SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for the
six months ended August 31, 2000.
The U.S. economy continued its trend of strong growth during the six-month
review period, as second quarter annualized gross domestic product increased
5.6% on the heels of a 4.8% rise in the first quarter. Concerned that this
growth, combined with a historically low unemployment rate, would lead to
inflationary pressures, the Federal Open Market Committee (FOMC) raised the
federal funds target rate twice during the reporting period, with the last
increase occurring in May when they brought the rate to 6.5%. The Federal
Reserve Board's (the Fed's) reluctance to raise short-term rates at the June and
August FOMC meetings, together with a moderate 0.1% increase in August's
Consumer Price Index, suggested that the economy could be feeling the impact of
the recent rate increases and might be slowing to a more sustainable pace.
The municipal bond market performed well over the reporting period following a
difficult year in 1999 and a slow start in the first quarter of 2000, in which
strong economic numbers and the federal funds target rate increases hampered
bond prices. The belief that these rate increases were beginning to achieve
their desired effect of slowing the economy and that, for the time being, the
Fed would hold off on further tightening led to a general decline in long-term
interest rates. The yield on the 30-year Treasury bond fell from 6.14% at the
beginning of the period to 5.67% on August 31, 2000, and the 10-year Treasury
note declined from 6.41% to 5.73%. Furthermore, the municipal bond market
generally trended with the 30-year
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ................1
Fund Reports
Franklin Arizona Insured
Tax-Free Income Fund ..............4
Franklin Florida Insured
Tax-Free Income Fund ..............8
Franklin Insured
Tax-Free Income Fund .............12
Franklin Massachusetts Insured
Tax-Free Income Fund .............18
Franklin Michigan Insured
Tax-Free Income Fund .............23
Franklin Minnesota Insured
Tax-Free Income Fund .............30
Franklin Ohio Insured
Tax-Free Income Fund .............35
Municipal Bond Ratings ...........40
Financial Highlights &
Statements of Investments ........42
Financial Statements .............89
Notes to Financial Statements ....99
</TABLE>
FUND CATEGORY
[PYRAMID GRAPHIC]
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.
Treasury bond and saw yields decrease. The Bond Buyer Municipal Bond Index (Bond
Buyer 40), an indicator of the municipal bond market, decreased from a yield of
6.17% to 5.72% for the same period.(1) Bond yields and prices move in an inverse
relationship, so that as yields fall, prices rise.
In addition to the respite from interest-rate tightening, lower supply favorably
impacted municipal bond prices. The booming economy, which increased revenues
for most municipalities, reduced the need for borrowing to finance capital
projects. From January through August 31, 2000, national municipal bond issuance
was down 20.3%, compared to the same period in 1999.(2) Lower supply and
continued high demand for municipal bonds among insurance and mutual fund
companies, as well as retail investors, contributed to their price increase. The
government announced a buyback of 30-year Treasury bonds, which increased their
price and decreased their yield. This meant that, on a relative basis, long-term
municipal bond yields have been attractive. During the six months under review,
municipal bonds, as measured by the Bond Buyer 40, yielded as much as 104% of a
comparable Treasury bond's yield. (1) Historically, this ratio is about 90%.
Since municipal bonds are tax-exempt, generally they yield less than Treasuries,
which are subject to federal income tax. When municipal bonds are yielding
nearly the same as Treasuries, investors are able to take advantage of the tax
exemption at little extra cost.
Municipal bond funds continue to be attractive for those investors seeking
tax-free income. Depending on your federal and state tax rates, a taxable
investment of comparable credit quality would need to offer a higher yield,
called the taxable equivalent yield, to match the yield on a tax-free
investment.
1. Source: The Bond Buyer. The unmanaged Bond Buyer Municipal Bond Index is
composed of the yield to maturity of 40 bonds. The index attempts to track the
new-issue market as closely as possible, so it changes bonds twice a month,
adding all new bonds that meet certain requirements and deleting an equivalent
number according to their secondary market trading activity. As a result, the
average par call date, average maturity date and average coupon rate change over
time. The average maturity generally has been about 29-30 years.
2. Source: The Bond Buyer, 9/1/2000.
Looking forward, we anticipate that the Fed will continue to monitor
inflationary tendencies closely. If the economy slows toward the end of 2000,
the bond markets could continue their positive trend. Predicting market 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
funds' 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
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
[STATE OF ARIZONA GRAPHIC]
Arizona's economy retained its positive growth trend and continues to be one of
the nation's fastest-growing states. Job growth in the first three months of the
year reached 4.8%, stronger than the 4.1% pace recorded in first quarter
1999.(2) Recent gains in light manufacturing, telecommunications-based services,
and software and computer services fueled strong employment growth. Despite the
state's rapid population growth rate -- four times the national rate and the
second-highest in the nation after Nevada -- Arizona's unemployment in July 2000
was just 3.6%, the lowest since 1969 and lower than the national average of
4.0%.(3)(4)
Arizona's population and personal income increases bolstered the banking, real
estate and retail trade sectors as consumers maintained their buying spree in
early 2000.(3) Personal income in 1999 was up 7.0% versus 1998, placing Arizona
seventh nationally in rate of growth.(2) Retail sales increased nearly 12% and
per-capita retail sales were on par with national averages.(3) In contrast to
national readings, which declined somewhat in recent months, consumer confidence
among Arizonans remained at record highs.(5)
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: The Business Journal of Phoenix, Arizona Economy Going Strong,
6/27/00.
3. Source: Standard & Poor's(R), Ratings Direct, 6/7/00.
4. Source: Bureau of Labor Statistics, 8/23/00.
5. Source: The University of Arizona at Tucson, Arizona's Economy, 7/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 43.
Strength in the California and national economies, plus the likelihood of a
worldwide economic rebound, bode well for Arizona. Economic growth in
California, the state's leading domestic trading partner, outpaced that of the
nation in the second quarter of 2000. Mexico, Arizona's leading international
trading partner, is expected to grow by 4.0% in 2000.(6) Arizona is
well-positioned for continued growth.
The state maintained a healthy financial outlook during the reporting period.
Rising employment and vibrant economic activity resulted in revenue growth,
which outpaced increased spending and more than offset recent income tax cuts.
Additionally, 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.(7) With personal income, employment and
population projected to grow faster than the national average, we anticipate a
bright future for Arizona bonds.
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat during the summer months, allowing long-term interest rates
to decline for the first time in nearly a year. Overall, declining interest
rates benefited bond prices, which rise as yields fall. Accordingly, Franklin
Arizona Insured Tax-Free Income Fund's Class A share price, as measured by net
asset value, increased from $9.85 per share on February 29, 2000, to $10.37 on
August 31, 2000.
While interest rates rose during the reporting period, we were able to purchase
insured bonds at attractive levels in the 6.0%-6.125% range. We sought to take
advantage of rising interest rates by selling lower-yielding bonds at a loss,
and reinvesting the proceeds at higher yields. Such losses can be used to offset
any current or future capital gains, possibly lowering shareholders' future tax
liabilities. Throughout the reporting period, we also worked on improving the
portfolio's structure. We enhanced the Fund's call protection by selling bonds
with shorter call structures and buying back similar coupon bonds with longer
calls. In this process, we sold Mesa Street and Highway Revenue and Pinal County
USD Apache Junction bonds. The increased call protection within the portfolio
enabled the Fund to raise its dividend distributions to shareholders from 4.05
cents per share to 4.07 cents per share during the period.
6. Source: Arizona Office of the Governor, The Executive Mid-Biennium Update
Fiscal Years 2000 and 2001, 1/00.
7. Source: Joint Legislative Budget Committee Fiscal Policy Analysis for the
Arizona Legislature, 1/00.
PORTFOLIO BREAKDOWN
Franklin Arizona Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
-----------------------------------------------
<S> <C>
Utilities 23.2%
Hospital & Health Care 16.5%
General Obligation 12.8%
Housing 11.3%
Subject to Government
Appropriation 7.9%
Prerefunded 7.8%
Higher Education 7.6%
Transportation 7.2%
Other Revenue 3.5%
Tax-Supported 2.2%
</TABLE>
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Insured
Tax-Free Income Fund - Class A
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
------------------------------
<S> <C>
March 4.05 cents
April 4.05 cents
May 4.05 cents
June 4.07 cents
July 4.07 cents
August 4.07 cents
------------------------------
TOTAL 24.36 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.
We participated in a number of new issues during the reporting period, and
increased the Fund's exposure to the utilities and higher education sectors
while reducing portfolio weightings in both general obligation and
hospital/health care bonds. The Fund's purchases included Tucson Water Revenue
and Peoria Water and Sewer Revenue bonds.
We think it bears repeating that 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 4.51%, based
on an annualization of the current 4.07 cent ($0.0407) per share dividend and
the maximum offering price of $10.83 on August 31, 2000. An investor in the
maximum combined federal and Arizona state personal income tax bracket of 42.64%
would need to earn 7.86% from a taxable investment to match the Fund's tax-free
distribution rate.
Arizona's new bond issuance year-to-date through August 31 was nearly $2
billion, a 15% decrease compared to the same period in 1999.(8) This slightly
reduced new-issue supply, combined with strong retail demand for Arizona
municipal bonds, should help maintain the state's municipal bond prices and help
support the value of the portfolio's holdings going forward. We intend to
maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current, tax-free income.
8. Source: The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of the Fund's operating
expenses. 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>
Six-Month Total Return +7.87%
Net Asset Value (NAV) $10.37 (8/31/00) $9.85 (2/29/00)
Change in NAV +$0.52
Distributions (3/1/00-8/31/00) Dividend Income $0.2436
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.77% +30.28% +48.44%
Average Annual Total Return(2) +1.28% +4.52% +4.86%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A
--------------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.51%
Taxable Equivalent Distribution Rate(4) 7.86%
30-Day Standardized Yield(5) 4.39%
Taxable Equivalent Yield(4) 7.65%
</TABLE>
FRANKLIN ARIZONA INSURED
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, 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 the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, applicable,
maximum sales charge.
3. Distribution rate is based on an annualization of the 4.07 cent per share
current monthly dividend and the maximum offering price of $10.83 per share on
8/31/00.
4. Taxable equivalent distribution rate and yield assume the published
rates as of 6/16/00 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 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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
[STATE OF FLORIDA GRAPHIC]
Florida's robust economy led to a high rate of job creation during the six
months under review. Employment growth has averaged 3.6% since 1992, ranking the
state seventh in the nation.(2) Also, during the period, a tight labor market
contributed to low unemployment. Florida's 3.7% unemployment rate for July,
compared with the 4.0% national average for the same month, typifies the state's
trend of unemployment rates at or below the national average.(3)
The favorable economic environment of recent years, coupled with financial
discipline, has enabled the state to record successive years of budgetary
surpluses and to add to its reserve fund balances. As of fiscal year 1999's
audit, the reserve fund balance of $3.5 billion represented more than 18% of
total revenues and spending levels.(2) The state also enforces solid budget and
cash flow monitoring procedures, which allow maximum flexibility in managing the
budget throughout the fiscal year. If imbalances are detected, the state
possesses a statutory framework to reduce appropriations and avoid deficits.
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: Standard and Poor's,Ratings Direct,8/8/00. This does not indicate
Standard & Poor's rating of the Fund.
3. Source: Bureau of Labor Statistics, 8/25/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 46.
Although Florida's $955 per capita tax-supported debt level topped the $540
median for the 50 states, this level remained moderate relative to the state's
resources. Debt-service charges represented 5.4% of general revenue fund
resources and 2.7% of total state revenue during the reporting period.(2)
Capital outlay for primary, secondary and higher education mostly accounts for
the increase in Florida's tax-supported debt over the past decade.
Going forward, Florida's diversified, service-based economy, fully-funded
budget, past history of fiscal discipline and stabilization reserves equal to 5%
of revenues, as well as its AA+ credit rating from Standard & Poor's, an
independent credit rating agency, should support the state's favorable credit
outlook.(2)
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat during the summer months, allowing long-term interest rates
to decline slightly for the first time in nearly a year. Overall, declining
interest rates benefited bond prices, which rise as yields fall. Accordingly,
Franklin Florida Insured Tax-Free Income Fund's Class A share price, as measured
by net asset value, increased from $9.61 per share on February 29, 2000, to
$10.07 on August 31, 2000.
While interest rates rose during the spring, we sold lower-yielding securities
at a loss and reinvested the proceeds at higher yields. Such losses can be used
to offset any current or future capital gains, possibly lowering shareholders'
future tax liabilities. Following this strategy, we sold West Palm Beach
Utilities System Revenue, Celebration Community Development District, First
Florida Governmental Financing Commission, and St. John's County Industrial
Development Authority - Golf Hall of Fame bonds during the reporting period.
PORTFOLIO BREAKDOWN
Franklin Florida Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
----------------------------------------------
<S> <C>
Utilities* 33.8%
Other Revenue 13.7%
Tax-Supported 9.9%
Prerefunded 8.6%
Housing 8.5%
Transportation 8.2%
Hospital & Health Care 7.3%
Subject to Government
Appropriation 7.3%
Higher Education 1.8%
General Obligation 0.9%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
DIVIDEND DISTRIBUTIONS*
Franklin Florida Insured
Tax-Free Income Fund - Class A
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
---------------------------------
<S> <C>
March 4.01 cents
April 4.01 cents
May 4.01 cents
June 4.03 cents
July 4.03 cents
August 4.03 cents
---------------------------------
TOTAL 24.12 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.
The Fund also sought to take advantage of the rising interest-rate environment
to improve the portfolio's structure and call protection, and increase the
Fund's income-earning potential. We sold municipal bonds with shorter call
protection and lower booked yields, and used the proceeds to buy those with
extended maturities at current coupon rates and longer call protection. To that
end, purchases during the period included Gulf Breeze Revenue, Tavares Water and
Sewer Revenue, Orange County Tourist Development Tax Revenue, Lynn Haven Capital
Improvement Revenue and Florida State Board Registered Housing Revenue,
University of Florida bonds.
This strategy enabled the Fund to increase its dividend distribution to
shareholders during the reporting period, from 4.01 cents to 4.03 cents per
share.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 11 shows that at
the end of this reporting period, the Fund's distribution rate was 4.62%, based
on an annualization of the current 4.05 cent ($0.0405) per share dividend and
the maximum offering price of $10.52 on August 31, 2000. An investor in the
maximum federal income tax bracket of 39.6% would need to earn 7.65% from a
taxable investment to match the Fund's tax-free distribution rate.
Florida's new bond issuance year-to-date through August 31 was nearly $7.7
billion, down 3.3% from the same period in 1999.(4) This slightly reduced
new-issue supply, combined with strong retail demand for Florida municipal
bonds, should help maintain the state's municipal bond prices and help support
the value of the portfolio's holdings going forward. We intend to maintain our
conservative, buy-and-hold investment strategy as we attempt to provide
shareholders with high, current, tax-free income.
4. Source: The Bond Buyer,9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of the Fund's operating
expenses. 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>
Six-Month Total Return +7.41%
Net Asset Value (NAV) $10.07 (8/31/00) $9.61 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2412
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/30/93)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.55% +30.72% +44.46%
Average Annual Total Return(2) +1.05% +4.60% +4.47%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A
---------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.62%
Taxable Equivalent Distribution Rate(4) 7.65%
30-Day Standardized Yield(5) 4.57%
Taxable Equivalent Yield(4) 7.57%
</TABLE>
FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, 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 the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, 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 $10.52 per share on
8/31/00.
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 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN INSURED TAX-FREE INCOME FUND
PORTFOLIO BREAKDOWN
Franklin Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
------------------------------------------------
<S> <C>
Hospital & Health Care* 29.1%
Utilities 18.8%
Prerefunded 18.7%
General Obligation 7.8%
Transportation 7.0%
Higher Education 6.2%
Housing 3.6%
Subject to Government
Appropriation 3.0%
Tax-Supported 2.8%
Other Revenue 2.1%
Corporate-Backed 0.9%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals & health care. A change that affects one
project would likely affect all similar projects, thereby increasing market
risk.
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 municipal bond market rebounded somewhat during the period under review as
long-term interest rates generally declined during the summer months following
months of volatility. Municipal bond investors remained cautious as the Federal
Reserve Board (the Fed) took an aggressive posture toward mitigating
inflationary tendencies by raising the federal funds target rate for the sixth
time in just over a year at the May meeting, bringing the yield to 6.50%. The
Fed's reluctance to raise short-term rates at the June and August FOMC meetings,
together with recent indications that the economy may be slowing to a more
sustainable pace, resulted in a positive market reaction during the final three
months of the reporting period as evidenced by lower long-term interest rates.
The yield on the benchmark 30-year Treasury bond decreased from 6.14% on
February 29, 2000, to 5.67% on August 31, 2000, after reaching a high of 6.24%
on May 8, 2000. The municipal market generally trended with the 30-year Treasury
bond and saw yields decrease.
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.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 50.
As such, the Bond Buyer Municipal Bond Index yield fell from 6.17% to 5.72%
during the period under review.(2) Declining yields resulted in a corresponding
rise in bond prices. Accordingly, Franklin Insured Tax-Free Income Fund's Class
A share price, as measured by net asset value, increased from $11.24 per share
on February 29, 2000, to $11.70 on August 31, 2000.
The market for insured bonds remained strong as the yield spreads between
high-grade and more speculative grade bonds continued to be comparatively
narrow. The supply of insured municipal bonds has also diminished from its peak
in 1998. Since 1998, when more than half of newly issued bonds were insured,
insured penetration decreased to just over 46% in 1999 and only 38% in the first
half of 2000.(3) Through August 2000, approximately $123 billion in new
municipal bonds were issued, compared to more than $138 billion during the same
period in 1999.(2) As the four major municipal bond insurers continually assess
their business models and price their products accordingly, we expect overall
issuance and insurance penetration to continue near the levels we have seen so
far this year, which we feel should benefit Franklin Insured Tax-Free Income
Fund, on a supply/demand basis.
The Fund focused primarily on increasing its position in specialty state bonds
because of their narrower-than-usual spreads to general national market bonds.
Specialty state bonds generally trade at lower yields than those of other states
due to supply/demand characteristics and credit quality. As the market
stabilizes and investors return to the municipal bond market, we believe yield
ratios should return to historical levels, which should benefit specialty state
securities. We also sought to take advantage of volatility and rising interest
rates early in the period by reducing our exposure to prerefunded bonds while
increasing our holdings of insured hospital bonds. Hospital bonds fell out of
favor recently, creating opportunities to purchase
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.
2. Source: The Bond Buyer, 9/11/00.
3. Source: The Bond Buyer, 7/1/00.
DIVIDEND DISTRIBUTIONS*
Franklin Insured Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C
-------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.05 cents 4.53 cents 4.53 cents
April 5.05 cents 4.53 cents 4.53 cents
May 5.05 cents 4.53 cents 4.53 cents
June 5.08 cents 4.51 cents 4.54 cents
July 5.08 cents 4.51 cents 4.54 cents
August 5.08 cents 4.51 cents 4.54 cents
-------------------------------------------------------------------------
TOTAL 30.39 CENTS 27.12 CENTS 27.21 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.
AAA insured hospital issues at what we felt were advantageous price levels. We
made most purchases in the new-issue market as issuers and underwriters priced
deals attractively in their efforts to solicit institutional investors'
interest. Purchases during the six months under review included Atlanta,
Georgia, Airport Revenue; Sauk Rapids, Minnesota, School Revenue; and Allegheny,
Pennsylvania, Hospital Revenue bonds.
As a result of restructuring the portfolio during the period's higher
interest-rate environment, we were able to increase the Fund's Class A shares'
monthly dividend distribution in June, from 5.05 cents to 5.08 cents per share.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 16
shows that at the end of this reporting period, the Fund's Class A shares'
distribution rate was 4.99%, based on an annualization of the current 5.08 cent
($0.0508) per share dividend and the maximum offering price of $12.22 on August
31, 2000. An investor in the maximum federal personal income tax bracket of
39.6% would need to earn 8.26% 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 Class C shares.
Looking ahead, we believe municipal bond prices may continue to benefit if the
Fed eases its interest rate policy. As fixed income investors return to the
market, we feel it will be difficult to find after-tax yields comparable to
those of municipal bonds, especially when considering the credit quality offered
by the asset class. Municipal bonds should also benefit from the reduction in
supply and considerable demand that we have seen so far this year. We intend to
maintain our conservative buy-and-hold investment strategy as we attempt to
provide shareholders with high, current, tax-free income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.92%
Net Asset Value (NAV) $11.70 (8/31/00) $11.24 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.3039
</TABLE>
<TABLE>
<CAPTION>
CLASS B
<S> <C> <C>
Six-Month Total Return +6.70%
Net Asset Value (NAV) $11.71 (8/31/00) $11.24 (2/29/00)
Change in NAV +$0.47
Distributions (3/1/00-8/31/00) Dividend Income $0.2712
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.57%
Net Asset Value (NAV) $11.77 (8/31/00) $11.31 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2721
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.45% +27.69% +91.24% +211.73%
Average Annual Total Return(2) +0.99% +4.10% +6.24% +7.32%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
---------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +7.38%
Aggregate Total Return(2) +3.38%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.93% +24.43% +29.10%
Average Annual Total Return(2) +2.87% +4.26% +4.63%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 4.99% 4.65% 4.58%
Taxable Equivalent Distribution Rate(4) 8.26% 7.70% 7.58%
30-Day Standardized Yield(5) 4.62% 4.27% 4.23%
Taxable Equivalent Yield(4) 7.65% 7.07% 7.00%
</TABLE>
For updated performance figures, see "Prices and Performance" at
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 for
Class B) per share on 8/31/00.
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 30 days ended 8/31/00.
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 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
[STATE OF MASSACHUSETTS GRAPHIC]
Massachusetts, following a ratings upgrade to AA- early in 2000 by Standard &
Poor's, an independent credit rating agency, continued to enjoy strong growth
and a diverse, broadening economic base.(2) The health care, high technology,
higher education and business services sectors all contributed to this
continuing strength. In addition, prudent fiscal discipline and a string of
annual operating surpluses added to the commonwealth's positive outlook.
Massachusetts' favorable financial position is due, in large part, to the
resurgence of its economy, which has generated significant employment and income
growth over the past five years.
Going forward, the commonwealth's biggest challenge remains balancing the budget
in the face of proposed tax cuts and managing debt plans over the long term,
while maintaining a strong financial position over various economic cycles. Debt
levels have grown significantly as a result of capital expenditures and the
commonwealth's backing of the Massachusetts Bay Transportation Authority (MBTA).
However, the commonwealth eliminated its guarantees on new MBTA debt issued
after July 1, 2000, and planned to use a portion of surplus revenues for capital
spending needs, which may temper increasing debt ratios going forward.
Massachusetts' stable credit outlook reflects an economy well-positioned for
long-term expansion.
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, 6/14/00. This does not indicate
Standard & Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 64.
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat in the second and third quarters of 2000, allowing municipal
bonds to rally for the first time in nearly a year. Overall, declining interest
rates benefit bond prices, which rise as yields fall. Accordingly, Franklin
Massachusetts Insured Tax-Free Income Fund's Class A share price, as measured by
net asset value, increased from $10.75 per share on February 29, 2000, to $11.20
on August 31, 2000.
As interest rates rose during the first half of the reporting period, we sold
lower book-yielding securities at a loss, and reinvested the proceeds at higher
yields. Such losses can be used to offset any current or future capital gains,
possibly lowering shareholders' future tax liabilities. Following this strategy,
we sold Massachusetts State Port Authority, Massachusetts Health & Education
Authority Revenue, and Massachusetts State Industrial Finance Agency bonds.
The Fund also took advantage of the rising interest-rate environment to improve
the portfolio's structure and call protection, and increase the Fund's
income-earning potential. We sold municipal bonds with shorter call protection
and lower booked yields, and used the proceeds to buy those with extended
maturities at current coupon rates and longer call protection. To that end,
purchases during the period included Massachusetts Foxborough Stadium
Improvement, Massachusetts State College Building Authority, Massachusetts Route
3 North Improvement, and Massachusetts State Health & Education Authority
Revenue bonds. We also attempted to take advantage of historically low yield
spreads within the insured municipal bond sector, between alternative minimum
tax (AMT) and non-AMT issues, and between short and long call issues, which we
believe could improve Fund performance and coupon payment consistency over the
long term.
PORTFOLIO BREAKDOWN
Franklin Massachusetts Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
-------------------------------------------
<S> <C>
Hospital & Health Care* 26.5%
Transportation 19.3%
Higher Education 16.2%
Prerefunded 10.0%
General Obligation 9.5%
Utilities 8.3%
Housing 5.0%
Other Revenue 4.2%
Subject to Government
Appropriation 1.0%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals & health care. A change that affects one
project may affect all similar projects, thereby increasing market risk.
DIVIDEND DISTRIBUTIONS*
Franklin Massachusetts Insured Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
------------------------------------------------
<S> <C> <C>
March 4.75 cents 4.24 cents
April 4.75 cents 4.24 cents
May 4.75 cents 4.24 cents
June 4.77 cents 4.25 cents
July 4.77 cents 4.25 cents
August 4.77 cents 4.25 cents
------------------------------------------------
TOTAL 28.56 CENTS 25.47 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.
Due to past purchases and the ability to swap into higher yielding securities
during the reporting period, Franklin Massachusetts Insured Tax-Free Income Fund
was able to increase the Fund's Class A shares' monthly dividend distribution
from 4.75 cents per share to 4.77 cents per share. However, due to unforeseen
bond calls and a dearth of new issuance of the commonwealth's municipal bonds,
the Fund may need to reduce its dividend in the near future.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 22 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 4.89%, based on an annualization of the current 4.77 cent ($0.0477) per
share dividend and the maximum offering price of $11.70 on August 31, 2000. An
investor in the combined maximum federal and Massachusetts state personal income
tax bracket of 43.13% would need to earn 8.60% 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.
Massachusetts' new bond issuance year-to-date through August 31 was nearly $5.4
billion, up 7.9% from the same period in 1999.(3) Strong retail demand for
Massachusetts municipal bonds should help maintain the commonwealth's municipal
bond prices and help support the value of the portfolio's holdings going
forward. 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. Of course, we will make all investment decisions
within the guiding principles of tax-free income and conservative asset
management.
3. Source: The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 for the maximum combined federal and Massachusetts state personal
income tax bracket of 43.13%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 8/31/00.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.96%
Net Asset Value (NAV) $11.20 (8/31/00) $10.75 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2856
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.62%
Net Asset Value (NAV) $11.26 (8/31/00) $10.81 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2547
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.84% +27.31% +90.27% +185.18%
Average Annual Total Return(2) +1.33% +4.04% +6.19% +6.70%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.32% +23.97% +28.65%
Average Annual Total Return(2) +3.29% +4.17% +4.57%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 4.89% 4.50%
Taxable Equivalent Distribution Rate(4) 8.60% 7.91%
30-Day Standardized Yield(5) 4.61% 4.22%
Taxable Equivalent Yield(4) 8.11% 7.42%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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
[State of Michigan Graphic]
Michigan's manufacturing-based economy produced solid results during the six
months under review. The manufacturing sector provided approximately 22% of the
state's non-farm employment and 33% of total state personal income, making it
vital to the state's health. Fortunately, manufacturing has shown remarkably
strong performance since the early 1990s, due in part to the industrial
restructuring in the 1980s, especially in the all-important transportation
equipment sector, which has helped to greatly improve Michigan's competitive
position.(2)
The state's unemployment rate is considered a definitive sign of its healthy
condition. Since 1994, Michigan's unemployment rate has been better than the
nation's, in stark contrast to the prior 20-year period where Michigan trailed
the national average.(2) In July 2000, unemployment was just 3.5%, compared with
4.0% for the nation as a whole.(3) The state's efforts to diversify its economy
within the manufacturing sector and in other sectors have helped improve this
outcome.
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 and Poor's, Ratings Direct, 4/6/00. This does not indicate
Standard and Poor's rating of the Fund.
3. Source: Bureau of Labor Statistics, 6/12/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 69.
PORTFOLIO BREAKDOWN
Franklin Michigan Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
-----------------------------------
<S> <C>
Prerefunded 31.3%
General Obligation 26.4%
Hospital & Health Care 17.5%
Utilities 12.4%
Transportation 6.9%
Higher Education 1.7%
Other Revenue 1.1%
Tax-Supported 1.1%
Subject to Government
Appropriation 1.0%
Housing 0.5%
Corporate-Backed 0.1%
</TABLE>
Michigan's financial performance of late has also been impressive. Many of the
cost-containment initiatives enacted during the recession in fiscal years 1991
and 1992 remain in place today. Consequently, Michigan's debt burden in 1999 was
rather low, at $88 per capita. Since 1995, revenue projections have been
conservative, allowing for controlled spending and budget surpluses. For fiscal
year 1999, the budget surplus stood at $299 million, increasing the general fund
balance to more than $1.5 billion. This occurred at a time when the state
enacted a law to reduce its state income tax by 2.5% over a five-year period.
Reflecting Michigan's positive fiscal condition, Standard & Poor's, an
independent credit rating agency, has assigned the state's general obligation
debt an AA+ rating.(2)
Looking forward, Michigan should continue to produce strong fiscal performances
as long as the national economy stays healthy. However, the state is still
especially vulnerable to any future economic downturns, given its reliance on
transportation equipment and related durable goods manufacturing and
services.(2)
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat in the second and third quarters of 2000, allowing municipal
bonds to rally for the first time in nearly a year. Overall, declining interest
rates benefited bond prices, which rise as yields fall. Accordingly, Franklin
Michigan Insured Tax-Free Income Fund's Class A share price, as measured by net
asset value, increased from $11.37 per share on February 29, 2000, to $11.81 on
August 31, 2000.
Early in the reporting period, as interest rates rose, we were able to purchase
insured bonds at attractive yields over 6%. We also sought to take advantage of
rising interest rates by selling lower yielding bonds at a loss and reinvesting
the proceeds at higher yields. Such losses can be used to offset any current or
future capital gains, possibly lowering shareholders' future tax liabilities. We
also improved the portfolio's structure through several measures. For example,
we enhanced the Fund's call protection by selling bonds with shorter call
structures and buying back similar coupon bonds with longer calls. This strategy
also enabled us to increase the Fund's Class A shares' monthly dividend
distribution to shareholders in March from 4.95 cents to 4.98 cents per share.
During the reporting period, Franklin Michigan Insured Tax-Free Income Fund
participated in a number of issues. We focused primarily on a balanced approach
of reducing the percentage of the portfolio's prerefunded bonds and offsetting
the gains by selling other bonds with built-in tax losses. Prerefunded bonds
experience rapid price declines to their call price as they approach
approximately five years to their call date. To extend the Fund's income-earning
potential, improve structure, and protect its share price, we looked to sell
prerefunded bonds as they approached five years to the effective call. We made
most purchases in the new-issue market as issuers and underwriters priced deals
attractively to solicit institutional investors' interest. Purchases included
Hartland School District General Obligation; Anchor Bay School District General
Obligation; and Michigan State Certificate of Participation (for office
buildings) bonds.
DIVIDEND DISTRIBUTIONS*
Franklin Michigan Insured Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
March 4.98 cents 4.45 cents 4.45 cents
April 4.98 cents 4.45 cents 4.45 cents
May 4.98 cents 4.45 cents 4.45 cents
June 4.98 cents 4.42 cents 4.44 cents
July 4.98 cents 4.42 cents 4.44 cents
August 4.98 cents 4.42 cents 4.44 cents
--------------------------------------------------------------------------------
TOTAL 29.88 CENTS 26.61 CENTS 26.67 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.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 28
shows that at the end of this reporting period, the Fund's Class A shares'
distribution rate was 4.85%, based on an annualization of the current 4.98 cent
($0.0498) per share dividend and the maximum offering price of $12.33 on August
31, 2000. An investor in the maximum combined federal and Michigan state
personal income tax bracket of 42.14% would need to earn 8.38% 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 Class C shares.
Michigan's new bond issuance year-to-date through August 31 was nearly $2.6
billion, a 26.2% decrease compared to the same period in 1999.(4) The
significantly reduced supply, especially among insured municipal bonds, combined
with strong retail demand for Michigan municipal bonds, should help maintain the
state's municipal bond prices and help support the value of the portfolio's
holdings going forward. We intend to maintain our conservative buy-and-hold
investment strategy as we attempt to provide shareholders with high, current,
tax-free income.
4. Source:The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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 MICHIGAN
INSURED TAX-FREE
INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.61%
Net Asset Value (NAV) $11.81 (8/31/00) $11.37 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2988
</TABLE>
<TABLE>
<CAPTION>
CLASS B
<S> <C> <C>
Six-Month Total Return +6.30%
Net Asset Value (NAV) $11.83 (8/31/00) $11.39 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2661
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.27%
Net Asset Value (NAV) $11.89 (8/31/00) $11.45 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2667
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.74% +29.45% +92.98% +201.97%
Average Annual Total Return(2) +1.22% +4.39% +6.33% +7.10%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +6.94%
Aggregate Total Return(2) +2.94%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.12% +25.92% +30.95%
Average Annual Total Return(2) +3.07% +4.51% +4.91%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 4.85% 4.49% 4.44%
Taxable Equivalent Distribution Rate(4) 8.38% 7.76% 7.67%
30-Day Standardized Yield(5) 4.49% 4.10% 4.09%
Taxable Equivalent Yield(4) 7.76% 7.09% 7.07%
</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 for
Class B) per share on 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 for the maximum combined federal and Michigan state personal income
tax bracket of 42.14%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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
[State of Minnesota Graphic]
Economic activity is vibrant in Minnesota, owing to a diverse economy, favorable
employment trends and healthy income growth. Minnesota's economic diversity,
which closely mirrors the nationwide employment mix, enables the state to
perform well during various economic cycles. The state has a particularly strong
manufacturing sector compared to the relative decline in other parts of the
country, especially in areas such as instruments and industrial machinery.(2)
The services sector, particularly business services, is expected to remain the
state's leading growth sector.(3)
The state enjoys enviably low unemployment levels, typified by July 2000's 2.5%
unemployment rate, compared with the 4.0% national average for the same
month.(4) Going forward, labor shortages, particularly for skilled positions,
may limit business expansion but may spur population growth, which has been
lagging the nation in recent years. Minnesota's personal income per capita
remains about 103% of the national average, ranking Minnesota first in this
category among its North Central neighbors.(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. 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: Moody's(R) Investors Service, 6/12/00. This does not indicate
Moody's rating of the Fund.
3. Source: Standard & Poor's, Ratings Direct, 6/12/00. This does not indicate
Standard and Poor's rating of the Fund.
4. Source: Bureau of Labor Statistics, 8/23/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 76.
Ongoing economic strength in Minnesota translates into an improved revenue
forecast for the current biennium, continuing the trend of actual performance
substantially exceeding forecasts, as the state maintained its structural
balance and healthy reserve levels. In addition, Minnesota's debt ratios are
consistently lower than national medians, with debt per capita of $513, or 1.9%
of personal income, compared with the 2000 national medians of $540 and 2.2%.(2)
Moody's Investors Service, an independent credit rating agency, assigned an Aaa
rating to Minnesota's general obligation bonds.(2) The highest rating and stable
outlook reflect an extremely strong financial position, the result of
conservative fiscal practices as well as a diverse economic base and moderate
debt levels.
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat in the second and third quarters of 2000, allowing municipal
bonds to rally for the first time in nearly a year. Overall, declining interest
rates benefit bond prices, which rise as yields fall. Accordingly, Franklin
Minnesota Insured Tax-Free Income Fund's Class A share price, as measured by net
asset value, increased from $11.13 per share on February 29, 2000, to $11.58 on
August 31, 2000.
Early in the reporting period, we sought to take advantage of rising interest
rates by selling lower yielding bonds at a loss and reinvesting the proceeds at
higher yields. Such losses can be used to offset any current or future capital
gains, possibly lowering shareholders' future tax liabilities. With this in
mind, we sold bonds issued by Minnesota North Municipal Power, Minneapolis & St.
Paul Metro Airport, Lakeville ISD No. 194, Minnesota Southern Municipal Power,
and Dakota County Housing & Redevelopment. Whenever possible, we attempted to
improve the
PORTFOLIO BREAKDOWN
Franklin Minnesota Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
----------------------------------
<S> <C>
General Obligation 27.1%
Hospital & Health Care* 25.5%
Housing 19.6%
Utilities 8.9%
Prerefunded 7.2%
Transportation 3.3%
Subject to Government
Appropriation 3.1%
Tax-Supported 2.5%
Higher Education 1.6%
Other Revenue 1.2%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals and health care. A change that affects one
project may affect all similar projects, thereby increasing market risk.
DIVIDEND DISTRIBUTIONS*
Franklin Minnesota Insured Tax-Free Income Fund
3/1/00 -8/31/00
<TABLE>
<CAPTION>
Dividend per Share
------------------
<S> <C> <C>
Month Class A Class C
-----------------------------------------------
March 4.85 cents 4.34 cents
April 4.85 cents 4.34 cents
May 4.85 cents 4.34 cents
June 4.85 cents 4.32 cents
July 4.85 cents 4.32 cents
August 4.85 cents 4.32 cents
-----------------------------------------------
Total 29.10 cents 25.98 cents
</TABLE>
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
portfolio's structure through several measures. Our strategy involves swapping
both short- and intermediate-term bonds for longer maturity bonds and bonds with
shorter call provisions for bonds with longer call provisions. These swaps
enhanced the Fund's potential for higher income and greater consistency of
future coupon payments.
Purchases, for the most part, were made in the new-issue market as issuers and
underwriters priced deals attractively to solicit institutional investors'
interest. Examples of purchases include Eden Prairie MFHR, St. Clair ISD No. 75,
St. Cloud Health Care Revenue, Sauk Rapids General Obligation ISD No. 47, and
Minneapolis and St. Paul Housing & Redevelopment bonds.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 34 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 4.81%, based on an annualization of the current 4.85 cent ($0.0485) per
share dividend and the maximum offering price of $12.09 on August 31, 2000. An
investor in the maximum combined federal and Minnesota state personal income tax
bracket of 44.43% would need to earn 8.66% 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.
Minnesota's new bond issuance year-to-date through August 31 was just over $3.2
billion, a 4.3% increase compared to the same period in 1999.(5) Strong retail
demand for Minnesota municipal bonds should help maintain the state's municipal
bond prices and help support the value of the portfolio's holdings. Going
forward, we will continue our search for higher-yielding securities with longer
call protection, and will make our investment decisions within the guiding
principles of tax-free income and conservative asset management.
5. Source: The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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 MINNESOTA
INSURED TAX-FREE
INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.77%
Net Asset Value (NAV) $11.58 (8/31/00) $11.13 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2910
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.54%
Net Asset Value (NAV) $11.64 (8/31/00) $11.18 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2598
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.36% +25.20% +83.15% +195.00%
Average Annual Total Return(2) +0.87% +3.70% +5.77% +6.93%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.85% +21.97% +26.32%
Average Annual Total Return(2) +2.78% +3.85% +4.21%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
Share Class A C
--------------------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 4.81% 4.40%
Taxable Equivalent Distribution Rate(4) 8.66% 7.92%
30-Day Standardized Yield(5) 4.69% 4.32%
Taxable Equivalent Yield(4) 8.44% 7.77%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
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
[State of Ohio Graphic]
Ohio's economy performed well throughout the review period. With growth in the
construction, finance, real estate and services sectors, the state has been
moving from a manufacturing base toward a more diverse employment mix, which
more closely resembles the nation's. The state's overall job growth rate tracks
the national average. Ohio's 4.1% July unemployment rate also was comparable to
the 4.0% national average, reflecting a history of rates close to the national
average.(2)
The state's solid economic performance and prudent fiscal management have
produced a seven-year trend of budget operating surpluses. As of period-end, the
state's reserves had reached levels exceeding those found prior to the early
1990s' recession. A new development in the 2001-02 capital appropriations budget
contains provisions that consolidate and reassign bond-issuing authority among
state issuers. However, this shift in issuance authority is administrative in
nature and does not affect the bonds' security.(3)
Although Ohio's debt level per capita averaged $680 and represented 2.7% of
personal income, exceeding the medians of $540 and 2.2% for the nation as a
whole, these levels were actually quite moderate considering the state's solid
economic base. In May, the Ohio Supreme Court ruled that, while the state had
made progress in
1. For investors subject to the 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, 8/18/00.
3. Source: Moody's Investors Service, 6/8/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 82.
PORTFOLIO BREAKDOWN
Franklin Ohio Insured
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
----------------------------------
<S> <C>
General Obligation 30.2%
Utilities* 25.7%
Prerefunded 13.7%
Hospital & Health Care 10.1%
Higher Education 5.7%
Housing 4.5%
Corporate-Backed 3.3%
Transportation 3.2%
Subject to Government
Appropriation 2.7%
Other Revenue 0.7%
Tax-Supported 0.2%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
addressing school funding concerns, the school funding system still failed to
comply with constitutional requirements. The state has until June 1, 2001, to
comply with the court's decision. The court's mandate represents a noteworthy,
yet not overwhelming, challenge to the state's resources. Accordingly, we expect
a stable credit outlook for Ohio in the months to come.(3)
PORTFOLIO NOTES
Interest rates were volatile during the first half of the reporting period, then
stabilized somewhat in the second and third quarters of 2000, allowing municipal
bonds to rally for the first time in nearly a year. Overall, declining interest
rates benefited bond prices, which rise as yields fall. Accordingly, Franklin
Ohio Insured Tax-Free Income Fund's Class A share price, as measured by net
asset value, increased from $11.52 per share on February 29, 2000, to $11.96 on
August 31, 2000.
Early in the reporting period, we sought to take advantage of rising interest
rates by selling lower-yielding bonds, booking tax losses and reinvesting the
proceeds at higher yields. Such losses can be used to offset any current or
future capital gains. With this in mind, the Fund sold Ohio State Turnpike
Revenue, Medina School District General Obligation (GO), Edgewood School
District COP, and Franklin & Fairfield County School District GO bonds. Whenever
possible, we attempted to improve the portfolio's structure through several
measures. Our strategy involves swapping both short- and intermediate-term bonds
for longer maturity bonds and bonds with shorter call provisions for bonds with
longer call provisions. These swaps enhanced the Fund's income-earning ability,
enabling us to increase the Class A shares' monthly dividend distribution from
5.03 cents per share to 5.05 cents per share in March. The swaps also resulted
in the potential for greater consistency of future coupon payments.
Purchases, for the most part, were made in the new issue market as issuers and
underwriters priced deals attractively to solicit institutional investors'
interest. Examples of purchases include Hilliard School District GO, Jackson
School District GO, Olentangy School District GO, and Plain School District GO
bonds.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 38
shows that at the end of this reporting period, the Fund's Class A shares'
distribution rate was 4.85%, based on an annualization of the current 5.05 cent
($0.0505) per share dividend and the maximum offering price of $12.49 on August
31, 2000. An investor in the maximum combined federal and Ohio state personal
income tax bracket of 43.97% would need to earn 8.66% 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 Class C shares.
Dividend Distributions*
Franklin Ohio Insured Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
Dividend per Share
---------------------------------------
Month Class A Class B Class C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.05 cents 4.51 cents 4.53 cents
April 5.05 cents 4.51 cents 4.53 cents
May 5.05 cents 4.51 cents 4.53 cents
June 5.05 cents 4.49 cents 4.50 cents
July 5.05 cents 4.49 cents 4.50 cents
August 5.05 cents 4.49 cents 4.50 cents
--------------------------------------------------------------------------------
Total 30.30 cents 27.00 cents 27.09 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.
Ohio's new bond issuance year-to-date through August 31 was nearly $3.2 billion,
a 34.2% decrease compared to the same period in 1999.(4) Strong retail demand
for Ohio municipal bonds along with a significantly reduced supply should help
maintain the state's municipal bond prices and help support the value of the
portfolio's holdings going forward. We intend to maintain our conservative,
buy-and-hold investment strategy as we attempt to provide shareholders with
high, current, tax-free income.
4. Source: The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.56%
Net Asset Value (NAV) $11.96 (8/31/00) $11.52 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.3030
</TABLE>
<TABLE>
<CAPTION>
CLASS B
<S> <C> <C>
Six-Month Total Return +6.43%
Net Asset Value (NAV) $11.98 (8/31/00) $11.52 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2700
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.32%
Net Asset Value (NAV) $12.03 (8/31/00) $11.58 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2709
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.47% +28.57% +90.65% +200.73%
Average Annual Total Return(2) +0.95% +4.24% +6.20% +7.07%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +7.09%
Aggregate Total Return(2) +3.09%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.95% +25.34% +30.08%
Average Annual Total Return(2) +2.91% +4.41% +4.78%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 4.85% 4.50% 4.44%
Taxable Equivalent Distribution Rate(4) 8.66% 8.03% 7.92%
30-Day Standardized Yield(5) 4.57% 4.22% 4.18%
Taxable Equivalent Yield(4) 8.16% 7.53% 7.46%
</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 for
Class B) per share on 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 for the maximum combined federal and Ohio state personal income
tax bracket of 43.97%, based on the federal income tax rate of 39.6%.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
MUNICIPAL BOND RATINGS
MOODY'S(R)
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: 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>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 -------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 9.84 $ 10.84 $ 10.77 $10.36 $10.36 $ 9.80
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ........................... .24 .48 .53 .54 .55 .55
Net realized and unrealized gains (losses) ......... .53 (.99) .07 .42 -- .57
---------------------------------------------------------------------
Total from investment operations ..................... .77 (.51) .60 .96 .55 1.12
---------------------------------------------------------------------
Less distributions from net investment income ........ (.24)(d) (.49)(e) (.53) (.55) (.55) (.56)
---------------------------------------------------------------------
Net asset value, end of period ....................... $ 10.37 $ 9.84 $ 10.84 $10.77 $10.36 $ 10.36
=====================================================================
Total return(b) ...................................... 7.87% (4.68)% 5.75% 9.53% 5.55% 11.64%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $73,792 $ 72,517 $80,684 $58,059 $39,693 $38,199
Ratios to average net assets:
Expenses ........................................... .82%(c) .81% .37% .30% .25% .16%
Expenses excluding waiver and payments by\
affiliate ...................................... .82%(c) .81% .84% .82% .86% .86%
Net investment income ................................ 4.84%(c) 4.67% 4.87% 5.11% 5.45% 5.51%
Portfolio turnover rate .............................. 30.55% 33.46% 10.68% 17.44% 18.27% 4.12%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.003.
(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, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.6%
Arizona Health Facilities Authority Hospital System Revenue,
Northern Arizona Healthcare System,
AMBAC Insured, 5.00%, 10/01/23 ................................................................. $2,500,000 $2,284,175
Refunding, AMBAC Insured, 4.75%, 10/01/30 ...................................................... 1,000,000 870,770
Arizona State University COP, Downtown Campus/Mercando Project,
Series A, MBIA Insured, 5.80%, 7/01/24 ......................................................... 1,350,000 1,375,718
Arizona State University Revenues, FGIC Insured, 5.875%, 7/01/25 .................................. 1,000,000 1,030,360
Casa Grande Excise Tax Revenue, FGIC Insured, 6.00%, 4/01/10 ...................................... 400,000 416,756
Glendale IDA, Midwestern University, Series A, MBIA Insured, 5.375%, 5/15/28 ...................... 2,000,000 1,964,500
Marana Municipal Property Corp. Municipal Facilities Revenue,
Refunding, MBIA Insured, 5.25%, 7/01/22 ........................................................ 1,100,000 1,073,402
Maricopa County GO,
Hospital District No. 1, AMBAC Insured, Pre-Refunded, 5.00%, 6/01/21 ........................... 1,250,000 1,300,563
School District No. 3, Tempe Elementary, AMBAC Insured, Pre-Refunded, 6.00%, 7/01/13 ........... 255,000 273,595
School District No. 3, Tempe Elementary, Refunding, AMBAC Insured, 6.00%, 7/01/13 .............. 445,000 466,734
School District No.8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 ............... 500,000 522,990
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ............... 700,000 739,452
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 ............. 500,000 515,395
School District No. 31, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 7/01/13 .................. 570,000 610,704
School District No. 98, Fountain Hills Unified, AMBAC Insured, 5.75%, 7/01/12 .................. 500,000 522,625
School District No. 98, Fountain Hills Unified, Series A, MBIA Insured,
Pre-Refunded, 6.20%, 7/01/10 ................................................................... 235,000 251,781
Maricopa County IDA,
MFHR, Metro Gardens, Mesa Ridge Project, Series A, MBIA Insured, 5.15%, 7/01/29 ................ 2,350,000 2,159,133
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ................ 1,000,000 945,760
MFHR, Villas De Merced Apartment Project, Series A, GNMA Secured, 5.50%, 12/20/37 .............. 570,000 539,813
Water System Revenue, Improvement, Chaparral Water Co., Series A,
AMBAC Insured, 5.40%, 12/01/22 ................................................................. 1,000,000 975,890
Maricopa County IDAR, SFMR, GNMA Secured, 6.25%, 12/01/30 ......................................... 1,000,000 1,035,020
McDowell Mountain Ranch Community Facilities District GO, Refunding,
AMBAC Insured, 5.00%, 7/15/22 .................................................................. 3,745,000 3,535,542
Mesa IDAR,
Discovery Health System, Series A, MBIA Insured, 5.75%, 1/01/25 ................................ 1,500,000 1,520,835
Discovery Health System, Series A, MBIA Insured, 5.625%, 1/01/29 ............................... 2,000,000 2,014,620
Lutheran Health Systems, Refunding, Series A-1, MBIA Insured, 5.00%, 1/01/19 ................... 1,490,000 1,411,149
Mohave County Hospital District No. 1 GO, Kingman Regional Medical Center Project,
FGIC Insured, 6.50%, 6/01/15 .................................................................. 610,000 627,806
Oro Valley Municipal Property Corp. Excise Tax Revenue, Refunding,
FGIC Insured, 5.00%, 7/01/19 ................................................................... 1,035,000 991,095
Peoria Water and Sewer Revenue, FGIC Insured, 5.00%,
7/01/19 ........................................................................................ 1,300,000 1,244,854
7/01/20 ........................................................................................ 1,390,000 1,324,364
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series A,
FSA Insured, 5.00%, 7/01/25 .................................................................... 1,500,000 1,404,765
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue,
MBIA Insured, Pre-Refunded, 6.90%, 7/01/21 .................................................... 1,000,000 1,104,240
Phoenix Civic Improvement Corp. Wastewater System Revenue, junior lien,
FGIC Insured, 6.00%, 7/01/24 ................................................................... 4,875,000 5,087,501
Phoenix Civic Improvement Corp. Water System Revenue, junior lien,
MBIA Insured, 5.375%, 7/01/22 .................................................................. 1,000,000 991,670
Phoenix IDA, SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 .............................. 1,500,000 1,436,535
Phoenix IDAR, SFMR, Series 1B, FNMA Insured, 6.20%, 6/01/22 ....................................... 595,000 614,480
Pima County IDA, SFMR,
GNMA Secured, 6.625%, 11/01/14 ................................................................. 515,000 541,986
Series B-1, GNMA Secured, 6.10%, 5/01/31 ....................................................... 1,000,000 1,018,080
Puerto Rico Commonwealth GO, MBIA Insured, Pre-Refunded, 6.45%, 7/01/17 ........................... 845,000 925,968
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Puerto Rico State Infrastructure, MBIA Insured, 5.00%, 7/01/28 ................................. 1,960,000 1,839,597
Series B, 6.00%, 7/01/26 ....................................................................... 2,000,000 2,074,200
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 ............................... 840,000 881,840
Salt River Project Agricultural Improvement and Power District Electric
System Revenue, Series D, 6.25%, 1/01/27 ....................................................... 1,205,000 1,237,836
Pre-Refunded, 6.25%, 1/01/27 ................................................................... 295,000 307,821
Santa Cruz County USD No. 1, Nogales, Series B, AMBAC Insured,
Pre-Refunded, 6.10%, 7/01/14 ................................................................... 250,000 264,865
Sierra Vista Municipal Property Corp. Facilities Revenue, AMBAC Insured,
6.15%, 1/01/15 ................................................................................. 360,000 376,358
5.00%, 1/01/18 ................................................................................. 1,250,000 1,205,000
Surprise Municipal Property Corp. Excise Tax Revenue, FGIC Insured, 5.70%, 7/01/20 ................ 1,500,000 1,537,620
Tucson GO, Series 1984-G, FGIC Insured, Pre-Refunded, 6.25%, 7/01/18 .............................. 650,000 697,548
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA INSURED TAX - FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Tucson Water Revenue, Water Utility Improvements, FGIC Insured, 5.25%, 7/01/24 . ................ $ 2,700,000 $ 2,624,724
Tucson Water Revenue System, Series D, FGIC Insured, 5.25%, 7/01/23 ............................. 3,000,000 2,921,940
University of Arizona COP,
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/16 ........ 500,000 519,175
Administrative and Packaging Facility Project, Series B, MBIA Insured, 6.00%, 7/15/23 ........ 1,625,000 1,669,184
Parking and Student Housing, AMBAC Insured, 5.75%, 6/01/24 ................................... 1,115,000 1,137,122
Residence Life Project, Series A, FSA Insured, 5.80%, 9/01/13 ................................ 1,000,000 1,039,890
University of Puerto Rico Revenues, Series O, MBIA Insured, 5.375%, 6/01/30 ..................... 2,600,000 2,563,678
Yavapai County GO,
Elementary School District No. 6 Cottonwood-Oak Creek, Project of 1993, Series B,
AMBAC Insured, 6.70%, 7/01/09 ................................................................ 250,000 269,913
USD No. 28 Camp Verde, Refunding, FGIC Insured, 6.00%, 7/01/09 ............................... 775,000 824,452
Yavapai County IDA, Residential Care Facility Revenue, Margaret T. Morris Center,
Series A, GNMA Secured, 5.40%, 2/20/38 ....................................................... 1,575,000 1,483,650
Yuma IDA, Hospital Revenue, Regency Apartments, Refunding, Series A,
GNMA Secured, 5.50%, 12/20/32 ................................................................ 920,000 891,572
------------
TOTAL LONG TERM INVESTMENTS (COST $71,494,995) 97.6% ............................................ 72,038,611
OTHER ASSETS, LESS LIABILITIES 2.4% ............................................................. 1,752,934
------------
NET ASSETS 100.0% ............................................................................... $ 73,791,545
============
</TABLE>
See Glossary on terms on page 88.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31,2000 --------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 9.61 $ 10.53 $ 10.43 $ 9.99 $ 10.02 $ 9.53
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ...................... .24 .48 .51 .53 .53 .53
Net realized and unrealized gains (losses) .... .46 (.92) .10 .44 (.03) .49
-------------------------------------------------------------------------
Total from investment operations ................. .70 (.44) .61 .97 .50 1.02
-------------------------------------------------------------------------
Less distributions from net investment income .... (.24) (.48) (.51) (.53) (.53) (.53)
-------------------------------------------------------------------------
Net asset value, end of period ................... $ 10.07 $ 9.61 $ 10.53 $ 10.43 $ 9.99 $ 10.02
==========================================================================
Total return(b) .................................. 7.41% (4.22)% 6.01% 9.94% 5.17% 10.95%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $109,651 $108,831 $124,488 $101,506 $77,177 $69,583
Ratios to average net assets:
Expenses ...................................... .80%(c) .76% .42% .35% .35% .35%
Expenses excluding waiver and payments by
affiliate .................................. .80%(c) .77% .79% .80% .80% .82%
Net investment income ......................... 4.98%(c) 4.79% 4.88% 5.16% 5.36% 5.37%
Portfolio turnover rate .......................... 18.37% 23.92% 1.81% 8.08% 32.23% 24.36%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 100.1%
Alachua County Public Improvement Revenue, AMBAC Insured, 5.25%, 8/01/29 .............. $2,500,000 $ 2,395,975
Bay Medical Center Hospital Revenue, Bay Medical Center Project,
AMBAC Insured, 5.00%, 10/01/27 ..................................................... 2,025,000 1,846,112
Broward County HFA, FSA Insured,
5.65%, 11/01/22 .................................................................... 500,000 494,975
5.70%, 11/01/29 .................................................................... 1,345,000 1,313,137
Canaveral Port Authority Revenue, Refunding, Series B,
FGIC Insured, 5.625%, 6/01/21 ...................................................... 1,000,000 1,008,950
Citrus County PCR, Florida Power Corp., Refunding,
MBIA Insured, 6.625%, 1/01/27 ...................................................... 2,435,000 2,534,129
Dade County HFA, MFMR, Siesta Pointe Apartments, Series A,
FSA Insured, 5.75%, 9/01/29 ........................................................ 1,890,000 1,863,748
Dade County Water and Sewer System Revenue,
FGIC Insured, 5.25%, 10/01/21 ...................................................... 1,000,000 973,860
Escambia County HFA, SFMR, Multi County Program, Series A,
MBIA Insured, 6.40%, 10/01/30 ...................................................... 2,000,000 2,070,740
Florida HFA, Spinnaker Cove Apartments, Series G,
AMBAC Insured, 6.50%, 7/01/36 ...................................................... 1,600,000 1,684,848
Florida HFC Revenue, Housing Logans Pointe Apartments,
Series F-1, FSA Insured, 5.90%, 12/01/19 ........................................... 1,205,000 1,225,678
Florida State Board Registered Housing Revenue, University of Florida,
FGIC Insured, 5.25%, 7/01/30 ....................................................... 2,000,000 1,915,660
Florida State Department of General Services Division Facilities
Management Revenue, Florida Facilities Pool, Series B, FSA Insured,
5.50%, 9/01/28 ..................................................................... 550,000 547,657
Gulf Breeze Revenue,
FGIC Insured, 5.80%, 12/01/20 ...................................................... 1,250,000 1,290,675
Local Government Loan Program, FGIC Insured, 6.05%, 12/01/13 ....................... 1,915,000 2,038,671
Hernando County Water and Sewer Revenue, FGIC Insured,
6.00%, 6/01/19 ..................................................................... 1,035,000 1,057,760
Pre-Refunded, 6.00%, 6/01/19 ....................................................... 965,000 1,009,844
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding,
MBIA Insured, 6.25%, 12/01/34 ...................................................... 1,500,000 1,565,790
Indian River County Water and Sewer Revenue, FGIC Insured, 5.50%, 9/01/26 ............. 1,250,000 1,246,563
Indian Trace CDD, Water Management Special Benefit Assessment,
MBIA Insured, 5.00%, 5/01/27 ....................................................... 1,000,000 921,260
Indian Trail Water Control District Improvement Bonds, MBIA Insured,
5.75%, 8/01/16 ..................................................................... 1,090,000 1,123,398
5.50%, 8/01/22 ..................................................................... 500,000 500,605
Jacksonville Water and Sewer Revenue, United Water Project,
AMBAC Insured, 6.35%, 8/01/25 ...................................................... 1,000,000 1,053,490
Lake Clarke Shores Utility Systems Revenue, Refunding and Improvement,
FGIC Insured, 5.80%, 10/01/18 ...................................................... 1,415,000 1,446,838
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A,
FGIC Insured, 6.00%, 10/01/17 ...................................................... 500,000 518,730
Lee County Airport Revenue, Series B, FSA Insured, 5.75%, 10/01/33 .................... 4,000,000 4,068,640
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding,
MBIA Insured, 6.05%,
11/01/15 ........................................................................... 2,000,000 2,089,380
11/01/20 ........................................................................... 1,500,000 1,549,905
Lynn Haven Capital Improvement Revenue,
MBIA Insured, 5.50%, 12/01/32 ...................................................... 2,000,000 1,987,860
Series A, MBIA Insured, 5.75%, 12/01/16 ............................................... 1,000,000 1,028,480
Martin County Consolidated Utilities System Revenue, Refunding,
FGIC Insured, 6.00%, 10/01/24 ......................................................... 215,000 221,590
Martin County Health Facilities Authority Hospital Revenue,
Martin Memorial Medical Center Project,
AMBAC Insured, 5.00%, 11/15/28 ..................................................... 1,750,000 1,577,468
Martin County Improvement Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/14 .......... 1,000,000 1,049,090
Miami Beach Water and Sewer, AMBAC Insured, 5.00%, 9/01/30 ............................ 3,000,000 2,760,270
Miami-Dade County Aviation Revenue, Miami International Airport, Series B,
FGIC Insured, 5.75%, 10/01/29 ...................................................... 2,500,000 2,550,050
Miami-Dade County School Board COP, Refunding, Series C,
FSA Insured, 5.00%, 8/01/25 ........................................................ 2,000,000 1,844,800
Miramar Wastewater Improvement Assessment Revenue,
FGIC Insured, Pre-Refunded, 6.75%, 10/01/25 ........................................ 2,000,000 2,190,840
Ocoee Water and Sewer System Revenue, AMBAC Insured, 5.625%, 10/01/26 ................. 4,220,000 4,248,358
Okaloosa County Gas District Revenue, Gas System, MBIA Insured, 5.50%, 10/01/21 ....... 1,000,000 1,002,280
Okeechobee Utility Authority System Revenue, Capital Improvement, Refunding,
FSA Insured, 5.00%, 10/01/25 ....................................................... 2,000,000 1,851,960
Orange County Capital Improvement Revenue,
AMBAC Insured, Pre-Refunded, 6.00%, 10/01/22 ....................................... 500,000 525,695
Refunding, AMBAC Insured, 6.00%, 10/01/22. ......................................... 490,000 500,947
Orange County Health Facilities Authority Revenue,
Adventist/Sunbelt, Series B, FSA Insured, 6.75%, 11/15/21 .......................... 1,000,000 1,038,640
MBIA Insured, 6.00%, 11/01/24. ..................................................... 700,000 711,480
Series A, MBIA Insured, 6.00%, 11/01/24 ............................................ 1,700,000 1,789,369
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 .............. 1,000,000 1,037,800
Orange County School Board COP,
AMBAC Insured, 5.50%, 8/01/25 ...................................................... 1,000,000 991,900
Series A, MBIA Insured, 5.375%, 8/01/22 ............................................ 875,000 857,850
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Orange County Tourist Development Tax Revenue, AMBAC Insured, 5.50%,
10/01/22 ............................................................................... $1,000,000 $ 1,001,370
10/01/31 ............................................................................... 2,500,000 2,477,825
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A,
FSA Insured, 5.70%, 12/01/17 ........................................................... 530,000 532,300
Osceola County Transportation Revenue, Osceola Parkway Project,
MBIA Insured, 6.10%, 4/01/17 ........................................................... 1,225,000 1,257,634
Palm Beach County Criminal Justice Facilities Revenue,
FGIC Insured, 6.00%, 6/01/15 ........................................................... 1,000,000 1,039,650
Palm Beach County School Board COP, Series A, FGIC Insured, 6.00%, 8/01/22 ................ 3,000,000 3,151,740
Polk County Capital Improvement Revenue, Special Tax,
FSA Insured, 5.75%, 12/01/21 ........................................................... 1,000,000 1,025,710
Port St. Lucie Utilities Revenue, Refunding and Improvement, Series A,
MBIA Insured, 5.125%, 9/01/27 .......................................................... 4,000,000 3,752,960
Puerto Rico Commonwealth GO, FSA Insured, Pre-Refunded, 6.00%, 7/01/22 .................... 1,000,000 1,048,110
Puerto Rico PBA Revenue, Government Facilities, Series A,
AMBAC Insured, 5.50%, 7/01/25 .......................................................... 1,000,000 1,007,260
Sarasota County Utilities System Revenue, FGIC Insured, 5.75%, 10/01/27 ................... 520,000 528,793
Seminole County School Board COP, Series A, MBIA Insured,
Pre-Refunded, 6.125%, 7/01/14 .......................................................... 1,000,000 1,077,270
South Miami Health Facilities Authority Hospital Revenue,
Baptist Health System Obligation Group, MBIA Insured, 5.00%, 11/15/28 .................. 3,000,000 2,705,820
St. Lucie West Services District Special Assessment Revenue,
Port St. Lucie, Water Management Benefit, Refunding, senior
lien, Series A,
MBIA Insured, 5.25%, 5/01/25 ........................................................... 5,000,000 4,825,446
St. Lucie West Services District Utility Revenue, senior lien,
MBIA Insured, 6.125%, 10/01/32 ......................................................... 2,240,000 2,372,339
Stuart Utilities Revenue, FGIC Insured, Pre-Refunded,
6.70%, 10/01/14 ........................................................................ 500,000 532,810
6.80%, 10/01/24 ........................................................................ 500,000 534,230
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ............... 2,000,000 1,938,680
Tampa Sports Authority Revenue, Tourist Development, FSA Insured, 5.25%, 1/01/27 .......... 2,000,000 1,922,660
Tampa Water and Sewer Revenue, FGIC Insured, 5.50%, 10/01/29 .............................. 3,000,000 2,982,630
Tavares Water and Sewer Revenue, AMBAC Insured, 5.50%, 10/01/30 ........................... 1,000,000 989,800
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 ........... 490,000 530,920
Village Center CDD, Recreational Revenue, Refunding, Series A,
MBIA Insured, 5.00%, 11/01/21 .......................................................... 1,000,000 937,870
West Melbourne Water and Sewer Revenue, Refunding and Improvement,
FGIC Insured, 6.75%, 10/01/14 .......................................................... 500,000 538,795
------------
TOTAL LONG TERM INVESTMENTS (COST $108,127,372) ........................................... 109,836,367
------------
(a)SHORT TERM INVESTMENTS .1%
Jacksonville Revenue, YMCA Florida First Coast Project,
Weekly VRDN and Put, 4.25%, 3/01/18 (COST $50,000) ..................................... 50,000 50,000
------------
TOTAL INVESTMENTS (COST $108,177,372) 100.2% .............................................. 109,886,367
OTHER ASSETS, LESS LIABILITIES (.2)% ...................................................... (234,960)
------------
NET ASSETS 100.0% ......................................................................... $109,651,407
============
</TABLE>
See glossary of terms on page 88.
(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>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ----------------------------------------------------------------------
CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 11.24 $ 12.26 $ 12.31 $ 12.15 $ 12.27 $ 11.97
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............ .31 .61 .63 .66 .69 .71
Net realized and unrealized gains
(losses) ............................ .46 (1.00) .06 .29 (.11) .30
---------------------------------------------------------------------------------------
Total from investment operations ...... .77 (.39) .69 .95 .58 1.01
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income ............... (.31) (.61) (.63) (.66) (.70) (.71)
In excess of net investment income .. --(f) --(e) (.01) (.01) -- --
Net realized gains .................. -- (.02) (.10) (.12) -- --
---------------------------------------------------------------------------------------
Total distributions ................... (.31) (.63) (.74) (.79) (.70) (.71)
---------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 11.70 $ 11.24 $ 12.26 $ 12.31 $ 12.15 $ 12.27
=======================================================================================
Total return(b) ....................... 6.92% (3.21)% 5.72% 8.09% 4.88% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $1,439,056 $1,445,546 $1,727,014 $1,685,260 $1,662,087 $1,705,038
Ratios to average net assets:
Expenses ............................ .63%(c) .62% .62% .61% .60% .60%
Net investment income ............... 5.33%(c) 5.23% 5.11% 5.44% 5.68% 5.81%
Portfolio turnover rate ............... 4.76% 13.29% 13.16% 27.77% 18.66% 13.52%
CLASS B
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period .. $ 11.24 $ 11.14
---------------------------
Income from investment operations:
Net investment income(a) ............ .27 .05
Net realized and unrealized gains ... .47 .10
---------------------------
Total from investment operations ...... .74 .15
---------------------------
Less distributions from net investment
income .............................. (.27)(e) (.05)
---------------------------
Net asset value, end of period ........ $ 11.71 $ 11.24
===========================
Total return(b) ....................... 6.70% 1.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 1,141 $ 63
Ratio to average net assets:
Expenses ............................ 1.19%(c) 1.18%(c)
Net investment income ............... 4.72%(c) 5.23%(c)
Portfolio turnover rate ............... 4.76% 13.29%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.001.
(f) Includes distributions in excess of net investment income in the amount of
$.002.
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN INSURED TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
SIX MONTHS ENDED
AUGUST 31, 2000 ---------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.31 $ 12.33 $ 12.38 $ 12.21 $ 12.31 $ 11.98
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .27 .55 .57 .60 .62 .54
Net realized and unrealized gains (losses) .. .46 (1.00) .05 .29 (.09) .32
-------------------------------------------------------------------------
Total from investment operations .............. .73 (.45) .62 .89 .53 .86
-------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.27)(g) (.55)(e) (.57)(f) (.60) (.63) (.53)
Net realized gains .......................... -- (.02) (.10) (.12) -- --
-------------------------------------------------------------------------
Total distributions ........................... (.27) (.57) (.67) (.72) (.63) (.53)
-------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.77 $ 11.31 $ 12.33 $ 12.38 $ 12.21 $ 12.31
=========================================================================
Total return(b) ............................... 6.57% (3.74)% 5.12% 7.52% 4.42% 7.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $53,865 $56,627 $65,166 $38,057 $21,521 $ 8,152
Ratios to average net assets:
Expenses .................................... 1.19%(c) 1.18% 1.18% 1.18% 1.17% 1.18%(c)
Net investment income ....................... 4.77%(c) 4.66% 4.54% 4.86% 5.10% 5.21%(c)
Portfolio turnover rate ....................... 4.76% 13.29% 13.16% 27.77% 18.66% 13.52%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.001.
(f) Includes distributions in excess of net investment income in the amount of
$.004.
(g) 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, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
ALABAMA 2.3%
Alabama State Board Educational Revenue, Southern Union State Junior College,
MBIA Insured, Pre-Refunded, 6.50%, 7/01/12 ............................................ $ 1,000,000 $ 1,050,590
Alabama Water Pollution Control Authority Revolving Fund Loan, AMBAC Insured,
6.25%, 8/15/14 ........................................................................ 100,000 100,958
Anniston Regional Medical Center Board, Series A, AMBAC Insured,
5.25%, 6/01/18 ........................................................................ 5,000,000 4,931,500
5.125%, 6/01/28 ....................................................................... 3,000,000 2,800,260
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue,
Merscot-Auburn LP Project, FGIC Insured, 7.30%, 1/01/12 ............................... 1,345,000 1,376,809
Bessemer Governmental Utility Services Corp., Water Supply Revenue,
MBIA Insured, 5.25%, 6/01/32 .......................................................... 5,000,000 4,720,000
East Alabama Health Care Authority Health Care Facilities Revenue,
Tax Anticipation Bond, Series A, MBIA Insured, 5.25%, 9/01/28 ......................... 8,000,000 7,488,800
Huntsville Health Care Authority, Series A, MBIA Insured, 5.00%, 6/01/23 ................. 2,000,000 1,839,360
Huntsville Health Care Authority Facilities Revenue, Series A, MBIA Insured,
6.375%, 6/01/22 ....................................................................... 300,000 307,956
Jefferson County Sewer Revenue, wts., Series D, FGIC Insured, 5.75%, 2/01/22 ............. 5,000,000 5,062,800
Montgomery Medical Clinic Board Health Care Facilities Revenue, Jackson
Hospital and Clinic, Refunding, AMBAC Insured,
6.00%, 3/01/26 ........................................................................ 4,000,000 4,101,640
----------
33,780,673
----------
ALASKA 1.3%
Alaska Energy Authority Power Revenue, Bradley Lake Project, BIG Insured,
6.25%, 7/01/21 ........................................................................ 5,000 5,012
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured, 5.20%, 7/01/17 ........ 3,000,000 2,943,750
Alaska Industrial Development and Export Authority, Refunding, Series A,
MBIA Insured, 6.125%, 4/01/27 ......................................................... 5,000,000 5,135,400
Alaska State HFC, Refunding, Series A, MBIA Insured,
6.00%, 6/01/27 ........................................................................ 5,000,000 5,060,400
5.875%, 12/01/30 ...................................................................... 485,000 487,357
6.10%, 12/01/37 ....................................................................... 5,000,000 5,084,000
University of Alaska COP, Series 1990, FSA Insured, 7.375%, 10/01/07 ..................... 500,000 511,000
University of Alaska Revenues, Series B, AMBAC Insured, 6.50%, 10/01/17 .................. 250,000 260,468
----------
19,487,387
----------
ARIZONA 3.4%
Arizona State Municipal Financing Program COP, Series 1986-20, BIG Insured,
ETM, 7.70%, 8/01/10 .................................................................... 6,000,000 7,247,520
Chandler Water and Sewer Revenue, Refunding, FGIC Insured, 7.00%, 7/01/12 ................ 2,200,000 2,264,240
Cochise County USD No. 68, Sierra Vista, Refunding, FGIC Insured, 7.50%, 7/01/10 ......... 500,000 608,620
Maricopa County IDA, Hospital Facility Revenue, Samaritan Health Services,
Refunding, Series A, MBIA Insured, ETM, 7.00%, 12/01/16 ................................ 300,000 354,954
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 ........................................................................ 18,000,000 18,250,020
5.625%, 1/01/29 ....................................................................... 12,655,000 12,747,508
Navajo County PCR, Arizona Public Service Co., Series A, MBIA Insured, 5.875%, 8/15/28 ... 3,000,000 3,047,970
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ....................... 270,000 276,931
Salt River Project Agricultural Improvement and Power District Electric System
Revenue, Refunding, Series A, FGIC Insured, 5.50%, 1/01/19 ............................. 1,150,000 1,152,128
Tucson Water Revenue, Series 1994-A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/21 .......... 5,000,000 5,423,800
----------
51,373,691
----------
ARKANSAS .2%
Arkansas State Development Finance Authority Water Revenue, Refunding,
Series A, MBIA Insured, 6.50%, 7/01/10 ................................................ 2,000,000 2,245,240
----------
CALIFORNIA 2.1%
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ............. 15,000,000 20,223,450
Lancaster RDA, Tax Allocation, Lancaster Residential Redevelopment, Refunding,
MBIA Insured, 6.10%, 8/01/19 .......................................................... 1,515,000 1,562,510
Oakland RDA, Central District Redevelopment, Refunding, AMBAC Insured, 5.50%, 2/01/14 .... 250,000 269,453
Sacramento MUD, Electric Revenue, Refunding, Series D, MBIA Insured, 5.25%, 11/15/20 ..... 2,750,000 2,736,223
San Francisco BART District Sales Tax Revenue, FGIC Insured, 5.50%, 7/01/20 .............. 1,035,000 1,047,234
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding,
Series A, MBIA Insured, 5.25%, 1/15/30 ................................................ 4,000,000 3,877,520
Stockton East Water District COP, 1990 Project, Series A, AMBAC Insured, 6.40%,
4/01/22 ............................................................................... 1,460,000 1,516,312
----------
31,232,702
----------
COLORADO 5.8%
Arapahoe County COP,
Arapahoe County Building Finance Corp., FSA Insured, Pre-Refunded, 7.50%, 12/01/10 .... 1,000,000 1,007,350
Refunding, FSA Insured, 6.625%, 12/01/16 .............................................. 8,695,000 9,069,320
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
COLORADO (CONT.)
Broomfield COP, AMBAC Insured, 6.00%, 12/01/29 ............................................. $ 3,000,000 $ 3,107,190
Castle Pines Metropolitan District GO, Refunding and Improvement, FSA Insured,
Pre-Refunded, 7.625%, 12/01/15 ........................................................... 1,500,000 1,541,160
Centennial Water and Sanitation District, Water and Sewer Revenue, Refunding,
Series A, FSA Insured, 5.125%, 12/01/17 .................................................. 5,000,000 4,873,950
Colorado Health Facilities Authority Revenue, Community Provider Pooled Loan
Program, Series A, FSA Insured, 7.25%, 7/15/17 ........................................... 1,174,000 1,220,854
Colorado Public Highway Authority Revenue, Highway E-470, Refunding, Senior Series
A, MBIA Insured, 5.00%, 9/01/21 .......................................................... 5,000,000 4,691,000
Colorado Springs Hospital Revenue, Refunding, MBIA Insured, 6.00%, 12/15/24 ................ 2,455,000 2,505,426
Colorado State Board of Agriculture Revenue, MBIA Insured, 6.40%,
3/01/11 .................................................................................. 350,000 361,760
3/01/17 .................................................................................. 440,000 451,211
Colorado Water Resource and Power Development Authority Small Water Resource
Revenue, Series A, FGIC Insured, 6.70%, 11/01/12 ......................................... 2,000,000 2,090,000
Denver City and County Airport Revenue,
Series C, MBIA Insured, 6.125%, 11/15/25 ................................................. 4,410,000 4,726,373
Series C, MBIA Insured, ETM, 6.125%, 11/15/25 ............................................ 3,590,000 3,847,547
Series E, MBIA Insured, 5.50%, 11/15/25 .................................................. 5,000,000 4,952,450
Denver City and County Board of Water Commissioners COP, FGIC Insured,
6.625%, 11/15/11 ......................................................................... 545,000 563,928
Pre-Refunded, 6.625%, 11/15/11 ........................................................... 955,000 989,523
Denver City and County Revenue, Children's Hospital Association Project, FGIC
Insured, 6.00%, 10/01/15 ................................................................. 3,000,000 3,085,440
El Paso County SFMR, Series A, GNMA Secured, 8.00%, 9/01/22 ................................ 160,000 163,515
Garfield, Pitkin and Eagle Counties Reorganized School District No. 1, MBIA
Insured, Pre-Refunded, 6.60%, 12/15/14 ................................................... 3,600,000 3,897,720
Goldsmith Metropolitan District, Refunding, MBIA Insured, 6.125%, 12/01/12 ................. 2,000,000 2,056,660
Jefferson County COP, Refunding, MBIA Insured, 6.65%, 12/01/08 ............................. 5,000,000 5,299,850
Jefferson County SFMR, Refunding, Series A, MBIA Insured, 8.875%, 10/01/13 ................. 125,000 129,483
La Plata County School District No. R-9, Durango City, FGIC Insured, 6.55%, 11/01/12 ....... 490,000 512,545
Morgan County PCR, First Mortgage, Public Service Co., Refunding, Series A, MBIA
Insured, 5.50%, 6/01/12 .................................................................. 1,000,000 1,019,150
Mountain College Residence Hall Revenue Authority, MBIA Insured,
5.625%, 6/01/12 .......................................................................... 1,900,000 1,974,746
5.75%, 6/01/23 ........................................................................... 3,000,000 3,043,140
Parker Water and Sanitation District Water and Sewer Revenue, Refunding, FGIC
Insured, 6.20%, 10/01/15 ................................................................. 275,000 280,558
Postsecondary Educational Facilities Authority Revenue, University of Denver
Project, Refunding, Connie Lee Insured, 6.00%, 3/01/10 ................................... 1,000,000 1,035,970
Regional Transportation District Sales Tax Revenue, FGIC Insured, 6.25%, 11/01/12 .......... 235,000 244,828
University of Colorado Hospital Authority Revenue,
Refunding, Series A, AMBAC Insured, 5.20%, 11/15/17 ...................................... 5,675,000 5,499,018
Refunding, Series A, AMBAC Insured, 5.25%, 11/15/22 ...................................... 8,800,000 8,389,216
Series A, AMBAC Insured, 5.00%, 11/15/29 ................................................. 5,000,000 4,504,600
-----------
87,135,481
-----------
CONNECTICUT .6%
Connecticut State Health and Educational Facilities Authority Revenue,
Danbury Hospital, Series E, MBIA Insured, 6.50%, 7/01/14 ................................. 335,000 345,911
Mansfield Nursing Home, AMBAC Insured, 6.00%, 11/01/22 ................................... 2,450,000 2,501,916
Series E, MBIA Insured, Pre-Refunded, 6.50%, 7/01/14 ..................................... 1,665,000 1,727,721
Trinity College, Series D, FGIC Insured, Pre-Refunded, 6.125%, 7/01/24 ................... 2,000,000 2,156,740
New Haven Air Rights Parking Facility Revenue, Refunding, MBIA Insured, 6.50%, 12/01/15 .... 2,000,000 2,072,480
-----------
8,804,768
-----------
DELAWARE .3%
Delaware State EDA Revenue, PCR, Refunding, Series B, AMBAC Insured, 6.75%, 5/01/19 ........ 1,000,000 1,050,680
Delaware State Health Facilities Authority Revenue, Medical Center, MBIA Insured,
Pre-Refunded, 7.00%, 10/01/15 ............................................................ 2,900,000 3,145,427
-----------
4,196,107
-----------
FLORIDA 3.1%
Cape Coral Franchise Fees Revenue, AMBAC Insured, 5.40%, 12/01/13 .......................... 1,800,000 1,824,300
Celebration CDD, Special Assessment, Series B, MBIA Insured, 5.50%, 5/01/19 ................ 1,000,000 1,006,080
Dade County Seaport Revenue, Refunding, Series E, MBIA Insured, 8.00%, 10/01/08 ............ 200,000 244,492
Greater Orlando Aviation Authority Orlando Airport Facilities Revenue, Series B,
FGIC Insured, 5.25%, 10/01/28 ............................................................ 2,500,000 2,400,700
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Refunding, MBIA Insured,
6.25%, 12/01/34 .......................................................................... 1,000,000 1,043,860
Hillsborough County IDAR, University Community Hospital, MBIA Insured, 5.80%, 8/15/24 ...... 3,000,000 3,032,880
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
FLORIDA (CONT.)
Lakeland Hospital System Revenue, Lakeland Regional Medical Center Project,
Refunding, MBIA Insured, 5.25%, 11/15/25 ................................................. $ 1,250,000 $ 1,189,588
Lee County IDA Utilities Revenue, Bonita Springs Utilities Project, Refunding,
MBIA Insured, 6.05%,
11/01/15 ................................................................................. 1,000,000 1,044,690
11/01/20 ................................................................................. 1,000,000 1,033,270
Lee County Solid Waste System Revenue, MBIA Insured, 5.375%, 10/01/15 ...................... 2,000,000 1,972,520
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ............... 5,000,000 5,494,150
Opa-Locka Capital Improvement Revenue, FGIC Insured, 6.125%, 1/01/24 ....................... 1,000,000 1,033,040
Orange County Health Facilities Authority Revenue,
MBIA Insured, 6.00%, 11/01/24 ............................................................ 260,000 264,264
Series A, MBIA Insured, 6.00%, 11/01/24 .................................................. 740,000 778,902
South Central Nursing, Series A, FSA Insured, 5.50%, 7/01/32 ............................. 3,000,000 2,946,660
Orange County Tourist Development Tax Revenue, AMBAC Insured, 5.50%, 10/01/31 .............. 1,000,000 991,130
Orlando and Orange County Expressway Authority Revenue, junior lien, FGIC Insured, 6.50%,
7/01/10 .................................................................................. 100,000 113,682
7/01/12 .................................................................................. 225,000 257,427
Orlando Utilities Commission Water and Electric Revenue, Series A, AMBAC Insured,
5.50%, 10/01/26 .......................................................................... 2,535,000 2,527,927
Osceola County Transportation Revenue, Osceola Parkway Project, MBIA Insured,
6.10%, 4/01/17 ........................................................................... 1,000,000 1,026,640
Polk County IDAR, Winter Haven Hospital, Series 2, MBIA Insured, 6.25%, 9/01/15 ............ 970,000 1,021,109
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/24 ........................ 5,000,000 4,609,000
Reedy Creek ID, Utilities Revenue, Refunding, Series 1, MBIA Insured, 5.00%, 10/01/19 ...... 3,500,000 3,318,490
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured,
7.15%, 11/01/15 .......................................................................... 250,000 303,318
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 ................ 2,000,000 1,938,680
Tampa Bay Water Utilities Systems Revenue, FGIC Insured, 5.75%, 10/01/29 ................... 2,000,000 2,037,640
Volusia County Educational Facility Authority Revenue, Embry Riddle Aeronautical
University, Refunding, Series B, AMBAC Insured,
5.25%, 10/15/19 .......................................................................... 3,500,000 3,433,605
-----------
46,888,044
-----------
GEORGIA 4.8%
Atlanta Airport Facilities Revenue, Refunding, Series A, FGIC Insured, 5.50%, 1/01/26 ...... 13,750,000 13,674,375
Atlanta GO, Refunding, FGIC Insured, 5.00%,
12/01/20 ................................................................................. 4,775,000 4,458,370
12/01/23 ................................................................................. 6,000,000 5,526,180
Atlanta Water and Wastewater Revenue, Refunding, Series A, FGIC Insured, 5.00%, 11/01/29 ... 10,000,000 9,142,000
Brunswick Water and Sewer Revenue, Refunding and Improvement, MBIA Insured, 6.10%,
10/01/14 ................................................................................. 1,535,000 1,686,090
Burke County Development Authority PCR, Georgia Power Co. Plant Vogtle,
7th Series, MBIA Insured, 6.625%, 10/01/24 ............................................... 2,000,000 2,023,400
Refunding, 2nd Series, AMBAC Insured, 5.25%, 5/01/34 ..................................... 5,450,000 5,154,174
Cherokee County Water and Sewage Authority Revenue,
FGIC Insured, 5.00%, 8/01/27 ............................................................. 1,500,000 1,377,525
Refunding, MBIA Insured, 6.90%, 8/01/18 .................................................. 1,000,000 1,039,520
Columbia County Water and Sewage Revenue, Refunding, AMBAC Insured, 6.25%, 6/01/12 ......... 1,500,000 1,560,045
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A,
MBIA Insured, 6.50%, 7/01/24 ............................................................. 1,015,000 1,037,888
Georgia Medical Center Hospital Authority Revenue, Anticipation Certificates,
Columbus Regional Healthcare Systems, MBIA Insured,
5.50%, 8/01/19 ........................................................................... 15,000,000 14,911,950
Henry County Water and Sewer Authority Revenue, FGIC Insured, 5.625%, 2/01/30 .............. 2,500,000 2,505,075
Macon-Bibb County Urban Development Authority Revenue, MF Housing, Refunding,
Series A, MBIA Insured, 5.55%, 1/01/24 ................................................... 1,590,000 1,559,297
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare System, MBIA Insured,
5.50%, 8/01/25 ........................................................................... 3,300,000 3,247,068
Rockdale County Water and Sewer Authority Revenue, Refunding, Series A, MBIA
Insured, 5.375%, 7/01/29 ................................................................. 2,300,000 2,226,216
Upper Oconee Basin Water Authority Revenue, FGIC Insured, 5.25%, 7/01/27 ................... 1,340,000 1,276,966
-----------
72,406,139
-----------
HAWAII 1.4%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 .................................................................................. 1,000,000 1,051,530
5/01/13 .................................................................................. 1,000,000 1,045,170
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 3,108,120
St. Francis Medical Centers, Refunding, FSA Insured, 6.50%, 7/01/22 ...................... 4,000,000 4,131,560
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
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LONG TERM INVESTMENTS (CONT.)
HAWAII (CONT.)
