allegheny County Airport Authority Airport Revenue, Pittsburgh International
Airport, Refunding, 5.75%, 1/01/18 ........................................................ 1,000,000 966,390
Allegheny County Airport Revenue, Pittsburgh International Airport,
Refunding, Series B, MBIA Insured, 5.00%, 1/01/19 ......................................... 6,000,000 5,271,660
Allegheny County COP, AMBAC Insured, 5.00%, 12/01/28 ....................................... 4,000,000 3,336,000
Allegheny County Higher Education Building Authority, Duquesne University
Project, AMBAC Insured, 5.00%, 3/01/21 ................................................... 1,000,000 868,570
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured, 6.25%, 9/01/20 .............. 10,000,000 9,508,700
Allegheny Hospital, South Hills Health System, Series A, MBIA Insured,
5.875%, 5/01/26 ........................................................................ 1,700,000 1,628,753
Health Center, Canterbury Place, AMBAC Insured, 5.375%, 12/01/21 ........................ 4,500,000 4,035,600
Health Center, University of Pittsburgh Medical Center, Series B,
MBIA Insured, 5.00%, 7/01/16 ........................................................... 4,000,000 3,542,760
University of Pittsburgh Health Center, Refunding, Series A, MBIA Insured,
5.625%, 4/01/27 ........................................................................ 10,450,000 9,652,874
Allegheny County IDAR,
Environmental Improvement, Refunding, 6.10%, 1/15/18 .................................... 2,000,000 1,858,200
Environmental Improvement, USX Corp., Refunding, 5.50%, 12/01/29 ........................ 10,000,000 8,228,800
Environmental Improvement, USX Corp., Refunding, 5.60%, 9/01/30 ......................... 7,530,000 6,282,279
Kaufmann Medical Project, Refunding, Series A, MBIA Insured, 6.80%, 3/01/15 ............. 1,000,000 1,050,520
Allegheny County Port Authority Special Revenue, Transportation Project,
MBIA Insured, 6.125%, 3/01/29 ............................................................ 15,000,000 15,105,750
Allegheny County RDAR, Home Improvement Loan, Refunding, Series A, 5.90%, 2/01/11 .......... 1,555,000 1,548,733
Allegheny County Residential Finance Authority Mortgage Revenue SFM,
Series DD-1, GNMA Secured, 5.35%, 11/01/19 .............................................. 760,000 695,461
Series DD-2, GNMA Secured, 5.40%, 11/01/29 .............................................. 1,995,000 1,759,450
Allegheny County Residential Finance Authority Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G,
FHA Insured, 6.35%, 10/01/36 ............................................................ 1,940,000 1,931,658
Lexington Home, Series E, 7.125%, 2/01/27 ............................................... 3,650,000 3,705,772
MFMR, Series D, FHA Insured, 7.50%, 6/01/33 ............................................. 1,400,000 1,435,434
SF, Series FF-2, GNMA Secured, 6.00%, 11/01/31 .......................................... 5,110,000 4,886,846
SFMR, Series M, GNMA Secured, 7.90%, 6/01/11 ............................................ 775,000 796,165
SFMR, Series T, GNMA Secured, 6.95%, 5/01/17 ............................................ 810,000 828,266
Beaver County Hospital Authority Revenue, Beaver County Medical Center Inc.,
AMBAC Insured, Pre-Refunded, 6.625%, 7/01/10 .............................................. 5,000,000 5,292,400
Beaver County IDA, PCR, Beaver Valley Project, Pennsylvania Power and Light,
Refunding, Series A, 7.15%, 9/01/21 ....................................................... 4,400,000 4,545,464
Bensalem Township, Refunding, FGIC Insured, 5.75%, 12/01/16 ................................ 3,000,000 3,045,210
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 ....... 4,000,000 4,308,720
Bethlehem Area School District, MBIA Insured, Pre-Refunded, 6.00%, 3/01/16 ................ 4,000,000 4,177,640
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co. ................
Projects, Series A, 6.60%, 3/01/19 ....................................................... 2,500,000 2,506,900
Butler Area School District, Refunding, Series B, FGIC Insured, 5.00%, 10/01/26 ............ 5,000,000 4,230,750
Butler County IDA, PCR, Witco Corp. Project, Refunding, 5.85%, 12/01/23 .................... 2,000,000 1,799,080
Cambria County HDA, Hospital Revenue, Conemaugh Valley Memorial Hospital,
Refunding, Series B, Connie Lee Insured, Pre-Refunded, 6.375%, 7/01/18 .................... 3,500,000 3,677,695
Cambria County IDA, PCR, Pennsylvania Electric Co. Project, Refunding,
Series A, MBIA Insured, 5.80%, 11/01/20 ................................................... 5,000,000 4,864,700
Chartiers Valley Industrial and Commercial Development Authority First Mortgage
Revenue, Asbury Place Project, Refunding, 6.50%, 2/01/36 ................................. 4,250,000 4,294,115
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding,
5.40%, 7/01/07 .......................................................................... 1,000,000 914,210
5.55%, 7/01/09 .......................................................................... 2,365,000 2,122,233
5.60%, 7/01/10 .......................................................................... 600,000 528,030
5.75%, 7/01/12 .......................................................................... 1,795,000 1,548,834
5.75%, 7/01/17 .......................................................................... 700,000 572,243
5.625%, 7/01/21 ......................................................................... 1,500,000 1,167,195
Cranberry Township Municipal Authority Water and Sewer Revenue, MBIA Insured,
5.125%, 12/01/26 .......................................................................... 1,450,000 1,254,149
Dauphin County General Authority Health System Revenue, Pinnacle Health System
Project, Refunding, MBIA Insured, 5.50%, 5/15/17 .......................................... 2,000,000 1,856,980
Dauphin County General Authority Hospital Revenue, Hapsco-Western
Hospital Project, Refunding,
Series A, MBIA Insured, 6.50%, 7/01/12 .................................................. 4,500,000 4,723,380
Series B, MBIA Insured, 6.25%, 7/01/16 .................................................. 5,000,000 5,099,850
Dauphin County General Authority, Sub Series 0003, AMBAC Insured, 4.75%, 6/01/26 ........... 1,000,000 984,640
Deer Lakes School District, Series A, FSA Insured, 5.00%, 1/15/23 .......................... 1,000,000 859,240
Delaware County Authority College Revenue,
Cabrini College, Asset Guaranty, 5.875%, 7/01/29 ........................................ 6,385,000 6,097,228
Eastern College, Series C, 5.625%, 10/01/28 ............................................. 2,210,000 1,865,063
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Delaware County Authority Health Facility Revenue, Mercy Health Corp. Project,
ETM, 6.00%, 12/15/26 .......................................................................... $10,800,000 $10,850,004
Delaware County Authority Healthcare Revenue, Mercy Health Corp. Southeastern,
Series B, Pre-Refunded, 6.00%, 11/15/07 ....................................................... 9,000,000 9,267,210
Delaware County Authority Revenue, Elwyn Inc. Project, Pre-Refunded, 8.35%, 6/01/15 ............ 2,000,000 2,059,500
Delaware County IDAR,
Philadelphia Electric, Refunding, Series 1991, 7.375%, 4/01/21 .............................. 5,000,000 5,252,850
Philadelphia Suburban Water Co. Project, FGIC Insured, 6.00%, 6/01/29 ....................... 2,000,000 1,951,340
Delaware County University Authority Revenue, Villanova University, Series A,
MBIA Insured, 5.00%, 12/01/28 ................................................................ 3,000,000 2,528,670
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 ................................................................. 5,000,000 4,859,250
Erie County Hospital Authority Revenue,
Nursing Home, Sarah A. Reed Retirement Center, Refunding, 5.625%, 7/01/14 ................... 3,660,000 3,091,639
St. Vincent Health Center Project, Series A, MBIA Insured, 6.375%, 7/01/22 .................. 7,000,000 7,129,990
Erie-Western Pennsylvania Port Authority General Revenue,
6.875%, 6/15/16 ............................................................................. 920,000 935,824
Pre-Refunded, 8.625%, 6/15/10 ............................................................... 1,850,000 1,909,348
Hazleton Area School District, Series B, FGIC Insured, 5.00%, 3/01/23 .......................... 4,455,000 3,826,934
Hazleton Health Services Authority Hospital Revenue, Hazleton General Hospital,
5.50%, 7/01/27 ................................................................................ 2,475,000 1,852,785
Jeannette County Municipal Authority Sewer Revenue, Pre-Refunded, 7.00%, 7/01/17 ............... 1,250,000 1,308,088
Jeannette Health Service Authority Hospital Revenue, Jeannette District
Memorial Hospital, Refunding, Series A, 6.00%, 11/01/18 ....................................... 785,000 692,684