Hawaii State Department of Budget and Finance Special Purpose Revenue, Hawaiian
Electric Co. Project, Series B, MBIA Insured,
5.875%, 12/01/26 ....................................................................... $ 2,000,000 $ 2,026,480
Hawaii State Harbor Capital Improvement Revenue, FGIC Insured, 6.40%,
7/01/05 ................................................................................ 535,000 561,333
7/01/06 ................................................................................ 605,000 634,240
7/01/07 ................................................................................ 610,000 638,280
Honolulu City and County GO, Series C, FGIC Insured, 5.00%, 7/01/20 ...................... 6,250,000 5,889,563
Kauai County GO, Series A, FGIC Insured, 6.125%, 8/01/23 ................................. 1,755,000 1,839,152
-----------
20,925,428
-----------
IDAHO .1%
Boise State University Revenues, Student Fee, MBIA Insured, Pre-Refunded, 6.50%,
4/01/19 ................................................................................ 1,000,000 1,075,820
-----------
ILLINOIS 3.3%
Aurora SFMR, Series 1990, AMBAC Insured, 7.80%, 12/01/15 ................................. 210,000 213,419
Chicago Board of Education GO, Chicago School Reform, Series A, AMBAC Insured,
5.25%, 12/01/30 ........................................................................ 2,000,000 1,881,740
Chicago Board of Education Lease COP, Refunding, Series A, MBIA Insured, 6.25%,
1/01/09 ................................................................................ 320,000 351,034
Chicago Heights GO, MBIA Insured, Pre-Refunded, 7.40%, 12/01/03 .......................... 100,000 103,561
Cicero GO, FSA Insured, 6.90%, 12/01/12 .................................................. 1,500,000 1,602,795
Cook County Community College District No. 508 COP, FGIC Insured,
8.50%, 1/01/02 ......................................................................... 7,470,000 7,857,693
8.75%, 1/01/05 ......................................................................... 5,000,000 5,789,100
Illinois Health Facilities Authority Revenue,
Community Provider Pooled Loan Program, Series A, FSA Insured, 7.35%, 8/15/10 .......... 4,452,000 4,644,683
Michael Reese Hospital, Series A, FSA Insured, ETM, 7.60%, 2/15/05 ..................... 3,680,000 3,947,794
Northwestern Medical Facility Foundation, Refunding, MBIA Insured, 5.125%,
11/15/28 ............................................................................. 5,000,000 4,533,750
Refunding, Series B, MBIA Insured, ETM, 7.90%, 8/15/03 ................................. 403,000 432,649
Series 1990, FSA Insured, 7.75%, 8/15/10 ............................................... 2,367,000 2,414,340
Series 1990, FSA Insured, ETM, 7.75%, 8/15/10 .......................................... 50,000 61,820
Series B, MBIA Insured, 7.90%, 8/15/03 ................................................. 1,600,000 1,603,264
Silver Cross Hospital, MBIA Insured, Pre-Refunded, 7.00%, 8/15/21 ...................... 1,000,000 1,044,120
Illinois State COP, FSA Insured, Pre-Refunded, 6.95%, 7/01/13 ............................ 5,750,000 6,113,630
Macon County and Decatur COP, Decatur Public Building Commission, FGIC Insured,
6.50%, 1/01/06 ......................................................................... 300,000 325,572
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 3,998,371
Onterie Center HFC, Mortgage Revenue, Refunding, MBIA Insured, 7.05%, 7/01/27 ............ 2,000,000 2,079,100
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%,
11/01/20 ............................................................................... 300,000 362,040
-----------
49,360,475
-----------
INDIANA .2%
Indiana Health Facility Financing Authority Hospital Revenue, Community Hospital
Project, Refunding and Improvement, MBIA Insured,
6.40%, 5/01/12 ......................................................................... 250,000 261,703
Indianapolis Gas Utility Revenue, Refunding, Series B, FGIC Insured, 4.00%,
6/01/15 ................................................................................ 500,000 432,675
Jasper County PCR, Northern Indiana Public Service Co., Refunding, MBIA Insured,
7.10%, 7/01/17 ......................................................................... 500,000 519,405
Patoka Lake Regional Water and Sewer District Waterworks Revenue, Series A,
AMBAC Insured, Pre-Refunded, 6.45%, 1/01/15 ............................................ 1,500,000 1,602,555
Rockport PCR, Michigan Power Co., Refunding, Series B, FGIC Insured, 7.60%,
3/01/16 ................................................................................ 185,000 191,262
-----------
3,007,600
-----------
IOWA .2%
Greater Iowa Housing Assistance Corp. Mortgage Revenue, Logan Park Project,
Refunding, Series B, MBIA Insured, 6.50%, 1/01/24 ...................................... 2,100,000 2,145,171
-----------
KANSAS .6%
Burlington PCR, Kansas Gas and Electric Co. Project, Refunding, MBIA Insured,
7.00%, 6/01/31 ......................................................................... 3,350,000 3,474,486
Cowley and Shawnee Counties SFMR, GNMA Secured, 7.35%, 12/01/11 .......................... 615,000 633,401
Kansas State Development Finance Authority Health Facility Revenue, MBIA
Insured, 5.80%, 11/15/21 ............................................................... 1,330,000 1,345,707
Wichita Hospital Revenue, St. Francis, Refunding and Improvement, MBIA Insured,
6.25%, 10/01/10 ........................................................................ 2,000,000 2,091,860
Wichita Water and Sewer Utility Revenue, Refunding and Improvement, Series B,
FGIC Insured, Pre-Refunded, 6.00%, 10/01/12 ............................................ 1,000,000 1,011,060
-----------
8,556,514
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
KENTUCKY 1.5%
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured,
5.375%, 6/01/22 ......................................................................... $ 2,000,000 $ 1,970,840
5.50%, 6/01/28 .......................................................................... 1,750,000 1,737,523
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services
Inc., AMBAC Insured, 6.55%, 5/01/22 ..................................................... 1,000,000 1,041,180
Jefferson County Health System Revenue, Alliant Health System Inc., MBIA
Insured, 5.20%, 10/01/28 ................................................................ 7,000,000 6,558,860
Kenton County Water District No. 001 Waterworks Revenue, Series B, FGIC Insured,
5.70%, 2/01/20 .......................................................................... 1,250,000 1,276,388
Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Baptist Healthcare System, Refunding, MBIA Insured, 5.00%, 8/15/24 ...................... 2,000,000 1,840,280
St. Elizabeth Medical Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 ........... 2,375,000 2,440,526
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 1,046,590
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 2,208,040
Northern Kentucky University COP, Student Housing Facilities, FSA Insured,
Pre-Refunded, 7.25%, 1/01/12 ............................................................ 2,000,000 2,057,900
-----------
22,178,127
-----------
LOUISIANA .3%
Jefferson Parish Hospital Service District No. 2 Hospital Revenue, FSA Insured,
5.00%, 7/01/28 .......................................................................... 5,000,000 4,487,750
New Orleans GO, Public Improvement, FGIC Insured, Pre-Refunded, 7.50%, 9/01/21 ............. 500,000 529,070
-----------
5,016,820
-----------
MAINE .6%
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 2,086,880
Series B, FSA Insured, Pre-Refunded, 7.00%, 7/01/24 ..................................... 2,000,000 2,211,720
Series C, FSA Insured, 6.20%, 7/01/25 ................................................... 2,015,000 2,090,643
Old Orchard Beach GO, MBIA Insured, Pre-Refunded, 6.65%,
9/01/11 ................................................................................. 1,180,000 1,260,547
9/01/12 ................................................................................. 535,000 572,798
-----------
8,222,588
-----------
MARYLAND .6%
Baltimore Revenue, Wastewater Project, Refunding, Series A, FSA Insured, 5.75%,
7/01/30 ................................................................................. 5,880,000 5,972,022
Maryland State CDA, Department of Housing and Community Development,
Infrastructure Financing, Series A, AMBAC Insured,
6.625%, 6/01/12 ......................................................................... 245,000 256,307
Pre-Refunded, 6.625%, 6/01/12 ........................................................... 1,755,000 1,854,702
Pre-Refunded, 6.70%, 6/01/22 ............................................................ 820,000 867,601
Maryland State Health and Higher Educational Facilities Authority Revenue,
University of Maryland Medical System, Series B, FGIC Insured, 7.00%, 7/01/22 ........... 200,000 232,208
-----------
9,182,840
-----------
MASSACHUSETTS 7.4%
Boston Water and Sewer Commission Revenue, Series A, FGIC Insured, Pre-Refunded,
6.00%, 11/01/21 ......................................................................... 3,700,000 3,771,854
Central Berkshire Religious School District GO, Series B, FSA Insured, 5.125%,
3/01/18 ................................................................................. 1,125,000 1,092,746
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue,
Refunding, Series A, AMBAC Insured, 6.00%, 7/01/18 ...................................... 4,455,000 4,504,183
Massachusetts State Health and Educational Facilities Authority Revenue,
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26 ......................... 10,000,000 10,236,800
Boston Medical Center, Series A, MBIA Insured, 5.00%, 7/01/29 ........................... 2,785,000 2,478,121
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/18 ...................... 2,000,000 1,878,520
Caregroup Issue, Refunding, Series A, MBIA Insured, 5.00%, 7/01/25 ...................... 5,000,000 4,463,900
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 ..................... 5,000,000 4,589,300
Harvard Pilgrim Health, Series A, FSA Insured, 5.00%, 7/01/18 ........................... 3,000,000 2,680,230
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23 .................... 1,000,000 957,480
Massachusetts General Hospital, Series F, AMBAC Insured, Pre-Refunded, 6.25%, 7/01/20 ... 9,220,000 9,832,577
Massachusetts Medical Center, Series A, AMBAC Insured, Pre-Refunded, 7.10%, 7/01/21 ..... 1,000,000 1,042,200
McLean Hospital, Series C, FGIC Insured, Pre-Refunded, 6.625%, 7/01/15 .................. 1,085,000 1,148,494
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22 ........................ 8,500,000 8,861,250
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24 ..................... 12,200,000 11,762,630
Simmons College, Series C, MBIA Insured, 5.125%, 10/01/28 ............................... 8,000,000 7,369,760
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MASSACHUSETTS (CONT.)
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Stonehill College, Series E, MBIA Insured, 6.60%, 7/01/20 ............................. $ 1,120,000 $ 1,168,574
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.60%, 7/01/20 ............... 880,000 931,119
Youville Hospital, Refunding, Series B, MBIA Insured, 6.00%, 2/15/25 .................. 2,000,000 2,036,060
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22 ................. 3,000,000 3,183,570
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15 ... 5,000,000 5,269,550
Suffolk University, AMBAC Insured, 5.25%, 7/01/17 ..................................... 3,000,000 2,960,220
Massachusetts State Port Authority Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 7/01/23 ..................................... 4,000,000 4,068,080
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/20 .................... 1,590,000 1,575,801
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/21 .................... 1,560,000 1,540,094
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/23 .................... 2,155,000 2,118,106
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/24 .................... 2,910,000 2,855,467
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, sub.
lien, Refunding, Series B, MBIA Insured, 5.125%, 1/01/37 .............................. 2,100,000 1,915,494
Monson GO, School District, Series 1990, MBIA Insured, Pre-Refunded, 7.70%,
10/15/10 .............................................................................. 2,000,000 2,047,040
Palmer GO, Series B, AMBAC Insured, Pre-Refunded, 7.70%, 10/01/10 ........................ 2,300,000 2,351,175
------------
110,690,395
------------
MICHIGAN 3.8%
Chippewa Valley Schools GO, Refunding, AMBAC Insured, 5.00%, 5/01/27 ..................... 1,000,000 923,860
Detroit Sewage Disposal Revenue, MBIA Insured, 5.00%, 7/01/25 ............................ 6,000,000 5,474,940
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/27 .............................. 7,250,000 7,239,343
Jackson County Hospital Finance Authority Hospital Revenue, W.A. Foote Memorial
Hospital, Series A, AMBAC Insured, 5.25%, 6/01/17 ..................................... 500,000 489,070
Kalamazoo Hospital Finance Authority Hospital Facility Revenue, Bronson Methodist
Hospital, Refunding and Improvement,
MBIA Insured, 5.875%, 5/15/26 ......................................................... 5,500,000 5,582,665
Series A, MBIA Insured, Pre-Refunded, 6.375%, 5/15/17 ................................. 2,000,000 2,136,760
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital,
Refunding, Series D, FSA Insured, 6.10%, 4/01/19 ...................................... 5,000,000 5,205,450
Michigan State Hospital Finance Authority Revenue,
Hospital Botsford Obligation, Refunding, Series A, MBIA Insured, 5.25%, 2/15/22 ....... 2,000,000 1,913,180
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ........... 6,725,000 6,238,648
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ............ 10,000,000 8,947,500
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 ............... 2,500,000 2,606,375
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co.,
Pollution Project, Refunding,
FGIC Insured, 6.875%, 12/01/21 ........................................................ 200,000 208,086
Series BB, AMBAC Insured, 7.00%, 5/01/21 .............................................. 250,000 298,005
Saginaw Valley State University Revenue, AMBAC Insured, 5.30%, 7/01/28 ................... 3,400,000 3,275,288
Yale Public Schools District GO, FSA Insured, 5.375%, 5/01/27 ............................ 3,845,000 3,772,637
Zeeland Public Schools GO, Refunding, MBIA Insured, 5.25%, 5/01/24 ....................... 3,180,000 3,067,110
------------
57,378,917
------------
MINNESOTA 3.5%
Eden Prairie MFHR, Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%,
1/20/31 ............................................................................... 2,000,000 2,068,940
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26 .................... 12,280,000 12,313,524
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 6.00%,
2/01/22 ............................................................................... 2,025,000 2,065,763
Northern Municipal Power Agency Electric System Revenue, Refunding, Series B,
AMBAC Insured, 5.50%, 1/01/18 ......................................................... 2,100,000 2,088,219
Sauk Rapids Independent School District Number 47 GO, MBIA Insured, 5.75%,
2/01/26 ............................................................................... 11,850,000 12,091,029
Southern Minnesota Municipal Power Agency Power Supply System Revenue, Series A,
AMBAC Insured, 5.75%, 1/01/18 ......................................................... 2,870,000 2,903,579
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 6,844,530
Washington County GO,
Governmental Housing, Scandia II Project, Series B, FGIC Insured, 6.30%, 7/01/24 ...... 1,200,000 1,231,944
Raymie Johnson Apartments, Refunding, Series C, FGIC Insured, 6.30%, 1/01/20 .......... 2,415,000 2,484,455
Western Minnesota Municipal Power Agency Power Supply Revenue, Series A, MBIA
Insured, 6.125%, 1/01/16 .............................................................. 8,350,000 8,372,211
------------
52,464,194
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
MISSISSIPPI
Harrison County Wastewater Management District Revenue, Wastewater Treatment
Facilities, Refunding, Series A, FGIC Insured, 8.50%, 2/01/13 ........................... $ 200,000 $ 265,870
-----------
MISSOURI .8%
Kansas City IDA, Mortgage Revenue, Presidential Gardens, Refunding, Series A, FNMA Insured,
5.55%, 8/01/25 ........................................................................... 340,000 336,362
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 .......................... 1,000,000 1,039,290
Saint Charles County Public Facilities Authority Leasehold Revenue, FGIC Insured,
6.375%, 3/15/07 .......................................................................... 2,850,000 2,975,172
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ........................... 215,000 216,191
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 .................. 2,000,000 2,092,760
Refunding and Improvement, FGIC Insured, Pre-Refunded, 6.25%, 2/15/12 .................... 2,025,000 2,168,694
St. Louis School District GO, Refunding, FGIC Insured, 6.00%, 4/01/12 ...................... 2,950,000 3,067,735
-----------
11,896,204
-----------
MONTANA 1.0%
Forsyth County PCR, Puget Sound Power and Light Co. Project, AMBAC Insured,
6.80%, 3/01/22 ........................................................................... 4,475,000 4,695,170
Helena Water Revenue, Series C, FGIC Insured, 6.65%, 11/01/12 .............................. 750,000 788,700
Montana State Board Workers Compensation Investment Program, MBIA Insured, ETM,
6.875%, 6/01/20 .......................................................................... 8,500,000 8,806,595
Montana State University Revenue, Higher Education Facilities, Acquisition and
Improvement, Series C, MBIA Insured, 6.00%, 11/15/14 ..................................... 1,000,000 1,002,000
-----------
15,292,465
-----------
NEBRASKA .6%
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1,
MBIA Insured, ETM, 6.70%, 6/01/22 ........................................................ 2,500,000 2,836,125
Lincoln Hospital Revenue, Lincoln General Hospital, Series A, FSA Insured, Pre-Refunded,
6.20%, 12/01/14 .......................................................................... 2,000,000 2,113,760
Municipal Energy Agency of Nebraska Power Supply System Revenue, Refunding,
Series A, AMBAC Insured, 6.00%,
4/01/15 .................................................................................. 2,000,000 2,070,820
4/01/17 .................................................................................. 1,350,000 1,381,185
Nebraska Educational Finance Authority Revenue, Creighton University Project,
AMBAC Insured, 5.95%, 1/01/11 ............................................................ 1,000,000 1,063,540
-----------
9,465,430
-----------
NEVADA .4%
Carson City Hospital Revenue, Series B, AMBAC Insured, 5.40%, 3/01/17 ...................... 1,000,000 990,310
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 ................................... 250,000 285,095
Clark County School District, Series A, MBIA Insured, 7.00%, 6/01/10 ....................... 4,000,000 4,667,480
-----------
5,942,885
-----------
NEW HAMPSHIRE .7%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Mary Hitchcock Memorial Hospital, FGIC Insured, 5.75%, 8/15/23 ........................... 6,750,000 6,810,480
University System, Refunding, MBIA Insured, 6.25%, 7/01/20 ............................... 4,000,000 4,129,480
-----------
10,939,960
-----------
NEW JERSEY 1.0%
Essex County Improvement Authority Lease, Jail and Youth House Projects, AMBAC
Insured, Pre-Refunded, 7.00%, 12/01/24 ................................................... 3,000,000 3,349,320
Essex County Improvement Authority Revenue, Garden State Cancer Center Project,
AMBAC Insured, 6.00%, 12/01/20 ........................................................... 2,525,000 2,612,971
Middlesex County COP, MBIA Insured, 5.30%, 6/15/29 ......................................... 3,575,000 3,442,010
Mount Laurel Township Municipal Utility Authority, Utility System Revenue,
Refunding, Series A, MBIA Insured, 6.00%, 7/01/15 ........................................ 785,000 810,544
Series A, MBIA Insured, Pre-Refunded, 6.00%, 7/01/15 ..................................... 1,215,000 1,283,016
New Jersey Health Care Facilities Financing Authority Revenue, Muhlenberg Regional Medical
Center, Series B, AMBAC Insured, 8.00%, 7/01/18 .......................................... 3,000,000 3,010,710
New Jersey State Turnpike Authority Revenue, Refunding, Series C, AMBAC Insured,
6.50%, 1/01/16 ........................................................................... 300,000 340,128
-----------
14,848,699
-----------
NEW MEXICO .5%
Farmington PCR, Public Service Co. of New Mexico, Refunding, Series A, AMBAC Insured,
6.375%, 12/15/22 ......................................................................... 5,000,000 5,166,050
Gallup PCR, Plains Electric Generation, Refunding, MBIA Insured, 6.65%, 8/15/17 ............ 2,000,000 2,097,740
New Mexico Mortgage Finance Authority SFM Program, Series C, FGIC Insured, 8.625%,
7/01/17 .................................................................................. 570,000 572,024
-----------
7,835,814
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
NEW YORK 6.1%
Central Square GO, Central School District, FGIC Insured, 6.50%, 6/15/10 ................... $ 900,000 $ 1,022,697
Dutchess County IDA, Civic Facilities Revenue, Bard College Project, AMBAC
Insured, 5.375%, 6/01/27 ................................................................ 3,945,000 3,790,672
Nassau Health Care Corp. Health System Revenue, Nassau County Guaranty, FSA
Insured, 5.75%, 8/01/29 ................................................................. 5,000,000 5,040,000
New York City GO, Series C, Sub Series C-1, MBIA Insured, Pre-Refunded, 6.625%, 8/01/12 .... 105,000 110,941
New York City Trust Cultural Resources Revenue, New York Botanical Garden, MBIA Insured,
5.80%, 7/01/26 .......................................................................... 2,000,000 2,030,160
New York State Dormitory Authority Revenue,
Brooklyn Law School, FSA Insured, 6.40%, 7/01/11 ........................................ 4,000,000 4,126,120
Mount Sinai School of Medicine, Refunding, MBIA Insured, 6.75%, 7/01/15 ................. 1,500,000 1,548,750
Pace University, MBIA Insured, 5.70%, 7/01/22 ........................................... 7,500,000 7,582,125
Pace University, Refunding, MBIA Insured, 5.75%, 7/01/26 ................................ 2,500,000 2,537,750
Pooled Capital Program, FGIC Insured, 7.80%, 12/01/05 ................................... 695,000 707,357
St. John's University, MBIA Insured, 5.70%, 7/01/26 ..................................... 15,000,000 15,111,450
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 .................................. 4,000,000 3,833,240
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 5,075,300
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 3,628,100
Rochester Gas and Electric Project, Refunding, Series B, MBIA Insured, 6.50%, 5/15/32 ... 5,000,000 5,189,400
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 3,072,930
Niagara Frontier Transportation Authority Airport Revenue, Greater Buffalo International
Airport, Series A, AMBAC Insured, 6.25%, 4/01/24 ........................................ 9,000,000 9,354,600
Port Authority of New York and New Jersey Revenue, Consolidated, 102nd Series,
MBIA Insured,
5.625%, 10/15/17 ........................................................................ 5,000,000 5,055,300
5.875%, 10/15/27 ........................................................................ 10,000,000 10,139,200
Upper Mohawk Valley Regional Water Finance Authority Water Systems Revenue,
Refunding, Series A, FSA Insured, 5.125%, 10/01/26 ...................................... 1,495,000 1,396,240
-----------
90,352,332
-----------
NORTH CAROLINA 1.9%
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ............................... 1,000,000 1,010,070
Catawba County Hospital Revenue, Catawba Memorial Hospital Project, Refunding,
AMBAC Insured, 5.00%, 10/01/17 .......................................................... 1,125,000 1,070,359
New Hanover County Hospital Revenue, New Hanover Regional Medical Center Project,
MBIA Insured, 5.00%, 10/01/28 ........................................................... 7,000,000 6,306,860
North Carolina Medical Care Commission Health Care Facilities Revenue, Novant
Health Project, Series B, MBIA Insured, 5.00%, 10/01/28 ................................. 11,300,000 10,172,034
North Carolina Medical Care Commission Hospital Revenue,
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ................................... 5,000,000 4,759,850
Wayne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 .............. 5,000,000 4,595,000
North Carolina Municipal Power Agency No. 1, Catawba Electric Revenue, MBIA Insured, ETM,
6.50%, 1/01/10 .......................................................................... 20,000 22,290
-----------
27,936,463
-----------
NORTH DAKOTA .4%
Grand Forks Health Care System Revenue, Altru Health System Obligation Group,
MBIA Insured, 5.625%, 8/15/27 ........................................................... 5,390,000 5,327,153
North Dakota State Building Authority Revenue, Refunding, Series A, AMBAC
Insured, 6.75%, 6/01/11 ................................................................. 300,000 304,914
-----------
5,632,067
-----------
OHIO 4.5%
Clermont County Building and Road Improvement, Refunding, AMBAC Insured, 5.60%,
9/01/14 ................................................................................. 2,000,000 2,047,060
Cleveland Airport Systems Revenue, Series A, FSA Insured, 5.125%, 1/01/27 ..................
Cleveland Waterworks Revenue, .............................................................. 6,000,000 5,539,800
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/23 ........................ 2,750,000 2,570,920
Series F, AMBAC Insured, Pre-Refunded, 6.50%, 1/01/11 ................................... 1,625,000 1,700,774
Cuyahoga County Hospital Revenue, University Hospitals Health System Inc., Refunding, AMBAC
Insured, 5.50%, 1/15/30 ................................................................. 5,000,000 4,892,750
Elyria GO, FGIC Insured, 5.40%, 12/01/17 ................................................... 2,400,000 2,414,064
Hamilton County Sales Tax, Hamilton County Football, Project B, MBIA Insured,
5.00%, 12/01/27 ......................................................................... 3,250,000 3,000,173
Hamilton Wastewater System Revenue, Series A, FSA Insured, 5.15%, 10/15/17 ................. 3,015,000 2,954,399
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 .............. 1,750,000 1,799,420
Lucas County Hospital Revenue, Promedica Healthcare Obligation Group, AMBAC Insured,
5.375%, 11/15/29 ........................................................................ 5,000,000 4,804,050
Medina City School District GO, FGIC Insured, 5.25%, 12/01/28 .............................. 7,500,000 7,232,100
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
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LONG TERM INVESTMENTS (CONT.)
OHIO (CONT.)
Ohio HFA, SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ..................................... $ 2,225,000 $ 2,294,398
Ohio Municipal Electric Generation Agency Joint Venture 5, Certificates of
Beneficial Interest, AMBAC Insured, 5.375%, 2/15/24 ..................................... 5,500,000 5,409,855
Ohio State Turnpike Commission Revenue, Series A, MBIA Insured, Pre-Refunded,
5.50%, 2/15/26 .......................................................................... 14,000,000 14,902,440
University of Cincinnati COP, University Center Project, MBIA Insured, 5.125%,
6/01/24 ................................................................................. 2,950,000 2,800,347
West Holmes Local School District GO, MBIA Insured, 5.375%, 12/01/17 ....................... 3,100,000 3,115,810
------------
67,478,360
------------
OKLAHOMA .6%
Grady County HFA, SFMR, Refunding, Series A, FGIC Insured, 6.70%, 1/01/12 .................. 410,000 427,101
McGee Creek Authority Water Revenue, MBIA Insured, 6.00%, 1/01/23 .......................... 300,000 322,344
Muskogee County, HFAR, SFMR, Refunding, Series A, FGIC Insured, 7.60%, 12/01/10 ............ 25,000 25,449
Oklahoma State Turnpike Authority Revenue, First Senior, Series A, AMBAC Insured,
6.00%, 1/01/12 .......................................................................... 2,000,000 2,081,800
Okmulgee County Governmental Building Authority Sales Tax Revenue, First Mortgage, MBIA
Insured, 6.20%, 3/01/20 ................................................................. 1,625,000 1,710,540
Tulsa County Home Finance Authority Mortgage Revenue, Series D, GNMA Secured,
6.95%, 12/01/22 ......................................................................... 145,000 150,155
Tulsa Industrial Authority Revenue, Holland Hall School Project, FSA Insured,
Pre-Refunded, 6.75%, 12/01/14 ........................................................... 3,270,000 3,612,794
------------
8,330,183
------------
OREGON 2.1%
Chemeketa Community College District, FGIC Insured, Pre-Refunded, 5.95%, 6/01/16 ........... 3,000,000 3,212,850
Clackamas Community College District, MBIA Insured, Pre-Refunded, 5.80%, 6/01/26 ........... 2,500,000 2,658,600
Deschutes and Jefferson Counties School District No. 2-J, Redmond, MBIA Insured,
5.60%, 6/01/09 .......................................................................... 1,500,000 1,534,545
Josephine County School District No. 7, FGIC Insured, Pre-Refunded, 5.70%, 6/01/13 ......... 5,000,000 5,215,050
Medford Hospital Facilities Authority Revenue, Asante Health System, Series A,
MBIA Insured, 5.00%, 8/15/24 ............................................................ 2,250,000 2,101,185
Northern Wasco County Peoples Utilities District Electric Revenue, FGIC Insured,
5.625%, 12/01/22 ........................................................................ 1,000,000 1,005,380
Ontario Catholic Health Revenue, Holy Rosary Medical Center, MBIA Insured, 5.50%,
11/15/12 ................................................................................ 700,000 722,148
Oregon Health Sciences University Revenue, Series B, MBIA Insured, 5.25%, 7/01/15 .......... 1,500,000 1,507,530
Oregon State Department of Administrative Services COP, Series A,
AMBAC Insured, Pre-Refunded, 5.80%, 5/01/24 ............................................. 5,000,000 5,380,100
MBIA Insured, 5.70%, 5/01/17 ............................................................ 1,000,000 1,024,350
Port of Portland International Airport Revenue, Portland International Airport,
Series 11, FGIC Insured, 5.625%, 7/01/26 ................................................ 1,000,000 996,530
Washington County Unified Sewer Agency Revenue, senior lien,
FGIC Insured, 5.50%, 10/01/16 ........................................................... 1,845,000 1,874,944
Series A, AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 ................................. 1,000,000 1,062,070
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 3,160,770
------------
31,456,052
------------
PENNSYLVANIA 2.6%
Allegheny County Hospital Development Authority Revenue, Health System, Series A,
6.50%, 11/15/30 ......................................................................... 10,000,000 10,649,800
Beaver County GO, Series A, MBIA Insured, Pre-Refunded, 5.90%, 10/01/26 .................... 2,000,000 2,143,900
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 5,257,450
Lehigh County General Purpose Authority Revenue, Hospital Healtheast Inc., Refunding,
Series A, MBIA Insured, 7.00%, 7/01/15 .................................................. 100,000 102,816
Montgomery County IDAR, PCR, Philadelphia Electric Co., Series B, MBIA Insured,
6.70%, 12/01/21 ......................................................................... 8,000,000 8,360,000
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured, ETM,
6.00%, 9/01/19 .......................................................................... 500,000 533,685
Pennsylvania State Turnpike Oil Commission Franchise Tax Revenue, Refunding, Series P,
AMBAC Insured, 6.00%, 12/01/17 .......................................................... 500,000 514,985
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured,
6.10%, 6/15/25 .......................................................................... 4,000,000 4,113,320
Philadelphia Water and Wastewater Revenue, FSA Insured,
5.50%, 6/15/15 .......................................................................... 665,000 672,441
Pre-Refunded, 5.50%, 6/15/15 ............................................................ 335,000 350,531
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District Sales
Tax, AMBAC Insured, 5.25%, 2/01/31 ...................................................... 6,000,000 5,669,580
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured,
ETM, 7.25%, 9/01/14 ..................................................................... 90,000 106,710
------------
38,475,218
------------
RHODE ISLAND 1.3%
Kent County Water Authority General Revenue, Series A, MBIA Insured, 6.35%, 7/15/14 ........ 2,100,000 2,220,750
Providence GO, Series A, FSA Insured, 5.70%, 7/15/19 ....................................... 3,000,000 3,066,720
Rhode Island Clean Water Financing Agency Revenue, Cranston Wastewater Treatment
System, MBIA Insured, 5.80%, 9/01/22 .................................................... 7,785,000 7,833,635
Rhode Island Port Authority and EDC Revenue, Shepard Building Project, Series B,
AMBAC Insured, Pre-Refunded, 6.75%, 6/01/25 ............................................. 2,000,000 2,191,220
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
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LONG TERM INVESTMENTS (CONT.)
RHODE ISLAND (CONT.)
Rhode Island State GO, Series A, FGIC Insured,
6.25%, 6/15/07 ........................................................................ $ 145,000 $ 152,001
Pre-Refunded, 6.25%, 6/15/07 .......................................................... 30,000 31,512
Rhode Island State Health and Educational Building Corp. Revenue,
Higher Educational Facilities, Roger Williams Facility, Connie Lee Insured, ........... 2,000,000 2,245,900
Pre-Refunded, 7.25%, 11/15/24 .........................................................
Hospital Financing Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ............ 1,750,000 1,759,345
------------
19,501,083
------------
SOUTH CAROLINA .3%
Charleston Waterworks and Sewer Revenue, Refunding and Improvement, AMBAC Insured,
6.00%, 1/01/16 ........................................................................ 250,000 256,158
Edgefield County School District, Refunding, FSA Insured, ETM, 8.50%, 2/01/01 ............ 250,000 254,153
Piedmont Municipal Power Agency Electric Revenue, Refunding, FGIC Insured, 6.25%, ........ 200,000 220,014
1/01/21 ...............................................................................
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan
Program, Series A, FSA Insured, ETM, 7.125%, 7/01/17 .................................. 3,000,000 3,545,370
Spartanburg Sanitation Sewer District Sewer System Revenue, Implementation, MBIA
Insured, Pre-Refunded, 5.50%, 6/01/27 ................................................. 500,000 531,245
------------
4,806,940
------------
SOUTH DAKOTA 1.0%
Brookings COP, AMBAC Insured, 5.10%, 12/01/18 ............................................ 5,000,000 4,821,300
Grant County PCR, Refunding, MBIA Insured, 5.90%, 6/01/23 ................................ 4,800,000 4,864,656
Sioux Falls Medical Clinic Revenue, AMBAC Insured, 8.00%, 9/01/08 ........................ 1,955,000 1,987,981
South Dakota Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ....................... 2,720,000 3,175,600
South Dakota State University Revenue, Housing and Auxiliary Facilities, Refunding,
Series A, MBIA Insured, 5.50%, 4/01/17 ................................................ 20,000 20,102
------------
14,869,639
------------
TENNESSEE 1.0%
Greater Tennessee Housing Assistance Revenue, Section 8, Refunding, Series A,
MBIA Insured, 6.00%, 7/01/24 .......................................................... 1,400,000 1,413,566
Johnson City Health and Educational Facilities Board Hospital Revenue,
Series 2000 A, MBIA Insured, Pre-Refunded, 5.125%, 7/01/25 ............................ 2,780,000 2,621,596
Series 2000 B, MBIA Insured, ETM, 5.125%, 7/01/25 ..................................... 2,220,000 2,093,504
Johnson City Health and Educational Revenue, Medical Center Hospital, Refunding
and Improvement, MBIA Insured, 5.25%, 7/01/28 ......................................... 8,500,000 8,036,580
Metropolitan Nashville Airport Authority Revenue, Series C, FGIC Insured, 6.60%,
7/01/15 ............................................................................... 200,000 207,462
------------
14,372,708
------------
TEXAS 12.1%
Austin Combined Utility System Revenue,
BIG Insured, Pre-Refunded, 8.625%, 11/15/17 ........................................... 1,000,000 1,067,880
Series A, BIG Insured, Pre-Refunded, 8.00%, 11/15/16 .................................. 3,000,000 3,074,130
Austin Hotel Occupancy Tax Revenue, Refunding, sub. lien, AMBAC Insured,
5.625%, 11/15/21 ...................................................................... 2,355,000 2,347,558
5.80%, 11/15/29 ....................................................................... 13,750,000 13,934,388
Austin Utility System Revenue, Refunding, FGIC Insured, 6.00%, 5/15/15 ................... 15,000 15,021
Bell County Health Facilities Development Corp. Revenue, Hospital Cook Children's
Medical, Refunding, FSA Insured, 5.30%, 12/01/23 ...................................... 5,000,000 4,774,650
Bexar County HFC Revenue, Series A, GNMA Secured, 8.20%, 4/01/22 ......................... 2,205,000 2,235,297
Brazos River Authority Revenue, Houston Light and Power Co. Project, Refunding,
Series A, AMBAC Insured, 6.70%, 3/01/17 ............................................... 2,000,000 2,090,840
Coastal Bend Health Facilities Development Corp., Series B, AMBAC Insured, ETM,
6.30%, 1/01/17 ........................................................................ 12,230,000 12,884,917
Dallas-Fort Worth International Airport Revenue, Joint Series A, FGIC Insured,
6.00%, 11/01/21 ....................................................................... 2,210,000 2,264,499
East Texas HFC, SFMR, Series 1990, GNMA Secured, 7.85%, 12/01/10 ......................... 425,000 436,263
Faulkey Gully MUD GO, AMBAC Insured,
6.625%, 3/01/07 ....................................................................... 295,000 303,357
Pre-Refunded, 6.625%, 3/01/07 ......................................................... 1,225,000 1,264,494
Fort Bend County Levee ID No. 011, AMBAC Insured, 6.00%,
9/01/21 ............................................................................... 1,395,000 1,428,089
9/01/22 ............................................................................... 1,495,000 1,529,161
9/01/23 ............................................................................... 1,610,000 1,646,080
Grand Prairie Health Facilities Development Corp., Dallas-Fort Worth Medical
Center Project, Refunding, AMBAC Insured, 6.875%, 11/01/10 ............................ 2,700,000 2,811,321
Harris County Health Facilities Development Corp. Revenue, Christus Health,
Refunding, Series A, MBIA Insured, 5.375%, 7/01/29 .................................... 22,000,000 20,550,860
Harris County Hospital District Mortgage Revenue, Refunding, AMBAC Insured,
7.40%, 2/15/10 ........................................................................ 2,350,000 2,670,987
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
TEXAS (CONT.)
Harris County Toll Road,
senior lien, Series A, AMBAC Insured, 6.50%, 8/15/17 .................................. $ 1,580,000 $ 1,651,084
senior lien, Series B, AMBAC Insured, 6.625%, 8/15/17 ................................. 240,000 241,392
Series A, FGIC Insured, 6.50%, 8/15/11 ................................................ 35,000 36,855
Houston Airport System Revenue, sub. lien, Series A, FGIC Insured, 6.75%, 7/01/21 ........ 2,500,000 2,589,675
Houston Water and Sewer System Revenue,
junior lien, Refunding, Series C, AMBAC Insured, 6.375%, 12/01/17 ..................... 880,000 908,336
junior lien, Refunding, Series C, MBIA Insured, 5.75%, 12/01/15 ....................... 500,000 510,860
junior lien, Series B, FGIC Insured, 5.75%, 12/01/30 .................................. 10,000,000 10,122,500
junior lien, Series C, AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17 .................. 55,000 57,399
junior lien, Series C, FGIC Insured, 5.375%, 12/01/27 ................................. 3,800,000 3,665,480
Series A, MBIA Insured, 6.375%, 12/01/22 .............................................. 1,840,000 1,913,287
Series A, MBIA Insured, Pre-Refunded, 6.375%, 12/01/22 ................................ 4,540,000 4,814,988
Lubbock HFC, SFMR, Mortgage Extension Program, Refunding, Series B, BIG Insured,
8.875%, 12/01/12 ...................................................................... 335,000 335,248
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 12,969,505
Matagorda County Navigation District No. 1 Revenue, Houston Industries Inc.
Project, Refunding,
Series A, MBIA Insured, 5.25%, 11/01/29 ............................................... 3,185,000 2,956,604
Series B, MBIA Insured, 5.15%, 11/01/29 ............................................... 2,750,000 2,550,680
Palo Duro River Authority, Refunding, FSA Insured, 6.375%, 8/01/08 ....................... 6,000,000 6,644,220
Portland Community Center Complex Development Corp. Sales Tax Revenue, Refunding,
AMBAC Insured, 5.45%, 2/15/25 ......................................................... 1,450,000 1,424,959
Sabine River Authority PCR, Texas Utilities Electric Co. Project, Collateralized,
Refunding, FGIC Insured, 6.55%, 10/01/22 .............................................. 3,250,000 3,390,075
San Antonio Water Revenue,
Refunding and Improvement, MBIA Insured, 5.60%, 5/15/21 ............................... 3,250,000 3,230,013
senior lien, MBIA Insured, 6.50%, 5/15/10 ............................................. 2,920,000 3,061,182
San Marcos Waterworks and Sewer Systems Revenue, Series 1998, FSA Insured,
5.125%, 8/15/20 ....................................................................... 2,870,000 2,740,534
San Patricio County COP, MBIA Insured, Pre-Refunded, 6.60%, 4/01/07 ...................... 2,500,000 2,583,950
Smithville HDC Mortgage Revenue, Smithville Retirement, Refunding, Series A, MBIA ........ 1,025,000 1,067,322
Insured, 6.40%, 1/01/22 ...............................................................
Southeast HDC Mortgage Revenue, Stonegate Retirement, MBIA Insured, 6.40%, 1/01/24 ....... 1,140,000 1,174,075
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris
Methodist Health, MBIA Insured, ETM, 6.00%, 9/01/24 ................................... 3,250,000 3,451,533
Tarrant County Health Facilities Development Corp. Hospital Revenue, Fort Worth
Osteopathic Hospital, MBIA Insured, 5.125%, 5/15/21 ................................... 2,905,000 2,726,778
Texas Health Facilities Development Corp. Hospital Revenue, All Saints Episcopal
Hospitals, Refunding, Series B, MBIA Insured,
6.25%, 8/15/22 ........................................................................ 2,500,000 2,570,275
6.375%, 8/15/23 ....................................................................... 4,885,000 5,056,903
Texas State Turnpike Authority Revenue, Dallas North Tollway, Refunding, AMBAC
Insured, 5.00%, 1/01/20 ............................................................... 7,250,000 6,837,838
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical
Center Project,
Series B, FSA Insured, 5.50%, 11/01/17 ................................................ 1,000,000 1,000,630
Series C, FSA Insured, 5.60%, 11/01/27 ................................................ 1,430,000 1,408,307
Series D, FSA Insured, 5.375%, 11/01/27 ............................................... 9,700,000 9,266,410
------------
180,288,689
------------
US TERRITORIES
District of Columbia HFA, RMR, Series 1986-1, FGIC Insured, 7.75%, 9/01/16 ............... 560,000 564,900
-----------
UTAH .9%
Intermountain Power Agency Power Supply Revenue, Refunding, Series B, MBIA
Insured, 5.75%, 7/01/19 ............................................................... 3,250,000 3,310,450
Provo Electric System Revenue, Refunding, Series A, AMBAC Insured, ETM, 10.375%,
9/15/15 ............................................................................... 40,000 56,186
Utah County Hospital Revenue, IHC Health Services Inc., MBIA Insured, 5.25%,
8/15/21 ............................................................................... 5,000,000 4,797,500
8/15/26 ............................................................................... 5,000,000 4,742,250
Utah State Board of Regents Student Loan Revenue, Series H, AMBAC Insured, 6.70%,
11/01/15 .............................................................................. 1,080,000 1,127,779
------------
14,034,165
------------
VERMONT .5%
Vermont HFA, Home Mortgage Purchase, Series B, MBIA Insured, 7.60%, 12/01/24 ............. 6,630,000 6,742,909
Vermont Municipal Bond Bank, Series 2, FSA Insured, 6.25%, 12/01/19 ...................... 1,000,000 1,038,980
------------
7,781,889
------------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
VIRGINIA 1.7%
Chesapeake Bay Bridge and Tunnel Commission District Revenue, General
Resolution, MBIA Insured, Pre-Refunded, 5.75%, 7/01/25 .................................. $ 9,850,000 $ 9,965,442
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA
Insured, 6.00%, 6/01/12 ................................................................. 5,000,000 5,293,400
Danville IDA, Hospital Revenue, Danville Regional Medical Center, FGIC Insured,
Pre-Refunded, 6.50%, 10/01/24 ........................................................... 1,000,000 1,086,190
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA
Insured, 5.00%, 7/01/28 ................................................................. 3,405,000 3,181,973
Spotsylvania County Water and Sewer System Revenue, MBIA Insured, 5.40%, 6/01/27 ........... 3,850,000 3,790,749
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah
University Project, MBIA Insured,
5.00%, 10/01/18 ......................................................................... 1,000,000 963,100
5.25%, 10/01/28 ......................................................................... 1,420,000 1,377,372
-----------
25,658,226
-----------
WASHINGTON 5.6%
Douglas County PUD No. 1 Electric Systems Revenue, MBIA Insured, 6.00%, 1/01/15 ............ 900,000 939,753
Everett COP, Series A, AMBAC Insured, Pre-Refunded, 7.25%, 4/01/09 ......................... 850,000 864,059
Grant County PUD No. 2, Wanapum Hydroelectric Revenue, Series B, AMBAC Insured,
6.75%, 1/01/23 .......................................................................... 1,060,000 1,104,552
Pre-Refunded, 6.75%, 1/01/23 ............................................................ 940,000 984,321
King County Public Hospital District No. 001 Hospital Facilities Revenue, Valley
Medical Center, King County Sewer, MBIA Insured,
6.125%, 1/01/33 ......................................................................... 3,000,000 3,074,070
Kitsap County School District No. 100-C, MBIA Insured, Pre-Refunded, 6.60%,
12/01/08 ................................................................................ 1,015,000 1,054,514
Klickitat County PUD No. 001 Electric Revenue, FGIC Insured,
5.65%, 10/01/15 ......................................................................... 1,000,000 1,016,880
5.75%, 10/01/27 ......................................................................... 1,000,000 1,007,070
Mason County GO, School District No. 402, Pioneer, MBIA Insured, Pre-Refunded,
6.60%, 12/01/11 ......................................................................... 1,040,000 1,125,790
Pierce County GO, School District No. 003, Puyallup, FGIC Insured, 5.70%,
12/01/15 ................................................................................ 1,000,000 1,027,920
Port of Longview GO, MBIA Insured, 6.00%, 11/01/15 ......................................... 2,000,000 2,064,060
Seatac Storm Water Revenue, MBIA Insured, Pre-Refunded, 6.50%, 12/01/13 .................... 2,890,000 3,122,067
Seattle Municipality Metropolitan Sewer Revenue, Series W, MBIA Insured,
Pre-Refunded, 6.30%, 1/01/33 ............................................................ 11,000,000 11,656,590
Seattle Water System Revenue, FGIC Insured, 5.625%, 8/01/26 ................................ 2,000,000 2,003,340
Snohomish County PUD No. 1 Electric Revenue, Generation System, FGIC Insured,
ETM, 6.65%, 1/01/16 ..................................................................... 4,250,000 4,443,333
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 5,197,000
Tacoma Electric System Revenue,
AMBAC Insured, 6.25%, 1/01/11 ........................................................... 470,000 488,509
AMBAC Insured, Pre-Refunded, 6.25%, 1/01/11 ............................................. 30,000 31,657
Refunding, FGIC Insured, 6.25%, 1/01/15 ................................................. 6,190,000 6,482,292
Tacoma GO, Series A, MBIA Insured, 5.625%, 12/01/22 ........................................ 3,400,000 3,412,682
Thurston and Pierce Counties Community Schools, Series B, AMBAC Insured, 6.65%,
12/01/09 ................................................................................ 1,305,000 1,396,950
Washington State Health Care Facilities Authority Revenue,
Providence Services, MBIA Insured, 5.50%, 12/01/26 ...................................... 7,000,000 6,819,190
Swedish Health Services, Refunding, AMBAC Insured, 5.50%, 11/15/28 ...................... 14,000,000 13,589,100
Washington State Housing Finance Commission MFMR, Series A, GNMA Secured, 7.70%,
7/01/32 ................................................................................. 2,825,000 2,863,477
Washington State Public Power Supply System Revenue, Nuclear Project No. 1,
Refunding, Series A, MBIA Insured, 6.25%, 7/01/17 ....................................... 420,000 432,424
Washington State University Revenues, Housing and Dining System, Refunding, MBIA
Insured, 6.40%, 10/01/24 ................................................................ 6,130,000 6,375,323
Western Washington University Revenue, Housing and Dining System,
MBIA Insured, 6.375%, 10/01/22 .......................................................... 80,000 82,078
Refunding, MBIA Insured, 6.70%, 10/01/11 ................................................ 235,000 240,057
Refunding, MBIA Insured, 6.375%, 10/01/21 ............................................... 770,000 777,022
Yakima-Tieton Irrigation District Revenue, Refunding, FSA Insured, 6.20%,
6/01/19 ................................................................................. 350,000 361,823
-----------
84,037,903
-----------
WEST VIRGINIA 1.6%
Harrison County Community Solid Waste Disposal Revenue, Potomac Edison Co.,
Series C, AMBAC Insured, 6.75%, 8/01/24 ................................................. 11,560,000 12,412,319
Monongalia County Building Community Hospital Revenue, Monongalia General
Hospital, Refunding, Series B, MBIA Insured,
6.50%, 7/01/17 .......................................................................... 1,000,000 1,029,550
West Virginia State GO, Series A, FGIC Insured, 5.00%, 11/01/21 ............................ 5,000,000 4,636,300
West Virginia State University Revenue, Refunding, AMBAC Insured, 6.00%, 4/01/12 ........... 2,250,000 2,360,430
West Virginia State Water Development Authority Revenue, Loan Program,
Refunding, Series A, FSA Insured, 7.00%, 11/01/25 ....................................... 2,750,000 2,874,603
-----------
23,313,202
-----------
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
WISCONSIN .4%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E,
FGIC Insured, 6.90%, 8/01/21 ....................................................... $ 3,000,000 $ 3,559,530
Wisconsin State Health and Educational Facilities Authority Revenue, SSM Health
Care, Refunding, Series AA, MBIA Insured,
6.25%, 6/01/20 ..................................................................... 500,000 512,460
Wisconsin State Health and Educational Revenue,
Community Provider Program, Series A, FSA Insured, 7.50%, 1/15/04 .................. 1,152,000 1,164,200
Series A, FSA Insured, 7.50%, 1/15/09 .............................................. 712,000 719,412
---------------
5,955,602
---------------
WYOMING 1.3%
Gillette Health Facilities Revenue, Lutheran Hospital and Home Society,
Refunding, MBIA Insured, 5.90%, 1/01/16 ............................................ 500,000 511,595
Natrona County Hospital Revenue, Wyoming Medical Center Projects, Refunding,
AMBAC Insured, 6.00%, 9/15/24 ...................................................... 9,885,000 10,118,780
Wyoming CDA, SFMR, Series A, AMBAC Insured, 6.00%, 6/01/23 ............................ 6,750,000 6,832,283
Wyoming Municipal Power Agency Power Supply System Revenue, Series A, MBIA
Insured, Pre-Refunded, 6.125%, 1/01/16 ............................................. 2,000,000 2,111,760
---------------
19,574,418
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,437,791,449) ..................................... 1,468,662,487
---------------
(a)SHORT TERM INVESTMENTS .7%
ALABAMA .2%
Stevenson IDB, Environmental Improvement Revenue, The Mead Corp. Project,
Refunding, Series D, Daily VRDN and Put,
4.25%, 11/01/11 .................................................................... 2,150,000 2,150,000
---------------
CONNECTICUT
Connecticut State Health and Educational Facilities Authority Revenue, Yale
University, Series T-1, Weekly VRDN and Put,
3.90%, 7/01/29 ..................................................................... 700,000 700,000
---------------
FLORIDA .2%
St. Lucie County PCR, Florida Power and Light Co. Project, Refunding, Daily VRDN
and Put, 4.25%, 3/01/27 ............................................................ 3,000,000 3,000,000
--------------
MICHIGAN .2%
Michigan State Strategic Fund IDR, Norcor Manufacturing Inc. Project, Weekly
VRDN and Put, 4.25%, 12/01/00 ...................................................... 1,700,000 1,700,000
University of Michigan Revenues, Hospital, Refunding, Series A-2, Daily VRDN &
Put, 4.35%, 12/01/24 ............................................................... 1,325,000 1,325,000
---------------
3,025,000
---------------
Long Island Power Authority Electric System Revenue, Sub Series 5, Daily VRDN
and Put, 4.30%, 5/01/33 ............................................................ 1,300,000 1,300,000
---------------
WASHINGTON
Washington State Health Care Facilities Authority Revenue, Sisters of
Providence, Series C, Daily VRDN and Put, 4.35%, 10/01/05 .......................... 700,000 700,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $10,875,000) ....................................... 10,875,000
---------------
TOTAL INVESTMENTS (COST $1,448,666,449) 99.0% ......................................... 1,479,537,487
---------------
OTHER ASSETS, LESS LIABILITIES 1.0% ................................................... 14,524,343
---------------
NET ASSETS 100.0% ..................................................................... $1,494,061,830
===============
</TABLE>
See glossary of terms on page 88.
(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>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, --------------------------------------------------
2000
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $10.75 $11.71 $11.75 $11.54 $11.65 $11.34
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) ............................... .29 .58 .59 .61 .63 .66
Net realized and unrealized gains (losses) ............. .45 (.96) .03 .35 (.10) .31
------ ------ ------ ------ ------ ------
Total from investment operations .......................... .74 (.38) .62 .96 .53 .97
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income .................................. (.29) (.58) (.59) (.61) (.64) (.66)
In excess of net investment income ..................... -- (e) -- -- (.01) -- (f) --
Net realized gains ..................................... -- -- (.07) (.13) -- --
------ ------ ------ ------ ------ ------
Total distributions ....................................... (.29) (.58) (.66) (.75) (.64) (.66)
------ ------ ------ ------ ------ ------
Net asset value, end of period ............................ $11.20 $10.75 $11.71 $11.75 $11.54 $11.65
====== ====== ====== ====== ====== ======
Total return(b) ........................................... 6.96% (3.34)% 5.36% 8.50% 4.75% 8.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................... $311,884 $306,531 $340,109 $328,147 $325,065 301,529
Ratios to average net assets:
Expenses ............................................... .70%(c) .68% .68% .68% .68% .69%
Net investment income .................................. 5.24%(c) 5.16% 4.99% 5.21% 5.51% 5.67%
Portfolio turnover rate ................................... 8.69% 25.75% 6.80% 30.46% 29.22% 10.29%
CLASS C
----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $10.81 $11.76 $11.80 $11.59 $11.69 $11.36
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) ............................... .26 .52 .52 .55 .57 .50
Net realized and unrealized gains (losses) ............. .45 (.96) .03 .34 (.09) .32
------ ------ ------ ------ ------ ------
Total from investment operations .......................... .71 (.44) .55 .89 .48 .82
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income .................................. (.26)(e) (.51) (.52) (.55) (.58)(f) (.49)
Net realized gains ..................................... -- -- (.07) (.13) -- --
------ ------ ------ ------ ------ ------
Total distributions (.26) (.51) (.59) (.68) (.58) (.49)
------ ------ ------ ------ ------ ------
Net asset value, end of period $11.26 $10.81 $11.76 $11.80 $11.59 $11.69
====== ====== ====== ====== ====== ======
Total return(b) 6.62% (3.78)% 4.74% 7.86% 4.22% 7.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $27,296 $27,253 $26,271 $13,937 $6,378 $2,759
Ratios to average net assets:
Expenses 1.26%(c) 1.24% 1.24% 1.25% 1.25% 1.26%(c)
Net investment income 4.68%(c) 4.60% 4.44% 4.59% 4.96% 5.06%(c)
Portfolio turnover rate 8.69% 25.75% 6.80% 30.46% 29.22% 10.29%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.001.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.5%
Ashburnham and Westminister Regional School District, MBIA Insured, 6.00%, 12/15/13................ $ 2,700,000 $ 2,848,176
Attleboro Municipal Purpose GO, AMBAC Insured, 6.00%,
7/01/11................................................................................... 1,045,000 1,106,394
7/01/12................................................................................... 1,045,000 1,104,513
7/01/13................................................................................... 685,000 723,024
7/01/14................................................................................... 755,000 794,207
Blackstone-Milville School District, AMBAC Insured, Pre-Refunded, 6.50%,
5/01/08................................................................................... 705,000 742,464
5/01/09................................................................................... 750,000 789,855
5/01/10................................................................................... 795,000 837,246
Boston Revenue, Boston City Hospital, Refunding, Series B, MBIA Insured, 5.75%, 2/15/23............ 10,245,000 10,266,924
Chelsea GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16............................. 1,750,000 1,717,398
Dudley Charleston Regional School District GO, Series B, FGIC Insured, 5.25%, 5/01/19.............. 3,140,000 3,066,807
Foxborough Stadium Infrastructure Improvement Revenue, 5.75%, 6/01/25.............................. 4,000,000 4,063,680
Framingham Housing Authority Mortgage Revenue, Beaver Terrace Apartments, Series A, GNMA Secured,
6.65%, 2/20/32.................................................................................. 1,650,000 1,701,827
Greater Lawrence Sanitary District GO, MBIA Insured, 5.625%, 6/15/20............................... 1,000,000 1,013,230
Greenfield GO, MBIA Insured, Pre-Refunded, 6.50%,
10/15/08.................................................................................. 500,000 521,570
10/15/09.................................................................................. 500,000 521,570
Holyoke GO, School Project Loans, MBIA Insured, Pre-Refunded, 8.05%, 6/15/04....................... 1,000,000 1,090,060
Hudson GO, MBIA Insured, 6.00%,
5/15/13................................................................................... 250,000 263,605
5/15/14................................................................................... 240,000 252,226
Kingston GO, FGIC Insured, 5.50%, 11/15/19......................................................... 2,055,000 2,066,775
Lenox GO, Refunding, AMBAC Insured,
6.60%, 10/15/11........................................................................... 1,000,000 1,042,650
6.625%, 10/15/15.......................................................................... 500,000 521,795
Lowell GO, FGIC Insured, 5.85%, 2/15/20............................................................ 1,595,000 1,655,610
Ludlow GO, School Project, Limited Tax, MBIA Insured,
7.30%, 11/01/07........................................................................... 210,000 243,655
7.30%, 11/01/08........................................................................... 210,000 246,607
7.40%, 11/01/09........................................................................... 210,000 250,902
Lynn Water and Sewer Commission General Revenue, Series A,
FSA Insured, 5.125%, 12/01/17............................................................. 3,000,000 2,911,230
MBIA Insured, Pre-Refunded, 7.25%, 12/01/10............................................... 4,000,000 4,106,800
Mansfield Municipal Purpose Loan, FGIC Insured, 5.125%, 8/15/17.................................... 1,685,000 1,643,044
Mashpee Water District GO, MBIA Insured, 6.40%, 10/15/12........................................... 500,000 528,915
Massachusetts Bay Transportation Authority COP, BIG Insured, 7.75%, 1/15/06........................ 2,500,000 2,750,225
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series C, FGIC Insured, 5.25%, 3/01/15..................................................... 2,000,000 2,020,220
Series D, MBIA Insured, 5.00%, 3/01/27..................................................... 5,000,000 4,549,850
Massachusetts Education Loan Authority Revenue, Issue D, Series A, MBIA Insured, 7.25%, 1/01/09.... 1,335,000 1,367,788
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue, Series D, MBIA Insured,
6.125%, 7/01/19 ................................................................................ 4,395,000 4,506,281
Massachusetts State College Building Authority Project Revenue, Series 1, MBIA Insured, 5.375%, 5,000,000 4,900,200
5/01/23.........................................................................................
Massachusetts State Development Finance Agency Revenue, Series A, GNMA Secured, 6.90%, 10/20/41.... 2,090,000 2,312,230
Massachusetts State GO, Series B,
AMBAC Insured, 6.50%, 8/01/11.............................................................. 1,665,000 1,726,488
MBIA Insured, 6.50%, 8/01/11............................................................... 855,000 886,575
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 1,547,865
Bay State Medical Center, Series E, FSA Insured, 6.00%, 7/01/26............................ 1,500,000 1,535,520
Berkshire Health System, Series D, MBIA Insured, 6.00%, 10/01/19........................... 5,500,000 5,665,495
Beverly Hospital, Lot 1, Refunding, Series D, MBIA Insured, 7.30%, 7/01/13................. 1,800,000 1,822,392
Boston College, Series J, FGIC Insured, 6.625%, 7/01/21.................................... 20,000 20,614
Boston College, Series J, FGIC Insured, Pre-Refunded, 6.625%, 7/01/21...................... 2,230,000 2,315,677
Cable Housing and Health Services, Series A, MBIA Insured, 5.25%, 7/01/23.................. 1,000,000 944,080
Children's Hospital, Refunding, Series E, AMBAC Insured, 6.20%, 10/01/16................... 2,200,000 2,272,336
Community College Program, Series A, Connie Lee Insured, Pre-Refunded, 6.50%, 10/01/09..... 1,000,000 1,061,190
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Health and Educational Facilities Authority Revenue, (cont.)
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/18......................... $ 3,500,000 $ 3,471,895
Cooley Dickinson Hospital, Series B, AMBAC Insured, 5.50%, 11/15/25......................... 7,720,000 7,474,118
Dana-Farber Cancer Institute, Refunding, Series F, FGIC Insured, 6.00%, 12/01/15............ 1,000,000 1,032,930
Lahey Clinic Medical Center, Series B, MBIA Insured, 5.375%, 7/01/23........................ 21,730,000 20,806,040
Massachusetts General Hospital, Refunding, Series F, AMBAC Insured, 6.00%, 7/01/15.......... 2,500,000 2,579,775
Massachusetts General Hospital, Series F, AMBAC Insured, Pre-Refunded, 6.25%, 7/01/20....... 7,000,000 7,465,080
McLean Hospital, Series C, FGIC Insured, Pre-Refunded, 6.625%, 7/01/15...................... 1,280,000 1,354,906
Milton Hospital, Series B, MBIA Insured, 7.00%, 7/01/16..................................... 2,400,000 2,462,328
Mt. Auburn Hospital, Series B-1, MBIA Insured, 6.30%, 8/15/24............................... 6,500,000 6,760,260
New England Deaconess Hospitals, Series D, AMBAC Insured, Pre-Refunded, 6.875%, 4/01/22..... 1,895,000 2,003,375
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/18........................... 1,300,000 1,332,721
Newton-Wellesley Hospital, Series E, MBIA Insured, 6.00%, 7/01/25........................... 6,750,000 6,896,813
Northeastern University, Series D, AMBAC Insured, 7.125%, 10/01/10.......................... 1,250,000 1,277,325
Northeastern University, Series E, MBIA Insured, 6.55%, 10/01/22............................ 3,900,000 4,065,750
Partners Healthcare System, Series A, MBIA Insured, 5.375%, 7/01/24......................... 5,000,000 4,820,750
Series I, MBIA Insured, 6.125%, 7/01/17..................................................... 610,000 627,141
Simmon College, Series C, MBIA Insured, 5.125%, 10/01/28.................................... 2,100,000 1,934,562
Springfield College, AMBAC Insured, 5.00%, 10/15/27......................................... 2,500,000 2,247,050
Stonehill College, MBIA Insured, 6.55%, 7/01/12............................................. 495,000 520,200
Stonehill College, Series E, MBIA Insured, 6.60%, 7/01/20................................... 1,550,000 1,617,224
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.55%, 7/01/12..................... 395,000 417,602
Stonehill College, Series E, MBIA Insured, Pre-Refunded, 6.60%, 7/01/20..................... 1,450,000 1,534,231
Stonehill College, Series F, AMBAC Insured, 5.75%, 7/01/26.................................. 1,690,000 1,709,993
Suffolk University, Series B, Connie Lee Insured, 6.35%, 7/01/22............................ 3,000,000 3,088,560
Tufts University, FGIC Insured, 5.95%, 8/15/18.............................................. 4,000,000 4,062,840
University of Massachusetts Project, Series A, FGIC Insured, 5.875%, 10/01/29............... 4,000,000 4,099,600
Wellesley College, Series F, 5.125%, 7/01/39................................................ 2,500,000 2,290,550
Wheelock College, Series B, MBIA Insured, 5.625%, 10/01/30.................................. 1,770,000 1,774,637
Williams College, Series F, MBIA Insured, 5.50%, 7/01/26.................................... 2,500,000 2,439,200
Massachusetts State HFA,
(b) Housing Revenue, Rental, Series A, AMBAC Insured, 5.95%, 7/01/30............................ 2,000,000 2,000,000
Housing Revenue, SF, Series 53, MBIA Insured, 6.15%, 12/01/29............................... 2,500,000 2,543,625
Housing Revenue, SF, Series 57, MBIA Insured, 5.55%, 6/01/25................................ 4,700,000 4,558,201
MFHR, Section 8 Assisted, Series A, GNMA Secured, ETM, 7.00%, 4/01/21....................... 430,000 507,809
Massachusetts State HFAR, SFHR, Series 59, AMBAC Insured, 5.50%, 12/01/30....................... 4,915,000 4,691,957
Massachusetts State Industrial Finance Agency Assisted Living Facility Revenue, Arbors at
Taunton Project, GNMA Secured, 5.50%, 6/20/40............................................... 2,000,000 1,877,620
Massachusetts State Industrial Finance Agency Electrical Utility Revenue, Nantucket Electric
Co., Series A, AMBAC Insured, 5.875%, 7/01/17............................................... 4,000,000 4,106,720
Massachusetts State Industrial Finance Agency Revenue,
Babson College, Series A, MBIA Insured, Pre-Refunded, 6.50%, 10/01/22....................... 3,105,000 3,294,995
Combined Jewish Philanthropies, Refunding, Series A, AMBAC Insured, 6.375%, 2/01/15......... 2,010,000 2,118,359
Simons Rock College, AMBAC Insured, 5.50%, 6/01/27.......................................... 1,560,000 1,540,484
St. Marks School Issue, MBIA Insured, 5.375%, 1/01/21....................................... 2,665,000 2,624,332
Suffolk University, AMBAC Insured, 5.25%, 7/01/27........................................... 4,000,000 3,790,600
Trustees Deerfield Academy, 5.25%, 10/01/27................................................. 2,800,000 2,664,116
Western New England College, AMBAC Insured, 5.00%, 7/01/28.................................. 4,000,000 3,616,480
WGBH Educational Foundation, Refunding, AMBAC Insured, 5.00%, 3/01/28....................... 3,500,000 3,175,340
Worcester Polytechnic Institute, Refunding, MBIA Insured, 5.125%, 9/01/17................... 3,720,000 3,607,135
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.50%, 9/01/21......... 2,000,000 1,995,040
Worcester Polytechnic Institute, Refunding, Series II, MBIA Insured, 5.125%, 9/01/27........ 4,000,000 3,690,160
Massachusetts State Port Authority Revenue,
Series A, FSA Insured, 5.125%, 7/01/17...................................................... 5,000,000 4,854,250
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/19.......................... 2,215,000 2,203,349
Special Facilities, Bosfuel Project, MBIA Insured, 5.625%, 7/01/22.......................... 2,310,000 2,274,149
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/29........................... 7,450,000 7,454,396
Special Facilities, Bosfuel Project, MBIA Insured, 5.75%, 7/01/39........................... 1,000,000 996,820
US Airways Project, MBIA Insured, 6.00%, 9/01/21............................................ 4,700,000 4,820,602
US Airways Project, Series A, MBIA Insured, 5.875%, 9/01/23................................. 4,500,000 4,549,905
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Series A, MBIA Insured, 5.00%, 1/01/37 ........................................................... $10,000,000 $ 8,944,600
sub. lien, Refunding, Series B, MBIA Insured, 5.125%, 1/01/37..................................... 10,000,000 9,121,400
sub. lien, Series B, MBIA Insured, 5.25%, 1/01/29................................................. 5,000,000 4,738,900
Massachusetts State Water Pollution Abatement Trust Revenue, Massachusetts Water Revenue Authority
Program, Refunding, Sub Series A, 5.75%, 8/01/29.................................................... 5,000,000 5,063,700
Massachusetts State Water Resource Authority Revenue,
Refunding, Series A, FGIC Insured, 5.75%, 8/01/39 ................................................ 9,275,000 9,394,091
Refunding, Series B, MBIA Insured, 5.00%, 3/01/22 ................................................ 1,500,000 1,383,045
Melrose Municipal Purpose GO, MBIA Insured,
6.00%, 8/15/11 ................................................................................... 200,000 211,986
6.05%, 8/15/12 ................................................................................... 200,000 211,600
6.10%, 8/15/13 ................................................................................... 200,000 211,658
6.10%, 8/15/14 ................................................................................... 200,000 210,994
Norfolk GO, AMBAC Insured, 6.00%,
1/15/10 .......................................................................................... 450,000 470,849
1/15/11 .......................................................................................... 425,000 444,010
1/15/12 .......................................................................................... 375,000 392,460
1/15/13 .......................................................................................... 300,000 313,692
North Andover Municipal Purpose GO, Limited Tax, MBIA Insured, 7.40%, 9/15/09 ........................ 300,000 309,207
Plymouth County COP, Correctional Facility Project, AMBAC Insured, 5.00%, 4/01/22 .................... 3,500,000 3,226,440
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ...................... 60,000 61,246
Route 3 North Transportation Improvement Association Lease Revenue, MBIA Insured, 5.375%, 6/15/33 .... 5,000,000 4,831,500
Salem GO, AMBAC Insured,
6.70%, 8/15/05 ................................................................................... 425,000 441,783
6.80%, 8/15/07 ................................................................................... 500,000 520,340
Somerville Housing Authority Revenue, Clarendon Hill, GNMA Secured, 7.95%, 11/20/30 .................. 3,000,000 3,069,840
South Essex Sewer District GO,
AMBAC Insured, 6.25%, 11/01/11 ................................................................... 330,000 343,081
Series B, MBIA Insured, Pre-Refunded, 7.00%, 6/01/24 ............................................. 2,800,000 3,096,660
Southbridge GO, AMBAC Insured, 6.375%, 1/01/12 ....................................................... 2,375,000 2,481,970
Whately GO, AMBAC Insured,
6.20%, 1/15/07 ................................................................................... 215,000 223,532
6.30%, 1/15/08 ................................................................................... 215,000 223,931
6.40%, 1/15/10 ................................................................................... 200,000 208,840
Worcester GO, Refunding, Series E, MBIA Insured, 6.00%, 10/01/15 ..................................... 1,335,000 1,409,560
------------
TOTAL LONG TERM INVESTMENTS (COST $327,569,848)....................................................... 334,132,600
------------
(a)SHORT TERM INVESTMENTS .9%
Massachusetts State Health and Educational Facilities Authority Revenue, Capital Assets Program,
Series D, MBIA Insured, Daily VRDN and Put, 4.25%, 1/01/35.......................................... 400,000 400,000
Series E, Daily VRDN and Put, 4.25%, 1/01/35........................................................ 2,700,000 2,700,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $3,100,000) ....................................................... 3,100,000
------------
TOTAL INVESTMENTS (COST $330,669,848) 99.4%........................................................... 337,232,600
OTHER ASSETS, LESS LIABILITIES .6% ................................................................... 1,946,780
------------
NET ASSETS 100.0%..................................................................................... $339,179,380
============
</TABLE>
See glossary of terms on page 88
(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>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, -------------------------------------------------------
2000
CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------------------------------------
(for a share outstanding throughout the period)
Net asset value, beginning of period................. $11.37 $12.28 $12.20 $12.00 $12.09 $11.76
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income(a)........................... .30 .60 .61 .63 .66 .68
Net realized and unrealized gains (losses)......... .44 (.91) .13 .34 (.09) .34
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations..................... .74 (.31) .74 .97 .57 1.02
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income.............................. (.30) (.60) (.61) (.63) (.66) (.69)
In excess of net investment income................. --(e) -- -- (.01) -- (e) -- (f)
Net realized gains................................. -- --(g) (.05) (.13) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions.................................. (.30) (.60) (.66) (.77) (.66) (.69)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period....................... $11.81 $11.37 $12.28 $12.20 $12.00 $12.09
========== ========== ========== ========== ========== ==========
Total return(b)...................................... 6.61% (2.57)% 6.23% 8.37% 4.90% 8.86%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).................... $1,059,912 $1,057,787 $1,161,345 $1,142,565 $1,111,537 $1,115,454
Ratios to average net assets:
Expenses........................................... .64%(c) .63% .63% .63% .62% .62%
Net investment income.............................. 5.18%(c) 5.10% 4.98% 5.24% 5.52% 5.65%
Portfolio turnover rate.............................. 7.02% 13.73% 7.37% 20.08% 30.03% 9.38%
CLASS B
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period................. $11.38 $11.31
---------- ----------
Income from investment operations:
Net investment income(a)........................... .27 .05
Net realized and unrealized gains.................. .45 .07
---------- ----------
Total from investment operations..................... .72 .12
---------- ----------
Less distributions from net investment income........ (.27)(e) (.05)
---------- ----------
Net asset value, end of period ...................... $11.83 $11.38
========== ==========
Total return(b) ..................................... 6.30% 1.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).................... $2,361 $228
Ratio to average net assets:
Expenses .......................................... 1.20%(c) 1.19%(c)
Net investment income ............................. 4.58%(c) 4.88%(c)
Portfolio turnover rate ............................. 7.02% 13.73%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.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>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 -------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $11.45 $12.36 $12.27 $12.07 $12.14 $11.77
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a)........................... .27 .54 .55 .57 .59 .51
Net realized and unrealized gains (losses)......... .44 (.92) .13 .33 (.07) .37
------ ------ ------ ------ ------ ------
Total from investment operations .................... .71 (.38) .68 .90 .52 .88
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income ............................. (.27)(f) (.53) (.54) (.57) (.59) (.51)
Net realized gains ................................ -- -- (e) (.05) (.13) -- --
------ ------ ------ ------ ------ ------
Total distributions ................................. (.27) (.53) (.59) (.70) (.59) (.51)
------ ------ ------ ------ ------ ------
Net asset value, end of period ...................... $11.89 $11.45 $12.36 $12.27 $12.07 $12.14
====== ====== ====== ====== ====== ======
Total return(b)...................................... 6.27% (3.11)% 5.71% 7.70% 4.44% 7.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's).................... $48,388 $49,038 $49,970 $32,873 $20,162 $6,683
Ratios to average net assets:
Expenses .......................................... 1.20%(c) 1.19% 1.19% 1.20% 1.19% 1.20%(c)
Net investment income ............................. 4.64%(c) 4.54% 4.42% 4.67% 4.94% 5.03%(c)
Portfolio turnover rate ............................. 7.02% 13.73% 7.37% 20.08% 30.03% 9.38%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) The fund made a capital gain distribution of $.0003.