Lancaster County Hospital Authority Revenue, Health Center, Masonic Homes
Project, Refunding, AMBAC Insured, 5.00%, 11/15/20 ............................................ 1,600,000 1,367,088
Lawrence County IDA, PCR, Pennsylvania Power Co., New Castle Project,
Refunding, 7.15%, 3/01/17 ..................................................................... 5,595,000 5,782,377
Lebanon County Good Samaritan Hospital Authority Revenue, Good Samaritan
Hospital Project, Refunding, 6.00%, 11/15/18 .................................................. 2,500,000 2,205,675
Lehigh County General Purpose Authority Revenue,
Good Shepard Rehabilitation Hospital, Refunding, AMBAC Insured, 5.25%, 11/15/27 ............. 5,000,000 4,304,450
Lehigh Valley Hospital, Health Network, Series A, MBIA Insured, 5.00%, 7/01/28 .............. 4,000,000 3,297,760
Lehigh Valley Hospital, Refunding, Series A, MBIA Insured, 5.875%, 7/01/15 .................. 1,000,000 996,410
Muhlenburg Hospital Center, Series A, Pre-Refunded, 6.60%, 7/15/22 .......................... 5,800,000 6,161,920
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding,
Series A, MBIA Insured, 6.40%, 11/01/21 ..................................................... 5,000,000 5,128,700
Series A, MBIA Insured, 6.15%, 8/01/29 ...................................................... 5,550,000 5,562,710
Series B, MBIA Insured, 6.40%, 9/01/29 ...................................................... 10,000,000 10,174,900
Luzerne County IDA, Exempt Facility Revenue, Gas and Water Co. Project,
Refunding, Series A, AMBAC Insured, 7.00%, 12/01/17 ........................................... 5,000,000 5,449,750
6.05%, 1/01/19 .............................................................................. 4,750,000 4,609,448
Montgomery County GO, Refunding, Series B, 5.375%, 10/15/21 .................................... 3,400,000 3,123,750
Montgomery County Higher Education and Health Authority Revenue,
Faulkeways At Gwynedd Project, 6.75%, 11/15/24 .............................................. 400,000 377,980
Faulkeways At Gwynedd Project, 6.75%, 11/15/30 .............................................. 1,000,000 935,160
Jeanes Health System Project, Pre-Refunded, 8.75%, 7/01/20 .................................. 5,000,000 5,172,850
Pottstown Memorial Medical Center Project, Pre-Refunded, 7.35%, 11/15/05 .................... 1,315,000 1,396,583
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22 ..................... 1,750,000 1,813,630
Montgomery County IDA, Retirement Community Revenue,
Act Retirement-Life Communities, 5.25%, 11/15/28 ............................................ 5,000,000 3,689,950
Adult Community Total Services, Refunding, Series A, 5.875%, 11/15/22 ....................... 4,850,000 4,155,238
Adult Community Total Services, Series B, 5.75%, 11/15/17 ................................... 3,000,000 2,616,930
Montgomery County IDAR,
Hill School Project, MBIA Insured, 5.35%, 8/15/27 ........................................... 9,000,000 8,091,180
PCR, Philadelphia Electric Co., Refunding, Series A, 7.60%, 4/01/21 ......................... 2,530,000 2,653,666
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 .................... 5,000,000 5,235,850
Resource Recovery, 7.50%, 1/01/12 .......................................................... 10,000,000 10,193,900
Mount Pleasant Business District Authority Hospital Revenue, Frick Hospital, Refunding,
5.70%, 12/01/13 ............................................................................ 1,205,000 1,033,709
5.75%, 12/01/17 ............................................................................ 500,000 414,430
5.75%, 12/01/27 ............................................................................ 1,600,000 1,261,008
(b)Muhlenberg School District GO, FGIC Insured, 6.00%, 9/01/23 ................................. 4,000,000 3,985,000
Neshaminy School District GO, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14 .................... 1,000,000 1,081,360
New Wilmington Municipal Authority College Revenue, Westminster College, 5.35%, 3/01/28 ..... 2,250,000 1,893,060
North Hampton County IDAR, PCR, Metropolitan Edison Co., Refunding, Series A,
MBIA Insured, 6.10%, 7/15/21 ............................................................... 6,100,000 6,117,385
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Northeastern Pennsylvania Hospital and Educational Authority Revenue,
Kings College Project, Refunding, Series B, 6.00%, 7/15/11 ................................ $1,000,000 $983,770
Kings College Project, Refunding, Series B, 6.00%, 7/15/18 ................................ 1,000,000 939,610
Wilkes University, Refunding, 6.125%, 10/01/11 ............................................ 5,000,000 4,936,600
Norwin School District GO, FGIC Insured, 6.00%, 4/01/30 ...................................... 5,000,000 4,958,400
Pennsylvania Convention Center Authority Revenue, Refunding, Series A, 6.60%, 9/01/09 ........ 5,000,000 5,084,250
Pennsylvania EDA,
Financing Authority Revenue, MacMillan, LP Project, Pre-Refunded, 7.60%, 12/01/20 ......... 3,000,000 3,383,550
Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 .......... 5,000,000 5,096,800
Solid Waste Disposal Revenue, USG Corp. Project, 6.00%, 6/01/31 ........................... 10,650,000 9,546,660
Pennsylvania HFA,
Rental Housing, Refunding, FNMA Insured, 5.75%, 7/01/14 ................................... 10,000,000 9,903,000
SFM, Series 30, 7.30%, 10/01/17 ........................................................... 700,000 722,078
SFM, Series 34-A, 6.85%, 4/01/16 .......................................................... 3,000,000 3,092,250
SFM, Series 34-B, 7.00%, 4/01/24 .......................................................... 6,000,000 6,135,600
SFM, Series 38, 6.125%, 10/01/24 .......................................................... 4,290,000 4,292,960
SFM, Series 1991, 7.15%, 4/01/15 .......................................................... 4,370,000 4,489,301
SFM, Series 67A, 5.85%, 10/01/18 .......................................................... 5,000,000 4,829,600
SFMR, Refunding, Series 54-A, 6.15%, 10/01/22 ............................................. 1,500,000 1,481,880
Pennsylvania Infrastructure Investment Authority Revenue, Pennvest Loan Pool
Program, MBIA Insured, 5.625%,
9/01/13 ................................................................................... 6,010,000 6,020,037
9/01/14 ................................................................................... 2,870,000 2,851,747
Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue,
Philadelphia Funding Program, FGIC Insured, Pre-Refunded, 7.00%, 6/15/14 .................... 6,000,000 6,538,920
Pennsylvania State Financial Authority Revenue, Municipal Capital Improvements
Program, Refunding, 6.60%,11/01/09 .......................................................... 12,565,000 13,325,685
Pennsylvania State Higher Educational Facilities Authority Health Services Revenue,
Allegheny Delaware Valley Obligation Group, Refunding, Series A, MBIA
Insured, 5.875%, 11/15/21 ................................................................ 17,000,000 15,921,180
University of Pennsylvania Health Services, Refunding, Series A, 5.75%, 1/01/22 ........... 10,000,000 8,270,400
Pennsylvania State Higher Educational Facilities Authority Revenue,
Allegheny College Project, Refunding, Series B, 6.125%, 11/01/13 .......................... 1,000,000 1,007,730
Drexel University, Refunding, 6.375%, 5/01/17 ............................................. 5,220,000 5,298,300
Drexel University, Refunding, MBIA Insured, 5.75%, 5/01/22 ................................ 4,385,000 4,240,734
Geneva College, 5.45%, 4/01/18 ............................................................ 2,360,000 2,055,560
La Salle University, Refunding, MBIA Insured, 5.625%, 5/01/17 ............................. 4,000,000 3,898,760
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 .............................. 3,040,000 3,066,843
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 .................. 4,000,000 3,878,120
State System of Higher Education, Series R, FSA Insured, 5.00%, 6/15/24 ................... 3,140,000 2,675,531
Temple University, 7.40%, 10/01/10 ........................................................ 30,000 30,242
Thomas Jefferson University, AMBAC Insured, 5.00%, 7/01/19 ................................ 3,000,000 2,622,090
University of Pennsylvania, 5.50%, 7/15/38 ................................................ 10,000,000 9,059,300
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 ..................... 4,250,000 4,358,588
Philadelphia Airport Revenue, Philadelphia Airport System, Series A,
AMBAC Insured, 6.10%, 6/15/25 ............................................................... 5,000,000 5,002,350
Philadelphia Gas Works Revenue,
2nd Series, FSA Insured, 5.00%, 7/01/29 ................................................... 10,000,000 8,433,800
12th Series B, MBIA Insured, ETM, 7.00%, 5/15/20 .......................................... 1,000,000 1,127,190
14th Series A, Pre-Refunded, 6.375%, 7/01/26 .............................................. 3,360,000 3,569,530
Refunding, 14th Series, 6.375%, 7/01/26 ................................................... 6,740,000 6,600,415
Philadelphia GO, FSA Insured, 5.00%, 3/15/28 ................................................. 10,000,000 8,420,100
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Albert Einstein Medical Center, Pre-Refunded, 7.30%, 10/01/08 ............................. 5,225,000 5,526,117
Children's Hospital, Refunding, Series A, 5.00%, 2/15/21 .................................. 2,465,000 2,040,108
Children's Seashore House, Series A, 7.00%, 8/15/17 ....................................... 1,000,000 1,020,160
Children's Seashore House, Series B, 7.00%, 8/15/22 ....................................... 2,600,000 2,640,404
Frankford Hospital, Series A, ETM, 6.00%, 6/01/14 ......................................... 2,500,000 2,599,825
Temple University Hospital, 5.875%, 11/15/23 .............................................. 5,000,000 4,012,000
Philadelphia Municipal Authority Revenue, Lease, Refunding, Series D, 6.30%, 7/15/17 ......... 2,000,000 1,932,320
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Philadelphia Parking Authority Parking Revenue,
Airport Parking, Refunding, AMBAC Insured, 5.50%, 9/01/18 ................................ $ 1,000,000 $ 954,250
Airport, FSA Insured, 5.25%, 9/01/29 ..................................................... 14,000,000 12,286,680
Philadelphia RDA, Home Improvement Loan Revenue, Series B, FHA Insured, 6.10%, 6/01/17 ...... 600,000 600,666
Philadelphia School District GO, Series B, AMBAC Insured,
5.50%, 9/01/15 ........................................................................... 3,785,000 3,685,000
5.375%, 4/01/19 .......................................................................... 7,000,000 6,544,230
Philadelphia School District, Series C, MBIA Insured, 5.75%, 3/01/29 ........................ 8,000,000 7,716,000
Philadelphia Water and Sewer Revenue, Series 10, ETM, 7.35%, 9/01/04 ........................ 6,805,000 7,264,065
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 ........................ 6,015,000 5,867,272
Pittsburgh Public Parking Authority Parking Revenue, AMBAC Insured, 6.00%, 12/01/24 ......... 2,000,000 1,989,560
Pittsburgh Urban RDA,
6.10%, 5/01/19 ........................................................................... 1,000,000 985,470
Mortgage Revenue, Series A, 7.15%, 10/01/27 .............................................. 840,000 860,966
Mortgage Revenue, Series C, FNMA Insured, GNMA Secured, 5.70%, 4/01/30 ................... 1,525,000 1,419,577
Mortgage Revenue, Series D, 6.25%, 10/01/17 .............................................. 1,695,000 1,728,222
Oliver Garage Project, FGIC Insured, 5.45%, 6/01/28 ...................................... 3,000,000 2,734,830
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured,
ETM, 7.25%, 9/01/14 ........................................................................ 1,250,000 1,420,100
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc.,
6.50%, 1/01/10 ............................................................................ 15,545,000 15,278,092
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ............... 1,500,000 1,569,585
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial
Hospital Project, Series A, MBIA Insured, 5.75%, 7/01/26 .................................. 10,000,000 9,418,600
Southeastern Pennsylvania Transportation Authority Special Revenue,
FGIC Insured, 5.375%, 3/01/22 .............................................................. 5,000,000 4,609,600
State Public School Building Authority School Revenue, Northwestern School
District Project, Series E, FGIC Insured, 5.75%, 1/15/19 .................................. 3,810,000 3,736,658
University of Pittsburgh Revenue, Higher Education, Refunding, Series B, MBIA
Insured, 5.00%, 6/01/21 .................................................................... 10,000,000 8,652,700
Upper St. Clair Township School District GO, Refunding, 5.20%, 7/15/27 ...................... 5,000,000 4,362,550
Washington County Authority Revenue, Capital Projects and Equipment Program,
Refunding, AMBAC Insured, 6.15%, 12/01/29 .................................................. 5,000,000 5,013,050
Wilkes Barre Area School District GO, FGIC Insured, Pre-Refunded, 6.375%, 4/01/15 ........... 3,000,000 3,174,295
------------
TOTAL BONDS ................................................................................. 669,898,546
------------
ZERO COUPON BONDS .7%
Pennsylvania HFA,
SFM, Series 63A, 4/01/30 .................................................................... 11,000,000 1,578,500
SFMR, Series 64, 4/01/30 .................................................................... 6,000,000 2,956,140
------------
TOTAL ZERO COUPON BONDS ..................................................................... 4,534,640
------------
TOTAL LONG TERM INVESTMENTS (COST $694,645,354) ............................................. 674,433,186
------------
(a)SHORT TERM INVESTMENTS .2%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.35%, 12/01/15 (Cost $1,200,000) .................................... 1,200,000 1,200,000
------------
TOTAL INVESTMENTS (COST $695,845,354) 99.3% ................................................. 675,633,186
OTHER ASSETS, LESS LIABILITIES .7% .......................................................... 4,530,091
------------
NET ASSETS 100.0% ........................................................................... $680,163,277
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 29,
----------------------------------------------------------------------------
CLASS A 2000(a) 1999 1998 1997 1996(d)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $11.88 $11.86 $11.51 $11.59 $11.31
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .59 .60 .62 .65 .66
Net realized and unrealized gains (losses) . (.92) .06 .36 .02 .30
--------------------------------------------------------------------------
Total from investment operations ............ (.33) .66 .98 .67 .96
--------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.58) (.60)(e) (.62) (.65)(e) (.67)f
Net realized gains ......................... (.02) (.04) (.01) (.10) (.01)
--------------------------------------------------------------------------
Total distributions ......................... (.60) (.64) (.63) (.75) (.68)
--------------------------------------------------------------------------
Net asset value, end of year ................ $10.95 $11.88 $11.86 $11.51 $11.59
==========================================================================
Total return(b) ............................. (2.91)% 5.68% 8.78% 6.03% 8.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $195,157 $218,753 $210,325 $192,525 $190,577
Ratios to average net assets:
Expenses ................................... .74% .74% .75% .73% .74%
Net investment income ...................... 5.14% 4.98% 5.35% 5.62% 5.71%
Portfolio turnover rate ..................... 13.41% 20.19% 7.94% 21.09% 27.99%
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $11.89 $11.87 $11.53 $11.62 $11.32
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .53 .53 .56 .58 .50
Net realized and unrealized gains (losses) . (.92) .06 .34 .02 .30
--------------------------------------------------------------------------
Total from investment operations ............ (.39) .59 .90 .60 .80
--------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.51) (.53)(g) (.55) (.59) (.49)
Net realized gains ......................... (.02) (.04) (.01) (.10) (.01)
--------------------------------------------------------------------------
Total distributions ......................... (.53) (.57) (.56) (.69) (.50)
--------------------------------------------------------------------------
Net asset value, end of year ................ $10.97 $11.89 $11.87 $11.53 $11.62
==========================================================================
Total return(b) ............................. (3.37)% 5.09% 8.07% 5.33% 7.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $7,270 $7,050 $3,615 $1,679 $533
Ratios to average net assets:
Expenses ................................... 1.30% 1.30% 1.31% 1.30% 1.32%(c)
Net investment income ...................... 4.60% 4.43% 4.78% 5.04% 5.16%(c)
Portfolio turnover rate ..................... 13.41% 20.19% 7.94% 21.09% 27.99%
</TABLE>
(a) Based on average shares outstanding.
(b) Total return does not reflect sales commissions or contingent deferred
sales charges, and is not annualized for periods less than one year.
(c) Annualized
(d) For the period May 1, 1995 (effective date) to February 29, 1996 for
Class C.
(e) Includes distributions in excess of net investment income in the amount
of $.006.
(f) Includes distributions in excess of net investment income in the amount
of $.001.