(f) 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, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS 98.0%
<S> <C> <C>
Allegan Public School, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ................................... $ 4,165,000 $ 4,446,387
Allendale Public School, MBIA Insured,
5.875%, 5/01/14 .................................................................................. 1,335,000 1,383,701
School Building, Pre-Refunded, 6.00%, 5/01/24 .................................................... 3,750,000 3,980,850
Almont Community Schools, FGIC Insured, 5.50%, 5/01/26 ............................................... 1,925,000 1,924,846
Alpena Public Schools GO, MBIA Insured, Pre-Refunded, 5.625%, 5/01/22 ................................ 1,665,000 1,765,666
Anchor Bay School District GO,
MBIA Insured, Pre-Refunded, 5.50%, 5/01/26 ....................................................... 7,380,000 7,773,797
School Building and Site Project, Series I, FGIC Insured, 6.00%, 5/01/29 ......................... 2,000,000 2,077,720
School Building and Site Project, Series II, FGIC Insured, 5.70%, 5/01/25 ........................ 5,000,000 5,058,800
School Building and Site Project, Series II, FGIC Insured, 5.75%, 5/01/30 ........................ 3,750,000 3,810,750
Avondale School District, AMBAC Insured, Pre-Refunded, 5.75%, 5/01/22 ................................ 4,000,000 4,270,240
Bath Community Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/25 ................................ 1,625,000 1,733,371
Battle Creek Downtown Development Authority, Refunding, MBIA Insured, 5.125%, 5/01/20 ................ 4,500,000 4,298,490
Berkley City School District, FGIC Insured, Pre-Refunded, 6.00%, 1/01/19 ............................. 2,125,000 2,271,413
Big Rapids Public School District, Building and Site, FGIC Insured, Pre-Refunded, 5.625%, 5/01/25 .... 1,470,000 1,554,393
Brandon School District, FGIC Insured, Pre-Refunded, 5.875%,
5/01/16 .......................................................................................... 5,540,000 5,959,156
5/01/26 .......................................................................................... 7,000,000 7,529,620
Breitung Township School District GO, Refunding, MBIA Insured, 6.30%, 5/01/15 ........................ 2,935,000 3,057,712
Byron Center Public Schools,
MBIA Insured, Pre-Refunded, 5.875%, 5/01/24 ...................................................... 5,115,000 5,461,848
Refunding, MBIA Insured, 5.875%, 5/01/24 ......................................................... 135,000 137,749
Cadillac Area Public Schools GO, FGIC Insured, Pre-Refunded, 5.50%, 5/01/22 .......................... 2,770,000 2,906,727
Caledonia Community Schools,
MBIA Insured, Pre-Refunded, 5.85%, 5/01/22 ....................................................... 4,500,000 4,829,580
Refunding, AMBAC Insured, 6.625%, 5/01/14 ........................................................ 3,750,000 3,949,875
Calumet, Laurium and Keweenah Public Schools GO, FSA Insured, Pre-Refunded, 5.875%, 5/01/20 .......... 875,000 928,944
Cedar Springs Public School District, MBIA Insured, Pre-Refunded, 5.875%,
5/01/19 .......................................................................................... 2,425,000 2,574,501
5/01/24 .......................................................................................... 3,875,000 4,107,151
Central Michigan University Revenue, FGIC Insured,
5.00%, 10/01/27 .................................................................................. 500,000 459,725
Pre-Refunded, 5.625%, 10/01/22 ................................................................... 2,500,000 2,660,850
Central Montcalm Public School GO, MBIA Insured, 6.00%, 5/01/29 ...................................... 1,400,000 1,454,404
Charlotte Public School District GO, FGIC Insured, 5.375%, 5/01/29 ................................... 5,000,000 4,902,900
Chelsea School District, FGIC Insured, Pre-Refunded, 5.875%, 5/01/25 ................................. 3,140,000 3,352,923
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial Hospital,
Refunding, Series B, 5.625%, 11/01/14 ............................................................ 650,000 578,344
Coldwater Community Schools, MBIA Insured, Pre-Refunded,
6.20%, 5/01/15 ................................................................................... 1,100,000 1,184,447
6.30%, 5/01/23 ................................................................................... 1,700,000 1,836,187
De Witt Public Schools, AMBAC Insured, Pre-Refunded,
5.70%, 5/01/21 ................................................................................... 6,905,000 7,351,892
5.50%, 5/01/26 ................................................................................... 5,500,000 5,793,480
Dearborn EDC Hospital Revenue, Oakwood Obligation Group,
Refunding, Series A, MBIA Insured, 5.25%, 8/15/21 ................................................ 1,000,000 952,390
Series A, FGIC Insured, 5.75%, 11/15/15 .......................................................... 100,000 102,473
Detroit GO, City School District, Series A, AMBAC Insured, Pre-Refunded, 5.70%, 5/01/25 .............. 14,000,000 15,047,060
Detroit Local Development Finance Authority, Refunding, Series A, 5.375%, 5/01/21 .................... 100,000 94,799
Detroit Sewage Disposal Revenue,
Refunding, Series B, MBIA Insured, 5.25%, 7/01/21 ................................................ 12,585,000 12,061,338
Series A, MBIA Insured, 5.50%, 7/01/20 ........................................................... 215,000 215,280
Series A, MBIA Insured, 5.00%, 7/01/27 ........................................................... 20,000,000 18,368,600
Detroit Water Supply System Revenue,
Refunding, FGIC Insured, ETM, 6.25%, 7/01/12 ..................................................... 5,000,000 5,233,200
senior lien, Series A, FGIC Insured, 5.875%, 7/01/29 ............................................. 1,500,000 1,536,630
Series A, MBIA Insured, 5.00%, 7/01/27 ........................................................... 5,750,000 5,273,555
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Detroit/Wayne County Stadium Authority, FGIC Insured, 5.25%, 2/01/27 ................................ $ 5,500,000 $ 5,235,890
Dexter Community Schools, Refunding, AMBAC Insured, 5.70%, 5/01/14 .................................. 1,050,000 1,079,663
East Detroit School District GO, FGIC Insured,
6.10%, 5/01/16 .................................................................................. 1,025,000 1,078,003
Pre-Refunded, 6.10%, 5/01/16 .................................................................... 4,975,000 5,406,731
East Grand Rapids Public School District, FSA Insured, 6.00%, 5/01/29 ............................... 4,775,000 4,960,557
Eastern Michigan University Revenue,
FGIC Insured, 5.50%, 6/01/27 .................................................................... 9,100,000 9,023,651
Refunding, AMBAC Insured, 6.375%, 6/01/14 ....................................................... 1,000,000 1,033,700
Ecorse Public School District, FGIC Insured, 5.50%, 5/01/17 ......................................... 5,000,000 5,068,300
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, MBIA Insured, 5.75%, 2/15/25 ...... 100,000 100,530
Farmington Hills Hospital Finance Authority Revenue, Botsford General Hospital, Refunding,
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/15/14 ............................................ 10,140,000 10,464,074
Ferndale School District GO,
FGIC Insured, 5.50%, 5/01/22 .................................................................... 3,000,000 2,988,480
Refunding, FGIC Insured, 5.375%, 5/01/21 ........................................................ 3,500,000 3,437,665
Ferris State College Revenue, AMBAC Insured, Pre-Refunded,
6.15%, 10/01/14 ................................................................................. 1,000,000 1,068,390
6.25%, 10/01/19 ................................................................................. 1,000,000 1,071,230
Ferris State University Revenue, AMBAC Insured, Pre-Refunded,
5.75%, 10/01/17 ................................................................................. 2,500,000 2,685,750
5.85%, 10/01/22 ................................................................................. 2,500,000 2,699,800
5.90%, 10/01/26 ................................................................................. 6,840,000 7,405,873
Fowlerville Community School District, MBIA Insured, Pre-Refunded, 5.60%, 5/01/21 2,000,000 2,118,080
Gladstone Area Public Schools GO, AMBAC Insured,
5.50%, 5/01/26 .................................................................................. 695,000 694,944
Pre-Refunded, 5.50%, 5/01/26 .................................................................... 805,000 847,955
Gogebic-Iron Wastewater Authority Treatment System Revenue, Refunding, MBIA Insured, 5.95%,
1/01/15 ......................................................................................... 1,015,000 1,046,790
Grand Haven Area Public Schools GO,
MBIA Insured, Pre-Refunded, 6.05%, 5/01/14 ...................................................... 4,540,000 4,810,947
Refunding, MBIA Insured, 6.05%, 5/01/14 ......................................................... 460,000 482,361
Grand Ledge Public School District GO, MBIA Insured, Pre-Refunded, 6.60%, 5/01/24 ................... 10,000,000 10,901,200
Grand Rapids Downtown Development Authority Tax Increment Revenue, MBIA Insured, 6.875%, 6/01/24 .... 7,500,000 8,052,600
Grand Traverse County Hospital Revenue, Munson Healthcare, Series.A,.AMBAC.Insured,
6.25%, 7/01/12 .................................................................................. 815,000 850,387
6.25%, 7/01/22 .................................................................................. 2,395,000 2,451,762
Pre-Refunded, 6.25%, 7/01/12 .................................................................... 1,685,000 1,772,064
Pre-Refunded, 6.25%, 7/01/22 .................................................................... 5,505,000 5,789,443
Grosse-Ile Township School District GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 .................. 5,250,000 5,679,293
Hamilton Community School District GO, Refunding, FGIC Insured, 5.00%, 5/01/24 ...................... 2,000,000 1,853,480
Hancock Hospital Finance Authority Revenue, Portage Health, MBIA Insured, 5.45%, 8/01/47 ............ 4,400,000 4,172,652
Harrison Community Schools GO, AMBAC Insured, Pre-Refunded, 6.25%, 5/01/13 .......................... 4,715,000 5,084,845
Hartland Consolidated School District GO, FGIC Insured, 6.00%, 5/01/29 .............................. 30,000,000 31,269,000
Haslett Public School.District.GO,
MBIA Insured, Pre-Refunded, 5.70%, 5/01/26 ...................................................... 3,900,000 4,152,408
Refunding, FSA Insured, 6.625%, 5/01/19 ......................................................... 3,875,000 4,070,726
Holland School District GO, Refunding, AMBAC Insured, 6.375%, 5/01/10 ............................... 2,000,000 2,087,940
Hopkins Public Schools GO, FGIC Insured, Pre-Refunded,
5.70%, 5/01/21 .................................................................................. 4,000,000 4,258,880
5.50%, 5/01/26 .................................................................................. 1,000,000 1,053,360
Houghton-Portage Township School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/14 .............. 2,000,000 2,075,180
Howell Public Schools GO, MBIA Insured,
5.875%, 5/01/22 ................................................................................. 2,000,000 2,060,640
6.00%, 5/01/25 .................................................................................. 1,600,000 1,652,016
Hudsonville Public Schools GO, Series B, FGIC Insured, Pre-Refunded,
6.05%, 5/01/19 .................................................................................. 2,000,000 2,143,520
6.10%, 5/01/24 .................................................................................. 2,000,000 2,146,860
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Huron Valley School District GO,
FGIC Insured, Pre-Refunded, 5.875%, 5/01/16 $ 100,000 $ 107,466
FGIC Insured, Pre-Refunded, 5.75%, 5/01/22 2,450,000 2,615,522
Refunding, FGIC Insured, 6.125%, 5/01/20 11,535,000 11,902,736
Jenison Public Schools GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 130,000 139,034
Kalamazoo Hospital Finance Authority Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, 5.625%, 6/01/14 3,805,000 3,923,678
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.25%, 5/15/18 250,000 243,518
Bronson Methodist Hospital, Refunding, MBIA Insured, 5.50%, 5/15/28 10,000,000 9,735,800
Bronson Methodist Hospital, Refunding and Improvement, MBIA Insured, 5.875%, 5/15/26 26,165,000 26,558,260
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.25%, 5/15/12 5,000,000 5,326,200
Bronson Methodist Hospital, Refunding and Improvement, Series A, MBIA Insured, Pre-Refunded,
6.375%, 5/15/17 2,460,000 2,628,215
Kelloggsville Public School District GO, FGIC Insured, Pre-Refunded, 5.75%, 5/01/13 1,000,000 1,047,780
Kenowa Hills Public Schools, MBIA Insured, 5.875%,
5/01/21 1,510,000 1,543,688
5/01/26 7,000,000 7,135,660
Kent County Building Authority GO, 5.00%, 6/01/26 21,885,000 20,216,269
Lake Orion Community School District GO, Refunding, AMBAC Insured, 5.50%, 5/01/20 2,200,000 2,209,372
Lake Shore Public Schools GO, Macomb County, FSA Insured, 5.50%, 5/01/20 2,000,000 2,009,780
Lake Superior State University Revenue, AMBAC Insured, Pre-Refunded, 6.375%, 11/15/15 1,500,000 1,636,545
Lakeshore Public Schools GO, Berrien County, MBIA Insured, 5.70%, 5/01/22 3,000,000 3,044,490
Lakeview Community Schools GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/16 100,000 106,756
Refunding, MBIA Insured, 6.75%, 5/01/13 1,500,000 1,553,160
Lakewood Public Schools GO, MBIA Insured,
5.375%, 5/01/20 3,300,000 3,285,876
5.75%, 5/01/22 800,000 812,256
Lansing Building Authority, Refunding, MBIA Insured, 5.60%, 6/01/19 1,470,000 1,474,763
Lenawee County Hospital Finance Authority Hospital Revenue, Lenawee Health Alliance,
Refunding, Series A, AMBAC Insured, 5.20%, 7/01/19 2,115,000 2,024,288
Leslie Public Schools GO, Ingham and Jackson Counties, AMBAC Insured, Pre-Refunded, 6.00%, 3,500,000 3,755,535
5/01/25
Lincoln Consolidated School District GO,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/21 130,000 138,460
FSA Insured, 5.00%, 5/01/28 1,000,000 922,640
Refunding, FGIC Insured, 5.85%, 5/01/21 10,000 10,211
Lincoln Park School District,
FGIC Insured, Pre-Refunded, 5.85%, 5/01/15 2,885,000 3,099,731
FGIC Insured, Pre-Refunded, 5.90%, 5/01/26 6,050,000 6,515,245
Refunding, FGIC Insured, 5.00%, 5/01/26 400,000 368,528
Marquette City Hospital Finance Authority Revenue, Marquette General Hospital, Refunding,
Series D, FSA Insured,
5.875%, 4/01/11 4,525,000 4,777,631
6.10%, 4/01/19 5,225,000 5,439,695
Marysville Public School District, MBIA Insured, Pre-Refunded, 5.75%, 5/01/22 1,100,000 1,158,542
Mason Public School District GO, FGIC Insured, 5.40%, 5/01/21 1,400,000 1,393,000
Menominee Area Public School District GO, Refunding, AMBAC Insured, 6.00%, 5/01/20 2,675,000 2,747,787
Merrill Community School District GO, FGIC Insured, 5.60%, 5/01/26 4,000,000 4,236,160
Michigan Higher Education Student Loan Authority Revenue, Series XIII-A, MBIA Insured,
7.40%, 10/01/04 1,360,000 1,388,533
7.55%, 10/01/08 610,000 622,761
Michigan Municipal Bond Authority Revenue,
Local Government Loan Program, Series C, MBIA Insured, 6.00%, 11/01/10 3,790,000 3,994,622
Local Government Loan Program Revenue Sharing, 5.20%, 11/01/19 330,000 315,708
Series B, AMBAC Insured, 6.75%, 11/01/14 1,010,000 1,097,072
Series B, AMBAC Insured, 6.80%, 11/01/14 1,135,000 1,234,959
Series B, AMBAC Insured, 6.80%, 11/01/23 280,000 301,476
Series G, AMBAC Insured, Pre-Refunded, 6.75%, 11/01/14 5,480,000 6,052,770
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/14 515,000 569,796
Series G, AMBAC Insured, Pre-Refunded, 6.80%, 11/01/23 545,000 602,988
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series 1, 4.75%, 10/15/21 $ 500,000 $ 442,195
Refunding, Series I, AMBAC Insured, 6.25%, 10/01/20 1,500,000 1,540,230
Series II, MBIA Insured, 6.25%, 10/01/20 4,645,000 4,769,579
Series II, MBIA Insured, ETM, 7.40%, 4/01/01 505,000 505,960
Michigan State Comprehensive Transportation Revenue, Series A, MBIA Insured, 5.50%, 5/15/22 4,500,000 4,465,800
Michigan State COP, AMBAC Insured, 5.50%, 6/01/27 5,000,000 4,944,300
Michigan State HDA,
Rental Housing Revenue, Series A, AMBAC Insured, 6.00%, 4/01/16 200,000 208,290
SFMR, Refunding, Series B, 6.20%, 6/01/27 70,000 71,238
SFMR, Refunding, Series E, 6.20%, 12/01/27 290,000 295,388
SFMR, Series A, AMBAC Insured, 5.95%, 6/01/17 2,500,000 2,544,000
SFMR, Series D, 5.95%, 12/01/16 250,000 258,518
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured, 6.125%, 11/15/23 15,175,000 15,643,149
Crittenton Hospital, Series A, FGIC Insured, 6.75%, 3/01/20 1,750,000 1,786,295
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.50%, 8/15/24 15,000,000 14,533,950
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.25%, 8/15/27 10,000,000 9,241,800
Mercy Health Services, Refunding, Series T, MBIA Insured, 5.75%, 8/15/15 10,525,000 10,835,803
Mercy Health Services, Series Q, AMBAC Insured, 5.375%, 8/15/26 6,000,000 5,760,780
Mercy Health Services, Series R, AMBAC Insured, 5.375%, 8/15/26 1,750,000 1,673,368
Mercy Health Services, Series U, 5.75%, 8/15/26 300,000 292,881
Mercy Health Services, Series W, FSA Insured, 5.25%, 8/15/27 8,605,000 8,074,760
Mercy Health Services, Series X, Refunding, MBIA Insured, 6.00%, 8/15/34 11,000,000 11,239,030
Mercy Mount Clemens Corp., Refunding, Series A, MBIA Insured, 5.75%, 5/15/29 4,890,000 4,918,411
Mid-Michigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 7,500,000 7,206,600
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 9,625,000 8,928,920
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/26 500,000 456,015
Oakwood Obligation Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 7,050,000 6,307,988
Presbyterian Villages Obligation Group, 6.375%, 1/01/15 225,000 210,074
Presbyterian Villages Obligation Group, 6.375%, 1/01/25 1,250,000 1,129,613
Sparrow Obligation Group, MBIA Insured, 5.90%, 11/15/26 100,000 101,743
Sparrow Obligation Group, Refunding, MBIA Insured, 6.50%, 11/15/11 1,500,000 1,558,830
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.00%, 5/15/13 3,445,000 3,591,585
St. John's Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 5/15/14 9,545,000 10,054,798
St. John's Hospital, Refunding, Series A, AMBAC Insured, 5.125%, 5/15/17 14,500,000 14,017,440
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co., Pollution Project, Refunding, FGIC Insured, 6.875%, 12/01/21 20,000,000 20,808,600
Detroit Edison Co., Pollution Project, Refunding, Series AA, FGIC Insured, 6.95%, 5/01/11 5,000,000 5,892,500
Detroit Edison Co., Pollution Project, Refunding, Series BB, AMBAC Insured, 7.00%, 5/01/21 3,000,000 3,576,060
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.05%, 10/01/23 1,285,000 1,317,549
Detroit Edison Co., Pollution Project, Refunding, Series BB, MBIA Insured, 6.20%, 8/15/25 10,250,000 10,670,968
Detroit Edison Co., Pollution Project, Refunding, Series CC, FGIC Insured, 6.95%, 9/01/21 5,540,000 5,745,977
Detroit Edison Co., Pollution Project, Refunding, Series CC, MBIA Insured, 6.05%, 10/01/23 5,825,000 5,972,547
Hope Network Project, Refunding, Series B, 5.125%, 9/01/13 600,000 573,606
Worthington Armstrong Venture, 5.75%, 10/01/22 350,000 335,640
Michigan State Trunk Line,
Refunding, Series B, AMBAC Insured, 5.50%, 10/01/21 1,400,000 1,399,944
Refunding, Series B, MBIA Insured, 5.50%, 10/01/21 4,500,000 4,499,820
Series A, FGIC Insured, 5.50%, 10/01/21 1,475,000 1,474,941
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/20 2,765,000 2,951,416
Series A, FGIC Insured, Pre-Refunded, 5.625%, 11/01/26 8,990,000 9,596,106
Milan Michigan Area Schools, Series A, FGIC Insured, 5.75%, 5/01/24 3,500,000 3,577,735
Monroe County PCR, Detroit Edison Co.,
Series 1, MBIA Insured, 6.875%, 9/01/22 4,000,000 4,207,160
Series 1-B, MBIA Insured, 6.55%, 9/01/24 4,000,000 4,208,200
Series CC, MBIA Insured, 6.55%, 6/01/24 1,150,000 1,206,879
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Muskegon Public Schools GO, Series 95, FGIC Insured, 5.25%,
5/01/18 $ 1,900,000 $ 1,878,321
5/01/21 2,000,000 1,943,400
Northview Public Schools District GO,
MBIA Insured, 5.80%, 5/01/21 235,000 240,661
MBIA Insured, Pre-Refunded, 5.80%, 5/01/21 4,265,000 4,571,909
Refunding, FGIC Insured, 5.00%, 5/01/21 3,450,000 3,246,519
Novi Community School District GO,
Building and Site, FGIC Insured, 5.30%, 5/01/21 1,960,000 1,926,053
FGIC Insured, Pre-Refunded, 6.125%, 5/01/18 4,750,000 5,042,268
Oakland County EDC, Limited Obligation Revenue, Cranbrook Educational Community, Refunding,
5.00%, 11/01/17 500,000 478,315
Oakland, Washtenaw, etc. Counties Community College District, AMBAC Insured, 6.65%, 5/01/11 3,500,000 3,690,260
Oakridge Public Schools GO, FSA Insured,
5.00%, 5/01/23 500,000 467,195
5.125%, 5/01/28 500,000 470,100
Paw Paw Public School District, Building and Site, FGIC Insured, Pre-Refunded, 5.625%, 5/01/25 3,500,000 3,672,410
Plymouth-Canton Community School District,
Refunding, AMBAC Insured, 5.50%, 5/01/13 4,000,000 4,088,480
Series C, FGIC Insured, Pre-Refunded, 6.50%, 5/01/16 3,500,000 3,684,835
Series C, MBIA Insured, Pre-Refunded, 6.50%, 5/01/16 3,000,000 3,158,430
Port Huron School District, Refunding, AMBAC Insured, 6.00%, 5/01/12 4,500,000 4,661,145
Portage Lake Water and Sewer Authority GO, Refunding, AMBAC Insured,
6.10%, 10/01/14 770,000 819,118
6.20%, 10/01/20 670,000 703,929
Portage Public Schools GO, MBIA Insured, Pre-Refunded, 5.625%, 5/01/19 2,750,000 2,872,870
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 2,500,000 2,900,250
Puerto Rico Electric Power Authority Revenue, Refunding, Series U, FSA Insured, 6.00%, 7/01/14 3,400,000 3,597,302
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 1,290,000 1,331,357
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 8,700,000 9,050,871
Redford USD, GO, FGIC Insured, Pre-Refunded, 6.00%, 5/01/22 14,090,000 15,243,126
Rockford Public Schools GO, Refunding,
AMBAC Insured, 5.875%, 5/01/19 3,900,000 3,966,807
FGIC Insured, 5.25%, 5/01/22 1,250,000 1,210,638
FGIC Insured, 5.25%, 5/01/27 3,000,000 2,875,290
FSA Insured, 5.875%, 5/01/19 3,150,000 3,203,960
MBIA Insured, 5.875%, 5/01/12 1,850,000 1,912,012
MBIA Insured, 5.875%, 5/01/19 1,925,000 1,957,975
Romulus Community Schools GO, Refunding, FGIC Insured, 5.75%,
5/01/13 690,000 713,508
5/01/17 1,200,000 1,225,884
5/01/22 5,435,000 5,505,220
Royal Oak Hospital Finance Authority Revenue, Refunding, MBIA Insured, 6.25%, 1/01/19 5,000,000 5,116,450
Saginaw Hospital Finance Authority Revenue,
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.375%, 7/01/19 4,850,000 4,767,890
Covenant Medical Center, Refunding, Series E, MBIA Insured, 5.50%, 7/01/24 1,750,000 1,715,700
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.875%, 7/01/14 5,325,000 5,509,458
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.75%, 7/01/17 2,000,000 2,062,380
St. Luke's Hospital Project, Refunding, Series C, MBIA Insured, 6.00%, 7/01/21 3,875,000 3,888,718
St. Luke's Hospital Project, Refunding, Series D, MBIA Insured, Pre-Refunded, 6.50%, 7/01/11 1,000,000 1,037,260
Saginaw Valley State University Revenue, AMBAC Insured, 5.25%, 7/01/19 2,540,000 2,492,172
Schoolcraft Community School District GO, FGIC Insured, Pre-Refunded,
5.75%, 5/01/21 3,575,000 3,816,527
5.375%, 5/01/26 1,000,000 1,046,250
South Redford School District GO, FGIC Insured, 5.50%, 5/01/22 3,155,000 3,161,720
St. Clair County Building Authority GO, MBIA Insured, 5.25%,
4/01/18 2,065,000 2,041,583
4/01/21 2,400,000 2,332,296
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
St. Clair County EDC, PCR, Detroit Edison Co., Refunding,
Series AA, AMBAC Insured, 6.40%, 8/01/24 $ 10,000,000 $ 10,742,700
Series DD, AMBAC Insured, 6.05%, 8/01/24 7,745,000 7,900,442
Sturgis Public School District, MBIA Insured, Pre-Refunded, 6.10%, 5/01/18 1,000,000 1,056,460
Three Rivers Community Schools, Building and Site, MBIA Insured, Pre-Refunded, 6.00%, 5/01/23 2,400,000 2,596,416
Traverse City Area Public Schools GO, Building and Site, Series I, MBIA Insured, Pre-Refunded, 4,550,000 4,825,412
5.70%, 5/01/20
University of Michigan Revenues, Medical Service Plan, MBIA Insured, Pre-Refunded, 6.50%, 12/01/21 2,365,000 2,472,537
Vicksburg Community Schools GO, Refunding, MBIA Insured, 5.625%,
5/01/12 2,175,000 2,238,836
5/01/20 1,000,000 1,009,890
Walled Lake Consolidated School District GO, Refunding, MBIA Insured, 5.50%, 5/01/22 3,000,000 3,006,390
Wayland USD, GO, FGIC Insured, Pre-Refunded, 6.75%, 5/01/24 2,000,000 2,208,440
Wayne Charter County Airport Revenue, Detroit Metropolitan Wayne County,
Series A, MBIA Insured, 5.25%, 12/01/18 5,500,000 5,299,525
Series A, MBIA Insured, 5.00%, 12/01/22 10,100,000 9,214,230
sub. lien, Refunding, Series C, MBIA Insured, 5.25%, 12/01/21 1,000,000 963,970
sub. lien, Series B, MBIA Insured, 6.875%, 12/01/11 300,000 313,494
sub. lien, Series B, MBIA Insured, 6.75%, 12/01/21 2,000,000 2,076,680
Wayne County Airport Revenue, sub. lien, Series B, AMBAC Insured, 6.00%, 12/01/20 10,585,000 10,596,432
Wayne-Westland Community Schools GO, Refunding, FGIC Insured, 6.10%, 5/01/13 2,275,000 2,365,932
West Bloomfield School District, FGIC Insured, 6.00%,
5/01/19 2,100,000 2,209,788
5/01/20 2,000,000 2,099,940
West Ottawa Public School District GO,
FGIC Insured, 5.60%, 5/01/21 2,355,000 2,379,539
FGIC Insured, 5.60%, 5/01/26 12,100,000 12,185,789
Refunding, FGIC Insured, 6.00%, 5/01/20 6,630,000 6,775,131
Western School District GO, Refunding, MBIA Insured, 5.50%, 5/01/20 1,660,000 1,667,072
Western Townships Utilities Authority GO, Sewer Disposal System, Refunding, FSA Insured,
6.75%, 1/01/15 18,710,000 19,227,332
6.50%, 1/01/19 4,915,000 5,033,452
Williamston Community School District GO, Building and Site, MBIA Insured, 5.375%, 5/01/15 4,900,000 4,965,562
Williamston County GO, Refunding, AMBAC Insured, 6.90%, 11/01/17 1,800,000 1,886,220
Wyandotte City School District GO, Refunding, FSA Insured, 5.625%, 5/01/13 1,800,000 1,849,068
Wyandotte Electric Revenue, Refunding, MBIA Insured, 6.25%, 10/01/17 9,980,000 10,340,977
Yale Public Schools District GO, AMBAC Insured,
5.375%, 5/01/17 2,000,000 2,007,100
5.50%, 5/01/19 1,500,000 1,508,565
Ypsilanti School District GO,
FGIC Insured, Pre-Refunded, 5.75%, 5/01/20 4,700,000 5,017,532
Refunding, FGIC Insured, 5.375%, 5/01/26 6,750,000 6,634,238
Zeeland Public Schools GO, Series B, MBIA Insured, Pre-Refunded,
6.10%, 5/01/24 4,000,000 4,293,720
5.875%, 7/01/35 25,000,000 26,086,238
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,048,387,050) 1,088,645,196
-------------
(a) SHORT TERM INVESTMENTS .7%
Delta County EDC, Environmental Improvement Revenue, Mead Escanaba Paper Project, Refunding,
Series C, Daily VRDN and Put, 4.25%, 12/01/09 1,800,000 1,800,000
Michigan State Strategic Fund Limited Obligation Revenue, Dow Chemical Co. Project, Refunding,
Daily VRDN and Put, 4.35%, 2/01/09 6,100,000 6,100,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $7,900,000) 7,900,000
-------------
TOTAL INVESTMENTS (COST $1,056,287,050) 98.7% 1,096,545,196
OTHER ASSETS, LESS LIABILITIES 1.3% 14,116,530
-------------
NET ASSETS 100.0% $1,110,661,726
===== ==============
</TABLE>
See glossary of terms on page 88.
(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 MINNESOTA INSURED TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31,
2000
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996 (d)
)PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.13 $12.14 $12.16 $12.01 $12.14 $11.88
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) .29 .59 .61 .64 .65 .67
Net realized and unrealized gains (losses) .45 (.99) .01 .25 (.12) .27
-------- -------- -------- -------- -------- --------
Total from investment operations .74 (.40) .62 .89 .53 .94
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income (.29)(h) (.59)(e) (.62)(f) (.64) (.66) (.68)
Net realized gains -- (.02) (.02) (.10) -- --
-------- -------- -------- -------- -------- --------
Total distributions (.29) (.61) (.64) (.74) (.66) (.68)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $11.58 $11.13 $12.14 $12.16 $12.01 $12.14
======== ======== ========= ======== ======== ========
Total return (b) 6.77% (3.30)% 5.18% 7.60% 4.54% 8.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $454,219 $451,142 $515,174 $495,315 $482,128 $492,139
Ratios to average net assets:
Expenses .68%(c) .66% .67% .65% .66% .66%
Net investment income 5.12%(c) 5.05% 5.01% 5.29% 5.47% 5.58%
Portfolio turnover rate 14.24% 15.79% 16.25% 14.87% 14.40% 17.72%
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.18 $12.19 $12.21 $12.05 $12.17 $11.89
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a) .26 .52 .54 .57 .59 .50
Net realized and unrealized gains (losses) .46 (.98) .01 .26 (.12) .28
-------- -------- -------- -------- -------- --------
Total from investment operations .72 (.46) .55 .83 .47 .78
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income (.26)(i) (.53)(g) (.55)(f) (.57) (.59) (.50)
Net realized gains -- (.02) (.02) (.10) -- --
-------- -------- -------- -------- -------- --------
Total distributions (.26) (.55) (.57) (.67) (.59) (.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $11.64 $11.18 $12.19 $12.21 $12.05 $12.17
======== ======== ========= ======== ======== ========
Total return (b) 6.54% (3.84)% 4.58% 7.04% 3.98% 6.67%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $22,913 $21,828 $20,896 $10,131 $4,844 $1,152
Ratios to average net assets:
Expenses 1.23%(c) 1.22% 1.23% 1.22% 1.23% 1.25%(c)
Net investment income 4.56%(c) 4.50% 4.44% 4.72% 4.87% 4.94%(c)
Portfolio turnover rate 14.24% 15.79% 16.25% 14.87% 14.40% 17.72%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.008.
(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
$.007.
(h) Includes distributions in excess of net investment income in the amount of
$.004.
(i) Includes distributions in excess of net investment income in the amount of
$.003.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
...................................................................................................................................
<S> <C> <C>
LONG TERM INVESTMENTS 99.4%
Albany ISD No. 745, Series A, FSA Insured, 6.00%, 2/01/16.......................................... $ 2,295,000 $ 2,391,344
Albert Lea ISD No. 241, MBIA Insured, 5.00%, 2/01/18............................................... 2,000,000 1,921,260
Anoka County Housing and Redevelopment Authority, City of Ramsey, Housing Development, AMBAC
Insured, 5.00%, 1/01/28......................................................................... 2,045,000 1,832,197
Becker GO, Tax Increment, Refunding, Series D, MBIA Insured, 6.25%, 8/01/15........................ 4,870,000 4,954,397
Benson ISD No. 777 GO, FSA Insured, 6.00%, 2/01/15................................................. 290,000 291,726
Big Lake ISD No. 727, MBIA Insured, 5.70%, 2/01/21................................................. 3,085,000 3,132,694
Brainerd Health Care Facilities Revenue, Benedictine Health St. Joseph, Refunding, Series D, MBIA
Insured, 5.875%, 2/15/13........................................................................ 3,500,000 3,605,070
Buffalo GO,
AMBAC Insured, 5.55%, 6/01/17.................................................................. 1,000,000 1,013,620
ISD No. 877, Formerly Wright County ISD No. 023, Refunding, MBIA Insured, 5.00%, 2/01/22....... 6,255,000 5,814,523
ISD No. 877, FSA Insured, 6.15%, 2/01/18....................................................... 2,800,000 2,898,168
Burnsville ISD No. 191, Series A, FSA Insured, 6.20%, 2/01/17...................................... 2,105,000 2,230,016
Burnsville MFHR, Coventry Center, Refunding, Series A, GNMA Secured, 5.90%, 9/20/19................ 400,000 409,768
Burnsville MFR, Coventry Court, Refunding, Series A, GNMA Secured,
5.95%, 9/20/29................................................................................. 1,275,000 1,293,513
6.00%, 9/20/34................................................................................. 1,000,000 1,015,290
Caledonia ISD No. 299 GO, MBIA Insured, 5.60%, 2/01/21............................................. 1,580,000 1,595,721
Champlin EDA, Housing Development, MBIA Insured, 5.625%, 2/01/26................................... 250,000 250,388
Chanhassen Apartments Project GO, Series B, AMBAC Insured, 6.20%, 1/01/25.......................... 2,975,000 3,063,030
Columbia Heights ISD No. 013, FSA Insured,
5.375%, 2/01/19................................................................................ 2,450,000 2,448,432
5.50%, 2/01/23................................................................................. 4,500,000 4,506,930
Dakota County Housing and Redevelopment Authority, Governmental Housing Revenue, Eagan Senior
Housing Facility, MBIA Insured, 5.40%, 1/01/27................................................. 1,015,000 976,339
Dakota County Housing and Redevelopment Authority MFHR, Dakota Station Project, GNMA Secured,
5.65%, 1/20/24................................................................................. 1,500,000 1,494,105
Dakota County Housing and Redevelopment Authority SFMR,
GNMA Secured, 5.75%, 4/01/18................................................................... 2,992,000 3,006,541
GNMA Secured, 5.85%, 10/01/30.................................................................. 4,988,000 4,994,684
Refunding, GNMA Secured, 8.10%, 3/01/16........................................................ 105,000 108,019
Deer River ISD No. 317 GO, FSA Insured, 6.00%, 2/01/25............................................. 1,325,000 1,381,949
Duluth EDA,
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded, 6.20%,... 2,880,000 3,040,070
11/01/12
Health Care Facilities Revenue, The Duluth Clinic, Ltd., AMBAC Insured, Pre-Refunded, 6.30%,... 2,125,000 2,273,240
11/01/22
Hospital Facilities Revenue, St. Lukes Hospital, Series A, Connie Lee Insured, 6.40%, 5/01/12.. 3,000,000 3,037,200
Eagan MFHR, Forest Ridge Apartments, Refunding, Series A, GNMA Secured,
5.95%, 9/20/29................................................................................. 1,700,000 1,724,633
6.00%, 9/20/34................................................................................. 1,480,000 1,502,629
Eden Prairie ISD No. 272, Series A, FSA Insured, Pre-Refunded, 5.75%, 2/01/15...................... 1,980,000 2,047,716
Eden Prairie MFHR,
Lincoln Park Project, Series A-1, GNMA Secured, 6.40%, 7/20/20................................. 1,500,000 1,537,545
Lincoln Park Project, Series A-1, GNMA Secured, 6.55%, 7/20/30................................. 3,350,000 3,433,013
Lincoln Park Project, Series A-1, GNMA Secured, 6.65%, 1/20/42................................. 7,995,000 8,191,837
Olympic Ridge, Refunding, Series A, GNMA Secured, 6.25%, 1/20/31............................... 2,000,000 2,068,940
Eveleth EDA, Housing Development, MBIA Insured, 5.80%, 7/01/25..................................... 1,000,000 1,016,670
Faribault ISD No. 656, FSA Insured, 5.75%, 6/01/15................................................. 1,500,000 1,555,875
Ham Lake GO, Anoka County Housing, Senior Housing Project, Series B, MBIA Insured, 6.10%, 1/01/26.. 2,180,000 2,228,331
Hibbing Health Care Facilities Revenue, The Duluth Clinic, Ltd., FSA Insured, Pre-Refunded, 5.00%,. 8,000,000 7,968,960
11/01/25
Hopkins Elderly Housing Revenue, St. Therese Project, Refunding, Series A, GNMA Secured,
5.60%, 11/20/17................................................................................ 750,000 757,988
5.70%, 11/20/32................................................................................ 3,000,000 2,977,830
Kenyon Wanamingo ISD No. 2172, MBIA Insured, 6.00%, 2/01/22........................................ 4,030,000 4,237,585
Lakeville ISD No. 194, FGIC Insured, 5.40%, 2/01/13................................................ 1,000,000 1,010,840
Minneapolis and St. Paul Housing RDA, Health Care System Revenue,
Children's Health Care, Series A, FSA Insured, 5.70%, 8/15/16.................................. 1,005,000 1,012,970
Children's Health Care, Series A, FSA Insured, 5.50%, 8/15/25.................................. 9,000,000 8,761,590
Health One Obligated Group, Series A, MBIA Insured, Pre-Refunded, 7.40%, 8/15/11............... 9,890,000 10,196,194
Health One Obligated Group, Series A, MBIA Insured, Pre-Refunded, 6.75%, 8/15/14............... 3,950,000 4,060,363
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
..................................................................................................................................
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Minneapolis and St. Paul Metropolitan Airport Commission Airport Revenue, Series A, AMBAC Insured,
5.00%,
1/01/22.......................................................................................... $10,000,000 $ 9,340,400
1/01/30.......................................................................................... 5,000,000 4,543,300
Minneapolis CDA, Tax Increment Revenue, Series 1990, MBIA Insured, 7.00%, 3/01/01.................... 2,100,000 2,126,712
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 1,132,524
Minneapolis GO, Sports Arena Project, Refunding, 5.20%, 10/01/24..................................... 3,750,000 3,576,675
Minneapolis Hospital Facilities Revenue, Fairview Hospital and Healthcare, Refunding,
Series A, MBIA Insured, 6.50%, 1/01/11........................................................... 600,000 624,504
Series B, MBIA Insured, 6.70%, 1/01/17........................................................... 7,815,000 8,110,954
Minneapolis MFR, Riverside Plaza, Refunding, GNMA Secured, 5.20%, 12/20/30........................... 6,320,000 5,857,502
Minneapolis Revenue University Gateway Project, Series A, 5.25%, 12/01/24............................ 3,000,000 2,872,890
Minneapolis Special School District No. 001, Series A, MBIA Insured, 5.90%, 2/01/17.................. 5,000,000 5,122,550
Minneapolis St. Paul Housing Finance Board SFMR,
Phase VI, Series A, GNMA Secured, 8.30%, 8/01/21................................................. 1,475,000 1,477,626
Series A, GNMA Secured, 8.375%, 11/01/17......................................................... 180,000 180,313
Series C, GNMA Secured, 8.875%, 11/01/18......................................................... 200,000 200,340
Minnesota Agriculture and Economic Development Board Revenue,
Benedictine Health, Refunding, Series A, MBIA Insured, 5.00%, 2/15/23............................ 6,850,000 6,237,268
Benedictine Health, Refunding, Series A, MBIA Insured, 5.125%, 2/15/29........................... 12,250,000 11,216,345
Evangelical Lutheran Good Samaritan, AMBAC Insured, 5.00%, 12/01/23.............................. 2,750,000 2,499,833
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%, 12/01/22............. 5,180,000 4,929,443
Health Care System, Fairview Hospital, Refunding, Series A, MBIA Insured, 5.75%, 11/15/26........ 18,000,000 18,049,140
Minnesota State HFA,
Rental Housing, Refunding, Series D, MBIA Insured, 5.90%, 8/01/15................................ 7,000,000 7,213,640
Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18................................ 2,585,000 2,648,307
Rental Housing, Refunding, Series D, MBIA Insured, 6.00%, 2/01/22................................ 2,960,000 3,019,585
SFHR, Series D, 5.45%, 1/01/26................................................................... 5,000,000 4,794,350
SFMR, Series E, AMBAC Insured, 5.40%, 1/01/25.................................................... 9,000,000 8,566,740
SFMR, Series F, MBIA Insured, 6.30%, 7/01/25..................................................... 1,470,000 1,509,161
SFMR, Series G, AMBAC Insured, 6.25%, 7/01/26.................................................... 2,205,000 2,254,039
SFMR, Series I, MBIA Insured, 6.25%, 1/01/15..................................................... 1,365,000 1,410,100
Minnesota State Higher Education Facilities Authority Revenue,
Bethel, Refunding, 5.10%, 4/01/28................................................................ 4,100,000 3,749,696
University of St. Thomas, Series 4-A1, MBIA Insured, 5.625%, 10/01/16............................ 1,000,000 1,017,160
Minnetonka MFHR,
Brier Creek Project, Refunding, Series A, GNMA Secured, 6.45%, 6/20/24........................... 2,720,000 2,836,470
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.90%, 10/20/19.......................... 1,750,000 1,792,893
Cedar Hills Project, Refunding, Series A, GNMA Secured, 5.95%, 10/20/29.......................... 5,955,000 6,051,411
New Hope MFR, North Ridge, Refunding, Series A, GNMA Secured,
6.05%, 1/01/17................................................................................... 450,000 465,530
6.20%, 1/01/31................................................................................... 5,470,000 5,641,156
North St. Paul Maplewood ISD No. 622 GO,
Refunding, Series A, 5.125%, 2/01/25............................................................. 2,275,000 2,134,906
Series A, MBIA Insured, Pre-Refunded, 7.10%, 2/01/19............................................. 2,000,000 2,208,000
Northeast Metropolitan ISD No. 916 GO, FSA Insured, 5.80%, 1/01/16................................... 5,475,000 5,604,429
Northern Municipal Power Agency Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12........................................................... 1,780,000 1,781,193
Refunding, FSA Insured, 5.25%, 1/01/17........................................................... 1,000,000 989,130
Series C, AMBAC Insured, 6.125%, 1/01/20......................................................... 8,090,000 8,486,976
Owatonna Public Utilities Commission Revenue, Refunding, Series A, AMBAC Insured, 5.45%, 1/01/16..... 3,350,000 3,365,846
Park Rapids ISD No. 309, MBIA Insured, 5.00%, 2/01/25................................................ 9,090,000 8,377,980
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16................................................................................... 1,600,000 1,676,592
6.125%, 6/01/24.................................................................................. 1,815,000 1,863,696
Princeton Hospital Revenue, Fairview Hospital and Healthcare, Series C, MBIA Insured, 6.25%,......... 7,205,000 7,357,458
1/01/21
Princeton ISD No. 477, Mille Lacs County, FSA Insured, 5.125%, 2/01/24............................... 2,190,000 2,076,996
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
...................................................................................................................................
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Prior Lake ISD No. 719 GO, FSA Insured, 5.50%,
2/01/20.......................................................................................... $ 2,255,000 $ 2,264,719
2/01/21.......................................................................................... 2,590,000 2,604,970
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, Pre-Refunded, 6.50%, 7/01/23.......... 1,500,000 1,646,355
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22...................... 160,000 163,323
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14........................... 1,300,000 1,352,429
Robbinsdale GO, Housing Development, Senior Housing Project, Series B, FGIC Insured, 5.875%,......... 2,160,000 2,183,717
1/01/31
Robbinsdale Hospital Revenue, North Memorial Medical Center Project, Refunding, Series A, AMBAC
Insured, 5.45%, 5/15/13.............................................................................. 2,000,000 2,015,460
Rochester Health Care Facilities Revenue, Mayo Foundation, Series B, 5.50%, 11/15/27................. 5,000,000 4,889,200
Roseville ISD No. 623, Series A, FSA Insured,
5.80%, 2/01/19................................................................................... 1,200,000 1,216,524
5.85%, 2/01/24................................................................................... 2,470,000 2,500,159
6.00%, 2/01/25................................................................................... 4,260,000 4,357,043
Saint Clair ISD No. 075 GO, MBIA Insured, 5.70%, 4/01/22............................................. 2,250,000 2,278,778
Sauk Rapids Independent School District No. 047 GO, Series A, MBIA Insured, 5.75%,
2/01/23.......................................................................................... 2,740,000 2,800,088
2/01/26.......................................................................................... 5,000,000 5,101,700
Scott County Housing and Redevelopment Authority Facilities Lease Revenue, AMBAC Insured,
5.25%, 12/01/11.................................................................................. 2,380,000 2,431,503
5.70%, 2/01/29................................................................................... 1,380,000 1,370,312
Scott County Housing and Redevelopment Authority GO, Savage City, Hamilton Apartments Project,
AMBAC Insured, 5.70%, 2/01/33.................................................................... 2,285,000 2,268,160
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 1,475,084
Scott County Housing and Redevelopment Authority MFR, Highview Commons, Series A, GNMA Secured,
6.20%, 1/20/41................................................................................... 1,300,000 1,381,263
6.50%, 7/20/41................................................................................... 2,865,000 2,989,713
Scott County Housing and Redevelopment Authority Special Benefits Tax Revenue, River City Centre
Project, Series B, AMBAC Insured, 5.50%, 2/01/27................................................. 675,000 664,794
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 1,138,164
Shakopee Public Utilities Commission Public Utilities Revenue, MBIA Insured, 6.00%, 2/01/28.......... 2,530,000 2,629,581
South Washington County ISD No. 833 GO, Refunding, Series A, FGIC Insured, 6.125%, 6/01/10........... 2,080,000 2,101,008
Southern Minnesota Municipal Power Agency Power Supply System Revenue,
Refunding, Series A, MBIA Insured, ETM, 5.75%, 1/01/18........................................... 1,000,000 1,054,620
Series A, AMBAC Insured, 5.75%, 1/01/18.......................................................... 2,250,000 2,276,325
Series A, FGIC Insured, 5.75%, 1/01/18........................................................... 1,000,000 1,011,700
Series A, MBIA Insured, 5.75%, 1/01/18........................................................... 8,865,000 8,968,721
Series B, AMBAC Insured, 6.00%, 1/01/16.......................................................... 5,000,000 5,148,650
Series C, AMBAC Insured, 5.00%, 1/01/17.......................................................... 1,000,000 945,490
St. Cloud Health Care Revenue, St. Cloud Hospital Obligation, Group A, 5.875%, 5/01/30............... 17,785,000 18,182,673
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding, Series A, AMBAC Insured,....... 1,165,000 1,120,089
5.00%, 7/01/15
St. Cloud Housing and RDA, Sales Tax Revenue, Paramount Theater Project, Refunding, Series A, FGIC
Insured, 5.00%, 3/01/22.......................................................................... 1,250,000 1,149,225
St. Francis ISD No. 015, Series A, FSA Insured,
6.35%, 2/01/13................................................................................... 1,500,000 1,613,100
6.375%, 2/01/16.................................................................................. 5,465,000 5,883,510
St. Louis Park Health Care Facilities Revenue, Health System of Minnesota Obligated Group,
Refunding, Series A, AMBAC Insured, 5.20%, 7/01/16............................................... 1,000,000 977,790
7/01/23 9,000,000 8,439,660
St. Paul Housing and Redevelopment Authority Parking Revenue, Series A, FSA Insured, 5.75%,.......... 5,105,000 5,267,135
8/01/13
St. Paul ISD No. 625 COP, Series C, MBIA Insured, 6.10%,
2/01/14.......................................................................................... 1,075,000 1,110,841
2/01/15.......................................................................................... 500,000 515,255
St. Paul ISD No. 625 GO,
Series A, FSA Insured, 5.75%, 2/01/16............................................................ 3,500,000 3,578,820
Series C, FSA Insured, 6.00%, 2/01/20............................................................ 1,600,000 1,671,760
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE
...................................................................................................................................
<S> <C> <C>
St. Paul Port Authority IDR, Series K, FGIC Insured, 9.50%,
12/01/01.................................................................................... $ 5,000 $ 5,047
12/01/02.................................................................................... 5,000 5,059
12/01/14.................................................................................... 190,000 176,721
Stillwater ISD No. 834 GO, MBIA Insured, 5.75%, 2/01/15......................................... 2,990,000 3,114,623
Todd Morrisson and Stearns Counties ISD No. 2753 GO, MBIA Insured, 5.00%, 4/01/17............... 1,500,000 1,447,515
Virginia Governmental Housing Project GO, Refunding, MBIA Insured, 5.90%, 2/01/26............... 2,915,000 2,951,379
Walker-HakenSack-Akeley ISD No. 113 GO, Series A, FSA Insured, 6.00%
2/01/23..................................................................................... 1,160,000 1,243,462
2/01/25..................................................................................... 1,300,000 1,393,951
Washington County Housing and RDAR, Government Housing, Landfall Terrace Project, Refunding,
5.35%, 2/01/22.............................................................................. 1,000,000 971,420
5.40%, 8/01/27.............................................................................. 2,015,000 1,929,544
Washington County SFMR, Housing and RDA, GNMA Secured, 7.60%, 12/01/11.......................... 80,000 80,068
Western Minnesota Municipal Power Agency Power Supply Revenue, Refunding, Series A,
AMBAC Insured, 5.50%, 1/01/12............................................................... 2,745,000 2,834,844
AMBAC Insured, 5.50%, 1/01/13............................................................... 4,500,000 4,619,520
MBIA Insured, 5.50%, 1/01/15................................................................ 5,425,000 5,427,658
Western Minnesota Municipal Power Agency Transmission Project Revenue, Refunding, AMBAC Insured,
6.75%, 1/01/16.............................................................................. 2,000,000 2,049,860
Worthington ISD No. 518 GO, Series A, FSA Insured, 5.00%, 2/01/24............................... 5,675,000 5,244,490
-------------
TOTAL LONG TERM INVESTMENTS (COST $470,125,046)................................................. 474,498,074
-------------
(a) SHORT TERM INVESTMENTS 2.6%.................................................................
Minneapolis GO, Series B, Weekly VRDN and Put, 4.15%, 12/01/16.................................. 3,200,000 3,200,000
Minneapolis GO, Tax Increment, Series A, Weekly VRDN and Put, 4.15%, 3/01/12.................... 9,030,000 9,030,000
Minneapolis Public Works GO, Weekly VRDN and Put, 4.15%, 12/01/04............................... 365,000 365,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $12,595,000)................................................. 12,595,000
-------------
TOTAL INVESTMENTS (COST $482,720,046) 102.0%.................................................... 487,093,074
OTHER ASSETS, LESS LIABILITIES (2.0)%........................................................... (9,960,780)
-------------
NET ASSETS 100.0%............................................................................... $ 477,132,294
=============
</TABLE>
See glossary of terms on page 88
(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>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 .....................................................
CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996
...............................................................................................................................
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.52 $12.49 $12.45 $12.19 $12.22 $11.90
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a)............................ .30 .61 .62 .64 .66 .68
Net realized and unrealized gains (losses).......... .44 (.95) .07 .33 (.03) .33
-------- -------- -------- -------- -------- --------
Total from investment operations....................... .74 (.34) .69 .97 .63 1.01
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income............................... (.30)(g) (.61)(e) (.62) (.64)(f) (.66)(g) (.69)(h)
Net realized gains.................................. -- (.02) (.03) (.07) -- --
-------- -------- -------- -------- -------- --------
Total distributions.................................... (.30) (.63) (.65) (.71) (.66) (.69)
-------- -------- -------- -------- -------- --------
Net asset value, end of period......................... $11.96 $11.52 $12.49 $12.45 $12.19 $12.22
======== ======== ======== ======== ======== ========
Total return(b)........................................ 6.56% (2.80)% 5.63% 8.22% 5.35% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)...................... $689,017 $689,084 $776,592 $741,079 $698,360 $685,783
Ratios to average net assets:
Expenses............................................ .66%(c) .64% .65% .64% .64% .64%
Net investment income............................... 5.18%(c) 5.07% 4.98% 5.24% 5.43% 5.58%
Portfolio turnover rate................................ 8.49% 9.61% 6.56% 12.84% 14.95% 11.47%
CLASS B
...............................................................................
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period................... $11.52 $11.43
-------- --------
Income from investment operations:
Net investment income(a)............................ .27 .05
Net realized and unrealized gains................... .46 .09
-------- --------
Total from investment operations....................... .73 .14
-------- --------
Less distributions from net investment income.......... (.27)(h) (.05)
-------- --------
Net asset value, end of period......................... $11.98 $11.52
======== ========
Total return(b)........................................ 6.43% 1.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)...................... $1,299 $76
Ratio to average net assets:
Expenses............................................ 1.22%(c) 1.20%(c)
Net investment income............................... 4.58%(c) 5.02%(c)
Portfolio turnover rate................................ 8.49% 9.61%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.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>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ---------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.58 $12.56 $12.51 $12.24 $12.26 $11.90
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income(a) .27 .54 .55 .58 .59 .52
Net realized and unrealized gains (losses) .45 (.96) .08 .34 (.02) .35
------ ------ ------ ------ ------ ------
Total from investment operations .72 (.42) .63 .92 .57 .87
------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income (.27)(f) (.54)(e) (.55) (.58) (.59) (.51)
Net realized gains -- (.02) (.03) (.07) -- --
------ ------ ------ ------ ------ ------
Total distributions (.27) (.56) (.58) (.65) (.59) (.51)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.03 $11.58 $12.56 $12.51 $12.24 $12.26
====== ====== ====== ====== ====== ======
Total return(b) 6.32% (3.41)% 5.10% 7.66% 4.79% 7.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $40,204 $40,181 $42,258 $28,178 $15,786 $6,085
Ratios to average net assets:
Expenses 1.22%(c) 1.20% 1.21% 1.20% 1.20% 1.22%(c)
Net investment income 4.62%(c) 4.52% 4.42% 4.67% 4.80% 4.99%(c)
Portfolio turnover rate 8.49% 9.61% 6.56% 12.84% 14.95% 11.47%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.002.
(f) Includes distributions in excess of net investment income in the amount of
$.003.
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.8%
<S> <C> <C>
Akron Bath Copley Joint Township Hospital Revenue, Akron General Medical Center Project,
Refunding, AMBAC Insured, 5.375%,
1/01/17 ................................................................................ $ 1,000,000 $ 995,080
1/01/22 ................................................................................ 1,500,000 1,461,810
Akron GO, Limited Tax, FGIC Insured, 7.50%, 9/01/05 .......................................... 500,000 563,950
Akron Sewer System Revenue, Refunding, MBIA Insured, 5.55%, 12/01/16 ......................... 3,660,000 3,716,254
Akron Waterworks System First Mortgage Revenue, FGIC Insured, 6.00%, 3/01/14 ................. 1,000,000 1,046,970
Allen County Sewer Revenue, MBIA Insured, 5.70%, 12/01/13 .................................... 1,200,000 1,232,988
Archbold Area Local School District GO,
AMBAC Insured, 6.00%, 12/01/21 ......................................................... 2,000,000 2,086,840
Refunding, MBIA Insured, 5.90%, 12/01/11 ............................................... 600,000 609,222
Athens City School District GO, School Facilities Construction and Improvement,
FSA Insured, 6.00%, 12/01/24 ................................................................ 2,345,000 2,507,251
Aurora City School District COP, MBIA Insured,
6.10%, 12/01/19 ........................................................................ 1,825,000 1,934,591
6.15%, 12/01/24 ........................................................................ 1,670,000 1,763,303
Aurora City School District GO, Refunding and Improvement, FGIC Insured, 5.80%, 12/01/16 ..... 1,075,000 1,115,356
Avon Lake Water System Revenue, Series A, AMBAC Insured, 5.75%, 10/01/26 ..................... 2,020,000 2,058,562
Avon Local School District, AMBAC Insured, 6.00%, 12/01/20 ................................... 2,500,000 2,599,250
Beavercreek Local School District GO, FGIC Insured, 5.70%, 12/01/20 .......................... 8,125,000 8,258,900
Brunswick City School District, AMBAC Insured, 6.90%, 12/01/12 ............................... 2,295,000 2,410,852
(b)Buckeye Local School District GO, Construction and Improvement Bonds, FGIC Insured,
5.50%,12/01/25 .............................................................................. 750,000 748,913
Butler County GO, AMBAC Insured, 5.75%, 12/01/16 ............................................. 1,000,000 1,034,550
Butler County Hospital Facilities Revenue, Middletown Regional Hospital, Refunding and
Improvement, FGIC Insured, 6.75%, 11/15/10 .................................................. 2,150,000 2,248,685
Butler County Waterworks Revenue, AMBAC Insured, Pre-Refunded,
6.35%, 12/01/08 ........................................................................ 790,000 831,120
6.40%, 12/01/12 ........................................................................ 500,000 526,555
Cardington and Lincoln Local School District, MBIA Insured, 6.60%, 12/01/14 .................. 400,000 418,764
Celina Wastewater System Mortgage Revenue, FGIC Insured, Pre-Refunded, 6.55%, 11/01/16 ....... 1,200,000 1,242,072
Central Local School District GO, Classroom Facilities, FSA Insured, 5.75%,
12/01/22 .................................................................................... 1,555,000 1,596,301
Chillicothe GO, Limited Tax, AMBAC Insured, 6.05%, 12/01/12 .................................. 675,000 701,318
Circleville GO, Capital Facilities Improvement, AMBAC Insured, 5.625%, 12/01/20 .............. 2,035,000 2,062,676
Clermont County Hospital Facilities Revenue, Mercy Health System,
Refunding, Series B, AMBAC Insured, 6.00%, 9/01/19 ..................................... 1,750,000 1,793,050
Series A, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/19 .................................. 515,000 531,145
Clermont County Waterworks Revenue, Refunding, AMBAC Insured, 5.80%, 12/01/18 ................ 11,000,000 11,306,020
Cleveland Airport Systems Revenue,
Series A, FGIC Insured, 6.25%, 1/01/20 ................................................. 3,000,000 3,099,480
Series A, FSA Insured, 5.125%, 1/01/27 ................................................. 4,900,000 4,524,170
Series B, FGIC Insured, Pre-Refunded, 6.10%, 1/01/24 ................................... 1,450,000 1,550,819
Cleveland GO, Series 1994, MBIA Insured, Pre-Refunded, 6.70%, 11/15/18 ....................... 2,000,000 2,208,300
Cleveland Waterworks Revenue,
Refunding, Series F, AMBAC Insured, 6.25%, 1/01/16 ..................................... 2,000,000 2,067,800
Refunding and Improvement, Series I, FSA Insured, 5.00%, 1/01/28 ....................... 20,000,000 18,329,400
Series F-92A, AMBAC Insured, Pre-Refunded, 6.25%, 1/01/15 .............................. 1,000,000 1,043,460
Series H, MBIA Insured, Pre-Refunded, 5.75%, 1/01/26 ................................... 17,400,000 18,709,350
Clinton-Massie Local School District, Issue I, AMBAC Insured, Pre-Refunded, 7.50%,
12/01/11 .................................................................................... 1,000,000 1,057,630
Columbiana County, Refunding, FSA Insured, 5.25%, 12/01/24 ................................... 1,000,000 964,070
Columbus GO, Limited Tax, FGIC Insured, 9.50%, 4/15/03 ....................................... 975,000 1,094,662
Columbus Municipal Airport Authority Revenue, Airport Improvement, Port Columbus
International, Series B, AMBAC Insured, 5.00%, 1/01/18 ...................................... 3,815,000 3,660,988
Columbus Tax Increment Financing Revenue, Easton Project, AMBAC Insured, 5.30%, 12/01/19 ..... 1,500,000 1,478,535
Coshocton Sewer System GO, AMBAC Insured, 6.50%, 12/01/12 .................................... 1,530,000 1,622,978
Crestview Local School District GO, Construction and Improvement, AMBAC Insured,
6.65%, 12/01/14 ............................................................................. 1,650,000 1,759,857
Cuyahoga County GO, Limited Tax, MBIA Insured, 9.375%, 10/01/04 .............................. 100,000 117,979
Cuyahoga County Hospital Revenue,
Metrohealth System Project, Refunding and Improvement, MBIA Insured, 5.50%, 2/15/27 .... 2,000,000 1,964,380
University Hospitals Health System Inc., Refunding, AMBAC Insured, 5.40%, 1/15/19 ...... 1,500,000 1,465,755
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Cuyahoga County Utility System Revenue,
AMBAC Insured, 5.125%, 2/15/28 ......................................................... $ 1,500,000 $ 1,410,660
Medical Center Co. Project, Refunding, Series B, MBIA Insured, 6.10%, 8/15/15 .......... 2,945,000 3,068,101
Danville Local School District GO, School Improvement, AMBAC Insured, 5.75%, 12/01/23 ........ 1,180,000 1,243,862
Defiance GO, MBIA Insured,
6.10%, 12/01/14 ........................................................................ 1,000,000 1,056,870
6.20%, 12/01/20 ........................................................................ 750,000 783,758
Delaware City School District, FGIC Insured, 5.75%, 12/01/15 ................................. 1,640,000 1,696,186
Dover City School District, AMBAC Insured, 6.25%, 12/01/16 ................................... 2,000,000 2,090,300
Dover Municipal Electric System Revenue, FGIC Insured, 6.00%, 12/01/19 ....................... 1,625,000 1,681,973
Dover Waterworks Systems Revenue, AMBAC Insured, 6.00%, 12/01/13 ............................. 1,100,000 1,162,733
East Liverpool Hospital Revenue, East Liverpool City Hospital Project, Series B,
FSA Insured, 5.00%, 10/01/21 ................................................................ 1,000,000 928,610
Fairborn GO, Limited Tax, Series 1991, MBIA Insured, 7.00%, 10/01/11 ......................... 1,390,000 1,486,369
Fairfield City School District GO, FGIC Insured, 6.00%, 12/01/20 ............................. 1,000,000 1,030,170
Fairfield County GO, FGIC Insured, 5.25%, 6/01/24 ............................................ 4,220,000 4,069,895
Finneytown Local School District, FGIC Insured, 5.80%, 12/01/24 .............................. 1,980,000 2,029,579
Fostoria City School District GO, AMBAC Insured, Pre-Refunded, 6.70%, 12/01/16 ............... 2,500,000 2,671,300
Franklin County Hospital Revenue, Holy Cross Health Systems, AMBAC Insured, 5.875%,
6/01/21 ..................................................................................... 2,500,000 2,550,300
Green Local School District GO, Summit County, FGIC Insured, Pre-Refunded,
5.875%, 12/01/14 ....................................................................... 2,800,000 3,005,520
5.90%, 12/01/19 ........................................................................ 5,150,000 5,532,903
Greene County Sewer System Revenue, Governmental Enterprise,
AMBAC Insured, 5.625%, 12/01/25 ........................................................ 1,890,000 1,910,998
MBIA Insured, 5.25%, 12/01/25 .......................................................... 5,500,000 5,298,590
Greene County Water System Revenue, Series A, FGIC Insured, 6.125%, 12/01/21 ................. 2,100,000 2,209,368
Hamilton City Electric System Mortgage Revenue,
Refunding, Series A, FGIC Insured, 6.00%, 10/15/23 ..................................... 11,450,000 11,690,908
Series B, FGIC Insured, 6.30%, 10/15/25 ................................................ 2,340,000 2,433,085
Hamilton County Hospital Facilities Revenue,
Bethesda Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 1/01/12 .................. 3,650,000 3,823,375
Children's Hospital Medical Center, Series G, MBIA Insured, 5.00%, 5/15/23 ............. 5,000,000 4,616,850
Hamilton County Sewer System Revenue, Refunding, Series A, FGIC Insured, 6.05%, 12/01/15 ..... 3,010,000 3,177,236
Hamilton Wastewater System Revenue, Series A, FSA Insured,
5.90%, 10/15/21 ........................................................................ 3,040,000 3,119,526
5.20%, 10/15/23 ........................................................................ 7,525,000 7,231,224
Hamilton Waterworks Mortgage Revenue, Series A, MBIA Insured, 6.30%, 10/15/21 ................ 4,665,000 4,796,740
Heath City School District GO, School Improvement, Series A, FGIC Insured,
5.60%, 12/01/21 ........................................................................ 1,000,000 1,011,560
5.50%, 12/01/27 ........................................................................ 1,170,000 1,164,981
Hilliard School District GO,
Refunding, FGIC Insured, 6.55%, 12/01/05 ............................................... 500,000 547,545
School Improvement, FGIC Insured, 5.75%, 12/01/28 ...................................... 4,000,000 4,095,000
Hudson Local School District GO, Refunding, FGIC Insured, 5.60%, 12/15/14 .................... 2,750,000 2,815,203
Ironton Building Improvement, AMBAC Insured, 5.50%, 12/01/22 ................................. 1,000,000 1,002,530
Jackson Local School District GO, Stark and Summit Counties Local School District,
FSA Insured, 5.50%, 12/01/20 ........................................................... 4,000,000 4,098,200
FSA Insured, 5.625%, 12/01/25 .......................................................... 3,500,000 3,549,980
MBIA Insured, 5.50%, 12/01/21 .......................................................... 3,060,000 3,075,820
Kent State University Revenues, General Receipts,
AMBAC Insured, Pre-Refunded, 6.45%, 5/01/12 ............................................ 1,195,000 1,257,558
MBIA Insured, 5.50%, 5/01/28 ........................................................... 2,500,000 2,485,725
Lake County Hospital Facilities Revenue, Lake Hospital System Inc., AMBAC Insured,
5.00%, 8/15/23 .............................................................................. 7,500,000 6,868,875
Lake Local School District GO, Stark County, AMBAC Insured, 6.25%, 12/01/09 .................. 1,000,000 1,059,710
Lakota Local District GO, AMBAC Insured, Pre-Refunded, 6.125%, 12/01/17 ...................... 3,200,000 3,452,288
Licking Valley Local School GO, MBIA Insured, 5.00%, 12/01/25 ................................ 3,000,000 2,784,810
Lincolnview Local School District, FGIC Insured, 5.50%, 12/01/25 ............................. 4,225,000 4,227,366
Lorain County Health Facilities Revenue, Catholic Healthcare Partners, Series A,
AMBAC Insured, 5.50%, 9/01/29 ............................................................... 6,250,000 6,117,000
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding, Series B,
MBIA Insured, 5.50%, 9/01/27 ................................................................ 10,000,000 9,820,600
Loveland City School District GO, Refunding, Series A, MBIA Insured, 5.00%, 12/01/24 ......... 6,000,000 5,585,280
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Lucas County GO, Limited Tax, FGIC Insured, 8.00%,
12/01/06 ............................................................................... $ 120,000 $ 141,462
12/01/08 ............................................................................... 110,000 133,703
12/01/09 ............................................................................... 120,000 147,960
12/01/10 ............................................................................... 220,000 274,360
Lucas County Hospital Revenue,
Promedica Healthcare Obligation Group, AMBAC Insured, Pre-Refunded, 5.375%,
11/15/29 .............................................................................. 1,000,000 960,810
Promedica Healthcare Obligation Group, MBIA Insured, 5.75%, 11/15/14 ................... 300,000 310,665
Promedica Healthcare Obligation Group, MBIA Insured, ETM, 5.75%, 11/15/14 .............. 4,460,000 4,830,804
St. Vincent Medical Center, Refunding, Series B, MBIA Insured, 5.25%, 8/15/20 .......... 3,500,000 3,374,175
Madison Local School District GO, Butler County, MBIA Insured, 5.75%, 12/01/26 ............... 1,000,000 1,020,840
Mahoning County GO, Bridge Improvement,
Limited Tax, AMBAC Insured, 7.20%, 12/01/09 ............................................ 1,500,000 1,525,050
Unlimited Tax, AMBAC Insured, 7.15%, 12/01/04 .......................................... 1,500,000 1,524,885
Mahoning County Hospital Facilities Revenue,
Western Reserve Care, MBIA Insured, ETM, 5.50%, 10/15/25 ............................... 4,750,000 4,705,018
Youngstown Hospital Inc. Project, Series B, MBIA Insured, Pre-Refunded, 7.00%,
10/15/08 .............................................................................. 2,000,000 2,107,200
Mansfield Hospital Improvement Revenue, Mansfield General Hospital Project,
AMBAC Insured, 6.70%, 12/01/09 .............................................................. 2,500,000 2,620,250
Marietta City School District, Series B, AMBAC Insured, 5.75%, 12/01/07 ...................... 1,000,000 1,042,380
Marietta Water Revenue, AMBAC Insured, 5.95%, 12/01/21 ....................................... 3,875,000 3,989,196
Marion County City School District GO, School Facilities Construction and
Improvement Project, FSA Insured,
5.55%, 12/01/20 ........................................................................ 1,000,000 1,006,560
5.625%, 12/01/22 ....................................................................... 1,100,000 1,110,384
Marysville Exempted Village School District GO, School Improvement, AMBAC Insured,
6.00%, 12/01/29 ............................................................................. 2,890,000 3,026,928
Mason Sewer Systems Revenue, FGIC Insured, 6.00%, 12/01/19 ................................... 1,935,000 1,993,379
Maumee Hospital Revenue, St. Luke's Hospital Project, Refunding, AMBAC Insured, 5.80%,
12/01/14 .................................................................................... 2,755,000 2,847,761
Mentor Exempted Village School District GO, MBIA Insured, 6.625%, 12/01/13 ................... 2,000,000 2,094,920
Miami County Hospital Facilities Revenue, Upper Valley Medical Center, Nursing Care Inc.,
Series B, MBIA Insured, 6.50%, 5/01/21 ...................................................... 1,340,000 1,381,661
Montgomery County Hospital Facilities Revenue, Kettering Medical Center Facilities,
MBIA Insured, 7.40%, 4/01/09 ................................................................ 12,510,000 12,657,118
Montgomery County Revenue,
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/12 ............. 1,600,000 1,673,696
Miami Valley Hospital, Refunding, Series A, AMBAC Insured, 6.25%, 11/15/16 ............. 3,250,000 3,377,985
Sisters of Charity Health Care, Series A, MBIA Insured, 6.625%, 5/15/21 ................ 1,565,000 1,615,111
Muskingum County GO,
County Office Building Improvement, AMBAC Insured, 7.20%, 12/01/10 ..................... 1,000,000 1,026,410
Justice Center Improvement, AMBAC Insured, Pre-Refunded, 6.375%, 12/01/17 .............. 1,695,000 1,799,531
New Lexington HDC, Mortgage Revenue, Lincoln Park, Refunding, Series A, MBIA Insured,
5.85%,1/01/21 ............................................................................... 1,030,000 1,044,575
New Philadelphia City School District GO, School Improvement, AMBAC Insured, 6.25%,
12/01/17 .................................................................................... 2,000,000 2,058,620
New Richmond Exempted Village School District GO, AMBAC Insured, 7.125%, 9/01/09 ............. 1,500,000 1,528,155
North Olmsted GO, AMBAC Insured, 6.25%, 12/15/12 ............................................. 3,800,000 4,007,252
North Ridgeville GO, City School District, AMBAC Insured, 6.30%, 12/01/17 .................... 2,900,000 3,058,311
Northwest Local School District GO,
Hamilton County, FGIC Insured, 5.15%, 12/01/22 ......................................... 3,000,000 2,865,960
Scioto County, AMBAC Insured, Pre-Refunded, 7.05%, 12/01/14 ............................ 2,000,000 2,104,540
Oak Hills Local School District GO, MBIA Insured, 5.45%, 12/01/21 ............................ 5,000,000 5,009,400
Ohio Capital Corp. HMR,
Refunding, Series G, MBIA Insured, 6.35%, 7/01/22 ...................................... 2,000,000 2,081,560
Refunding, Series H, MBIA Insured, 6.90%, 7/01/24 ...................................... 4,215,000 4,313,210
Refunding, Series J, MBIA Insured, 6.50%, 1/01/25 ...................................... 3,500,000 3,547,600
Westview Apartments, Refunding, Series A, MBIA Insured, 6.125%, 1/01/15 ................ 1,625,000 1,691,625
Westview Apartments, Refunding, Series A, MBIA Insured, 6.25%, 1/01/23 ................. 2,565,000 2,651,081
Ohio HFA,
MFHR, Northridge Apartments, FGIC Insured, 10.35%, 12/01/25 ............................ 745,000 796,800
MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%, 5/01/32 ............. 2,035,000 1,985,061
RMR, Series A-1, GNMA Secured, 5.40%, 9/01/29 .......................................... 3,000,000 2,836,530
(b)RMR, Series C, GNMA Secured, 5.75%, 9/01/30 ............................................ 6,035,000 5,966,925
SFMR, Series C, GNMA Secured, 7.85%, 9/01/21 ........................................... 925,000 943,667
SFMR, Series D, GNMA Secured, 7.50%, 9/01/13 ........................................... 625,000 637,606
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Ohio HFA, (cont.)
SFMR, Series D, GNMA Secured, 7.05%, 9/01/16 ........................................... $ 2,705,000 $ 2,789,369
SFMR, Series I, GNMA Secured, 7.60%, 9/01/16 ........................................... 1,680,000 1,713,886
Ohio Municipal Electric Generation Agency Joint Venture 5, Certificates of Beneficial
Interest, AMBAC Insured,
5.625%, 2/15/16 ........................................................................ 12,000,000 12,180,480
5.375%, 2/15/24 ........................................................................ 4,000,000 3,934,440
Ohio State Air Quality Development Authority Revenue,
Cincinnati Gas and Electric, Refunding, Series B, MBIA Insured, 5.45%, 1/01/24 ......... 5,000,000 4,966,950
Columbus and Southern Power, Series A, FGIC Insured, 6.375%, 12/01/20 .................. 4,000,000 4,167,200
JMG Funding LP Project, AMBAC Insured, 5.625%, 10/01/22 ................................ 6,875,000 6,881,600
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 1/01/29 ...................... 1,230,000 1,279,704
JMG Funding LP Project, Refunding, AMBAC Insured, 6.375%, 4/01/29 ...................... 15,245,000 15,861,050
Ohio Power Co., Refunding, Series C, AMBAC Insured, 5.15%, 5/01/26 ..................... 7,250,000 6,874,233
PCR, Ohio Edison, Refunding, Series B, AMBAC Insured, 5.625%, 11/15/29 ................. 5,400,000 5,400,702
PCR, Pennsylvania Power Co., Refunding, Series A, AMBAC Insured, 6.45%, 5/01/27 ........ 7,000,000 7,237,720
Ohio State Building Authority Revenue, Adult Correctional Facilities, Series A,
AMBAC Insured, 5.60%, 4/01/16 .......................................................... 2,000,000 2,035,300
MBIA Insured, 6.125%, 10/01/13 ......................................................... 13,000,000 13,759,460
Ohio State Department of Transportation COP, Panhandle Rail Line Project, FSA Insured,
6.50%, 4/15/12 .............................................................................. 1,100,000 1,149,280
Ohio State Education Loan Revenue, Series A-1, AMBAC Insured, 5.85%, 12/01/19 ................ 5,000,000 5,036,850
Ohio State Higher Educational Facility Commission Revenue,
Oberlin College, Refunding, AMBAC Insured, 5.00%, 10/01/26 ............................. 5,000,000 4,599,300
University Dayton Project, FGIC Insured, 5.80%, 12/01/14 ............................... 1,300,000 1,350,791
University Dayton Project, FGIC Insured, 6.75%, 12/01/15 ............................... 1,725,000 1,818,081
Xavier University, MBIA Insured, 5.375%, 5/15/22 ....................................... 5,000,000 4,933,400
Ohio State Turnpike Commission Revenue, Series A, FGIC Insured, Pre-Refunded, 5.75%,
2/15/24 ..................................................................................... 1,000,000 1,060,200
Ohio State University General Receipts Revenue, FSA Insured, 5.00%, 12/01/24 ................. 3,025,000 2,819,754
Ohio State Water Development Authority PCR, Facilities Revenue,
Pennsylvania Power Co. Project, Refunding, AMBAC Insured, 6.15%, 8/01/23 ............... 3,420,000 3,544,488
Water Control Loan Fund, Water Quality Series, MBIA Insured, 5.125%, 6/01/19 ........... 5,000,000 4,833,050
Ohio State Water Development Authority Revenue,
Cincinnati Gas, Refunding, Series A, MBIA Insured, 5.45%, 1/01/24 ...................... 3,000,000 2,980,170
Dayton Power, Refunding, Series A, AMBAC Insured, 6.40%, 8/15/27 ....................... 5,000,000 5,173,400
Fresh Water Service, AMBAC Insured, 5.90%, 12/01/21 .................................... 8,750,000 8,968,663
Pure Water, Refunding and Improvement, AMBAC Insured, 5.50%, 12/01/11 .................. 1,000,000 1,024,920
Pure Water, Refunding and Improvement, AMBAC Insured, ETM, 5.50%, 12/01/18 ............. 4,450,000 4,474,609
Pure Water, Series I, AMBAC Insured, ETM, 7.00%, 12/01/09 .............................. 2,000,000 2,283,260
Olentangy Local School District GO,
BIG Insured, 7.75%, 12/01/08 ........................................................... 375,000 452,610
BIG Insured, 7.75%, 12/01/09 ........................................................... 375,000 458,599
BIG Insured, 7.75%, 12/01/10 ........................................................... 375,000 464,291
School Facilities Construction and Improvement, FSA Insured, 5.625%, 12/01/27 .......... 4,500,000 4,546,710
Olmsted Falls Local School District, FGIC Insured,
5.85%, 12/15/17 ........................................................................ 1,500,000 1,549,875
Pre-Refunded, 7.05%, 12/15/11 .......................................................... 1,000,000 1,053,260
Ontario Local School District GO, FSA Insured, 5.125%, 12/01/18 .............................. 4,000,000 3,895,680
Orrville Water Systems Improvement Revenue, MBIA Insured, 6.125%, 12/01/18 ................... 1,150,000 1,200,957
Ottawa County GO, Catawba Isle, AMBAC Insured, Pre-Refunded, 7.00%, 9/01/11 .................. 1,500,000 1,565,520
Ottawa County Sewer System Revenue, Danbury Project, Refunding, AMBAC Insured, 5.50%,
10/01/14 .................................................................................... 1,950,000 1,976,832
Painesville Township Local School District GO, Lake County, FGIC Insured,
5.625%, 12/01/09 ....................................................................... 3,240,000 3,378,964
5.65%, 12/01/15 ........................................................................ 4,490,000 4,591,474
Perrysburg Exempted Village School District,
AMBAC Insured, 6.00%, 12/01/15 ......................................................... 2,000,000 2,085,340
Series B, FSA Insured, 5.00%, 12/01/25 ................................................. 5,000,000 4,641,350
Pickerington Local School District GO,
AMBAC Insured, 5.00%, 12/01/25 ......................................................... 8,335,000 7,672,117
Refunding, AMBAC Insured, 5.55%, 12/01/07 .............................................. 1,000,000 1,044,160
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Plain Local School District GO, FGIC Insured, 6.00%, 12/01/25 ................................ $ 4,500,000 $ 4,713,345
Powell Village GO, Series A, MBIA Insured, 5.60%, 12/01/22 ................................... 445,000 449,931
Puerto Rico Commonwealth GO,
FSA Insured, 5.40%, 7/01/25 ............................................................ 3,000,000 3,005,430
Refunding, MBIA Insured, 5.75%, 7/01/24 ................................................ 2,000,000 2,043,900
Puerto Rico PBA Revenue, Government Facilities, Series A, AMBAC Insured, 5.50%, 7/01/21 ...... 4,000,000 4,038,120
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ................... 11,000,000 11,070,510
Revere Local School District GO, AMBAC Insured, 6.00%, 12/01/16 .............................. 1,600,000 1,663,056
Ridgewood Local School District GO, School Facilities Improvement, FSA Insured, 6.00%,
12/01/24 ............................................................................... 1,730,000 1,807,521
Riverside Local School District GO, School Facilities Constructions and Improvement
Bonds, MBIA Insured, 5.75%, 12/01/22 ................................................... 1,000,000 1,041,080
Rural Lorain County Water Authority, Water Resource Revenue Improvement, AMBAC Insured,
5.875%, 10/01/24 ....................................................................... 3,100,000 3,193,651
Salem GO, AMBAC Insured, 6.50%, 12/01/06 ..................................................... 2,000,000 2,210,660
South Range Local School District GO, MBIA Insured, 6.15%, 12/01/18 .......................... 700,000 728,126
Southwest Regional Water District Revenue, MBIA Insured, 6.00%,
12/01/15 ............................................................................... 1,000,000 1,049,100
12/01/20 ............................................................................... 700,000 723,044
South-Western City School District of Franklin and Pickway Counties GO, FGIC Insured,
ETM, 7.875%,
12/01/04 ............................................................................... 550,000 622,171
12/01/06 ............................................................................... 600,000 707,916
12/01/07 ............................................................................... 600,000 720,132
St. Henry Local Consolidated School District GO, MBIA Insured, 5.75%, 12/01/22 ............... 1,515,000 1,555,238
St. Mary's Electric System Mortgage Revenue, AMBAC Insured, 6.65%, 12/01/11 .................. 600,000 627,534
St. Mary's Waterworks Revenue, AMBAC Insured, 6.65%, 12/01/11 ................................ 750,000 784,418
Stark County GO, Refunding, AMBAC Insured, 5.70%, 11/15/17 ................................... 2,775,000 2,834,663
Steubenville City School District, Series A, AMBAC Insured, Pre-Refunded, 6.20%, 12/01/17 .... 2,075,000 2,226,309
Struthers City School District, AMBAC Insured, 6.50%, 12/01/14 ............................... 1,750,000 1,860,985
Summit County GO, Limited Tax, Refunding, Series B, AMBAC Insured, 6.95%, 8/01/08 ............ 400,000 416,456
Sylvania City School District, FGIC Insured, 5.75%, 12/01/22 ................................. 1,500,000 1,524,960
Toledo GO, Limited Tax,
AMBAC Insured, 5.95%, 12/01/15 ......................................................... 3,715,000 3,903,759
AMBAC Insured, 6.00%, 12/01/16 ......................................................... 1,000,000 1,058,440
FGIC Insured, 7.375%, 12/01/00 ......................................................... 500,000 503,400
FGIC Insured, 7.375%, 12/01/02 ......................................................... 400,000 423,728
FGIC Insured, 7.375%, 12/01/03 ......................................................... 650,000 704,002
FGIC Insured, 7.375%, 12/01/04 ......................................................... 650,000 718,120
FGIC Insured, 7.375%, 12/01/05 ......................................................... 650,000 730,776
FGIC Insured, 7.375%, 12/01/06 ......................................................... 625,000 712,594
Trumbull County Hospital Revenue, Refunding and Improvement,
Series A, FGIC Insured, Pre-Refunded, 6.25%, 11/15/12 .................................. 1,000,000 1,056,280
Series B, FGIC Insured, Pre-Refunded, 6.90%, 11/15/12 .................................. 2,000,000 2,095,000
Twinsburg City School District, FSA Insured, 6.70%, 12/01/11 ................................. 4,000,000 4,190,400
University of Akron General Receipts, FGIC Insured,
5.70%, 1/01/24 ......................................................................... 7,050,000 7,170,414
5.75%, 1/01/29 ......................................................................... 1,500,000 1,525,545
University of Cincinnati COP, MBIA Insured, Pre-Refunded, 6.75%, 12/01/09 .................... 1,600,000 1,677,920
University of Cincinnati General Receipts,
Series AD, MBIA Insured, 5.125%, 6/01/20 ............................................... 1,500,000 1,444,890
Series W, MBIA Insured, 5.85%, 6/01/16 ................................................. 1,630,000 1,692,233
University of Puerto Rico Revenues, Series M, MBIA Insured, 5.25%, 6/01/25 ................... 6,000,000 5,877,420
University of Toledo General Receipts, Refunding, Series A, FGIC Insured, 5.90%, 6/01/20 ..... 5,500,000 5,598,175
Upper Arlington County School District GO, MBIA Insured, 5.25%, 12/01/22 ..................... 5,000,000 4,840,300
Urbana Wastewater Treatment Plant GO, Improvement, AMBAC Insured, 7.05%, 12/01/11 ............ 1,000,000 1,074,120
Valley Local School District, AMBAC Insured, 7.00%, 12/01/13 ................................. 1,400,000 1,532,426
Wadsworth City School District GO, FGIC Insured, 5.75%, 12/01/22 ............................. 1,200,000 1,232,892
Warren GO, MBIA Insured, Pre-Refunded, 6.65%, 11/01/12 ....................................... 2,415,000 2,619,744
Warrensville Heights City School District GO, School Improvement, FGIC Insured,
5.625%, 12/01/20 ....................................................................... 3,500,000 3,571,295
5.75%, 12/01/24 ........................................................................ 2,750,000 2,818,393
</TABLE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Wausen Exempted Village School District GO, Refunding and School Improvements,
MBIA Insured, 5.50%, 12/01/17 ............................................................... $ 1,800,000 $ 1,824,750
Wayne Local School District GO, Warren County, AMBAC Insured, 6.10%, 12/01/24 ................ 1,800,000 1,874,466
Western Reserve Local School District GO, Classroom Facilities Improvement, MBIA Insured,
5.75%, 12/01/23 ............................................................................. 1,825,000 1,874,896
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 5,208,000
Westfall Local School District GO, School Facilities Construction Improvement, FGIC
Insured, 6.00%, 12/01/22 .................................................................... 2,850,000 2,982,269
Wilmington City School District GO, FGIC Insured, 6.30%, 12/01/14 ............................ 2,000,000 2,086,680
Wilmington Water Revenue, First Mortgage System, AMBAC Insured, 6.00%, 6/15/21 ............... 2,510,000 2,602,067
Woodmore Local School District GO, Refunding, AMBAC Insured, 5.65%, 12/01/08 ................. 500,000 523,200
Wooster City School District GO, AMBAC Insured, Pre-Refunded, 6.50%, 12/01/17 ................ 8,700,000 9,259,485
Worthington City School District GO, Refunding, FGIC Insured, 6.375%, 12/01/12 ............... 2,350,000 2,467,312
Youngstown State University General Receipts, AMBAC Insured, Pre-Refunded, 6.00%, 12/15/16 ... 2,250,000 2,427,008
------------
TOTAL LONG TERM INVESTMENTS (COST $703,029,959) .............................................. 721,628,365
------------
(a)SHORT TERM INVESTMENTS .1%
Ohio State Air Quality Development Authority Revenue, PCR, Ohio Edison, Series C, Daily
VRDN and Put, 4.25%, 6/01/23 ................................................................ 900,000 900,000
Ohio State Water Development Authority, Pollution Control Facilities Revenue, Toledo
Edison Co. Project A, Refunding, Daily VRDN and Put, 4.25%, 4/01/24 ......................... 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,100,000) ............................................... 1,100,000
------------
TOTAL INVESTMENTS (COST $704,129,959) 98.9% .................................................. 722,728,365
OTHER ASSETS, LESS LIABILITIES 1.1% .......................................................... 7,791,125
------------
NET ASSETS 100.0% ............................................................................ $730,519,490
============
</TABLE>
See glossary of terms on page 88.
(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, AUGUST 31, 2000(UNAUDITED) (CONT.)
GLOSSARY OF TERMS
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <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.
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
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
PCR - Pollution Control Revenue
PUD - Public Utility District
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency Revenue
RMR - Residential Mortgage Revenue
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified School District
VRDN - Variable rate demand notes
</TABLE>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 2000 (UNAUDITED)
<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 ........................................... $ 71,494,995 $ 108,177,372 $ 1,448,666,449 $ 330,669,848
============================================================================
Value .......................................... 72,038,611 109,886,367 1,479,537,487 337,232,600
Cash ............................................ 225,905 -- 545,903 94,212
Receivables:
Investment securities sold ..................... 941,898 992,055 -- --
Capital shares sold ............................ 29,222 127,543 435,981 572,755
Interest ....................................... 840,820 1,985,617 20,557,842 4,460,911
----------------------------------------------------------------------------
Total assets ............................. 74,076,456 112,991,582 1,501,077,213 342,360,478
----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................ -- 2,771,520 -- 2,007,933
Capital shares redeemed ........................ 86,011 177,911 1,922,032 113,525
Affiliates ..................................... 44,552 67,846 765,900 199,182
Shareholders ................................... 7,986 87,093 1,309,610 203,901
Distributions to shareholders ................... 126,720 192,836 2,823,179 622,696
Funds advanced by custodian ..................... -- 25,329 -- --
Other liabilities ............................... 19,642 17,640 194,662 33,861
----------------------------------------------------------------------------
Total liabilities ........................ 284,911 3,340,175 7,015,383 3,181,098
----------------------------------------------------------------------------
Net assets, at value .................... $ 73,791,545 $ 109,651,407 $ 1,494,061,830 $ 339,179,380
============================================================================
Net assets consist of:
Undistributed net investment income ............. $ -- $ 10,435 $ -- $ --
Accumulated distributions in excess of net
investment income .............................. (27,402) -- (2,175,989) (199,404)
Net unrealized appreciation ..................... 543,616 1,708,995 30,871,038 6,562,752
Accumulated net realized loss ................... (1,550,369) (2,111,802) (4,728,678) (1,952,564)
Capital shares .................................. 74,825,700 110,043,779 1,470,095,459 334,768,596
----------------------------------------------------------------------------
Net assets, at value .................... $ 73,791,545 $ 109,651,407 $ 1,494,061,830 $ 339,179,380
============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF ASSETS AND LIABILITIES(CONT.)
AUGUST 31, 2000 (UNAUDITED)
<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>
CLASS A:
Net assets, at value .................................. $ 73,791,545 $ 109,651,407 $1,439,055,532 $ 311,883,680
=======================================================================
Shares outstanding .................................... 7,114,618 10,892,899 123,025,098 27,838,766
=======================================================================
Net asset value per share(a) .......................... $ 10.37 $ 10.07 $ 11.70 $ 11.20
=======================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ................. $ 10.83 $ 10.52 $ 12.22 $ 11.70
=======================================================================
CLASS B:
Net assets, at value .................................. -- -- $ 1,141,227 --
=======================================================================
Shares outstanding .................................... -- -- 97,446 --
=======================================================================
Net asset value and maximum offering price per share(a) -- -- $ 11.71 --
=======================================================================
CLASS C:
Net assets, at value .................................. -- -- $ 53,865,071 $ 27,295,700
=======================================================================
Shares outstanding .................................... -- -- 4,576,525 2,423,152
=======================================================================
Net asset value per share(a) .......................... -- -- $ 11.77 $ 11.26
=======================================================================
Maximum offering price per share
(net asset value per share / 99%) .................... -- -- $ 11.89 $ 11.37
=======================================================================
</TABLE>
(a) 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.)
AUGUST 31, 2000 (UNAUDITED)
<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 ...................................................... $ 1,056,287,050 $ 482,720,046 $ 704,129,959
========================================================
Value ..................................................... 1,096,545,196 487,093,074 722,728,365
Cash ....................................................... 44,663 3,621 171,834
Receivables:
Investment securities sold ................................ -- -- 5,992,192
Capital shares sold ....................................... 1,955,165 368,854 499,946
Interest .................................................. 17,088,215 4,942,892 11,012,714
--------------------------------------------------------
Total assets ........................................ 1,115,633,239 492,408,441 740,405,051
--------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................... -- 13,021,478 6,699,410
Capital shares redeemed ................................... 1,448,954 511,636 779,421
Affiliates ................................................ 583,104 265,738 402,686
Shareholders .............................................. 805,687 533,017 551,168
Distributions to shareholders .............................. 2,034,495 867,679 1,341,228
Other liabilities .......................................... 99,273 76,599 111,648
--------------------------------------------------------
Total liabilities ................................... 4,971,513 15,276,147 9,885,561
--------------------------------------------------------
Net assets, at value ............................... $ 1,110,661,726 $ 477,132,294 $ 730,519,490
========================================================
Net assets consist of:
Accumulated distributions in excess of net investment income $ (1,082,552) $ (555,360) $ (353,471)
Net unrealized appreciation ................................ 40,258,146 4,373,028 18,598,406
Accumulated net realized loss .............................. (1,703,826) (3,625,477) (2,557,286)
Capital shares ............................................. 1,073,189,958 476,940,103 714,831,841
--------------------------------------------------------
Net assets, at value ............................... $ 1,110,661,726 $ 477,132,294 $ 730,519,490
========================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF ASSETS AND LIABILITIES(CONT.)
AUGUST 31, 2000 (UNAUDITED)
<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>
CLASS A:
Net assets, at value ................................................ $1,059,911,932 $ 454,218,823 $ 689,017,362
======================================================
Shares outstanding .................................................. 89,770,015 39,218,862 57,598,943
======================================================
Net asset value per share(a) ........................................ $ 11.81 $ 11.58 $ 11.96
======================================================
Maximum offering price per share (net asset value per share / 95.75%) $ 12.33 $ 12.09 $ 12.49
======================================================
CLASS B:
Net assets, at value ................................................ $ 2,361,312 -- $ 1,298,563
======================================================
Shares outstanding .................................................. 199,576 -- 108,401
======================================================
Net asset value and maximum offering price per share(a) ............. $ 11.83 -- $ 11.98
======================================================
CLASS C:
Net assets, at value ................................................ $ 48,388,482 $ 22,913,471 $ 40,203,565
======================================================
Shares outstanding .................................................. 4,070,138 1,968,756 3,341,542
======================================================
Net asset value per share(a) ........................................ $ 11.89 $ 11.64 $ 12.03
======================================================
Maximum offering price per share (net asset value per share / 99%) .. $ 12.01 $ 11.76 $ 12.15
======================================================
</TABLE>
(a)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 SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<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>
Investment income:
Interest .......................................... $ 2,029,378 $ 3,113,853 $ 44,319,448 $ 9,893,098
-------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 224,476 332,288 3,466,549 875,044
Distribution fees (Note 3)
Class A .......................................... 34,596 54,193 652,944 147,985
Class B .......................................... -- -- 1,685 --
Class C .......................................... -- -- 177,881 86,445
Transfer agent fees (Note 3) ...................... 13,338 20,632 348,244 83,761
Custodian fees .................................... 360 600 7,271 1,652
Reports to shareholders ........................... 2,470 4,647 59,715 11,971
Registration and filing fees ...................... 7,502 4,194 53,988 11,320
Professional fees (Note 3) ........................ 3,807 3,175 19,030 6,788
Trustees' fees and expenses ....................... 384 617 10,212 1,832
Other ............................................. 7,323 6,699 48,596 15,771
-------------------------------------------------------------------------
Total expenses ............................. 294,256 427,045 4,846,115 1,242,569
-------------------------------------------------------------------------
Net investment income ..................... 1,735,122 2,686,808 39,473,333 8,650,529
-------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized loss from investments ................ (503,151) (301,900) (142,237) (561,623)
Net unrealized appreciation on investments ........ 4,270,950 5,293,951 59,191,216 14,332,433
-------------------------------------------------------------------------
Net realized and unrealized gain ................... 3,767,799 4,992,051 59,048,979 13,770,810
-------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 5,502,921 $ 7,678,859 $ 98,522,312 $ 22,421,339
=========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<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 .......................................... $ 31,994,552 $ 13,688,272 $ 21,139,835
------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 2,595,535 1,185,865 1,750,864
Distribution fees (Note 3)
Class A .......................................... 494,706 210,959 324,165
Class B .......................................... 3,428 -- 1,932
Class C .......................................... 155,112 71,284 130,736
Transfer agent fees (Note 3) ...................... 294,862 144,733 204,349
Custodian fees .................................... 5,839 2,363 3,728
Reports to shareholders ........................... 54,170 22,155 35,430
Registration and filing fees ...................... 11,070 8,925 16,181
Professional fees (Note 3) ........................ 17,081 8,562 31,900
Trustees' fees and expenses ....................... 5,958 3,056 5,097
Other ............................................. 26,933 17,334 33,287
------------------------------------------------------
Total expenses ............................. 3,664,694 1,675,236 2,537,669
------------------------------------------------------
Net investment income ..................... 28,329,858 12,013,036 18,602,166
------------------------------------------------------
Realized and unrealized gains (losses):
Net realized loss from investments ................ (311,918) (2,234,292) (1,263,938)
Net unrealized appreciation on investments ........ 41,701,977 21,243,506 28,845,050
------------------------------------------------------
Net realized and unrealized gain ................... 41,390,059 19,009,214 27,581,112
------------------------------------------------------
Net increase in net assets resulting from operations $ 69,719,917 $ 31,022,250 $ 46,183,278
======================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN ARIZONA INSURED FRANKLIN FLORIDA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29, ENDED FEBRUARY 29,
AUGUST 31, 2000 2000 AUGUST 31, 2000 2000
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 1,735,122 $ 3,850,387 $ 2,686,808 $ 5,703,415
Net realized loss from investments ...................... (503,151) (864,384) (301,900) (542,354)
Net unrealized appreciation (depreciation) on investments 4,270,950 (7,201,575) 5,293,951 (10,374,422)
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ........................ 5,502,921 (4,215,572) 7,678,859 (5,213,361)
Distributions to shareholders from:
Net investment income ................................... (1,735,122) (3,918,083) (2,684,245) (5,735,968)
In excess of net investment income ...................... (18,180) (9,222) -- --
-------------------------------------------------------------------
Total distributions to shareholders ...................... (1,753,302) (3,927,305) (2,684,245) (5,735,968)
Capital share transactions: (Note 2) ..................... (2,475,223) (24,399) (4,174,507) (4,707,193)
-------------------------------------------------------------------
Net increase (decrease) in net assets ............. 1,274,396 (8,167,276) 820,107 (15,656,522)
Net assets:
Beginning of period ...................................... 72,517,149 80,684,425 108,831,300 124,487,822
-------------------------------------------------------------------
End of period ............................................ $ 73,791,545 $ 72,517,149 $ 109,651,407 $ 108,831,300
===================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income) included
in net assets:
End of period ........................................... $ (27,402) $ (9,222) $ 10,435 $ 7,872
===================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN INSURED FRANKLIN MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29, ENDED FEBRUARY 29,
AUGUST 31, 2000 2000 AUGUST 31, 2000 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 39,473,333 $ 86,901,170 $ 8,650,529 $ 18,293,604
Net realized loss from investments ...................... (142,237) (4,583,322) (561,623) (1,390,941)
Net unrealized appreciation (depreciation) on investments 59,191,216 (139,213,298) 14,332,433 (29,607,121)
----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. 98,522,312 (56,895,450) 22,421,339 (12,704,458)
Distributions to shareholders from:
Net investment income:
Class A ................................................ (38,165,994) (83,999,774) (8,035,575) (17,014,519)
Class B ................................................ (11,772) (71) -- --
Class C ................................................ (1,295,567) (2,901,325) (614,954) (1,233,276)
In excess of net investment income:
Class A ................................................ (302,073) (128,561) (56,516) --
Class B ................................................ (93) -- -- --
Class C ................................................ (10,254) (4,440) (4,325) --
Net realized gains:
Class A ................................................ -- (2,954,541) -- --
Class C ................................................ -- (115,941) -- --
----------------------------------------------------------------------
Total distributions to shareholders ...................... (39,785,753) (90,104,653) (8,711,370) (18,247,795)
Capital share transactions: (Note 2)
Class A ................................................. (63,052,401) (140,018,064) (7,235,147) (4,931,023)
Class B ................................................. 1,054,890 63,000 -- --
Class C ................................................. (4,912,972) (2,989,153) (1,078,857) 3,286,208
----------------------------------------------------------------------
Total capital share transactions ......................... (66,910,483) (142,944,217) (8,314,004) (1,644,815)
Net increase (decrease) in net assets ............. (8,173,924) (289,944,320) 5,395,965 (32,597,068)
Net assets:
Beginning of period ...................................... 1,502,235,754 1,792,180,074 333,783,415 366,380,483
----------------------------------------------------------------------
End of period ............................................ $1,494,061,830 $1,502,235,754 $ 339,179,380 $333,783,415
======================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of period ........................................... $ (2,175,989) $ (1,863,569) $ (199,404) $ (138,563)
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29, ENDED FEBRUARY 29,
AUGUST 31, 2000 2000 AUGUST 31, 2000 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 28,329,858 $ 60,191,236 $ 12,013,036 $ 25,703,798
Net realized loss from investments ...................... (311,918) (1,175,679) (2,234,292) (1,391,185)
Net unrealized appreciation (depreciation) on investments 41,701,977 (90,745,904) 21,243,506 (42,186,535)
----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................. 69,719,917 (31,730,347) 31,022,250 (17,873,922)
Distributions to shareholders from:
Net investment income:
Class A ................................................ (27,207,245) (57,627,770) (11,513,843) (24,693,081)
Class B ................................................ (23,104) (470) -- --
Class C ................................................ (1,099,509) (2,366,024) (499,193) (1,010,717)
In excess of net investment income:
Class A ................................................ (217,342) -- (172,095) (315,053)
Class B ................................................ (185) -- -- --
Class C ................................................ (8,783) -- (7,461) (12,896)
Net realized gains:
Class A ................................................ -- (29,134) -- (1,012,367)
Class C ................................................ -- (1,391) -- (45,306)
----------------------------------------------------------------------
Total distributions to shareholders ...................... (28,556,168) (60,024,789) (12,192,592) (27,089,420)
Capital share transactions: (Note 2)
Class A ................................................. (37,199,441) (15,930,404) (14,875,559) (21,060,438)
Class B ................................................. 2,082,032 226,865 -- --
Class C ................................................. (2,437,271) 3,195,982 207,770 2,924,255
----------------------------------------------------------------------
Total capital share transactions ......................... (37,554,680) (12,507,557) (14,667,789) (18,136,183)
Net increase (decrease) in net assets ............. 3,609,069 (104,262,693) 4,161,869 (63,099,525)
Net assets:
Beginning of period ...................................... 1,107,052,657 1,211,315,350 472,970,425 536,069,950
----------------------------------------------------------------------
End of period ............................................ $1,110,661,726 $1,107,052,657 $ 477,132,294 $472,970,425
======================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of period ........................................... $ (1,082,552) $ (856,242) $ (555,360) $ (375,804)
======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
-------------------------------------
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
-------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................ $ 18,602,166 $ 39,933,503
Net realized loss from investments ............................................... (1,263,938) (1,293,348)
Net unrealized appreciation (depreciation) on investments ........................ 28,845,050 (62,487,259)
-------------------------------------
Net increase (decrease) in net assets resulting from operations ............ 46,183,278 (23,847,104)
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (17,665,611) (38,019,372)
Class B ......................................................................... (13,573) (123)
Class C ......................................................................... (922,982) (1,914,008)
In excess of net investment income:
Class A ......................................................................... (183,031) (126,788)
Class B ......................................................................... (141) --
Class C ......................................................................... (9,563) (6,383)
Net realized gains:
Class A ......................................................................... -- (1,086,554)
Class C ......................................................................... -- (61,042)
-------------------------------------
Total distributions to shareholders ............................................... (18,794,901) (41,214,270)
Capital share transactions: (Note 2)
Class A .......................................................................... (25,900,309) (25,936,766)
Class B .......................................................................... 1,191,386 75,442
Class C .......................................................................... (1,500,860) 1,413,023
-------------------------------------
Total capital share transactions .................................................. (26,209,783) (24,448,301)
Net increase (decrease) in net assets ...................................... 1,178,594 (89,509,675)
Net assets:
Beginning of period ............................................................... 729,340,896 818,850,571
-------------------------------------
End of period ..................................................................... $ 730,519,490 $ 729,340,896
=====================================
Accumulated distributions in excess of net investment income included in net assets:
End of period ..................................................................... $ (353,471) $ (160,736)
=====================================
</TABLE>
See notes to financial statements.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-six separate
series. All Funds included in this report (the Funds) are diversified except the
Franklin Arizona Insured Tax-Free Income Fund and the Franklin Florida Insured
Tax-Free Income Fund. The investment 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. INSURANCE
The scheduled payments of interest and principal for each long-term municipal
security in the Trust are insured by either a new issue insurance policy, a
portfolio insurance policy, a secondary insurance policy, or by collateral
guaranteed by an agency of the U.S. government.