(g) Includes distributions in excess of net investment income in the amount
of $.004.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .......................................................................... $1,675,000 $1,755,015
6.70%, 10/01/23 .......................................................................... 5,800,000 6,070,628
Guam Government GO, Series A,
5.90%, 9/01/05 ........................................................................... 4,575,000 4,597,052
6.00%, 9/01/06 ........................................................................... 1,085,000 1,090,121
Guam Government Limited Obligation Highway Revenue, Refunding, Series A,
FSA Insured, 6.30%, 5/01/12 .............................................................. 5,590,000 5,838,308
Guam Housing Corp. SFR, MBS, Mortgage Guaranteed, Series A, 5.35%, 9/01/18 .................. 5,000,000 4,585,650
Guam Power Authority Revenue,
Refunding, Series A, 5.25%, 10/01/34 ..................................................... 5,065,000 4,251,561
Series A, Pre-Refunded, 6.30%, 10/01/22 .................................................. 6,190,000 6,551,310
Series A, Pre-Refunded, 6.75%, 10/01/24 .................................................. 2,680,000 2,936,664
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue,
Series A, 6.85%, 3/15/28 ................................................................... 6,905,000 6,655,453
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.40%, 7/01/11 ............................................................. 2,000,000 2,152,860
Refunding, MBIA Insured, 5.75%, 7/01/24 .................................................. 2,000,000 1,986,860
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series Q, Pre-Refunded, 7.75%, 7/01/10 ................................................... 350,000 361,274
Series Y, 5.50%, 7/01/36 ................................................................. 8,500,000 7,745,880
Series Y, Pre-Refunded, 6.00%, 7/01/22 ................................................... 8,000,000 8,503,120
Puerto Rico Commonwealth IDC, General Purpose Revenue, Series B, 5.375%, 7/01/16 ............ 2,000,000 1,874,800
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A, 7.90%, 7/01/07 .................................................................... 580,000 587,134
7.75%, 7/01/08 ........................................................................... 300,000 304,284
7.50%, 7/01/09 ........................................................................... 660,000 667,880
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth
Appropriation, Refunding, 7.875%, 10/01/04 ................................................. 3,350,000 3,422,327
Puerto Rico Electric Power Authority Revenue,
Refunding, Series U, 6.00%, 7/01/14 ...................................................... 700,000 714,308
Series P, Pre-Refunded, 7.00%, 7/01/11 ................................................... 615,000 647,374
Series P, Pre-Refunded, 7.00%, 7/01/21 ................................................... 1,000,000 1,052,640
Series T, Pre-Refunded, 6.375%, 7/01/24 .................................................. 5,000,000 5,397,750
Series X, Pre-Refunded, 6.125%, 7/01/21 .................................................. 5,225,000 5,617,607
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ............................................... 1,470,000 1,500,797
MF, Portfolio A, Series I, 7.50%, 10/01/15 ............................................... 420,000 428,799
SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ........................... 2,320,000 2,381,550
Sixth Portfolio, Section 8 Assisted, FHA Mortgage Insured,
Pre-Refunded, 7.75%, 12/01/26 .......................................................... 2,060,000 2,362,779
Puerto Rico Housing Bank and Financing Authority SFMR,
Affordable Housing Mortgage, First Portfolio, 6.25%, 4/01/29 ............................. 2,025,000 2,050,232
Homeownership Fifth Portfolio, Pre-Refunded, 7.50%, 12/01/15 ............................. 955,000 963,032
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities
Financing Authority Revenue,
PepsiCo Inc. Project, 6.25%, 11/15/13 .................................................... 900,000 936,486
Special Facilities, American Airlines Project, Series A, 6.45%, 12/01/25 ................. 2,000,000 2,010,200
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Hospital Revenue,
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.125%, 8/01/25 ....................... 2,500,000 2,466,550
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.25%, 8/01/32 ........................ 500,000 497,900
Hospital Auxilio Mutuo Obligation, MBIA Insured, 5.50%, 7/01/17 .......................... 2,750,000 2,674,953
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%, 7/01/24 ................ 8,445,000 8,608,326
Mennonite General Hospital Project, 5.625%, 7/01/17 ...................................... 915,000 762,415
Mennonite General Hospital Project, 6.50%, 7/01/26 ....................................... 5,000,000 4,566,850
Mennonite General Hospital Project, 5.625%, 7/01/27 ...................................... 2,000,000 1,555,240
San Lucas and Cristo Project, Refunding, Series A, 5.75%, 6/01/19 ........................ 3,000,000 2,520,180
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 6,046,174
Guaynabo Municipal Government, 5.625%, 7/01/22 ........................................... 3,160,000 2,846,560
Guaynabo Warehouse, Series A., 5.20%, 7/01/24 ............................................ 4,120,000 3,460,635
Teacher's Retirement System Revenue, Series B, 5.50%, 7/01/21 ............................ 6,585,000 6,123,918
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (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 Revenue, Ana G. Mendez University Systems Project, Refunding, 5.375%,
2/01/19 .................................................................................. $2,000,000 $1,766,880
2/01/29 .................................................................................. 4,000,000 3,420,960
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.50%, 8/01/23 .............. 6,400,000 6,115,968
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 6.50%, 7/01/19 ................ 2,000,000 2,156,520
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, 5.75%, 7/01/22 ..... 1,000,000 991,220
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21 ................................................... 1,250,000 1,253,663
Special Facilities, American Airlines, Series A, 6.30%, 6/01/23 .......................... 5,500,000 5,336,320
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26 .......................... 1,900,000 1,806,007
Puerto Rico Telephone Authority Revenue, Series L, Pre-Refunded, 6.125%, 1/01/22 ............ 6,450,000 6,687,489
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 .................. 6,145,000 5,623,412
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 ........................................................................... 365,000 371,147
6.50%, 3/01/25 ........................................................................... 865,000 876,608
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 .......................................................................... 3,000,000 2,652,390
5.50%, 10/01/22 .......................................................................... 3,000,000 2,586,960
5.625%, 10/01/25 ......................................................................... 3,000,000 2,601,120
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 ................................................................ 1,700,000 1,533,672
Refunding, 5.30%, 7/01/21 ................................................................ 1,000,000 883,460
Series A, Pre-Refunded, 7.40%, 7/01/11 ................................................... 4,905,000 5,164,376
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.25%, 7/01/12 ........................................................................... 4,000,000 3,624,160
5.50%, 7/01/17 ........................................................................... 4,000,000 3,504,436
------------
TOTAL LONG TERM INVESTMENTS (COST $201,504,152) ............................................. 199,088,204
------------
(a)SHORT TERM INVESTMENTS .5%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 2.35%, 12/01/15
(COST $1,100,000) ........................................................................... 1,100,000 1,100,000
------------
TOTAL INVESTMENTS (COST $202,604,152) 98.9% ................................................. 200,188,204
OTHER ASSETS, LESS LIABILITIES 1.1% ......................................................... 2,239,075
------------
NET ASSETS 100.0% ........................................................................... $202,427,279
============
</TABLE>
See glossary of terms on page 123.
(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.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000
GLOSSARY OF TERMS
1915 Act - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACES - Adjustable Convertible Exempt Securities
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989 and
no longer does business under this name).
CDA - Community Development Authority/Agency
CDD - Community Development District
CFD - Community Facilities District
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
EDA - Economic Development Authority
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 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
MTA - Metropolitan Transit Authority
PBA - Public Building Authority
PCC - Pollution Control Corporation
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
VHA - Veterans Hospital of America
VRDN - Variable Rate Demand Notes
zero cpn. - Zero Coupon
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000
<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 ................................................. $799,510,106 $291,223,890 $241,547,443 $176,485,946
======================================================================
Value ................................................ 771,613,594 282,567,421 230,544,295 171,539,214
Cash .................................................. 63,470 55,682 61,297 190,536
Receivables:
Capital shares sold .................................. 406,391 1,047,347 53,091 192,723
Interest ............................................. 10,719,157 4,814,233 3,657,348 2,605,587
----------------------------------------------------------------------
Total assets ..................................... 782,802,612 288,484,683 234,316,031 174,528,060
----------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ...................... -- 1,978,831 -- 2,593,592
Capital shares redeemed .............................. 1,465,039 512,222 934,262 607,169
Affiliates ........................................... 422,083 179,138 152,170 106,095
Shareholders ......................................... 390,541 178,108 85,790 25,722
Distributions to shareholders .......................... 1,373,831 490,687 374,809 266,276
Other liabilities ...................................... 30,440 18,352 16,356 22,003
----------------------------------------------------------------------
Total liabilities ................................ 3,681,934 3,357,338 1,563,387 3,620,857
----------------------------------------------------------------------
Net assets, at value ............................ $779,120,678 $285,127,345 $232,752,644 $170,907,203
======================================================================
Net assets consist of:
Undistributed net investment income ................... $ -- $ -- $ -- $168,948
Accumulated distributions in excess
of net investment income .............................. (785,063) (160,320) (130,708) --
Net unrealized depreciation ........................... (27,896,512) (8,656,469) (11,003,148) (4,946,732)
Accumulated net realized loss ......................... (3,421,806) (3,553,323) (6,822,138) (2,445,017)
Capital shares ........................................ 811,224,059 297,497,457 250,708,638 178,130,004
----------------------------------------------------------------------
Net assets, at value ............................ $779,120,678 $285,127,345 $232,752,644 $170,907,203
======================================================================
CLASS A:
Net assets, at value .................................. $756,273,800 $264,563,370 $207,745,205 $170,907,203
======================================================================
Shares outstanding .................................... 73,336,549 24,264,315 20,641,455 16,240,075
======================================================================
Net asset value per share* ............................ $10.31 $10.90 $10.06 $10.52
======================================================================
Maximum offering price per share (net asset
value per share / 95.75%) ............................ $10.77 $11.38 $10.51 $10.76**
======================================================================
CLASS B:
Net assets, at value .................................. $175,727 -- -- --
======================================================================
Shares outstanding .................................... 17,024 -- -- --
Net asset value and maximum offering price per share* . $10.32 -- -- --
======================================================================
CLASS C:
Net assets, at value .................................. $22,671,151 $20,563,975 $25,007,439 --
======================================================================
Shares outstanding .................................... 2,183,584 1,876,106 2,476,564 --
======================================================================
Net asset value per share* ............................ $10.38 $10.96 $10.10 --
======================================================================
Maximum offering price per share
(net asset value per share / 99%) .................... $10.48 $11.07 $10.20 --
======================================================================
</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 $10.52 / 97.75%.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD NEW JERSEY OREGON PENNSYLVANIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ......................................... $5,806,106,843 $670,511,111 $477,004,932 $695,845,354
==============================================================================
Value ........................................ 5,586,845,456 659,559,548 461,969,312 675,633,186
Cash .......................................... 40,309 99,504 101,859 27,789
Receivables:
Investment securities sold ................... -- -- 925,653 --
Capital shares sold .......................... 5,608,718 555,793 236,194 425,126
Interest ..................................... 108,275,312 9,778,128 6,905,601 12,045,316
------------------------------------------------------------------------------
Total assets ............................. 5,700,769,795 669,992,973 470,138,619 688,131,417
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .............. 17,991,250 2,378,385 -- 4,010,000
Capital shares redeemed ...................... 15,725,276 1,716,865 2,208,344 1,883,627
Affiliates ................................... 3,281,229 397,979 284,167 402,926
Shareholders ................................. 2,644,858 372,008 140,549 454,083
Distributions to shareholders ................. 10,253,427 1,058,858 733,671 1,190,858
Other liabilities ............................. 520,644 32,266 25,975 26,646
------------------------------------------------------------------------------
Total liabilities ........................ 50,416,684 5,956,361 3,392,706 7,968,140
------------------------------------------------------------------------------
Net assets, at value .................... $5,650,353,111 $664,036,612 $466,745,913 $680,163,277
==============================================================================
Net assets consist of:
Undistributed net investment income ........... $ -- $ -- $ 694,538 $ --
Accumulated distributions in excess of net
investment income ............................ (5,457,191) (342,861) -- (842,612)
Net unrealized depreciation ................... (219,261,387) (10,951,563) (15,035,620) (20,212,168)
Accumulated net realized loss ................. (70,901,006) (3,695,592) (3,706,382) (6,001,576)
Capital shares ................................ 5,945,972,695 679,026,628 484,793,377 707,219,633
------------------------------------------------------------------------------
Net assets, at value .................... $5,650,353,111 $664,036,612 $466,745,913 $680,163,277
==============================================================================
CLASS A:
Net assets, at value .......................... $5,017,322,124 $617,406,867 $432,675,212 $639,003,967
==============================================================================
Shares outstanding ............................ 482,125,731 56,172,029 40,040,632 66,883,860
==============================================================================
Net asset value per share* .................... $10.41 $10.99 $10.81 $9.55
==============================================================================
Maximum offering price per share (net asset
value per share / 95.75%) .................... $10.87 $11.48 $11.29 $9.97
==============================================================================
CLASS B:
Net assets, at value .......................... $92,098,564 $226,251 -- $186,002
==============================================================================
Shares outstanding ............................ 8,814,577 20,572 -- 19,475
==============================================================================
Net asset value and maximum offering
price per share* ............................. $10.45 $11.00 -- $9.55
==============================================================================
CLASS C:
Net assets, at value .......................... $540,932,423 $46,403,494 $34,070,701 $40,973,308
==============================================================================
Shares outstanding ............................ 51,619,033 4,198,885 3,131,684 4,266,220
==============================================================================
Net asset value per share* .................... $10.48 $11.05 $10.88 $9.60
==============================================================================
Maximum offering price per share
(net asset value per share / 99%) ............ $10.59 $11.16 $10.99 $9.70
==============================================================================
</TABLE>
(*) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONT.)
FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN
PUERTO RICO
TAX-FREE
INCOME FUND
------------
<S> <C>
Assets:
Investments in securities:
Cost ............................................................ $202,604,152
============
Value ........................................................... 200,188,204
Cash ............................................................. 73,736
Receivables:
Capital shares sold ............................................. 125,051
Interest ........................................................ 3,222,198
------------
Total assets ................................................ 203,609,189
------------
Liabilities:
Payables:
Capital shares redeemed ......................................... 606,431
Affiliates ...................................................... 132,350
Shareholders .................................................... 88,760
Distributions to shareholders .................................... 342,620
Other liabilities ................................................ 11,749
------------
Total liabilities ........................................... 1,181,910
------------
Net assets, at value ....................................... $202,427,279
============
Net assets consist of:
Undistributed net investment income .............................. $34,903
Net unrealized depreciation ...................................... (2,415,948)
Accumulated net realized loss .................................... (46,238)
Capital shares ................................................... 204,854,562
------------
Net assets, at value ....................................... $202,427,279
============
Class A:
Net assets, at value ............................................. $195,157,309
============
Shares outstanding ............................................... 17,818,559
============
Net asset value per share* ....................................... $10.95
============
Maximum offering price per share (net asset value per
share/95.75%) ................................................... $11.44
============
Class C:
Net assets, at value ............................................. $7,269,970
============
Shares outstanding ............................................... 662,719
============
Net asset value per share* ....................................... $10.97
============
Maximum offering price per share (net asset value per share/99%).. $11.08
============
</TABLE>
(*) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29, 2000
<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 .................................................. $50,296,016 $18,095,147 $15,538,825 $10,156,590
------------------------------------------------------------------
Expenses:
Management fees (Note 3) .................................. 4,051,080 1,628,892 1,410,653 1,046,931
Distribution fees (Note 3)
Class A .................................................. 766,352 281,322 225,593 186,709
Class B .................................................. 48 -- -- --
Class C .................................................. 159,576 141,154 169,596 --
Transfer agent fees (Note 3) .............................. 309,631 136,763 115,574 72,522
Custodian fees ............................................ 8,563 3,198 2,394 1,627
Reports to shareholders ................................... 55,416 22,904 19,591 15,626
Registration and filing fees .............................. 33,363 18,404 19,715 42,255
Professional fees ......................................... 20,238 9,834 8,937 7,497
Trustees' fees and expenses ............................... 8,413 3,056 2,577 1,840
Other ..................................................... 42,623 22,348 17,225 27,706
------------------------------------------------------------------
Total expenses ........................................ 5,455,303 2,267,875 1,991,855 1,402,713
Expenses waived/paid by affiliate (Note 3) ............ -- -- -- (34,964)
------------------------------------------------------------------
Net expenses ......................................... 5,455,303 2,267,875 1,991,855 1,367,749
------------------------------------------------------------------
Net investment income ............................... 44,840,713 15,827,272 13,546,970 8,788,841
------------------------------------------------------------------
Realized and unrealized losses:
Net realized loss from investments ........................ (3,418,024) (3,552,435) (3,264,467) (1,329,609)
Net unrealized depreciation on investments ................ (77,707,910) (26,930,378) (26,223,575) (12,117,956)
------------------------------------------------------------------
Net realized and unrealized loss ........................... (81,125,934) (30,482,813) (29,488,042) (13,447,565)
------------------------------------------------------------------
Net decrease in net assets resulting from operations ....... $(36,285,221) $(14,655,541) $(15,941,072) $(4,658,724)
==================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD NEW JERSEY OREGON PENNSYLVANIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest .............................................. $412,269,526 $42,191,079 $29,256,377 $44,765,217
----------------------------------------------------------------------
Expenses:
Management fees (Note 3) .............................. 28,491,742 3,470,377 2,502,386 3,602,657
Distribution fees (Note 3)
Class A .............................................. 5,058,180 634,460 447,087 676,381
Class B .............................................. 419,342 36 -- 21
Class C .............................................. 4,010,012 327,939 230,920 286,692
Transfer agent fees (Note 3) .......................... 2,873,811 359,540 218,445 416,046
Custodian fees ........................................ 64,034 7,202 4,621 7,581
Reports to shareholders ............................... 497,418 52,898 37,998 68,474
Registration and filing fees .......................... 447,366 27,689 25,142 23,387
Professional fees ..................................... 169,778 17,583 13,542 18,418
Trustees' fees and expenses ........................... 61,853 7,117 4,974 7,438
Other ................................................. 317,859 37,084 29,352 40,609
----------------------------------------------------------------------
Total expenses ................................... 42,411,395 4,941,925 3,514,467 5,147,704
----------------------------------------------------------------------
Net investment income ........................... 369,858,131 37,249,154 25,741,910 39,617,513
----------------------------------------------------------------------
Realized and unrealized losses:
Net realized loss from investments .................... (70,898,507) (3,695,592) (3,602,485) (6,001,576)
Net unrealized depreciation on investments ............ (549,458,729) (57,381,137) (42,421,295) (67,094,411)
----------------------------------------------------------------------
Net realized and unrealized loss ....................... (620,357,236) (61,076,729) (46,023,780) (73,095,987)
----------------------------------------------------------------------
Net decrease in net assets resulting from operations ... $(250,499,105) $(23,827,575) $(20,281,870) $(33,478,474)
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS (CONT.)