Depending on the type of coverage, premiums for insurance are either added to
the cost basis of the security, included as an expense of the fund, or paid by a
third party.
e. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below. 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 Fund
Tax-Free Income Fund Tax-Free Income Fund Franklin Michigan Insured Tax-Free
Franklin Florida Insured Franklin Minnesota Insured Income Fund
Tax-Free Income Fund Tax-Free Income Fund Franklin Ohio Insured Tax-Free Income Fund
</TABLE>
At August 31, 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
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended August 31, 2000
Shares sold .................................. 464,091 $ 4,711,344 402,742 $ 3,961,923
Shares issued in reinvestment of distributions 84,231 847,462 104,417 1,022,497
Shares redeemed .............................. (799,610) (8,034,029) (938,782) (9,158,927)
------------------------------------------------------------------
Net decrease .................................. (251,288) $ (2,475,223) (431,623) $ (4,174,507)
==================================================================
Year ended February 29, 2000
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)
==================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN INSURED MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended August 31, 2000
Shares sold .................................. 3,371,977 $ 38,607,596 996,306 $ 10,902,068
Shares issued in reinvestment of distributions 1,457,910 16,649,321 347,660 3,795,020
Shares redeemed .............................. (10,369,079) (118,309,318) (2,016,980) (21,932,235)
------------------------------------------------------------------
Net decrease .................................. (5,539,192) $ (63,052,401) (673,014) $ (7,235,147)
==================================================================
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)
==================================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold .................................. 92,184 $ 1,059,187
Shares issued in reinvestment of distributions 656 7,554
Shares redeemed .............................. (1,020) (11,851)
------------------------------
Net increase .................................. 91,820 $ 1,054,890
==============================
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>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN INSURED MASSACHUSETTS INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold .................................. 244,404 $ 2,801,049 212,996 $ 2,345,981
Shares issued in reinvestment of distributions 64,137 736,740 38,303 420,435
Shares redeemed .............................. (737,951) (8,450,761) (349,743) (3,845,273)
------------------------------------------------------------------
Net decrease .................................. (429,410) $ (4,912,972) (98,444) $ (1,078,857)
==================================================================
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
==================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Six months ended August 31, 2000
Shares sold .................................. 2,321,730 $ 26,810,850 890,986 $ 10,029,319
Shares issued in reinvestment of distributions 1,203,111 13,881,520 549,351 6,207,829
Shares redeemed .............................. (6,755,582) (77,891,811) (2,761,028) (31,112,707)
------------------------------------------------------------------
Net decrease .................................. (3,230,741) $ (37,199,441) (1,320,691) $ (14,875,559)
==================================================================
Year ended February 29, 2000
Shares sold .................................. 10,186,319 $ 121,214,207 3,490,337 $ 40,650,218
Shares issued on merger(b) ................... 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)
==================================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold .................................. 190,739 $ 2,210,916
Shares issued in reinvestment of distributions 1,099 12,740
Shares redeemed .............................. (12,298) (141,624)
------------------------------
Net increase .................................. 179,540 $ 2,082,032
==============================
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>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
(b) For the Franklin Michigan Insured Tax-Free Income Fund, during the year
ended February 29, 2000, the fund acquired the net assets of the Franklin
Michigan Tax-Free Income Fund pursuant to a plan of reorganization approved by
Franklin Michigan Tax-Free Income Fund's shareholders.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold ........................................... 279,359 $ 3,251,120 179,418 $ 2,045,864
Shares issued in reinvestment of distributions ........ 61,411 713,365 32,138 364,882
Shares redeemed ....................................... (553,209) (6,401,756) (194,937) (2,202,976)
-------------------------------------------------------------------
Net increase (decrease) ................................ (212,439) $ (2,437,271) 16,619 $ 207,770
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
===================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN OHIO INSURED
TAX-FREE INCOME FUND
--------------------------------
SHARES AMOUNT
--------------------------------
<S> <C> <C>
CLASS A SHARES:
Six months ended August 31, 2000
Shares sold ........................................................................... 1,554,559 $ 18,166,907
Shares issued in reinvestment of distributions ........................................ 760,747 8,890,606
Shares redeemed ....................................................................... (4,540,120) (52,957,822)
--------------------------------
Net decrease ........................................................................... (2,224,814) $ (25,900,309)
================================
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)
================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold ........................................................................... 100,981 $ 1,181,599
Shares issued in reinvestment of distributions ........................................ 833 9,787
--------------------------------
Net increase ........................................................................... 101,814 $ 1,191,386
================================
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:
Six months ended August 31, 2000
Shares sold ........................................................................... 192,959 $ 2,264,699
Shares issued in reinvestment of distributions ........................................ 55,109 647,566
Shares redeemed ....................................................................... (375,403) (4,413,125)
--------------------------------
Net decrease ........................................................................... (127,335) $ (1,500,860)
================================
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
================================
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(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 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.
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 period as
follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN ARIZONA FRANKLIN 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 received (paid) . $ (6,260) $ 4,634 $ (78,334) $ (15,643)
Contingent deferred sales charges $ 7,138 $ -- $ 32,189 $ 8,187
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
MICHIGAN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
--------------------------------------------------------
<S> <C> <C> <C>
Net commissions received (paid) . $ (96,115) $ (22,840) $ (37,023)
Contingent deferred sales charges $ 43,832 $ 4,657 $ 13,565
</TABLE>
The Funds paid transfer agent fees of $1,109,919, of which $866,999 was paid to
Investor Services.
Included in professional fees are legal fees of $11,590 that were paid to a law
firm in which a partner of that firm was an officer of the Funds.
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 ARIZONA FRANKLIN 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>
Capital loss carryovers expiring in:
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
MICHIGAN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------
<S> <C> <C> <C>
Capital loss carryovers expiring in:
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 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 FRANKLIN FRANKLIN
ARIZONA INSURED FLORIDA INSURED FRANKLIN INSURED MASSACHUSETTS MICHIGAN INSURED OHIO INSURED
TAX-FREE TAX-FREE TAX-FREE INSURED TAX-FREE TAX-FREE 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>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
4. INCOME TAXES (CONT.)
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 August 31, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN ARIZONA FRANKLIN 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 ....... $71,494,995 $108,177,372 $1,448,666,449 $330,669,848
=========================================================================
Unrealized appreciation ... $ 1,808,271 $ 2,993,161 $ 48,668,701 $ 8,964,498
Unrealized depreciation ... (1,264,655) (1,284,166) (17,797,663) (2,401,746)
-------------------------------------------------------------------------
Net unrealized appreciation $ 543,616 $ 1,708,995 $ 30,871,038 $ 6,562,752
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
MICHIGAN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------
<S> <C> <C> <C>
Investments at cost ....... $1,056,287,050 $482,720,046 $704,129,959
======================================================
Unrealized appreciation ... $ 47,684,957 $ 11,763,637 $ 25,369,568
Unrealized depreciation ... (7,426,811) (7,390,609) (6,771,162)
------------------------------------------------------
Net unrealized appreciation $ 40,258,146 $ 4,373,028 $ 18,598,406
======================================================
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 2000, were as follows:
<TABLE>
<CAPTION>
FRANKLIN
FRANKLIN ARIZONA FRANKLIN 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 $21,477,636 $19,527,600 $ 69,379,260 $28,437,966
Sales ... $24,740,270 $21,197,601 $141,627,997 $38,933,428
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
MICHIGAN MINNESOTA FRANKLIN OHIO
INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------------------------------------------------
<S> <C> <C> <C>
Purchases $ 76,098,484 $67,267,293 $60,574,673
Sales ... $122,335,880 $81,446,612 $85,174,387
</TABLE>
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for the
six months ended August 31, 2000.
The U.S. economy continued its trend of strong growth during the six-month
review period, as second quarter annualized gross domestic product increased
5.3% on the heels of a 4.8% rise in the first quarter. Concerned that this
growth, combined with a historically low unemployment rate, would lead to
inflationary pressures, the Federal Open Market Committee (FOMC) raised the
federal funds target rate twice during the reporting period, with the last
increase occurring in May when they brought the rate to 6.5%. The Federal
Reserve Board's (the fed's) decision to hold short-term rates steady at the June
and August FOMC meetings, together with a moderate 0.1% increase in August's
Consumer Price Index, suggested that the economy could be feeling the impact of
the recent rate increases and might be slowing to a more sustainable pace.
The municipal bond market performed well over the reporting period following a
difficult year in 1999 and a slow start in the first quarter of 2000, in which
strong economic numbers and the federal funds target rate increases hampered
bond prices. The belief that these rate increases were beginning to achieve
their desired effect of slowing the economy and that, for the time being, the
Fed would hold off on further tightening led to a general decline in long-term
interest rates. The yield on the 30-year Treasury bond fell from 6.14% at the
beginning of the period to 5.67% on August 31, 2000, and the 10-year Treasury
note declined from 6.41% to 5.73%. Furthermore,
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ........................................................ 1
Fund Reports
Franklin Alabama
Tax-Free Income Fund ..................................................... 4
Franklin Florida
Tax-Free Income Fund ..................................................... 8
Franklin Georgia
Tax-Free Income Fund ..................................................... 14
Franklin Kentucky
Tax-Free Income Fund ..................................................... 18
Franklin Louisiana
Tax-Free Income Fund ..................................................... 22
Franklin Maryland
Tax-Free Income Fund ..................................................... 26
Franklin Missouri
Tax-Free Income Fund ..................................................... 31
Franklin North Carolina
Tax-Free Income Fund ..................................................... 35
Franklin Texas
Tax-Free Income Fund ..................................................... 40
Franklin Virginia
Tax-Free Income Fund ..................................................... 44
Municipal Bond Ratings .................................................... 49
Financial Highlights &
Statements of Investments ................................................. 51
Financial Statements ...................................................... 97
Notes to
Financial Statements ...................................................... 108
</TABLE>
[FUND CATEGORY PYRAMID GRAPHIC]
<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.
the municipal bond market generally trended with the 30-year Treasury bond and
saw yields decrease. The Bond Buyer Municipal Bond Index (Bond Buyer 40), an
indicator of the municipal bond market, decreased from a yield of 6.17% to 5.72%
for the same period.(1) Bond yields and prices move in an inverse relationship,
so that as yields fall, prices rise.
In addition to the respite from interest-rate tightening, lower supply favorably
impacted municipal bond prices. The booming economy, which increased revenues
for most municipalities, reduced the need for borrowing to finance capital
projects. From January through August 31, 2000, national municipal bond issuance
was down 20%, compared to the same period in 1999.(2) Lower supply and continued
high demand for municipal bonds among insurance and mutual fund companies, as
well as retail investors, contributed to their price increase. The government
announced a buyback of 30-year Treasury bonds, which increased their price and
decreased their yield. This meant that, on a relative basis, long-term municipal
bond yields have been attractive. During the six months under review, municipal
bonds, as measured by the Bond Buyer 40, yielded as much as 104% of a comparable
Treasury bond's yield.(1) Historically this ratio is about 90%. Since municipal
bonds are tax-exempt, generally they yield less than Treasuries, which are
subject to federal income tax. When municipal bonds are yielding nearly the same
as Treasuries, investors are able to take advantage of the tax exemption at
little extra cost.
Municipal bond funds continue to be attractive for those investors seeking
tax-free income. Depending on your federal and state tax rates, a taxable
investment of comparable credit quality would need to offer a higher yield,
called the taxable equivalent yield, to match the yield on a tax-free
investment.
(1.) Source: The Bond Buyer. The unmanaged Bond Buyer Municipal Bond Index is
composed of the yield to maturity of 40 bonds. The index attempts to track the
new-issue market as closely as possible, so it changes bonds twice a month,
adding all new bonds that meet certain requirements and deleting an equivalent
number according to their secondary market trading activity. As a result, the
average par call date, average maturity date and average coupon rate change over
time. The average maturity generally has been about 29-30 years.
(2.) Source: The Bond Buyer, 9/1/00.
2
<PAGE>
Looking forward, we anticipate that the Fed will continue to monitor
inflationary tendencies closely. If the economy slows toward the end of 2000,
the bond markets could continue their positive trend. Predicting market 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
funds' 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
3
<PAGE>
FRANKLIN ALABAMA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Alabama Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 64.9%
AA - 4.6%
A - 2.6%
BBB - 24.5%
Below Investment
Grade - 3.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Alabama Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Alabama state personal income
taxes through a portfolio consisting primarily of Alabama municipal bonds.(1)
--------------------------------------------------------------------------------
STATE UPDATE
[ALABAMA STATE MAP]
Alabama's economic base continued to expand and diversify throughout
the reporting period, with growth in technology firms in the Huntsville area and
the health and business services sectors, concentrated near Birmingham and
Mobile. In manufacturing, automobile industry employment replaced job losses in
the apparel and textile industries. Largely as a result of this expansion, per
capita personal income growth outpaced the national average, but still has some
catching up to do. The state's overall income levels represented just 83% of the
national average.(2)
The state's unemployment numbers tended to be in line with national statistics
during the review period, as shown by April's 4.1% unemployment rate, relative
to the 4.0% national average for the same month.(3) Looking ahead, Alabama's 1%
annual employment growth forecast for the next five years projects some slowing
and a growth rate trailing the nation's. At the same time, the services, trade
and finance sectors are expected to contribute to further, modest employment
diversification.(2)
The state's constitution prohibits the issuance of general obligation (GO) debt,
except by special legislative provisions. As a result, Alabama's GO debt ratio
was a low $73 per capita during the reporting period.(2) Historically, the
state's conservative fiscal policies have enabled it to maintain balanced
financial operations and meet higher spending needs for education and capital
improvements by issuing special tax revenue 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: Standard & Poor's(R), Ratings Direct, 3/24/00.
(3.) Source: Bureau of Labor Statistics, 8/25/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 52.
4
<PAGE>
Looking forward, we expect Alabama's below-average business costs to continue to
stimulate economic growth. This growth, combined with the state's record of
budgetary discipline, should enable Alabama's municipal obligations to perform
well in the future.
PORTFOLIO NOTES
Although the expectation of higher interest rates negatively affected municipal
bond prices in April and May, they improved substantially in the final three
months of the period, as the Federal Reserve Board (the Fed) chose to leave
rates steady. Municipal bond investors were cautious, as the Fed took an
aggressive posture toward using interest-rate tightening to mitigate
inflationary tendencies. However, the Fed's June and August decisions not to
raise short-term interest rates, together with recent indications that economic
growth might be slowing, resulted in a positive market reaction.
For the six months under review, long-term interest rates, as represented by the
30-year Treasury bond, declined overall. Municipal bonds generally trended with
the 30-year Treasury and the Bond Buyer Municipal Bond Index, an indicator of
the municipal bond market, and experienced falling yields. Bond yields and
prices move in an inverse relationship, so that as yields fall, prices rise.
Accordingly, Franklin Alabama Tax-Free Income Fund's Class A share price, as
measured by net asset value, increased from $10.62 per share on February 29,
2000, to $10.99 on August 31, 2000. Additionally, the higher interest rates
early in the reporting period allowed the Fund to increase its Class A shares'
dividend during the reporting period, from 5.05 to 5.09 cents per share.
Municipal bond prices also benefited from the supply reduction we have seen so
far this year, as the strong economy left municipalities with ample revenues,
decreasing their need for borrowing to finance new projects. For the first eight
months of 2000, Alabama issued approximately $1.46 billion of municipal debt,
compared with $2.75 billion for the same period last year, a decline of
46.9%.(4)
During the period under review, we attempted to take advantage of higher
interest rates to restructure the portfolio and enhance its income-producing
potential. Additionally, we booked tax losses, which can be carried forward in
the portfolio to offset future capital gains and possibly lower shareholders'
future tax liabilities. Overall, the general activity in Alabama was light due
to the state's low levels of bond supply. Examples of purchases include Oxford
GO school warrants; Sylacauga GO warrants; and Culman and Jefferson County Gas
District Gas Revenue bonds.
(4.) Source: The Bond Buyer, 9/1/00.
PORTFOLIO BREAKDOWN
Franklin Alabama
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care* 25.6%
Utilities 22.5%
Corporate-Backed 13.8%
General Obligation 13.6%
Housing 5.3%
Subject to Government
Appropriation 5.0%
Transportation 3.7%
Higher Education 3.5%
Prerefunded 3.0%
Other Revenue 2.2%
Tax-Supported 1.8%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals & health care. A change that affects one
project may affect all similar projects, thereby increasing market risk.
5
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Alabama Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 5.05 cents 4.56 cents
April 5.05 cents 4.56 cents
May 5.05 cents 4.56 cents
June 5.09 cents 4.60 cents
July 5.09 cents 4.60 cents
August 5.09 cents 4.60 cents
--------------------------------------------------------------------------------
TOTAL 30.42 CENTS 27.48 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.
We think it bears repeating that your Fund combines the advantage of high credit
quality with tax-free yields. The Performance Summary on page 7 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 5.09 cent ($0.0509) per
share dividend and the maximum offering price of $11.48 on August 31, 2000. An
investor in the maximum combined federal and Alabama state personal income tax
bracket of 42.62% would need to earn 9.27% 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 are optimistic about the outlook for Alabama, its municipal
bonds and Franklin Alabama Tax-Free Income Fund. If the Fed succeeds in slowing
economic growth to a sustainable rate and holds off on further interest-rate
increases, municipal bonds, in general, and your Fund, in particular, stand to
benefit. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
6
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.46%
Net Asset Value (NAV) $10.99 (8/31/00) $10.62 (2/29/00)
Change in NAV +$0.37
Distributions (3/1/00-8/31/00) Dividend Income $0.3042
CLASS C
Six-Month Total Return +6.14%
Net Asset Value (NAV) $11.05 (8/31/00) $10.68 (2/29/00)
Change in NAV +$0.37
Distributions (3/1/00-8/31/00) Dividend Income $0.2748
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +3.86% +25.53% +88.89% +137.82%
Average Annual Total Return(2) -0.55% +3.75% +6.11% +6.49%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +3.17% +22.19% +27.06%
Average Annual Total Return(2) +1.19% +3.87% +4.33%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.32% 4.94%
Taxable Equivalent Distribution Rate(4) 9.27% 8.61%
30-Day Standardized Yield(5) 4.82% 4.44%
Taxable Equivalent Yield(4) 8.40% 7.74%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN ALABAMA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
7
<PAGE>
FRANKLIN FLORIDA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Florida Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 62.6%
AA - 11.5%
A - 13.2%
BBB - 12.1%
Below Investment
Grade- 0.6%
*Quality breakdown may include internal ratings for bonds not rated by an
independent 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
[FLORIDA STATE MAP]
Florida's healthy economy led to a high rate of job creation during the six
months under review. Employment growth has averaged 3.6% since 1992, ranking the
state seventh in the nation.(2) Also, during the period, a tight labor market
contributed to low unemployment. Florida's 3.7% unemployment rate for July,
compared with the 4.0% national average for the same month, typifies the state's
trend of unemployment rates at or below the national average.(3)
The favorable economic environment of recent years, coupled with financial
discipline, has enabled the state to record successive years of budgetary
surpluses and to add to its reserve fund balances. As of fiscal year 1999's
audit, the reserve fund balance of $3.5 billion represented more than 18% of
total revenues and spending levels.(2) The state also enforces solid budget and
cash flow monitoring procedures, which allow maximum flexibility in managing the
budget throughout the fiscal year. If imbalances are detected, the state
possesses a statutory framework to reduce appropriations and avoid deficits.
Although Florida's $955 per-capita tax-supported debt level topped the $540
median for the 50 states, this level remained moderate relative to the state's
resources. Debt-service charges represented 5.4% of general revenue fund
resources and 2.7% of total
(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, 8/8/00. This does not indicate
Standard & Poor's rating of the Fund.
(3.) Source: Bureau of Labor Statistics, 8/25/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 57.
8
<PAGE>
state revenue during the reporting period.(2) Capital outlay for primary,
secondary and higher education mostly accounts for the increase in Florida's
tax-supported debt over the past decade.
Going forward, Florida's diversified, service-based economy, fully funded
budget, past history of fiscal discipline and stabilization reserves equal to 5%
of revenues, as well as its AA+ credit rating from Standard & Poor's, an
independent credit rating agency, should support the state's favorable credit
outlook.(2)
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, during the second three
months of the period, the interest-rate picture appeared to stabilize, as the
Fed chose to leave interest rates steady. Their strategy gave many investors
confidence that the pace of economic growth slowed during the second quarter and
that inflation was less of a threat. Municipal bonds reacted well to the news of
a possible economic growth slowdown, and in fact, fixed income markets
experienced positive returns year-to-date.
Lower municipal bond supply also brought some stability to the municipal market.
For the first eight months of 2000, Florida's new issuance was down 3.3% from
the same period in 1999, as the higher interest-rate environment discouraged
municipalities from borrowing to finance new projects and from refunding
existing debt.(4) In this environment, Franklin Florida Tax-Free Income Fund's
Class A share price, as measured by net asset value, increased from $10.89 per
share on February 29, 2000, to $11.28 on August 31, 2000.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, typically in the 6.0%-6.125% range, increasing the portfolio's
income. As opportunities presented themselves, we sold bonds with higher cost
bases to book tax losses, which can be carried forward to offset future gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions, potentially lowering
shareholders' future tax liabilities. We also sold the
PORTFOLIO BREAKDOWN
Franklin Florida
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities 22.8%
Prerefunded 15.1%
Hospital & Health Care 14.3%
Transportation 14.2%
Tax-Supported 9.8%
Housing 9.4%
Other Revenue 6.0%
General Obligation 3.0%
Subject to Government
Appropriation 2.9%
Higher Education 2.2%
Corporate-Backed 0.3%
</TABLE>
(4.) Source: The Bond Buyer, 9/1/00.
9
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Florida Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------------------
MONTH CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.03 cents 4.52 cents 4.55 cents
April 5.03 cents 4.52 cents 4.55 cents
May 5.03 cents 4.52 cents 4.55 cents
June 5.03 cents 4.49 cents 4.53 cents
July 5.03 cents 4.49 cents 4.53 cents
August 5.03 cents 4.49 cents 4.53 cents
--------------------------------------------------------------------------------
TOTAL 30.18 CENTS 27.03 CENTS 27.24 CENTS
</TABLE>
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
portfolio's seasoned holdings with shorter call dates and shorter maturities.
The Fund then reinvested the proceeds in bonds with longer call structures or
longer maturities and higher yields. Following our strategy, we sold Leesburg
Utilities Revenue, Venice Health Care Revenue - Bon Secours Health System
Project, Volusia County Health Facilities Authority Revenue and Tampa
Occupational License Tax - Refunding bonds.
The Fund maintained its high quality portfolio during the six months under
review, and on August 31, 2000, 74.1% of the Fund's total long-term investments
were rated AA or higher. In addition, we bought issues in a number of different
sectors, preserving broad portfolio diversification. Purchases during the period
included Florida State Mid-Bay Bridge Authority Revenue, Florida State Board
Registered Housing Revenue - University of Florida, Escambia County Health
Facilities Authority Revenue - Florida Health Care Facility and Orange County
Health Facilities Authority Revenue - Adventist Health System.
10
<PAGE>
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. On page 13, the Performance Summary 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 5.05 cent ($0.0505) per
share dividend and the maximum offering price of $11.78 on August 31, 2000. An
investor in the maximum federal personal income tax bracket of 39.6% would need
to earn 8.51% 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 are optimistic about the outlook for Florida, its municipal
bonds and Franklin Florida Tax-Free Income Fund. We intend to maintain our
conservative, buy-and-hold investment strategy as we attempt to provide
shareholders with high, current, tax-free income.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
11
<PAGE>
FRANKLIN FLORIDA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
--------------------------------------------------------------------------------
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.47%
Net Asset Value (NAV) $11.28 (8/31/00) $10.89 (2/29/00)
Change in NAV +$0.39
Distributions (3/1/00-8/31/00) Dividend Income $0.3018
CLASS B
Six-Month Total Return +6.34%
Net Asset Value (NAV) $11.31 (8/31/00) $10.90 (2/29/00)
Change in NAV +$0.41
Distributions (3/1/00-8/31/00) Dividend Income $0.2703
CLASS C
Six-Month Total Return +6.22%
Net Asset Value (NAV) $11.38 (8/31/00) $10.98 (2/29/00)
Change in NAV +$0.40
Distributions (3/1/00-8/31/00) Dividend Income $0.2724
</TABLE>
Past performance does not guarantee future results.
12
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.85% +27.68% +94.55% +149.74%
Average Annual Total Return(2) +0.39% +4.11% +6.42% +6.89%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +6.93%
Aggregate Total Return(2) +2.93%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.33% +24.27% +29.93%
Average Annual Total Return(2) +2.35% +4.23% +4.76%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.14% 4.81% 4.73%
Taxable Equivalent Distribution Rate(4) 8.51% 7.96% 7.83%
30-Day Standardized Yield(5) 4.82% 4.49% 4.44%
Taxable Equivalent Yield(4) 7.98% 7.43% 7.35%
</TABLE>
For updated performance figures, see "Prices and Performance" at
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 for
Class B) per share on 8/31/00.
(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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
13
<PAGE>
FRANKLIN GEORGIA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Georgia Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA- 60.9%
AA- 16.0%
A- 9.4%
BBB- 13.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
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(2)
[GEORGIA STATE MAP]
During the six months under review, Georgia's strong job creation, low average
cost of living and extensive transportation infrastructure drove economic
growth. A fast-growing services sector more than offset certain manufacturing
sector declines. While job growth is expected to slow over the next several
years, Georgia is expected to remain one of the nation's employment leaders,
dominated by job gains in the business, health and other services sectors.
The state's 1995-1999 fiscal budgets ended with operating surpluses and an
increased unreserved general fund balance, with fiscal year 2000 expected to do
the same. As a result, the state's unreserved general fund balance increased and
provided substantial financial flexibility. Georgia's overall debt burden, at
$719 per capita, remains moderately above the national median.
Georgia's financial outlook is stable, reflecting its underlying economic
strength and conservative management. Due to the state's solid financial
performance, fully funded reserve levels and improving financial reporting and
information technology, Standard & Poor's, an independent credit rating agency,
rated Georgia debt AAA, the highest rating possible.
(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, 6/23/00. This does not indicate
Standard & Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 66.
14
<PAGE>
PORTFOLIO NOTES
Overall, long-term interest rates declined during the six months under review.
We followed our disciplined philosophy of remaining as fully invested as
possible, and Franklin Georgia Tax-Free Income Fund experienced capital
appreciation during this time. The Fund's Class A share price, as measured by
net asset value, increased from $11.03 on February 29, 2000, to $11.47 on August
31, 2000. The combination of an overall declining interest-rate environment and
some significant holdings being called created a situation where we believed we
needed to invest the called bond proceeds as best and as quickly as possible.
Because of the relatively light supply of new issues this year, the task of
finding worthy investments presented a challenge. Fortunately, the Fund's size
and leverage in the Georgia market enabled us to take the first look at most
offerings in both the primary and secondary markets and make prudent choices.
Many municipal bond issuers took advantage of declining interest rates to
exercise call options on their outstanding bonds. During the six months under
review, the Fund experienced 10 separate bond calls totaling approximately 4% of
the portfolio's total long-term investments. We invested the proceeds in bonds
with at least 10-year call protection, as we sought to protect the Fund's
long-term income stream. We found value in Atlanta Airport Facilities, George L.
Smith II Congress Center Authority and Meriwether County Public Facility
Authority revenue bonds. As a result, the Fund's weighted average life to first
call was 6.9 years at the end of the period. Going forward, we will continue to
actively manage the Fund's call exposure, seeking to provide high, current
income to our shareholders.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 17 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 4.89%, based on an annualization of the current 4.88 cent ($0.0488) per
share dividend and
PORTFOLIO BREAKDOWN
Franklin Georgia
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Housing 16.0%
Hospital & Health Care 15.8%
Utilities 13.6%
Prerefunded 12.9%
Higher Education 11.6%
Corporate-Backed 9.4%
General Obligation 7.9%
Transportation 7.3%
Other Revenue 2.4%
Tax-Supported 2.0%
Subject to Government
Appropriation 1.1%
</TABLE>
15
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Georgia Tax-Free Income
Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.95 cents 4.48 cents
April 4.95 cents 4.48 cents
May 4.95 cents 4.48 cents
June 4.95 cents 4.46 cents
July 4.95 cents 4.46 cents
August 4.95 cents 4.46 cents
--------------------------------------------------------------------------------
TOTAL 29.70 CENTS 26.82 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.
the maximum offering price of $11.98 on August 31, 2000. An investor in the
maximum combined federal and Georgia state personal income tax bracket of 43.22%
would need to earn 8.61% 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 are optimistic about the outlook for Georgia, its municipal
bonds and Franklin Georgia Tax-Free Income Fund. We believe that if the Fed
succeeds in slowing domestic economic growth to a sustainable rate and holds off
on further interest-rate increases, municipal bonds, in general, and your Fund,
in particular, stand to benefit. In the meantime, municipal bonds continue to
offer tax-free income and an efficient way to diversify investment assets.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
16
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.79%
Net Asset Value (NAV) $11.47 (8/31/00) $11.03 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2970
CLASS C
Six-Month Total Return +6.47%
Net Asset Value (NAV) $11.54 (8/31/00) $11.10 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2682
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.86% +26.50% +90.00% +141.50%
Average Annual Total Return(2) +0.37% +3.91% +6.17% +6.62%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.26% +23.11% +27.89%
Average Annual Total Return(2) +2.20% +4.04% +4.45%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 4.89% 4.52%
Taxable Equivalent Distribution Rate(4) 8.61% 7.96%
30-Day Standardized Yield(5) 4.63% 4.25%
Taxable Equivalent Yield(4) 8.15% 7.49%
</TABLE>
For updated performance figures, see"Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN GEORGIA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
17
<PAGE>
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Kentucky Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA- 59.4%
AA- 20.1%
A- 8.2%
BBB- 10.0%
Below Investment
Grade- 2.3%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Kentucky Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Kentucky state personal income
taxes through a portfolio consisting primarily of Kentucky municipal bonds.(1)
--------------------------------------------------------------------------------
COMMONWEALTH UPDATE
[KENTUCKY STATE MAP]
Kentucky continues to experience a steadily growing economic base, a manageable
debt burden and strong budgetary practices with adequate reserves. Despite
declines in traditional industries such as apparel, coal and tobacco, the
commonwealth's economy grew due to gains in transportation equipment and
services, and overall employment growth was similar to that of the nation.
Kentucky's central geographical location and low labor and energy costs
contributed to this job growth, and the employment base continued to diversify
as jobs in the higher-paid automotive, transportation equipment, air transport,
and health and business services sectors replaced lower-wage jobs. By April
2000, the unemployment rate had dropped to 3.9%, the lowest in 12 years.(2)
Over the past six years, Kentucky has produced a structurally balanced budget
and increased reserves to favorable levels, and it has a history of prudently
estimating revenues. In each of fiscal years 1993 to 1998, actual revenues
exceeded estimates by an average of 4.0%. For fiscal year 1999, however, revenue
collections fell short of estimates by 0.4%. This marginal underperformance can
be attributed to a greater than anticipated impact of tax cuts phased in during
the past five years. The commonwealth triggered an automatic spending reduction
plan in response to another revenue shortfall in fiscal year 2000. This
shortfall represents a revenue decrease primarily due to lower than expected
receipts from corporate taxes, estate taxes and investment income.
(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(R) Investors Service,Kentucky (Commonwealth of), 6/8/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 70.
18
<PAGE>
The automatic spending reductions ensure a structurally balanced budget and
adequate spending controls. Revenue collection through April 2000 indicates
income for the current fiscal year will come in right on the revised budget.(2)
Kentucky's debt ratios have dropped over the past several years to moderate
levels, at $745 per capita and 2.8% of personal income. However, they are
expected to increase again over the next couple years. Standard & Poor's, an
independent credit rating agency, has assigned the commonwealth a strong AA
rating, and the outlook for Kentucky is stable.(3) A modestly accelerating
economy is expected to sustain recent financial improvements. Although debt
ratios may rise slightly as substantial new debt is issued and outstanding debt
is amortized, we expect the commonwealth's financial performance to continue to
benefit from positive economic trends, a demonstrated ability to control
spending, and prudent revenue estimating practices.
PORTFOLIO NOTES
Overall, long-term interest rates declined during the six months under review.
Because bond prices rise when interest rates fall, Franklin Kentucky Tax-Free
Income Fund's Class A share price, as measured by net asset value, increased
from $10.42 on February 29, 2000, to $10.80 on August 31, 2000. During the
reporting period, we attempted to take advantage of strong demand and relatively
low new-issue supply in the Kentucky market to improve the Fund's call
protection. We sold bonds with relatively short call protection and reinvested
the proceeds in bonds with 10-year call protection without sacrificing yield.
Because of Franklin Kentucky Tax-Free Income Fund's size and presence in the
commonwealth's market, we typically get the first look at most offerings in the
primary and secondary markets.
An example of the strategy described above involves Jefferson County School
District Finance Corp. lease revenue bonds. We sold a 1998 issue with 8 years'
call protection remaining and subsequently purchased a 2000 issue with 10-year
call protection that provided the same yield. This trade increased the Fund's
average call protection while protecting the Fund's long-term income stream.
Although such market opportunities seldom present themselves, our active
portfolio management often enables us to
PORTFOLIO BREAKDOWN
Franklin Kentucky
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Other Revenue 17.8%
Utilities 17.6%
Housing 13.8%
Hospital & Health Care 13.0%
Subject to Government
Appropriation 12.3%
Prerefunded 8.9%
Transportation 8.6%
Corporate-Backed 5.0%
Tax-Supported 2.8%
Higher Education 0.2%
</TABLE>
3. Source: Standard & Poor's,Ratings Direct, 6/22/00. This does not indicate
Standard & Poor's rating of the Fund.
19
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Kentucky
Tax-Free Income Fund- Class A
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
--------------------------------------------------------------------------------
<S> <C>
March 4.82 cents
April 4.82 cents
May 4.82 cents
June 4.82 cents
July 4.82 cents
August 4.82 cents
--------------------------------------------------------------------------------
TOTAL 28.92 CENTS
</TABLE>
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
recognize and capitalize on them. As always, we plan to adhere to our
disciplined philosophy of trying to maximize tax-free income.
We think it bears repeating that 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 5.13%, based on an annualization of the current 4.82 cent ($0.0482) per
share dividend and the maximum offering price of $11.28 on August 31, 2000. An
investor in the maximum combined federal and Kentucky state personal income tax
bracket of 43.22% would need to earn 9.04% from a taxable investment to match
the Fund's tax-free distribution rate.
Looking forward, we are optimistic about the outlook for Kentucky, its municipal
bonds and Franklin Kentucky Tax-Free Income Fund. We believe that if the Fed
succeeds in slowing domestic economic growth to a sustainable rate and holds off
on further interest-rate increases, municipal bonds, in general, and your Fund,
in particular, stand to benefit. In the meantime, municipal bonds continue to
offer tax-free income and an efficient way to diversify investment assets.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
20
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of the Fund's operating
expenses. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.54%
Net Asset Value (NAV) $10.80 (8/31/00) $10.42 (2/29/00)
Change in NAV +$0.38
Distributions (3/1/00-8/31/00) Dividend Income $0.2892
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (10/12/91)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.36% +29.16% +73.53%
Average Annual Total Return(2) -0.08% +4.34% +5.83%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.13%
Taxable Equivalent Distribution Rate(4) 9.04%
30-Day Standardized Yield(5) 4.93%
Taxable Equivalent Yield(4) 8.68%
</TABLE>
For updated performance figures, see"Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund eliminated the sales charge
on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance. The Fund's manager agreed in advance to waive a portion
of its management fees, which reduces operating expenses and increases
distribution rate, yield and total return to shareholders. With- out this
waiver, the Fund's distribution rate and total return would have been lower, and
yield for the period would have been 4.58%. 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 the sales charge.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
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 $11.28 on 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
21
<PAGE>
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Louisiana Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA- 65.0%
AA- 1.7%
A- 3.5%
BBB- 25.6%
Below Investment
Grade- 4.2%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
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
[LOUISIANA STATE MAP]
During the reporting period, Louisiana maintained its stable credit outlook. Its
economy is slowly diversifying and has a moderate and declining debt burden,
while the state has instituted a number of positive changes. The budgetary
process now emphasizes matching recurring expenditures with recurring revenues
to limit any future budget imbalances. The primary use of any surplus revenues
has been to repay outstanding debt, allowing for more stable future budgeting.
Such changes, coupled with an improving economy, enabled the state to improve
its fiscal position after several years of poor performance in the early 1990s.
With annual surpluses dedicated to debt prepayment or onetime expenditures,
however, general fund reserves remained relatively low at the end of fiscal year
1999. And the fiscal year 2000 budget suffered from slow sales and income tax
growth, which forced cuts to keep it in balance.
Louisiana entered 2000 with slowing economic growth. The oil production and
chemical manufacturing sectors experienced weakness due to volatile oil prices
and shifts in worldwide demand for Louisiana products. While the services and
construction sectors showed some strength, personal income growth is expected to
be moderate, with the average income level remaining relatively low compared
with the rest of the nation. Standard & Poor's, an independent credit rating
agency, has assigned
(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 dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 73.
22
<PAGE>
Louisiana an A- rating.(2) The state's stable credit rating reflects recent
efforts to reverse several negative financial trends. Going forward, the degree
to which the state's administration can institutionalize its various efforts and
stabilize the revenue stream will have an effect on future ratings.
PORTFOLIO NOTES
Overall, long-term interest rates declined during the six months under review.
We followed our disciplined philosophy of remaining as fully invested as
possible, and Franklin Louisiana Tax-Free Income Fund experienced capital
appreciation during this time. The Fund's Class A share price, as measured by
net asset value, increased in value from $10.55 on February 29, 2000, to $10.95
on August 31, 2000. At the end of the period, the Fund's weighted average life
to first call was about 6.2 years, and nearly two-thirds of the Fund's total
long-term investments were of the highest, AAA-rated credit quality.
During the reporting period, the supply of Louisiana bonds was very light, with
new issuance from January through August 2000 falling to $914 million, down over
57% from the same period in 1999.(3) Fortunately, Franklin's size and leverage
in the Louisiana market becomes a great advantage in such times because we
typically get the first look at most offerings in both the primary and secondary
markets. Despite the 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. We purchased
Puerto Rico Commonwealth general obligation bonds and also found value and added
to our position in Central Louisiana Electric Company's De Soto Parish Pollution
Control revenue bonds, making it the portfolio's largest issue. Both these
investments have 10-year call protection, which helps shield the Fund's
long-term income-earning potential.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 25 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 5.09%,
(2.) Source: Standard & Poor's,Ratings Direct, 6/28/00. This does not indicate
Standard & Poor's rating of the Fund.
(3.) Source:The Bond Buyer, 9/1/00.
PORTFOLIO BREAKDOWN
Franklin Louisiana
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities 18.9%
Higher Education 15.8%
Hospital & Health Care 13.7%
Corporate-Backed 12.5%
Housing 10.5%
General Obligation 9.1%
Tax-Supported 7.6%
Subject to Government
Appropriation 4.3%
Prerefunded 3.7%
Other Revenue 3.2%
Transportation 0.7%
</TABLE>
23
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Louisiana Tax-Free Income
Fund 3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.90 cents 4.42 cents
April 4.90 cents 4.42 cents
May 4.90 cents 4.42 cents
June 4.90 cents 4.40 cents
July 4.90 cents 4.40 cents
August 4.90 cents 4.40 cents
--------------------------------------------------------------------------------
TOTAL 29.40 CENTS 26.46 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.
based on an annualization of the current 4.85 cent ($0.0485) per share dividend
and the maximum offering price of $11.44 on August 31, 2000. An investor in the
maximum combined federal and Louisiana state personal income tax bracket of
43.22% would need to earn 8.97% 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 are optimistic about the outlook for Louisiana, its
municipal bonds and Franklin Louisiana Tax-Free Income Fund. We believe that if
the Fed succeeds in slowing domestic economic growth to a sustainable rate and
holds off on further interest-rate increases, municipal bonds, in general, and
your Fund, in particular, stand to benefit. In the meantime, municipal bonds
continue to offer tax-free income and an efficient way to diversify investment
assets.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
24
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.69%
Net Asset Value (NAV) $10.95 (8/31/00) $10.55 (2/29/00)
Change in NAV +$0.40
Distributions (3/1/00-8/31/00) Dividend Income $0.2940
CLASS C
Six-Month Total Return +6.45%
Net Asset Value (NAV) $11.03 (8/31/00) $10.62 (2/29/00)
Change in NAV +$0.41
Distributions (3/1/00-8/31/00) Dividend Income $0.2646
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.86% +27.74% +90.26% +140.60%
Average Annual Total Return(2) +0.36% +4.10% +6.18% +6.58%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.26% +24.43% +29.56%
Average Annual Total Return(2) +2.24% +4.26% +4.70%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.09% 4.68%
Taxable Equivalent Distribution Rate(4) 8.97% 8.24%
30-Day Standardized Yield(5) 4.99% 4.61%
Taxable Equivalent Yield(4) 8.79% 8.12%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
25
<PAGE>
FRANKLIN MARYLAND TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Maryland Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 46.8%
AA - 23.4%
A - 14.8%
BBB - 15.0%
*Quality breakdown may include internal ratings for bonds not rated by an
independent 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
[MARYLAND STATE MAP]
Maryland's broad-based economy continued to grow throughout the reporting
period. By the late 1990s, the state largely had absorbed the impact of federal
downsizing. Although, at 18.3%, Maryland's percentage of government employment
remains higher than the national average of 16.1%, it still trails the services
sector, which represents 34% of the state's employment mix.(2) Maryland boasts
lower-than-average unemployment and higher-than-average per capita personal
income at 113% of the national average.(3) In 1999, the state's 3.5% average
unemployment rate was lower than it has been in 20 years. Unemployment has
remained low in 2000, attested to by the state's 3.2% July rate, compared with
the 4.0% national average for the same month.(4)
The state's robust economy translated into solid revenues. Income tax
collections grew 7.9% in 1999, while sales tax collections, the state's
second-largest source of revenue, registered a strong 6.4% gain. As of the
latest official revenue estimates in March 2000, state tax collections have
registered strong gains versus 1999. The higher revenues of recent years have
enabled the state to afford the income tax reduction passed in its 1997
legislative season as well as amass budget stabilizing reserves totaling $581
million.(3) The state's fiscal year 2001 budget relies on conservative revenue
projections, assuming employment growth well below the current pace. However,
two future budgetary liabilities may appear in the form of pending court cases
against the
(1.) For investors subject to the 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, 7/18/00. This does not indicate
Standard & Poor's rating of the Fund.
(3.) Source: Moody's Investors Service, 7/13/00. This does not indicate Moody's
rating of the Fund.
(4.) Source: Bureau of Labor Statistics, 8/18/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 77.
26
<PAGE>
state: the Baltimore City Schools' petition for more funding and another case
involving the tobacco settlement lawyers' fees.
Maryland's debt burden is above average but carefully managed and rapidly
repaid. Residents' debt per capita of $895 ranked the state 10th in the nation.
Although relatively high, this figure 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
and debt service to 8% of state revenues.(3)
Looking forward, Maryland has excellent credit characteristics, demonstrated by
its highest-quality credit ratings from Standard & Poor's and Moody's Investors
Service, two independent credit rating agencies.(2),(3) The state's high wealth
and income levels, combined with prudent fiscal management incorporating healthy
reserves, rapid debt maturities and two-thirds completion of its multi-year
income tax cut should enable it to successfully meet the challenges ahead.
PORTFOLIO NOTES
Although the expectation of higher interest rates hampered municipal bond prices
in April and May, they improved substantially in the final three months of the
period, as the Federal Reserve Board (the Fed) chose to leave rates steady.
Municipal bond investors were cautious, as the Fed took an aggressive posture
toward using interest-rate tightening to mitigate inflationary tendencies.
However, the Fed's June and August decisions not to raise short-term interest
rates, together with recent indications that economic growth might be slowing to
a more sustainable pace, resulted in a positive market reaction.
For the six months under review, long-term interest rates, as represented by the
30-year Treasury bond, declined overall. Municipal bonds generally trended with
the 30-year Treasury bond and the Bond Buyer Municipal Bond Index, an indicator
of the municipal bond market, and experienced falling yields. Bond yield and
price move in an inverse relationship, so that as yields fall, prices rise.
Accordingly, Franklin Maryland Tax-Free Income Fund's Class A share price, as
measured by net asset value, increased from $10.63 per share on February 29,
2000, to $11.09 on August 31, 2000. Additionally, the higher interest rates
early in the reporting period allowed the Fund to increase its Class A shares'
dividend distributions from 4.68 to 4.73 cents per share.
PORTFOLIO BREAKDOWN
Franklin Maryland
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care* 26.0%
Utilities 20.2%
Housing 19.6%
Subject to Government
Appropriation 8.9%
Prerefunded 7.0%
General Obligation 6.6%
Higher Education 3.5%
Corporate-Backed 3.3%
Transportation 2.5%
Tax-Supported 2.0%
Other Revenue 0.4%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals & health care. A change that affects one
project may affect all similar projects, thereby increasing market risk.
27
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Maryland Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.68 cents 4.20 cents
April 4.68 cents 4.20 cents
May 4.68 cents 4.20 cents
June 4.73 cents 4.26 cents
July 4.73 cents 4.26 cents
August 4.73 cents 4.26 cents
================================================================================
TOTAL 28.23 CENTS 25.38 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.
Municipal bonds should also benefit from the supply reduction we have seen so
far this year, as the strong economy left municipalities with ample revenues,
decreasing their need for borrowing to finance new projects. For the first eight
months of 2000, Maryland issued approximately $1.59 billion of municipal debt,
compared with $1.89 billion for the same period last year, a decline of
16.1%.(5)
During the period, we attempted to take advantage of higher interest rates to
restructure the portfolio to enhance its income-producing potential.
Additionally, we booked tax losses, which can be carried forward in the
portfolio to offset future capital gains and possibly lower shareholders' future
tax liabilities. Overall, activity in Maryland was light due to the state's low
levels of bond supply. Examples of purchases include St. Mary's College Revenue-
Academic Fees and Auxillary Fees Project; Baltimore Revenue Wastewater Project;
and Maryland State Health and Higher Educational Facilities Authority Revenue-
University of Maryland Medical System bonds.
5. Source: The Bond Buyer, 9/1/00.
28
<PAGE>
We think it bears repeating that your Fund combines the advantage of high credit
quality with tax-free yields. The Performance Summary on page 30 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 4.90%, based on an annualization of the current 4.73 cent ($0.0473) per
share dividend and the maximum offering price of $11.58 on August 31, 2000. An
investor in the maximum combined federal and Maryland state and local personal
income tax bracket of 44.35% would need to earn 8.81% 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 are optimistic about the outlook for Maryland, its municipal
bonds and Franklin Maryland Tax-Free Income Fund. If the Fed succeeds in slowing
economic growth to a sustainable rate and holds off on further interest-rate
increases, municipal bonds, in general, and your Fund, in particular, stand to
benefit. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
29
<PAGE>
FRANKLIN MARYLAND TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +7.10%
Net Asset Value (NAV) $11.09 (8/31/00) $10.63 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2823
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.76%
Net Asset Value (NAV) $11.18 (8/31/00) $10.72 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2538
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.62% +27.85% +94.71% +118.13%
Average Annual Total Return(2) +1.11% +4.13% +6.43% +6.33%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +5.01% +24.90% +31.46%
Average Annual Total Return(2) +2.98% +4.34% +4.98%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 4.90% 4.50%
Taxable Equivalent Distribution Rate(4) 8.81% 8.09%
30-Day Standardized Yield(5) 4.76% 4.39%
Taxable Equivalent Yield(4) 8.55% 7.89%
</TABLE>
For updated performance figures, see"Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
30 Past performance does not guarantee future results.
<PAGE>
FRANKLIN MISSOURI TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Missouri Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Missouri state personal income
taxes through a portfolio consisting primarily of Missouri municipal bonds.(1)
--------------------------------------------------------------------------------
STATE UPDATE(2)
[MISSOURI STATE MAP]
During the six months under review, the nation's positive economic cycle
benefited Missouri's economy. The state's employment and personal income
continued to grow, albeit at a somewhat slower rate than the nation as a whole.
The manufacturing sector experienced modest employment declines; however, job
gains in trade and services more than offset those losses, and the state's
overall unemployment rate remained low.
Missouri's strong economic performance and efforts to curtail expenditures
helped maintain the state's sound financial position. Revenue growth in fiscal
year 1999 was just 3% due to tax cuts passed in 1997 and 1998, and with one-time
capital expenditures in fiscal year 1999, the state drew down the general fund
balance modestly. The fiscal year 2000 budget is based on a conservative
consensus revenue estimate of 5.1% growth, and it proposes spending accumulated
fund balances on prisons, higher education facilities, improvements to state
parks and other one-time expenditures. The budget also includes further tax
reductions designed to keep the state within its reserve limits, although these
reductions could restrict Missouri's financial flexibility in the future.
Standard & Poor's, an independent credit rating agency, assigned the state its
highest rating, AAA, based on Missouri's diversified economic base, sound
financial management and low debt per capita level. Going forward, the state has
a stable credit outlook due to its solid financial position, mandatory reserve
requirements and steady economic performance.
CREDIT QUALITY BREAKDOWN*
Franklin Missouri Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 58.6%
AA - 15.9%
A - 8.3%
BBB - 16.3%
Below Investment
Grade - 0.9%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
(1.) For investors subject to the federal alternative minimum tax, a small
portion of this income may be subject to such tax. Distributions of capital
gains and of ordinary income from accrued market discount, if any, are generally
taxable.
(2.) Source: Standard & Poor's,Ratings Direct, 6/7/00. This does not indicate
Standard & Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 81.
31
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Missouri
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 21.0%
Subject to Government
Appropriation 15.3%
Higher Education 11.7%
Housing 10.4%
Utilities 10.0%
Prerefunded 8.2%
Tax-Supported 7.5%
Transportation 6.0%
Corporate-Backed 5.1%
General Obligation 2.6%
Other Revenue 2.2%
</TABLE>
PORTFOLIO NOTES
Early in the reporting period, expectations of higher interest rates generally
hampered municipal bond prices. As opportunities presented themselves, we sold
bonds with higher cost bases to book tax losses, which can be carried forward to
offset future gains. This strategy seeks to optimize tax efficiency in a
municipal bond fund and minimize the portfolio's taxable distributions,
potentially lowering shareholders' future tax liabilities. We also sought to
improve the portfolio's structure by selling bonds with shorter call protection
and purchasing similar coupon bonds with longer call protection, thereby
increasing the Fund's overall call protection.
The decline in long-term interest rates during the second half of the period
resulted in generally increasing bond prices, benefiting municipal bond
investors. Franklin Missouri Tax-Free Income Fund's Class A share price, as
measured by net asset value, increased from $11.02 per share on February 29,
2000, to $11.51 on August 31, 2000.
During the six months under review, we sold our Missouri State Health and
Educational Facilities Authority Health Facilities Revenue and Park Lane Medical
Center holdings. Using the proceeds, we initiated positions in Puerto Rico
Commonwealth Highway and Transportation Authority and Springfield Public
Building Corp. revenue bonds. At the end of the reporting period, hospital and
health care was the Fund's largest sector weighting, comprising 21.0% of total
long-term investments. At the same time, AAA-rated bonds represented 58.6% of
total long-term investments, indicating the portfolio's high quality.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 34 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 4.99%, based on an annualization of the current 5.0 cent ($0.050) per share
dividend and the maximum offering price of $12.02 on August 31, 2000. An
investor in the maximum combined federal and Missouri state personal income tax
bracket of 43.22%
32
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Missouri Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 5 cents 4.50 cents
April 5 cents 4.50 cents
May 5 cents 4.50 cents
June 5 cents 4.49 cents
July 5 cents 4.49 cents
August 5 cents 4.49 cents
================================================================================
TOTAL 30 CENTS 26.97 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.
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 rate
and taxable equivalent distribution rate for Class C shares.
Looking forward, we are optimistic about the outlook for Missouri, its municipal
bonds and Franklin Missouri Tax-Free Income Fund. Municipal bond funds can be a
positive component of an investment portfolio, as they offer tax-free income and
an efficient way to diversify investment assets.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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 man-
agement philosophy.
33
<PAGE>
FRANKLIN MISSOURI TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +7.29%
Net Asset Value (NAV) $11.51 (8/31/00) $11.02 (2/29/00)
Change in NAV +$0.49
Distributions (3/1/00-8/31/00) Dividend Income $0.3000
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.97%
Net Asset Value (NAV) $11.55 (8/31/00) $11.06 (2/29/00)
Change in NAV +$0.49
Distributions (3/1/00-8/31/00) Dividend Income $0.2697
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.94% +28.49% +95.14% +144.58%
Average Annual Total Return(2) +0.46% +4.23% +6.45% +6.72%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
<S> <C> <C> <C>
Cumulative Total Return(1) +4.44% +25.00% +30.21%
Average Annual Total Return(2) +2.38% +4.35% +4.79%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
<S> <C> <C>
Distribution Rate(3) 4.99% 4.61%
Taxable Equivalent Distribution Rate(4) 8.79% 8.12%
30-Day Standardized Yield(5) 4.76% 4.38%
Taxable Equivalent Yield(4) 8.38% 7.71%
</TABLE>
For updated performance figures, see"Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
34 Past performance does not guarantee future results.
<PAGE>
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
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 STATE MAP]
North Carolina's port access, diverse agriculture, below-average business costs,
status as a Southern banking center, its Research Triangle high tech sector and
strong, durable goods manufacturing sector propelled its economy during the
review period. The state possesses an enviable track record of over 3% job
growth, which has outpaced the nation's in five of the last seven years.
Additionally, its record-low 3.2% unemployment rate for 1999 registered well
below the 4.3% national average.(2) This trend continued during the reporting
period, with the unemployment rate ranging from 3.0% to 3.4%.(3)
North Carolina borrows infrequently and conservatively manages its debt
issuance. All state debt is general obligation, scheduled for a rapid rate of
retirement. Infrastructure spending, chiefly for schools and highways, has led
to a 63% increase in the state's tax debt burden since 1996. However, the
state's debt ratios of $343 per capita and 1.4% of personal income still fall
well below the national medians of $540 and 2.2%.(2)
Hurricane Floyd and the January winter storm strained the 2000 budget. Other
spending challenges include two court decisions and a recently approved $3.1
billion general obligation bond earmarked for the state's university and
community college system. The first ruling makes the state liable for taxes paid
by former government employees,
CREDIT QUALITY BREAKDOWN*
Franklin North Carolina
Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 55.2%
AA - 17.9%
A - 12.2%
BBB - 14.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
(1.) For investors subject to the 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, 6/00.
(3.) Source: Bureau of Labor Statistics, 8/18/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 86.
35
<PAGE>
PORTFOLIO BREAKDOWN
Franklin North Carolina
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 23.0%
Utilities 20.1%
Prerefunded 13.8%
Housing 11.3%
Subject to Government
Appropriation 9.2%
Corporate-Backed 6.1%
Other Revenue 6.1%
Transportation 5.1%
Tax-Supported 2.5%
Higher Education 1.8%
General Obligation 1.0%
</TABLE>
and the second requires it to refund payments for an intangibles tax declared
unconstitutional by the North Carolina Supreme Court.(2) Despite these spending
pressures and 2000 revenues lower than budgeted expectations, North Carolina was
able to keep the 2000 budget balanced by deferring a one-time payment for
teachers' salaries and $98.7 million of tax cuts to the close of the fiscal
year.(4)
Looking ahead, expectations for continued economic expansion and the state's
demonstrated conservative financial practices, which helped it to absorb
substantial nonrecurring costs, should enable North Carolina municipal
obligations to perform well in the future.
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, during the second three
months of the period, the interest-rate picture appeared to stabilize, as the
Fed chose to leave interest rates steady. Their strategy gave many investors
confidence that the pace of economic growth slowed during the second quarter and
that inflation was less of a threat. Municipal bonds reacted well to the news of
a possible economic growth slowdown, and in fact, fixed income markets
experienced positive results year-to-date. In this environment, Franklin North
Carolina Tax-Free Income Fund's Class A share price, as measured by net asset
value, increased from $11.04 per share on February 29, 2000, to $11.50 on August
31, 2000.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, typically in the 6.0%-6.125% range, increasing the portfolio's
income. As opportunities presented themselves, we sold bonds with higher cost
bases to book tax losses, which can be carried forward to offset future gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions, potentially lowering
shareholders' future tax liabilities. We also sold the portfolio's seasoned
holdings with shorter call dates and shorter maturities. The Fund
(4.) Source: Standard and Poor's,Ratings Direct, 8/22/00.
36
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin North Carolina Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.97 cents 4.46 cents
April 4.97 cents 4.46 cents
May 4.97 cents 4.46 cents
June 4.97 cents 4.45 cents
July 4.97 cents 4.45 cents
August 4.97 cents 4.45 cents
================================================================================
TOTAL 29.82 CENTS 26.73 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.
then reinvested the proceeds in bonds with longer call structures or longer
maturities and higher yields. Following our strategy, we sold Gastonia COP,
University of North Carolina at Charlotte Revenue, Gastonia Combined Utilities
System Revenue and Cumberland County Hospital Facilities Revenue- Cumberland
County Hospital Systems Inc. bonds.
The Fund maintained its high-quality portfolio during the six months under
review, and on August 31, 2000, 73.1% of the Fund's total long-term investments
were rated AA or higher. In addition, we bought issues in a number of different
sectors, preserving broad portfolio diversification. Purchases during the period
included Randolph County COP, Puerto Rico Commonwealth Highway and
Transportation Authority Revenue, Pitt County COP- School Facilities Project,
Charlotte COP- Convention Facility Project and University of North Carolina at
Greensboro Revenue- Housing and Dining System.
37
<PAGE>
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 39 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 5.02%, based on an annualization of the current 5.02 cent ($0.0502) per
share dividend and the maximum offering price of $12.01 on August 31, 2000. An
investor in the maximum combined federal and North Carolina state personal
income tax bracket of 44.28% would need to earn 9.01% 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 are optimistic about the outlook for North Carolina, its
municipal bonds and Franklin North Carolina Tax-Free Income Fund. We intend to
maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current, tax-free income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
38
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.99%
Net Asset Value (NAV) $11.50 (8/31/00) $11.04 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2982
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +6.64%
Net Asset Value (NAV) $11.58 (8/31/00) $11.12 (2/29/00)
Change in NAV +$0.46
Distributions (3/1/00-8/31/00) Dividend Income $0.2673
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.81% +27.81% +89.67% +142.43%
Average Annual Total Return(2) +0.34% +4.13% +6.15% +6.65%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.20% +24.43% +29.48%
Average Annual Total Return(2) +2.15% +4.25% +4.68%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.02% 4.62%
Taxable Equivalent Distribution Rate(4) 9.01% 8.29%
30-Day Standardized Yield(5) 4.75% 4.37%
Taxable Equivalent Yield(4) 8.52% 7.84%
</TABLE>
For updated performance figures, see"Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
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.
39
<PAGE>
FRANKLIN TEXAS TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Texas Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 52.3%
AA - 5.4%
A - 6.0%
BBB - 31.8%
Below Investment
Grade - 4.5%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
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(2)
[TEXAS STATE MAP]
During the six months under review, Texas had a steadily growing and
diversifying economy, in addition to healthy revenue, a solid financial position
and low tax-supported debt burden. The state has added 1.5 million new jobs in
the past five years, and it continues to outpace the overall U.S. economy while
attracting investment from elsewhere in the nation. In February 2000, the
seasonally adjusted unemployment rate was 4.4%, the lowest February figure since
1979.
The state's 2000-2001 biennial budget is balanced, and fiscal year 2000 revenues
are running ahead of projections through the first seven months of the year.
Overall revenues continue to increase, driven by the expanding economy, which
benefits from low business costs, rapid technology sector growth and an
advantageous location for international trade. Standard & Poor's, an independent
credit rating agency, has assigned Texas a rating of AA, and the state's credit
outlook is stable, reflecting its modest financial reserves and the expectation
that the legislature's recent fiscal priorities will continue.
(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, 8/14/00. This does not indicate
Standard & Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 90.
40
<PAGE>
PORTFOLIO NOTES
Overall, long-term interest rates declined during the six months under review.
We followed our disciplined philosophy of remaining as fully invested as
possible, and Franklin Texas Tax-Free Income Fund experienced capital
appreciation during this time. The Fund's Class A share price, as measured by
net asset value, increased from $10.22 on February 29, 2000, to $10.52 on August
31, 2000. The combination of some significant holdings being called and an
overall declining interest-rate environment created a situation where we
believed we needed to invest the called bond proceeds as best and as quickly as
possible. Because of the relatively light supply of new issues this year, the
task of finding worthy investments presented a challenge. From January through
August, Texas issued $9.04 billion in new credits, a 25.5% decline from the same
period in 1999.(3) Fortunately, the Fund's size and leverage in the Texas market
enabled us to take the first look at most offerings in both the primary and
secondary markets and make prudent choices.
Many municipal bond issuers took advantage of declining interest rates to
exercise call options on their outstanding bonds. During the six months under
review, the Fund experienced a call on Cimarron Municipal Utility District
bonds. We quickly invested the proceeds in bonds with at least 10-year call
protection to help shield the Fund's long-term income stream. We found value in
Bexar County Multi-Family Housing revenue bonds and Richardson general
obligation bonds. A portion of these purchases were paid for by selling bonds
with shorter call protection provisions, such as Brownsville Combined Tax and
Revenue bonds and Canadian River Municipal Water Authority and Houston Higher
Education Finance Corp. for Rice University revenue bonds. As a result of these
trades, the Fund's weighted average life to first call was 6.4 years at the end
of the period. Going forward, we will continue to actively manage the Fund's
call exposure, seeking to provide high, current income to our shareholders.
PORTFOLIO BREAKDOWN
Franklin Texas
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 21.1%
Utilities 20.5%
Prerefunded 14.3%
Corporate-Backed 13.2%
General Obligation 10.7%
Housing 8.6%
Transportation 7.2%
Higher Education 2.9%
Other Revenue 1.5%
</TABLE>
(3.) Source: The Bond Buyer, 9/1/00.
41
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Texas Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.8 cents 4.31 cents
April 4.8 cents 4.31 cents
May 4.8 cents 4.31 cents
June 4.8 cents 4.32 cents
July 4.8 cents 4.32 cents
August 4.8 cents 4.32 cents
================================================================================
TOTAL 28.8 CENTS 25.89 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.
We think it bears repeating that 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 5.24%, based on an annualization of the current 4.8 cent ($0.0480) per share
dividend and the maximum offering price of $10.99 on August 31, 2000. An
investor in the maximum federal income tax bracket of 39.6% would need to earn
8.68% 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 ahead, we are optimistic about the outlook for Texas, its municipal
bonds and Franklin Texas Tax-Free Income Fund. If the Fed succeeds in slowing
domestic economic growth to a sustainable rate and holds off on further
interest-rate increases, municipal bonds, in general, and your Fund, in
particular, stand to benefit. In the meantime, municipal bonds continue to offer
tax-free income and an efficient way to diversify investment assets.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
42
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +5.86%
Net Asset Value (NAV) $10.52 (8/31/00) $10.22 (2/29/00)
Change in NAV +$0.30
Distributions (3/1/00-8/31/00) Dividend Income $0.2880
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
Six-Month Total Return +5.49%
Net Asset Value (NAV) $10.66 (8/31/00) $10.36 (2/29/00)
Change in NAV +$0.30
Distributions (3/1/00-8/31/00) Dividend Income $0.2589
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.46% +24.65% +89.06% +141.21%
Average Annual Total Return(2) -1.91% +3.60% +6.12% +6.61%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +1.87% +21.93% +27.70%
Average Annual Total Return(2) -0.11% +3.83% +4.43%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.24% 4.80%
Taxable Equivalent Distribution Rate(4) 8.68% 7.95%
30-Day Standardized Yield(5) 5.00% 4.60%
Taxable Equivalent Yield(4) 8.28% 7.62%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN TEXAS
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(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 30 days ended 8/31/00.
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.
43
<PAGE>
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Virginia Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 47.2%
AA - 21.1%
A - 16.1%
BBB - 13.9%
Below Investment
Grade - 1.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Virginia Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Virginia state personal income
taxes through a portfolio consisting primarily of Virginia municipal bonds.(1)
--------------------------------------------------------------------------------
COMMONWEALTH UPDATE
[VIRGINIA STATE MAP]
By implementing a policy of conservative financial management and prudently
monitoring debt issuance, Virginia has maintained 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. During fiscal year 2000, Governor Gilmore announced the
creation of more than 40,000 new jobs and the investment of more than $3 billion
in capital. Virginia's June unemployment rate of 2.9% was the lowest for that
month in 47 years, and non-agricultural employment passed the 3.5 million
mark.(3)
The state's thriving economy resulted in a general fund revenue surplus of $5.8
million for fiscal year 2000. When transfers, including the Tobacco Master
Settlement Funds, are added, the surplus increases to $24 million. This
represents a 10.5% revenue increase, compared to the previous fiscal year. This
year, Virginia's constitutionally required deposit to the Revenue Stabilization
Fund will exceed $23 million. The fund is anticipated to total more than $900
million, or slightly more than 8% of recent general fund revenue collections.(3)
The Revenue Stabilization Fund, which will reach its cap for the first time
ever, should help cushion the effects of an unforeseen economic downturn.
(1.) For investors subject to the alternative minimum tax, a small portion of
this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
(2.) Source: The Bond Buyer, 7/20/00. This does not indicate Standard & Poor's,
Moody's or Fitch's rating for the Fund.
(3.) Source: Commonwealth of Virginia, Office of the Governor, Press Office,
8/21/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 93.
44
<PAGE>
Public debt as a whole has risen in Virginia, while the underlying mix has
changed. Appropriation-backed issues accounted for 50% of the state's $422
billion tax-supported debt in 1999, up from 45% in 1995. General obligation (GO)
debt, for its part, declined to 27% of the state's outstanding debt in 1999,
compared with 32% in 1995.(2) The declining percentage of GO debt reflects, in
part, the difficulties of obtaining the required voter approval, in addition to
the time and expense of getting bond issues on the ballot. Concurrently, the
higher issuance of appropriation-backed debt, which normally garners ratings a
notch or two below the issuer's GO rating because of the so-called appropriation
risk, owes much to the state's prosperity of recent years. We believe the state
should easily be able to accommodate such higher debt levels, due to its
thriving economy and budgetary discipline, as demonstrated by the latest budget
surplus.
In our opinion, Virginia's underlying economic strength, ability to maintain
strong financial operations, excellent reserve levels and financial flexibility
should maintain the value of its municipal obligations, going forward.
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, during the second three
months of the period, the interest-rate picture appeared to stabilize, as the
Fed chose to leave interest rates steady. Their strategy gave many investors
confidence that the pace of economic growth slowed during the second quarter and
that inflation was less of a threat. Municipal bonds reacted well to the news of
a possible economic growth slowdown, and in fact, fixed income markets
experienced positive returns year-to-date.
Lower municipal bond supply also brought some stability to the municipal market.
For the first eight months of 2000, Virginia's new issuance was down 35.8% from
the same period in 1999.(4) In this environment, Franklin Virginia Tax-Free
Income Fund's
PORTFOLIO BREAKDOWN
Franklin Virginia
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities 18.3%
Hospital & Health Care 14.9%
Transportation 13.1%
Corporate-Backed 12.6%
Housing 11.9%
Prerefunded 10.7%
Other Revenue 8.2%
Tax-Supported 5.7%
Higher Education 2.7%
Subject to Government
Appropriation 1.1%
General Obligation 0.8%
</TABLE>
(4.) Source: The Bond Buyer, 9/1/00.
45
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Virginia Tax-Free Income Fund
3/1/00- 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
--------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.85 cents 4.38 cents
April 4.85 cents 4.38 cents
May 4.85 cents 4.38 cents
June 4.88 cents 4.38 cents
July 4.88 cents 4.38 cents
August 4.88 cents 4.38 cents
================================================================================
TOTAL 29.19 CENTS 26.28 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.
Class A share price, as measured by net asset value, increased from $10.79 on
February 29, 2000, to $11.26 on August 31, 2000.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, typically in the 6.0%-6.125% range, increasing the portfolio's
income. As opportunities presented themselves, we sold bonds with higher cost
bases to book tax losses, which can be carried forward to offset future gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions, possibly lowering shareholders'
future tax liabilities. We also sold the portfolio's seasoned holdings with
shorter call dates and shorter maturities. The Fund then reinvested the proceeds
in bonds with longer call structures or longer maturities and higher yields.
Following our strategies, we sold Fairfax County Sewer Revenue, Norfolk Water
Revenue, Arlington County GO, Norfolk Parking System Revenue and Spotsylvania
County Water and Sewer System Revenue bonds. As a result, the Fund was able to
increase its Class A dividend distribution from 4.85 cents per share to 4.88
cents per share in June.
46
<PAGE>
The Fund maintained its high quality portfolio during the six months under
review, and on August 31, 2000, 68.3% of the Fund's total long-term investments
were rated AA or higher. In addition, we bought issues in a number of different
sectors, preserving broad portfolio diversification. Purchases during the period
included Harrisonburg GO, Virginia Beach Water and Sewer Revenue, Virginia State
HDA SFHR, Greater Richmond Convention Center Authority Hotel Tax Revenue and
Isle Wight County IDA Environmental Improvement Revenue -- International Paper
Company Project bonds.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 48 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 5.05%, based on an annualization of the current 4.95 cent ($0.0495) per
share dividend and the maximum offering price of $11.76 on August 31, 2000. An
investor in the maximum combined federal and Virginia state personal income tax
bracket of 43.07% would need to earn 8.87% 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 are optimistic about the outlook for Virginia, its municipal
bonds and Franklin Virginia Tax-Free Income Fund. We intend to maintain our
conservative, buy-and-hold investment strategy as we attempt to provide
shareholders with high, current, tax-free income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
47
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
(4.) Taxable equivalent distribution rate and yield assume the published rates
as of 6/16/00 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 30 days ended 8/31/00.
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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
Six-Month Total Return +7.18%
Net Asset Value (NAV) $11.26 (8/31/00) $10.79 (2/29/00)
Change in NAV +$0.47
Distributions (3/1/00-8/31/00) Dividend Income $0.2919
CLASS C
Six-Month Total Return +6.94%
Net Asset Value (NAV) $11.34 (8/31/00) $10.86 (2/29/00)
Change in NAV +$0.48
Distributions (3/1/00-8/31/00) Dividend Income $0.2628
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.99% +27.02% +93.30% +144.06%
Average Annual Total Return(2) +0.50% +4.00% +6.35% +6.70%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.48% +23.67% +29.26%
Average Annual Total Return(2) +2.49% +4.13% +4.66%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
---------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.05% 4.65%
Taxable Equivalent Distribution Rate(4) 8.87% 8.17%
30-Day Standardized Yield(5) 4.74% 4.36%
Taxable Equivalent Yield(4) 8.33% 7.66%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
48 Past performance does not guarantee future results.
<PAGE>
MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Best quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt-edged." Interest payments are protected by a
large or exceptionally stable margin, and principal is secure. Although the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what generally are known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Possess many favorable investment attributes and are considered upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba: Contain speculative elements. Often the protection of interest and principal
payments may be very moderate and, thereby, not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
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.
49
<PAGE>
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: In default and payment of interest and/or repayment of principal is in
arrears.
50
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ALABAMA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ----------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.62 $ 11.68 $ 11.98 $ 11.73 $ 11.73 $ 11.31
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .29 .61 .62 .64 .65 .66
Net realized and unrealized gains (losses) .. .38 (1.06) (.25) .36 .01 .42
----------------------------------------------------------------------------
Total from investment operations .............. .67 (.45) .37 1.00 .66 1.08
----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.29) (.60) (.62) (.65) (.66) (.66)
In excess of net investment income .......... (.02) -- --(e) -- -- --
Net realized gains .......................... -- (.01) (.05) (.10) -- --
----------------------------------------------------------------------------
Total distributions ........................... (.31) (.61) (.67) (.75) (.66) (.66)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.98 $ 10.62 $ 11.68 $ 11.98 $ 11.73 $ 11.73
============================================================================
Total return(b) ............................... 6.46% (3.92)% 3.21% 8.79% 5.84% 9.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $207,795 $203,256 $238,670 $216,982 $ 193,466 $185,981
Ratios to average net assets:
Expenses .................................... .73%(c) .72% .71% .72% .71% .72%
Net investment income ....................... 5.42%(c) 5.46% 5.23% 5.39% 5.62% 5.69%
Portfolio turnover rate ....................... 7.52% 20.99% 8.67% 10.44% 15.47% 12.39%
CLASS C
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.68 $ 11.74 $ 12.04 $ 11.78 $ 11.77 $ 11.36
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .26 .55 .56 .58 .59 .49
Net realized and unrealized gains (losses) .. .38 (1.06) (.25) .36 .01 .41
----------------------------------------------------------------------------
Total from investment operations .............. .64 (.51) .31 .94 .60 .90
----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.27) (.54) (.56) (.58) (.59) (.49)
In excess of net investment income .......... (.01) -- --(e) -- -- --
Net realized gains .......................... -- (.01) (.05) (.10) -- --
Total distributions ........................... (.28) (.55) (.61) (.68) (.59) (.49)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.04 $ 10.68 $ 11.74 $ 12.04 $ 11.78 $ 11.77
============================================================================
Total return(b) ............................... 6.14% (4.46)% 2.62% 8.23% 5.28% 8.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 14,330 $ 14,056 $ 14,895 $ 9,469 $ 5,683 $ 1,662
Ratios to average net assets:
Expenses .................................... 1.28%(c) 1.27% 1.27% 1.29% 1.28% 1.29%(c)
Net investment income ....................... 4.87%(c) 4.91% 4.67% 4.80% 5.05% 5.09%(c)
Portfolio turnover rate ....................... 7.52% 20.99% 8.67% 10.44% 15.47% 12.39%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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 Class C, respectively.
See notes to financial statements. 51
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.7%
BONDS 96.9%
Alabama Building Renovation Finance Authority Revenue, Refunding, AMBAC Insured, 5.625%, 9/01/24 ... $2,500,000 $2,485,325
Alabama HFA, SFMR,
Series A, GNMA Secured, 7.50%, 10/01/10 ........................................................ 490,000 499,423
Series A-1, GNMA Secured, 6.50%, 4/01/17 ....................................................... 3,280,000 3,397,096
Series A-2, GNMA Secured, 6.80%, 4/01/25 ....................................................... 1,160,000 1,207,769
Series C, GNMA Secured, 7.45%, 10/01/21 ........................................................ 285,000 288,044
Series C-2, GNMA Secured, 7.75%, 4/01/22 ....................................................... 555,000 566,394
Series D-2, GNMA Secured, 5.75%, 10/01/23 ...................................................... 1,900,000 1,883,128
Alabama State Docks Department Docks Facilities Revenue,
MBIA Insured, 6.30%, 10/01/21 .................................................................. 4,500,000 4,696,110
Refunding, MBIA Insured, 5.50%, 10/01/22 ....................................................... 1,000,000 992,380
Alabama State IDA, Solid Waste Disposal Revenue, Pine City Fiber Co., 6.45%, 12/01/23 .............. 2,000,000 1,943,540
Alabama Water Pollution Control Authority Revolving Fund Loan, Series B, Pre-Refunded, 7.75%,
8/15/12 ........................................................................................ 2,770,000 2,795,290
Alabaster Water and Gas Board Revenue, AMBAC Insured, 6.35%, 9/01/14 ............................... 2,215,000 2,346,660
Alexander City Utility Revenue, wts., Refunding, FSA Insured, 6.20%, 8/15/10 ....................... 2,000,000 2,109,560
Athens Electric Revenue, wts., MBIA Insured, 6.00%, 6/01/25 ........................................ 1,000,000 1,026,030
Athens Water and Sewer Revenue, wts., AMBAC Insured, 6.10%, 8/01/18 ................................ 1,500,000 1,547,970
Auburn Governmental Utility Services Corp. Wastewater Treatment Revenue, Merscot-Auburn LP Project,
FGIC Insured, 7.30%, 1/01/12 ................................................................... 1,330,000 1,361,455
Auburn University General Fee Revenue, Refunding, 7.00%, 6/01/11 ................................... 2,000,000 2,072,100
Baldwin County Eastern Shore Health Care Authority Hospital Revenue, 5.75%, 4/01/27 ................ 1,000,000 788,180
Bessemer Medical Clinic Board Revenue, Bessemer Carraway Center, Refunding, Series A, MBIA Insured,
7.25%, 4/01/15 ................................................................................. 1,000,000 1,021,530
Birmingham Baptist Medical Center Special Care Facilities Financing Authority Revenue, Baptist
Health System Inc., Refunding, MBIA Insured,
5.875%, 11/15/19 ............................................................................... 3,500,000 3,534,755
7.00%, 1/01/21 ................................................................................. 1,870,000 1,920,397
5.875%, 11/15/26 ............................................................................... 2,000,000 2,012,060
Birmingham GO, Refunding, Series B, 6.25%, 4/01/16 ................................................. 1,000,000 1,035,880
Birmingham Southern College Private Educational Building Authority Tuition, Refunding, 5.35%,
12/01/19 ....................................................................................... 1,000,000 954,840
Birmingham Special Care Facilities Financing Authority Revenue,
Health Care, Medical Center East, MBIA Insured, 7.00%, 7/01/12 ................................. 1,200,000 1,244,628
Medical Center East, Refunding, MBIA Insured, 7.25%, 7/01/15 ................................... 2,000,000 2,015,080
Birmingham Water and Sewer Revenue, wts., Series A, 4.75%, 1/01/29 ................................. 1,860,000 1,601,851
Birmingham-Jefferson Civic Center Authority, Special Tax, Capital Outlay,
7.40%, 1/01/08 ................................................................................. 285,000 287,879
7.25%, 1/01/12 ................................................................................. 640,000 645,734
Camden IDB, PCR, Facilities Revenue, MacMillian Bloedel Project, Refunding, Series A, 7.75%,
5/01/09 ........................................................................................ 3,250,000 3,324,198
Clarke and Mobile Counties, Gas District Revenue, AMBAC Insured, 5.875%, 12/01/23 .................. 4,000,000 4,077,040
Coffee County PBA, Building Revenue, wts., FSA Insured, 6.10%, 9/01/16 ............................. 1,000,000 1,053,530
Colbert County Health Care Authority, Helen Keller Hospital, Refunding, 8.75%, 6/01/09 ............. 1,750,000 1,810,130
Courtland IDB,
Environmental Improvement Revenue, Champion International Corp. Project, Refunding, 6.40%, 11/01/26 2,000,000 1,999,780
Solid Waste Disposal Revenue, Champion International Corp. Project, Series A, 6.50%, 9/01/25 ... 5,000,000 4,957,250
Courtland IDBR, Champion International Corp., Refunding, Series A, 7.20%, 12/01/13 ................. 4,000,000 4,180,800
Culman and Jefferson County Gas District Revenue, MBIA Insured, 5.85%, 7/01/24 ..................... 2,000,000 2,051,320
Fairfield GO, wts., AMBAC Insured, Pre-Refunded, 6.30%, 6/01/22 .................................... 3,000,000 3,151,710
Fairfield IDB, Environmental Improvement Revenue, USX Corp. Project, Refunding,
5.45%, 9/01/14 ................................................................................. 2,000,000 1,888,220
Series A, 6.70%, 12/01/24 ...................................................................... 3,500,000 3,603,320
Florence Electric Revenue, wts., FSA Insured, 5.25%, 6/01/19 ....................................... 1,415,000 1,385,158
Gadsden HDC, MFR, Refunding, Series A, 7.00%, 1/01/22 .............................................. 1,565,000 1,577,567
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 .......................................... 1,000,000 1,056,700
Gulf Shores GO, Refunding, wts., AMBAC Insured, 6.00%, 9/01/21 ..................................... 1,935,000 2,000,887
Houston County Health Care Authority Revenue,
AMBAC Insured, 6.125%, 10/01/25 ................................................................ 1,000,000 1,029,080
AMBAC Insured, 6.25%, 10/01/30 ................................................................. 3,150,000 3,273,858
Southeast Medical Center, MBIA Insured, 6.125%, 10/01/12 ....................................... 2,070,000 2,141,995
Huntsville Solid Waste Disposal Authority and Resource Recovery Revenue, FGIC Insured, 7.00%,
10/01/14 ....................................................................................... 230,000 234,975
</TABLE>
52
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Jackson IDBR, Solid Waste, Boise Cascade, Refunding, 5.70%, 12/01/27 ............................. $ 4,150,000 $ 3,633,035
Jasper County Waterworks and Sewer Board Water and Sewer Revenue, AMBAC Insured, 6.15%, 6/01/14 .. 1,000,000 1,047,010
Jefferson County Sewer Revenue,
Capital Improvement wts., Series A, FGIC Insured, 5.375%, 2/01/36 .............................. 5,000,000 4,782,850
Capital Improvement wts., Series A, FGIC Insured, 5.125%, 2/01/39 .............................. 3,430,000 3,153,611
wts., ETM, 7.50%, 9/01/13 ...................................................................... 200,000 202,870
wts., Series D, FGIC Insured, 5.75%, 2/01/27 ................................................... 6,000,000 6,079,380
Lauderdale County and Florence Health Care Authority Revenue GO, Coffee Health Group, Series A,
MBIA Insured, 5.375%, 7/01/29 .................................................................. 5,000,000 4,730,400
Madison GO, wts.,
MBIA Insured, 6.00%, 4/01/23 ................................................................... 2,000,000 2,055,520
Series B, MBIA Insured, 6.25%, 2/01/15 ......................................................... 1,560,000 1,639,591
Marshall County Health Care Authority Hospital Revenue,
Boaz-Albertville Medical Center, Refunding, 6.50%, 1/01/18 ..................................... 10,810,000 10,229,611
Guntersville-Arab Medical Center, Refunding, 7.60%, 10/01/07 ................................... 2,530,000 2,634,565
McIntosh IDB, Environmental Improvement Revenue, Refunding, Series C, 5.375%, 6/01/28 ............ 3,000,000 2,663,700
Mobile Airport Authority Revenue, Mae Project, 7.375%, 11/01/12 .................................. 1,000,000 1,023,260
Mobile Commission of Water and Sewer Revenue, Refunding, 6.50%, 1/01/09 .......................... 1,500,000 1,563,810
Mobile Housing Assistance Corp. MFHR, Refunding, Series A, FSA Insured, 7.625%, 2/01/21 .......... 1,340,000 1,354,284
(b)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 6,152,460
Morgan County Decatur Health Care Authority Hospital Revenue, Decatur General Hospital, Refunding,
Connie Lee Insured, 6.375%, 3/01/24 ............................................................ 5,750,000 5,971,663
Moulton Waterworks Board Water Revenue, Series A, 6.30%, 1/01/18 ................................. 1,500,000 1,458,300
Muscle Shoals GO, Refunding, wts., MBIA Insured,
5.80%, 8/01/16 ................................................................................. 1,725,000 1,785,686
5.90%, 8/01/25 ................................................................................. 7,000,000 7,159,460
Oneonta Utilities Board Utility Revenue, FSA Insured, 6.90%, 11/01/24 ............................ 230,000 249,120
Oxford GO, School wts., AMBAC Insured, 6.00%, 5/01/30 ............................................ 4,275,000 4,431,251
Phoenix County IDB, Environmental Improvement Revenue, Mead Coated Board Project, Refunding,
Series A, 5.30%, 4/01/27 ....................................................................... 8,300,000 7,361,104
Piedmont IDBR, Springs Industrial Project, 8.25%, 9/01/10 ........................................ 780,000 804,445
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ................................................................................. 5,000 5,019
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation, Refunding,
7.875%, 10/01/04 ............................................................................... 300,000 303,840
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ............ 4,000,000 3,684,760
Russellville GO, wts., Refunding, MBIA Insured, 5.75%, 12/01/26 .................................. 2,500,000 2,535,750
St. Clair County Board of Education, School Tax Anticipation wts., Series C, FSA Insured,
5.85%, 2/01/29 ................................................................................. 4,815,000 4,893,436
Sylacauga GO, wts., AMBAC Insured, 5.50%, 6/01/25 ................................................ 1,700,000 1,681,708
University of North Alabama Revenue, General Fee, Series A, FSA Insured, 5.375%, 11/01/17 ........ 4,395,000 4,396,319
Valley Special Care Facilities Financing Authority Revenue, Lanier Memorial Hospital, Series A,
5.65%, 11/01/22 ................................................................................ 3,465,000 2,793,067
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ....................................................................................... 1,700,000 1,695,222
10/01/22 ....................................................................................... 2,300,000 2,152,224
Warrior River Water Authority Revenue, FSA Insured,
5.40%, 8/01/29 ................................................................................. 4,735,000 4,634,996
5.50%, 8/01/34 ................................................................................. 4,250,000 4,093,429
Wilsonville IDB, PCR, Southern Electric Generating System, Refunding, Series C, MBIA Insured,
6.75%, 2/01/15 ................................................................................. 3,500,000 3,597,334
------------
TOTAL BONDS ...................................................................................... 215,232,696
------------
ZERO COUPON BONDS .8%
Alexander City Capital Appreciation, wts., Asset Guaranteed,
5/01/23 ........................................................................................ 1,790,000 458,884
5/01/24 ........................................................................................ 1,790,000 431,139
5/01/25 ........................................................................................ 1,790,000 404,988
5/01/26 ........................................................................................ 1,790,000 380,339
------------
TOTAL ZERO COUPON BONDS .......................................................................... 1,675,350
------------
TOTAL LONG TERM INVESTMENTS (COST $220,575,366) .................................................. 216,908,046
------------
</TABLE>
53
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)SHORT TERM INVESTMENTS 1.0%
North Alabama Environmental Improvement Authority Atlanta PCR, Reynolds Metals, Daily VRDN and Put,
4.35%, 12/01/00 ..................................................................................... $800,000 $ 800,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and Put,
3.75%, 12/01/15 .................................................................................... 100,000 100,000
Stevenson IDB, Environmental Improvement Revenue, The Mead Corp. Project, Refunding, Daily VRDN and
Put, 4.25%, 11/01/16 ............................................................................... 500,000 500,000
West Jefferson IDB, PCR, Alabama Power Co. Project, Refunding, Daily VRDN and Put, 4.30%, 6/01/28 ..... 900,000 900,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,300,000) ........................................................ 2,300,000
------------
TOTAL INVESTMENTS ($222,875,366) 98.7% ................................................................ 219,208,046
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................................... 2,917,236
------------
NET ASSETS 100.0% ..................................................................................... $222,125,282
============
</TABLE>
See glossary of terms on page 96.
(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) See Note 6 regarding defaulted securities.
54 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FLORIDA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 -------------------------------------------------------------------
CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.89 $11.91 $11.87 $11.59 $11.69 $11.35
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .31 .61 .62 .64 .67 .69
Net realized and unrealized gains (losses) .. .39 (1.02) .05 .30 (.08) .34
-----------------------------------------------------------------------------------
Total from investment operations .............. .70 (.41) .67 .94 .59 1.03
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.31) (.61) (.62)(e) (.65) (.69) (.69)
Net realized gains .......................... -- --(f) (.01) (.01) -- --
-----------------------------------------------------------------------------------
Total distributions ........................... (.31) (.61) (.63) (.66) (.69) (.69)
-----------------------------------------------------------------------------------
Net asset value, end of period ................ $11.28 $10.89 $11.91 $11.87 $11.59 $11.69
===================================================================================
Total return(b) ............................... 6.47% (3.54)% 5.75 8.37% 5.20% 9.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $1,499,969 $1,509,624 $1,785,720 $1,650,068 $1,458,087 $1,353,541
Ratios to average net assets:
Expenses .................................... 62%(c) 62% 61% 61% 60% 60%
Net investment income ....................... 5.53%(c) 5.37% 5.19% 5.45% 5.78% 5.93%
Portfolio turnover rate ....................... 6.71% 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 .......... $10.90 $10.83
--------------------------
Income from investment operations:
Net investment income(a) .................... .27 .05
Net realized and unrealized gains ........... .41 .07
--------------------------
Total from investment operations .............. .68 .12
--------------------------
Less distributions from net investment
income: ..................................... (.27) (.05)
--------------------------
Net asset value, end of period ................ $11.31 $10.90
==========================
Total return(b) ............................... 6.34% 1.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $2,708 $304
Ratios to average net assets:
Expenses .................................... 1.18%(c) 1.17%(c)
Net investment income ....................... 4.95%(c) 5.32%(c)
Portfolio turnover rate ....................... 6.71% 26.39%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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.
55
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN FLORIDA TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ------------------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.98 $12.01 $11.96 $11.67 $11.76 $11.37
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .28 .55 .55 .60 .60 .52
Net realized and unrealized gains (losses) .. .40 (1.04) .06 .29 (.07) .38
--------------------------------------------------------------------------------
Total from investment operations .............. .68 (.49) .61 .89 .53 .90
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.28) (.54) (.55)(e) (.59) (.62) (.51)
Net realized gains .......................... -- --(f) (.01) (.01) -- --
--------------------------------------------------------------------------------
Total distributions ........................... (.28) (.54) (.56) (.60) (.62) (.51)
--------------------------------------------------------------------------------
Net asset value, end of period ................ $11.38 $10.98 $12.01 $11.96 $11.67 $11.76
===============================================================================
Total return(b) ............................... 6.22% (4.14)% 5.21% 7.80% 4.65% 8.05%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $69,859 $72,135 $82,596 $56,027 $23,556 $7,644
Ratios to average net assets:
Expenses .................................... 1.18%(c) 1.17% 1.17% 1.17% 1.17% 1.18%(c)
Net investment income ....................... 4.98%(c) 4.83% 4.63% 4.88% 5.17% 5.33%(c)
Portfolio turnover rate ....................... 6.71% 26.39% 7.66% 5.60% 12.00% 11.78%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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.
56 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 100.0%
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 $ 6,878,525
Shands Teaching Hospital, Series A, MBIA Insured, 5.80%, 12/01/26 ............................ 10,000,000 10,136,100
Bay County Hospital System Revenue, Bay Medical Center Project, Pre-Refunded, 8.00%, 10/01/12 .... 11,205,000 12,602,824
Bay County Resource Recovery Revenue,
Series A, MBIA Insured, Pre-Refunded, 6.60%, 7/01/11 ......................................... 3,710,000 3,925,514
Series B, MBIA Insured, Pre-Refunded, 6.60%, 7/01/12 ......................................... 18,150,000 19,204,334
Bay County Water System Revenue, Refunding, AMBAC Insured,
6.50%, 9/01/07 ............................................................................... 525,000 556,306
6.60%, 9/01/11 ............................................................................... 675,000 716,519
Brevard County Health Facilities Authority Revenue, Wuesthoff Memorial Hospital, Series B,
Pre-Refunded, 7.20%, 4/01/13 ................................................................. 5,000,000 5,302,450
Brevard County HFA, SFMR,
Multi-County Program, GNMA Secured, 6.40%, 9/01/30 ........................................... 3,000,000 3,105,540
Refunding, Series B, FSA Insured, 7.00%, 3/01/13 ............................................. 600,000 620,184
Brevard County School Board COP, Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11 .............. 4,415,000 4,602,108
Broward County Educational Facilities Authority Revenue, Nova Southeastern University Project,
Refunding, Connie Lee Insured, 6.125%, 4/01/17 ............................................... 2,250,000 2,341,710
(b)Broward County Health Facilities Authority Revenue, Catholic Health Services, Refunding,
5.50%, 8/15/20 ............................................................................... 9,360,000 9,171,022
Broward County HFA, MFHR,
Bridgewater Place Apartments Project, Series A, 5.45%, 10/01/34 .............................. 3,000,000 2,626,110
Cross Keys Apartments Project, Series A, 5.80%, 10/01/33 ..................................... 2,000,000 1,877,360
Cross Keys Apartments Project, Series A, 5.85%, 4/01/39 ...................................... 5,815,000 5,437,316
Stirling Apartments Phase II, Series A, 5.35%, 10/01/29 ...................................... 1,000,000 872,780
Stirling Apartments Phase II, Series A, 5.40%, 4/01/39 ....................................... 2,000,000 1,730,540
Broward County HFAR,
Nursing Home, Refunding, 7.40%, 8/15/10 ...................................................... 2,080,000 2,180,360
Nursing Home, Refunding, 7.50%, 8/15/20 ...................................................... 1,475,000 1,547,511
Series D, 6.90%, 6/01/09 ..................................................................... 220,000 228,259
Series D, 7.375%, 6/01/21 .................................................................... 630,000 650,960
Broward County Professional Sports Facilities Tax Revenue, Civic Arena Project, Series A, MBIA
Insured,
5.75%, 9/01/21 ............................................................................... 5,000,000 5,089,050
5.625%, 9/01/28 .............................................................................. 10,000,000 10,042,800
Broward County Resource Recovery Revenue,
Broward Waste Energy Co., LP, North Project, Series 1984, 7.95%, 12/01/08 .................... 5,295,000 5,443,895
SES Waste Energy Co., LP, South Project, 7.95%, 12/01/08 ..................................... 9,545,000 9,813,405
Broward County School Board COP, Series C, AMBAC Insured, 5.375%, 7/01/17 ........................ 5,000,000 4,991,350
Cape Canaveral Hospital District Revenue COP,
AMBAC Insured, 6.875%, 1/01/21 ............................................................... 1,500,000 1,541,910
Refunding, 5.25%, 1/01/28 .................................................................... 3,500,000 2,675,295
Celebration CDD, Special Assessment,
MBIA Insured, 6.00%, 5/01/10 ................................................................. 3,785,000 3,981,366
MBIA Insured, 6.10%, 5/01/16 ................................................................. 2,750,000 2,848,615
Series A, MBIA Insured, 5.50%, 5/01/18 ....................................................... 1,680,000 1,691,357
Citrus County PCR, Florida Power Corp., Crystal River, Refunding,
Series A, 6.625%, 1/01/27 .................................................................... 11,100,000 11,375,058
Series B, 6.35%, 2/01/22 ..................................................................... 20,400,000 20,828,196
Clay County HFAR, SFM,
Multi-County Program, GNMA Secured, 5.30%, 10/01/29 .......................................... 4,710,000 4,424,762
Series A, GNMA Secured, 7.45%, 9/01/23 ....................................................... 1,310,000 1,341,440
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A, FHA Insured,
6.50%, 10/01/25 .............................................................................. 2,770,000 2,851,355
Collier County Water and Sewer District Revenue, Sewer Assessment, East and South Naples Project,
MBIA Insured, 7.15%, 10/01/11 ................................................................ 80,000 80,471
Coral Springs ID, Special Water and Sewer Project, 6.75%, 11/01/02 ............................... 1,700,000 1,710,999
Crossing at Fleming Island CDD, Florida Special Assessment Revenue, Refunding, Series B, MBIA
Insured, 5.80%, 5/01/16 ...................................................................... 6,000,000 6,226,500
Dade County Aviation Revenue, Miami International Airport,
Series B, FSA Insured, 5.125%, 10/01/22 ...................................................... 4,750,000 4,426,145
Series C, FSA Insured, 5.125%, 10/01/27 ...................................................... 9,550,000 8,959,046
</TABLE>
57
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Dade County HFA, SFMR,
Refunding, Series D, FSA Insured, 6.95%, 12/15/12 ........................................... $ 240,000 $ 248,198
Refunding, Series E, GNMA Secured, 7.00%, 3/01/24 ........................................... 245,000 251,221
Series A, GNMA Secured, 7.50%, 9/01/13 ...................................................... 1,735,000 1,769,700
Series A, GNMA Secured, 7.10%, 3/01/17 ...................................................... 1,215,000 1,247,137
Series B, GNMA Secured, 7.25%, 9/01/23 ...................................................... 210,000 215,437
Dade County IDA, Solid Waste Disposal Revenue, Florida Power and Light Co. Project,
7.15%, 2/01/23 .............................................................................. 5,695,000 5,858,845
Dade County Special Obligation, Courthouse Center Project, Pre-Refunded, 6.10%, 4/01/20 ....... 5,000,000 5,415,000
Dade County Water and Sewer System Revenue, FGIC Insured,
5.75%, 10/01/22 ............................................................................. 5,000,000 5,069,250
5.50%, 10/01/25 ............................................................................. 20,000,000 19,837,800
5.25%, 10/01/26 ............................................................................. 21,000,000 20,220,270
Dovera CDD, Special Assessment Revenue,
7.625%, 5/01/03 ............................................................................. 150,000 154,476
7.875%, 5/01/12 ............................................................................. 715,000 740,904
Duval County HFA,
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.60%, 7/01/17 .................. 1,000,000 1,006,520
MFHR, Mortgage, Eagles Point North, Series A, MBIA Insured, 5.70%, 7/01/27 .................. 2,000,000 1,983,520
SFMR, GNMA Secured, 5.20%, 10/01/19 ......................................................... 3,000,000 2,860,320
SFMR, GNMA Secured, 5.30%, 4/01/31 .......................................................... 1,680,000 1,555,814
SFMR, Series 1988, GNMA Secured, 8.625%, 12/01/19 ........................................... 15,000 16,065
SFMR, Series C, GNMA Secured, 7.70%, 9/01/24 ................................................ 630,000 650,160
Enterprise Community Development District, Florida Water and Sewer Revenue, MBIA Insured,
5.50%, 5/01/26 .............................................................................. 3,000,000 2,991,570
Escambia County Health Facilities Authority Health Facility Revenue,
Baptist Hospital and Baptist Manor, 5.125%, 10/01/19 ........................................ 8,750,000 7,294,088
Baptist Hospital and Baptist Manor, Pre-Refunded, 6.75%, 10/01/14 ........................... 3,415,000 3,703,738
Baptist Hospital and Baptist Manor, Refunding, 6.75%, 10/01/14 .............................. 770,000 784,461
Florida Health Care Facility Loan VHA Project, AMBAC Insured, 5.95%, 7/01/20 ................ 10,000,000 10,366,200
Escambia County Health Facilities Authority Revenue, Ascension Health Credit, Refunding,
Series A-1, AMBAC Insured, 5.75%, 11/15/29 .................................................. 25,000,000 25,383,000
Escambia County HFA, SFMR, Multi-County Program,
GNMA Secured, 5.20%, 4/01/32 ................................................................ 7,500,000 6,838,275
Series A, MBIA Insured, 6.40%, 10/01/30 ..................................................... 10,000,000 10,353,700
Series C, GNMA Secured, 5.80%, 10/01/19 ..................................................... 1,365,000 1,369,286
Series C, GNMA Secured, 7.40%, 10/01/23 ..................................................... 3,955,000 4,045,214
Escambia County Revenue, Series B, Sub Series 1, MBIA Insured, 7.20%, 1/01/15 ................. 2,210,000 2,249,891
Escambia County School Board COP, FSA Insured, 6.375%, 2/01/12 ................................ 1,210,000 1,239,621
First Florida Governmental Financing Commission Revenue, AMBAC Insured, 5.75%, 7/01/16 ........ 3,700,000 3,800,307
Florida HFA,
General Mortgage, Refunding, Series A, 6.40%, 6/01/24 ....................................... 3,500,000 3,600,065
Homeowner Mortgage, Series 1, MBIA Insured, 5.625%, 7/01/17 ................................. 4,930,000 5,016,965
Homeownership Revenue, Series G-1, GNMA Secured, 7.80%, 9/01/10 ............................. 375,000 382,500
Homeownership Revenue, Series G-1, GNMA Secured, 7.90%, 3/01/22 ............................. 1,905,000 1,943,100
MF Housing, Citrus Meadows Apartments Project, Series Q, GNMA Secured, 7.65%, 6/20/31 ....... 4,000,000 4,051,600
MF Housing, Driftwood Terrace Project, Series I, 7.65%, 12/20/31 ............................ 3,435,000 3,504,250
MFHR, Refunding, Series A, 6.95%, 10/01/21 .................................................. 2,900,000 2,930,682
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 ................................ 5,000,000 4,886,650
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 .............................. 2,000,000 1,954,740
Riverfront Apartments, Series A, AMBAC Insured, 6.25%, 4/01/37 .............................. 1,300,000 1,341,652
SFMR, Series A, 8.60%, 7/01/16 .............................................................. 200,000 200,242
Florida HFC Revenue,
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.65%, 6/01/19 .......................... 1,250,000 1,255,038
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.80%, 12/01/38 ......................... 5,000,000 4,976,600
Homeowner Mortgage, Series 4, FSA Insured, 6.25%, 7/01/22 ................................... 5,600,000 5,778,920
Housing Deer Meadows Apartments, Series R, FNMA Insured, 6.00%, 5/01/32 ..................... 3,505,000 3,553,054
Housing-Waverly Apartments, Series C-1, FSA Insured, 6.50%, 7/01/40 ......................... 3,000,000 3,153,930
</TABLE>
58
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Florida Municipal Loan Council Revenue, Series B, MBIA Insured, 5.75%, 11/01/29 ............. $ 1,500,000 $ 1,526,415
Florida Ports Financing Commission Revenue, State Transportation Trust Fund-Intermodal
Program, FGIC Insured, 5.50%, 10/01/23 .................................................... 7,000,000 6,900,740
Florida State Board of Education Capital Outlay,
GO, Public Education, Series C, FGIC Insured, 5.75%, 6/01/29 .............................. 5,000,000 5,091,750
Public Education, Refunding, Series D, 5.75%, 6/01/22 ..................................... 25,900,000 26,501,657
Public Education, Refunding, Series D, 6.00%, 6/01/23 ..................................... 15,000,000 16,189,500
Public Education, Series B, 5.875%, 6/01/24 ............................................... 5,000,000 5,090,700
Public Education, Series F, FGIC Insured, 5.50%, 6/01/26 .................................. 10,000,000 9,944,600
Florida State Board Regent Housing Revenue, University of Central Florida, AMBAC Insured,
5.75%, 10/01/29 ........................................................................... 8,650,000 8,801,721
Florida State Board Registered Housing Revenue, University of Florida, FGIC Insured,
5.75%, 7/01/25 ............................................................................ 3,400,000 3,471,094
5.25%, 7/01/30 ............................................................................ 2,060,000 1,973,130
Florida State Community Services Corp. Walton County Water and Sewer Revenue, South Walton
County Regional Utilities, 7.00%, 3/01/18 ................................................. 2,550,000 2,679,617
Florida State Correctional Privatization Commission COP, Correctional Facility Bay Project,
MBIA Insured, 6.00%, 8/01/15 .............................................................. 6,000,000 6,244,020
Florida State Department of Corrections COP, Okeechobee Correctional Facility, AMBAC Insured,
6.25%, 3/01/15 ............................................................................ 2,960,000 3,137,274
Florida State Department of General Services Division Facilities Management Revenue,
Facilities Pool, Series B, FSA Insured, 5.50%, 9/01/28 .................................... 10,000,000 9,957,400
Florida State Department of Transportation GO, Right of Way,
Acquisition and Bridge, 5.375%, 7/01/26 ................................................... 5,000,000 4,887,000
Series B, 5.00%, 7/01/27 .................................................................. 5,000,000 4,605,200
Florida State Division Bond Finance Department General Services Revenues, Department of
Natural Resources Preservation 2000, AMBAC Insured, Pre-Refunded, 6.75%, 7/01/13 .......... 3,000,000 3,118,260
Florida State Mid-Bay Bridge Authority Revenue,
Exchangeable, 6.05%, 10/01/22 ............................................................. 7,000,000 6,949,110
Exchangeable, Series A, 5.95%, 10/01/13 ................................................... 13,505,000 13,667,465
Exchangeable, Series D, 6.10%, 10/01/22 ................................................... 17,240,000 17,303,443
Series A, 8.00%, 10/01/06 ................................................................. 2,600,000 2,755,220
Series A, 7.50%, 10/01/17 ................................................................. 14,250,000 15,030,473
Series A, ETM, 6.875%, 10/01/22 ........................................................... 6,000,000 7,015,260
Florida State Turnpike Authority Revenue, Department of Transportation, Series A,
AMBAC Insured, Pre-Refunded, 7.125%, 7/01/18 .............................................. 8,780,000 9,152,272
FGIC Insured, 5.50%, 7/01/21 .............................................................. 10,000,000 10,018,900
Gainesville Utilities Systems Revenue,
Series A, 5.20%, 10/01/26 ................................................................. 7,590,000 7,225,908
Series B, 6.00%, 10/01/17 ................................................................. 3,500,000 3,547,950
Gateway Services District Revenue, Transportation Roadway Service Charges, 8.75%, 5/01/14 ... 7,775,000 8,400,032
Hialeah Housing Authority Revenue, Affordable Housing Program, Refunding, GNMA Secured,
5.30%, 12/20/18 ........................................................................... 1,240,000 1,214,320
Highlands County Health Facilities Authority Revenue, Adventist Health Systems,
5.25%, 11/15/20 ........................................................................... 11,000,000 9,454,060
Refunding, 5.25%, 11/15/28 ................................................................ 2,750,000 2,258,878
Hillsborough County Aviation Authority Revenue,
Special Purpose, Delta Airlines Inc., Refunding, 7.75%, 1/01/24 ........................... 14,945,000 15,209,078
Tampa International Airport, Series B, FGIC Insured, 5.875%, 10/01/23 ..................... 5,000,000 5,130,450
Hillsborough County Capital Improvement Revenue, County Center Project, 2nd Series,
Pre-Refunded,
6.625%, 7/01/12 ........................................................................... 8,300,000 8,778,246
6.75%, 7/01/22 ............................................................................ 1,250,000 1,324,725
Hillsborough County IDAR, Colonial Penn Insurance Project, 7.35%, 8/01/13 ................... 5,300,000 5,545,814
Hillsborough County Port District Revenue, Tampa Port Authority, Pre-Refunded,
8.25%, 6/01/09 ............................................................................ 3,000,000 3,086,280
Hillsborough County School Board COP, Master Lease Program, Series A, MBIA Insured,
5.25%, 7/01/22 ............................................................................ 10,000,000 9,646,800
Hillsborough County Utilities Revenue, Refunding,
Series A, 6.625%, 8/01/11 ................................................................. 10,400,000 10,781,264
Series A, 7.00%, 8/01/14 .................................................................. 5,515,000 5,728,761
Series A, 6.50%, 8/01/16 .................................................................. 3,000,000 3,095,910
Series B, 6.50%, 8/01/16 .................................................................. 1,000,000 1,031,970
Indian River County Hospital District Revenue, Refunding, FSA Insured, 5.70%, 10/01/15 ...... 1,000,000 1,025,280
</TABLE>
59
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Jacksonville Capital Improvement Revenue Certificates, Gator Bowl Project, AMBAC Insured,
5.875%, 10/01/25 ........................................................................ $ 5,000,000 $ 5,111,300
Jacksonville Electric Authority Revenue,
Water and Sewer, Series B, FGIC Insured, 5.40%, 10/01/20 ................................ 3,000,000 2,988,960
Water and Sewer System, Series A, 6.125%, 10/01/39 ...................................... 20,330,000 20,823,816
Jacksonville Health Facilities Authority IDR, National Benevolent-Cypress Village, Series A,
7.05%, 3/01/24 .......................................................................... 500,000 499,415
7.10%, 3/01/30 .......................................................................... 1,220,000 1,214,010
Jacksonville Hospital Revenue, University Medical Center Inc. Project, Connie Lee Insured,
6.60%, 2/01/21 .......................................................................... 1,750,000 1,817,358
Jupiter Sales Tax Revenue, Series 1990, Pre-Refunded, 7.40%, 9/01/20 ........................ 1,000,000 1,020,000
Kissimmee Water and Sewer Revenue, Refunding, AMBAC Insured, 6.00%, 10/01/15 ................ 5,000,000 5,172,550
Lakeland Hospital System Revenue, Lakeland Regional Health System, Series A, MBIA Insured,
5.50%, 11/15/26 ......................................................................... 10,000,000 9,835,600
Lakeland Utilities Tax Revenue, Refunding and Improvement, Series A, FGIC Insured,
6.00%, 10/01/17 ......................................................................... 4,500,000 4,668,570
Lee County Airport Revenue, Series A, FSA Insured, 6.00%, 10/01/32 .......................... 11,405,000 11,786,611
Lee County Hospital Board of Directors Hospital Revenue, Lee Memorial Health System,
Series A, MBIA Insured, 5.875%, 4/01/24 ................................................. 18,000,000 18,356,940
Lee County IDA, Health Care Facilities Revenue, Shell Point Village Project,
Refunding, Series A, 5.50%, 11/15/29 .................................................... 4,000,000 3,265,880
Series A, 5.50%, 11/15/21 ............................................................... 7,500,000 6,316,875
Lee County IDAR, Bonita Springs Sewer Project, Asset Guaranteed,
7.20%, 11/01/11 ......................................................................... 5,000,000 5,217,450
7.25%, 11/01/20 ......................................................................... 2,000,000 2,076,400
Lee County Solid Waste System Revenue, Series A, MBIA Insured, 7.00%,
10/01/04 ................................................................................ 1,945,000 2,032,019
10/01/05 ................................................................................ 1,175,000 1,227,440
10/01/06 ................................................................................ 1,305,000 1,363,386
10/01/11 ................................................................................ 4,600,000 4,805,804
Lee County Transportation Facilities Revenue, MBIA Insured, 5.75%, 10/01/27 ................. 5,000,000 5,045,950
Leesburg Hospital Revenue, Leesburg Regional Medical Center Project,
Capital Improvement, Series A, Pre-Refunded, 7.375%, 7/01/11 ............................ 1,250,000 1,338,238
Capital Improvement, Series A, Pre-Refunded, 7.50%, 7/01/21 ............................. 2,115,000 2,268,866
Refunding, Series A, 6.125%, 7/01/18 .................................................... 7,000,000 7,003,570
Leesburg Utilities Revenue, Series B, AMBAC Insured, 5.375%, 10/01/28 ....................... 5,000,000 4,889,950
Leon HFA, SFMR, Series A, GNMA Secured, 7.30%, 4/01/21 ...................................... 560,000 573,188
Manatee County HFA, SFMR, Series A, GNMA Secured, 6.85%, 11/01/23 ........................... 3,415,000 3,513,659
Manatee County IDR, Manatee Hospital and Health System Inc.,
ETM, 8.25%, 3/01/01 ..................................................................... 300,000 305,388
Pre-Refunded, 9.25%, 3/01/21 ............................................................ 6,700,000 6,985,018
Manatee County School Board COP, MBIA Insured, Pre-Refunded, 6.125%, 7/01/21 ................ 5,575,000 6,125,977
Martin County Consolidated Utilities System Revenue, Refunding, FGIC Insured,
6.00%, 10/01/24 ......................................................................... 735,000 757,528
Miami Beach Special Obligation, Subordinated, FGIC Insured, ETM, 7.375%, 12/01/08 ........... 2,000,000 2,031,080
(b)Miami Beach Water and Sewer Revenue, AMBAC Insured, 5.00%, 9/01/30 .......................... 7,000,000 6,440,630
Miami-Dade County Educational Facilities Authority Revenue, Series A, AMBAC Insured,
5.75%, 4/01/29 .......................................................................... 10,000,000 10,194,300
Miami-Dade County HFA, MFMR, Villa Esperanza Apartments Project,
5.25%, 10/01/19 ......................................................................... 430,000 411,996
5.40%, 10/01/33 ......................................................................... 1,500,000 1,403,760
Miami-Dade County IDA, IDR, Airis Miami II LLC Project, MBIA Insured, 6.00%, 10/15/25 ....... 4,500,000 4,651,245
Miami-Dade County Special Obligation, sub. lien, Series B, MBIA Insured, 5.00%, 10/01/37 .... 2,345,000 2,109,328
Miramar Wastewater Improvement Assessment Revenue, FGIC Insured, Pre-Refunded,
6.75%, 10/01/25 ......................................................................... 6,500,000 7,120,230
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 ..................... 5,000,000 5,064,050
North Broward Hospital District Revenue, Refunding and Improvement, MBIA Insured,
5.375%, 1/15/24 ......................................................................... 10,000,000 9,708,100
5.75%, 1/15/27 .......................................................................... 19,370,000 19,547,429
North Miami Health Facilities Authority Revenue, Catholic Health Services Obligation
Group, 6.00%,
8/15/16 ................................................................................. 2,000,000 2,042,940
8/15/24 ................................................................................. 1,750,000 1,755,390
North Port Utilities Revenue, FGIC Insured, Pre-Refunded, 6.25%, 10/01/22 ................... 1,500,000 1,584,435
</TABLE>
60
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31, Project 2,
6.75%, 11/01/07 ........................................................................... $ 725,000 $ 759,619
6.625%, 11/01/13 .......................................................................... 1,470,000 1,510,704
Orange County Health Facilities Authority Revenue,
(b)Adventist Health System, 6.375%, 11/15/20 ................................................. 3,000,000 2,967,780
(b)Adventist Health System, 6.50%, 11/15/30 .................................................. 10,750,000 10,664,323
Adventist/Sunbelt, Series A, AMBAC Insured, 6.875%, 11/15/15 .............................. 1,000,000 1,044,470
Mayflower Retirement Project, Refunding, Asset Guaranteed, 5.25%, 6/01/29 ................. 4,200,000 3,883,866
MBIA Insured, 6.00%, 11/01/24 ............................................................. 285,000 289,674
Regional Healthcare System, Series E, 6.00%, 10/01/26 ..................................... 12,000,000 11,859,120
Orange County HFAR,
Refunding, Series A, GNMA Secured, 7.60%, 1/01/24 ......................................... 3,815,000 3,931,853
Series A, GNMA Secured, 7.375%, 9/01/24 ................................................... 410,000 424,100
Orange County Public Services Tax Revenue, FGIC Insured, 6.00%, 10/01/24 ...................... 5,050,000 5,240,890
Orange County Tourist Development Tax Revenue,
AMBAC Insured, 5.50%, 10/01/31 ............................................................ 10,500,000 10,406,865
AMBAC Insured, Pre-Refunded, 7.25%, 10/01/10 .............................................. 3,000,000 3,065,850
Refunding, MBIA Insured, 5.125%, 10/01/20 ................................................. 10,000,000 9,570,700
Orlando and Orange County Expressway Authority Expressway Revenue,
junior lien, FGIC Insured, 5.00%, 7/01/28 ................................................. 30,000,000 27,593,400
senior lien, AMBAC Insured, ETM, 7.625%, 7/01/18 .......................................... 265,000 267,812
Orlando Community RDA, Tax Increment Revenue, Series A,
6.50%, 10/01/11 ........................................................................... 2,155,000 2,237,752
6.75%, 10/01/16 ........................................................................... 2,585,000 2,679,895
Osceola County Gas Tax Revenue, Refunding and Improvement, FGIC Insured, 6.00%, 4/01/13 ....... 3,500,000 3,645,600
Osceola County IDA, Community Provider Pooled Loan Program,
Series A, FSA Insured, 7.75%, 7/01/10 ..................................................... 4,101,000 4,225,178
Series C, FSA Insured, 7.60%, 7/01/10 ..................................................... 795,000 818,699
Osceola County Sales Tax Revenue, FSA Insured, 5.00%, 4/01/24 ................................. 10,000,000 9,256,600
Pace Property Finance Authority Inc. Utility Systems Revenue, Refunding and Improvement,
AMBAC Insured, 6.125%, 9/01/07 ............................................................ 270,000 274,712
AMBAC Insured, 6.25%, 9/01/13 ............................................................. 685,000 703,529
Pre-Refunded, 6.125%, 9/01/07 ............................................................. 730,000 744,600
Pre-Refunded, 6.25%, 9/01/13 .............................................................. 1,860,000 1,897,200
Pre-Refunded, 6.125%, 9/01/17 ............................................................. 840,000 856,800
Palm Beach County Criminal Justice Facilities Revenue, FGIC Insured, 6.00%, 6/01/15 ........... 5,000,000 5,198,250
Palm Beach County Financing Authority MFR, Housing Windsor Park Apartment Project, Series A,
5.90%, 6/01/38 ............................................................................ 1,000,000 945,240
Palm Beach County Health Facilities Authority Retirement Community Revenue, Acts
Retirement-Life Communities, 5.125%, 11/15/29 ............................................. 3,650,000 2,999,680
Palm Beach County HFA, SFM Purchase Revenue, Series B, GNMA Secured, 7.60%, 3/01/23 ........... 3,320,000 3,426,240
Palm Beach County IDR, Lourdes-Noreen McKeen Residence, Geriatric Care Inc. Project,
6.55%, 12/01/16 ........................................................................... 1,755,000 1,798,138
6.625%, 12/01/26 .......................................................................... 4,000,000 4,103,960
Palm Beach County School Board COP, Series A, FGIC Insured, 6.00%, 8/01/22 .................... 5,000,000 5,252,900
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 5,709,950
Pensacola-Westwood Homes Development Corp. Revenue, Mortgage Loan, Refunding, FNMA Insured,
6.40%, 7/15/23 ........................................................................... 945,000 961,887
Pinellas County HFA,
SFHR, Multi-County Program, Series A-1, GNMA Secured, 5.30%, 9/01/30 ...................... 1,500,000 1,375,215
SFMR, Multi-County Program, Series B, GNMA Secured, 6.875%, 8/01/10 ....................... 895,000 917,563
SFMR, Multi-County Program, Series B, GNMA Secured, 7.375%, 2/01/24 ....................... 3,960,000 4,056,466
SFMR, Series A, GNMA Secured, 7.30%, 8/01/22 .............................................. 1,245,000 1,270,037
SFMR, Series A, GNMA Secured, 7.75%, 8/01/23 .............................................. 1,175,000 1,203,153
Pinellas County PCR, Florida Power and Light Co., Refunding, 7.20%, 12/01/14 .................. 12,200,000 12,649,082
</TABLE>
61
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Plantation Health Facilities Authority Revenue, Covenant Retirement Community Inc.,
Pre-Refunded,
7.625%, 12/01/12 ........................................................................... $ 1,500,000 $ 1,630,365
7.75%, 12/01/22 ............................................................................ 3,000,000 3,268,620
Polk County Capital Improvement Revenue, Special Tax, FSA Insured, 5.75%, 12/01/21 ............. 2,350,000 2,410,419
Polk County HFA, Refunding, Series A, GNMA Secured, 7.15%, 9/01/23 ............................. 2,035,000 2,088,032
Polk County IDAR, Solid Waste Disposal Facility, Tampa Electric Co. Project, 5.85%, 12/01/30 ... 20,500,000 20,524,395
Port Everglades Authority Port Improvement Revenue, Series 1986, ETM, 7.50%, 11/01/06 .......... 575,000 644,466
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, MBIA Insured, 5.00%, 7/01/38 ..................................................... 12,800,000 11,918,976
Series B, 6.00%, 7/01/39 ................................................................... 5,000,000 5,263,900
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Revenue,
Cogen Facilities, 6.625%, 6/01/26 .......................................................... 6,000,000 6,317,220
Santa Rosa County Health Facilities Authority Revenue, Gulf Breeze Hospital Inc., Series A,
6.20%, 10/01/14 ............................................................................ 14,350,000 14,190,285
Santa Rosa County IDR, Holley Navarre Water System Project, Refunding, 6.75%, 5/01/24 .......... 4,290,000 4,417,070
Sarasota County Solid Waste System Revenue, AMBAC Insured, 5.50%, 10/01/16 ..................... 5,250,000 5,304,285
Sarasota County Utilities System Revenue,
FGIC Insured, 5.75%, 10/01/27 .............................................................. 18,000,000 18,304,380
Refunding, Series A, FGIC Insured, 5.25%, 10/01/25 ......................................... 9,000,000 8,683,650
Seminole County School Board COP, Series B, MBIA Insured, Pre-Refunded, 6.50%, 7/01/21 ......... 5,000,000 5,409,250
South Florida Water Management District Special Obligation, Land Acquisition Bonds, AMBAC
Insured, 6.00%, 10/01/15 ................................................................... 1,000,000 1,034,370
St. John's County IDA, IDR, Professional Golf Hall of Fame Project, MBIA Insured,
5.80%, 9/01/16 ............................................................................. 4,660,000 4,802,736
St. Lucie County Solid Waste Disposal Revenue, Florida Power and Light Co. Project,
7.15%, 2/01/23 ............................................................................. 7,500,000 7,715,775
St. Lucie West Services District Capital Improvement Revenue, Lake Charles Project, Refunding,
7.50%, 8/01/04 ............................................................................ 1,970,000 1,991,591
St. Lucie West Services District Utility Revenue, senior lien, MBIA Insured, 6.125%, 10/01/32 .. 10,000,000 10,590,800
St. Petersburg Health Facilities Authority Revenue, Allegany Health System, Series A, MBIA
Insured, Pre-Refunded, 7.00%, 12/01/15 ..................................................... 10,500,000 10,968,405
Sunrise Lakes Recreation District, Phase 4,
Refunding, AMBAC Insured, 5.25%, 8/01/24 ................................................... 4,320,000 4,177,094
Series A, Pre-Refunded, 6.75%, 8/01/15 ..................................................... 3,080,000 3,428,317
Series A, Pre-Refunded, 6.75%, 8/01/24 ..................................................... 6,120,000 6,812,111
Sunrise Special Tax District No. 1, Refunding, 6.375%,
11/01/08 ................................................................................... 3,485,000 3,597,217
11/01/21 ................................................................................... 12,390,000 12,781,896
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 .................... 2,550,000 2,471,817
Tallahassee Consolidated Utility System Revenue, Series 1994, 6.20%, 10/01/19 .................. 3,400,000 3,525,154
Tampa Allegheny Health System Revenue, St. Joseph, MBIA Insured, Pre-Refunded,
6.75%, 12/01/17 ............................................................................ 1,180,000 1,237,466
6.50%, 12/01/23 ............................................................................ 7,000,000 7,681,170
Tampa Bay Water Utilities Systems Revenue, FGIC Insured, 5.75%, 10/01/29 ....................... 25,000,000 25,470,500
Tampa Guaranteed Entitlement Revenue, Refunding, AMBAC Insured, 7.15%, 10/01/18 ................ 2,000,000 2,086,140
Tampa-Hillsborough County Expressway Authority Revenue, AMBAC Insured, 5.00%, 7/01/22 .......... 11,500,000 10,745,945
Tampa Sports Authority Revenue,
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.00%, 10/01/15 ................. 1,000,000 1,092,700
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.05%, 10/01/20 ................. 1,715,000 1,865,971
Guaranteed Package, Tampa Bay Arena Project, MBIA Insured, 6.10%, 10/01/26 ................. 2,695,000 2,957,116
Interlock Agreement, Tampa Bay, MBIA Insured, Pre-Refunded, 6.125%, 10/01/26 ............... 6,800,000 7,386,092
Tampa Water and Sewer Revenue,
5.50%, 10/01/29 ............................................................................ 7,000,000 6,939,450
sub. lien, Series A, AMBAC Insured, 7.25%, 10/01/16 ........................................ 1,330,000 1,332,195
Titusville Water and Sewer Revenue, MBIA Insured, Pre-Refunded, 6.20%, 10/01/14 ................ 6,000,000 6,501,060
University Community Hospital Inc. Revenue, FSA Insured, Pre-Refunded,
7.375%, 9/01/07 ............................................................................ 5,000,000 5,100,000
7.50%, 9/01/11 ............................................................................. 5,000,000 5,100,000
Venice Health Care Revenue, Bon Secours Health System Project, MBIA Insured, 5.625%, 8/15/26 ... 4,000,000 3,991,720
Viera East CDD,
Special Assessment, 8.625%, 5/01/14 ........................................................ 10,640,000 11,400,334
Special Assessment, ETM, 7.50%, 5/01/03 .................................................... 1,115,000 1,184,163
Special Assessment, Pre-Refunded, 8.50%, 5/01/04 ........................................... 2,335,000 2,494,177
Special Assessment, Pre-Refunded, 7.50%, 5/01/12 ........................................... 5,225,000 5,576,434
</TABLE>
62
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Viera East CDD, (cont.)
Special Assessment, Refunding, 6.30%, 5/01/26 .............................................. $ 7,355,000 $ 7,345,880
Special Assessment, Refunding, Series A, 6.00%, 5/01/14 .................................... 11,295,000 11,298,501
Special Assessment, Series B, ETM, 6.75%, 5/01/14 .......................................... 7,490,000 7,566,248
Special Assessment, Water Management, Refunding, Series A, 6.50%, 5/01/22 .................. 11,340,000 11,221,951
Special Assessment, Water Management, Series B, 6.50%, 5/01/05 ............................. 465,000 466,242
Special Assessment, Water Management, Series B, 6.50%, 5/01/22 ............................. 4,580,000 4,532,322
Water and Sewer Revenue, 7.875%, 5/01/03 ................................................... 2,195,000 2,246,363
Water and Sewer Revenue, 6.75%, 5/01/09 .................................................... 2,850,000 2,890,385
Volusia County Educational Facility Authority Revenue,
Educational Facilities, Embry Riddle University, Refunding, Series B, AMBAC Insured,
5.25%, 10/15/22 .......................................................................... 3,490,000 3,387,638
Educational Facilities, Stetson University Inc. Project, AMBAC Insured, 5.25%, 6/01/29 ..... 5,000,000 4,792,250
Embry Riddle Aeronautical University, Connie Lee Insured, Pre-Refunded, 6.625%, 10/15/22 ... 500,000 532,200
Volusia County Health Facilities Authority Revenue, Hospital Facilities, Memorial Health
Systems Project, AMBAC Insured, 5.50%, 11/15/26 ............................................ 2,000,000 1,980,640
Volusia County School Board COP, Master Lease Program, FSA Insured, 5.50%, 8/01/24 ............. 5,000,000 4,966,850
West Lake CDD, Special Assessment Revenue, MBIA Insured, 5.75%, 5/01/17 ........................ 1,970,000 2,038,064
West Palm Beach Utility System Revenue, FGIC Insured, 5.50%, 10/01/29 .......................... 5,000,000 4,971,050
Westgate/Belvedere Homes Community RDAR, Series 1992, Pre-Refunded,
6.50%, 11/01/09 ............................................................................ 410,000 419,508
6.60%, 11/01/17 ............................................................................ 1,410,000 1,442,909
-------------
TOTAL BONDS .................................................................................... 1,480,061,481
-------------
ZERO COUPON BONDS 5.9%
Broward County HFAR, SFMR, Refunding, Series B, 4/01/29 ........................................ 8,525,000 1,190,772
Broward County Water and Sewer Utility Revenue, Refunding, Series A, AMBAC Insured, 10/01/08 ... 3,670,000 2,487,122
Clay County HFAR, SFMR, GNMA Secured, 4/01/33 .................................................. 4,560,000 483,497
Dade County Guaranteed Entitlement Revenue, Capital Appreciation, AMBAC Insured, Pre-Refunded,
8/01/18 .................................................................................... 17,020,000 5,333,217
Duval County HFA, SFMR, Capital Appreciation, GNMA Secured, 10/01/32 ........................... 5,000,000 560,600
Florida HFC Revenue,
Capital Appreciation, Homeowner Mortgage, Series 4, FSA Insured, 7/01/30 ................... 10,000,000 1,322,800
Deferred Interest, Homeowner Mortgage, Series 1, MBIA Insured, 7/01/17 ..................... 3,130,000 1,196,474
Deferred Interest, Homeowner Mortgage, Series 2, MBIA Insured, 1/01/29 ..................... 49,185,000 8,703,286
Florida State Mid-Bay Bridge Authority Revenue, Series A, AMBAC Insured,
10/01/25 ................................................................................... 9,845,000 2,236,489
10/01/26 ................................................................................... 2,500,000 533,975
Fort Pierce Utilities Authority Revenue, Capital Appreciation, Series B, AMBAC Insured,
10/01/20 ................................................................................... 3,090,000 1,002,180
10/01/21 ................................................................................... 2,585,000 789,407
10/01/22 ................................................................................... 3,090,000 890,044
10/01/23 ................................................................................... 3,060,000 831,188
10/01/24 ................................................................................... 2,560,000 655,642
Lakeland Electric and Water Revenue, Capital Appreciation, ETM, 10/01/14 ....................... 5,770,000 2,711,554
Miami-Dade County Special Obligation,
sub. lien, Refunding, Series A, MBIA Insured, 10/01/25 ..................................... 22,365,000 5,142,832
Sub Series B, MBIA Insured, 10/01/36 ....................................................... 5,635,000 661,098
Sub Series C, MBIA Insured, 10/01/28 ....................................................... 8,305,000 1,588,663
Palm Beach County HFA, SFR, Capital Appreciation, Refunding, Series A-1, GNMA Secured,
4/01/32 .................................................................................... 5,655,000 714,340
Pinellas County HFA, SFHR, Capital Appreciation, Multi County, Series B-1, GNMA Secured,
9/01/31 .................................................................................... 3,270,000 424,838
Port Everglades Authority Port Improvement Revenue,
Capital Appreciation, 9/01/10 .............................................................. 24,525,000 14,831,984
Capital Appreciation, ETM, 9/01/10 ......................................................... 25,475,000 15,496,697
Refunding, Series A, 9/01/02 ............................................................... 10,575,000 9,644,823
Refunding, Series A, 9/01/03 ............................................................... 9,075,000 7,897,151
Refunding, Series A, 9/01/04 ............................................................... 3,550,000 2,943,021
</TABLE>
63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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 $ 874,060
11/01/12 ................................................................................ 1,780,000 952,709
11/01/15 ................................................................................ 2,180,000 965,173
--------------
TOTAL ZERO COUPON BONDS .................................................................... 93,065,636
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,536,696,598) .......................................... 1,573,127,117
--------------
(a)SHORT TERM INVESTMENTS .4%
Jacksonville Educational Facilities Revenue, Jacksonville University Project, Weekly VRDN
and Put, 4.25%,10/01/22 ................................................................. 1,290,000 1,290,000
Jacksonville Health Facilities Authorities, Garden Project, Weekly VRDN and Put,
4.25%, 2/02/18 .......................................................................... 1,250,000 1,250,000
Jacksonville Revenue, YMCA Florida First Coast Project, Weekly VRDN and Put,
4.25%, 3/01/18 .......................................................................... 1,600,000 1,600,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A,
AMBAC Insured, Weekly VRDN and Put, 3.50%, 7/01/28 ...................................... 2,600,000 2,600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $6,740,000) ............................................. 6,740,000
--------------
TOTAL INVESTMENTS (COST $1,543,436,598) 100.4% ............................................. 1,579,867,117
OTHER ASSETS, LESS LIABILITIES (.4)% ....................................................... (7,330,842)
--------------
NET ASSETS 100.0% .......................................................................... $1,572,536,275
==============
</TABLE>
See glossary of terms on page 96.
(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.
64 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN GEORGIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 -----------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.03 $12.07 $12.12 $11.86 $11.88 $11.54
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .29 .59 .61 .63 .65 .66
Net realized and unrealized gains (losses) .. .44 (1.03) .01 .27 (.02) .34
-----------------------------------------------------------------------------
Total from investment operations .............. .73 (.44) .62 .90 .63 1.00
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.29)(e) (.60)(f) (.61)(g) (.64)(h) (.65) (.66)
Net realized gains .......................... -- -- (i) (.06) -- -- --
-----------------------------------------------------------------------------
Total distributions ........................... (.29) (.60) (.67) (.64) (.65) (.66)
-----------------------------------------------------------------------------
Net asset value, end of period ................ $11.47 $11.03 $12.07 $12.12 $11.86 $11.88
=============================================================================
Total return(b) ............................... 6.79% (3.71)% 5.22% 7.75% 5.47% 8.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $153,557 $151,670 $164,669 $ 149,642 $139,903 $130,380
Ratios to average net assets:
Expenses .................................... .76%c .75% .76% .76% .75% .77%
Net investment income ....................... 5.26%(c) 5.14% 5.00% 5.28% 5.49% 5.58%
Portfolio turnover rate ....................... 12.65% 46.90% 12.84% 14.77% 17.47% 10.98%
CLASS C
--------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.10 $12.15 $12.19 $11.92 $11.92 $11.57
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .27 .53 .54 .57 .58 .50
Net realized and unrealized gains (losses) .. .44 (1.05) .02 .27 (.01) .34
-----------------------------------------------------------------------------
Total from investment operations .............. .71 (.52) .56 .84 .57 .84
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.27)(e) (.53)(f) (.54)(g) (.57) (.57) (.49)
Net realized gains .......................... -- -- (i) (.06) -- -- --
-----------------------------------------------------------------------------
Total distributions ........................... (.27) (.53) (.60) (.57) (.57) (.49)
-----------------------------------------------------------------------------
Net asset value, end of period ................ $11.54 $11.10 $12.15 $12.19 $11.92 $11.92
=============================================================================
Total return(b) ............................... 6.47% (4.32)% 4.70% 7.19% 4.97% 7.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $14,704 $14,811 $17,277 $9,107 $4,484 $1,335
Ratios to average net assets:
Expenses .................................... 1.32%(c) 1.30% 1.31% 1.32% 1.32% 1.34%(c)
Net investment income ....................... 4.72%(c) 4.58% 4.45% 4.72% 4.87% 5.04%(c)
Portfolio turnover rate ....................... 12.65% 46.90% 12.84% 14.77% 17.47% 10.98%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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.
(f) Includes distributions in excess of net investment income in the amount of
$.007 and $.006 for Class A and Class C, respectively.
(g) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and Class C, respectively.
(h) Includes distributions in excess of net investment income in the amount of
$.001.
(i) The fund made a capital gain distribution of $.002.
See notes to financial statements. 65
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.7%
Albany-Daugherty County Hospital Authority Revenue, Anticipation Certificates, Series B,
AMBAC Insured, Pre-Refunded, 7.50%, 9/01/10 ............................................. $ 500,000 $ 510,000
Atlanta Airport Facilities Revenue, Refunding, Series A, FGIC Insured, 5.50%, 1/01/26 ....... 5,000,000 4,972,500
Refunding, Series A, FGIC Insured, 5.60%, 1/01/30 ....................................... 5,000,000 4,999,550
Series B, AMBAC Insured, 6.00%, 1/01/21 ................................................. 575,000 585,137
Series B, AMBAC Insured, Pre-Refunded, 6.00%, 1/01/21 ................................... 525,000 558,532
Atlanta and Fulton Counties Recreation Authority Revenue, Downtown Arena Public Improvement
Project, Refunding, Series A, MBIA Insured, 5.375%, 12/01/21 ............................ 2,000,000 1,966,260
Atlanta Downtown Development Authority Revenue, Underground Atlanta Project, Refunding,
6.25%, 10/01/16 ......................................................................... 2,000,000 2,079,780
Atlanta GO, Series A, Pre-Refunded, 6.125%, 12/01/23 ........................................ 5,000,000 5,394,600
Atlanta HDC, Mortgage Revenue, Oakland City/West, Refunding, Series A, FHA Insured, 6.375%,
3/01/23 ................................................................................. 1,480,000 1,523,749
Atlanta Urban Residential Finance Authority MFHR,
Defoors Ferry Manor Project, 5.90%, 10/01/18 ............................................ 1,700,000 1,742,636
Fulton Cotton Mill, GNMA Secured, 6.00%, 5/20/17 ........................................ 1,040,000 1,068,974
Fulton Cotton Mill, GNMA Secured, 6.125%, 5/20/27 ....................................... 1,560,000 1,591,980
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 ......................................................................... 2,615,000 1,991,976
5.375%, 12/01/28 ........................................................................ 2,000,000 1,514,320
Barnesville Water and Sewer Revenue, 6.85%, 9/01/17 ......................................... 1,000,000 1,033,300
Brunswick and Glynn County Development Authority Revenue, Georgia Pacific Project,
Refunding, 5.55%, 3/01/26 ............................................................... 5,700,000 4,966,410
Burke County Development Authority PCR, Georgia Power Co. ...................................
Plant Vogtle, 1st Series, 6.10%, 4/01/25 ................................................ 1,000,000 1,005,870
Camden County Joint Development Authority PCR, Union Carbide Corp. Project, Refunding,
5.00%, 1/01/12 .......................................................................... 1,000,000 936,700
Cherokee County Water and Sewage Authority Revenue, Refunding, MBIA Insured, 6.90%,
8/01/18 ................................................................................. 1,595,000 1,658,034
Clarke County Hospital Authority Revenue Certificates, Athens Regional Medical Center
Project, Refunding, MBIA Insured, 5.25%, 1/01/29 ........................................ 3,000,000 2,851,500
Clayton County Development Authority Revenue, Gateway Village Project, Series A, 6.00%,
8/01/23 ................................................................................. 3,500,000 3,671,150
Clayton County Hospital Authority Revenue, Anticipation Certificates, Southern Regional
Medical Center, MBIA Insured, Pre-Refunded, 7.00%, 8/01/13 .............................. 2,400,000 2,504,592
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23 ........... 1,000,000 1,002,660
Cobb County Kennestone Hospital Authority Revenue, Series A, MBIA Insured, ETM, 7.75%,
2/01/07 ................................................................................. 100,000 111,257
College Park Business and IDAR, Civic Center Project, AMBAC Insured, 5.75%, 9/01/26 ......... 2,000,000 2,038,160
Columbia County GO, Courthouse/Detention Center Projects, 5.00%, 2/01/24 .................... 2,460,000 2,202,413
Conyers Water and Sewer Revenue, Series A, AMBAC Insured, ETM, 6.60%, 7/01/15 ............... 1,000,000 1,069,670
Dalton Development Authority Revenue, MBIA Insured, 5.50%, 8/15/26 .......................... 1,000,000 1,002,710
Fitzgerald Housing Authority Mortgage Revenue, Bridge Creek, Refunding, Series A, MBIA
Insured, 6.50%, 7/01/24 ................................................................. 920,000 940,746
Forsyth County GO, 5.75%, 2/01/19 ........................................................... 1,500,000 1,548,045
Fulco Hospital Authority Revenue, Anticipation Certificates, Health System, Catholic Health
East, Series A, MBIA Insured, 5.00%, 11/15/28 ........................................... 2,500,000 2,253,000
Fulton County Building Authority Revenue, Human Resources and Government Facilities
Program, 7.10%, 1/01/15 ................................................................. 750,000 769,935
Judicial Center Facilities Project, Refunding, 6.50%, 1/01/15 ........................... 1,000,000 1,024,710
Fulton County Development Authority Special Facilities Revenue, Delta Airlines Inc. Project,
5.45%, 5/01/23 .......................................................................... 1,805,000 1,622,262
George L. Smith II Congress Center Authority Revenue, Domed Stadium Project, Refunding,
MBIA Insured, 5.50%, 7/01/20 ............................................................ 2,000,000 1,980,780
Georgia Municipal Electric Authority Power Revenue, Series W, 6.60%, 1/01/18 ................ 1,000,000 1,128,970
Georgia Municipal Gas Authority Gas Revenue, City of Toccoa Project, AMBAC Insured, 5.00%,
6/01/24 ................................................................................. 1,750,000 1,609,213
Georgia State HFAR,
Homeownership Opportunity Program, Series A-1, 6.75%, 6/01/17 ........................... 2,535,000 2,633,941
Homeownership Opportunity Program, Series C, 6.60%, 12/01/23 ............................ 405,000 420,811
MF, Club Candlewood Project, FSA Insured, Pre-Refunded, 7.15%, 1/01/25 .................. 1,000,000 1,133,110
MF, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 ................ 1,000,000 1,016,280
(b) SF, Sub Series C-2, 5.95%, 12/01/31 ..................................................... 5,000,000 5,006,750
SFM, Series B, Sub Series B-2, 6.15%, 12/01/28 .......................................... 1,000,000 1,015,240
SFM, Sub Series B-2, 5.85%, 12/01/28 .................................................... 2,925,000 2,916,664
Georgia State Residential Finance Authority Home Ownership Mortgage Revenue, Convertible
Loans, Series B, Sub Series B, 7.50%, 6/01/17 ........................................... 190,000 196,171
Series B, FHA Insured, 7.00%, 12/01/12 .................................................. 580,000 600,683
Series E, Sub Series E-1, FHA Insured, 7.50%, 6/01/17 ................................... 225,000 232,297
Henry County Hospital Authority Revenue, Henry Medical
Center Inc. Project, Refunding, AMBAC Insured, 6.00%, 7/01/29 ........................... 5,000,000 5,148,950
</TABLE>
66
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%, 10/01/23 . $ 3,300,000 $ 3,514,038
Liberty County IDR, Leconte Property Inc. Project, Refunding, 7.875%, 12/01/14 .............. 850,000 885,411
Marietta Development Authority Revenue, First Mortgage, Life College Inc.,
Refunding, Series A, FSA Insured, 5.75%, 9/01/14 ........................................ 1,800,000 1,861,614
Refunding, Series A, FSA Insured, 5.80%, 9/01/19 ........................................ 1,100,000 1,125,311
Refunding, Series A, FSA Insured, 5.95%, 9/01/19 ........................................ 1,000,000 1,031,650
Series B, FSA Insured, 5.75%, 9/01/14 ................................................... 800,000 827,384
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare System, MBIA Insured, 5.50%, 8/01/25 ............................... 7,500,000 7,379,700
Meriwether County Public Facility Authority Revenue, Meriwether County Schools Project, MBIA
Insured, 5.85%, 10/01/26 ................................................................ 1,000,000 1,026,180
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Series A, MBIA Insured,
Pre-Refunded, 6.90%, 7/01/20 ............................................................ 5,930,000 6,548,143
Monroe County Development Authority PCR,
Georgia Power Co., AMBAC Insured, 6.25%, 7/01/19 ........................................ 1,000,000 1,026,670
Georgia Power Co., Scherer Project, senior lien, 1st Series, 5.75%, 9/01/23 ............. 1,000,000 989,930
Oglethorpe Power Co., Scherer Project, Refunding, Series A, 6.80%, 1/01/12 .............. 1,500,000 1,649,250
Newton County Hospital Authority Revenue, Newton Health System Project 1999, AMBAC Insured,
6.10%, 2/01/24 .......................................................................... 4,500,000 4,671,720
Polk County Water Authority Water and Sewage Revenue, Refunding, MBIA Insured,
7.00%, 12/01/15 ......................................................................... 100,000 102,551
Private Colleges and Universities Authority Revenue,
Emory University Project, Series A, 5.50%, 11/01/25 ..................................... 10,000,000 9,972,200
Mercer University Project, Refunding, Series A, 5.25%, 10/01/25 ......................... 3,000,000 2,760,990
Mercer University Project, Series A, AMBAC Insured, 5.375%, 10/01/29 .................... 2,000,000 1,865,260
Puerto Rico Commonwealth GO, Public Improvement, Refunding, 5.375%, 7/01/25 ................. 2,000,000 1,966,200
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 .......................................................................... 15,000 15,057
7.50%, 7/01/09 .......................................................................... 5,000 5,019
Puerto Rico Electric Power Authority Revenue,
Refunding, Series U, 6.00%, 7/01/14 ..................................................... 1,000,000 1,050,900
Series T, 6.00%, 7/01/16 ................................................................ 1,000,000 1,040,150
Richmond County Development Authority, Solid Waste Disposal Revenue, International Paper Co.
Project, 5.80%, 12/01/20 ................................................................ 1,500,000 1,437,855
Rockdale County Water and Sewer Authority Revenue, Refunding,
FSA Insured, 5.00%, 7/01/22 ............................................................. 1,500,000 1,399,845
Series A, MBIA Insured, 5.375%, 7/01/29 ................................................. 5,000,000 4,839,600
Savannah EDA, IDR, Hershey Foods Corp. Project, Refunding, 6.60%, 6/01/12 ................... 1,000,000 1,044,210
Savannah Hospital Authority Revenue, St. Joseph's Hospital Project, Pre-Refunded,
6.20%, 7/01/23 .......................................................................... 2,000,000 2,130,260
Savannah Port Authority PCR, Union Carbide Plastic Co. Inc., Refunding, 7.55%, 8/01/04 ...... 4,600,000 4,619,596
St. Mary's Housing Authority MFMR,
Cumberland Oaks Apartments, Refunding, Series A, FHA Insured, 7.375%, 9/01/22 ........... 500,000 509,585
Pine Apartments, Series C, FHA Insured, 7.375%, 4/01/22 ................................. 700,000 705,383
Tift County School District, MBIA Insured, 6.125%, 2/01/15 .................................. 2,330,000 2,369,307
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 ......................................................................... 850,000 849,218
5.50%, 10/01/22 ......................................................................... 1,200,000 1,122,900
5.625%, 10/01/25 ........................................................................ 1,530,000 1,435,339
Walker, Dade and Catoosa Counties Hospital Authority Revenue, Series A, FGIC Insured,
Pre-Refunded, 7.00%, 10/01/10 ........................................................... 1,500,000 1,571,790
Walton County Water and Sewer Authority Revenue, Refunding and Improvement, MBIA Insured,
6.00%, 2/01/21 .......................................................................... 750,000 774,345
White County IDAR, Springs Industries Inc., Refunding, 6.85%, 6/01/10 ....................... 1,780,000 1,843,671
-----------
TOTAL LONG TERM INVESTMENTS (COST $165,438,853) ............................................. 167,721,210
-----------
</TABLE>
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS 2.0%
Hapeville IDAR, Hapeville Hotel Ltd., Daily VRDN and Put, 4.25%, 11/01/15 ..................... $ 2,000,000 $ 2,000,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 3.50%, 7/01/28 ............................................ 1,400,000 1,400,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $3,400,000) ................................................ 3,400,000
------------
TOTAL INVESTMENTS (COST $168,838,853) 101.7% .................................................. 171,121,210
OTHER ASSETS, LESS LIABILITIES (1.7)% ......................................................... (2,861,091)
------------
NET ASSETS 100.0% ............................................................................. $168,260,119
============
</TABLE>
See glossary of terms on page 96.
(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 principle balance plus accrued
interest at specified dates.
(b) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
68 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ------------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.42 $11.47 $11.45 $11.05 $11.04 $10.54
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ...................... .29 .58 .59 .61 .61 .62
Net realized and unrealized gains (losses) .... .38 (1.04) .03 .40 .01 .50
--------------------------------------------------------------------------------
Total from investment operations .............. .67 (.46) .62 1.01 .62 1.12
--------------------------------------------------------------------------------
Less distributions from net investment income . (.29)(d) (.59)(d) (.60)(e) (.61) (.61) (.62)
--------------------------------------------------------------------------------
Net asset value, end of period ................ $10.80 $10.42 $11.47 $11.45 $11.05 $11.04
================================================================================
Total return(b) ............................... 6.54% (4.13)% 5.51% 9.38% 5.86% 10.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $69,871 $63,964 $64,516 $54,211 $44,289 $38,991
Ratios to average net assets:
Expenses ................................... .45%(c) .45% .42% .35% .34% .33%
Expenses excluding waiver and payments
by affiliates ............................. .82%(c) .81% .81% .81% .81% .82%
Net investment income ....................... 5.43%(c) 5.31% 5.12% 5.40% 5.63% 5.65%
Portfolio turnover rate ....................... 4.63% 16.31% 10.49% 26.61% 24.81% 31.89%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.005.
(e) Includes distributions in excess of net investment income in the amount of
$.004.
See notes to financial statements. 69
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.5%
<S> <C> <C>
Ashland PCR, Ashland Oil Inc. Project, Refunding, 6.65%, 8/01/09 .................................... $ 700,000 $ 723,912
Ashland Solid Waste Revenue, Ashland Oil Inc. Project, 7.20%, 10/01/20 .............................. 1,000,000 1,026,100
Boone County PCR, Collateralized, Dayton Power and Light Co., Refunding, Series A, 6.50%, 11/15/22 .. 710,000 729,241
Bowling Green ISD Finance Corp. School Building Revenue, 5.75%, 1/01/20 ............................. 1,140,000 1,169,332
Carroll County PCR, Collateralized, Kentucky Utilities Co. Project, Series B, 6.25%, 2/01/18 ........ 325,000 330,538
Christian County Hospital Revenue, Jennie Stuart Medical Center, Series A, 6.00%, 7/01/17 ............ 1,000,000 978,170
Danville Multi-City Lease Revenue,
Campbellsville, Series B, MBIA Insured, 6.15%, 7/01/12 ............................................ 1,500,000 1,595,355
Housing Authority, Jefferson County, 6.50%, 3/01/19 ............................................... 125,000 130,295
Shelbyville, Series H, MBIA Insured, 6.70%, 7/01/11 ............................................... 100,000 105,350
Daviess County Hospital Revenue, Odch Inc., Series A, MBIA Insured, 6.25%,
8/01/12 ........................................................................................... 100,000 104,447
8/01/22 ........................................................................................... 210,000 215,674
Eastern University Revenues, Consolidated Educational Building, Series Q, AMBAC Insured,
6.40%, 5/01/08 .................................................................................... 100,000 103,877
Elizabethtown Public Properties Holding Inc. Revenue, 1st Mortgage, Administrative Office of the
Courts, Judicial Facilities Project, MBIA Insured, 5.20%, 4/01/22 ................................. 2,000,000 1,927,120
Fayette County School District Finance Corp. School Building Revenue, 5.50%, 9/01/18 ................. 2,500,000 2,520,500
(b)Fulton County Industrial Building Revenue, H.I.S. Income Project, 7.50%, 2/01/10 ..................... 500,000 175,000
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Section 8 Assisted Projects, Refunding,
Series A, MBIA Insured, 6.10%, 1/01/24 ............................................................. 2,000,000 2,022,140
Guam Airport Authority Revenue, Series A, 6.50%, 10/01/23 ............................................ 400,000 422,680
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.30%, 10/01/22 ................................ 225,000 238,948
Hancock County Solid Waste Disposal Revenue, Willamette Industries Inc. Project, 6.60%, 5/01/26 ...... 1,000,000 1,036,910
Hardin County School District Finance Corp. School Building Revenue, 5.75%, 2/01/20 .................. 1,500,000 1,541,610
Hardin County Water District No. 2 Water System Revenue, Series A, AMBAC Insured, 5.00%, 1/01/31 ..... 2,620,000 2,377,152
Henry County Water District No. 2 Water Revenue, Refunding, MBIA Insured, 4.75%, 1/01/28 ............. 2,035,000 1,792,428
Hopkins County Hospital Revenue, Trover Clinic Foundation Inc., MBIA Insured, 6.625%, 11/15/11 ....... 125,000 130,114
Jefferson County Capital Projects Corp. Lease Revenue, MBIA Insured, 5.375%, 6/01/22 ................. 2,000,000 1,970,840
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services Inc., AMBAC Insured,
6.50%, 5/01/15 ..................................................................................... 750,000 783,105
AMBAC Insured, 6.55%, 5/01/22 ...................................................................... 720,000 749,650
Refunding, AMBAC Insured, 5.75%, 1/01/26 ........................................................... 1,000,000 1,011,100
Jefferson County MFHR, Watterson Park Apartments Project, Series A, 6.35%, 11/15/11 .................. 1,930,000 2,010,095
Jefferson County PCR, DuPont, Series A, 6.30%, 7/01/12 ............................................... 450,000 476,298
Jefferson County School District Finance Corp. School Building Revenue, Series A, FSA Insured,
5.25%, 7/01/18 ....................................................................................... 1,500,000 1,476,015
Jessamine County School District Finance Corp. School Building Revenue, 5.50%, 1/01/21 ............... 2,500,000 2,502,125
Kenton County Airport Board Revenue,
Cincinnati/Northern Kentucky International Airport, Series B, MBIA Insured, 5.75%, 3/01/13 ......... 1,230,000 1,281,549
Special Facilities, Delta Airlines Inc. Project, Series A, 7.50%, 2/01/20 .......................... 445,000 463,534
Special Facilities, Delta Airlines Inc. Project, Series A, 7.125%, 2/01/21 ......................... 325,000 333,070
Special Facilities, Delta Airlines Inc. Project, Series B, 7.25%, 2/01/22 .......................... 445,000 460,228
Kenton County Water District No. 1 Waterworks Revenue, Refunding, FGIC Insured, 6.375%, 2/01/17 ...... 155,000 161,665
Kentucky Area Development District Financing Trust Lease Program Revenue, City of Ewing, Series A,
6.00%, 6/01/30 ..................................................................................... 2,000,000 2,026,700
Kentucky Development Finance Authority Hospital Revenue, St. Elizabeth Medical Center,
Refunding and Improvement, Series A, FGIC Insured, 6.00%, 11/01/10 ................................. 750,000 760,170
Kentucky Development Finance Authority Revenue, Sisters of Charity of Nazareth Health Corp.,
Pre-Refunded, 6.75%, 11/01/12 ...................................................................... 100,000 104,566
Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
St. Elizabeth Medical Center Project, Series A, FGIC Insured, 6.00%, 12/01/22 ........................ 625,000 642,244
Kentucky Economic Development Finance Authority Hospital System Revenue,
Appalachian Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ........... 2,000,000 1,369,300
Kentucky Economic Development Finance Authority Medical Center Revenue, Ashland Hospital Corp.,
Refunding and Improvement, Series A, FSA Insured, 6.125%, 2/01/12 .................................. 500,000 523,295
Kentucky Economic Development Finance Authority Revenue, Catholic Health,
Refunding and Improvement, Series A, 5.00%, 12/01/18 ................................................ 2,000,000 1,796,860
Kentucky HFC Revenue,
Refunding, Series A, 6.375%, 7/01/28 ............................................................... 1,240,000 1,279,469
Series B, 6.25%, 7/01/28 ........................................................................... 1,280,000 1,313,613
Series C, FHA Insured, 6.40%, 1/01/17 .............................................................. 1,105,000 1,151,620
SFMR, Series A, 6.60%, 7/01/11 ..................................................................... 30,000 31,221
</TABLE>
70
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Kentucky HFC Revenue, (cont.)
SFMR, Series B, 6.60%, 7/01/11 .................................................................... $ 150,000 $ 156,107
SFMR, Series D, FHA Insured, 7.45%, 1/01/23 ....................................................... 60,000 61,609
Kentucky Infrastructure Authority Revenue, Infrastructure Revolving Fund Program, Series J,
Pre-Refunded, 6.375%, 6/01/14 ..................................................................... 500,000 548,320
Kentucky State Property and Buildings Commission Revenues, Project No. 56, Pre-Refunded,
6.00%, 9/01/14 .................................................................................... 700,000 751,240
Project No. 64, MBIA Insured, 5.50%, 5/01/17 ...................................................... 1,535,000 1,552,484
Lexington-Fayette Urban County Government Revenue, University of Kentucky Library Project, MBIA
Insured, Pre-Refunded,
6.625%, 11/01/13 .................................................................................. 500,000 549,315
6.75%, 11/01/24 ................................................................................... 750,000 827,490
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 5/15/22 ................................................. 1,000,000 938,230
Series A, AMBAC Insured, Pre-Refunded, 6.75%, 5/15/25 ............................................. 300,000 331,206
Series A, FGIC Insured, 5.00%, 5/15/30 ............................................................ 3,000,000 2,732,070
Louisville and Jefferson County Regional Airport Authority Airport Systems Revenue, MBIA Insured,
5.00%, 7/01/25 .................................................................................... 1,500,000 1,366,875
Madison County Utility District Revenue, Refunding, FSA Insured, 5.20%, 2/01/22 ..................... 1,000,000 963,690
McCracken County Hospital Revenue, Mercy Health System, Refunding, Series A, MBIA Insured,
6.40%, 11/01/07 ................................................................................... 500,000 538,755
Northern Kentucky Water Service District Revenue, MBIA Insured, 4.875%, 2/01/20 ..................... 1,270,000 1,184,593
Oldham County School District Finance Corp. School Building Revenue, 5.00%, 7/01/19 ................. 1,000,000 946,240
Pendleton County Multi-County Lease Revenue, Kentucky Association of Counties Leasing Trust,
Series A, 6.50%, 3/01/19 .......................................................................... 1,050,000 1,095,171
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ........................................... 430,000 471,203
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 1,523,083
Russell Health System Revenue, 8.10%, 7/01/15 ....................................................... 145,000 172,209
Our Lady of Bellefonte, Pre-Refunded, 5.50%, 7/01/15 .............................................. 1,800,000 1,876,464
Refunding, 8.10%, 7/01/15 ......................................................................... 205,000 224,211
Russellville Housing Authority MFR, The Field Manor Project, GNMA Secured, 5.65%, 4/20/34 ........... 1,415,000 1,379,566
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.625%, 10/01/25 ..... 2,000,000 1,876,260
-----------
TOTAL LONG TERM INVESTMENTS (COST $68,349,821) ...................................................... 68,141,616
-----------
(a)SHORT TERM INVESTMENTS 1.2%
Louisville and Jefferson County Regional Airport Authority Special Facilities Revenue, UPS Worldwide
Forwarding, Series C, Daily VRDN and Put, 4.35%, 1/01/29 ............................................ 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 3.50%, 7/01/28 ............................................................... 600,000 600,000
-----------
TOTAL SHORT TERM INVESTMENTS (COST $800,000) ........................................................ 800,000
-----------
TOTAL INVESTMENTS (COST $69,149,821) 98.7% .......................................................... 68,941,616
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................................. 929,845
-----------
NET ASSETS 100.0% ................................................................................... $69,871,461
===========
</TABLE>
See glossary of terms on page 96.
(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) See Note 6 regarding defaulted securities.
See notes to financial statements.
71
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED FEBRUARY 28,
-------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.55 $11.59 $11.61 $11.32 $11.32 $11.03
--------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... .29 .58 .60 .63 .65 .66
Net realized and unrealized gains (losses) ... .41 (1.03) (.01) .30 -- .28
--------------------------------------------------------------------------
Total from investment operations .............. .70 (.45) .59 .93 .65 .94
--------------------------------------------------------------------------
Less distributions from net investment income . (.30)(e) (.59)(f) (.61)(g) (.64) (.65) (.65)
--------------------------------------------------------------------------
Net asset value, end of period ................ $10.95 $10.55 $11.59 $11.61 $11.32 $11.32
==========================================================================
Total return(b) ............................... 6.69% (3.93)% 5.23% 8.46% 5.94% 8.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $153,503 $144,299 $158,099 $134,922 $112,981 $107,461
Ratios to average net assets:
Expenses ..................................... .74%(c) .74% .75% .76% .76% .78%
Net investment income ........................ 5.42%(c) 5.29% 5.14% 5.50% 5.76% 5.89%
Portfolio turnover rate ....................... 2.95% 27.31% 14.99% 15.26% 13.68% 5.23%
CLASS C
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.62 $11.66 $11.68 $11.37 $11.37 $11.01
--------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... .26 .53 .54 .57 .58 .49
Net realized and unrealized gains (losses) ... .42 (1.04) (.01) .32 -- .35
--------------------------------------------------------------------------
Total from investment operations .............. .68 (.51) .53 .89 .58 .84
--------------------------------------------------------------------------
Less distributions from net investment income . (.27)(e) (.53)(f) (.55)(g) (.58) (.58) (.48)
--------------------------------------------------------------------------
Net asset value, end of period ................ $11.03 $10.62 $11.66 $11.68 $11.37 $11.37
==========================================================================
Total return(b) ............................... 6.45% (4.45)% 4.61% 8.02% 5.27% 7.76%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $11,618 $10,730 $9,982 $4,469 $3,004 $1,438
Ratios to average net assets:
Expenses ..................................... 1.30%(c) 1.29% 1.31% 1.32% 1.33% 1.35%(c)
Net investment income ........................ 4.86%(c) 4.74% 4.58% 4.95% 5.29% 5.27%(c)
Portfolio turnover rate ....................... 2.95% 27.31% 14.99% 15.26% 13.68% 5.23%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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 $.005 for Class A and Class C, respectively.
(f) Includes distributions in excess of net investment income in the amount of
$.009 and $.008 for Class A and Class C, respectively.
(g) Includes distributions in excess of net investment income in the amount of
$.0006 and $.0004 for Class A and Class C, respectively.
See notes to financial statements.
72
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.9%
BONDS 96.4%
<S> <C> <C>
Bastrop PCR, International Paper Co. Project, Refunding, 6.90%, 3/01/07 .............................. $ 500,000 $ 520,610
Bossier City Public Improvement Sales and Use Tax Revenue,
FGIC Insured, 5.00%, 12/01/19 ...................................................................... 1,145,000 1,078,762
Refunding, FGIC Insured, 5.00%, 12/01/21 ........................................................... 1,875,000 1,749,338
Refunding, FGIC Insured, 5.00%, 12/01/22 ........................................................... 1,515,000 1,407,359
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding,
Series A, 7.75%, 6/01/12 ........................................................................... 365,000 378,432
Series B, 6.875%, 11/01/12 ......................................................................... 585,000 613,987
Calcasieu Parish Public Trust Authority SFMR, Series A, GNMA Secured, 6.40%, 4/01/32 ................. 275,000 283,014
De Soto Parish Environmental Improvement Revenue, International Paper Co. Project,
5.60%, 11/01/22 .................................................................................... 2,250,000 2,053,238
Series A, 7.70%, 11/01/18 .......................................................................... 1,500,000 1,620,405
Series A, 5.65%, 12/01/21 .......................................................................... 1,000,000 914,170
De Soto Parish PCR, Cleco Utility Group Inc. Project, Refunding, AMBAC Insured, 5.875%, 9/01/29 ...... 11,500,000 11,785,200
Denham Spring Livingston Housing and Mortgage Finance Authority SFHR, Series A, FHA Insured, ETM,
7.20%, 8/01/10 ..................................................................................... 1,380,000 1,627,779
East Baton Rouge Mortgage Finance Authority, SFM Purchase, Refunding, Series A, 6.10%, 10/01/29 ...... 990,000 1,011,434
Series F, GNMA Secured, 7.875%, 12/01/21 ........................................................... 590,000 609,205
East Baton Rouge Parish PCR, Georgia-Pacific Corp. Project, Refunding, 5.50%, 4/01/09 ................ 2,000,000 1,971,760
East Baton Rouge Parish Sales and Use Tax, FGIC Insured, 5.90%, 2/01/18 .............................. 750,000 773,078
Jefferson Parish School Board Sales and Use Tax Revenue, Series A, ETM, 7.35%, 2/01/03 ............... 500,000 532,200
Jefferson Sales Tax District Special Sales Tax Revenue, Refunding, FSA Insured, 5.00%, 12/01/22 ...... 4,500,000 4,180,275
Lafayette Public Trust Financing Authority SFMR, Refunding, Series A, 8.50%, 11/15/12 ................ 173,639 173,716
Series A, ETM, 7.20%, 4/01/11 ...................................................................... 30,000 30,053
Lafourche Parish Home Mortgage Authority SFMR, ETM, 7.40%, 7/01/10 ................................... 90,000 101,374
Lake Charles Harbor and Terminal District Port Facilities Revenue, Occidental Petroleum Corp.,
Refunding, 7.20%, 12/01/20 ........................................................................ 3,000,000 3,125,820
Lake Charles Nonprofit HDC, Section 8 Assisted Mortgage Revenue, Chateau Project, Refunding, Series A,
FSA Insured, 7.875%, 2/15/25 ...................................................................... 750,000 773,550
Leesville IDBR, Wal-Mart Stores Inc. Project, Refunding, 7.10%, 3/01/11 .............................. 1,750,000 1,768,830
Louisiana HFA, Mortgage Revenue, MF, Refunding, Series A, FHA Insured, 7.00%, 7/01/22 ................ 2,795,000 2,802,574
MF, Westview Project, FHA Insured, 7.80%, 4/01/30 .................................................. 750,000 772,785
Louisiana Local Government Environmental Facilities CDAR, Delgado Community College Foundation
Project, MBIA Insured, 6.00%, 10/01/29 ............................................................ 1,000,000 1,035,130
Louisiana Local Government Environmental Facility Revenue, Baton Rouge Apartments, Series A,
MBIA Insured, 6.375%, 1/01/30 ..................................................................... 4,265,000 4,476,843
Louisiana Public Facilities Authority Hospital Revenue,
Franciscan Missionaries, Series C, MBIA Insured, 5.00%, 7/01/19 .................................... 3,750,000 3,494,138
Louisiana Health Systems Corp. Project, Refunding, FSA Insured, 5.00%, 10/01/22 .................... 1,000,000 917,370
Pendleton Memorial Methodist, Refunding, 5.25%, 6/01/28 ............................................ 5,000,000 3,604,150
Touro Infirmary Project, Series A, 5.625%, 8/15/29 ................................................. 6,000,000 4,948,260
Louisiana Public Facilities Authority Lease Revenue, Orleans Parish School Board Project, FSA Insured,
5.65%, 6/15/11 ..................................................................................... 1,230,000 1,273,936
Louisiana Public Facilities Authority Revenue,
Alton Ochsner Medical Foundation Project, Series C, MBIA Insured, 6.50%, 5/15/22 ................... 930,000 969,069
Centenary College Project, Pre-Refunded, 5.90%, 2/01/17 ............................................ 1,000,000 1,075,490
Centenary College Project, Refunding, 5.75%, 2/01/29 ............................................... 7,300,000 6,826,376
Dillard University Project, Refunding, AMBAC Insured, 5.00%, 2/01/18 ............................... 2,000,000 1,897,380
HFA, Mortgage Purchase, FNMA Insured, 6.05%, 1/01/26 ............................................... 1,200,000 1,218,072
MFH, One Lakeshore, Refunding, Series A, GNMA Secured, 6.40%, 7/20/20 .............................. 1,900,000 1,969,255
SFM Purchase, Series C, 8.45%, 12/01/12 ............................................................ 764,718 795,751
Student Loan, Series A, Sub Series 3, 7.00%, 9/01/06 ............................................... 955,000 982,619
Tulane University, AMBAC Insured, 6.05%, 10/01/25 .................................................. 5,500,000 5,680,290
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/17 .................... 1,000,000 982,360
Xavier University of Louisiana Project, Refunding, MBIA Insured, 5.25%, 9/01/27 .................... 6,015,000 5,715,694
Louisiana State Office Facilities Corp. Lease Revenue, Capitol Complex Program, Series A, MBIA
Insured, 5.375%, 3/01/19 ........................................................................... 3,000,000 2,960,220
Louisiana State Offshore Terminal Authority Deepwater Port Revenue,
Loop Inc., First Stage, Refunding, Series B, 7.20%, 9/01/08 ........................................ 1,000,000 1,036,220
Series E, 7.60%, 9/01/10 ........................................................................... 480,000 493,570
Series E, Pre-Refunded, 7.60%, 9/01/10 ............................................................. 520,000 530,400
</TABLE>
73
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Louisiana State University Agricultural and Mechanical College University Revenues,
Auxiliary, MBIA Insured, 5.50%, 7/01/26 ............................................................ $ 1,500,000 $ 1,479,525
Louisiana State University at Eunice Project, MBIA Insured, 5.00%, 6/01/18 ......................... 1,025,000 971,772
Mississippi River Bridge Authority Revenue, 6.75%, 11/01/12 .......................................... 1,050,000 1,111,835
New Orleans GO,
Drain Systems, AMBAC Insured, 5.00%, 12/01/18 ...................................................... 1,000,000 949,430
Public Improvement, Series A, AMBAC Insured, 5.125%, 12/01/27 ...................................... 1,000,000 932,620
New Roads Electric System Revenue, 7.00%, 7/01/17 .................................................... 1,000,000 1,038,530
Office Facility Corp. Capital Facilities Bonds, 7.75%, 12/01/10 ...................................... 1,600,000 1,694,480
Orleans Levee District GO, Levee Improvement, FSA Insured, 5.95%, 11/01/14 ........................... 875,000 917,831
Orleans Parish Parishwide School District GO,
AMBAC Insured, 5.375%, 9/01/21 ..................................................................... 3,500,000 3,428,845
Refunding, Series B, FGIC Insured, 5.50%, 9/01/20 .................................................. 1,000,000 998,790
Series A, FGIC Insured, 5.125%, 9/01/22 ............................................................ 1,000,000 945,180
Orleans Parish School Board, Series 95, FGIC Insured, 5.375%, 9/01/18 ................................ 1,950,000 1,931,144
Ouachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional Medical Center, Refunding,
FSA Insured, 5.75%, 5/15/21 ........................................................................ 2,500,000 2,529,375
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, 5.75%, 7/01/26 ........................ 4,500,000 4,642,650
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................................... 120,000 120,452
7.75%, 7/01/08 ..................................................................................... 50,000 50,189
Puerto Rico HFC, SFMR, Portfolio No. 1,
Series B, GNMA Secured, 7.65%, 10/15/22 ............................................................ 20,000 20,415
Series C, GNMA Secured, 6.85%, 10/15/23 ............................................................ 650,000 670,839
Rapides Parish Housing and Mortgage Finance Authority Revenue, SFM Purchase, FHA Insured, ETM,
7.25%, 8/01/10 ..................................................................................... 1,285,000 1,443,363
Shreveport Certificates of Indebtedness, Refunding, Series A, AMBAC Insured, 5.00%, 10/01/16 ......... 1,000,000 962,550
Shreveport Water and Sewer Revenue, Series A, FGIC Insured, 5.95%, 12/01/14 .......................... 3,500,000 3,626,665
St. Bernard Home Mortgage Authority Revenue, SF, Series A, FGIC Insured, ETM, 7.50%, 9/01/10 ......... 435,000 527,699
St. Bernard Parish Exempt Facilities Revenue, Mobil Oil Corp. Project, 5.90%, 11/01/26 ............... 1,500,000 1,506,600
St. Bernard Parish Home Mortgage Authority SFMR, Refunding, Series A, 8.00%, 3/25/12 ................. 296,189 303,038
St. Charles Parish PCR,
Louisiana Power and Light Co. Project, 7.50%, 6/01/21 .............................................. 2,500,000 2,581,475
Union Carbide Corp. Project, Refunding, 5.10%, 1/01/12 ............................................. 3,000,000 2,811,630
St. Charles Parish Solid Waste Disposal Revenue, Louisiana Power and Light Co. Project,
7.05%, 4/01/22 ..................................................................................... 1,500,000 1,535,115
Series A, 7.00%, 12/01/22 .......................................................................... 750,000 774,773
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ......................... 2,500,000 2,343,825
St. Tammany's Public Trust Financing Authority SFMR, Series A, ETM, 7.20%,
7/01/10 ............................................................................................ 150,000 167,442
7/01/11 ............................................................................................ 50,000 59,148
State Colleges and Universities Lease Revenue, University of Southwestern Louisiana, Cajundome,
MBIA Insured, 5.65%, 9/01/26 ....................................................................... 3,080,000 3,090,718
Tangipahoa Parish Hospital Service Revenue, District No. 1, Refunding, AMBAC Insured,
6.25%, 2/01/24 ..................................................................................... 5,500,000 5,682,435
University of Louisiana Board of Supervisors Lease Revenue, Lafayette Cajundome Convention, MBIA
Insured, 6.25%, 9/01/29 ............................................................................ 1,200,000 1,266,372
University System Board of Supervisors Revenue, Northwestern State University Wellness, AMBAC
Insured, 5.10%, 4/01/24 ............................................................................ 1,000,000 937,450
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ....... 3,000,000 2,854,800
West Feliciana Parish PCR, Gulf State Utility Co. Project, 7.70%, 12/01/14 ........................... 6,500,000 6,801,333
-----------
TOTAL BONDS .......................................................................................... 159,251,874
-----------
</TABLE>
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
ZERO COUPON BONDS 1.5%
<S> <C> <C>
Shreveport Water and Sewer Revenue, Refunding, Series B, FGIC Insured,12/01/11 ..................... $ 5,000,000 $ 2,453,900
------------
TOTAL LONG TERM INVESTMENTS (COST $161,619,067) .................................................... 161,705,774
------------
(a)SHORT TERM INVESTMENTS .8%
Louisiana Public Facilities Authority Hospital Revenue, Willis Knighton Medical Project, Refunding,
AMBAC Insured, Daily VRDN and Put,
4.30%, 9/01/23 .................................................................................... 900,000 900,000
Louisiana Public Facilities Authority Revenue, Kenner Hotel Ltd., Daily VRDN and Put,
4.25%, 12/01/15.................................................................................... 200,000 200,000
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc., 1st Stage, ACES,
Refunding, Daily VRDN and Put,
4.35%, 9/01/06 .................................................................................... 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,300,000) ..................................................... 1,300,000
------------
TOTAL INVESTMENTS (COST $162,919,067) 98.7% ........................................................ 163,005,774
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................................ 2,115,356
------------
NET ASSETS 100.0% .................................................................................. $165,121,130
============
</TABLE>
See glossary of terms on page 96.