FOR THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN
PUERTO RICO
TAX-FREE
INCOME FUND
-----------
<S> <C>
Investment income:
Interest .................................................. $12,828,594
-----------
Expenses:
Management fees (Note 3) .................................. 1,209,819
Distribution fees (Note 3)
Class A .................................................. 197,331
Class C .................................................. 51,050
Transfer agent fees (Note 3) .............................. 135,436
Custodian fees ............................................ 2,017
Reports to shareholders ................................... 24,452
Registration and filing fees .............................. 29,543
Professional fees ......................................... 8,132
Trustees' fees and expenses ............................... 2,162
Other ..................................................... 13,342
-----------
Total expenses ....................................... 1,673,284
-----------
Net investment income ............................... 11,155,310
-----------
Realized and unrealized losses:
Net realized loss from investments ........................ (46,238)
Net unrealized depreciation on investments ................ (17,629,792)
-----------
Net realized and unrealized loss ........................... (17,676,030)
-----------
Net decrease in net assets resulting from operations ....... $(6,520,720)
===========
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 44,840,713 $ 43,743,520 $ 15,827,272 $ 14,775,876
Net realized gain (loss) from investments ............ (3,418,024) 3,918,445 (3,552,435) 1,022,077
Net unrealized depreciation on investments ........... (77,707,910) (4,679,698) (26,930,378) (713,406)
---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ...................... (36,285,221) 42,982,267 (14,655,541) 15,084,547
Distributions to shareholders from:
Net investment income:
Class A ............................................. (43,683,113) (42,890,425) (14,827,705) (14,188,201)
Class B ............................................. (281) -- -- --
Class C ............................................. (1,157,319) (853,095) (999,567) (709,062)
In excess of net investment income:
Class A ............................................. (68,986) (112,500) (143,841) (6,459)
Class C ............................................. (1,828) (2,296) (9,697) (323)
Net realized gains:
Class A ............................................. (2,664,446) (3,662,232) (298,232) (1,791,554)
Class C ............................................. (79,924) (79,205) (21,969) (102,076)
---------------------------------------------------------------------
Total distributions to shareholders ................... (47,655,897) (47,599,753) (16,301,011) (16,797,675)
Capital share transactions: (Note 2)
Class A .............................................. (23,235,695) 55,297,029 (8,021,689) 36,395,512
Class B .............................................. 175,000 -- -- --
Class C .............................................. 1,231,605 9,424,466 825,521 11,143,387
---------------------------------------------------------------------
Total capital share transactions ...................... (21,829,090) 64,721,495 (7,196,168) 47,538,899
Net increase (decrease) in net assets ............ (105,770,208) 60,104,009 (38,152,720) 45,825,771
Net assets:
Beginning of year ..................................... 884,890,886 824,786,877 323,280,065 277,454,294
---------------------------------------------------------------------
End of year ........................................... $779,120,678 $884,890,886 $285,127,345 $323,280,065
=====================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of year .......................................... $(785,063) $(714,249) $(160,320) $(6,782)
=====================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN CONNECTICUT FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $13,546,970 $11,874,815 $8,788,841 $7,442,059
Net realized gain (loss) from investments ............... (3,264,467) 631,807 (1,329,609) 146,469
Net unrealized appreciation (depreciation) on
investments.......................................... (26,223,575) 175,555 (12,117,956) 632,241
---------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ..................................... (15,941,072) 12,682,177 (4,658,724) 8,220,769
Distributions to shareholders from:
Net investment income:
Class A ................................................ (12,310,990) (11,204,717) (8,686,728) (7,539,385)
Class C ................................................ (1,216,102) (670,098) -- --
In excess of net investment income:
Class A ................................................ -- (53,408) -- --
Class C ................................................ -- (3,194) -- --
---------------------------------------------------------------------
Total distributions to shareholders ...................... (13,527,092) (11,931,417) (8,686,728) (7,539,385)
Capital share transactions: (Note 2)
Class A ................................................. (10,761,404) 40,666,725 (11,345,713) 55,372,039
Class C ................................................. 4,523,167 14,762,426 -- --
---------------------------------------------------------------------
Total capital share transactions ......................... (6,238,237) 55,429,151 (11,345,713) 55,372,039
Net increase (decrease) in net assets ............... (35,706,401) 56,179,911 (24,691,165) 56,053,423
Net assets:
Beginning of year ........................................ 268,459,045 212,279,134 195,598,368 139,544,945
---------------------------------------------------------------------
End of year .............................................. $232,752,644 $268,459,045 $170,907,203 $195,598,368
=====================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year ............................................. $(130,708) $(150,586) $168,948 $66,835
=====================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $369,858,131 $360,598,786 $37,249,154 $35,124,421
Net realized gain (loss) from investments ....... (70,898,507) 21,319,398 (3,695,592) 596,765
Net unrealized appreciation (depreciation)
on investments ............................. (549,458,729) (120,400,244) (57,381,137) 2,362,264
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................. (250,499,105) 261,517,940 (23,827,575) 38,083,450
Distributions to shareholders from:
Net investment income:
Class A ........................................ (333,761,601) (332,249,669) (34,978,876) (33,973,510)
Class B ........................................ (3,398,175) (46,213) (165) --
Class C ........................................ (32,717,855) (27,314,370) (2,345,061) (1,728,570)
In excess of net investment income:
Class A ........................................ (1,707,824) -- (321,319) --
Class B ........................................ (17,388) -- -- --
Class C ........................................ (167,414) -- (21,542) --
Net realized gains:
Class A ........................................ (1,468,995) (7,966,666) (187,767) --
Class B ........................................ (13,236) -- -- --
Class C ........................................ (159,594) (819,741) (14,238) --
---------------------------------------------------------------------------
Total distributions to shareholders .............. (373,412,082) (368,396,659) (37,868,968) (35,702,080)
Capital share transactions: (Note 2)
Class A ......................................... (414,585,880) 342,918,876 (7,054,102) 42,629,937
Class B ......................................... 83,389,918 15,504,687 225,225 --
Class C ......................................... (30,205,413) 217,918,008 2,028,843 20,454,134
---------------------------------------------------------------------------
Total capital share transactions ................. (361,401,375) 576,341,571 (4,800,034) 63,084,071
Net increase (decrease) in net assets ....... (985,312,562) 469,462,852 (66,496,577) 65,465,441
Net assets:
Beginning of year ................................ 6,635,665,673 6,166,202,821 730,533,189 665,067,748
---------------------------------------------------------------------------
End of year ...................................... $5,650,353,111 $6,635,665,673 $664,036,612 $730,533,189
===========================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year ..................................... $(5,457,191) $(3,528,808) $(342,861) $74,948
===========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 25,741,910 $ 23,901,350 $ 39,617,513 $ 39,708,987
Net realized gain (loss) from investments ............ (3,602,485) 1,677,443 (6,001,576) 1,071,826
Net unrealized depreciation on investments ........... (42,421,295) (1,943,787) (67,094,411) (2,242,080)
----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................ (20,281,870) 23,635,006 (33,478,474) 38,538,733
Distributions to shareholders from:
Net investment income:
Class A ............................................. (24,122,463) (23,518,284) (37,535,097) (38,182,843)
Class B ............................................. -- -- (155) --
Class C ............................................. (1,617,439) (1,142,332) (2,082,261) (1,526,144)
In excess of net investment income:
Class A ............................................. -- -- (10,157) (418,611)
Class C ............................................. -- -- (563) (16,732)
Net realized gains:
Class A ............................................. -- -- (14,421) (985,591)
Class C ............................................. -- -- (865) (51,198)
----------------------------------------------------------------------
Total distributions to shareholders ................... (25,739,902) (24,660,616) (39,643,519) (41,181,119)
Capital share transactions: (Note 2)
Class A .............................................. (8,214,243) 57,633,801 (51,118,450) 48,325,952
Class B .............................................. -- -- 185,598 --
Class C .............................................. 4,355,248 17,049,844 3,358,574 16,135,478
----------------------------------------------------------------------
Total capital share transactions ...................... (3,858,995) 74,683,645 (47,574,278) 64,461,430
Net increase (decrease) in net assets ............ (49,880,767) 73,658,035 (120,696,271) 61,819,044
Net assets:
Beginning of year ..................................... 516,626,680 442,968,645 800,859,548 739,040,504
----------------------------------------------------------------------
End of year ........................................... $466,745,913 $516,626,680 $680,163,277 $800,859,548
======================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of year .......................................... $694,538 $692,530 $(842,612) $(831,892)
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
134
<TABLE>
<CAPTION>
FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND
-----------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................ $ 11,155,310 $ 10,900,493
Net realized gain (loss) from investments ............................................ (46,238) 836,253
Net unrealized appreciation (depreciation) on investments ............................ (17,629,792) 296,087
-----------------------------------
Net increase (decrease) in net assets resulting from operations .................. (6,520,720) 12,032,833
Distributions to shareholders from:
Net investment income:
Class A ............................................................................. (10,605,773) (10,664,385)
Class C ............................................................................. (352,376) (236,108)
In excess of net investment income:
Class A ............................................................................. -- (112,508)
Class C ............................................................................. -- (2,491)
Net realized gains:
Class A ............................................................................. (290,247) (682,528)
Class C ............................................................................. (10,841) (19,507)
-----------------------------------
Total distributions to shareholders ................................................... (11,259,237) (11,717,527)
Capital share transactions: (Note 2)
Class A .............................................................................. (6,472,518) 8,116,885
Class C .............................................................................. 876,544 3,431,283
-----------------------------------
Total capital share transactions ...................................................... (5,595,974) 11,548,168
Net increase (decrease) in net assets ............................................ (23,375,931) 11,863,474
Net assets:
Beginning of year ..................................................................... 225,803,210 213,939,736
-----------------------------------
End of year ........................................................................... $202,427,279 $225,803,210
===================================
Undistributed net investment income (accumulated distributions in excess of net
investment income) included in net assets:
End of year ........................................................................... $34,903 $(162,258)
===================================
</TABLE>
See notes to financial statements.
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-six separate
series (the Funds). All Funds included in this report are diversified except the
Franklin Connecticut Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund. The objective of the Funds included in
this report 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 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. Dividends from net investment
income are normally declared daily and distributed monthly to shareholders.
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 February 1, 2000, Franklin Arizona Tax-Free Income Fund, Franklin New
Jersey Tax-Free Income Fund, and Franklin Pennsylvania Tax-Free Income Fund
began offering a new class of shares, Class B. Each class of shares differs by
its initial sales load, distribution fees, voting rights on matters affecting a
single class and its exchange privilege.
<TABLE>
<CAPTION>
Class A Class A & Class C Class A, Class B & Class C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Federal Intermediate-Term
Tax-Free Income Fund Franklin Colorado Tax-Free Income Fund Franklin Arizona Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund Franklin High Yield Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund Franklin New Jersey Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund Franklin Pennsylvania Tax-Free Income Fund
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
At February 29, 2000, 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
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended February 29, 2000
Shares sold ................. 11,257,100 $122,221,296 3,456,328 $39,518,546
Shares issued in reinvestment
of distributions ........... 1,770,923 19,158,086 659,447 7,531,347
Shares redeemed ............. (15,367,639) (164,615,077) (4,862,223) (55,071,582)
---------------------------------------------------------------------------
Net decrease ................ (2,339,616) $(23,235,695) (746,448) $(8,021,689)
===========================================================================
Year ended February 28, 1999
Shares sold ................. 11,526,533 $131,398,899 4,827,831 $58,439,307
Shares issued in reinvestment
of distributions ........... 1,678,671 19,132,729 655,996 7,932,374
Shares redeemed ............. (8,347,885) (95,234,599) (2,479,532) (29,976,169)
---------------------------------------------------------------------------
Net increase ................ 4,857,319 $55,297,029 3,004,295 $36,395,512
===========================================================================
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold ................. 17,024 $175,000
------------------------------
Net increase ................ 17,024 $175,000
==============================
CLASS C SHARES:
Year ended February 29, 2000
Shares sold ................. 797,807 $8,762,481 755,856 $8,701,764
Shares issued in reinvestment
of distributions ........... 68,432 744,813 64,059 734,922
Shares redeemed ............. (767,300) (8,275,689) (752,058) (8,611,165)
---------------------------------------------------------------------------
Net increase ................ 98,939 $1,231,605 67,857 $825,521
===========================================================================
Year ended February 28, 1999
Shares sold ................. 1,020,350 $11,705,629 1,064,599 $12,955,209
Shares issued in reinvestment
of distributions ........... 48,448 555,594 47,188 573,490
Shares redeemed ............. (247,506) (2,836,757) (195,768) (2,385,312)
---------------------------------------------------------------------------
Net increase ................ 821,292 $9,424,466 916,019 $11,143,387
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN CONNECTICUT
TAX-FREE INCOME FUND
----------------------------------
SHARES AMOUNT
----------------------------------
<S> <C> <C>
CLASS A SHARES:
Year ended February 29, 2000
Shares sold ................. 3,529,444 $37,826,779
Shares issued in reinvestment
of distributions ........... 555,135 5,915,822
Shares redeemed ............. (5,185,098) (54,504,005)
----------------------------------
Net decrease ................ (1,100,519) $(10,761,404)
==================================
Year ended February 28, 1999
Shares sold ................. 5,343,819 $60,218,484
Shares issued in reinvestment
of distributions ........... 494,190 5,562,097
Shares redeemed ............. (2,231,916) (25,113,856)
==================================
Net increase ................ 3,606,093 $40,666,725
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold .................
Net increase ................