(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 pay- ment of the principal balance plus accrued
interest at specified dates.
See notes to financial statements.
75
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MARYLAND TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $10.63 $11.66 $11.64 $11.33 $11.38 $10.92
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................. .29 .56 .58 .59 .61 .62
Net realized and unrealized gains
(losses) ................................ .46 (1.00) .06 .32 (.03) .47
----------------------------------------------------------------------------------
Total from investment operations .............. .75 (.44) .64 .91 .58 1.09
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... (.29) (.56) (.58)(e) (.60)(f) (.63) (.63)
Net realized gains ........................ -- (.03) (.04) -- -- --
----------------------------------------------------------------------------------
Total distributions ........................... (.29) (.59) (.62) (.60) (.63) (.63)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $11.09 $10.63 $11.66 $11.64 $11.33 $11.38
==================================================================================
Total return(b) ............................... 7.10% (3.86) 5.64% 8.27% 5.24% 10.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $232,861 $221,176 $253,014 $213,005 $185,234 $175,078
Ratios to average net assets:
Expenses .................................. .74%(c) .72% .74% .74% .73% .74%
Net investment income ..................... 5.30%(c) 5.07% 4.91% 5.20% 5.42% 5.56%
Portfolio turnover rate ....................... 11.61% 11.78% 6.02% 3.19% 12.71% 8.11%
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.72 $11.75 $11.72 $11.40 $11.44 $10.93
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................. .26 .51 .51 .54 .55 .47
Net realized and unrealized gains
(losses) ................................ .46 (1.01) .07 .31 (.03) .51
----------------------------------------------------------------------------------
Total from investment operations .............. .72 (.50) .58 .85 .52 .98
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ..................... (.26) (.50) (.51)(e) (.53) (.56) (.47)
Net realized gains ........................ -- (.03) (.04) -- -- --
----------------------------------------------------------------------------------
Total distributions ........................... (.26) (.53) (.55) (.53) (.56) (.47)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $11.18 $10.72 $11.75 $11.72 $11.40 $11.44
==================================================================================
Total return(b) ............................... 6.76% (4.37) 5.11% 7.70% 4.68% 9.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $18,034 $17,298 $16,826 $10,515 $5,084 $913
Ratios to average net assets:
Expenses .................................. 1.29%(c) 1.27% 1.29% 1.30% 1.27% 1.31%(c)
Net investment income ..................... 4.74%(c) 4.53% 4.35% 4.63% 4.78% 4.95%(c)
Portfolio turnover rate ....................... 11.61% 11.78% 6.02% 3.19% 12.71% 8.11%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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 Class C, respectively.
(f) Includes distributions in excess of net investment income in the amount of
$.005.
See notes to financial statements.
76
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.4%
<S> <C> <C>
Anne Arundel County Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.00%, 1/01/26 .............. $ 1,650,000 $ 1,678,776
Anne Arundel County PCR, Baltimore Gas and Electric Co. Project, Refunding, 6.00%, 4/01/24 ........... 9,500,000 9,638,415
Baltimore Convention Center Revenue, FGIC Insured, Pre-Refunded, 6.15%, 9/01/19 ...................... 4,250,000 4,520,768
Baltimore County Authority Revenue, Series 1989, 7.20%, 7/01/19 ...................................... 90,000 91,552
Baltimore County Mortgage Revenue, Old Orchard Apartments Project, Refunding, Series A, MBIA Insured,
7.00%, 7/01/16 ..................................................................................... 1,000,000 1,066,120
7.125%, 1/01/27 .................................................................................... 3,000,000 3,196,140
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A,
6.75%, 8/01/02 ..................................................................................... 515,000 525,233
7.00%, 8/01/11 ..................................................................................... 3,225,000 3,384,960
Baltimore GO, Consolidated Public Improvement,
Series A, FGIC Insured, 5.30%, 10/15/17 ............................................................ 1,500,000 1,502,055
Series A, FSA Insured, 5.25%, 10/15/17 ............................................................. 3,300,000 3,281,388
Series B, 7.15%, 10/15/08 .......................................................................... 1,000,000 1,165,010
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Series A, 6.50%, 10/01/11 ................ 1,850,000 1,946,700
Baltimore Project Revenue, Wastewater Project, Refunding, Series B, FGIC Insured, 5.00%,
7/01/18 ............................................................................................ 1,000,000 951,220
7/01/28 ............................................................................................ 4,000,000 3,673,840
Baltimore Revenue, Wastewater Project, Refunding, Series A,
FGIC Insured, 5.80%, 7/01/15 ....................................................................... 5,000,000 5,193,300
FSA Insured, 5.75%, 7/01/30 ........................................................................ 10,000,000 10,156,500
Carroll County Revenue, Fairhaven and Copper Ridge, Refunding, Series A, Asset Guaranteed,
5.375%, 1/01/16 .................................................................................... 2,000,000 1,996,740
5.50%, 1/01/19 ..................................................................................... 1,000,000 995,350
5.625%, 1/01/25 .................................................................................... 2,000,000 1,998,500
Frederick County College Revenue, Hood College Project, 7.20%, 7/01/09 ............................... 350,000 359,114
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding and Improvement,
FSA Insured, 6.00%, 9/01/21 ........................................................................ 8,000,000 8,215,360
Harford County Mortgage Revenue, Greenbrier V Apartments Project, Refunding, FHA Insured,
6.50%, 11/01/26 .................................................................................... 3,000,000 3,144,570
Howard County Mortgage Revenue, Normandy Woods III Apartments Project, Refunding, Series A, FHA
Insured, 6.10%, 7/01/25 .............................................................................. 2,000,000 2,047,180
Maryland Environmental Services COP, Water and Waste Facilities, Series A, 6.70%, 6/01/11 ............ 1,900,000 1,965,968
Maryland Local Government Insurance Trust Capitalization Program, Series A, 7.125%, 8/01/09 .......... 650,000 663,449
Maryland State CDA, Department of Housing and Community Development,
MFHR Mortgage, Series A, 7.80%, 5/15/32 ............................................................ 985,000 1,007,901
MFHR Mortgage, Series A, 6.85%, 5/15/33 ............................................................ 1,120,000 1,161,653
MFHR Mortgage, Series D, 7.70%, 5/15/20 ............................................................ 1,000,000 1,030,830
MFHR Mortgage, Series E, 7.10%, 5/15/28 ............................................................ 675,000 694,089
Residential, Series D, 5.25%, 9/01/29 .............................................................. 4,855,000 4,445,092
Series B, 5.35%, 9/01/30 ........................................................................... 2,955,000 2,763,014
SF Program, 2nd Series, 5.00%, 4/01/17 ............................................................. 3,000,000 2,810,670
SF Program, 2nd Series, 7.60%, 4/01/23 ............................................................. 275,000 282,057
SF Program, 3rd Series, 7.25%, 4/01/27 ............................................................. 1,435,000 1,473,042
SF Program, 4th Series, 7.375%, 4/01/10 ............................................................ 980,000 997,620
SF Program, 5th Series, 6.85%, 4/01/11 ............................................................. 1,955,000 2,010,972
SFHR Program, 1st Series, 7.30%, 4/01/17 ........................................................... 1,000,000 1,025,540
Maryland State EDC, Lease Revenue, Hilton Street Facilities, Series A, 7.00%, 1/01/10 ................ 1,000,000 1,060,480
Maryland State Energy Financing Administration Solid Waste Disposal Revenue, Limited Obligation,
Wheelabrator Water Projects, 6.45%, 12/01/16 ....................................................... 3,000,000 3,106,080
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/33 .......................................... 6,865,000 6,435,732
Catholic Health Initiatives, Series A, 6.00%, 12/01/20 ............................................. 2,920,000 2,998,752
Catholic Health Initiatives, Series A, 6.00%, 12/01/24 ............................................. 2,025,000 2,069,813
Charity Obligation Group, Series A, 5.00%, 11/01/19 ................................................ 1,515,000 1,389,210
Charity Obligation Group, Series A, 5.00%, 11/01/29 ................................................ 2,250,000 2,009,993
Doctors Community Hospital, Refunding, 5.75%, 7/01/13 .............................................. 3,000,000 2,598,720
Helix Health Issue, AMBAC Insured, ETM, 5.00%, 7/01/27 ............................................. 11,000,000 10,145,740
Johns Hopkins University Issue, 6.00%, 7/01/39 ..................................................... 5,000,000 5,217,650
Kernan Hospital, Connie Lee Insured, 6.10%, 7/01/24 ................................................ 1,700,000 1,744,098
Mercy Medical Center Project, Refunding, FSA Insured, 5.75%, 7/01/26 ............................... 1,500,000 1,512,060
</TABLE>
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (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.)
Roland Park Place Project, Refunding, 5.625%, 7/01/18 ................................................ $ 2,500,000 $ 2,263,525
Roland Park Place Project, Refunding, 5.625%, 7/01/24 ................................................ 5,000,000 4,429,050
University of Maryland Medical System, 6.75%, 7/01/30 ................................................ 11,000,000 11,209,990
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.375%, 1/01/28 ................................... 5,000,000 4,802,600
Upper Chesapeake Hospitals, Series A, FSA Insured, 5.125%, 1/01/33 ................................... 7,100,000 6,598,243
Maryland State Industrial Development Financing Authority EDR, FSA Insured, Pre-Refunded, 7.10%,
7/01/18 .............................................................................................. 1,350,000 1,406,970
Maryland State Industrial Development Financing Authority Revenue, American Center Physics Headquarters,
6.625%, 1/01/17 ...................................................................................... 6,000,000 6,181,500
Maryland State Stadium Authority Lease Revenue, Convention Center Expansion, AMBAC Insured,
5.875%, 12/15/14 ....................................................................................... 4,655,000 4,856,375
Maryland State Stadium Authority Sports Facilities Lease Revenue, AMBAC Insured,
5.75%, 3/01/22 ....................................................................................... 5,000,000 5,072,800
5.80%, 3/01/26 ....................................................................................... 2,045,000 2,075,839
Maryland State Transportation Facilities Authority Revenue, Refunding, Series 1992, 5.75%, 7/01/13 ..... 5,400,000 5,469,174
Maryland Water Quality Financing Administration Revenue, Revolving Loan Fund, Series A, 6.55%, ......... 1,000,000 1,040,130
9/01/14
Montgomery County Housing Opportunities Commission MFHR, Series B, FHA Insured, 6.00%, 7/01/37 ......... 2,500,000 2,546,550
Montgomery County Housing Opportunities Commission MFMR, Series A,
7.25%, 7/01/11 ....................................................................................... 375,000 386,985
7.00%, 7/01/23 ....................................................................................... 2,410,000 2,507,509
Montgomery County Housing Opportunities Commission SFMR, Series A, 6.80%, 7/01/17 ...................... 1,725,000 1,775,267
Montgomery County Revenue Authority Golf Course System Revenue, Series A, 6.125%, 10/01/22 ............. 1,000,000 978,070
Northeast Solid Waste Disposal Authority Revenue, Montgomery County Resources Recreation Project,
Series A,
6.20%, 7/01/10 ....................................................................................... 3,100,000 3,239,531
6.30%, 7/01/16 ....................................................................................... 6,000,000 6,156,840
Ocean City GO, Refunding, MBIA Insured, 5.75%,
3/15/12 .............................................................................................. 1,880,000 1,966,687
3/15/13 .............................................................................................. 1,120,000 1,165,573
3/15/14 .............................................................................................. 1,180,000 1,222,244
Prince George's County COP, Real Estate Acquisition Program II, MBIA Insured, 6.00%, 9/15/14 ........... 2,050,000 2,148,974
Prince George's County GO, Consolidated Public Improvement, MBIA Insured, 5.00%, 4/15/18 ............... 2,100,000 2,025,996
Prince George's County Hospital Revenue, Dimensions Health Corp., Pre-Refunded, 7.00%, 7/01/22 ......... 1,000,000 1,065,010
Prince George's County Housing Authority MFHR, Emerson House Project, Series A, 7.00%, 4/15/19 ......... 5,500,000 5,826,810
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 2,995,410
Prince George's County IDA, Lease Revenue, Upper Marlboro Justice Center Project, MBIA Insured, ........ 2,750,000 2,835,800
5.80%, 6/30/14
Prince George's County Parking Authority Revenue, Justice Center Facilities Project, Refunding, ........ 500,000 521,030
6.45%, 5/01/05
Prince George's County PCR, Potomac Electric Project, Refunding,
6.00%, 9/01/22 ....................................................................................... 1,200,000 1,209,264
6.375%, 1/15/23 ...................................................................................... 2,975,000 3,062,822
Puerto Rico Commonwealth GO, Public Improvement, Refunding, 5.75%, 7/01/17 ............................. 3,000,000 3,098,130
Rockville Mortgage Revenue, Summit Apartments Project, Refunding, Series A, MBIA Insured,
5.70%, 1/01/26 ....................................................................................... 1,145,000 1,151,664
St. Marys College Revenue, Academic Fees and Auxillary Fees Project, Series A, AMBAC Insured,
5.55%, 9/01/30 ....................................................................................... 2,000,000 2,011,040
University of Maryland Auxiliary Facilities System and Tuition Revenue, Series A, 5.60%, 4/01/16 ....... 1,000,000 1,016,970
Virgin Islands PFA Revenue, senior lien,
Fund Loan Notes, Refunding, Series A, 5.50%, 10/01/18 ................................................ 1,700,000 1,617,720
Refunding, Series A, 5.50%, 10/01/14 ................................................................. 3,300,000 3,245,941
-----------
TOTAL LONG TERM INVESTMENTS (COST $242,253,094) ........................................................ 244,533,049
-----------
</TABLE>
78
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)SHORT TERM INVESTMENTS 1.1%
Community Development Administration MF Development Revenue,
Avalon Lea Apartments Project, Refunding, FNMA Insured, Weekly VRDN and Put, 4.15%, 6/15/26 ...... $ 500,000 $ 500,000
Avalon Ridge Apartments Project, Refunding, FNMA Insured, Weekly VRDN and ........................ 700,000 700,000
Put, 4.15%, 6/15/26
Howard County MFR, Avalon Meadows Project, Refunding, FNMA Insured, Weekly 6/15/26 .................. 600,000 600,000
VRDN and Put, 4.10%,
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and Put, . 400,000 400,000
3.75%, 12/01/15
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put,
3.50%, 7/01/28 ..................................................................................... 500,000 500,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,700,000) ...................................................... 2,700,000
------------
TOTAL INVESTMENTS (COST $244,953,094) 98.5% ......................................................... 247,233,049
OTHER ASSETS, LESS LIABILITIES 1.5% ................................................................. 3,661,274
------------
NET ASSETS 100.0% ................................................................................... $250,894,323
============
</TABLE>
See glossary of terms on page 96.
(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.
79
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN MISSOURI TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.02 $12.19 $12.23 $11.83 $11.94 $11.44
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a)...................... .30 .60 .61 .64 .65 .65
Net realized and unrealized gains (losses) ... .49 (1.15) -- .44 (.07) .49
----------------------------------------------------------------------------------
Total from investment operations .............. .79 (.55) .61 1.08 .58 1.14
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.30)(e) (.61) (.62) (.64) (.65) (.64)
Net realized gains ........................... -- (.01) (.03) (.04) (.04) --
----------------------------------------------------------------------------------
Total distributions ........................... (.30) (.62) (.65) (.68) (.69) (.64)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $11.51 $11.02 $12.19 $12.23 $11.83 $11.94
==================================================================================
Total return(b)................................ 7.29% (4.62) 5.12% 9.43% 5.06% 10.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $356,816 $346,649 $386,948 $308,045 $269,564 $247,522
Ratios to average net assets:
Expenses ..................................... .69%(c) .69% .70% .71% .70% .71%
Net investment income ........................ 5.34%(c) 5.16% 4.99% 5.32% 5.56% 5.58%
Portfolio turnover rate ....................... 15.98% 18.43% 15.21% 14.30% 21.81% 18.27%
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $11.06 $12.24 $12.27 $11.85 $11.97 $11.47
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a)...................... .27 .53 .54 .58 .57 .48
Net realized and unrealized gains (losses) ... .49 (1.16) .01 .45 (.07) .50
----------------------------------------------------------------------------------
Total from investment operations .............. .76 (.63) .55 1.03 .50 .98
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.27)(e) (.54) (.55) (.57) (.58) (.48)
Net realized gains ........................... -- (.01) (.03) (.04) (.04) --
----------------------------------------------------------------------------------
Total distributions ........................... (.27) (.55) (.58) (.61) (.62) (.48)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $11.55 $11.06 $12.24 $12.27 $11.85 $11.97
==================================================================================
Total return(b)................................ 6.97% (5.21) 4.58% 8.96% 4.32% 8.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $25,128 $23,537 $20,396 $10,045 $4,295 $1,325
Ratios to average net assets:
Expenses ..................................... 1.24%(c) 1.24% 1.25% 1.27% 1.27% 1.27%(c)
Net investment income ......................... 4.79%(c) 4.62% 4.44% 4.75% 4.92% 4.94%(c)
Portfolio turnover rate ....................... 15.98% 18.43% 15.21% 14.30% 21.81% 18.27%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
$.003.
See notes to financial statements.
80
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.6%
<S> <C> <C>
Audrain County Hospital Revenue, Audrain Medical Center Project, Refunding, AMBAC Insured, 7.35%,
11/01/08 ............................................................................................. $ 500,000 $ 525,120
Bi-State Development Agency Missouri Illinois Metropolitan District, St. Clair County Metrolink
Extension, Series A, MBIA Insured,
5.00%, 7/01/28 ....................................................................................... 6,500,000 5,969,990
Cape Girardeau County IDA, Solid Waste Disposal Revenue, Procter and Gamble Paper Products, 5.30%,
5/15/28 .............................................................................................. 6,875,000 6,376,631
Fenton Public Facility Authority Leasehold Revenue, 5.25%, 1/01/18 ..................................... 2,250,000 2,043,855
Guam Airport Authority Revenue,
Series A, 6.50%, 10/01/23 ............................................................................ 1,075,000 1,135,953
Series B, 6.60%, 10/01/10 ............................................................................ 500,000 532,400
Series B, 6.70%, 10/01/23 ............................................................................ 4,000,000 4,246,880
Hazelwood IDA, MFHR, Lakes Apartments Project, Refunding, Series A, GNMA Secured, 6.10%, 9/20/26 ....... 1,745,000 1,788,328
Hickory County School District R-1 Skyline GO, Direct Deposit Program, Refunding, 6.05%, 3/01/20 ....... 1,100,000 1,155,022
Howard Bend Levee District Special Tax,
5.65%, 3/01/13 ....................................................................................... 1,000,000 993,800
5.85%, 3/01/19 ....................................................................................... 4,000,000 3,955,480
Jackson County IDAR, St. Joseph's Health Center Corp., MBIA Insured, 6.50%, 7/01/19 .................... 3,000,000 3,138,870
Jasper County Reorganized School District No. R-7 GO, Direct Deposit Program, 6.00%, 3/01/20 ........... 1,025,000 1,072,499
Jefferson County GO, Reorganized School District No. R-3, AMBAC Insured, 7.00%, 3/01/09 ................ 370,000 374,910
Kansas City Airport Revenue, General Improvement, Series B, FSA Insured, Pre-Refunded, 6.875%,
9/01/12 .............................................................................................. 605,000 663,352
Kansas City IDA, MFHR,
Hilltop Village Apartments Project, Refunding, Series A, 5.80%, 10/01/27 ............................. 1,555,000 1,560,287
Mews Apartments Project, Series A, FNMA Insured, 6.30%, 7/01/20 ...................................... 3,345,000 3,460,570
Kansas City Land Clearance RDA Lease Revenue, Municipal Auditorium and Muehlebach Hotel, Series A,
FSA Insured, 5.90%, 12/01/18 ......................................................................... 5,000,000 5,183,150
Kansas City MAC Revenue,
Leasehold Improvement, Citywide Infrastructure, Series B, FSA Insured, 6.50%, 3/01/14 ................ 7,790,000 8,197,651
Leasehold Improvement, Truman Medical Center, Series A, Pre-Refunded, 7.00%, 11/01/11 ................ 1,665,000 1,713,951
Leasehold Roe Bartle, Refunding, Series A, MBIA Insured, 5.00%, 4/15/20 .............................. 17,635,000 16,624,515
Kansas City Tax Increment Financing Commission Tax Increment Revenue, Briarcliff West Project,
Series B, 7.00%, 11/01/14 ............................................................................ 3,525,000 3,630,644
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 ........................................................................ 2,000,000 2,215,160
Pre-Refunded, 6.40%, 12/01/25 ........................................................................ 7,000,000 7,789,250
Refunding, 5.25%, 12/01/14 ........................................................................... 1,000,000 901,280
Refunding, 5.25%, 12/01/26 ........................................................................... 1,000,000 847,920
Lee's Summit IDA, MFHR, Crossroads Apartment Project, Series A, FSA Insured, 6.15%, 10/01/29 ........... 2,695,000 2,762,564
Lee's Summit IDAR, John Knox Village Project,
6.55%, 8/15/10 ....................................................................................... 1,000,000 1,026,810
6.625%, 8/15/13 ...................................................................................... 2,000,000 2,078,060
Missouri School Board Association COP, Pooled Finance Program,
Series A-3, BIG Insured, 7.875%, 3/01/06 ............................................................. 5,000 5,062
Series A-5, BIG Insured, 7.375%, 3/01/06 ............................................................. 30,000 30,446
Missouri School Board Association Lease COP, Republic R-3 School District Project, Refunding, FSA
Insured, 6.00%, 3/01/16 .............................................................................. 2,220,000 2,305,958
(b)Missouri Southern State College Revenue, Auxiliary Enterprise System, MBIA Insured, 5.50%,
4/01/23 ............................................................................................. 1,200,000 1,200,900
Missouri State Development Finance Board Infrastructure Facilities Revenue, Midtown Redevelopment
Project, Series A, MBIA Insured, 5.75%, 4/01/22 ..................................................... 10,000,000 10,206,000
Missouri State Development Finance Board Recreation Facilities Revenue, YMCA Greater St. Louis
Project, Series A, 5.40%, 9/01/18 .................................................................... 7,420,000 7,253,050
Missouri State Development Finance Board Solid Waste Disposal Revenue, Procter and Gamble Paper
Products, 5.20%, 3/15/29 ............................................................................. 3,000,000 2,758,770
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 2,195,004
Thomas Hill Electric Cooperative, 5.50%, 12/01/11 .................................................... 2,000,000 2,049,020
Missouri State Environmental Improvement and Energy Resources Authority Water PCR, Revolving Fund
Program, Kansas City Project, Series A, 5.75%, 1/01/16 ............................................... 1,000,000 1,034,210
Series A, 7.00%, 10/01/10 ............................................................................ 940,000 960,483
Series A, 6.55%, 7/01/14 ............................................................................. 4,500,000 4,727,475
Series A, FSA Insured, 6.05%, 7/01/16 ................................................................ 1,000,000 1,040,600
Series B, 7.125%, 12/01/10 ........................................................................... 430,000 441,378
Series B, 5.80%, 1/01/15 ............................................................................. 1,000,000 1,037,330
Series B, 7.20%, 7/01/16 ............................................................................. 2,000,000 2,204,780
Missouri State HDC,
MFHR, FHA Insured, 8.50%, 12/01/29 ................................................................... 95,000 95,131
Series B, GNMA Secured, 6.40%, 12/01/24 .............................................................. 2,045,000 2,085,655
</TABLE>
81
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Missouri State HDC, (cont.)
SFMR, Homeowner Loan, Series B-1, 5.65%, 3/01/30 ................................................... $ 3,000,000 $ 2,949,240
SFMR, Homeowner Loan, Series D, GNMA Secured, 6.125%, 3/01/28 ...................................... 1,470,000 1,491,344
SFMR, Series B, GNMA Secured, 6.10%, 9/01/14 ....................................................... 1,550,000 1,606,963
SFMR, Series B, GNMA Secured, 7.625%, 6/01/21 ...................................................... 145,000 145,938
SFMR, Series B, GNMA Secured, 6.45%, 9/01/27 ....................................................... 1,525,000 1,575,828
SFMR, Series B-2, GNMA Secured, 5.50%, 3/01/25 ..................................................... 1,890,000 1,833,130
SFMR, Series C, GNMA Secured, 6.90%, 7/01/18 ....................................................... 1,005,000 1,039,401
SFMR, Series D-2, GNMA Secured, 5.40%, 9/01/28 ..................................................... 2,300,000 2,188,634
Missouri State Health and Educational Facilities Authority Educational Facilities Revenue,
Maryville University of St. Louis Project, 6.50%, 6/15/22 .......................................... 1,750,000 1,839,898
Maryville University of St. Louis Project, 6.75%, 6/15/30 .......................................... 4,500,000 4,872,240
Washington University, 5.00%, 11/15/37 ............................................................. 11,150,000 10,012,031
Washington University, Series B, 6.00%, 3/01/30 .................................................... 13,550,000 14,007,990
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Children's Mercy Hospital, 5.30%, 5/15/28 .......................................................... 12,420,000 11,455,835
Freeman Health Systems Project, 5.25%, 2/15/28 ..................................................... 2,750,000 2,169,283
Health Midwest, Series A, MBIA Insured, 6.40%, 2/15/15 ............................................. 5,000,000 5,188,450
Health Midwest, Series B, MBIA Insured, 6.10%, 6/01/11 ............................................. 700,000 739,984
Health Midwest, Series B, MBIA Insured, 6.25%, 6/01/14 ............................................. 1,990,000 2,092,286
Health Midwest, Series B, MBIA Insured, 6.25%, 2/15/22 ............................................. 1,100,000 1,126,543
Heartland Health System Project, AMBAC Insured, 6.35%, 11/15/17 .................................... 2,745,000 2,852,851
Jefferson Memorial Hospital Obligated Group, 6.75%, 5/15/15 ........................................ 4,000,000 4,029,360
Jefferson Memorial Hospital Obligated Group, 6.80%, 5/15/25 ........................................ 3,250,000 3,263,390
Lake of the Ozarks General Hospital, 6.25%, 2/15/11 ................................................ 410,000 406,577
Lake of the Ozarks General Hospital, Pre-Refunded, 6.25%, 2/15/11 .................................. 840,000 919,993
Lake of the Ozarks General Hospital, Pre-Refunded, 6.50%, 2/15/21 .................................. 670,000 743,506
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21 ..................................... 330,000 325,944
Lutheran Senior Services, Refunding, 5.875%, 2/01/23 ............................................... 2,600,000 2,444,416
Lutheran Senior Services, Series A, 6.375%, 2/01/27 ................................................ 4,000,000 4,000,840
SSM Health Care, Refunding, Series A, MBIA Insured, 6.25%, 6/01/16 ................................. 795,000 826,657
Missouri State Western College Revenue, Student Housing, Pre-Refunded, 8.00%, 10/01/16 ............... 5,000,000 5,282,850
Monarch-Chesterfield Levee District, MBIA Insured, 5.75%, 3/01/19 .................................... 1,920,000 1,981,018
Northeast State University Recreational Facility Revenue, Campus Recreational Center Project,
AMBAC Insured, 5.80%, 6/01/15 ...................................................................... 1,000,000 1,029,030
Phelps County Hospital Revenue, Regional Medical Center, Refunding, Connie Lee Insured, 6.00%,
5/15/13 ............................................................................................ 5,000,000 5,125,300
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA Insured,
Pre-Refunded, 9.00%, 7/01/09 ....................................................................... 40,000 46,404
Puerto Rico Commonwealth GO, FSA Insured, 5.00%, 7/01/27 ............................................. 5,000,000 4,704,500
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, MBIA Insured, 5.00%, 7/01/38 ............................................................. 4,920,000 4,581,356
Series Y, 5.50%, 7/01/36 ........................................................................... 5,250,000 5,282,708
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................................... 50,000 50,189
7.75%, 7/01/08 ..................................................................................... 475,000 476,791
Puerto Rico Electric Power Authority Power Revenue, Series HH, FSA Insured, 5.375%, 7/01/30 .......... 6,000,000 5,898,840
Puerto Rico HFC Revenue, MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 .................................. 310,000 316,479
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ...................... 1,265,000 1,305,556
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 2,343,250
Puerto Rico PBA Revenue, Government Facilities, Series B, AMBAC Insured, 5.00%, 7/01/27 .............. 1,000,000 938,210
Puerto Rico Port Authority Revenue, Special Facilities, American Airlines, Series A, 6.25%,
6/01/26 ............................................................................................ 2,500,000 2,537,950
Puerto Rico Public Finance Corp. Commonwealth Appropriation, Series A, 5.00%, 6/01/26 ................ 1,865,000 1,718,019
Pulaski County IDA, MFHR, St. Robert Project, Series A, GNMA Secured, 6.00%, 8/20/39 ................. 1,600,000 1,620,448
Raymore GO, FSA Insured, Pre-Refunded, 6.00%, 3/01/14 ................................................ 1,000,000 1,028,980
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 .................................................................................... 3,000,000 2,480,820
5.70%, 8/15/28 ..................................................................................... 5,250,000 4,160,940
Springfield Missouri School District No. R-12 GO, Direct Deposit Program, 5.85%, 3/01/20 ............. 1,500,000 1,547,337
</TABLE>
82
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Springfield Public Building Corp. Leasehold Revenue, Springfield Recreational, Series B, AMBAC
Insured,
6.125%, 6/01/21 .................................................................................... $ 3,230,000 $ 3,358,070
6.15%, 6/01/25 ..................................................................................... 3,645,000 3,799,074
St. Charles County IDA, MFHR, Ashwood Apartments Project, Series A, FSA Insured, 5.60%, 4/01/30 ...... 1,000,000 971,830
St. Charles County Public Water Supply District No. 2 COP,
Refunding, Series A, MBIA Insured, 5.00%, 12/01/20 ................................................. 3,240,000 3,054,737
Series B, MBIA Insured, 5.10%, 12/01/25 ............................................................ 3,800,000 3,583,704
St. Charles Public Facility Authority Leasehold Revenue, Refunding, AMBAC Insured, 5.80%, 2/01/10 .... 3,000,000 3,141,120
St. Louis Airport Revenue, Lambert-St. Louis International Airport,
Refunding and Improvement, FGIC Insured, 6.125%, 7/01/15 ........................................... 75,000 77,421
Series B, FGIC Insured, 5.25%, 7/01/27 ............................................................. 2,555,000 2,397,740
St. Louis County Housing Authority MFHR, Kensington Square Apartments Project, Refunding,
6.55%, 3/01/14 ..................................................................................... 1,000,000 1,031,330
6.65%, 3/01/20 ..................................................................................... 2,750,000 2,900,645
St. Louis County IDA,
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.40%, 4/01/14 ....................... 1,000,000 1,049,030
Elderly Housing Revenue, Centenary Towers Apartments Project, 6.55%, 4/01/19 ....................... 1,000,000 1,039,090
Health Facilities Revenue, Healthcare Nazareth Living, Refunding, 5.625%, 8/15/19 .................. 3,000,000 2,507,340
Health Facilities Revenue, Healthcare Nazareth Living, Refunding, 5.625%, 8/15/29 .................. 3,250,000 2,587,975
Health Facilities Revenue, Mother of Perpetual Help, GNMA Secured, 6.40%, 8/01/35 .................. 1,895,000 1,987,836
MFHR, Lucas Hunt Village Project, Refunding, Series A, GNMA Secured, 5.125%, 9/20/23 ............... 1,250,000 1,166,000
MFHR, Lucas Hunt Village Project, Refunding, Series A, GNMA Secured, 5.20%, 9/20/31 ................ 2,095,000 1,929,034
MFHR, South Summit Apartments, Refunding, Series A, GNMA Secured, 6.10%, 4/20/32 ................... 1,250,000 1,284,450
St. Louis County IDAR, Bethesda Living Centers, Series B, 5.85%, 8/15/28 ............................. 1,500,000 1,237,575
St. Louis County Mortgage Revenue, GNMA Secured, 8.125%, 9/01/19 ..................................... 20,000 20,111
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 5,614,695
St. Louis IDA, Sewer and Solid Waste Disposal Facilities Revenue, Anheuser-Busch Project,
5.875%, 11/01/26 ................................................................................... 1,100,000 1,102,761
5.75%, 12/01/27 .................................................................................... 1,700,000 1,681,368
St. Louis Land Clearance RDA, Kiel Site Lease, Refunding, Series A, MBIA Insured, 5.125%, 7/01/21 .... 1,625,000 1,546,009
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center Improvement, Series A, AMBAC Insured, 6.00%, 2/15/19 ........................... 5,370,000 5,591,781
City Justice Center, Series A, AMBAC Insured, 6.00%, 2/15/20 ....................................... 1,000,000 1,052,970
Refunding, Series A, 6.00%, 7/15/13 ................................................................ 10,000,000 10,412,800
St. Louis Parking Facilities Revenue, Pre-Refunded, 6.625%, 12/15/21 ................................. 470,000 500,771
St. Louis Regional Convention and Sports Complex Authority Revenue, Series C,
7.75%, 8/15/01 ..................................................................................... 495,000 503,786
7.90%, 8/15/21 ..................................................................................... 555,000 581,346
Pre-Refunded, 7.90%, 8/15/21 ......................................................................... 4,000,000 4,383,360
Taney County IDA, Hospital Revenue, The Skaggs Community Hospital Association,
5.30%, 5/15/18 ..................................................................................... 3,000,000 2,525,580
5.40%, 5/15/28 ..................................................................................... 1,500,000 1,198,740
University of Missouri Health Facilities Revenue, Series A, AMBAC Insured, 5.125%, 11/01/28 .......... 4,430,000 4,097,927
University of Missouri Revenues, System Facilities, 5.80%, 11/01/27 .................................. 7,750,000 7,839,590
University of Puerto Rico Revenues, Series O, MBIA Insured, 5.375%, 6/01/30 .......................... 3,410,000 3,362,362
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.40%, 10/01/12 .................................................................................... 2,500,000 2,497,700
5.50%, 10/01/22 .................................................................................... 2,500,000 2,339,375
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project,
Refunding, 5.50%, 11/15/12 ......................................................................... 1,000,000 839,770
Refunding, 5.60%, 11/15/17 ......................................................................... 1,700,000 1,366,783
Refunding, 5.65%, 11/15/22 ......................................................................... 1,500,000 1,172,490
Series A, Pre-Refunded, 8.625%, 9/15/20 ............................................................ 1,890,000 1,926,779
West Plains Waterworks System Revenue, AMBAC Insured, 5.625%, 3/01/21 ................................ 1,250,000 1,265,100
-----------
TOTAL LONG TERM INVESTMENTS (COST $375,241,130) ...................................................... 376,729,636
===========
</TABLE>
83
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
(a)SHORT TERM INVESTMENTS 2.3%
<S> <C> <C>
Kansas City IDA, Hospital Revenue, Research Health Services System, MBIA Insured, Daily
VRDN and Put, 4.35%, 4/15/15 .................................................................. $ 800,000 $ 800,000
10/15/15 ...................................................................................... 900,000 900,000
Missouri State Development Finance Board Infrastructure Facilities Revenue, Sci City Union
Station, Series C, Daily VRDN and Put, 4.35%, 12/01/03 .......................................... 1,700,000 1,700,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN
and Put, 3.75%, 12/01/15 ...................................................................... 1,800,000 1,800,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC
Insured, Weekly VRDN and Put, 3.50%, 7/01/28 .................................................. 3,600,000 3,600,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $8,800,000) .................................................. 8,800,000
-------------
TOTAL INVESTMENTS (COST $384,041,130) 100.9% .................................................... 385,529,636
OTHER ASSETS, LESS LIABILITIES (.9)% ............................................................ (3,585,486)
-------------
NET ASSETS 100.0% ............................................................................... $ 381,944,150
=============
</TABLE>
See glossary of terms on page 96.
(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.
84
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ---------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.04 $ 12.16 $ 12.11 $ 11.73 $ 11.75 $ 11.37
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a)....................... .30 .60 .60 .62 .64 .64
Net realized and unrealized gains (losses) .... .46 (1.12) .06 .38 (.03) .39
---------------------------------------------------------------------------------
Total from investment operations ............... .76 (.52) .66 1.00 .61 1.03
---------------------------------------------------------------------------------
Less distributions from net investment income .. (.30) (.60) (.61) (.62) (.63) (.65)(e)
---------------------------------------------------------------------------------
Net asset value, end of period ................. $ 11.50 $ 11.04 $ 12.16 $ 12.11 $ 11.73 $ 11.75
---------------------------------------------------------------------------------
Total return(b) ................................ 6.99% (4.37)% 5.54% 8.78% 5.38% 9.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 328,227 $ 315,101 $ 349,419 $ 297,406 $ 260,979 $ 247,031
Ratios to average net assets:
Expenses ...................................... 70%(c) 68% 70% 70% 70% 71%
Net investment income ......................... 5.35%(c) 5.18% 4.95% 5.24% 5.47% 5.52%
Portfolio turnover rate ........................ 6.58% 21.07% 5.44% 9.95% 9.98% 25.19%
CLASS C
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.12 $ 12.24 $ 12.18 $ 11.79 $ 11.80 $ 11.41
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ...................... .27 .54 .54 .56 .57 .49
Net realized and unrealized gains (losses) .... .46 (1.13) .06 .39 (.02) .38
---------------------------------------------------------------------------------
Total from investment operations ............... .73 (.59) .60 .95 .55 .87
---------------------------------------------------------------------------------
Less distributions from net investment income .. (.27) (.53) (.54) (.56) (.56) (.48)
---------------------------------------------------------------------------------
Net asset value, end of period ................. $ 11.58 $ 11.12 $ 12.24 $ 12.18 $ 11.79 $ 11.80
---------------------------------------------------------------------------------
Total return(b) ................................ 6.64% (4.88)% 5.02% 8.22% 4.83% 7.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 40,606 $ 38,577 $ 38,171 $ 20,043 $ 9,607 $ 2,430
Ratios to average net assets:
Expenses ...................................... 1.25%(c) 1.23% 1.25% 1.26% 1.26% 1.28%(c)
Net investment income ......................... 4.80%(c) 4.63% 4.40% 4.69% 4.85% 4.90%(c)
Portfolio turnover rate ........................ 6.58% 21.07% 5.44% 9.95% 9.98% 25.19%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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. 85
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
Appalachian State University Revenue,
Teachers College Utility System, MBIA Insured, Pre-Refunded, 6.10%, 5/15/13 .............. $ 1,075,000 $ 1,155,260
Teachers College Utility System, Refunding, MBIA Insured, 5.00%, 5/15/24 ................. 3,000,000 2,794,950
Utility Systems, Refunding, MBIA Insured, 5.00%, 5/15/18 ................................. 1,000,000 958,000
Asheville Water System Revenue, FGIC Insured, 5.70%, 8/01/25 ................................ 4,000,000 4,040,280
Buncombe County Metropolitan Sewage District System Revenue,
FSA Insured, 5.00%, 7/01/29 .............................................................. 5,000,000 4,593,000
Series B, Pre-Refunded, 6.75%, 7/01/16 ................................................... 10,000 10,598
Centennial Authority Hotel Tax Revenue, Arena Project, FSA Insured, 5.125%, 9/01/19 ......... 5,115,000 4,937,407
Charlotte Airport Revenue, Series B, MBIA Insured, 6.00%,
7/01/24 .................................................................................. 4,000,000 4,131,440
7/01/28 .................................................................................. 6,300,000 6,486,354
Charlotte COP, Convention Facility Project,
5.625%, 12/01/25 ......................................................................... 7,230,000 7,411,762
AMBAC Insured, Pre-Refunded, 7.00%, 12/01/11 ............................................. 2,250,000 2,366,258
Charlotte Water and Sewer GO, 5.00%, 2/01/21 ................................................ 4,000,000 3,756,880
Charlotte Water and Sewer Systems Revenue, 5.25%, 6/01/24 ................................... 2,000,000 1,921,200
Charlotte-Mecklenberg Hospital Authority Health Care System Revenue,
5.90%, 1/15/16 ........................................................................... 3,465,000 3,530,870
Carolinas Healthcare System, Series A, 5.125%, 1/15/22 ................................... 8,000,000 7,324,640
Refunding, Series 1992, 6.25%, 1/01/20 ................................................... 2,620,000 2,652,514
Refunding, Series 1992, Pre-Refunded, 6.25%, 1/01/20 ..................................... 1,000,000 1,042,800
Coastal Solid Waste Disposal System Authority Revenue, Regional
Solid Waste Management, Pre-Refunded, 6.50%, 6/01/08 ........................................ 3,100,000 3,267,028
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 1,417,085
Concord COP, Series B, MBIA Insured,
5.75%, 6/01/16 ........................................................................... 1,475,000 1,525,991
6.125%, 6/01/21 .......................................................................... 2,180,000 2,277,250
Cumberland County COP, Civic Center Project,
Refunding, AMBAC Insured, 5.00%, 12/01/18 ................................................ 3,000,000 2,871,690
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/19 ................................... 3,500,000 3,827,180
Series A, AMBAC Insured, Pre-Refunded, 6.40%, 12/01/24 ................................... 3,765,000 4,116,952
Cumberland County Finance Corp. Installment Payment Revenue, Detention Center
and Mental Health, FSA Insured, 5.625%, 6/01/24 ......................................... 5,000,000 5,033,550
Cumberland County Hospital Facilities Revenue, Cumberland County Hospital Systems Inc.,
Refunding, 5.25%, 10/01/29 ............................................................... 5,250,000 4,518,990
Duplin County COP, Social Service Administrative Building, Solid Waste Project,
FGIC Insured, 6.75%, 9/01/12 ............................................................. 2,000,000 2,079,620
Durham COP, Series 1991, 6.875%, 4/01/09 .................................................... 1,650,000 1,705,127
Durham County COP, Jail Facilities and Computer Equipment Project, Pre-Refunded,
6.625%, 5/01/14 .......................................................................... 3,000,000 3,103,140
Eastern Municipal Power Agency Power System Revenue, Refunding, Series D, 6.75%, 1/01/26 .... 5,000,000 5,149,100
Fayetteville Public Works Commission Revenue, Series A, FSA Insured, 6.00%, 3/01/16 ......... 2,000,000 2,053,600
Franklin County COP, AMBAC Insured, 5.00%, 6/01/25 .......................................... 1,250,000 1,161,175
Gastonia Combined Utilities System Revenue, MBIA Insured, 5.625%, 5/01/19 ................... 1,000,000 1,018,780
Greensboro COP, Coliseum Arena Expansion Project, 6.75%, 12/01/09 ........................... 1,610,000 1,688,407
Greensboro HDC, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.70%, 1/01/24 ......... 1,320,000 1,361,857
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.375%, 10/01/08 ...................... 1,000,000 1,061,410
Halifax County Industrial Facilities and PCFA Revenue, Champion International Corp. Project,
5.45%, 11/01/33 .......................................................................... 4,000,000 3,492,480
Refunding, 6.45%, 11/01/29 ............................................................... 3,900,000 3,933,501
Haywood County Industrial Facilities and PCFA, Environmental Improvement Revenue, Champion
International Corp. Project, 6.25%, 9/01/25 ................................................ 2,000,000 1,980,020
Highpoint Special Obligation Sales Tax Revenue, Solid Waste Management
Project, 7.15%, 7/01/01 ..................................................................... 415,000 416,482
Kinston Housing Authority Mortgage Revenue, Kinston Towers Project, Refunding,
6.75%, 12/01/18 .......................................................................... 3,155,000 3,276,215
Martin County Industrial Facilities and PCFA Revenue,
Pollution Control, Weyerhaeuser Co. Project, Refunding, 6.375%, 1/01/10 .................. 3,000,000 3,091,290
Solid Waste, Weyerhaeuser Co. Project, 5.65%, 12/01/23 ................................... 2,000,000 1,861,220
Solid Waste, Weyerhaeuser Co. Project, 6.00%, 11/01/25 ................................... 5,400,000 5,222,772
Mooresville Grade School District COP, AMBAC Insured, 6.35%, 10/01/14 ....................... 1,000,000 1,045,650
New Hanover County Hospital Revenue, New Hanover Regional Medical Center
Project, MBIA Insured, 5.00%, 10/01/28 ..................................................... 2,000,000 1,801,960
New Hanover County Industrial Facilities and PCFA Revenue, Refunding, 6.70%, 7/01/19 ........ 1,000,000 1,023,120
</TABLE>
86
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 6.50%, 1/01/17 .............................................................. $ 9,000,000 $ 9,089,550
Refunding, Series A, 6.50%, 1/01/18 .............................................................. 3,000,000 3,107,340
Refunding, Series A, 5.75%, 1/01/26 .............................................................. 10,000,000 9,194,300
Series B, MBIA Insured, 5.875%, 1/01/21 .......................................................... 5,000,000 5,103,300
North Carolina Educational Facilities Finance Agency Revenue, High Point College Project, 7.10%,
12/01/07 ......................................................................................... 190,000 193,982
12/01/08 ......................................................................................... 205,000 209,262
12/01/09 ......................................................................................... 220,000 224,547
North Carolina HFA,
MF, Mortgage Loan Resolution, Refunding, Series H, 6.05%, 7/01/28 ................................ 2,500,000 2,544,050
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20 ........................................... 2,780,000 2,829,623
MF, Refunding, Series J, 5.45%, 7/01/17 .......................................................... 2,175,000 2,167,714
MFR, Refunding, Series B, 6.90%, 7/01/24 ......................................................... 2,925,000 3,063,265
Refunding, Series F, 6.70%, 1/01/27 .............................................................. 4,855,000 5,111,053
SF, Refunding, Series DD, 6.20%, 9/01/27 ......................................................... 2,830,000 2,876,695
SF, Series JJ, 6.45%, 9/01/27 .................................................................... 4,450,000 4,599,075
SFMR, Series J, 7.40%, 3/01/22 ................................................................... 130,000 132,419
SFR, Refunding, Series S, 6.95%, 3/01/17 ......................................................... 2,210,000 2,296,522
SFR, Series AA, 6.25%, 3/01/17 ................................................................... 885,000 919,329
SFR, Series RR, 5.85%, 9/01/28 ................................................................... 3,500,000 3,485,615
SFR, Series X, 6.65%, 9/01/19 .................................................................... 1,815,000 1,896,112
North Carolina Medical Care Commission Health Care Facilities Revenue,
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/18 ........................ 1,000,000 946,440
Novant Health Project, Refunding, Series A, MBIA Insured, 5.00%, 10/01/24 ........................ 5,500,000 5,052,850
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/19 ............................ 630,000 617,583
Scotland Memorial Hospital Project, Asset Guaranteed, 5.50%, 10/01/29 ............................ 1,220,000 1,170,468
North Carolina Medical Care Commission Health System Revenue, Catholic Health East Project, Series
C, AMBAC Insured, 5.00%,
11/15/18 ......................................................................................... 2,500,000 2,365,475
11/15/28 ......................................................................................... 4,600,000 4,174,408
North Carolina Medical Care Commission Hospital Revenue,
Annie Penn Memorial Hospital Project, Pre-Refunded, 7.50%, 8/15/21 ............................... 4,700,000 4,988,815
Annie Penn Memorial Hospital Project, Refunding, 5.25%, 1/01/12 .................................. 1,940,000 1,737,852
Annie Penn Memorial Hospital Project, Refunding, 5.375%, 1/01/22 ................................. 1,920,000 1,538,400
Duke University Hospital Project, Series C, 5.25%, 6/01/26 ....................................... 1,500,000 1,379,025
Halifax Memorial Hospital Project, Pre-Refunded, 6.75%, 8/15/24 .................................. 3,500,000 3,718,365
Halifax Regional Medical Center Project, 5.00%, 8/15/18 .......................................... 1,500,000 1,206,360
Halifax Regional Medical Center Project, 5.00%, 8/15/24 .......................................... 2,800,000 2,149,672
High Point Regional Health System, AMBAC Insured, 5.00%, 10/01/29 ................................ 5,000,000 4,525,250
Mission St. Joseph's Health System Project, MBIA Insured, 5.125%, 10/01/28 ....................... 5,000,000 4,632,450
North Carolina Baptist Hospitals Project, Refunding, Series A, 6.00%, 6/01/22 .................... 4,830,000 4,859,898
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ............................................ 2,780,000 2,646,477
Southeastern Regional Medical Center, 6.25%, 6/01/29 ............................................. 4,000,000 4,002,600
Transylvania Community Hospital Inc. Project, Refunding, 5.75%, 10/01/19 ......................... 1,090,000 923,404
Wake County Hospital System Project, MBIA Insured, 5.375%, 10/01/26 .............................. 12,775,000 12,331,833
Wayne Memorial Hospital Project, AMBAC Insured, Pre-Refunded, 6.00%, 10/01/21 .................... 1,000,000 1,037,510
Wayne Memorial Hospital Project, Refunding, AMBAC Insured, 5.00%, 10/01/21 ....................... 2,205,000 2,026,395
Wilson Memorial Hospital Project, Refunding, AMBAC Insured, 5.625%, 11/01/18 ..................... 5,000,000 5,053,800
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue,
Refunding, 6.25%, 1/01/17 ........................................................................ 6,820,000 6,860,170
Series A, MBIA Insured, 5.00%, 1/01/20 ........................................................... 2,000,000 1,868,220
North Carolina State Education Assistance Authority Revenue, Guaranteed, Student Loan, sub. lien,
Series A, 6.05%, 7/01/10 ......................................................................... 3,310,000 3,381,893
Series A, 6.30%, 7/01/15 ......................................................................... 1,500,000 1,538,205
Series C, 6.35%, 7/01/16 ......................................................................... 4,500,000 4,605,120
Onslow County Combined Enterprise System Revenue, MBIA Insured, 6.00%, 6/01/15 ..................... 2,000,000 2,090,380
Pender County COP, Pre-Refunded, 7.70%, 6/01/11 .................................................... 1,195,000 1,247,437
Person County COP, Law Enforcement Center Project, Series 1991, MBIA Insured, 7.125%, 6/01/11 ...... 2,165,000 2,246,837
</TABLE>
87
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Piedmont Triad Airport Authority Airport Revenue, Refunding, Series A, FSA Insured, 6.00%,
7/01/24 ........................................................................................... $ 5,745,000 $ 6,003,295
Pitt County COP,
FGIC Insured, 6.00%, 4/01/12 ...................................................................... 750,000 778,620
MBIA Insured, 5.85%, 4/01/17 ...................................................................... 5,055,000 5,258,413
School Facilities Project, Series A, FSA Insured, 5.25%, 4/01/25 .................................. 1,670,000 1,629,419
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ........................................... 8,050,000 8,821,351
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, MBIA Insured,
5.00%, 7/01/38 .................................................................................... 2,000,000 1,862,340
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.75%, 7/01/08 .................................................................................... 100,000 100,377
7.50%, 7/01/09 .................................................................................... 25,000 25,094
Puerto Rico Electric Power Authority Revenue,
(b) Series HH, FSA Insured, 5.375%, 7/01/30 ....................................................... 4,000,000 3,932,560
Series P, Pre-Refunded, 7.00%, 7/01/21 ............................................................ 1,000,000 1,043,650
Series T, Pre-Refunded, 6.375%, 7/01/24 ........................................................... 1,000,000 1,097,480
Series X, Pre-Refunded, 6.125%, 7/01/21 ........................................................... 4,000,000 4,410,920
Puerto Rico HFC Revenue,
MFMR, Portfolio A-I, 7.50%, 4/01/22 ............................................................... 350,000 357,315
SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 .................................... 2,205,000 2,275,692
Puerto Rico Telephone Authority Revenue, Series L, Pre-Refunded, 6.125%, 1/01/22 .................... 1,490,000 1,543,759
Raeford HDC Revenue, First Lien, Yadkin Trail, Refunding, Series A, 6.00%, 7/15/22 .................. 1,400,000 1,420,230
Randolph County COP, FSA Insured, 5.75%, 6/01/22 .................................................... 5,500,000 5,614,510
Robeson County Industrial Facilities and PCFA Revenue, Campbell Soup Co. Project, Refunding,
6.40%, 12/01/06 ................................................................................... 1,750,000 1,895,285
Rutherford County COP, Public Facilities Project, FGIC Insured, 6.25%, 6/01/23 ...................... 1,850,000 1,923,723
Scotland County COP, Jail/Courthouse Project, FSA Insured, 6.75%, 3/01/11 ........................... 1,000,000 1,029,370
Stokes County COP, MBIA Insured, 7.00%, 3/01/06 ..................................................... 1,000,000 1,031,300
University of North Carolina at Greensboro Revenue, Housing and Dining System, Series G, MBIA
Insured, 6.00%, 4/01/26 ............................................................................. 2,040,000 2,141,143
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 ................................................................................... 2,000,000 1,903,200
5.625%, 10/01/25 .................................................................................. 1,575,000 1,477,555
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Co., 6.90%, 4/01/09 .... 10,000,000 10,198,200
(b) Wilkes County COP, Public Improvements Project, FSA Insured, 5.375%, 12/01/20 ................... 1,000,000 985,960
Winston-Salem SFMR, 8.00%, 9/01/07 .................................................................. 230,000 235,120
Winston-Salem Water and Sewer System Revenue, Series B, 5.70%, 6/01/17 .............................. 2,250,000 2,304,068
------------
TOTAL LONG TERM INVESTMENTS (COST $360,428,249) ..................................................... 362,764,149
------------
(a) SHORT TERM INVESTMENTS 1.6%
Charlotte-Mecklenberg Hospital Authority Health Care System Revenue, Series B, Weekly VRDN and
Put, 4.20%, 1/15/26 ............................................................................... 400,000 400,000
North Carolina Medical Care Commission Hospital Revenue,
Lexington Memorial Hospital Project, Refunding, Daily VRDN and Put, 4.35%, 4/01/10 ................ 4,900,000 4,900,000
Pooled Financing Project, ACES, Series A, Daily VRDN and Put, 4.35%, 10/01/20 ..................... 50,000 50,000
Pooled Financing Project, Series A, Daily VRDN and Put, 4.35%, 10/01/16 ........................... 500,000 500,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and
Put, 3.75%, 12/01/15 ................................................................................ 200,000 200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $6,050,000) ...................................................... 6,050,000
------------
TOTAL INVESTMENTS (COST $366,478,249) 100.0% ........................................................ 368,814,149
OTHER ASSETS, LESS LIABILITIES ...................................................................... 19,108
------------
NET ASSETS 100.0% ................................................................................... $368,833,257
============
</TABLE>
See glossary of terms on page 96.
(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.
88 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN TEXAS TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 -------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......... $ 10.22 $ 11.42 $ 11.68 $ 11.37 $ 11.58 $ 11.25
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... .29 .58 .60 .62 .66 .67
Net realized and unrealized gains (losses) ... .30 (1.16) (.05) .36 -- .34
-----------------------------------------------------------------------------
Total from investment operations ............. .59 (.58) .55 .98 .66 1.01
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.29) (.58) (.60) (.63) (.67) (.68)
In excess of net investment income ........... --(e) --(f) --(g) (.01) -- --
Net realized gains ........................... -- (.04) (.21) (.03) (.20) --
-----------------------------------------------------------------------------
Total distributions .......................... (.29) (.62) (.81) (.67) (.87) (.68)
-----------------------------------------------------------------------------
Net asset value, end of period ............... $ 10.52 $ 10.22 $ 11.42 $ 11.68 $ 11.37 $ 11.58
=============================================================================
Total return(b) .............................. 5.86% (5.21)% 4.86% 8.91% 5.91% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............ $103,974 $104,433 $127,739 $ 130,578 $ 126,612 $ 29,702
Ratios to average net assets:
Expenses .................................... .80%c .78% .77% .76% .75% .76%
Net investment income ........................ 5.62%(c) 5.35% 5.17% 5.44% 5.70% 5.86%
Portfolio turnover rate ...................... 9.81% 20.93% 25.26% 34.52% 35.57% 18.38%
CLASS C
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......... $ 10.36 $ 11.57 $ 11.81 $ 11.49 $ 11.68 $ 11.27
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .26 .53 .53 .58 .60 .51
Net realized and unrealized gains (losses) .. .30 (1.18) (.03) .35 .02 .40
-----------------------------------------------------------------------------
Total from investment operations ............. .56 (.65) .50 .93 .62 .91
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.26)(e) (.52)(f) (.53)(g) (.58)(h) (.61) (.50)
Net realized gains .......................... -- (.04) (.21) (.03) (.20) --
-----------------------------------------------------------------------------
Total distributions .......................... (.26) (.56) (.74) (.61) (.81) (.50)
-----------------------------------------------------------------------------
Net asset value, end of period ............... $ 10.66 $ 10.36 $ 11.57 $ 11.81 $ 11.49 $ 11.68
=============================================================================
Total return(b) .............................. 5.49% (5.77)% 4.40% 8.31% 5.48% 8.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............ $ 4,382 $ 4,650 $ 5,229 $ 2,076 $ 740 $ 79
Ratios to average net assets:
Expenses .................................... 1.36%(c) 1.34% 1.33% 1.33% 1.32% 1.33%(c)
Net investment income ....................... 5.06%(c) 4.79% 4.61% 4.79% 5.03% 5.23%(c)
Portfolio turnover rate ...................... 9.81% 20.93% 25.26% 34.52% 35.57% 18.38%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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.
(f) Includes distributions in excess of net investment income in the amount of
$.002.
(g) Includes distributions in excess of net investment income in the amount of
$.0005 and $.0003 for Class A and Class C, respectively.
(h) Includes distributions in excess of net investment income in the amount of
$.001.
See notes to financial statements. 89
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.3%
Alliance Airport Authority Special Facilities Revenue, American Airlines Inc. Project, 7.00%,
12/01/11 ........................................................................................... $2,250,000 $2,418,368
Austin Utility System Revenue, Series A,
AMBAC Insured, 6.75%, 11/15/07 ..................................................................... 800,000 836,624
Pre-Refunded, 8.00%, 11/15/16 ...................................................................... 50,000 51,236
Bexar County Health Facilities Development Corp. Revenue, Incarnate Word Health Services,
Refunding, FSA Insured, ETM,
6.00%, 11/15/15 .................................................................................... 3,000,000 3,227,160
Bexar County HFC, MFHR, Honey Creek Apartments Project, Series A, MBIA Insured,
6.125%, 4/01/20 .................................................................................... 1,000,000 1,024,520
6.20%, 4/01/30 ..................................................................................... 2,845,000 2,903,721
Bexar County HFC Revenue, GNMA Secured, 8.10%, 3/01/24 ............................................... 85,000 87,721
Bexar Metropolitan Water District Waterworks Systems Revenue, Refunding, MBIA Insured, 6.35%,
5/01/25 ............................................................................................ 1,890,000 1,976,184
Brazos Higher Education Authority Revenue, Student Loan Inc., Refunding, Series A-2, 6.80%,
12/01/04 ........................................................................................... 825,000 853,933
Brazos River Authority PCR, Texas Utilities Electric Co. Project, Collateralized,
Refunding, Series C, 5.55%, 6/01/30 ................................................................ 3,000,000 2,801,700
Series A, 7.875%, 3/01/21 .......................................................................... 500,000 516,130
Cameron County HFC, Collateralized Mortgage Obligation, Refunding, Series B, FGIC Insured, 7.85%,
3/01/24 ............................................................................................ 70,000 72,240
Castleberry ISD,
Pre-Refunded, 6.00%, 8/15/25 ....................................................................... 1,825,000 1,962,496
Refunding, 6.00%, 8/15/25 .......................................................................... 175,000 179,377
Comal County Health Facilities Development Corp. Revenue, McKenna Memorial Hospital, Refunding, FHA
Insured, 7.375%, 1/15/21 ............................................................................. 1,580,000 1,620,511
Corpus Christi HFC, SFMR, Refunding, Series A, MBIA Insured, 7.70%, 7/01/11 .......................... 580,000 606,454
Dallas Civic Center Convention Complex Revenue, senior lien, AMBAC Insured, Pre-Refunded, 7.00%,
1/01/10 ............................................................................................ 2,000,000 2,016,860
Dallas Housing Corp. Capital Projects Revenue, Section 8, Assisted Projects, Refunding, 7.70%,
8/01/05 ............................................................................................ 500,000 511,785
Dallas-Fort Worth International Airport Facilities Improvement Corp. Revenue,
American Airlines Inc., 6.375%, 5/01/35 ............................................................ 1,000,000 978,720
American Airlines Inc., Pre-Refunding, 8.00%, 11/01/24 ............................................. 1,000,000 1,024,870
American Airlines Inc., Refunding, 6.00%, 11/01/14 ................................................. 2,000,000 1,979,160
Delta Airlines Inc., 7.625%, 11/01/21 .............................................................. 2,000,000 2,083,520
Decatur Hospital Authority Hospital Revenue, Series A, 5.75%, 9/01/29 ................................ 4,245,000 3,475,424
Denison Hospital Authority Revenue, Texoma Medical Center Inc. Project, 7.00%, 8/15/14 ............... 1,250,000 1,246,625
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 .............................................. 305,000 320,381
Fort Worth HFC,
HMR, Refunding, Series A, 8.50%, 10/01/11 .......................................................... 515,000 537,356
SFMR, GNMA Secured, 8.25%, 12/01/11 ................................................................ 20,000 20,195
Gulf Coast Waste Disposal Authority Revenue,
Champion International Corp., Series A, 6.875%, 12/01/28 ........................................... 1,000,000 1,010,550
Valero Energy Corp. Project, 5.70%, 4/01/32 ........................................................ 3,000,000 2,631,690
Harris County Health Facilities Development Corp. Revenue, Hermann Hospital Project, FSA Insured,
Pre-Refunded, 7.00%, 10/01/14 ........................................................................ 750,000 785,490
Harrison County Health Facilities Development Corp. Hospital Revenue, Marshall Regional Medical ...... 1,750,000 1,621,025
Center Project, 5.50%, 1/01/18
Laredo ISD, GO, 5.25%, 8/01/24 ....................................................................... 4,000,000 3,811,480
Leon County PCR, Nucor Corp. Project, Refunding, Series A, 7.375%, 8/01/09 ........................... 2,000,000 2,075,740
Little Cypress Mauriceville Consolidated ISD, Refunding, 5.90%, 8/01/29 .............................. 2,130,000 2,177,180
Lower Colorado River Authority Revenue,
Refunding, Series B, AMBAC Insured, 7.00%, 1/01/11 ................................................. 55,000 56,511
Series B, AMBAC Insured, Pre-Refunded, 7.00%, 1/01/11 .............................................. 150,000 154,224
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 1,513,950
Mesquite Health Facilities Development Corp. Revenue, Retirement Facility, Christian Care Centers
Inc., Refunding, Series A, 6.40%,
2/15/16 ............................................................................................ 1,000,000 960,230
2/15/20 ............................................................................................ 2,000,000 1,879,500
Montgomery County Texas GO, Library,
FGIC Insured, Pre-Refunded, 6.75%, 9/01/10 ......................................................... 280,000 292,597
FGIC Insured, Pre-Refunded, 6.75%, 9/01/11 ......................................................... 295,000 308,272
Refunding, FGIC Insured, 6.75%, 9/01/10 ............................................................ 495,000 514,023
Refunding, FGIC Insured, 6.75%, 9/01/11 ............................................................ 530,000 550,267
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial Home Project,
Refunding, 6.30%, 2/15/15 .......................................................................... 1,530,000 1,486,211
Refunding, 6.375%, 2/15/20 ......................................................................... 2,785,000 2,672,681
Series A, 5.375%, 2/15/14 .......................................................................... 500,000 432,340
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project, Refunding, 5.60%,
1/01/27 ............................................................................................ 6,000,000 4,653,180
</TABLE>
90
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.65%, 12/01/22 ...... $ 2,000,000 $ 1,780,320
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 7,230,790
Richardson GO, Hotel Occupancy Certificates, Series A, FGIC Insured, 5.75%, 2/15/21 ............... 2,500,000 2,545,450
Sabine River Authority PCR,
Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%, 4/01/18 ....................... 5,000,000 5,211,750
Texas Utilities Electric Co. Project, Collateralized, Refunding, FGIC Insured, 6.55%, 10/01/22 . 1,200,000 1,251,720
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris Methodist Health, 4,000,000 4,248,040
FGIC Insured, ETM, 6.00%, 9/01/24
Tarrant County Health Facilities Development Corp. Revenue, Bethesda Living Centers, Series C,
5.75%, 8/15/18 ................................................................................. 1,570,000 1,317,638
8/15/28 ........................................................................................ 3,900,000 3,113,682
Texas City IDC, Marine Terminal Revenue, ARCO Pipe Line Co. Project, Refunding, 7.375%, 10/01/20 .. 500,000 602,045
Texas Housing Agency Residential Development Mortgage Revenue, Series A, 7.60%, 7/01/16 ........... 1,410,000 1,438,947
Texas State Department of Housing and Community Affairs HMR, Refunding, Series A, GNMA Secured,
6.95%, 7/01/23 ................................................................................. 1,420,000 1,471,986
Texas State GO, Veterans Housing Assistance Fund I, Refunding, 6.15%, 12/01/25 .................... 1,000,000 1,023,300
Texas State Higher Education Coordinating Board College Student Loan Revenue, senior lien, 7.70%,
10/01/25 ....................................................................................... 660,000 679,919
Texas State Turnpike Authority Revenue, Mountain Creek Lake Bridge, 7.00%, 1/01/07 ................ 20,000 20,222
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 .................................... 2,000,000 1,725,580
University of Texas University Revenues, Financing System, Refunding,
Series A, 7.00%, 8/15/07 ....................................................................... 665,000 693,076
Series A, 5.70%, 8/15/20 ....................................................................... 1,000,000 1,017,470
Series B, 6.75%, 8/15/13 ....................................................................... 1,300,000 1,348,373
Waco Health Facilities Development Corp. Hospital Revenue, Hillcrest Baptist Medical Center ....... 500,000 516,095
Project, MBIA Insured, 7.125%, 9/01/14
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 1,030,930
Wylie ISD, GO,
Pre-Refunded, 7.00%, 8/15/24 ................................................................... 660,000 779,975
Refunding, 7.00%, 8/15/24 ...................................................................... 340,000 387,814
------------
TOTAL LONG TERM INVESTMENTS (COST $105,501,103) ................................................... 104,355,534
------------
(a)SHORT TERM INVESTMENTS 2.3%
Guadalupe Blanco River Authority PCR, Central Power and Light Co. Project, Refunding, Daily VRDN
and Put, 4.35%, 11/01/15 ........................................................................ 900,000 900,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 3.50%, 7/01/28 ............................................................. 1,600,000 1,600,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $2,500,000) .................................................... 2,500,000
------------
TOTAL INVESTMENTS (COST $108,001,103) 98.6% ....................................................... 106,855,534
OTHER ASSETS, LESS LIABILITIES 1.4% ............................................................... 1,500,144
------------
NET ASSETS 100.0% ................................................................................. $108,355,678
============
</TABLE>
See glossary of terms on page 96.
(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. 91
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ---------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 10.79 $ 11.88 $ 11.88 $ 11.65 $ 11.72 $ 11.33
---------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .30 .59 .60 .62 .65 .66
Net realized and unrealized gains (losses) .47 (1.09) .03 .35 (.07) .38
---------------------------------------------------------------------------
Total from investment operations .77 (.50) .63 .97 .58 1.04
---------------------------------------------------------------------------
Less distributions from:
Net investment income (.30) (.59)(e) (.60)(f) (.64) (.64) (.65)
Net realized gains -- -- (.03) (.10) (.01) --
---------------------------------------------------------------------------
Total distributions (.30) (.59) (.63) (.74) (.65) (.65)
---------------------------------------------------------------------------
Net asset value, end of period $ 11.26 $ 10.79 $ 11.88 $ 11.88 $ 11.65 $ 11.72
===========================================================================
Total return(b) 7.18% (4.31)% 5.40% 8.53% 5.15% 9.41%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $340,082 $327,235 $379,670 $332,199 $287,172 $271,396
Ratios to average net assets:
Expenses .70%(c) .68% .68% .69% .69% .69%
Net investment income 5.38%(c) 5.19% 4.98% 5.29% 5.56% 5.66%
Portfolio turnover rate 3.15% 22.53% 8.90% 12.90% 19.25% 12.72%
CLASS C
-------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 10.86 $ 11.95 $ 11.95 $ 11.71 $ 11.77 $ 11.35
---------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .27 .53 .53 .57 .58 .49
Net realized and unrealized gains (losses) .48 (1.09) .03 .34 (.05) .41
---------------------------------------------------------------------------
Total from investment operations .75 (.56) .56 .91 .53 .90
---------------------------------------------------------------------------
Less distributions from:
Net investment income (.27) (.53)(e) (.53)(f) (.57) (.58) (.48)
Net realized gains -- -- (.03) (.10) (.01) --
---------------------------------------------------------------------------
Total distributions (.27) (.53) (.56) (.67) (.59) (.48)
---------------------------------------------------------------------------
Net asset value, end of period $ 11.34 $ 10.86 $ 11.95 $ 11.95 $ 11.71 $ 11.77
===========================================================================
Total return(b) 6.94% (4.82)% 4.78% 7.97% 4.61% 8.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 22,890 $ 21,454 $ 22,796 $ 13,186 $ 6,674 $ 2,050
Ratios to average net assets:
Expenses 1.24%(c) 1.23% 1.24% 1.25% 1.25% 1.26%(c)
Net investment income 4.84%(c) 4.64% 4.42% 4.72% 4.94% 5.06%(c)
Portfolio turnover rate 3.15% 22.53% 8.90% 12.90% 19.25% 12.72%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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 Class C, respectively.
(f) Includes distributions in excess of net investment income in the amount of
$.0005 and $.0004 for Class A and Class C, respectively.
92 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.7%
Abingdon IDA, Hospital Facilities Revenue, Johnston Memorial Hospital, Refunding, 5.375%, 7/01/28 .... $ 5,000,000 $ 4,421,200
Albermarle County IDAR,
Martha Jefferson Hospital, Refunding, 5.875%, 10/01/13 ............................................ 5,000,000 5,018,200
University of Virginia Health Services Foundation, Pre-Refunded, 6.50%, 10/01/22 .................. 1,125,000 1,191,533
Alexandria IDA, Educational Facilities Revenue, Episcopal High School, 5.875%, 1/01/29 ............... 2,500,000 2,547,225
Arlington County IDA, Hospital Facilities Revenue, Arlington Hospital, Series A, Pre-Refunded,
7.125%, 9/01/21 ................................................................................... 2,000,000 2,093,920
Augusta County IDAR, Augusta Hospital Corp. Project,
AMBAC Insured, Pre-Refunded, 6.625%, 9/01/12 ...................................................... 1,000,000 1,042,180
Pre-Refunded, 7.00%, 9/01/21 ...................................................................... 2,000,000 2,089,540
Augusta County Virginia Service Authority Water and Sewer Revenue, MBIA Insured, 5.00%, 11/01/24 ..... 2,000,000 1,874,680
Bedford County IDA, IDR, Nekoosa Packaging Corp. Project, Refunding,
5.60%, 12/01/25 ................................................................................... 11,000,000 9,889,660
6.30%, 12/01/25 ................................................................................... 2,000,000 1,989,740
Series A, 6.55%, 12/01/25 ......................................................................... 5,000,000 5,062,800
Chesapeake IDA, Public Facilities Lease Revenue, Chesapeake Jail Project, MBIA Insured, 6.00%,
6/01/12 ........................................................................................... 3,940,000 4,171,199
Chesapeake Toll Road Revenue, Expressway, Series A, 5.625%,
7/15/19 ........................................................................................... 2,000,000 1,913,660
7/15/32 ........................................................................................... 8,000,000 7,478,800
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 6.65%, 9/01/18 ............... 5,000,000 5,191,850
Danville COP, Social Services, Pre-Refunded, 7.625%, 4/01/13 ......................................... 2,000,000 2,075,740
Danville GO, Series 1991, Pre-Refunded, 6.75%,
2/01/10 ........................................................................................... 655,000 674,237
2/01/11 ........................................................................................... 705,000 725,706
Danville IDA,
Hospital Revenue, Danville Regional Medical Center, FGIC Insured, Pre-Refunded, 6.50%, 10/01/24 ... 5,000,000 5,430,950
Solid Waste Disposal Revenue, International Paper Co., 6.50%, 3/01/19 ............................. 500,000 508,970
Fairfax County EDA, Parking Revenue, Huntington Metrorail, Pre-Refunded, 7.00%, 9/01/10 .............. 1,000,000 1,020,000
Fairfax County EDA Revenue, National Wildlife Federation, MBIA Insured, 5.375%, 9/01/29 .............. 8,000,000 7,878,640
Fairfax County IDAR, Health Care, Inova Health System Project,
6.00%, 8/15/26 .................................................................................... 5,000,000 5,081,750
Refunding, Series A, 5.00%, 8/15/25 ............................................................... 5,000,000 4,543,100
Fairfax County Redevelopment and Housing Authority MFHR,
Cedar Ridge Apartments, GNMA Secured, 6.30%, 12/20/27 ............................................. 4,700,000 4,897,165
Paul Spring Center, Refunding, Series A, FHA Insured, 5.90%, 6/15/17 .............................. 1,000,000 1,030,120
Paul Spring Center, Refunding, Series A, FHA Insured, 6.00%, 12/15/28 ............................. 1,000,000 1,022,000
Fairfax County Sewer Revenue, MBIA Insured, 5.875%, 7/15/28 .......................................... 5,000,000 5,124,350
Frederick County IDA, Lease Revenue, Government Complex Facilities Project, MBIA Insured, 6.50%,
12/01/09 .......................................................................................... 2,040,000 2,210,503
Fredericksburg IDA, Hospital Facilities Revenue, Medicorp Health System Obligation, Refunding,
AMBAC Insured, 5.25%,
6/15/16 ........................................................................................... 1,860,000 1,853,918
6/15/23 ........................................................................................... 10,000,000 9,664,100
Front Royal and Warren County IDAR, Mortgage, Heritage Hall No. 13, Refunding, FHA Insured, 8.25%,
7/15/05 ........................................................................................... 15,000 15,068
(b)Gloucester County IDA Lease Revenue, Courthouse Project, MBIA Insured, 5.50%, 11/01/30 ............ 1,715,000 1,702,378
Goochland County IDA, IDR, Nekoosa Packaging Corp., Refunding, 5.65%, 12/01/25 5,500,000 4,991,525
Greater Richmond Convention Center Authority Hotel Tax Revenue, Convention Center Expansion
Project,
6.125%, 6/15/29 ................................................................................... 8,000,000 8,336,720
6.25%, 6/15/32 .................................................................................... 8,175,000 8,586,121
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 ............................................................. 830,000 878,522
Series A, 6.50%, 10/01/23 ......................................................................... 1,000,000 1,056,700
Halifax County IDA, Exempt Facilities Revenue, Old Dominion Electric Cooperative Project, 6.50%,
12/01/12........................................................................................... 3,000,000 3,117,420
Hampton Redevelopment and Housing Authority Senior Living Association Revenue, Refunding, Series
A, GNMA Secured,
6.00%, 1/20/26 .................................................................................... 1,060,000 1,082,981
Hampton Roads Medical College General Revenue, Refunding, Series A, 6.875%, 11/15/16 ................. 1,500,000 1,557,450
Hampton Roads Regional Jail Authority Jail Facilities Revenue, Series A, MBIA Insured, 5.00%,
7/01/28 ........................................................................................... 10,000,000 9,345,000
Hanover County Water and Sewer System Revenue, MBIA Insured, 5.25%, 2/01/26 .......................... 4,175,000 4,066,241
Harrisonburg GO, FSA Insured, 5.75%, 12/01/29 ........................................................ 1,000,000 1,019,280
Henrico County IDAR, Solid Waste, Browning-Ferris Industries, South Atlantic Inc., Series A,
5.875%, 3/01/17 ................................................................................... 1,000,000 875,920
Henry County IDA, Hospital Revenue, Memorial Hospital of Martinsville and Henry, Refunding, 6.00%,
1/01/27 ........................................................................................... 1,250,000 1,253,925
</TABLE>
93
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Isle Wight County IDA, Environmental Improvement Revenue, International Paper Company Project,
Series A, 6.60%, 5/01/24 ...................................................................... $2,000,000 $2,050,460
Leesburg Utilities System Revenue, Refunding, MBIA Insured, 5.125%, 7/01/22 ...................... 3,750,000 3,595,275
Loudoun County IDA, Hospital Revenue, Loudoun Hospital Center, FSA Insured, 5.80%, 6/01/26 ....... 3,000,000 3,039,690
Loudoun County Sanitation Authority Water and Sewer Revenue,
Refunding, FGIC Insured, 5.125%, 1/01/26 ...................................................... 3,795,000 3,606,426
Refunding, FGIC Insured, 5.125%, 1/01/30 ...................................................... 5,250,000 4,950,015
Series 96, FGIC Insured, 5.25%, 1/01/26 ....................................................... 6,500,000 6,330,805
Series 96, FGIC Insured, 5.25%, 1/01/30 ....................................................... 1,000,000 960,910
Lynchburg IDA, Healthcare Facilities Revenue, Centra Health, Refunding, 5.20%, 1/01/28 ........... 8,000,000 7,232,800
Lynchburg Redevelopment and Housing Authority Revenue, Waldon Pond III, Refunding, Series A, GNMA
Secured, 6.20%, 7/20/27 ....................................................................... 1,000,000 1,036,010
Mecklenburg County IDAR, Exempt Facility, Series A, 7.35%, 5/01/08 ............................... 4,500,000 4,629,105
Metropolitan Washington D.C. Airports Authority General Airport Revenue,
Refunding, Series A, FGIC Insured, 5.00%, 10/01/27 ............................................ 5,000,000 4,571,250
Series A, 7.60%, 10/01/14 ..................................................................... 1,000,000 1,021,890
Series A, 5.375%, 10/01/23 .................................................................... 3,985,000 3,879,557
Series B, 5.75%, 10/01/20 ..................................................................... 6,000,000 6,067,320
Middlesex County IDA, Lease Revenue, School Facilities Project, MBIA Insured,
5.875%, 8/01/21 ............................................................................... 1,420,000 1,467,854
6.10%, 8/01/26 ................................................................................ 1,725,000 1,829,259
Newport News IDA, Mortgage Revenue, Mennowood Communities Inc., Series A, GNMA Secured, 6.25%,
8/01/36 ....................................................................................... 2,965,000 3,092,139
Newport News Redevelopment and Housing Authority Revenue, Refunding, Series A, GNMA Secured,
5.85%, 12/20/30 ............................................................................... 4,060,000 4,103,036
Norfolk IDAR,
Children's Hospital of the Kings' Group Inc., AMBAC Insured, Pre-Refunded, 7.00%, 6/01/11 ..... 3,000,000 3,117,750
Health Care, Bon Secours Health, Series B, MBIA Insured, 5.25%, 8/15/26 ....................... 3,000,000 2,880,900
Norfolk Parking System Revenue, MBIA Insured, 5.55%, 2/01/27 ..................................... 2,000,000 2,003,880
Norfolk Water Revenue, MBIA Insured, 5.90%, 11/01/25 ............................................. 5,000,000 5,116,550
Peninsula Airport Commission Revenue, Airport Improvement, 7.25%, 7/15/11 ........................ 1,000,000 1,041,470
Peninsula Ports Authority Coal Terminal Revenue, Coal Terminal Association Project, Refunding,
7.375%, 6/01/20 ............................................................................... 5,480,000 5,702,488
Peninsula Ports Authority Health System Revenue, Riverside Health System Project, Series A,
Pre-Refunded, 6.625%, 7/01/18 ................................................................. 6,000,000 6,345,720
Peninsula Ports Authority Hospital Facilities Revenue, Whittaker Memorial Hospital Project,
Refunding, FHA Insured, 8.70%, 8/01/23......................................................... 50,000 60,493
Prince William County Service Authority Water and Sewer Systems Revenue, FGIC Insured, 5.50%,
7/01/29 ....................................................................................... 5,000,000 5,007,650
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y,
5.50%, 7/01/36 ................................................................................ 4,500,000 4,528,035
Pre-Refunded, 6.00%, 7/01/22 .................................................................. 2,000,000 2,198,860
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ................................................................................ 100,000 100,377
7.75%, 7/01/08 ................................................................................ 350,000 351,320
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Z, 5.25%, 7/01/21 ........................................................... 1,500,000 1,451,925
Series P, Pre-Refunded, 7.00%, 7/01/21 ........................................................ 1,500,000 1,565,475
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 .................................................... 2,005,000 2,046,905
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 ........................ 20,000 23,498
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 .................. 30,000 30,623
Richmond GO, Refunding and Improvement, Series A, FSA Insured, 5.125%, 1/15/24 ................... 2,000,000 1,901,900
Richmond Metropolitan Authority Expressway Revenue,
Refunding, Series B, FGIC Insured, 6.25%, 7/15/22 ............................................. 5,000,000 5,177,500
Series A, FGIC Insured, Pre-Refunded, 6.375%, 7/15/16 ......................................... 1,500,000 1,582,365
South Boston IDAR, Halifax Community Hospital Inc. Project, 7.375%, 9/01/11 ...................... 4,250,000 4,455,488
Spotsylvania County Water and Sewer System Revenue, MBIA Insured,
5.25%, 6/01/22 ................................................................................ 6,500,000 6,335,030
5.40%, 6/01/27 ................................................................................ 6,800,000 6,695,348
Staunton IDA, Facilities Revenue, Mary Baldwin College, Series B, Pre-Refunded, 8.00%, 11/01/17 .. 820,000 848,807
University of Virginia Revenue, Refunding, Series A, 5.00%, 6/01/24 .............................. 3,000,000 2,798,490
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/15 ...................................................................................... 1,500,000 1,459,530
10/01/18 ...................................................................................... 1,500,000 1,427,400
Virginia Beach Water and Sewer Revenue, 5.25%, 8/01/21 ........................................... 1,865,000 1,820,967
</TABLE>
94
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Virginia College Building Authority Educational Facilities Revenue,
Hampton University Project, 6.00%, 4/01/20 ...................................................... $ 1,500,000 $ 1,564,800
Marymount University Project, Pre-Refunded, 7.00%, 7/01/22 ...................................... 1,750,000 1,860,600
Washington and Lee University, 5.75%, 1/01/19 ................................................... 50,000 50,888
Virginia State HDA,
Commonwealth Mortgage, Series A, 7.10%, 1/01/17 ................................................. 1,000,000 1,034,850
Commonwealth Mortgage, Series A, 7.15%, 1/01/33 ................................................. 4,440,000 4,593,491
Commonwealth Mortgage, Series A, Sub Series A-1, 8.10%, 1/01/17 ................................. 5,000 5,012
Commonwealth Mortgage, Series B, Sub Series B-3, 7.375%, 7/01/17 ................................ 45,000 45,540
Commonwealth Mortgage, Series C, Sub Series C-3, 6.00%, 1/01/17 ................................. 2,000,000 2,057,560
Commonwealth Mortgage, Series D, Sub Series D-1, 6.40%, 7/01/17 ................................. 2,185,000 2,275,437
Commonwealth Mortgage, Series D, Sub Series D-2, 7.35%, 7/01/17 ................................. 155,000 155,473
MFH, Series C, 5.30%, 11/01/16 .................................................................. 2,830,000 2,817,633
MFH, Series F, 7.10%, 5/01/13 ................................................................... 9,000,000 9,271,530
MFH, Series H, 5.55%, 5/01/15 ................................................................... 1,000,000 1,011,090
Rental Housing, Series J, 5.80%, 2/01/19 ........................................................ 2,000,000 2,022,980
Rental Housing, Series L, 5.75%, 2/01/15 ........................................................ 1,000,000 1,023,260
SFHR, Series B, Subseries B-1, 5.95%, 7/01/18 ................................................... 2,000,000 2,065,860
Virginia State Resources Authority Water and Sewer System Revenue,
Pooled Loan Program, Series A, ETM, 7.35%, 11/01/16 ............................................. 45,000 45,208
Pooled Loan Program, Series A, ETM, 7.45%, 11/01/16 ............................................. 10,000 10,048
Rapidan Service Authority, Refunding, 5.30%, 10/01/18 ........................................... 1,610,000 1,606,217
Virginia State Resources Authority Water System Revenue, Refunding, Series A, 6.125%, 4/01/19 ...... 1,000,000 1,012,070
Virginia State Transportation Board Transportation Contract Revenue, U.S. Route 28 Project,
Refunding, 6.50%, 4/01/18 ....................................................................... 9,000,000 9,343,980
Washington County IDA,
College Facilities Revenue, Emory and Henry College Project, 6.375%, 4/01/23 .................... 3,295,000 3,339,647
Hospital Facilities Revenue, First Mortgage, Johnston Memorial Hospital, Pre-Refunded, 7.00%,
7/01/22 ......................................................................................... 3,000,000 3,192,300
West Point IDA, Solid Waste Disposal Revenue, Chesapeake Corp. Project, Refunding, Series B,
6.25%, 3/01/19 .................................................................................. 5,450,000 5,242,301
Winchester IDA, Educational Facilities Revenue, First Mortgage, Shenandoah University Project,
Asset Guaranteed,
6.80%, 10/01/24 ................................................................................. 185,000 199,857
Pre-Refunded, 6.80%, 10/01/24 ................................................................... 1,000,000 1,105,640
York County Sewer Revenue, 5.875%,
6/01/24 ......................................................................................... 500,000 515,410
6/01/29 ......................................................................................... 1,500,000 1,541,320
------------
TOTAL LONG TERM INVESTMENTS (COST $353,888,425) .................................................... 358,153,234
------------
(a)SHORT TERM INVESTMENTS .5%
Lynchburg IDA, Hospital Facility First Mortgage Revenue, VHA Mid-Atlantic/Capital, Series A, AMBAC
Insured, Weekly VRDN and Put,
4.25%, 12/01/25 ................................................................................. 200,000 200,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put,
3.50%, 7/01/28 .................................................................................. 800,000 800,000
Roanoke IDA Hospital Revenue, Carilion Health System, Series B, Daily VRDN and Put, 4.35%, 7/01/27 . 795,000 795,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,795,000) ..................................................... 1,795,000
------------
TOTAL INVESTMENTS (COST $355,683,425) 99.2% ........................................................ 359,948,234
OTHER ASSETS, LESS LIABILITIES .8% ................................................................. 3,023,279
------------
NET ASSETS 100.0% .................................................................................. $362,971,513
============
</TABLE>
See glossary of terms on page 96.