CLASS C SHARES:
Year ended February 29, 2000
Shares sold ................. 869,808 $9,464,940
Shares issued in reinvestment
of distributions ........... 76,342 813,102
Shares redeemed ............. (543,743) (5,754,875)
----------------------------------
Net increase ................ 402,407 $4,523,167
==================================
Year ended February 28, 1999
Shares sold ................. 1,442,047 $16,291,315
Shares issued in reinvestment
of distributions ........... 36,934 417,159
Shares redeemed ............. (172,113) (1,946,048)
----------------------------------
Net increase ................ 1,306,868 $14,762,426
----------------------------------
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
<TABLE>
<CAPTION>
FRANKLIN
FEDERAL INTERMEDIATE-TERM FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended February 29, 2000
Shares sold .................................. 13,550,371 $147,891,639 85,317,678 $937,163,857
Shares issued in reinvestment of
distributions ........................... 515,841 5,612,481 13,414,032 147,114,366
Shares redeemed .............................. (15,135,397) (164,849,833) (137,782,074) (1,498,864,103)
-------------------------------------------------------------------------------
Net decrease ................................ (1,069,185) $(11,345,713) (39,050,364) $(414,585,880)
===============================================================================
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
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND
------------------------------------
SHARES AMOUNT
------------------------------------
<S> <C> <C>
CLASS A SHARES:
Year ended February 29, 2000
Shares sold .................................. 9,654,038 $111,062,207
Shares issued in reinvestment of
distributions ............................ 1,630,713 18,621,021
Shares redeemed .............................. (12,099,348) (136,737,330)
------------------------------------
Net decrease ................................. (814,597) $(7,054,102)
====================================
Year ended February 28, 1999
Shares sold .................................. 9,025,737 $107,896,711
Shares issued in reinvestment of distributions 1,485,157 17,759,368
Shares redeemed .............................. (6,947,075) (83,026,142)
------------------------------------
Net increase ................................. 3,563,819 $42,629,937
====================================
</TABLE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Year ended February 29, 2000(a)
Shares sold ................................... 8,062,353 $89,725,422 20,571 $225,218
Shares issued in reinvestment of
distributions ............................... 181,651 1,971,720 1 7
Shares redeemed ............................... (774,083) (8,307,224) -- --
---------------------------------------------------------------------------
Net increase .................................. 7,469,921 $83,389,918 20,572 $225,225
===========================================================================
Year ended February 28, 1999(b)
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 29, 2000
Shares sold ................................... 11,750,601 $130,944,907 1,206,125 $14,059,852
Shares issued in reinvestment of
distributions ............................... 1,755,095 19,375,030 129,277 1,484,321
Shares redeemed ............................... (16,533,226) (180,525,350) (1,187,374) (13,515,330)
---------------------------------------------------------------------------
Net increase (decrease) ....................... (3,027,530) $(30,205,413) 148,028 $2,028,843
===========================================================================
Year ended February 28, 1999
Shares sold ................................... 23,491,348 $274,591,698 2,039,721 $24,514,544
Shares issued in reinvestment of
distributions ............................... 1,434,609 16,744,689 92,442 1,111,258
Shares redeemed ............................... (6,290,089) (73,418,379) (430,504) (5,171,668)
---------------------------------------------------------------------------
Net increase .................................. 18,635,868 $217,918,008 1,701,659 $20,454,134
===========================================================================
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000 for
the Franklin New Jersey Tax-Free Income Fund.
(b) For the period January 1, 1999 (effective date) to February 28, 1999.
<TABLE>
<CAPTION>
FRANKLIN OREGON FRANKLIN PENNSYLVANIA FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND
---------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Year ended February 29, 2000
Shares sold .................................. 6,082,973 $69,151,116 6,838,916 $68,566,297 1,807,686 $20,744,664
Shares issued in reinvestment of
distributions .............................. 1,182,347 13,300,843 1,714,412 17,129,492 471,059 5,369,602
Shares redeemed .............................. (8,110,162) (90,666,202) (13,786,840) (136,814,239) (2,875,096) (32,586,784)
---------------------------------------------------------------------------------
Net decrease ................................. (844,842) $(8,214,243) (5,233,512) $(51,118,450) (596,351) $(6,472,518)
=================================================================================
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
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES:
Year ended February 29, 2000(c)
<S> <C> <C>
Shares sold .............................................................. 19,470 $185,551
Shares issued in reinvestment of
distributions ......................................................... 5 47
---------------------------
Net increase ............................................................. 19,475 $185,598
===========================
</TABLE>
(c) For the period February 1, 2000 (effective date) to February 29, 2000.
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
-----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C SHARES:
Year ended February 29, 2000
Shares sold ................. 1,237,046 $14,171,345 1,305,248 $13,246,322 342,986 $3,943,210
Shares issued in reinvestment
of distributions ........... 96,276 1,089,423 130,878 1,311,924 16,343 186,749
Shares redeemed ............. (970,476) (10,905,520) (1,133,809) (11,199,672) (289,333) (3,253,415)
-----------------------------------------------------------------------------------------------
Net increase ................ 362,846 $4,355,248 302,317 $3,358,574 69,996 $876,544
===============================================================================================
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
===============================================================================================
</TABLE>
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 Federal
Intermediate-Term Tax-Free Income Fund through August 31, 1999, 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.
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 FEDERAL FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions paid .......................... $243,434 $73,892 $45,762 $358,979 $1,697,470
Contingent deferred sales charges ............. $43,769 $26,569 $27,906 $34,398 $800,953
</TABLE>
138
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions paid ............................... $204,544 $189,190 $61,418 $9,644
Contingent deferred sales charges .................. $68,849 $63,487 $42,266 $6,957
</TABLE>
The funds paid transfer agent fees of $4,637,768, of which $3,826,917 was paid
to Investor Services.
4. INCOME TAXES
At February 29, 2000, the funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in: 2003 ............. $ -- $ -- $3,162,502 $ -- $ --
2004 ............. -- -- 46,957 920,152 --
2005 ............. -- -- 322,502 99,478 --
2006 ............. -- -- -- 95,778 --
2008 ............. 3,418,024 2,578,710 2,457,013 314,284 37,171,664
--------------------------------------------------------------------------
$3,418,024 $2,578,710 $5,988,974 $1,429,692 $37,171,664
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital loss carryovers expiring in: 2003 ................... $ -- $36,444 $ -- $ --
2004 ................... -- -- -- --
2005 ................... -- 67,453 -- --
2006 ................... -- -- -- --
2008 ................... 2,913,302 2,380,039 2,254,355 12,800
--------------------------------------------------------------------
$2,913,302 $2,483,936 $2,254,355 $12,800
--------------------------------------------------------------------
</TABLE>
At February 29, 2000, the following funds had deferred capital losses occurring
subsequent to October 31, 1999. For tax purposes, such losses will be reflected
in the year ending February 28, 2001.
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FEDERAL FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$974,614 $810,539 $1,015,325 $33,366,062 $782,289 $1,190,349 $3,747,221 $33,438
</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 losses differ for financial statement and tax purposes
primarily due to differing treatment of wash sales.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
At February 29, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ............ $799,513,888 $291,223,890 $241,570,069 $176,485,946 $5,806,470,123
============================================================================================
Unrealized appreciation ........ $15,957,122 $3,967,859 $5,221,491 $1,497,249 $159,280,158
Unrealized depreciation ........ (43,857,416) (12,624,328) (16,247,265) (6,443,981) (378,904,825)
---------------------------------------------------------------------------------------------
Net unrealized depreciation .... $(27,900,294) $(8,656,469) $(11,025,774) $(4,946,732) $(219,624,667)
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ........................ $670,511,111 $477,037,029 $695,845,354 $202,604,152
==============================================================================
Unrealized appreciation .................... $13,154,790 $7,624,589 $10,753,283 $5,034,445
Unrealized depreciation .................... (24,106,353) (22,692,306) (30,965,451) (7,450,393)
------------------------------------------------------------------------------
Net unrealized depreciation ................ $(10,951,563) $(15,067,717) $(20,212,168) $(2,415,948)
==============================================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended February 29, 2000, were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN FEDERAL FRANKLIN
ARIZONA COLORADO CONNECTICUT INTERMEDIATE- HIGH YIELD
TAX-FREE TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ............ $171,775,650 $89,107,025 $78,181,352 $57,584,790 $1,577,455,244
Sales ................ $195,199,362 $93,393,115 $80,612,425 $66,812,040 $1,904,263,882
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
NEW JERSEY OREGON PENNSYLVANIA PUERTO RICO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases .......................... $150,299,639 $121,925,208 $179,589,034 $28,674,877
Sales .............................. $156,020,306 $142,739,359 $221,013,145 $34,830,403
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Yield Tax-Free Income Fund has 37.3% of its portfolio invested
in lower rated and comparable quality unrated high yield securities, which tend
to be more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At
February 29, 2000, 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 $840,000 and $16,200,000 representing .49% and .29%,
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.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (continued)
6. CREDIT RISK AND DEFAULTED SECURITIES (CONT.)
The funds have investments in excess of 10% of their total net assets in their
respective states and/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 and/or New York. Such concentration may
subject the Funds more significantly to economic changes occurring within those
states and/or U.S. territories and possessions.
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including the Franklin Tax-Free Trust, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Funds' borrowings at market rates. At February 29,
2000, the Trust had not utilized this credit facility.
FRANKLIN TAX-FREE TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS 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 of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds included in this
report constituting part of the Franklin Tax-Free Trust (hereafter referred to
as the "Trust") at February 29, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States 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 29, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
April 3, 2000
FRANKLIN TAX-FREE TRUST
Tax Designation
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Trust hereby
designate 100% of the distributions paid from net investment income as
exempt-interest dividends for the fiscal year ended February 29, 2000.