(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. 95
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
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
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
IDC - Industrial Development Corp.
IDAR - Industrial Development Authority/Agency Revenue
IDB - Industrial Development Board
IDBR - Industrial Development Board Revenue
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
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
RDA - Redevelopment Authority/Agency
RDAR - Redevelopment Authority/Agency Revenue
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VHA - Veterans Administration
VRDN - Variable Rate Demand Notes
96
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ..................................... $222,875,366 $1,543,436,598 $168,838,853 $69,149,821
==========================================================================
Value .................................... 219,208,046 1,579,867,117 171,121,210 68,941,616
Cash ....................................... 56,581 1,176,330 56,127 261,170
Receivables:
Capital shares sold ...................... 354,322 1,926,543 465,816 17,247
Interest ................................. 3,525,912 27,425,341 2,326,734 1,005,290
--------------------------------------------------------------------------
Total assets .......................... 223,144,861 1,610,395,331 173,969,887 70,225,323
--------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .......... -- 29,044,092 5,000,000 --
Capital shares redeemed .................. 349,020 4,249,028 195,084 38,427
Affiliates ............................... 134,099 815,723 105,968 22,877
Shareholders ............................. 93,604 780,629 73,278 157,204
Distributions to shareholders .............. 414,479 2,839,955 309,912 126,012
Other liabilities .......................... 28,377 129,629 25,526 9,342
--------------------------------------------------------------------------
Total liabilities ..................... 1,019,579 37,859,056 5,709,768 353,862
--------------------------------------------------------------------------
Net assets, at value ................ $222,125,282 $1,572,536,275 $168,260,119 $69,871,461
==========================================================================
Net assets consist of:
Accumulated distributions in excess
of net investment income ................. (350,121) (596,745) (243,692) (85,681)
Net unrealized appreciation
(depreciation) ........................... (3,667,320) 36,430,519 2,282,357 (208,205)
Accumulated net realized loss .............. (2,093,082) (13,806,179) (2,355,814) (1,154,741)
Capital shares ............................. 228,235,805 1,550,508,680 168,577,268 71,320,088
--------------------------------------------------------------------------
Net assets, at value ................ $222,125,282 $1,572,536,275 $168,260,119 $69,871,461
==========================================================================
CLASS A:
Net assets, at value ....................... $207,795,050 $1,499,969,070 $153,556,572 $69,871,461
==========================================================================
Shares outstanding ......................... 18,928,453 132,950,032 13,390,325 6,470,498
==========================================================================
Net asset value per share(a)................ $ 10.98 $ 11.28 $ 11.47 $ 10.80
==========================================================================
Maximum offering price per share
(net asset value per share / 95.75%) ..... $ 11.47 $ 11.78 $ 11.98 $ 11.28
==========================================================================
CLASS B:
Net assets, at value ....................... -- $ 2,708,210 -- --
==========================================================================
Shares outstanding ......................... -- $ 239,439 -- --
==========================================================================
Net asset value and maximum offering
price per share(a)........................ -- $ 11.31 -- --
==========================================================================
CLASS C:
Net assets, at value ....................... $ 14,330,232 $ 69,858,995 $ 14,703,547 --
==========================================================================
Shares outstanding ......................... 1,297,907 6,137,257 1,273,987 --
==========================================================================
Net asset value per share(a)................ $ 11.04 $ 11.38 $ 11.54 --
==========================================================================
Maximum offering price per share
(net asset value per share / 99%) ......... $ 11.15 $ 11.49 $ 11.66 --
==========================================================================
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements. 97
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
AUGUST 31, 2000 (UNAUDITED)
<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 .......................................................... $ 162,919,067 $ 244,953,094 $ 384,041,130 $ 366,478,249
=============================================================
Value ......................................................... 163,005,774 247,233,049 385,529,636 368,814,149
Cash ........................................................... 277,088 646,623 653,755 86,162
Receivables:
Capital shares sold ........................................... 123,284 262,655 217,046 489,722
Interest ...................................................... 2,805,188 3,867,201 6,167,050 5,812,548
-------------------------------------------------------------
Total assets .............................................. 166,211,334 252,009,528 392,567,487 375,202,581
-------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............................... -- -- 7,093,350 4,920,336
Capital shares redeemed ....................................... 514,979 332,746 2,346,950 401,484
Affiliates .................................................... 101,899 152,803 222,780 222,555
Shareholders .................................................. 157,707 173,071 255,654 138,493
Distributions to shareholders .................................. 294,773 428,831 668,799 645,190
Other liabilities .............................................. 20,846 27,754 35,804 41,266
-------------------------------------------------------------
Total liabilities ......................................... 1,090,204 1,115,205 10,623,337 6,369,324
-------------------------------------------------------------
Net assets, at value ..................................... $ 165,121,130 $ 250,894,323 $ 381,944,150 $ 368,833,257
=============================================================
Net assets consist of:
Undistributed net investment income ............................ $ -- $ 9,781 $ -- $ 83,587
Accumulated distributions in excess of net investment income ... (231,099) -- (91,954) --
Net unrealized appreciation .................................... 86,707 2,279,955 1,488,506 2,335,900
Accumulated net realized loss .................................. (1,730,511) (1,849,503) (3,630,267) (4,409,174)
Capital shares ................................................. 166,996,033 250,454,090 384,177,865 370,822,944
-------------------------------------------------------------
Net assets, at value ..................................... $ 165,121,130 $ 250,894,323 $ 381,944,150 $ 368,833,257
=============================================================
CLASS A:
Net assets, at value ........................................... $ 153,503,393 $ 232,860,519 $ 356,815,653 $ 328,226,867
=============================================================
Shares outstanding ............................................. 14,014,530 21,003,835 31,010,882 28,530,436
=============================================================
Net asset value per share(a).................................... $ 10.95 $ 11.09 $ 11.51 $ 11.50
=============================================================
Maximum offering price per share
(net asset value per share / 95.75%) .......................... $ 11.44 $ 11.58 $ 12.02 $ 12.01
=============================================================
CLASS C:
Net assets, at value ........................................... $ 11,617,737 $ 18,033,804 $ 25,128,497 $ 40,606,390
=============================================================
Shares outstanding ............................................. 1,053,483 1,612,667 2,174,781 3,505,099
=============================================================
Net asset value per share(a).................................... $ 11.03 $ 11.18 $ 11.55 $ 11.58
=============================================================
Maximum offering price per share
(net asset value per share / 99%) ............................. $ 11.14 $ 11.29 $ 11.67 $ 11.70
=============================================================
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
98 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN
TEXAS TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND
-----------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost ................................................................ $ 108,001,103 $ 355,683,425
=================================
Value ............................................................... 106,855,534 359,948,234
Cash ................................................................. 67,401 72,343
Receivables:
Capital shares sold ................................................. 183,694 533,762
Interest ............................................................ 1,713,019 5,514,489
---------------------------------
Total assets .................................................... 108,819,648 366,068,828
---------------------------------
Liabilities:
Payables:
Investment securities purchased ..................................... -- 1,700,845
Capital shares redeemed ............................................. 95,367 335,548
Affiliates .......................................................... 69,299 209,599
Shareholders ........................................................ 78,579 175,158
Distributions to shareholders ........................................ 199,501 643,114
Other liabilities .................................................... 21,224 33,051
---------------------------------
Total liabilities ............................................... 463,970 3,097,315
---------------------------------
Net assets, at value ........................................... $ 108,355,678 $ 362,971,513
=================================
Net assets consist of:
Accumulated distributions in excess of net investment income ......... (163,342) (5,703)
Net unrealized appreciation (depreciation) ........................... (1,145,569) 4,264,809
Accumulated net realized loss ........................................ (1,446,317) (3,748,133)
Capital shares ....................................................... 111,110,906 362,460,540
---------------------------------
Net assets, at value ........................................... $ 108,355,678 $ 362,971,513
=================================
CLASS A:
Net assets, at value ................................................. $ 103,973,551 $ 340,081,616
=================================
Shares outstanding ................................................... 9,885,772 30,196,376
=================================
Net asset value per share(a).......................................... $ 10.52 $ 11.26
=================================
Maximum offering price per share (net asset value per share / 95.75%). $ 10.99 $ 11.76
=================================
CLASS C:
Net assets, at value ................................................. $ 4,382,127 $ 22,889,897
=================================
Shares outstanding ................................................... 410,986 2,017,806
=================================
Net asset value per share(a).......................................... $ 10.66 $ 11.34
=================================
Maximum offering price per share (net asset value per share / 99%) ... $ 10.77 $ 11.45
=================================
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements. 99
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest .......................................... $6,706,428 $48,191,316 $4,978,619 $1,945,508
----------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 608,903 3,647,955 475,840 207,372
Distribution fees (Note 3)
Class A ......................................... 102,812 743,371 75,817 33,553
Class B ......................................... -- 4,294 -- --
Class C ......................................... 44,531 231,457 46,771 --
Transfer agent fees (Note 3) ...................... 45,579 288,041 44,080 15,229
Custodian fees .................................... 1,001 8,113 815 326
Reports to shareholders ........................... 11,042 69,448 7,847 3,607
Registration and filing fees ...................... 6,146 16,487 5,282 1,373
Professional fees (Note 3) ........................ 3,981 18,177 5,022 3,402
Trustees' fees and expenses ....................... 1,185 8,856 903 335
Other ............................................. 9,146 33,434 7,099 5,479
----------------------------------------------------------------------
Total expenses ................................ 834,326 5,069,633 669,476 270,676
Expenses waived/paid by affiliate (Note 3) .... -- -- -- (120,510)
----------------------------------------------------------------------
Net expenses ................................. 834,326 5,069,633 669,476 150,166
----------------------------------------------------------------------
Net investment income ...................... 5,872,102 43,121,683 4,309,143 1,795,342
----------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ......... (151,336) 2,652,493 (216,981) (28,146)
Net unrealized appreciation on investments ........ 7,619,063 53,303,222 6,783,886 2,430,998
----------------------------------------------------------------------
Net realized and unrealized gain .................... 7,467,727 55,955,715 6,566,905 2,402,852
----------------------------------------------------------------------
Net increase in net assets resulting from operations $13,339,829 $99,077,398 $10,876,048 $4,198,194
======================================================================
</TABLE>
100 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<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 ..................................................... $ 4,942,581 $7,291,941 $11,287,641 $10,801,914
----------------------------------------------------------
Expenses:
Management fees (Note 3) ..................................... 465,661 669,201 969,136 931,549
Distribution fees (Note 3)
Class A .................................................... 72,956 112,307 174,526 162,072
Class C .................................................... 36,409 56,909 78,688 128,742
Transfer agent fees (Note 3) ................................. 30,597 63,953 90,674 82,621
Custodian fees ............................................... 790 1,158 1,899 1,802
Reports to shareholders ...................................... 6,205 10,759 16,071 15,471
Registration and filing fees ................................. 3,216 7,879 8,711 10,441
Professional fees (Note 3) ................................... 3,866 4,750 6,439 5,779
Trustees' fees and expenses .................................. 818 1,284 1,992 1,896
Other ........................................................ 7,368 8,751 12,995 10,457
----------------------------------------------------------
Total expenses ........................................... 627,886 936,951 1,361,131 1,350,830
----------------------------------------------------------
Net investment income ................................... 4,314,695 6,354,990 9,926,510 9,451,084
----------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments .................... (28,343) (591,753) (2,334,743) 635,006
Net unrealized appreciation on investments ................... 6,195,959 10,775,479 18,744,147 14,146,387
----------------------------------------------------------
Net realized and unrealized gain ............................... 6,167,616 10,183,726 16,409,404 14,781,393
----------------------------------------------------------
Net increase in net assets resulting from operations ........... $10,482,311 $16,538,716 $26,335,914 $24,232,477
==========================================================
</TABLE>
See notes to financial statements. 101
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Franklin Franklin
Texas Tax-Free Virginia Tax-Free
Income Fund Income Fund
----------------------------------------
<S> <C> <C>
Investment income:
Interest ..................................................................... $ 3,464,264 $10,760,527
----------------------------------------
Expenses:
Management fees (Note 3) ..................................................... 332,291 925,166
Distribution fees (Note 3)
Class A ..................................................................... 46,491 170,558
Class C ..................................................................... 14,472 70,800
Transfer agent fees (Note 3) ................................................. 26,787 81,896
Custodian fees ............................................................... 512 1,798
Reports to shareholders ...................................................... 5,218 12,680
Registration and filing fees ................................................. 6,660 10,091
Professional fees (Note 3) ................................................... 3,842 6,124
Trustees' fees and expenses .................................................. 580 1,769
Other ........................................................................ 6,527 10,634
----------------------------------------
Total expenses ............................................................. 443,380 1,291,516
----------------------------------------
Net investment income ..................................................... 3,020,884 9,469,011
----------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ................................... (323,421) 28,585
Net unrealized appreciation on investments .................................. 3,457,231 15,290,121
----------------------------------------
Net realized and unrealized gain ............................................. 3,133,810 15,318,706
----------------------------------------
Net increase in net assets resulting from operations ......................... $ 6,154,694 $24,787,717
========================================
</TABLE>
See notes to financial statements.
102
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 5,872,102 $ 13,068,175 $ 43,121,683 $ 93,382,603
Net realized gain (loss) from investments ........ (151,336) (1,941,746) 2,652,493 (16,458,672)
Net unrealized appreciation (depreciation)
on investments .................................. 7,619,063 (21,033,255) 53,303,222 (142,566,112)
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ....................... 13,339,829 (9,906,826) 99,077,398 (65,642,181)
Distributions to shareholders from:
Net investment income:
Class A .......................................... (5,539,163) (12,239,187) (41,233,338) (88,822,812)
Class B .......................................... -- -- (31,312) (671)
Class C .......................................... (332,939) (756,383) (1,742,219) (3,823,746)
In excess of net investment income:
Class A .......................................... (287,130) -- -- --
Class C .......................................... (17,259) -- -- --
Net realized gains:
Class A .......................................... -- (148,882) -- (135,167)
Class C .......................................... -- (10,265) -- (6,472)
----------------------------------------------------------------------------
Total distributions to shareholders ................ (6,176,491) (13,154,717) (43,006,869) (92,788,868)
Capital share transactions: (Note 2)
Class A .......................................... (2,171,540) (13,868,546) (63,119,047) (125,007,930)
Class B .......................................... -- -- 2,342,341 302,068
Class C .......................................... (179,019) 677,121 (4,820,802) (3,115,486)
Total capital share transactions ................... (2,350,559) (13,191,425) (65,597,508) (127,821,348)
----------------------------------------------------------------------------
Net increase (decrease) in net assets .......... 4,812,779 (36,252,968) (9,526,979) (286,252,397)
Net assets:
Beginning of period ............................... 217,312,503 253,565,471 1,582,063,254 1,868,315,651
----------------------------------------------------------------------------
End of period ..................................... $ 222,125,282 $ 217,312,503 $ 1,572,536,275 $ 1,582,063,254
============================================================================
Accumulated distributions in excess of net
investment income included in net assets:
End of period ..................................... $ (350,121) $ (45,732) $ (596,745) $ (711,559)
============================================================================
</TABLE>
See notes to financial statements.
103
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (cont.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (unaudited)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 4,309,143 $ 8,988,243 $ 1,795,342 $ 3,507,656
Net realized loss from investments ..................... (216,981) (2,138,833) (28,146) (284,008)
Net unrealized appreciation (depreciation)
on investments ....................................... 6,783,886 (13,879,003) 2,430,998 (6,088,136)
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ....................................... 10,876,048 (7,029,593) 4,198,194 (2,864,488)
Distributions to shareholders from:
Net investment income:
Class A ................................................ (3,969,891) (8,186,323) (1,795,342) (3,507,656)
Class C ................................................ (339,252) (801,920) -- --
In excess of net investment income:
Class A ................................................ (58,435) (100,850) (31,788) (34,103)
Class C ................................................ (4,994) (9,879) -- --
Net realized gains:
Class A ................................................ -- (23,508) -- --
Class C ................................................ -- (3,091) -- --
-----------------------------------------------------------------------
Total distributions to shareholders ...................... (4,372,572) (9,125,571) (1,827,130) (3,541,759)
Capital share transactions: (Note 2)
Class A ................................................ (4,050,092) 1,509,896 3,536,051 5,854,989
Class C ................................................ (673,956) (820,507) -- --
-----------------------------------------------------------------------
Total capital share transactions ......................... (4,724,048) 689,389 3,536,051 5,854,989
Net increase (decrease) in net assets ................ 1,779,428 (15,465,775) 5,907,115 (551,258)
Net assets:
Beginning of period ..................................... 166,480,691 181,946,466 63,964,346 64,515,604
-----------------------------------------------------------------------
End of period ........................................... $ 168,260,119 $ 166,480,691 $ 69,871,461 $ 63,964,346
=======================================================================
Accumulated distributions in excess of net
investment income included in net assets:
End of period ......................................... $ (243,692) $ (180,263) $ (85,681) $ (53,893)
=======================================================================
</TABLE>
See notes to financial statements
104
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (cont.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (unaudited)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................. $ 4,314,695 $ 8,654,539 $ 6,354,990 $ 13,205,525
Net realized loss from investments .................... (28,343) (736,633) (591,753) (1,257,750)
Net unrealized appreciation (depreciation) on
investments ......................................... 6,195,959 (14,692,161) 10,775,479 (22,644,506)
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .................................... 10,482,311 (6,774,255) 16,538,716 (10,696,731)
Distributions to shareholders from:
Net investment income:
Class A ................................................ (4,043,410) (8,110,734) (5,920,450) (12,280,580)
Class C ................................................ (271,285) (543,805) (405,473) (811,996)
In excess of net investment income:
Class A ................................................ (83,297) (125,703) -- --
Class C ................................................ (5,589) (8,428) -- --
Net realized gains:
Class A ................................................ -- -- -- (671,937)
Class C ................................................ -- -- -- (49,584)
-----------------------------------------------------------------------
Total distributions to shareholders ...................... (4,403,581) (8,788,670) (6,325,923) (13,814,097)
Capital share transactions: (Note 2)
Class A ................................................ 3,544,289 651,808 2,205,774 (9,036,275)
Class C ................................................ 468,630 1,859,055 1,811 2,181,571
-----------------------------------------------------------------------
Total capital share transactions ......................... 4,012,919 2,510,863 2,207,585 (6,854,704)
Net increase (decrease) in net assets ................. 10,091,649 (13,052,062) 12,420,378 (31,365,532)
Net assets:
Beginning of period ..................................... 155,029,481 168,081,543 238,473,945 269,839,477
-----------------------------------------------------------------------
End of period ........................................... $ 165,121,130 $ 155,029,481 $ 250,894,323 $ 238,473,945
=======================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of period ........................................... $ (231,099) $ (142,213) $ 9,781 $ (19,286)
=======================================================================
</TABLE>
See notes to financial statements.
105
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (cont.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (unaudited)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 9,926,510 $ 20,504,194 $ 9,451,084 $ 19,588,689
Net realized gain (loss) from investments ............ (2,334,743) (1,294,847) 635,006 (4,497,133)
Net unrealized appreciation (depreciation) on
investments ........................................ 18,744,147 (38,852,616) 14,146,387 (32,761,195)
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... 26,335,914 (19,643,269) 24,232,477 (17,669,639)
Distributions to shareholders from:
Net investment income:
Class A ............................................. (9,366,437) (19,673,225) (8,517,100) (17,719,073)
Class C ............................................. (575,593) (1,107,347) (939,089) (1,865,114)
In excess of net investment income:
Class A ............................................. (86,630) -- -- --
Class C ............................................. (5,324) -- -- --
Net realized gains:
Class A ............................................. -- (440,938) -- --
Class C ............................................. -- (27,138) -- --
-----------------------------------------------------------------------
Total distributions to shareholders ................... (10,033,984) (21,248,648) (9,456,189) (19,584,187)
Capital share transactions: (Note 2)
Class A ............................................. (5,087,644) (1,853,841) (31,646) (1,025,431)
Class C ............................................. 544,151 5,587,652 411,251 4,366,780
-----------------------------------------------------------------------
Total capital share transactions ...................... (4,543,493) 3,733,811 379,605 3,341,349
Net increase (decrease) in net assets .............. 11,758,437 (37,158,106) 15,155,893 (33,912,477)
Net assets:
Beginning of period .................................. 370,185,713 407,343,819 353,677,364 387,589,841
-----------------------------------------------------------------------
End of period ........................................ $ 381,944,150 $ 370,185,713 $ 368,833,257 $ 353,677,364
=======================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of period ...................................... $ (91,954) $ 15,520 $ 83,587 $ 88,692
=======================================================================
</TABLE>
See notes to financial statements.
106
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (cont.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (unaudited)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN TEXAS FRANKLIN VIRGINIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................................... $ 3,020,884 $ 6,530,342 $ 9,469,011 $ 19,808,581
Net realized gain (loss) from investments ................ (323,421) (1,122,896) 28,585 (3,765,083)
Net unrealized appreciation (depreciation) on investments 3,457,231 (12,032,853) 15,290,121 (33,598,028)
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ........................................ 6,154,694 (6,625,407) 24,787,717 (17,554,530)
Distributions to shareholders from:
Net investment income:
Class A .................................................. (2,909,609) (6,300,306) (8,919,024) (18,739,563)
Class C .................................................. (111,275) (230,036) (522,916) (1,069,018)
In excess of net investment income:
Class A .................................................. (4,117) (28,407) -- (13,986)
Class C .................................................. (158) (1,037) -- (798)
Net realized gains:
Class A .................................................. -- (440,542) -- --
Class C .................................................. -- (17,396) -- --
-----------------------------------------------------------------------
Total distributions to shareholders ....................... (3,025,159) (7,017,724) (9,441,940) (19,823,365)
Capital share transactions: (Note 2)
Class A .................................................. (3,460,644) (10,195,252) (1,549,581) (17,320,792)
Class C .................................................. (395,500) (47,324) 486,219 922,447
-----------------------------------------------------------------------
Total capital share transactions ......................... (3,856,144) (10,242,576) (1,063,362) (16,398,345)
Net increase (decrease) in net assets .................. (726,609) (23,885,707) 14,282,415 (53,776,240)
Net assets:
Beginning of period ...................................... 109,082,287 132,967,994 348,689,098 402,465,338
-----------------------------------------------------------------------
End of period ............................................ $ 108,355,678 $ 109,082,287 $ 362,971,513 $ 348,689,098
=======================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of period .......................................... $ (163,342) $ (159,067) $ (5,703) $ (32,774)
=======================================================================
</TABLE>
See notes to financial statements.
107
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-six separate
series. All Funds included in this report (the Funds) 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. 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>
108
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
At August 31, 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>
Six months ended August 31, 2000
Shares sold ......................................................... 791,372 $ 8,538,099 4,294,795 $ 47,450,702
Shares issued in reinvestment of distributions ...................... 227,865 2,456,466 1,087,518 12,017,299
Shares redeemed ..................................................... (1,224,095) (13,166,105) (11,120,206) (122,587,048)
-----------------------------------------------------------
Net decrease ........................................................ (204,858) $ (2,171,540) (5,737,893) $ (63,119,047)
===========================================================
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)
===========================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold ......................................................... 209,653 $ 2,320,761
Shares issued in reinvestment of distributions ...................... 1,940 21,580
------------------------------
Net increase ........................................................ 211,593 $ 2,342,341
==============================
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:
Six months ended August 31, 2000
Shares sold ......................................................... 108,097 $ 1,180,699 220,745 $ 2,457,681
Shares issued in reinvestment of distributions ...................... 16,995 184,239 69,977 779,941
Shares redeemed ..................................................... (142,990) (1,543,957) (722,805) (8,058,424)
-----------------------------------------------------------
Net decrease ........................................................ (17,898) $ (179,019) (432,083) $ (4,820,802)
===========================================================
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)
===========================================================
</TABLE>
(a)For the period February 1, 2000 (effective date) to February 29, 2000
109
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
<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>
Six months ended August 31, 2000
Shares sold ........................................... 622,246 $ 6,993,411 733,048 $ 7,746,631
Shares issued in reinvestment of distributions ........ 170,758 1,914,049 79,476 838,184
Shares redeemed ....................................... (1,158,862) (12,957,552) (478,753) (5,048,764)
--------------------------------------------------------------------
Net increase (decrease) ............................... (365,858) $ (4,050,092) 333,771 $ 3,536,051
====================================================================
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
====================================================================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold ........................................... 101,243 $ 1,149,513
Shares issued in reinvestment of distributions ........ 17,432 196,662
Shares redeemed ....................................... (179,403) (2,020,131)
--------------------------------
Net decrease .......................................... (60,728) $ (673,956)
================================
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)
================================
</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>
Six months ended August 31, 2000
Shares sold ........................................... 1,378,826 $ 14,692,605 1,347,678 $ 14,635,716
Shares issued in reinvestment of distributions ........ 163,931 1,756,040 292,388 3,161,834
Shares redeemed ....................................... (1,204,214) (12,904,356) (1,443,155) (15,591,776)
--------------------------------------------------------------------
Net increase .......................................... 338,543 $ 3,544,289 196,911 $ 2,205,774
====================================================================
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)
====================================================================
Class C Shares:
Six months ended August 31, 2000
Shares sold ........................................... 116,285 $ 1,256,746 182,820 $ 2,000,041
Shares issued in reinvestment of distributions ........ 13,847 149,343 27,218 296,888
Shares redeemed ....................................... (86,920) (937,459) (210,914) (2,295,118)
--------------------------------------------------------------------
Net increase (decrease) ............................... 43,212 $ 468,630 (876) $ 1,811
====================================================================
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
====================================================================
</TABLE>
110
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(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>
Six months ended August 31, 2000
Shares sold ........................................... 2,111,172 $ 23,727,615 1,674,660 $ 18,771,659
Shares issued in reinvestment of distributions ........ 385,852 4,328,088 377,965 4,246,380
Shares redeemed ....................................... (2,950,828) (33,143,347) (2,053,959) (23,049,685)
--------------------------------------------------------------------
Net decrease .......................................... (453,804) $ (5,087,644) (1,334) $ (31,646)
====================================================================
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)
====================================================================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold ........................................... 215,446 $ 2,433,870 248,462 $ 2,819,974
Shares issued in reinvestment of distributions ........ 35,729 402,523 53,356 603,543
Shares redeemed ....................................... (204,135) (2,292,242) (266,138) (3,012,266)
--------------------------------------------------------------------
Net increase .......................................... 47,040 $ 544,151 35,680 $ 411,251
====================================================================
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
====================================================================
</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>
Six months ended August 31, 2000
Shares sold ........................................... 209,847 $ 2,163,269 1,465,013 $ 16,129,578
Shares issued in reinvestment of distributions ........ 114,244 1,179,761 399,031 4,391,495
Shares redeemed ....................................... (658,829) (6,803,674) (2,007,489) (22,070,654)
--------------------------------------------------------------------
Net decrease .......................................... (334,738) $ (3,460,644) (143,445) $ (1,549,581)
====================================================================
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)
====================================================================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold ........................................... 21,621 $ 228,756 280,083 $ 3,108,048
Shares issued in reinvestment of distributions ........ 6,919 72,427 28,543 316,392
Shares redeemed ....................................... (66,548) (696,683) (265,825) (2,938,221)
--------------------------------------------------------------------
Net increase (decrease) ............................... (38,008) $ (395,500) 42,801 $ 486,219
====================================================================
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
====================================================================
</TABLE>
111
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(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 net assets
of the Funds as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH-END NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
Advisers agreed in advance to waive a portion of the management fees for the
Franklin Kentucky Tax-Free Income Fund, as noted in the Statement of Operations.
The Funds reimburse Distributors up to .10%, .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 period as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY LOUISIANA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions paid ............................... $10,999 $87,987 $15,436 $11,458 $74,083
Contingent deferred sales charges .................. $ 3,821 $29,635 $ 3,700 $-- $10,819
</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 ................................ $20,268 $13,529 $35,693 $1,438 $ 6,990
Contingent deferred sales charges ................... $ 7,725 $ 6,209 $ 7,053 $1,192 $11,732
</TABLE>
The Funds paid transfer agent fees of $769,457, of which $632,629 was paid to
Investor Services.
Included in professional fees are legal fees of $11,339 that were paid to a law
firm in which a partner of that firm was an officer of the Funds.
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>
112
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
4. INCOME TAXES (cont.)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in:
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 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 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 August 31, 2000, the net unrealized appreciation (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 ....................... $ 222,875,366 $ 1,543,436,598 $ 168,838,853 $ 69,149,821 $ 162,919,067
=====================================================================================
Unrealized appreciation ................... 4,956,596 59,636,717 5,205,653 1,840,208 4,332,068
Unrealized depreciation ................... (8,623,916) (23,206,198) (2,923,296) (2,048,413) (4,245,361)
-------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (3,667,320) $ 36,430,519 $ 2,282,357 $ (208,205) $ 86,707
=====================================================================================
</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 ....................... $ 244,953,094 $ 384,041,130 $ 366,478,249 $ 108,001,103 $355,683,425
=====================================================================================
Unrealized appreciation ................... 6,500,656 10,960,272 9,787,769 3,024,462 9,647,304
Unrealized depreciation ................... (4,220,701) (9,471,766) (7,451,869) (4,170,031) (5,382,495)
-------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 2,279,955 $ 1,488,506 $ 2,335,900 $ (1,145,569) $ 4,264,809
=====================================================================================
</TABLE>
113
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 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 .................. $15,997,775 $103,925,521 $20,577,590 $5,918,145 $8,011,165
Sales ...................... $19,222,577 $163,602,797 $24,154,748 $3,002,805 $4,600,934
</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 ................. $27,640,525 $58,893,078 $23,363,451 $10,398,590 $10,967,076
Sales ..................... $27,828,050 $73,725,401 $23,143,343 $16,529,794 $14,072,425
</TABLE>
6. DEFAULTED SECURITIES
At August 31, 2000, the Franklin Alabama Tax-Free Income Fund, the Franklin
Florida Tax-Free Income Fund, and the Franklin Kentucky Tax-Free Income Fund
held defaulted securities with a value aggregating $3,520,000, $9,180,000 and
$175,000, representing 1.58%, .58%, and .25%, respectively, of each fund's 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.
114
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Tax-Free Trust's semiannual report for the
six months ended August 31, 2000.
The U.S. economy continued its trend of strong growth during the six-month
review period, as second quarter annualized gross domestic product increased
5.6% on the heels of a 4.8% rise in the first quarter. Concerned that this
growth, combined with a historically low unemployment rate, would lead to
inflationary pressures, the Federal Open Market Committee (FOMC) raised the
federal funds target rate twice during the reporting period, with the last
increase occurring in May when they brought the rate to 6.5%. The Federal
Reserve Board's (the Fed's) decision to hold short-term rates steady at the June
and August FOMC meetings, together with a moderate 0.1% increase in August's
Consumer Price Index, suggested that the economy could be feeling the impact of
the recent rate increases and might be slowing to a more sustainable pace.
The municipal bond market performed well over the reporting period following a
difficult year in 1999 and a slow start in the first quarter of 2000, in which
strong economic numbers and the federal funds target rate increases hampered
bond prices. The belief that these rate increases were beginning to achieve
their desired effect of slowing the economy and that, for the time being, the
Fed would hold off on further tightening led to a general decline in long-term
interest rates. The yield on the 30-year Treasury bond fell from 6.14% at the
beginning of the period, to 5.67% on August 31, 2000, and the 10-year Treasury
note declined from 6.41% to 5.73%. Furthermore, the municipal bond market
generally trended with the 30-year Treasury bond and
CONTENTS
Shareholder Letter ............... 1
Fund Reports
Franklin Arizona
Tax-Free Income Fund ........... 4
Franklin Colorado
Tax-Free Income Fund ........... 10
Franklin Connecticut
Tax-Free Income Fund ........... 14
Franklin Federal
Intermediate-Term
Tax-Free Income Fund ........... 19
Franklin High Yield
Tax-Free Income Fund ........... 22
Franklin New Jersey
Tax-Free Income Fund ........... 28
Franklin Oregon
Tax-Free Income Fund ........... 34
Franklin Pennsylvania
Tax-Free Income Fund ........... 39
Franklin Puerto Rico
Tax-Free Income Fund ........... 46
Municipal Bond Ratings ........... 50
Financial Highlights &
Statements of Investments ........ 52
Financial Statements ............. 116
Notes to Financial Statements .... 127
FUND CATEGORY
[PYRAMID GRAPHIC]
<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.
saw yields decrease. The Bond Buyer Municipal Bond Index (Bond Buyer 40), an
indicator of the municipal bond market, decreased from a yield of 6.17% to 5.72%
for the same period.(1) Bond yields and prices move in an inverse relationship,
so that as yields fall, prices rise.
In addition to the respite from interest-rate tightening, lower supply favorably
impacted municipal bond prices. The booming economy, which increased revenues
for most municipalities, reduced the need for borrowing to finance capital
projects. From January through August 31, 2000, national municipal bond issuance
was down 20.3%, compared to the same period in 1999.(2) Lower supply and
continued high demand for municipal bonds among insurance and mutual fund
companies, as well as retail investors, contributed to their price increase. The
government announced a buyback of 30-year Treasury bonds, which increased their
price and decreased their yield. This meant that, on a relative basis, long-term
municipal bond yields have been attractive. During the six months under review,
municipal bonds, as measured by the Bond Buyer 40, yielded as much as 104% of a
comparable Treasury bond's yield.(1) Historically this ratio is about 90%. Since
municipal bonds are tax-exempt, generally they yield less than Treasuries, which
are subject to federal income tax. When municipal bonds are yielding nearly the
same as Treasuries, investors are able to take advantage of the tax exemption at
little extra cost.
Municipal bond funds continue to be attractive for those investors seeking
tax-free income. Depending on your federal and state tax rates, a taxable
investment of comparable credit quality 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 continue to monitor
inflationary tendencies closely. If the economy slows toward the end of 2000,
the bond markets could continue their positive trend. Predicting market 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
funds' total return performance.
1. Source: The Bond Buyer. The unmanaged Bond Buyer Municipal Bond Index is
composed of the yield to maturity of 40 bonds. The index attempts to track the
new-issue market as closely as possible, so it changes bonds twice a month,
adding all new bonds that meet certain requirements and deleting an equivalent
number according to their secondary market trading activity. As a result, the
average par call date, average maturity date and average coupon rate change over
time. The average maturity generally has been about 29-30 years.
2. Source: The Bond Buyer, 9/1/2000.
2
<PAGE>
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
3
<PAGE>
FRANKLIN ARIZONA TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Arizona Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 44.8%
AA - 15.5%
A - 20.9%
BBB - 14.1%
Below Investment Grade - 4.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Arizona Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Arizona state personal income
taxes through a portfolio consisting primarily of Arizona municipal bonds.(1)
--------------------------------------------------------------------------------
STATE UPDATE
[ARIZONA STATE GRAPHIC] Arizona's economy retained its positive growth trend and
continues to be one of the nation's fastest-growing states. Job growth in the
first three months of the year reached 4.8%, stronger than the 4.1% pace
recorded in first quarter 1999.(2) Recent gains in light manufacturing,
telecommunications-based services, and software and computer services drove
strong employment growth. Despite the state's rapid population growth rate, four
times the national rate and the second-highest in the nation after Nevada,
Arizona's unemployment in July 2000 was only 3.6%, the lowest since 1969 and
lower than the national average of 4.0%.(3,4)
Arizona's population and personal income increases bolstered the banking, real
estate and retail trade sectors as consumers maintained their buying spree in
early 2000. Personal income in 1999 was up 7.0% versus 1998, placing Arizona
seventh nationally in rate of growth.(2) Retail sales increased nearly 12% and
per-capita retail sales were on par with national averages.(3) In contrast to
national readings, which declined in recent months, consumer confidence among
Arizonans remained at record highs.(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.
2. Source: The Business Journal of Phoenix, Arizona Economy Going Strong,
6/27/00.
3. Source: Standard & Poor's(R), Ratings Direct, 6/7/00.
4. Source: Bureau of Labor Statistics, 8/23/00.
5. Source: The University of Arizona at Tucson, Arizona's Economy, 7/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 54.
4
<PAGE>
Strength in the California and national economies, plus the likelihood of a
worldwide economic rebound, bode well for Arizona. Economic growth in
California, the state's leading domestic trading partner, outpaced that of the
nation in the second quarter of 2000. Mexico, Arizona's leading international
trading partner, is expected to grow by 4.0% in 2000.(6) Arizona is
well-positioned for continued growth.
The state maintained a healthy financial outlook during the reporting period.
Rising employment and vibrant economic activity resulted in revenue growth,
which outpaced increased spending and more than offset recent income tax cuts.
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.(7) With personal income, employment and
population projected to grow faster than the national average, we anticipate a
bright future for Arizona bonds.
PORTFOLIO NOTES
We attempted to take advantage of higher interest rates offered during the first
half of the six-month reporting period to restructure the Fund's portfolio,
seeking to improve the Fund's income-producing potential and call protection. We
sold lower yielding bonds at a loss and reinvested the proceeds at higher
yields. These losses can be used to offset any current or future capital gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions. In addition, we sold bonds with
shorter call protection and bought similar coupon bonds with longer calls. Some
of the bonds we sold were Salt River Project; Navajo, AZ, Arizona Public Service
and Phoenix Civic Improvement Corp. Excise Tax.
The decline in interest rates during the latter part of the period resulted in
generally increasing bond prices. Accordingly, Franklin Arizona Tax-Free Income
Fund's Class A share price, as measured by net asset value, increased from
$10.31 per share on February 29, 2000, to $10.71 on August 31, 2000.
6. Source: Arizona Office of the Governor, The Executive Mid-Biennium Update
Fiscal Years 2000 and 2001, 1/00.
7. Source: Joint Legislative Budget Committee Fiscal Policy Analysis for the
Arizona Legislature, 1/00.
PORTFOLIO BREAKDOWN
Franklin Arizona
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities* 26.8%
Hospital & Health Care 19.6%
Prerefunded 11.0%
General Obligation 8.3%
Transportation 7.8%
Tax-Supported 6.2%
Housing 5.2%
Corporate-Backed 5.1%
Subject to Government
Appropriation 3.8%
Higher Education 3.1%
Other Revenue 3.1%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
5
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
March 4.77 cents 4.29 cents 4.30 cents
April 4.77 cents 4.29 cents 4.30 cents
May 4.77 cents 4.29 cents 4.30 cents
June 4.77 cents 4.24 cents 4.29 cents
July 4.77 cents 4.24 cents 4.29 cents
August 4.77 cents 4.24 cents 4.29 cents
--------------------------------------------------------------------------------
TOTAL 28.62 CENTS 25.59 CENTS 25.77 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.
The majority of our purchases were higher-rated or insured securities, which
improved the Fund's overall credit profile. AAA-rated securities represented
44.8% of the Fund's total long-term investments at period's end. Purchases
during the period included Tucson, Arizona, Water Revenue; Arizona Health
Facilities Authority Catholic Healthcare West Revenue; and Arizona Capital
Facilities Finance Corp. Student Housing Revenue.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 8 shows
that at the end of this reporting period, the Fund's Class A shares'
distribution rate was 5.12%, based on an annualization of the current 4.77 cent
($0.0477) per share
6
<PAGE>
dividend and the maximum offering price of $11.19 on August 31, 2000. An
investor in the maximum combined federal and Arizona state personal income tax
bracket of 42.64% would need to earn 8.93% 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.
Arizona's new bond issuance from January through August 2000 was $1.974 billion,
down 15.0% from the same period in 1999.(8) Going forward, reduced new-issue
supply combined with strong retail demand for Arizona municipal bonds should
continue to keep prices firm for investors seeking tax-free income. We intend to
maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current tax-free income.
8. Source: The Bond Buyer, 9/1/00.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
7
<PAGE>
FRANKLIN ARIZONA
TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
--------------------------------------------------------------------------------
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.78%
Net Asset Value (NAV) $10.71 (8/31/00) $10.31 (2/29/00)
Change in NAV +$0.40
Distributions (3/1/00-8/31/00) Dividend Income $0.2862
CLASS B
Six-Month Total Return +6.65%
Net Asset Value (NAV) $10.74 (8/31/00) $10.32 (2/29/00)
Change in NAV +$0.42
Distributions (3/1/00-8/31/00) Dividend Income $0.2559
CLASS C
Six-Month Total Return +6.44%
Net Asset Value (NAV) $10.78 (8/31/00) $10.38 (2/29/00)
Change in NAV +$0.40
Distributions (3/1/00-8/31/00) Dividend Income $0.2577
</TABLE>
Past performance does not guarantee future results.
8
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.40% +26.53% +90.87% +137.67%
Average Annual Total Return(2) -0.07% +3.92% +6.22% +6.49%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +7.34%
Aggregate Total Return(2) +3.34%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +3.90% +23.19% +28.32%
Average Annual Total Return(2) +1.87% +4.06% +4.52%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.12% 4.79% 4.72%
Taxable Equivalent Distribution Rate(4) 8.93% 8.35% 8.23%
30-Day Standardized Yield(5) 4.76% 4.43% 4.38%
Taxable Equivalent Yield(4) 8.30% 7.72% 7.64%
</TABLE>
For updated performance figures, see "Prices and Performance" at
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 for
Class B) per share on 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
Bond prices, and thus the Fund's share price, generally move in the opposite
direction from interest rates. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions, and
you may have a gain or loss when you sell your shares.
--------------------------------------------------------------------------------
9
<PAGE>
FRANKLIN COLORADO TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Colorado Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 65.9%
AA - 8.7%
A - 12.7%
BBB - 12.7%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
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 GRAPHIC] Colorado's economy, which grew during the nation's 1991-1992
recession, continued its impressive, above-average expansion. Revised employment
data shows 3.8% growth in 1999, outpacing national trends.(2) Employment now
mirrors the nation's and has become more diversified among services, trade,
government and manufacturing. The construction and high technology sectors led
recent growth, particularly the software and communications fields.
The state's 2.7% unemployment rate as of July 2000 is much lower than the
country's 4.0% rate, despite a high 11% population growth rate over the past
five years.(3) Although large previous net in-migration, particularly from
California, has been diminishing, Colorado attracted $1.3 billion of venture
capital in 1999. At 30.4% versus 23.6% nationwide, the state boasts a
greater-than-average share of college graduates in its workforce, which
continues to attract high technology firms. Colorado's 1999 personal income
growth rate of 7.9% remained strong.(2)
With unabated economic growth and prudent fiscal management practices under the
taxpayer bill of rights (TABOR) voter initiative, Colorado has maintained a
strong financial position. Debt ratios remained very low with overall
tax-supported net debt of 0.06% of personal income or just $18 per capita,
compared with the $540 national median. Additionally, revenues exceeded budget
projections despite a state income tax rate cut. Fiscal Year 1999 ended with a
general fund balance of $345.7 million, which is a solid 5.2% of
expenditures.(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, 8/16/00.
3. Source: Bureau of Labor Statistics, 8/23/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 60.
10
<PAGE>
Colorado's outlook is stable, reflecting the expectation that the state will
maintain its strong economic performance and favorable fiscal position. Standard
& Poor's, an independent credit rating agency, projects that Colorado's growth
rate will remain one of the nation's highest.
PORTFOLIO NOTES
We attempted to take advantage of higher interest rates offered during the first
half of the six-month reporting period to restructure the Fund's portfolio,
seeking to improve the Fund's income-producing potential and call protection. We
sold lower yielding bonds at a loss and reinvested the proceeds at higher
yields. Such losses can be used to offset any current or future capital gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions. In addition, we sold bonds with
shorter call protection and bought similar coupon bonds with longer calls. Some
of the bonds we sold were Colorado Springs Utilities Revenue, Colorado Springs
Hospital Revenue and Colorado Health Facilities Authority Revenue Children's
Hospital.
The decline in interest rates during the latter part of the period resulted in
generally increasing bond prices. Accordingly, Franklin Colorado Tax-Free Income
Fund's Class A share price, as measured by net asset value, increased from
$10.90 per share on February 29, 2000, to $11.35 on August 31, 2000.
The majority of our purchases were higher-rated or insured securities, which
improved the Fund's overall credit profile. AAA-rated securities represented
65.9% of the Fund's total long-term investments at period's end. Purchases
during the period included Colorado Springs Hospital Revenue, Denver City and
County COP, Colorado Housing Finance Authority Multi-Family Housing Revenue, and
Broomfield Water Activity Enterprise Water Revenue.
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 13 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 4.95 cent ($0.0495) per
share dividend and
PORTFOLIO BREAKDOWN
Franklin Colorado
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care 24.6%
Transportation 14.2%
Subject to Government
Appropriation 13.2%
Utilities 11.3%
Prerefunded 10.7%
Housing 9.2%
Tax-Supported 5.4%
General Obligation 3.6%
Corporate-Backed 3.1%
Higher Education 2.8%
Other Revenue 1.9%
</TABLE>
11
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Colorado Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.95 cents 4.47 cents
April 4.95 cents 4.47 cents
May 4.95 cents 4.47 cents
June 4.95 cents 4.44 cents
July 4.95 cents 4.44 cents
August 4.95 cents 4.44 cents
TOTAL 29.70 CENTS 26.73 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.
the maximum offering price of $11.85 on August 31, 2000. An investor in the
maximum combined federal and Colorado state personal income tax bracket of
42.47% 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 rate for Class C shares.
Colorado's new bond issuance from January through August 2000 was $3.3 billion,
up 23.3% from the same period in 1999, giving us ample opportunities for
selective purchasing.(4) Going forward, municipal bond supply for the remainder
of 2000 is expected to remain stable. We intend to maintain our conservative,
buy-and-hold investment strategy as we attempt to provide shareholders with
high, current tax-free income.
4. Source: The Bond Buyer, 9/1/00.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
12
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.97%
Net Asset Value (NAV) $11.35 (8/31/00) $10.90 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2970
CLASS C
Six-Month Total Return +6.64%
Net Asset Value (NAV) $11.41 (8/31/00) $10.96 (2/29/00)
Change in NAV +$0.45
Distributions (3/1/00-8/31/00) Dividend Income $0.2673
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.46% +27.53% +94.19% +144.38%
Average Annual Total Return(2) +0.04% +4.07% +6.40% +6.71%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +3.97% +24.31% +29.77%
Average Annual Total Return(2) +1.99% +4.24% +4.72%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.01% 4.61%
Taxable Equivalent Distribution Rate(4) 8.71% 8.01%
30-Day Standardized Yield(5) 4.69% 4.30%
Taxable Equivalent Yield(4) 8.15% 7.47%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN COLORADO TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
13
<PAGE>
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Connecticut Tax-Free
Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 38.6%
AA - 23.8%
A - 7.6%
BBB - 30.0%
*Quality breakdown may include internal ratings for bonds not rated by an
independent 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
[GRAPHIC] Connecticut is basking in the warmth of the nation's red-hot economy.
Partly due to Wall Street's recent success, the state has now recouped all of
the jobs lost during the early 1990s' recession, with non-farm job growth of 2%
in 1998 and 1.5% in 1999. While job growth has trailed the national average, the
state's unemployment rate was better than the nation's, falling to a record low
of 2.2% in January 2000. Connecticut has produced a budget surplus annually
since 1992 and expects to end fiscal year 2000 with a surplus of more than $400
million. Reflecting these good times, Standard & Poor's, an independent credit
rating agency, has assigned the state's general obligation debt an AA rating.(2)
The state has maintained its budget surpluses, while significantly reducing the
motor fuel tax. Once the nation's highest, Connecticut's tax has fallen from 39
cents per gallon in 1997 to 25 cents as of July 1, 2000. This reduction is
expected to cost approximately $100 million per year for the next four fiscal
years, but strong income tax growth as well as adjustments in spending should
more than make up for it.(3)
Looking to the future, Connecticut's tight labor market, slow population growth
and high wage costs could cool the economic expansion. However, several new
programs were designed to enhance its business climate and foster further
economic growth.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable.
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, 6/15/00. This does not indicate
Standard and Poor's rating of the Fund.
3. Source: Moody's(R) Investors Service, New Issue Report: Connecticut (State
of), 6/28/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 64.
14
<PAGE>
The most significant of these initiatives are business tax credits, corporate
and sales tax rate cuts, corporation tax credits for research and development,
and property tax abatements for several types of equipment.
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, later in the period, the
interest-rate picture appeared to stabilize, as the Fed chose to leave interest
rates steady. Their strategy gave many investors confidence that the pace of
economic growth began to slow during the second quarter and inflation no longer
posed such a serious threat. Municipal bonds reacted well to the news of a
possible economic growth slowdown, and in fact, fixed income markets experienced
positive returns year-to-date.
Lower municipal bond supply also brought some stability to the municipal market.
For the first eight months of 2000, Connecticut's new-issuance was down 1.4%
from the same period in 1999, as the higher interest-rate environment
discouraged municipalities from borrowing to finance new projects and from
refunding existing debt.(4) Furthermore, this reduced supply was met with
demand, as investors and bond funds received cash from June and July coupon and
call payments. In this environment, Franklin Connecticut Tax-Free Income Fund's
Class A share price, as measured by net asset value, increased from $10.06 on
February 29, 2000, to $10.46 on August 31, 2000.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, increasing the portfolio's income. As opportunities presented
themselves, we sold bonds with higher cost bases to book tax losses, which can
be carried forward to offset future gains. This strategy seeks to optimize tax
efficiency in a municipal bond fund and minimize the portfolio's taxable
distributions, potentially lowering shareholders' future tax liabilities. We
also sold the portfolio's seasoned holdings.
4. Source: The Bond Buyer, 9/1/00.
PORTFOLIO BREAKDOWN
Franklin Connecticut
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Hospital & Health Care* 32.1%
Prerefunded 18.1%
Housing 14.3%
Higher Education 13.3%
Utilities 10.9%
Other Revenue 2.4%
General Obligation 2.2%
Tax-Supported 2.1%
Subject to Government
Appropriation 1.9%
Transportation 1.7%
Corporate-Backed 1.0%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as hospitals & health care. A change that affects one
project may affect all similar projects, thereby increasing market risk.
15
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Connecticut Tax-Free Income Fund
3/1/00-8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.63 cents 4.18 cents
April 4.63 cents 4.18 cents
May 4.63 cents 4.18 cents
June 4.65 cents 4.19 cents
July 4.65 cents 4.19 cents
August 4.65 cents 4.19 cents
--------------------------------------------------------------------------------
TOTAL 27.84 CENTS 25.11 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.
with shorter call dates and shorter maturities. Some of the holdings we sold
were Bridgeport GO and Connecticut State Health and Education Facilities
Authority Revenue for Yale New Haven Hospital, Greenwich Hospital and Trinity
College. The Fund then reinvested the proceeds in bonds with longer call
structures or longer maturities and higher yields. As a result, the Fund was
able to increase its Class A share dividend from 4.63 cents to 4.65 cents per
share during the period.
The Fund maintained its high quality during the six months under review, and on
August 31, 2000, 62.4% of the Fund's total long-term investments were rated AA
or higher. In addition, we bought issues in a number of different sectors,
preserving the portfolio's broad diversification. Purchases during the period
included Connecticut State Housing Finance Authority, University of Connecticut
Revenue Student Fee, Puerto Rico Commonwealth and Connecticut State Health and
Education Facilities Authority Revenue for Danbury Hospital and Connecticut
College Project.
16
<PAGE>
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary on page 18 shows that at
the end of this reporting period, the Fund's Class A shares' distribution rate
was 5.11%, based on an annualization of the current 4.65 cent ($0.0465) per
share dividend and the maximum offering price of $10.92 on August 31, 2000. An
investor in the maximum combined federal and Connecticut state personal income
tax bracket of 42.32% would need to earn 8.86% 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 are optimistic about the outlook for Connecticut, its
municipal bonds and Franklin Connecticut Tax-Free Income Fund. We intend to
maintain our conservative buy-and-hold investment strategy as we attempt to
provide shareholders with high, current tax-free income.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
17
<PAGE>
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.86%
Net Asset Value (NAV) $10.46 (8/31/00) $10.06 (2/29/00)
Change in NAV +$0.40
Distributions (3/1/00-8/31/00) Dividend Income $0.2784
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C
Six-Month Total Return +6.45%
Net Asset Value (NAV) $10.49 (8/31/00) $10.10 (2/29/00)
Change in NAV +$0.39
Distributions (3/1/00-8/31/00) Dividend Income $0.2511
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +3.38% +25.23% +82.59% +104.94%
Average Annual Total Return(2) -1.02% +3.70% +5.74% +5.78%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +2.81% +21.66% +27.03%
Average Annual Total Return(2) +0.78% +3.79% +4.32%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
--------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 5.11% 4.73%
Taxable Equivalent Distribution Rate(4) 8.86% 8.20%
30-Day Standardized Yield(5) 4.77% 4.39%
Taxable Equivalent Yield(4) 8.27% 7.61%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
18
<PAGE>
FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Federal Intermediate-Term Tax-Free Income Fund seeks
to provide high, current income exempt from regular federal income tax through a
portfolio of municipal bonds with an average weighted maturity (the time in
which a debt must be repaid) between three and 10 years.(1)
--------------------------------------------------------------------------------
PORTFOLIO NOTES
During the six months under review, the municipal bond market rebounded after a
challenging period as interest rates generally declined. Responding to the rapid
pace of economic growth and slightly higher inflation, the Federal Reserve Board
(the Fed) increased the federal funds target rate by 50 basis points in May to
6.50%. Anticipating this Fed action, municipal bond interest rates rose and
prices declined. However, in line with recent indicators that economic growth
might be slowing to a more sustainable pace, the Fed did not raise the federal
funds target rate at their June and August meetings. Interest rates promptly
fell and municipal bonds performed better by the end of the period. The
intermediate-term bond market, in particular, strengthened as investors
concerned about Fed activity opted for shorter-term bonds, which are generally
less volatile than long-term bonds.
The yield on the 10-year U.S. Treasury note decreased from 6.41% on February 29,
2000, to 5.73% on August 31, 2000, but reached a high of 6.56% on May 8, 2000.
The municipal bond market generally trended with the 10-year Treasury note, and
saw yields decrease. The Municipal Market Data 10-year yield at the beginning of
the reporting period was 5.23% versus 4.69% on August 31.(2) Bond yield and
price move in opposite directions; thus, Franklin Federal Intermediate-Term
Tax-Free Income Fund's Class A share price, as measured by net asset value,
increased from $10.52 per share on February 29, 2000, to $10.78 on
August 31, 2000.
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. Municipal Market Data is an independent company that produces a widely used
daily yield curve for bonds of various ratings.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 67.
CREDIT QUALITY BREAKDOWN*
Franklin Federal Intermediate-Term
Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 15.2%
AA - 7.0%
A - 22.8%
BBB - 50.8%
Below Investment Grade - 4.2%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
19
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Federal Intermediate-Term
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities* 25.1%
Hospital & Health Care 16.9%
Corporate-Backed 14.6%
Subject to Government Appropriation 11.5%
General Obligation 7.6%
Housing 6.2%
Transportation 5.7%
Tax-Supported 5.0%
Higher Education 3.7%
Prerefunded 3.2%
Other Revenue 0.5%
</TABLE>
*The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
DIVIDEND DISTRIBUTIONS*
Franklin Federal Intermediate-Term
Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND
MONTH PER SHARE
--------------------------------------------------------------------------------
<S> <C>
March 4.3 cents
April 4.3 cents
May 4.3 cents
June 4.3 cents
July 4.3 cents
August 4.3 cents
--------------------------------------------------------------------------------
TOTAL 25.8 CENTS
</TABLE>
* Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
During the period, the Fund primarily focused on lightening its percentage of
BBB- or lower-rated securities and increasing its percentage of credits rated A
or better to increase the Fund's overall credit quality. Fund purchases included
Youngstown, Ohio, General Obligation; Sylacauga, Alabama, General Obligation;
and Denver, Colorado, City and County Certificate of Participation. This
strategy offered 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. It also helped improve the Fund's tax efficiency,
reducing its level of bonds subject to the alternative minimum tax from 10.43%
to 9.10% of total long-term investments during the six-month reporting period.
We think it bears repeating that 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 4.73%, based on an annualization of the current 4.35 cent ($0.0435) per
share dividend and the maximum offering price of $11.03 on August 31, 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 7.83% from a taxable investment to match the
Fund's tax-free distribution rate.
Going forward, we hold a positive outlook for fixed-income markets, although we
expect the markets to remain somewhat volatile in the near term, as they respond
to the strength of the economy and inflationary pressures. However, longer term
we feel that sustained economic expansion and smaller supply of new-issue
municipal bonds at $124 billion from January through August 2000, compared with
$155 billion for the same period in 1999, should continue to keep municipal bond
prices firm.(3)
3. Source: The Bond Buyer, 9/1/00.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
20
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and does not include the sales charge. Distributions will vary
based on earnings of the Fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of the Fund's operating
expenses. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +5.02%
Net Asset Value (NAV) $10.78 (8/31/00) $10.52 (2/29/00)
Change in NAV +$0.26
Distributions (3/1/00-8/31/00) Dividend Income $0.258
</TABLE>
ADDITIONAL PERFORMANCE
As of 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR (9/21/92)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +3.70% +26.12% +57.32%
Average Annual Total Return(2) +1.36% +4.27% +5.51%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A
--------------------------------------------------------------------------------
<S> <C>
Distribution Rate(3) 4.73%
Taxable Equivalent Distribution Rate(4) 7.83%
30-Day Standardized Yield(5) 4.57%
Taxable Equivalent Yield(4) 7.57%
</TABLE>
For updated performance figures, see "Prices and Performance" at
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
--------------------------------------------------------------------------------
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 the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum sales charge.
3. Distribution rate is based on an annualization of the current 4.35 cent per
share dividend and the maximum offering price of $11.03 on 8/31/00.
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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
21
<PAGE>
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin High Yield Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 21.0%
AA - 2.8%
A - 10.8%
BBB - 23.6%
Below Investment Grade - 41.8%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
--------------------------------------------------------------------------------
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
Interest rates fell sharply during the six-month period ended August 31, 2000,
as evidenced by the 10-year Treasury note's yield declining from 6.41% at the
beginning of the reporting period to 5.73% at the end. New-issue municipal bond
supply was down significantly, declining 20.0% to $124 billion in the first
eight months of 2000 compared with the same period in 1999.(2) Supply will
likely come in below $200 billion for the entire year, well below 1998's and
1999's totals. Within this environment, Franklin High Yield Tax-Free Income
Fund's Class A share price, as measured by net asset value, increased from
$10.41 per share on February 29, 2000, to $10.55 on August 31, 2000.
Despite the improving environment, several factors offered challenges to the
Fund. First, high yield funds historically have underperformed in times of
declining interest rates, as this benefits investment-grade funds more than high
yield funds, because credit quality is another important factor in pricing high
yield bonds. Second, the
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.
2. Source: The Bond Buyer, 9/1/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 74.
22
<PAGE>
ongoing widening of yield spreads between lower- and higher-rated debt due to
problems in some sectors resulted in lower prices for many high yield bonds.
Third, lower interest rates led to lower yields on new issues and, more
importantly, led to current refundings for many outstanding high yield issues.
Finally, the Fund was hurt by investments in certain sectors that did not fare
as well as others. In particular, health care and project finance-related bond
issues were the most volatile over the period and negatively impacted the Fund's
performance and income.
On the positive side, the recent yield difference made lower-rated bonds more
attractive in the market. Using our research experience along with our
value-added approach to investing, we aggressively looked for the best
opportunities for lower-rated bonds, especially at a time when real rates and
yields remained very appealing. An important purchase during the period included
Allegheny County, Pennsylvania, Hospital Revenue Bonds. Recent market conditions
also enabled us to sell bonds to book tax losses, which can be carried forward
in the portfolio to help offset any taxable capital gains in the future and
potentially lower shareholders' future tax liabilities.
With more than $45 billion in municipal assets under management, Franklin was
able to use the entire Fund group's buying power to find and structure issues to
fit our needs. Most dealers, issuers and underwriters know and trust Franklin
and will come to us to assist them in structuring and pricing new issues. When
selling, we often are able to take advantage of strong retail demand in the
secondary market, which can provide more liquidity and price support for our
holdings.
PORTFOLIO BREAKDOWN
Franklin High Yield
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Utilities* 29.0%
Prerefunded 14.8%
Tax-Supported 14.7%
Hospital & Health Care 12.6%
Transportation 8.4%
Corporate-Backed 6.2%
General Obligation 5.0%
Other Revenue 3.6%
Housing 3.3%
Subject to Government
Appropriation 2.1%
Higher Education 0.3%
</TABLE>
* The Fund may invest more than 25% in municipal securities that finance similar
types of projects such as utilities. A change that affects one project may
affect all similar projects, thereby increasing market risk.
23
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin High Yield Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
March 5.4 cents 4.94 cents 4.92 cents
April 5.4 cents 4.94 cents 4.92 cents
May 5.4 cents 4.94 cents 4.92 cents
June 5.4 cents 4.91 cents 4.91 cents
July 5.4 cents 4.91 cents 4.91 cents
August 5.4 cents 4.91 cents 4.91 cents
--------------------------------------------------------------------------------
Total 32.4 cents 29.55 cents 29.49 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 to high yield bonds' general attractiveness is municipal securities'
overall appeal. At the end of the reporting period, municipal bonds offered very
attractive yields and a significant tax advantage over a comparable taxable
investment. For example, on August 31, 2000, the Bond Buyer Municipal Bond Index
yielded 5.72%, while the 10-year U.S. Treasury note yielded 5.73%, resulting in
a municipal-to-Treasury yield ratio of 99%, higher than the 93% 10-year
average.(3) The Performance Summary beginning on page 26 shows on August 31,
2000, the Fund's Class A shares' distribution rate was 5.66%, based on an
annualization of the current 5.2 cent ($0.0520)
3. 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. The index is unmanaged and includes reinvested
interest. One cannot invest directly in an index.
24
<PAGE>
per share dividend and the maximum offering price of $11.02. 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 9.37% 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, the reduced supply of new-issue municipal bonds should improve
the performance of municipal bond funds for the remainder of the year. In our
opinion, lower-rated issues are poised to perform more strongly in the future.
We intend to maintain our conservative, buy-and-hold investment strategy as we
attempt to provide shareholders with high, current tax-free income.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
25
<PAGE>
FRANKLIN HIGH YIELD
TAX-FREE INCOME FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
--------------------------------------------------------------------------------
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +4.55%
Net Asset Value (NAV) $10.55 (8/31/00) $10.41 (2/29/00)
Change in NAV +$0.14
Distributions (3/1/00-8/31/00) Dividend Income $0.3240
</TABLE>
<TABLE>
<S> <C> <C>
CLASS B
Six-Month Total Return +4.25%
Net Asset Value (NAV) $10.59 (8/31/00) $10.45 (2/29/00)
Change in NAV +$0.14
Distributions (3/1/00-8/31/00) Dividend Income $0.2955
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C
Six-Month Total Return +4.32%
Net Asset Value (NAV) $10.63 (8/31/00) $10.48 (2/29/00)
Change in NAV +$0.15
Distributions (3/1/00-8/31/00) Dividend Income $0.2949
</TABLE>
Past performance does not guarantee future results.
26
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/18/86)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +1.66% +28.63% +100.28% +185.25%
Average Annual Total Return(2) -2.70% +4.26% +6.73% +7.16%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +1.09% +0.30%
Average Annual Total Return(2) -2.74% -1.93%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +1.09% +25.31% +31.79%
Average Annual Total Return(2) -0.85% +4.41% +5.03%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Distribution Rate(3) 5.66% 5.35% 5.26%
Taxable Equivalent Distribution Rate(4) 9.37% 8.86% 8.71%
30-Day Standardized Yield(5) 5.52% 5.22% 5.18%
Taxable Equivalent Yield(4) 9.14% 8.64% 8.58%
</TABLE>
For updated performance figures, see"Prices and Performance" at
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 (net asset value for
Class B) per share on 8/31/00.
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 30 days ended 8/31/00.
--------------------------------------------------------------------------------
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.
27
<PAGE>
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin New Jersey Tax-Free
Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART GRAPHIC]
<TABLE>
<S> <C>
AAA- 69.1%
AA- 7.9%
A- 9.4%
BBB- 12.3%
Below Investment
Grade- 1.3%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
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
[STATE GRAPHIC]
New Jersey's bullish economy forged ahead during the six months under review.
Much of the state's recent economic progress, especially in the important
consumer services, retail trade and residential real estate sectors, largely is
a result of Wall Street's eight-year bull market. Further adding to the state's
economic health has been the steady migration of businesses, including financial
services firms, from high-priced New York City to less-expensive northern New
Jersey. Arriving with these businesses were many employees in the highest income
brackets, allowing the state's income tax revenues to increase at a higher rate
than its overall economy.
Fiscal year 2000 revenue and spending estimates point to another year when New
Jersey will surpass the original budget estimates. After a
stronger-than-expected first half of the year, New Jersey raised its fiscal year
2000 revenue estimate by $500 million. Income tax receipts are now expected to
increase 11% and sales tax revenues are predicted to grow by 10%. In the five
latest fiscal years, revenue has risen by a total of 21.6%, ahead of the 19.3%
increase in expenditures, principally due to increases in capital gains income
and the number of high-income residents as a result of the booming stock
market.(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: Moody's Investors Service,New Issue Report: New Jersey (State of),
4/19/00. This does not indicate Moody's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 97.
28
<PAGE>
Partially counterbalancing this optimistic picture is the state's growing, yet
still modest debt burden, which has swelled from $4.1 billion in 1990 to $23.3
billion in April 2000, the fourth highest in the nation.(2) Furthermore, debt
levels will most likely continue to rise as the state issues nearly $7 billion
in new bonds for the purchase of open space and the improvement of its
educational and transportation systems.(3)
New Jersey's outlook is positive. The state is moderately well-positioned to
maintain its solid fiscal condition even in the case of an economic downturn, as
the state has substantial reserves and a balanced budget. Reflecting this,
Moody's Investors Service, an independent credit rating agency, has assigned the
state an Aa1 rating.(2)
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, later in the period, the
interest-rate picture appeared to stabilize, as the Fed chose to leave interest
rates steady. Their strategy gave many investors confidence that the pace of
economic growth began to slow during the second quarter and inflation no longer
posed such a serious threat. Municipal bonds reacted well to the news of a
possible economic growth slowdown, and in fact, fixed income markets experienced
positive returns year-to-date.
A lower municipal bond supply also brought some stability to the municipal
market. For the first eight months of 2000, New Jersey's new issuance was down
7.0% from the same period in 1999, as the higher interest-rate environment
somewhat discouraged municipalities from borrowing to finance new projects and
from refunding existing debt.(4) Furthermore, this reduced supply was met with
demand, as investors and bond funds received cash from June and July coupon and
call payments. In this environment, Franklin New Jersey Tax-Free Income Fund's
Class A share price, as measured by net asset value, increased from $10.99 on
February 29, 2000, to $11.41 on August 31, 2000.
PORTFOLIO BREAKDOWN
Franklin New Jersey
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
-----------
<S> <C>
Hospital & Health Care 20.7%
Transportation 18.7%
Utilities 14.1%
Housing 12.6%
Prerefunded 12.1%
Higher Education 6.5%
General Obligation 5.8%
Other Revenue 3.1%
Corporate-Backed 2.6%
Subject to Government
Appropriation 2.5%
Tax-Supported 1.3%
</TABLE>
3. Source: Standard and Poor's,Ratings Direct, 8/17/00.
4. Source: The Bond Buyer, 9/1/00.
29
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin New Jersey Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS B CLASS C
----- ------- ------- -------
<S> <C> <C> <C>
March 5 cents 4.49 cents 4.51 cents
April 5 cents 4.49 cents 4.51 cents
May 5 cents 4.49 cents 4.51 cents
June 5 cents 4.45 cents 4.48 cents
July 5 cents 4.45 cents 4.48 cents
August 5 cents 4.45 cents 4.48 cents
-------- ----------- -----------
TOTAL 30 CENTS 26.82 CENTS 26.97 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.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, typically in the 6.0%-6.125% range, increasing the portfolio's
income. As opportunities presented themselves, we sold bonds with higher cost
bases to book tax losses, which can be carried forward to offset future gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions, potentially lowering
shareholders' future tax liabilities. We also sold the portfolio's seasoned
holdings with shorter call dates and shorter maturities. The Fund then
reinvested the proceeds in bonds with longer call structures or longer
maturities and higher yields. Some of the holdings we sold were Port Authority
of New York and New Jersey; Plainfield Board of Education; Orange Township GO;
Camden County, Municipal Utility Revenue; and New Jersey Education Facilities
for Princeton University.
The Fund maintained its high quality during the six months under review, and on
August 31, 2000, 77.0% of the Fund's total long-term investments were rated AA
or higher. In addition, we bought issues in a number of different sectors,
preserving broad portfolio diversification. Purchases during the period included
East Orange Water Utility, New Jersey State Housing MFHR, New Jersey State
Educational Facility Capital Improvement Fund, New Jersey State Educational
Facility Revenue William Paterson College and New Jersey Health Care Robert Wood
Johnson University Hospital.
30
<PAGE>
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 32
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 5 cent
($0.0500) per share dividend and the maximum offering price of $11.92 on August
31, 2000. An investor in the maximum combined federal and New Jersey state
personal income tax bracket of 43.45% would need to earn 8.89% 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 are optimistic about the outlook for New Jersey, its
municipal bonds and Franklin New Jersey Tax-Free Income Fund. We intend to
maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current tax-free income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
31
<PAGE>
FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.67%
Net Asset Value (NAV) $11.41 (8/31/00) $10.99 (2/29/00)
Change in NAV +$0.42
Distributions (3/1/00-8/31/00) Dividend Income $0.3000
CLASS B
Six-Month Total Return +6.54%
Net Asset Value (NAV) $11.44 (8/31/00) $11.00 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2682
CLASS C
Six-Month Total Return +6.34%
Net Asset Value (NAV) $11.47 (8/31/00) $11.05 (2/29/00)
Change in NAV +$0.42
Distributions (3/1/00-8/31/00) Dividend Income $0.2697
</TABLE>
32 Past performance does not guarantee future results.
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (5/12/88)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.25% +28.19% +92.34% +132.73%
Average Annual Total Return(2) +0.80% +4.19% +6.30% +6.69%
INCEPTION
CLASS B (2/1/00)
Cumulative Total Return(1) +7.32%
Aggregate Total Return(2) +3.32%
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
Cumulative Total Return(1) +4.74% +24.81% +30.32%
Average Annual Total Return(2) +2.75% +4.32% +4.82%
AS OF 8/31/00
SHARE CLASS A B C
Distribution Rate(3) 5.03% 4.68% 4.64%
Taxable Equivalent Distribution Rate(4) 8.89% 8.28% 8.21%
30-Day Standardized Yield(5) 4.74% 4.42% 4.38%
Taxable Equivalent Yield(4) 8.38% 7.82% 7.75%
</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 for
Class B) per share on 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
33
<PAGE>
FRANKLIN OREGON TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Oregon Tax-Free Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA -- 35.5%
AA -- 33.2%
A -- 13.9%
BBB -- 16.0%
Below Investment
Grade -- 1.4%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
Your Fund's Goal: Franklin Oregon Tax-Free Income Fund seeks to provide high,
current income exempt from regular federal and Oregon state personal income
taxes through a portfolio consisting primarily of Oregon municipal bonds.(1)
STATE UPDATE
[OREGON STATE GRAPHIC]
With a rejuvenated economy and a firm grip on expenses, Oregon is in sound
financial condition. Rebounding sharply from the 1997 Asian crisis, which put a
crimp on many of the state's principal trading partners, Oregon's economy is
again experiencing strong growth led by high-technology and transportation
equipment exports. After trailing the national average for the past three years,
job growth is expected to be slightly higher than the nation's in fiscal years
2000 and 2001.(2)
Due to the state's efforts to limit the issuance of new debt since the early
1990s, Oregon's debt level remains in check, with overall debt per capita of
$919 in May 2000. Furthermore, the state has consistently made conservative
revenue projections, allowing it to complete many fiscal years with a budget
surplus. This looks to be the case for the 2000 fiscal year as well. Reflecting
the state's sound fiscal policies, Standard & Poor's, an independent credit
rating agency, has assigned the state's general obligation debt an AA rating.(2)
However, several tax-limitation measures on the November ballot, while
potentially beneficial to its residents, may hinder the state's future ability
to collect revenue as well as limit its revenue-raising flexibility.
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, 5/24/00. This does not indicate
Standard and Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 102.
34
<PAGE>
Going forward, Oregon appears to be well prepared with a diversifying economic
base, strong revenue growth and manageable debt burden. Coupled with improving
Asian economies and the ongoing strong U.S. economy, the state should continue
to perform admirably.
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, later in the period, the
interest-rate picture appeared to stabilize, as the Fed chose to leave interest
rates steady. Their strategy gave many investors confidence that the pace of
economic growth began to slow during the second quarter and inflation no longer
posed such a serious threat. Municipal bonds reacted well to the news of a
possible economic growth slowdown, and in fact, fixed income markets experienced
positive returns year-to-date.
Lower municipal bond supply also brought some stability to the municipal market.
For the first eight months of 2000, Oregon's new issuance was down 37.5% from
the same period in 1999, as the higher interest-rate environment discouraged
municipalities from borrowing to finance new projects and from refunding
existing debt.(3) Furthermore, this reduced supply was met with substantial
demand in the summer, as investors and bond funds received cash from large June
and July coupon and call payments. In this environment, Franklin Oregon Tax-Free
Income Fund's Class A share price, as measured by net asset value, increased
from $10.81 on February 29, 2000, to $11.24 on August 31, 2000.
The rising interest-rate environment created opportunities for the Fund to sell
lower-yielding securities, book tax losses and reinvest the proceeds at higher
yields. Tax losses can be carried forward in the portfolio to help offset
taxable capital gains in the future and potentially lower shareholders' future
tax liabilities. The Fund also sought to improve its structure and call
protection by selling bonds with shorter call protection and reinvesting the
proceeds in current coupons with longer maturities and call protection, thus
enhancing the tax-free income distributions made to shareholders.
3. Source: The Bond Buyer, 9/1/00.
PORTFOLIO BREAKDOWN
Franklin Oregon
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
-----------
<S> <C>
Transportation 16.1%
General Obligation 15.5%
Housing 15.1%
Hospital & Health Care 14.4%
Corporate-Backed 10.3%
Prerefunded 8.5%
Subject to Government
Appropriation 6.7%
Utilities 6.1%
Higher Education 5.2%
Tax-Supported 2.1%
</TABLE>
35
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Oregon Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
------------------
MONTH CLASS A CLASS C
----- ------- -------
<S> <C> <C>
March 4.84 cents 4.36 cents
April 4.84 cents 4.36 cents
May 4.84 cents 4.36 cents
June 4.86 cents 4.35 cents
July 4.86 cents 4.35 cents
August 4.86 cents 4.35 cents
----------- -----------
TOTAL 29.10 CENTS 26.13 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.
As a result, the Fund was able to increase its Class A shares' dividend from
4.84 cents to 4.86 cents per share during the reporting period. Some holdings we
sold were Oregon State Department of Administrative Services and Oregon State
Housing Department - Single Family Mortgage.
As the largest municipal bond fund in Oregon with approximately $476 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 work with
issuers and underwriters to structure issues to fit the portfolio's needs. The
Fund has continued to maintain its high quality, and on August 31, 2000, 68.7%
of the Fund's total long-term investments were rated AA or higher. We found
value in the education sector and made a number of purchases including Oregon
State Health & Education - Reed College, Linn County Community School District,
Clackamas County School District, and Polk Marion & Benton Counties School
Districts.
36
<PAGE>
We think it bears repeating that 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 4.97%, based on an annualization of the current 4.86 cent ($0.0486) per
share dividend and the maximum offering price of $11.74 on August 31, 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 9.04% 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 are optimistic about the outlook for Oregon, its municipal
bonds and Franklin Oregon Tax-Free Income Fund. The expected short supply of
Oregon bond issuance for the remainder of the year coupled with ongoing solid
investor demand should help maintain municipal bond prices for investors seeking
tax-free income. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current tax-free
income.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
37
<PAGE>
FRANKLIN OREGON
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +6.79%
Net Asset Value (NAV) $11.24 (8/31/00) $10.81 (2/29/00)
Change in NAV +$0.43
Distributions (3/1/00-8/31/00) Dividend Income $0.2910
CLASS C
Six-Month Total Return +6.54%
Net Asset Value (NAV) $11.32 (8/31/00) $10.88 (2/29/00)
Change in NAV +$0.44
Distributions (3/1/00-8/31/00) Dividend Income $0.2613
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +5.05% +26.48% +88.18% +130.35%
Average Annual Total Return(2) +0.54% +3.90% +6.06% +6.23%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
<S> <C> <C> <C>
Cumulative Total Return(1) +4.54% +23.27% +28.57%
Average Annual Total Return(2) +2.53% +4.06% +4.56%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
<S> <C> <C>
Distribution Rate(3) 4.97% 4.56%
Taxable Equivalent Distribution Rate(4) 9.04% 8.30%
30-Day Standardized Yield(5) 4.76% 4.37%
Taxable Equivalent Yield(4) 8.66% 7.95%
</TABLE>
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
38 Past performance does not guarantee future results.
<PAGE>
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
Your Fund's Goal: Franklin Pennsylvania Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and Pennsylvania state personal
income taxes through a portfolio consisting primarily of Pennsylvania municipal
bonds.(1)
COMMONWEALTH UPDATE(2)
[STATE GRAPHIC]
Historically, Pennsylvania's economy has been highly correlated with the ebb and
flow of the nation's. Fortunately for the commonwealth, times have been booming
nationally with high technology a shining star. Employment in this sector has
grown 5.3% annually in Pennsylvania, led by biotechnology and computer software.
In contrast, Pennsylvania's steel industry, like the nation's, was hurt hard by
inexpensive imports from Asia, Russia and Brazil due to their currency
devaluations, and the industry's employment dropped 5.8% in the fourth quarter
of 1999 alone.
However, Pennsylvania has not relied solely on the national economy to improve
its finances. In 1992, the commonwealth acted decisively to tackle its large
deficit problems by raising taxes and lowering spending. This, coupled with a
strong economy that boosted revenues, has helped Pennsylvania steadily improve
its financial position through fiscal year 1999, and at year-end 1999 it had a
general fund surplus of $703
CREDIT QUALITY BREAKDOWN*
Franklin Pennsylvania Tax-Free
Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE GRAPH]
<TABLE>
<S> <C>
AAA - 61.2%
AA - 7.9%
A - 12.3%
BBB - 16.3%
Below Investment Grade - 2.3%
</TABLE>
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
1. For investors subject to the federal alternative minimum tax, a small portion
of this income may be subject to such tax. Distributions of capital gains and of
ordinary income from accrued market discount, if any, are generally taxable. The
Fund's shares are free from Pennsylvania personal property tax and income is
free from Philadelphia School Investment Net Income Tax.
2. Source: Standard and Poor's, Ratings Direct, 1/25/00. This does not indicate
Standard and Poor's rating of the Fund.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 108.
39
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Pennsylvania
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
<S> <C>
Hospital & Health Care 20.7%
Utilities 16.8%
Prerefunded 13.3%
General Obligation 10.0%
Higher Education 9.6%
Corporate-Backed 9.3%
Housing 9.0%
Transportation 4.9%
Other Revenue 3.5%
Tax-Supported 1.8%
Subject to Government
Appropriation 1.1%
</TABLE>
million. Fiscal year 2000's budget likewise looks manageable, as spending is
forecast to increase a modest 3.8% over the prior year, while containing $380
million in tax cuts. As a result, Standard & Poor's, an independent credit
rating agency, has assigned the commonwealth's general obligation debt an AA
rating.
Looking forward, Pennsylvania's employment growth is expected to slow
substantially over the next five years. This is mainly due to the mergers and
acquisitions of some of the commonwealth's largest companies, as well as a
population that is expected to increase by a mere 0.1% annually through 2003.
Yet, the commonwealth's future looks solid thanks to its improved fiscal
condition, annual budget surpluses and low debt burden.
PORTFOLIO NOTES
In April and May, the expectation of higher interest rates continued to hamper
municipal bond prices. The Federal Reserve Board (the Fed) raised rates in an
attempt to slow the robust national economy. However, later in the period, the
interest-rate picture appeared to stabilize, as the Fed chose to leave interest
rates steady. Their strategy gave many investors confidence that the pace of
economic growth began to slow during the second quarter and inflation no longer
posed such a serious threat. Municipal bonds reacted well to the news of a
possible economic growth slowdown, and in fact, fixed income markets experienced
positive returns year-to-date.
40
<PAGE>
Lower municipal bond supply also brought some stability to the municipal market.
For the first eight months of 2000, Pennsylvania's new-issuance was down 58.9%
from the same period in 1999, as the higher interest-rate environment
discouraged municipalities from borrowing to finance new projects and from
refunding existing debt. (3) Furthermore, this reduced supply was met with
demand, as investors and bond funds received cash from June and July coupon and
call payments. In this environment, Franklin Pennsylvania Tax-Free Income Fund's
Class A share price, as measured by net asset value, increased from $9.55 on
February 29, 2000, to $9.96 on August 31, 2000.
During the first quarter of 2000, we were able to purchase bonds with relatively
higher yields, typically in the 6.0%-6.125% range, increasing the portfolio's
income. As opportunities presented themselves, we sold bonds with higher cost
bases to book tax losses, which can be carried forward to offset future gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions, potentially lowering
shareholders' future tax liabilities. We also sold the portfolio's seasoned
holdings with shorter call dates and shorter maturities. The Fund then
reinvested the proceeds in bonds with longer call structures or longer
maturities and higher yields. In this process, we sold Montgomery County General
Obligation, Pittsburgh Urban RDA for Oliver Garage Project, Pennsylvania State
Higher Educational Facilities Authority Revenue for LaSalle University and
Cambria County HDA Hospital Revenue Conemaugh Valley Memorial Hospital.
3. Source: The Bond Buyer, 9/1/00.
41
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Pennsylvania Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------------
MONTH CLASS A CLASS B CLASS C
----- ------- ------- -------
<S> <C> <C> <C>
March 4.4 cents 3.96 cents 3.97 cents
April 4.4 cents 3.96 cents 3.97 cents
May 4.4 cents 3.96 cents 3.97 cents
June 4.4 cents 3.95 cents 3.95 cents
July 4.4 cents 3.95 cents 3.95 cents
August 4.4 cents 3.95 cents 3.95 cents
---------- ----------- -----------
TOTAL 26.4 CENTS 23.73 CENTS 23.76 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.
The Fund maintained its high quality during the six months under review, and on
August 31, 2000, 69.1% of the Fund's total long-term investments were rated AA
or higher. In addition, we bought issues in a number of different sectors,
preserving broad portfolio diversification. Purchases during the period included
Carbon County IDAR Panther Creek Partner Project, Allegheny County Hospital
Development Authority Revenue Health System, Allegheny County RDA Robinson Mall
Project, Mercer County IDA Water Facilities Revenue and Pennsylvania State
Higher Educational Facilities Authority College and University Revenues Marywood
University Project.
42
<PAGE>
We think it bears repeating that your Fund offers a notable tax advantage over a
comparable taxable investment. The Performance Summary beginning on page 44
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 4.4 cent
($0.044) per share dividend and the maximum offering price of $10.40 on August
31, 2000. An investor in the maximum combined federal and Pennsylvania state
personal income tax bracket of 41.29% would need to earn 8.65% 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 are optimistic about the outlook for Pennsylvania, its
municipal bonds and Franklin Pennsylvania Tax-Free Income Fund. We intend to
maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current tax-free income.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of August
31, 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.
--------------------------------------------------------------------------------
43
<PAGE>
FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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.
SIX-MONTH PERFORMANCE SUMMARY
AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +7.18%
Net Asset Value (NAV) $9.96 (8/31/00) $9.55 (2/29/00)
Change in NAV +$0.41
Distributions (3/1/00-8/31/00) Dividend Income $0.2640
CLASS B
Six-Month Total Return +6.99%
Net Asset Value (NAV) $9.97 (8/31/00) $9.55 (2/29/00)
Change in NAV +$0.42
Distributions (3/1/00-8/31/00) Dividend Income $0.2373
CLASS C
Six-Month Total Return +6.85%
Net Asset Value (NAV) $10.01 (8/31/00) $9.60 (2/29/00)
Change in NAV +$0.41
Distributions (3/1/00-8/31/00) Dividend Income $0.2376
</TABLE>
44 Past performance does not guarantee future results.
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (12/1/86)
<S> <C> <C> <C> <C>
Cumulative Total Return (1) +5.24% +27.93% +96.95% +138.02%
Average Annual Total Return (2) +0.77% +4.14% +6.55% +6.14%
INCEPTION
CLASS B (2/1/00)
Cumulative Total Return (1) +7.88%
Aggregate Total Return (2) +3.88%
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
Cumulative Total Return (1) +4.65% +24.46% +29.73%
Average Annual Total Return (2) +2.62% +4.27% +4.73%
AS OF 8/31/00
SHARE CLASS A B C
Distribution Rate (3) 5.08% 4.73% 4.68%
Taxable Equivalent Distribution Rate (4) 8.65% 8.06% 7.97%
30-Day Standardized Yield (5) 4.90% 4.56% 4.52%
Taxable Equivalent Yield (4) 8.35% 7.77% 7.70%
</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 for
Class B) per share on 8/31/00.
4. Taxable equivalent distribution rate and yield assume the published rates as
of 6/16/00 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 30 days ended 8/31/00.
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" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results. 45
<PAGE>
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
CREDIT QUALITY BREAKDOWN*
Franklin Puerto Rico Tax-Free
Income Fund
Based on Total Long-Term Investments
8/31/00
[PIE CHART]
AAA - 46.8%
AA - 0.9%
A - 10.2%
BBB - 42.1%
*Quality breakdown may include internal ratings for bonds not rated by an
independent rating agency.
Your Fund's Goal: Franklin Puerto Rico Tax-Free Income Fund seeks to provide
high, current income exempt from regular federal and many states' personal
income taxes through a portfolio consisting primarily of Puerto Rico municipal
bonds.(1)
COMMONWEALTH UPDATE
[PUERTO RICO GRAPHIC]
Puerto Rico's economy, which depends heavily on the mainland U.S. economy, has
mirrored the U.S. economic growth trend since 1991. The commonwealth's gross
national product (GNP) grew 4.2% in 1999, a 26-year high. Puerto Rico continues
to broaden and create job opportunities, led by the construction, trade and
services sectors, which constitute more than half of the employment base. Total
employment growth, although slowing, continues to be positive at 1.0% in fiscal
year 1999.(2) Unemployment figures are near record lows, but still high at about
9.7% in July 2000, compared with the U.S. rate of 4.0%.(3)
The manufacturing sector remains essential to employment, income and investment
in Puerto Rico. The commonwealth has countered the loss of Section 936, which
gave substantial federal tax benefits to U.S. corporations operating in Puerto
Rico, by developing incentives to attract and maintain companies, diversifying
the economic base to other sectors such as tourism and increasing its overall
economic competitiveness. Tourism still represents a small but significant
segment of the economy, which benefits the transportation, communication,
restaurant, entertainment and other service industries. Visitor activity is
improving, several new hotels opened in the past two years, and new hotel
construction is expected to continue.
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, 6/1/00.
3. Source: Bureau of Labor Statistics, 8/23/00.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 113.
46
<PAGE>
In addition, financial performance has stabilized over the past four years,
driven by favorable economic conditions, implementation of important financial
reforms and more aggressive tax collection procedures leading to steady revenue
growth. Overall per-capita debt is high at $2,600, compared with the $540 U.S.
median, but currently appears manageable.(2)
With a developing manufacturing base, an increasingly skilled workforce, and its
strategic location near the Caribbean and South American markets, Puerto Rico is
on track for another year of economic expansion, with real GNP conservatively
projected to grow 2.7% in 2000.(2) Reflecting this forecast, Moody's Investors
Service, an independent credit rating agency, improved the commonwealth's credit
outlook from stable to positive in March 2000 and affirmed its Baa1 rating.(4)
PORTFOLIO NOTES
We attempted to take advantage of higher interest rates offered during the first
half of the six-month reporting period to restructure the Fund's portfolio,
seeking to improve the Fund's income-producing potential and call protection. We
sold lower yielding bonds at a loss and reinvested the proceeds at higher
yields. Such losses can be used to offset any current or future capital gains.
This strategy seeks to optimize tax efficiency in a municipal bond fund and
minimize the portfolio's taxable distributions. In addition, we sold bonds with
shorter call protection and bought similar coupon bonds with longer calls. Some
of the bonds we sold were Guam Housing Corporation SFR, Puerto Rico Electric
Power Authority Revenue and University of Puerto Rico Revenues.
The decline in interest rates during the latter part of the period resulted in
generally increasing bond prices, benefiting municipal bond investors.
Accordingly, Franklin Puerto Rico Tax-Free Income Fund's Class A share price, as
measured by net asset value, increased from $10.95 per share on February 29,
2000, to $11.38 on August 31, 2000.
The majority of our purchases were higher-rated or insured securities, which
improved the Fund's overall credit profile. AAA-rated securities represented
46.8% of the Fund's total long-term investments at period's end. Purchases
during the period included revenue bonds from the University of Puerto Rico,
Puerto Rico Electric Power Authority, Puerto Rico Commonwealth Highway and
Transportation Authority, and Puerto Rico Industrial Tourist Educational,
Medical and Environmental Control Facilities Financing Authority Hospital.
4. Source: Moody's Investors Service, 3/10/00. This does not indicate Moody's
rating of the Fund.
PORTFOLIO BREAKDOWN
Franklin Puerto Rico
Tax-Free Income Fund
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
LONG-TERM
INVESTMENTS
--------------------------------------------------------------------------------
<S> <C>
Prerefunded 19.8%
Transportation 19.4%
Utilities 12.5%
General Obligation 10.9%
Hospital & Health Care 10.6%
Tax-Supported 7.7%
Higher Education 7.0%
Subject to Government
Appropriation 6.2%
Housing 5.4%
Corporate-Backed 0.5%
</TABLE>
47
<PAGE>
DIVIDEND DISTRIBUTIONS*
Franklin Puerto Rico Tax-Free Income Fund
3/1/00 - 8/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------------
MONTH CLASS A CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
March 4.85 cents 4.38 cents
April 4.85 cents 4.38 cents
May 4.85 cents 4.38 cents
June 4.88 cents 4.37 cents
July 4.88 cents 4.37 cents
August 4.88 cents 4.37 cents
--------------------------------------------------------------------------------
TOTAL 29.19 CENTS 26.25 CENTS
</TABLE>
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
We think it bears repeating that 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 4.97%, based on an annualization of the current 4.92 cent ($0.0492) per
share dividend and the maximum offering price of $11.89 on August 31, 2000. An
investor in the maximum federal personal income tax bracket of 39.6% would need
to earn 8.23% 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.
Puerto Rico's new bond issuance from January through August 2000 was $2.347
billion, up 208.7% from the same period in 1999, giving us ample opportunities
for selective purchasing. (5) Going forward, the municipal bond supply for the
remainder of 2000 is expected to remain stable. We intend to maintain our
conservative, buy-and-hold investment strategy as we attempt to provide
shareholders with high, current tax-free income.
5. Source: The Bond Buyer, 9/1/00.
This discussion reflects our views, opinions and portfolio holdings as of
August 31, 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.
48
<PAGE>
SIX-MONTH PERFORMANCE SUMMARY AS OF 8/31/00
Six-month total return represents the change in value of an investment for the
period indicated and 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, as well as the level of operating expenses for
each class. 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>
Six-Month Total Return +6.71%
Net Asset Value (NAV) $11.38 (8/31/00) $10.95 (2/29/00)
Change in NAV +$0.43
Distributions (3/1/00-8/31/00) Dividend Income $0.2919
CLASS C
Six-Month Total Return +6.41%
Net Asset Value (NAV) $11.40 (8/31/00) $10.97 (2/29/00)
Change in NAV +$0.43
Distributions (3/1/00-8/31/00) Dividend Income $0.2625
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.87% +29.91% +93.40% +195.58%
Average Annual Total Return(2) +0.44% +4.46% +6.35% +6.95%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +4.30% +26.27% +31.19%
Average Annual Total Return(2) +2.31% +4.56% +4.95%
</TABLE>
AS OF 8/31/00
<TABLE>
<CAPTION>
SHARE CLASS A C
-------------------------------------------------------------------------------
<S> <C> <C>
Distribution Rate(3) 4.97% 4.57%
Taxable Equivalent Distribution Rate(4) 8.23% 7.57%
30-Day Standardized Yield(5) 4.57% 4.18%
Taxable Equivalent Yield(4) 7.57% 6.92%
</TABLE>
For updated performance figures, see "Prices and Performance"
at franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to
7/1/94, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, 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 8/31/00.
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 30 days ended 8/31/00.
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. 49
<PAGE>
MUNICIPAL BOND RATINGS
MOODY'S(R)
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 a 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.
50
<PAGE>
Ca: Obligations that are highly speculative. Such issues are often in default or
have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: The highest rating assigned by S&P to a debt obligation and indicates the
ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only in a small degree.
A: Generally regarded as upper medium-grade. They have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC: 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: In default, and payment of interest and/or repayment of principal is in
arrears.
51
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN ARIZONA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ----------------------------------------------------------------
CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.31 $ 11.38 $ 11.44 $ 11.24 $ 11.34 $ 11.11
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .29 .57 .59 .61 .62 .64
Net realized and unrealized gains (losses) .. .40 (1.02) (.01) .29 (.04) .36
---------------------------------------------------------------------------------
Total from investment operations .............. .69 (.45) .58 .90 .58 1.00
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.29) (.58) (.59) (.61) (.63) (.65)
In excess of net investment income .......... --(d) --(f) --(g) (.01) -- --
Net realized gains .......................... -- (.04) (.05) (.08) (.05) (.12)
---------------------------------------------------------------------------------
Total distributions ........................... (.29) (.62) (.64) (.70) (.68) (.77)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.71 $ 10.31 $11.38 $ 11.44 $ 11.24 $ 11.34
=================================================================================
Total return(b) ............................... 6.78% (4.15)% 5.17% 8.23% 5.33% 9.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $765,930 $756,274 861,020 $ 810,250 $752,335 $750,797
Ratios to average net assets:
Expenses .................................... .64%(c) .62% .63% .63% .62% .62%
Net investment income ....................... 5.48%(c) 5.30% 5.11% 5.40% 5.59% 5.67%
Portfolio turnover rate ....................... 12.19% 20.55% 14.11% 20.02% 16.57% 25.12%
CLASS B
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ........ $ 10.32 $ 10.24
---------------------------
Income from investment operations:
Net investment income(a)................... .26 .05
Net realized and unrealized gains ......... .42 .07
---------------------------
Total from investment operations ............ .68 .12
---------------------------
Less distributions from net investment income (.26)(d) (.04)
---------------------------
Net asset value, end of period .............. $ 10.74 $ 10.32
===========================
Total return(b).............................. 6.65% 1.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........... $ 1,613 $ 176
Ratios to average net assets:
Expenses .................................. 1.20%(c) 1.18%(c)
Net investment income ..................... 4.86%(c) 5.26%(c)
Portfolio turnover rate ..................... 12.19% 20.55%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.003 and $.002 for Class A and Class B, respectively.
(e) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(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
$.002.
52
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN ARIZONA TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 --------------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(f)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.38 $ 11.45 $ 11.51 $11.30 $ 11.38 $ 11.15
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .26 .52 .52 .56 .57 .49
Net realized and unrealized gains (losses) .. .40 (1.03) (.01) .29 (.03) .34
-----------------------------------------------------------------------------
Total from investment operations .............. .66 (.51) .51 .85 .54 .83
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.26)(d) (.52)(e) (.52)(e) (.56) (.57) (.48)
Net realized gains .......................... -- (.04) (.05) (.08) (.05) (.12)
-----------------------------------------------------------------------------
Total distributions ........................... (.26) (.56) (.57) (.64) (.62) (.60)
-----------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.78 $ 10.38 $ 11.45 $11.51 $ 11.30 $ 11.38
=============================================================================
Total return(b)................................ 6.44% (4.65)% 4.54% 7.67% 4.89% 7.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 22,790 $ 22,671 $ 23,871 $ 14,537 $ 5,486 $ 1,892
Ratios to average net assets:
Expenses .................................... 1.20%(c) 1.18% 1.19% 1.19% 1.19% 1.20%(c)
Net investment income ....................... 4.92%(c) 4.75% 4.55% 4.82% 5.01% 5.05%(c)
Portfolio turnover rate ....................... 12.19% 20.55% 14.11%X 20.02% 16.57% 25.12%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.002.
(e) Includes distributions in excess of net investment income in the amount of
$.001.
(f) For the period May 1, 1995 (effective date) to February 29, 1996.
See notes to financial statements. 53
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.4%
Arizona Capital Facilities Finance Corp. Student Housing Revenue,
Arizona State University Project, 6.25%, 9/01/32 ............................................. $ 2,825,000 $ 2,821,073
Arizona Educational Loan Marketing Corp. Revenue,
Senior Series, 6.375%, 9/01/05 ............................................................... 10,000,000 10,303,500
Series B, 7.00%, 3/01/03 ..................................................................... 1,000,000 1,033,810
Series B, 7.00%, 3/01/05 ..................................................................... 1,000,000 1,031,640
Sub Series, 6.625%, 9/01/05 .................................................................. 1,000,000 1,033,480
Arizona Health Facilities Authority Hospital System Revenue,
Phoenix Baptist Hospital, MBIA Insured, ETM, 6.25%, 9/01/11 .................................. 2,000,000 2,100,760
Arizona Health Facilities Authority Revenue, Catholic Healthcare West,
Series A, 6.625%, 7/01/20 .................................................................... 6,390,000 6,488,214
Arizona State COP,
FSA Insured, 6.625%, 9/01/08 ................................................................. 5,000,000 5,207,400
Refunding, Series B, AMBAC Insured, 6.25%, 9/01/10 ........................................... 5,000,000 5,259,900
Arizona State Municipal Financing Program COP,
Dysart School, Series 22, BIG Insured, ETM, 7.875%, 8/01/05 .................................. 1,350,000 1,553,499
Peoria School, Series 19, BIG Insured, ETM, 7.75%, 8/01/04 ................................... 500,000 559,625
Series 20, BIG Insured, ETM, 7.625%, 8/01/06 ................................................. 3,250,000 3,670,583
Series 25, BIG Insured, 7.875%, 8/01/14 ...................................................... 500,000 636,940
Arizona State Wastewater Management Authority Wastewater Treatment
Financial Assistance Revenue,
6.80%, 7/01/11 ............................................................................... 4,000,000 4,246,200
Series A, AMBAC Insured, Pre-Refunded, 5.625%, 7/01/15 ....................................... 1,000,000 1,073,470
Arizona Student Loan Acquisition Authority Student Loan Revenue, Refunding,
junior subordinate, Series B-1, 6.15%, 5/01/29 ............................................... 1,000,000 1,017,670
Senior Series A-1, 5.90%, 5/01/24 ............................................................ 1,500,000 1,520,670
Casa Grande Excise Tax Revenue, FGIC Insured, 6.20%, 4/01/15 ..................................... 930,000 968,502
Casa Grande IDA,
IDR, Frito Lay/PepsiCo, 6.65%, 12/01/14 ...................................................... 500,000 529,755
PCR, Frito Lay/PepsiCo, 6.60%, 12/01/10 ...................................................... 1,800,000 1,904,058
Chandler GO, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 775,000 797,630
Pre-Refunded, 7.00%, 7/01/12 ................................................................. 225,000 232,142
Pre-Refunded, 6.80%, 7/01/13 ................................................................. 1,750,000 1,911,508
Pre-Refunded, 6.85%, 7/01/14 ................................................................. 1,625,000 1,777,799
Chandler IDA, MFHR, Hacienda Apartments Project, Refunding, Series A, GNMA Secured, 6.05%, 7/20/30 4,055,000 4,124,665
Chandler Street and Highway Revenue, MBIA Insured, Pre-Refunded, 6.85%, 7/01/13 .................. 1,250,000 1,367,538
Chandler Water and Sewer Revenue, Refunding, FGIC Insured,
7.00%, 7/01/12 ............................................................................... 6,715,000 6,911,078
6.25%, 7/01/13 ............................................................................... 2,165,000 2,250,128
Coconino County PCR,
Arizona Public Service Co., Refunding, Series A, MBIA Insured, 5.875%, 8/15/28 ............... 5,275,000 5,359,347
Nevada Power Co., 6.375%, 10/01/36 ........................................................... 4,000,000 3,957,960
Nevada Power Co., Refunding, Series E, 5.35%, 10/01/22 ....................................... 7,265,000 6,347,721
Nevada Power Co., Series B, 5.80%, 11/01/32 .................................................. 6,500,000 5,898,490
Douglas Community Housing Corp. MFR, Rancho La Perilla, Series A, GNMA Secured, 6.125%, 7/20/41 .. 2,265,000 2,325,476
Eloy Municipal Property Corp. Facilities Revenue, 7.80%, 7/01/09 ................................. 755,000 769,232
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ......................................... 45,900,000 36,828,783
Gilbert ID No. 11, FGIC Insured, 7.60%, 1/01/05 .................................................. 1,500,000 1,530,360
Gilbert Water and Sewer Revenue, Refunding, FGIC Insured, 6.50%,
7/01/12 ...................................................................................... 1,500,000 1,600,410
7/01/22 ...................................................................................... 3,250,000 3,417,603
Glendale IDA,
Educational Facilities Revenue, American Graduate School International, Connie Lee Insured,
Pre-Refunded, 7.00%, 7/01/14 ................................................................. 1,000,000 1,118,910
Educational Facilities Revenue, American Graduate School International, Connie Lee Insured,
Pre-Refunded, 7.125%, 7/01/20 ................................................................ 1,250,000 1,405,350
Educational Facilities Revenue, American Graduate School International, Refunding, Connie Lee
Insured, 5.875%, 7/01/15 ..................................................................... 2,200,000 2,281,598
Midwestern University, Series A, 5.375%, 5/15/28 ............................................. 15,000,000 13,721,250
Midwestern University, Series A, Connie Lee Insured, 6.00%, 5/15/16 .......................... 455,000 475,448
Midwestern University, Series A, Connie Lee Insured, 6.00%, 5/15/26 .......................... 340,000 349,013
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/16 ................................ 1,485,000 1,620,269
Midwestern University, Series A, Pre-Refunded, 6.00%, 5/15/26 ................................ 1,660,000 1,811,209
</TABLE>
54
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Guam Power Authority Revenue, Series A, Pre-Refunded, 6.30%,
10/01/12 ....................................................................................... $ 3,630,000 $ 3,847,546
10/01/22 ....................................................................................... 4,000,000 4,247,960
Lake Havasu City Wastewater COP, FGIC Insured, 7.00%, 6/01/05 ...................................... 2,700,000 2,779,974
Maricopa County COP, 6.00%, 6/01/04 ................................................................ 8,000,000 8,271,680
Maricopa County GO,
School District No. 4, Mesa Unified, FGIC Insured, Pre-Refunded, 5.65%, 7/01/11 ................ 500,000 534,500
School District No. 8, Osborn, Refunding, Series A, FGIC Insured, 5.875%, 7/01/14 .............. 3,500,000 3,660,930
School District No. 11, Peoria Unified, Refunding, AMBAC Insured, 6.10%, 7/01/10 ............... 6,300,000 6,655,068
School District No. 11, Peoria Unified, Refunding, MBIA Insured, 7.00%, 7/01/10 ................ 2,800,000 2,884,504
School District No. 28, Kyrene Elementary, Series B, FGIC Insured, 6.00%, 7/01/14 .............. 2,000,000 2,061,580
School District No. 98, Fountain Hills Unified, FGIC Insured, 6.625%, 7/01/10 .................. 475,000 488,115
School District No. 98, Fountain Hills Unified, FGIC Insured, Pre-Refunded, 6.625%, 7/01/10 .... 825,000 848,727
UHSD No. 210, Series A, Pre-Refunded, 5.70%, 7/01/15 ........................................... 500,000 531,525
USD No. 41, Gilbert, 6.25%, 7/01/15 ............................................................ 2,000,000 2,086,360
USD No. 65, Littleton School Improvement, Series B, FGIC Insured, 6.40%, 7/01/14 ............... 1,175,000 1,231,447
USD No. 69, Paradise Valley, Series A, Pre-Refunded, 7.10%, 7/01/05 ............................ 1,000,000 1,097,590
USD No. 80, Chandler, FGIC Insured, Pre-Refunded, 6.00%, 7/01/13 ............................... 1,600,000 1,721,504
Maricopa County Hospital Revenue, Sun Health Corp.,
5.30%, 4/01/29 ................................................................................. 15,595,000 12,539,472
Refunding, 5.80%, 4/01/08 ...................................................................... 3,870,000 3,851,114
Refunding, 5.90%, 4/01/09 ...................................................................... 2,120,000 2,108,637
Refunding, 6.125%, 4/01/18 ..................................................................... 15,650,000 15,103,033
Maricopa County IDA,
Health Facilities Revenue, Catholic Healthcare West Project, Refunding, Series A, 5.00%, 7/01/16 13,100,000 11,229,320
Health Facilities Revenue, Catholic Healthcare West Project, Refunding, Series A, 5.00%, 7/01/21 17,600,000 14,410,704
Hospital Facility Revenue, FSA Insured, 7.50%, 12/01/13 ........................................ 1,445,000 1,483,249
Hospital Facility Revenue, FSA Insured, Pre-Refunded, 7.50%, 12/01/13 .......................... 1,305,000 1,340,600
Hospital Facility Revenue, Mayo Clinic Hospital, 5.25%, 11/15/37 ............................... 20,475,000 18,997,319
Hospital Facility Revenue, Samaritan Health Services, Refunding, Series A, MBIA Insured, ETM,
7.00%, 12/01/13 .............................................................................. 1,890,000 2,236,210
Hospital Facility Revenue, Samaritan Health Services, Refunding, Series A, MBIA Insured, ETM,
7.00%, 12/01/16 .............................................................................. 17,800,000 18,248,916
IDR, Citizens Utilities Co. Project, 6.20%, 5/01/30 ............................................ 5,000,000 5,045,650
MFHR, Arborwood Apartments Project, Series A, MBIA Insured, 5.05%, 10/01/29 .................... 1,750,000 1,576,960
MFHR, Madera Pointe Apartments Project, Refunding, FSA Insured, 5.90%, 6/01/26 ................. 2,105,000 2,141,353
MFHR, Stanford Court Apartments Project, Series A, MBIA Insured, 5.30%, 7/01/28 ................ 1,235,000 1,168,014
Water System Revenue, Improvement, Chaparral Water Co., Series A, AMBAC Insured, 5.40%, 12/01/22 1,000,000 975,890
Maricopa County IDAR, SFMR, GNMA Secured, 8.00%, 9/01/09 ........................................... 155,000 156,108
Mesa IDAR, Discovery Health System, Series A, MBIA Insured,
5.75%, 1/01/25 ................................................................................. 40,000,000 40,555,600
5.625%, 1/01/29 ................................................................................ 4,000,000 4,029,240
Mohave County Hospital District No. 1 GO, Kingman Regional Medical Center Project, FGIC Insured,
6.50%, 6/01/15 ................................................................................. 1,500,000 1,543,785
Mohave County IDA,
Health Care Revenue, Refunding, GNMA Secured, 6.375%, 11/01/31 ................................. 1,585,000 1,647,259
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.50%, 9/01/21 ....................... 1,500,000 1,602,555
Hospital Systems Revenue, Baptist Hospital, MBIA Insured, 5.75%, 9/01/26 ....................... 4,675,000 5,055,405
IDR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ............................................ 4,100,000 4,265,517
IDR, Citizens Utilities Co. Project, Series A, 7.15%, 2/01/26 .................................. 10,000,000 10,084,000
IDR, Citizens Utilities Co. Project, Series B, 7.15%, 2/01/26 .................................. 5,000,000 5,042,000
Navajo County PCR, Arizona Public Service Co., Series A, Refunding, 5.875%, 8/15/28 ................ 54,500,000 53,725,010
Nogales Municipal Development Authority Inc. Municipal Facilities Revenue, Refunding, MBIA Insured,
7.20%, 6/01/08 ................................................................................. 6,350,000 6,543,421
Northern Arizona University System Revenue, Refunding, FGIC Insured, 6.40%, 6/01/07 ................ 2,750,000 2,871,413
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.85%, 3/15/28 .... 8,690,000 8,625,955
Oro Valley Municipal Property Corp. Revenue, Municipal Water System, MBIA Insured, 5.75%, 7/01/17 .. 500,000 512,980
Peoria Municipal Development Authority Water and Sewer Revenue, Refunding, FGIC Insured, 6.625%,
7/01/06 ........................................................................................ 240,000 243,938
Phoenix Airport Revenue,
Refunding, Series B, MBIA Insured, 6.20%, 7/01/10 .............................................. 700,000 747,733
Refunding, Series C, MBIA Insured, 6.30%, 7/01/10 .............................................. 1,680,000 1,794,274
Refunding, Series C, MBIA Insured, 6.40%, 7/01/11 .............................................. 1,785,000 1,902,239
</TABLE>
55
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Phoenix Airport Revenue, (cont.)
Refunding, Series C, MBIA Insured, 6.40%, 7/01/12 ........................ $ 570,000 $ 606,412
Series D, MBIA Insured, 6.30%, 7/01/10 ................................... 1,800,000 1,922,436
Series D, MBIA Insured, 6.40%, 7/01/11 ................................... 3,825,000 4,076,226
Series D, MBIA Insured, 6.40%, 7/01/12 ................................... 820,000 872,382
Phoenix Civic Improvement Corp. Excise Tax Revenue,
Adams Street Garage Project, senior lien, Series B, 5.30%, 7/01/20 ....... 690,000 676,676
Adams Street Garage Project, senior lien, Series B, 5.35%, 7/01/24 ....... 2,985,000 2,902,524
Adams Street Garage Project, senior lien, Series B, 5.375%, 7/01/29 ...... 4,730,000 4,578,262
Municipal Courthouse Project, senior lien, Series A, 5.25%, 7/01/20 ...... 4,075,000 3,962,204
Municipal Courthouse Project, senior lien, Series A, 5.25%, 7/01/24 ...... 3,860,000 3,692,939
Municipal Courthouse Project, senior lien, Series A, 5.375%, 7/01/29 ..... 18,310,000 17,722,615
Phoenix Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, MBIA
Insured, Pre-Refunded, 6.90%, 7/01/21 .................................... 1,000,000 1,104,240
Phoenix Civic Improvement Corp. Wastewater System Revenue,
junior lien, FGIC Insured, 6.00%, 7/01/19 ................................ 3,000,000 3,168,450
7/01/20 .................................................................. 3,670,000 3,851,408
7/01/24 .................................................................. 19,840,000 20,704,826
Phoenix Civic Improvement Corp. Water System Revenue,
junior lien, MBIA Insured, 5.375%, 7/01/22 ............................... 8,130,000 8,062,277
Pre-Refunded, 5.95%, 7/01/15 ............................................. 1,090,000 1,171,205
Pre-Refunded, 5.95%, 7/01/16 ............................................. 3,665,000 3,938,043
Pre-Refunded, 6.00%, 7/01/19 ............................................. 3,000,000 3,231,120
Phoenix Civic Plaza Building Corp., 6.00%, 7/01/14 ....................... 4,300,000 4,507,819
Phoenix GO,
5.25%, 7/01/22 ........................................................... 5,420,000 5,275,449
5.375%, 7/01/25 .......................................................... 3,625,000 3,554,131
Refunding, 6.375%, 7/01/13 ............................................... 5,000,000 5,219,800
Phoenix HFC, Mortgage Revenue,
Project A, Refunding, MBIA Insured, 6.50%, 7/01/24 ....................... 2,750,000 2,812,013
Section 8 Project, Refunding, Series A, MBIA Insured, 6.90%, 1/01/23 ..... 1,750,000 1,798,300
Section 8 Project, Refunding, Series A, MBIA Insured, 7.25%, 1/01/23 ..... 2,260,000 2,310,308
Phoenix IDA,
Hospital Revenue, Refunding, Series B, Connie Lee Insured, 5.75%, 12/01/16 3,500,000 3,605,805
SFMR, FNMA Insured, 6.30%, 12/01/12 ...................................... 605,000 636,738
SFMR, Statewide, Series C, GNMA Secured, 5.30%, 4/01/20 .................. 2,000,000 1,915,380
Phoenix Municipal Housing Revenue, Fillmore Gardens Project, Refunding, 6.3%,
6/01/09 .................................................................. 1,500,000 1,587,375
Phoenix Street and Highway Revenue,
ETM, 6.80%, 7/01/03 ...................................................... 1,000,000 1,064,540
Refunding, 6.60%, 7/01/07 ................................................ 5,000,000 5,259,750
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 65,245
Health Care Corp. Revenue, Carondelet St. Joseph's and St. Mary's
Hospital, MBIA Insured, 6.75%, 7/01/10 ................................. 2,250,000 2,333,295
MFR, Series A, FNMA Insured, 6.00%, 12/01/21 ............................. 2,720,000 2,799,750
SFMR, GNMA Secured, 6.40%, 11/01/09 ...................................... 760,000 799,923
SFMR, GNMA Secured, 8.125%, 9/01/20 ...................................... 715,000 722,150
SFMR, GNMA Secured, 6.75%, 11/01/27 ...................................... 3,425,000 3,567,857
SFMR, Refunding, Series A, 7.625%, 2/01/12 ............................... 2,155,000 2,205,535
SFMR, Refunding, Series A, 6.50%, 2/01/17 ................................ 590,000 615,901
Pima County IDAR,
MFHR, Housing Ria Nova and Villa Projects, GNMA Secured, 5.20%, 12/20/31 . 2,370,000 2,194,478
Refunding, Series A, MBIA Insured, 5.625%, 4/01/14 ....................... 2,250,000 2,315,363
Pima County Sewer Revenue, Refunding, FGIC Insured, 6.75%, 7/01/15 ........... 1,410,000 1,446,195
Pinal County USD, No. 43, Apache Junction Improvement,
FGIC Insured, 7.15%, 7/01/05 ............................................. 355,000 359,935
Refunding, Series A, FGIC Insured, 5.85%, 7/01/15 ........................ 2,500,000 2,602,875
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A, FSA
Insured, Pre-Refunded, 9.00%, 7/01/09 .................................... 75,000 87,008
Puerto Rico Commonwealth GO, Pre-Refunded, 6.50%, 7/01/23 .................... 4,850,000 5,323,215
</TABLE>
56
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, 5.00%, 7/01/38 ................................................ $ 2,000,000 $ 1,820,800
Series B, 6.00%, 7/01/39 ................................................ 19,600,000 20,634,488
Series Y, 5.00%, 7/01/36 ................................................ 9,000,000 8,364,510
Puerto Rico Commonwealth Infrastructure Financing Authority Special Revenue,
Series A,
7.75%, 7/01/08 .......................................................... 1,550,000 1,555,844
7.50%, 7/01/09 .......................................................... 335,000 336,263
5.00%, 7/01/28 .......................................................... 10,000,000 9,385,700
Puerto Rico Electric Power Authority Power Revenue,
Series HH, FSA Insured, 5.375%, 7/01/30 ................................. 5,000,000 4,915,700
Series X, 5.50%, 7/01/25 ................................................ 2,250,000 2,225,768
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA
Secured, 7.65%, 10/15/22 ................................................ 145,000 148,012
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 .............................. 1,145,000 1,168,931
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 .. 40,000 46,996
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 5,351,027
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%, 7/01/24 1,950,000 2,047,130
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 1,707,780
Salt River Project Agricultural Improvement and Power District Electric
System Revenue, Refunding, Series A, 5.75%, 1/01/13 ..................... 2,435,000 2,511,629
Series A, 6.00%, 1/01/31 ................................................ 3,600,000 3,604,860
Series A, MBIA Insured, 6.00%, 1/01/31 .................................. 1,845,000 1,847,841
Series C, 6.20%, 1/01/12 ................................................ 5,925,000 6,153,823
Series C, 6.25%, 1/01/19 ................................................ 9,975,000 10,292,703
Series D, 6.25%, 1/01/27 ................................................ 4,890,000 5,023,252
Santa Cruz County IDAR, Citizens Utilities Co. Project, 6.60%, 5/01/29 ...... 8,000,000 8,322,960
Scottsdale GO,
5.50%, 7/01/22 .......................................................... 3,000,000 3,008,070
5.00%, 7/01/24 .......................................................... 8,225,000 7,589,700
Scottsdale IDA Hospital Revenue, Scottsdale Memorial Hospital,
Refunding, Series A, AMBAC Insured, 5.70%, 9/01/15 ...................... 1,250,000 1,264,662
Sedona Sewer Sales Tax Revenue, Refunding,
6.75%, 7/01/07 .......................................................... 3,800,000 4,075,145
7.00%, 7/01/12 .......................................................... 5,000,000 5,325,500
Surprise Municipal Property Corp. Excise Tax Revenue,
FGIC Insured, 5.70% 7/01/20 ............................................. 6,500,000 6,663,020
Tucson Airport Authority Revenue,
Series A, MBIA Insured, 6.875%, 6/01/20 ................................. 1,090,000 1,121,827
Series B, MBIA Insured, 7.125%, 6/01/15 ................................. 1,175,000 1,221,460
Series B, MBIA Insured, 7.25%, 6/01/20 .................................. 1,125,000 1,169,504
Tucson IDA, MFR, La Entrada, Refunding, 7.40%, 7/01/26 ...................... 1,780,000 1,849,116
Tucson Water Revenue System, Series D, FGIC Insured, 5.25%, 7/01/23 ......... 2,000,000 1,947,960
University of Arizona System Revenue, Pre-Refunded,
6.25%, 6/01/11 .......................................................... 1,000,000 1,078,570
6.35%, 6/01/14 .......................................................... 1,300,000 1,406,573
University of Arizona University Revenues, Arizona Board of Regents
System, Series A, FGIC Insured, 5.80%, 6/01/24 .......................... 2,000,000 2,034,120
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding Series A,
5.50%, 10/01/13 ......................................................... 2,500,000 2,492,974
10/01/22 ................................................................ 3,750,000 3,509,062
Virgin Islands Water and Power Authority Electric System Revenue, Refunding,
5.30%, 7/01/18 .......................................................... 2,475,000 2,397,185
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.50%, 7/01/17 .......................................................... 1,500,000 1,402,680
Yavapai County IDA, IDR, Citizens Utilities Co. Project, 5.45%, 6/01/33 ..... 6,000,000 5,643,000
Yuma IDA, Hospital Revenue, Regency Apartments, Refunding, Series A, GNMA
Secured, 5.50%, 12/20/32 ................................................ 2,000,000 1,938,200
-----------
TOTAL LONG TERM INVESTMENTS (COST $778,298,913) ............................. 777,341,272
-----------
</TABLE>
57
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS .5%
Maricopa County Pollution Control Corp. PCR, Public Service Co.,
Refunding, Series B, Daily VRDN and Put, 4.10%, 5/01/29 ............. $ 1,000,000 $ 1,000,000
Maricopa County Pollution Control Corp. PCR, Southern California
Edison Co., Series A, Daily VRDN and Put, 4.05%, 6/01/35 ............ 400,000 400,000
Pinal County IDA, PCR, Magma-Copper Co., Newmont Mining Corp.,
Daily VRDN and Put, 3.30%, 12/01/09 ................................. 1,100,000 1,100,000
University of Arizona COP, Student Union Bookstore Project, Series B,
AMBAC Insured, Weekly VRDN and Put, 4.20%, 6/01/24 .................. 1,500,000 1,500,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $4,000,000) .......................... 4,000,000
------------
TOTAL INVESTMENTS (COST $782,298,913) 98.9% ............................. 781,341,272
------------
OTHER ASSETS, LESS LIABILITIES 1.1% ..................................... 8,991,556
------------
NET ASSETS 100.0% ....................................................... $790,332,828
============
</TABLE>
See glossary of terms on page 115.
(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.
58 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN COLORADO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ---------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(f)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.90 $ 12.05 $ 12.11 $ 11.80 $ 11.84 $ 11.38
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .30 .59 .60 .63 .66 .67
Net realized and unrealized gains (losses) .. .45 (1.13) .02 .39 (.04) .45
----------------------------------------------------------------------------
Total from investment operations .............. .75 (.54) .62 1.02 .62 1.12
----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.30)(d) (.60)(e) (.60) (.64) (.66) (.66)
Net realized gains .......................... -- (.01) (.08) (.07) -- --
----------------------------------------------------------------------------
Total distributions ........................... (.30) (.61) (.68) (.71) (.66) (.66)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.35 $ 10.90 $ 12.05 $ 12.11 $ 11.80 $ 11.84
============================================================================
Total return(b) ............................... 6.97% (4.57)% 5.24% 8.86% 5.44% 10.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $271,630 $264,563 $301,381 $266,599 $236,609 $215,609
Ratios to average net assets:
Expenses .................................... .71%(c) .70% .70% .71% .71% .71%
Net investment income ....................... 5.36%(c) 5.18% 4.93% 5.28% 5.59% 5.73%
Portfolio turnover rate ....................... 26.48% 29.30% 12.60% 22.97% 14.13% 17.58%
CLASS C
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.96 $ 12.11 $ 12.17 $ 11.84 $ 11.87 $ 11.40
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .27 .53 .54 .57 .59 .50
Net realized and unrealized gains (losses) .. .45 (1.14) .02 .40 (.02) .46
----------------------------------------------------------------------------
Total from investment operations .............. .72 (.61) .56 .97 .57 .96
----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.27)(d) (.53)(e) (.54) (.57) (.60) (.49)
Net realized gains .......................... -- (.01) (.08) (.07) -- --
----------------------------------------------------------------------------
Total distributions ........................... (.27) (.54) (.62) (.64) (.60) (.49)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 11.41 $ 10.96 $ 12.11 $ 12.17 $ 11.84 $ 11.87
============================================================================
Total return(b) ............................... 6.64% (5.08)% 4.63% 8.39% 4.93% 8.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 22,273 $ 20,564 $ 21,899 $ 10,855 $ 5,654 $ 1,656
Ratios to average net assets:
Expenses .................................... 1.26%(c) 1.25% 1.26% 1.27% 1.28% 1.29%(c)
Net investment income ....................... 4.80%(c) 4.63% 4.38% 4.72% 4.99% 5.12%(c)
Portfolio turnover rate ....................... 26.48% 29.30% 12.60% 22.97% 14.13% 17.58%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.002.
(e) Includes distributions in excess of net investment income in the amount of
$.006 and $.005 for Class A and Class C, respectively.
(f) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
See notes to financial statements. 59
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.3%
(b) Arapahoe County Building Finance Corp. COP, AMBAC Insured, 5.25%, 2/15/21.... $ 8,995,000 $ 8,720,653
Arapahoe County Capital Improvement Transportation Fund Highway Revenue,
Vehicle Registration, Series A, MBIA Insured, 6.15%, 8/31/26 .............. 8,000,000 8,316,640
Arapahoe County COP, Refunding, FSA Insured, 6.625%, 12/01/16 ............... 805,000 839,655
Arapahoe County MFR, Housing Development Reserve, South Creek
Project, Series A, FSA Insured, 6.45%, 6/01/32 ............................ 3,120,000 3,268,918
Arvada IDR, Wanco Inc. Project,
5.25%, 12/01/07 ........................................................... 100,000 100,111
5.80%, 12/01/17 ........................................................... 480,000 474,802
Arvada MFHR, Springwood Community Project, Refunding, 6.35%, 8/20/16 ........ 1,000,000 1,035,090
Aurora COP, Refunding, 6.25%, 12/01/09 ...................................... 2,850,000 3,016,298
Bayfield School District No. 10, MBIA Insured, Pre-Refunded,
6.65%, 6/01/15 ............................................................ 1,000,000 1,092,040
Boulder County Hospital Revenue, Longmont United Hospital Project,
5.50%, 12/01/12 ........................................................... 1,000,000 930,730
5.80%, 12/01/13 ........................................................... 2,000,000 1,908,540
5.60%, 12/01/17 ........................................................... 3,385,000 3,017,592
5.875%, 12/01/20 .......................................................... 1,285,000 1,166,240
Pre-Refunded, 8.20%, 12/01/20 ............................................. 3,000,000 3,055,890
Boulder County MFHR, Cloverbasin Village II Apartments, Series A,
FSA Insured,
6.10%, 10/01/24 ......................................................... 1,280,000 1,306,726
6.15%, 10/01/31 ......................................................... 2,830,000 2,902,957
Broomfield COP, AMBAC Insured, 6.00%, 12/01/29 .............................. 2,000,000 2,071,460
Broomfield Water Activity Enterprise Water Revenue, Water
Utility Improvements, MBIA Insured, 5.50%, 12/01/20 ....................... 1,250,000 1,253,200
Colorado Health Facilities Authority Revenue,
Birchwood Manor Project, Series A, GNMA Secured, 7.625%, 4/01/26 .......... 1,615,000 1,632,248
Catholic Health Initiatives, Series A, 5.00%, 12/01/28 .................... 1,800,000 1,559,034
Community Provider Pooled Loan Program, FSA Insured, 6.75%, 7/15/17 ....... 954,000 987,295
Community Provider Pooled Loan Program, Series A, FSA Insured,
7.25%, 7/15/17 .......................................................... 6,570,000 6,832,209
Covenant Retirement Communities, 6.75%, 12/01/15 .......................... 1,750,000 1,821,750
Covenant Retirement Communities, 6.75%, 12/01/25 .......................... 4,950,000 5,077,215
Hospital Improvement, NCMC Inc. Project, FSA Insured,
5.75%, 5/15/24 .......................................................... 5,000,000 5,036,450
Kaiser Permanente, Series A, 5.35%, 11/01/16 .............................. 8,000,000 7,470,960
Mercy Medical Center Durango, 6.20%, 11/15/15 ............................. 1,250,000 1,278,025
National Benevolent Association, Refunding, Series A, 5.20%, 1/01/18 ...... 700,000 565,425
National Benevolent Association, Refunding, Series A, 5.25%, 1/01/27 ...... 1,180,000 908,989
National Benevolent Association, Series B, 5.25%, 2/01/18 ................. 750,000 634,253
National Benevolent Association, Series B, 5.25%, 2/01/28 ................. 2,500,000 2,012,825
National Benevolent Association, Series C, 7.00%, 3/01/24 ................. 1,185,000 1,200,772
National Benevolent Association, Series C, 7.125%, 3/01/30 ................ 1,295,000 1,319,372
Oakbrook Manor, Series A, GNMA Secured, 7.25%, 4/01/11 .................... 335,000 339,087
Oakbrook Manor, Series A, GNMA Secured, 7.625%, 4/01/26 ................... 885,000 894,452
Parkview Medical Center Inc. Project, 5.25%, 9/01/18 ...................... 1,660,000 1,405,837
Parkview Medical Center Inc. Project, 5.30%, 9/01/25 ...................... 1,615,000 1,321,861
PSL Health System Project, Series B, Pre-Refunded, 8.50%, 2/15/21 ......... 1,000,000 1,037,650
Colorado HFA,
GO, Series A, 7.50%, 5/01/29 .............................................. 785,000 785,000
MF, Series A, 6.80%, 8/01/14 .............................................. 3,030,000 3,216,406
MF, Series A, 6.85%, 8/01/24 .............................................. 5,650,000 6,002,673
MF, Series A, 6.875%, 8/01/30 ............................................. 1,250,000 1,328,588
MF, Series A-2, 6.00%, 10/01/28 ........................................... 1,000,000 1,013,310
MF, Series A-2, FHA Insured, 5.45%, 10/01/29 .............................. 1,000,000 966,030
SF Program, Refunding, Series A-2, MBIA Insured, 5.625%, 11/01/23 ......... 2,500,000 2,502,225
SF Program, Series A-2, 7.70%, 2/01/23 .................................... 170,000 174,005
Colorado HFAR, MFH Insured Mortgage Project,
Series C-3, 6.05%, 10/01/32 ............................................... 1,535,000 1,565,055
Colorado Public Highway Authority Revenue, Highway E-470,
Refunding, Series A, MBIA Insured, 5.00%, 9/01/26 ......................... 8,870,000 8,145,765
Senior Series A, MBIA Insured, 5.75%, 9/01/35 ............................. 9,000,000 9,116,640
Series A, MBIA Insured, 5.75%, 9/01/29 .................................... 4,575,000 4,654,285
Colorado Springs Hospital Revenue, Refunding, 6.375%, 12/15/30 .............. 7,500,000 7,544,025
Colorado Springs Utilities Revenue, Refunding and
Improvement, Series A, 5.375%, 11/15/26 ................................... 16,920,000 16,353,686
</TABLE>
60
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
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 $ 1,165,929
Colorado Water Resource and Power Development
Authority Clean Water Revenue, Series A,
6.15%, 9/01/11 ........................................................ 1,765,000 1,844,813
6.30%, 9/01/14 ........................................................ 1,000,000 1,043,380
Colorado Water Resource and Power Development
Authority Small Water Resource Revenue, Series A, FGIC Insured,
6.70%, 11/01/12 ....................................................... 750,000 783,750
5.80%, 11/01/20 ....................................................... 2,000,000 2,058,580
Denver City and County Airport Revenue,
Refunding, Series E, MBIA Insured, 5.25%, 11/15/23 .................... 2,000,000 1,912,060
Series A, 7.50%, 11/15/23 ............................................. 3,315,000 3,563,559
Series A, MBIA Insured, 5.60%, 11/15/20 ............................... 1,000,000 1,007,560
Series A, Pre-Refunded, 7.50%, 11/15/12 ............................... 3,000,000 3,249,180
Series A, Pre-Refunded, 7.50%, 11/15/23 ............................... 685,000 771,488
Series A, Pre-Refunded, 8.50%, 11/15/23 ............................... 4,000,000 4,108,716
Series D, 7.75%, 11/15/13 ............................................. 1,000,000 1,187,140
Denver City and County COP, Series B, AMBAC Insured,
5.50%, 12/01/25 ....................................................... 14,000,000 13,866,720
Denver City and County IDR, University of Denver
Project, 7.50%, 3/01/11 ............................................... 1,880,000 1,937,960
Denver City and County MFHR, The Boston Lofts
Project, Series A, FHA Insured, 5.75%, 10/01/27 ....................... 1,500,000 1,479,675
Denver City and County Revenue, Children's Hospital
Association Project, FGIC Insured, 6.00%, 10/01/15 .................... 3,150,000 3,239,712
Denver City and County Special Facilities
Airport Revenue, United Airlines Inc. Project,
Series A, 6.875%, 10/01/32 ........................................... 2,000,000 2,008,640
Donala Water and Sanitary District GO, Improvement, Series B,
Pre-Refunded, 6.50%, 12/01/14 ......................................... 995,000 1,039,875
Douglas County MFR, Housing Mortgage, Parker Hilltop
Project, FHA Insured, 5.45%, 8/01/28 .................................. 2,000,000 1,908,980
Douglas County School District No. 1 GO, Douglas and
Elbert Counties, Improvement, Series A, MBIA Insured,
6.50%, 12/15/16 ....................................................... 230,000 243,607
Pre-Refunded, 6.50%, 12/15/16 ......................................... 2,000,000 2,175,220
El Paso County School District No. 38 GO, 6.00%, 12/01/24 ................. 1,500,000 1,562,730
Fort Collins PCR, Anheuser-Busch Co. Project, Refunding, 6.00%, 9/01/31 ... 5,325,000 5,400,668
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 1,543,110
12/01/24 .............................................................. 1,000,000 1,019,270
Greeley MFR, Housing Mortgage, Creek Stone Project,
FHA Insured, 5.95%, 7/01/28 ........................................... 1,000,000 1,005,350
Guam Airport Authority Revenue,
Refunding, Series A, 6.375%, 10/01/10 ................................. 400,000 423,384
Series A, 6.50%, 10/01/23 ............................................. 800,000 845,360
Guam Power Authority Revenue, Series A, Pre-Refunded,
6.375%, 10/01/08 ...................................................... 1,000,000 1,061,410
Jefferson County District Wide Sales Tax Revenue,
Local ID, MBIA Insured, 6.30%, 6/01/22 ................................ 7,450,000 7,577,693
Jefferson County SFMR, Refunding, Series A,
MBIA Insured, 8.875%, 10/01/13 ........................................ 150,000 155,379
La Junta Hospital Revenue, Ark Valley Regional Medical Center Project,
5.75%, 4/01/14 ........................................................ 2,090,000 1,853,328
6.00%, 4/01/19 ........................................................ 1,000,000 856,240
6.10%, 4/01/24 ........................................................ 1,000,000 843,290
Lakewood MFHR Mortgage, FHA Insured Mortgage,
6.65%, 10/01/25 ....................................................... 1,235,000 1,295,107
6.70%, 10/01/36 ....................................................... 3,025,000 3,177,309
Larimer County Sales and Use Tax Revenue, AMBAC Insured,
5.625%, 12/15/18 ...................................................... 3,045,000 3,098,196
Las Animas County School District No. 1, Refunding,
6.15%, 12/01/08 ....................................................... 1,000,000 1,059,090
6.20%, 12/01/10 ....................................................... 935,000 992,820
Logan County SFMR, Refunding, Series A, 8.50%, 11/01/11 ................... 105,000 109,347
Montrose County COP, 6.35%, 6/15/06 ....................................... 1,850,000 1,948,827
Mountain College Residence Hall Revenue Authority, MBIA
Insured, 5.75%, 6/01/23 ............................................... 2,000,000 2,028,760
Post-secondary Educational Facilities Authority Revenue,
Auraria Foundation Project, FSA Insured, 6.00%, 9/01/15 ............... 1,000,000 1,036,950
Pueblo Board Waterworks Water Revenue, Improvement,
Series A, FSA Insured, 6.00%, 11/01/21 ................................ 4,300,000 4,594,421
Pueblo County, MBIA Insured, 6.00%, 6/01/16 ............................... 4,395,000 4,567,064
Pueblo County COP, Public Parking, 6.90%, 7/01/15 ......................... 480,000 487,973
</TABLE>
61
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Pueblo County School District No. 70 GO, Pueblo Rural,
AMBAC Insured, Pre-Refunded, 6.40%, 12/01/14 ..................... $ 1,000,000 $ 1,074,850
FGIC Insured, 6.00%, 12/01/19 .................................... 3,995,000 4,187,839
Pueblo Urban Renewal Authority Tax Increment Revenue, Refunding,
AMBAC Insured, 6.10%, 12/01/15 ................................... 1,000,000 1,035,650
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue,
Series A, FSA Insured, Pre-Refunded, 9.00%, 7/01/09 .............. 55,000 63,806
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 1,251,296
Regional Transportation District Sales Tax Revenue,
FGIC Insured, 6.25%, 11/01/12 .................................... 160,000 166,691
Southwestern SFMR, Refunding, Series A, 7.375%, 9/01/11 .............. 245,000 249,586
Summit County SFMR, Series A, 7.50%, 12/01/11 ........................ 65,000 66,131
Summit County Sports Facilities Revenue, Keystone Resorts
Project, Ralston Purina Co., Refunding, 7.875%, 9/01/08 ......... 2,750,000 3,177,130
University of Colorado Hospital Authority Revenue,
Series A, AMBAC Insured, 5.00%, 11/15/29 ......................... 11,865,000 10,689,416
University of Colorado Revenue, Enterprise System,
Refunding, Series A, MBIA Insured, 5.00%, 6/01/24 ................ 3,375,000 3,101,963
Virgin Islands PFA Revenue, senior lien, Fund
Loan Notes, Refunding, Series A,
5.40%, 10/01/12 .................................................. 2,500,000 2,497,700
5.50%, 10/01/22 .................................................. 2,500,000 2,339,375
Westminster City Sales and Use Tax Revenue,
Refunding and Improvement, FGIC Insured, 7.00%, 12/01/08 ......... 2,000,000 2,031,660
Westminster COP, Ice Centre Project, AMBAC Insured,
5.75%, 6/15/20 ................................................... 5,000,000 5,132,850
5.40%, 1/15/23 ................................................... 4,400,000 4,321,240
-------------
TOTAL LONG TERM INVESTMENTS (COST $287,767,024) ...................... 291,737,747
-------------
(a) SHORT TERM INVESTMENTS 1.4%
Colorado Health Facilities Authority Revenue, North Colorado
Medical Center, MBIA Insured, Weekly VRDN and Put, 4.20%, 5/15/20 1,000,000 1,000,000
Colorado Springs Revenue, YMCA of Pike Peak Region, Weekly
VRDN and Put, 4.30%, 11/01/17 .................................... 250,000 250,000
Puerto Rico Commonwealth Government Development Bank,
Refunding, MBIA Insured, Weekly VRDN and Put, 3.75%, 12/01/15 .... 1,400,000 1,400,000
Puerto Rico Commonwealth Highway and Transportation
Authority Revenue, Series A, AMBAC Insured, Weekly VRDN and Put,
3.50%, 7/01/28 ................................................... 1,500,000 1,500,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $4,150,000) ....................... 4,150,000
-------------
TOTAL INVESTMENTS (COST $291,917,024) 100.7% ......................... 295,887,747
OTHER ASSETS, LESS LIABILITIES (.7)% ................................. (1,984,242)
-------------
NET ASSETS 100.0% .................................................... $ 293,903,505
=============
</TABLE>
See glossary of terms on page 115.
(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.
62 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
AUGUST 31, ENDED YEAR ENDED FEBRUARY 28,
2000 -------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(e)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.06 $ 11.27 $ 11.23 $ 10.92 $ 10.96 $ 10.64
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .28 .56 .58 .60 .61 .62
Net realized and unrealized gains (losses) .. .40 (1.21) .04 .32 (.02) .32
----------------------------------------------------------------------------
Total from investment operations .............. .68 (.65) .62 .92 .59 .94
----------------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.28) (.56) (.58) (.60) (.63) (.62)
In excess of net investment income .......... -- -- --(d) (.01) -- --
----------------------------------------------------------------------------
Total distributions ........................... (.28) (.56) (.58) (.61) (.63) (.62)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.46 $ 10.06 $ 11.27 $ 11.23 $ 10.92 $ 10.96
============================================================================
Total return(b) ............................... 6.86% (5.90)% 5.62% 8.62% 5.52% 9.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 210,013 $207,745 $245,016 $203,643 $ 183,649 $ 167,045
Ratios to average net assets:
Expenses .................................... .72%(c) .71% .72% .73% .72% .73%
Net investment income ....................... 5.50%(c) 5.26% 5.08% 5.41% 5.62% 5.70%
Portfolio turnover rate ....................... 2.95% 30.61% 5.87% 18.54% 14.53% 3.88%
CLASS C
-------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 10.10 $ 11.30 $ 11.26 $ 10.94 $ 10.97 $ 10.65
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................... .25 .50 .52 .55 .60 .47
Net realized and unrealized gains (losses) .. .39 (1.20) .03 .31 (.07) .31
----------------------------------------------------------------------------
Total from investment operations .............. .64 (.70) .55 .86 .53 .78
----------------------------------------------------------------------------
Less distributions from net investment income . (.25) (.50) (.51)(d) (.54) (.56) (.46)
----------------------------------------------------------------------------
Net asset value, end of period ................ $ 10.49 $ 10.10 $ 11.30 $ 11.26 $ 10.94 $ 10.97
============================================================================
Total return(b) ............................... 6.45% (6.32)% 5.02% 8.08% 5.03% 7.45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 23,952 $ 25,007 $ 23,443 $ 8,636 $ 4,149 $ 1,656
Ratios to average net assets:
Expenses .................................... 1.28%(c) 1.26% 1.28% 1.29% 1.29% 1.30%(c)
Net investment income ....................... 4.96%(c) 4.73% 4.53% 4.85% 5.01% 5.12%(c)
Portfolio turnover rate ....................... 2.95% 30.61% 5.87% 18.54% 14.53% 3.88%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.002.
(e) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
See notes to financial statements. 63
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.2%
Bridgeport GO,
Series A, FGIC Insured, 5.875%, 7/15/19 ......................................................... $ 1,000,000 $ 1,048,030
Series B, 7.55%, 11/15/00 ....................................................................... 715,000 717,610
Series B, Pre-Refunded, 7.75%, 11/15/10 ......................................................... 2,750,000 2,822,105
Connecticut State Development Authority First Mortgage Gross Revenue, Health Care Project, Baptist
Homes Inc. Project, Refunding, Asset Guaranteed, 5.625%, 9/01/22 ................................ 2,000,000 1,976,380
Connecticut State Development Authority First Mortgage Revenue, Health Care Project,
Church Homes Inc., Refunding, 5.80%, 4/01/21 .................................................... 4,000,000 3,392,160
Elim Park Baptist Home, Refunding, Series A, 5.375%, 12/01/18 ................................... 1,100,000 939,301
Connecticut State Development Authority Revenue, Life Care Facilities, Seabury Project, Refunding,
Asset Guaranteed, 5.00%, 9/01/21 ................................................................ 2,000,000 1,781,160
Connecticut State Development Authority Solid Waste Disposal Facilities Revenue, Pfizer Inc.
Project, 7.00%, 7/01/25 ......................................................................... 2,000,000 2,185,460
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic Co. Project,
6.15%, 4/01/35 .................................................................................. 1,000,000 1,006,120
6.00%, 9/01/36 .................................................................................. 10,000,000 9,898,000
Refunding, 7.25%, 6/01/20 ....................................................................... 1,000,000 1,025,040
Connecticut State Health and Educational Facilities Authority Revenue,
Abbot Terrace Health Center Project, Series A, 6.00%, 11/01/14 .................................. 2,000,000 2,075,460
Brunswick School, Series A, MBIA Insured, 5.00%, 7/01/29 ........................................ 5,000,000 4,593,000
Capital Assets, Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20 ............................ 200,000 205,686
Catholic Health East, Series F, MBIA Insured, 5.75%, 11/15/29 ................................... 3,250,000 3,289,845
Child Care Facilities Program, Series C, AMBAC Insured, 5.625%, 7/01/29 ......................... 1,250,000 1,250,388
Choate Rosemary Hall, Series A, MBIA Insured, Pre-Refunded, 7.00%, 7/01/25 ...................... 1,500,000 1,650,540
Connecticut College Project, Series D-1, MBIA Insured, 5.75%, 7/01/30 ........................... 1,000,000 1,017,950
Danbury Hospital Issue, Refunding, Series G, AMBAC Insured, 5.75%, 7/01/29 ...................... 3,500,000 3,541,860
Eastern Connecticut Health Network, Refunding, Series A, Asset Guaranteed, 6.00%, 7/01/25 ....... 9,195,000 9,489,603
Fairfield University, Series I, MBIA Insured, 5.25%, 7/01/25 .................................... 2,500,000 2,415,725
Fairfield University, Series I, MBIA Insured, 5.50%, 7/01/29 .................................... 8,000,000 7,964,880
Greenwich Hospital, Series A, MBIA Insured, 5.80%, 7/01/26 ...................................... 2,000,000 2,026,120
Hartford University, Series C, Pre-Refunded, 8.00%, 7/01/18 ..................................... 1,245,000 1,348,347
Hartford University, Series D, 6.80%, 7/01/22 ................................................... 5,000,000 5,069,600
Hebrew Home and Hospital, Series B, FHA Insured, 5.15%, 8/01/28 ................................. 3,800,000 3,479,584
Horace Bushnell Memorial Hall, Series A, MBIA Insured, 5.625%, 7/01/29 .......................... 1,000,000 1,000,310
Hospital for Special Care, Refunding, Series B, 5.375%, 7/01/17 ................................. 7,205,000 6,167,552
Hospital for Special Care, Refunding, Series B, 5.50%, 7/01/27 .................................. 17,000,000 14,082,460
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 ....................................... 500,000 598,755
New Britain Memorial Hospital, Series A, Pre-Refunded, 7.75%, 7/01/22 ........................... 1,000,000 1,078,540
New Horizons Village Project, 7.30%, 11/01/16 ................................................... 2,905,000 3,191,782
Sacred Heart University, Refunding, Series E, Asset Guaranteed, 5.00%, 7/01/28 .................. 4,000,000 3,574,680
Sacred Heart University, Series C, 6.50%, 7/01/16 ............................................... 235,000 242,518
Sacred Heart University, Series C, 6.625%, 7/01/26 .............................................. 785,000 803,385
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 ................................. 765,000 850,152
Sacred Heart University, Series C, Pre-Refunded, 6.625%, 7/01/26 ................................ 6,215,000 6,946,070
Sacred Heart University, Series D, Pre-Refunded, 6.20%, 7/01/27 ................................. 1,000,000 1,103,620
Series C, MBIA Insured, 7.00%, 1/01/20 .......................................................... 125,000 128,271
Series C, MBIA Insured, Pre-Refunded, 7.00%, 1/01/20 ............................................ 1,140,000 1,172,410
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ........................................ 4,615,000 3,966,269
St. Mary's Hospital, Refunding, Series E, 5.875%, 7/01/22 ....................................... 3,510,000 3,115,265
Trinity College, Series E, MBIA Insured, 5.875%, 7/01/26 ........................................ 2,000,000 2,048,240
University of Connecticut Foundation, Series A, 5.375%, 7/01/29 ................................. 1,250,000 1,192,725
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/20 ................................... 8,000,000 7,236,480
Yale New Haven Hospital, Refunding, Series H, MBIA Insured, 5.70%, 7/01/25 ...................... 4,000,000 4,024,680
Connecticut State HFA,
Housing Mortgage Finance Program, Series B, 6.75%, 11/15/23 ..................................... 14,705,000 15,438,927
Housing Mortgage Finance Program, Series C-1, 6.60%, 11/15/23 ................................... 440,000 459,026
Housing Mortgage Finance Program, Series C-2, 6.25%, 11/15/18 ................................... 1,500,000 1,576,350
Housing Mortgage Finance Program, Series C-2, 6.70%, 11/15/22 ................................... 1,250,000 1,291,663
Housing Mortgage Finance Program, Series E, 6.30%, 5/15/17 ...................................... 2,215,000 2,316,159
Housing Mortgage Finance Program, Sub Series B-1, 6.30%, 5/15/25 ................................ 700,000 724,990
Housing Mortgage Finance Program, Sub Series B-1, 5.30%, 11/15/28 ............................... 1,700,000 1,634,958
Housing Mortgage Finance Program, Sub Series C-2, 5.85%, 11/15/28 ............................... 1,415,000 1,409,043
</TABLE>
64
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Connecticut State HFA,(cont.)
Housing Mortgage Finance Program, Sub Series D-1, 5.55%, 11/15/28 ............................ $ 1,000,000 $ 985,890
Housing Mortgage Finance Program, Sub Series E-2, 5.20%, 11/15/21 ............................ 1,840,000 1,777,974
Housing Mortgage Finance Program, Sub Series G-1, 6.20%, 11/15/16 ............................ 1,115,000 1,147,112
Special Obligation, Group Home Mortgage, Group Home Five, AMBAC Insured, 5.85%, 6/15/30 ...... 500,000 508,015
Connecticut State Higher Education Supplemental Loan Authority Revenue, Family Education Loan
Program,
Series A, 7.00%, 11/15/05 .................................................................... 675,000 696,020
Series A, 7.20%, 11/15/10 .................................................................... 205,000 211,441
Series A, 7.50%, 11/15/10 .................................................................... 325,000 325,579
Series A, AMBAC Insured, 6.00%, 11/15/18 ..................................................... 2,000,000 2,108,220
Connecticut State Housing Authority, Housing Finance Project, Series B, 6.10%, 11/15/31 ........ 2,715,000 2,768,513
Eastern Connecticut Resource Recovery Authority Solid Waste Revenue, Wheelabrator Lisbon
Project,
Series A, 5.50%, 1/01/15 ....................................................................... 8,000,000 6,957,520
Griswold GO, AMBAC Insured, 7.50%, 4/01/06 ..................................................... 200,000 228,520
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .............................................................................. 250,000 266,200
6.70%, 10/01/23 .............................................................................. 1,300,000 1,380,236
Guam Power Authority Revenue,
Refunding, Series A, 5.25%, 10/01/34 ......................................................... 4,000,000 3,691,240
Series A, Pre-Refunded, 6.75%, 10/01/24 ...................................................... 5,500,000 6,127,660
New Haven GO, Series A, Pre-Refunded, 7.40%, 3/01/12 ........................................... 4,545,000 4,832,380
Plainfield GO,
Series 1988, 7.30%, 9/01/10 .................................................................. 150,000 157,190
Series 1991, 7.25%, 9/01/05 .................................................................. 335,000 351,164
Series 1991, 7.30%, 9/01/07 .................................................................. 335,000 351,090
Series 1991, 7.30%, 9/01/09 .................................................................. 335,000 351,325
Puerto Rico Commonwealth GO, Public Improvement, MBIA Insured, 5.75%, 7/01/26 .................. 1,775,000 1,831,268
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, 5.00%, 7/01/38 2,500,000 2,276,000
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ................ 775,000 799,847
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 4,308,707
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 6.50%, 7/01/19 ................... 4,000,000 4,382,840
Stratford GO, Unlimited Tax, Pre-Refunded, 7.30%, 3/01/12 ...................................... 1,130,000 1,168,590
University of Connecticut Revenue, Student Fee, Series A, FGIC Insured, 6.00%, 11/15/25 ........ 1,500,000 1,574,715
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A, 5.50%,
10/01/13 ..................................................................................... 2,500,000 2,492,975
10/01/22 ..................................................................................... 2,500,000 2,339,375
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 .................................................................... 1,500,000 1,452,840
Refunding, 5.30%, 7/01/21 .................................................................... 1,000,000 953,860
Series A, Pre-Refunded, 7.40%, 7/01/11 ....................................................... 5,435,000 5,663,161
Waterbury GO, Pre-Refunded,
7.25%, 3/01/04 ............................................................................... 785,000 811,235
7.50%, 3/01/07 ............................................................................... 780,000 806,996
-------------
TOTAL LONG TERM INVESTMENTS (COST $232,104,303) ................................................ 229,670,932
-------------
(a) SHORT TERM INVESTMENTS .7%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN
and Put, 3.75%, 12/01/15 ..................................................................... 1,100,000 1,100,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series A, AMBAC Insured,
Weekly VRDN and Put, 3.50%, 7/01/28 .......................................................... 600,000 600,000
-------------
TOTAL SHORT TERM INVESTMENTS (COST $1,700,000) ................................................. 1,700,000
-------------
TOTAL INVESTMENTS (COST $233,804,303) 98.9% .................................................... 231,370,932
OTHER ASSETS, LESS LIABILITIES 1.1% ............................................................ 2,593,945
-------------
NET ASSETS 100.0% .............................................................................. $233,964,877
=============
</TABLE>
See glossary of terms on page 115.
(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 65
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ----------------------------------------------------------
(UNAUDITED) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $10.52 $11.30 $11.25 $10.94 $10.95 $10.48
-------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ........................ .26 .51 .51 .53 .55 .55
Net realized and unrealized gains (losses) ...... .26 (.78) .06 .33 (.01) .47
-------------------------------------------------------------------------
Total from investment operations .................. .52 (.27) .57 .86 .54 1.02
-------------------------------------------------------------------------
Less distributions from net investment income ..... (.26) (.51) (.52) (.55) (.55) (.55)
-------------------------------------------------------------------------
Net asset value, end of period .................... $10.78 $10.52 $11.30 $11.25 $10.94 $10.95
=========================================================================
Total return(b).................................... 5.02% (2.43)% 5.17% 8.02% 5.12% 9.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $165,899 $170,907 $195,598 $139,545 $104,715 $85,967
Ratios to average net assets:
Expenses ........................................ .76%(c) .73% .75% .75% .68% .65%
Expenses excluding waiver and payments by
affiliate ..................................... .76%(c) .75% .78% .82% .84% .85%
Net investment income ........................... 4.94%(c) 4.72% 4.53% 4.83% 5.16% 5.12%
Portfolio turnover rate ........................... 3.15% 31.27% 16.57% 23.32% 22.54% 3.35%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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
66 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 96.8%
BONDS 95.6%
ALABAMA 1.0%
Morgan County Decatur Health Care Authority Hospital Revenue, Refunding, Connie Lee Insured, 5.80%,
3/01/04 ........................................................................................... $ 1,000,000 $ 1,030,450
Sylacauga GO, wts., AMBAC Insured, 5.50%, 6/01/12 ................................................... 600,000 630,150
------------
1,660,600
------------
ALASKA .3%
Alaska State HFC, Collateral, Veteran's Mortgage Program, First Series, 5.80%, 6/01/04 .............. 360,000 375,149
Anchorage Parking Authority Revenue, 5th Avenue Garage Lease Project, Refunding, 6.50%, 12/01/02..... 145,000 148,051
------------
523,200
------------
ARIZONA .6%
Maricopa County GO, School District No. 40, Glendale Improvement, 6.10%, 7/01/08 ................... 1,000,000 1,067,220
Phoenix HFC, Mortgage Revenue, Project A, Refunding, MBIA Insured, 6.00%, 7/01/02 .................. 5,000 5,135
------------
1,072,355
------------
ARKANSAS .7%
Conway Hospital Revenue, Conway Regional Medical Improvement, Refunding, Series A, 6.20%, 8/01/17... 1,105,000 1,076,734
------------
CALIFORNIA 6.3%
ABAG Finance Corp. COP, ABAG XXVI, Series B, 6.30%, 10/01/02 ....................................... 100,000 103,615
Bakersfield PFA Revenue, Refunding, Series A, 5.80%, 9/15/05 ....................................... 3,000,000 3,103,590
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Refunding, Series B, 5.90%, 6/01/03 .............................................................. 1,500,000 1,554,150
California Statewide CDA Revenue, COP, Health Facilities, Barton Memorial Hospital, Refunding,
Series B, 6.40%, 12/01/05 ........................................................................ 300,000 312,633
Fresno Joint Powers Financing Authority Local Agency Revenue, Refunding, Series A, 6.00%, 9/02/01... 700,000 707,679
San Diego Port Facilities Revenue, National Steel and Shipbuilding Co., Refunding, 6.60%, 12/01/02.. 100,000 102,570
San Francisco City and County RDA, Mortgage Revenue, Refunding, Series A, MBIA Insured, 6.125%,
7/01/02 .......................................................................................... 30,000 30,062
San Francisco Downtown Parking Corp. Parking Revenue, 6.25%, 4/01/04 ............................... 200,000 213,112
San Joaquin County COP, General Hospital Project, ETM, 5.90%, 9/01/03 .............................. 200,000 210,020
San Ramon Valley USD, COP, Measure A, Capital Project, Series A, 5.95%, 10/01/01 ................... 1,110,000 1,132,400
Santa Clara 1915 Act, Reassessment District 187, Refunding, Series 1, 5.25%, 9/02/11 ............... 1,000,000 990,130
Snowline Joint USD, COP, ETM,
5.60%, 7/01/01 ................................................................................... 260,000 263,305
5.70%, 7/01/02 ................................................................................... 275,000 282,719
5.80%, 7/01/03 ................................................................................... 290,000 302,980
Solano County COP, Justice Facility and Public Building Project, Refunding, 5.875%, 10/01/05 ....... 400,000 409,480
Southern California Rapid Transit District Revenue, Special Benefit AD A2, 6.00%, 9/01/02 .......... 100,000 103,010
Susanville PFA Revenue, Series A, AMBAC Insured,
5.90%, 9/01/02 ................................................................................... 25,000 25,500
6.00%, 9/01/03 ................................................................................... 100,000 102,000
Tahoe City PUD, COP, Capital Facilities Project, Series B, 6.05%, 6/01/01 .......................... 500,000 505,690
------------
10,454,645
------------
COLORADO 3.0%
Denver City and County Airport Revenue, Series C, 6.25%, 11/15/00 .................................. 335,000 335,831
Denver City and County COP, Series B, AMBAC Insured, 5.75%, 12/01/16 ............................... 3,000,000 3,125,820
Montrose County COP, 6.20%, 6/15/03 ................................................................ 1,500,000 1,551,855
------------
5,013,506
------------
CONNECTICUT 3.3%
Connecticut State Health and Educational Facilities Authority Revenue, Sacred Heart University,
Refunding, Series C, 6.00%, 7/01/05 .............................................................. 135,000 139,714
Series C, ETM, 6.00%, 7/01/05 .................................................................... 425,000 451,558
Connecticut State HFA, Housing Mortgage Finance Program, Series C-2, 6.00%, 11/15/10 ............... 2,000,000 2,107,960
Stamford Housing Authority MFR, Fairfield Apartments Project, 4.75%, 12/01/28 ...................... 3,000,000 2,858,130
------------
5,557,362
------------
FLORIDA 3.7%
Alachua County Health Facilities Authority Revenue, Santa Fe Health Systems Project, Pre-Refunded,
6.875%, 11/15/02 ................................................................................. 90,000 92,066
Meadow Pointe II CDD, Capital Improvement Revenue, Series A, 5.25%, 8/01/03 ........................ 785,000 773,775
Nassau County PCR, ITT Rayonier Inc. Project, Refunding, 6.25%, 6/01/10 ............................ 1,000,000 1,012,810
</TABLE>
67
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Northern Palm Beach County Water Control District Revenue, Unit Development No. 31,
Program 1, Refunding, 6.60%, 11/01/03 ............................................................ $ 405,000 $ 417,344
Program 2, Refunding, 6.60%, 11/01/03 ............................................................ 320,000 329,754
Palm Beach County IDR, Lourdes-Noreen Mckeen Residence, Geriatric Care Inc. Project,
6.20%, 12/01/08 .................................................................................. 275,000 279,931
6.30%, 12/01/09 .................................................................................. 580,000 591,298
(b)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 ....................................... 785,000 813,197
Tampa Bay Water Utility System Revenue, FGIC Insured, 5.75%, 10/01/15 .............................. 1,000,000 1,051,830
-----------
6,202,005
-----------
GEORGIA 2.5%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.30%, 12/01/13 ......... 1,020,000 864,695
Fulton County Development Authority Special Facilities Revenue, Delta Airlines Inc. Project,
Refunding, 6.85%, 11/01/07 ....................................................................... 100,000 103,407
Wayne County Development Authority PCR, ITT Rayonier Inc. Project, Refunding, 6.10%, 11/01/07 ...... 3,105,000 3,159,927
-----------
4,128,029
-----------
HAWAII 1.7%
Hawaii State Department of Budget and Finance Special Purpose Revenue,
Kaiser Permanente, Series A, 5.10%, 3/01/14 ...................................................... 2,500,000 2,314,800
Kapi `Olani Health Obligation, 5.60%, 7/01/06 .................................................... 500,000 498,485
-----------
2,813,285
-----------
ILLINOIS 3.2%
Chicago O'Hare International Airport Special Facilities Revenue, United Air Lines Project,
Refunding, Series A, 5.35%, 9/01/16 .............................................................. 2,000,000 1,756,480
Illinois Educational Facilities Authority Revenue, Columbia College, 5.875%, 12/01/03 .............. 700,000 719,712
Illinois HDA Revenue, Homeowner Mortgage, Sub Series A-1, 6.10%, 2/01/05 ........................... 360,000 377,482
Illinois Health Facilities Authority Revenue,
St. Elizabeth's Hospital, 6.00%, 7/01/05 ......................................................... 320,000 322,758
Victory Health Services, Series A, 5.25%, 8/15/09 ................................................ 1,170,000 1,113,501
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center, 5.75%, 7/01/06 ................................................................ 1,000,000 1,039,060
-----------
5,328,993
-----------
INDIANA 3.4%
Franklin EDR, Hoover Universal Inc. Project, Johnson Controls, Refunding, 6.10%, 12/01/04 .......... 2,000,000 2,070,520
Indianapolis Local Public Improvement Bond, Refunding, Series D, 6.10%, 2/01/02 .................... 100,000 102,228
Sullivan PCR, Indiana-Michigan Power Co. Project, Refunding, Series C, 5.95%, 5/01/09 .............. 3,500,000 3,535,000
-----------
5,707,748
-----------
KENTUCKY 1.2%
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project, Series A,
6.75%, 2/01/02 ................................................................................... 100,000 101,645
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian Regional
Health Center Facility, Refunding and Improvement,
5.70%, 10/01/10 .................................................................................. 1,000,000 792,820
5.75%, 10/01/11 .................................................................................. 1,500,000 1,167,045
-----------
2,061,510
-----------
LOUISIANA 2.4%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series B, 6.375%, 11/01/02 .... 5,000 5,139
Louisiana Public Facilities Authority Revenue, Student Loan, Refunding, Series A-1, 6.20%, 3/01/01.. 80,000 80,653
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, First Stage, Loop Inc.,
Refunding, Series B, 6.20%, 9/01/03 .............................................................. 100,000 103,206
St. John's Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ....................... 4,000,000 3,750,120
-----------
3,939,118
-----------
MARYLAND .1%
Baltimore Economic Development Lease Revenue, Armistead Partnership, Refunding, Series A, 6.75%,
8/01/02 .......................................................................................... 110,000 112,186
-----------
MASSACHUSETTS 8.8%
Massachusetts State Development Finance Agency Resource Recovery Revenue, Waste Management Inc.
Project, Series B, 6.90%, 12/01/29 ............................................................... 3,000,000 3,075,660
Massachusetts State Development Finance Agency Revenue, Loomis Community Project, First Mortgage,
Refunding, Series A, 5.50%, 7/01/08 .............................................................. 3,225,000 3,021,890
</TABLE>
68
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MASSACHUSETTS (CONT.)
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Ogden Haverhill Project,
Refunding, Series A,
4.95%, 12/01/06 ................................................................................... $2,500,000 $ 2,411,425
5.15%, 12/01/07 ................................................................................... 2,000,000 1,931,880
5.20%, 12/01/08 ................................................................................... 2,000,000 1,918,320
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care, 5.50%, 10/01/12 ...... 1,745,000 1,740,358
New England Educational Loan Marketing Corp. Student Loan Revenue, Refunding, Series B, 5.60%,
6/01/02 ........................................................................................... 415,000 422,092
-----------
14,521,625
-----------
MICHIGAN 2.1%
Chippewa County Hospital Financing Authority Revenue, Chippewa County War Memorial Hospital,
Refunding, Series B,
5.30%, 11/01/07 ................................................................................... 815,000 767,477
5.625%, 11/01/14 .................................................................................. 350,000 311,416
Detroit GO, Refunding, Series B, 6.375%, 4/01/06 .................................................... 1,000,000 1,065,590
Michigan State Hospital Finance Authority Revenue, Ascension Health Credit, Series A, MBIA Insured,
6.00%, 11/15/13 ................................................................................... 1,200,000 1,272,168
-----------
3,416,651
-----------
MINNESOTA .1%
Minneapolis CDA, Supported Development Revenue, Common Bond Fund, Series 91-5A, 7.20%, 12/01/04 ..... 200,000 208,412
-----------
MISSISSIPPI 1.4%
Perry County PCR, Leaf River Forest Project, Refunding, 5.20%, 10/01/12 ............................. 2,500,000 2,344,100
-----------
MISSOURI 2.0%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue, Refunding, 5.00%, 12/01/08 ......... 3,000,000 2,844,330
West Plains IDA, Hospital Revenue, Ozarks Medical Center Project, Refunding, 5.00%, 11/15/04 ........ 560,000 526,232
-----------
3,370,562
-----------
NEBRASKA .7%
Omaha Stadium Facilities Corp. Lease Revenue, Rosenblatt Stadium Project, Series A, 4.90%, 11/01/13.. 1,100,000 1,074,909
-----------
NEW HAMPSHIRE .6%
New Hampshire Higher Education and Health Facilities Authority Revenue, New Hampshire Catholic
Charities, Refunding, Series A, 5.10%, 8/01/04 ...................................................... 940,000 914,065
-----------
NEW JERSEY 2.9%
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue, Waste Management
Inc., Refunding, Project Series A, 6.85%, 12/01/29 ................................................ 2,625,000 2,728,320
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding, Series 1, 5.90%,
1/01/15 ........................................................................................... 975,000 936,000
New Jersey EDA Revenue, Economic Growth, 2nd Series F-1, 6.00%, 12/01/02 ............................ 55,000 56,052
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 1,049,020
-----------
4,769,392
-----------
NEW YORK 11.6%
MTA Commuter Facilities Revenue, Services Contract, Refunding, Series R, 5.50%, 7/01/11 ............. 2,215,000 2,287,785
MTA Transportation Facilities Revenue, Series A, 6.00%, 7/01/15 ..................................... 1,500,000 1,575,240
New York City GO,
Pre-Refunded, 6.50%, 8/01/04 ...................................................................... 105,000 110,605
Refunding, Series H, 5.90%, 8/01/09 ............................................................... 500,000 535,875
Refunding, Series J, 6.00%, 8/01/08 ............................................................... 3,000,000 3,234,540
Series B, 6.25%, 10/01/01 ......................................................................... 75,000 76,545
Series B, ETM, 6.25%, 10/01/01 .................................................................... 25,000 25,524
Series C, 6.50%, 8/01/04 .......................................................................... 410,000 430,881
Series C, 6.50%, 8/01/07 .......................................................................... 1,490,000 1,563,383
Series C, Pre-Refunded, 6.50%, 8/01/07 ............................................................ 360,000 379,217
Series H, 7.00%, 2/01/05 .......................................................................... 30,000 31,434
Series H, Pre-Refunded, 7.00%, 2/01/05 ............................................................ 220,000 231,222
Series J, 6.00%, 2/15/04 .......................................................................... 1,000,000 1,046,000
New York City Health and Hospital Corp. Revenue, Refunding, Series A, 6.00%, 2/15/06 ................ 2,500,000 2,516,300
New York City IDA, Civic Facility Revenue, New York Blood Center Inc. Project, ETM, 6.80%, 5/01/02... 90,000 92,124
New York State Dormitory Authority Revenue, Mental Health Services Facilities Improvement,
Refunding, Series D, 5.60%, 2/15/07 ............................................................... 140,000 146,532
New York State HFAR, Health Facilities, New York City, Refunding, Series A, 5.90%, 5/01/05 .......... 1,000,000 1,044,040
</TABLE>
69
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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 State Tollway Authority Service Contract Revenue, Local Highway and Bridge, 5.75%,
4/01/08 .......................................................................................... $ 500,000 $ 530,480
4/01/09 .......................................................................................... 1,150,000 1,216,367
Port Authority of New York and New Jersey Special Obligation Revenue, 3rd Installment, 7.00%,
10/01/07 ......................................................................................... 1,000,000 1,080,150
Ulster County Resource Recovery Agency Solid Waste System Revenue, 5.90%, 3/01/07 .................. 1,100,000 1,139,336
-----------
19,293,580
-----------
NORTH CAROLINA 4.5%
Eastern Municipal Power Agency Power System Revenue,
Refunding, Series D, 6.00%, 1/01/09 .............................................................. 1,000,000 1,031,580
Series D, 6.45%, 1/01/14 ......................................................................... 1,000,000 1,037,260
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, Refunding, Series B, 6.50%,
1/01/09 .......................................................................................... 5,000,000 5,357,300
-----------
7,426,140
-----------
OHIO 3.1%
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services, Refunding,
5.25%, 7/01/08 ................................................................................... 575,000 526,470
5.40%, 7/01/10 ................................................................................... 775,000 687,913
5.50%, 7/01/11 ................................................................................... 500,000 440,235
University of Akron General Receipts, FGIC Insured, 5.75%, 1/01/14 ................................. 2,000,000 2,109,720
Youngstown GO, AMBAC Insured, 6.125%, 12/01/15 ..................................................... 1,275,000 1,409,806
-----------
5,174,144
-----------
OKLAHOMA 2.8%
Jackson County Memorial Hospital Authority Revenue, Jackson County Memorial Hospital Project,
Refunding, 6.75%, 8/01/04 ........................................................................ 1,255,000 1,245,588
Okmulgee County Governmental Building Authority Sales Tax Revenue, First Mortgage, MBIA Insured,
5.60%, 3/01/10 ................................................................................... 1,825,000 1,943,789
6.00%, 3/01/15 ................................................................................... 700,000 738,969
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding, 5.75%,
8/15/06 .......................................................................................... 790,000 775,970
-----------
4,704,316
-----------
OREGON .9%
Clackamas County Hospital Facilities Authority Revenue, Willamette View Inc. Project, Refunding,
6.00%, 11/01/06 .................................................................................. 500,000 487,190
Hillsborough Hospital Facilities Authority Revenue, Refunding, 5.75%, 10/01/12 ..................... 1,000,000 971,180
-----------
1,458,370
-----------
PENNSYLVANIA 3.7%
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 ............ 100,000 104,328
Chartiers Valley Industrial and Commercial Development Authority Revenue, First Mortgage, Asbury
Place Project, 6.25%, 2/01/06 .................................................................... 160,000 162,474
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding, 5.40%, 7/01/07 ..... 1,135,000 1,050,477
Delaware County IDA, PCR, Peco Energy Co. Project, Mandatory Put Refunding, Series A, 5.20%,
4/01/21 .......................................................................................... 1,000,000 994,540
Montgomery County IDA, PCR, Series B, 5.30%, 10/01/34 .............................................. 1,500,000 1,494,525
Northeastern Hospital and Educational Authority College Revenue, Kings College Project, Refunding,
Series B, 5.60%, 7/15/03 ......................................................................... 410,000 418,307
Philadelphia Gas Works Revenue, Refunding, Series A, 5.80%, 7/01/01 ................................ 300,000 302,538
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc.,
6.50%, 1/01/10.................................................................................... 1,615,000 1,620,556
-----------
6,147,745
-----------
SOUTH CAROLINA .6%
Charleston County Resource Recovery Revenue, Foster Wheeler Charleston, Refunding, AMBAC Insured,
5.25%, 1/01/10 ................................................................................... 1,000,000 1,017,620
-----------
SOUTH DAKOTA .6%
South Dakota HDA Revenue, Homeownership Mortgage, Series D, 6.05%, 5/01/04 ......................... 955,000 1,001,337
-----------
TENNESSEE .3%
Metropolitan Government of Nashville and Davidson County IDBR, Osco Treatment Inc., Refunding and
Improvement, 6.00%, 5/01/03 ...................................................................... 750,000 450,000
-----------
TEXAS 3.1%
Abilene Higher Educational Facilities Corp.,
ETM, 5.90%, 10/01/05 ............................................................................ 65,000 68,870
Higher Education Revenue, Abilene Christian, Refunding and Improvement, 5.90%, 10/01/05 ......... 720,000 748,346
North Central Health Facility Development Corp. Revenue, C.C. Young Memorial Home Project,
Refunding, Series C, 6.10%, 2/15/06 .............................................................. 400,000 399,068
</TABLE>
70
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
TEXAS (CONT.)
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.35%, 11/01/10 $2,500,000 $ 2,380,625
Travis County Health Facilities Development Corp. Revenue, Ascension Health Credit, Refunding,
Series A, MBIA Insured, 6.25%, 11/15/17 ........................................................... 1,500,000 1,592,745
------------
5,189,654
------------
U.S. TERRITORIES 6.4%
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 .............................................................. 385,000 395,264
Series A, ETM, 5.875%, 6/01/05 .................................................................... 315,000 332,990
Puerto Rico Electric Power Authority Revenue,
Refunding, Series Q, 5.90%, 7/01/01 ............................................................... 100,000 101,308
Series T, 6.00%, 7/01/04 .......................................................................... 1,345,000 1,421,262
Virgin Islands PFA Revenue, senior lien, Refunding, Series A, 5.30%, 10/01/11 ....................... 4,000,000 3,960,280
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
4.875%, 7/01/06 ................................................................................... 2,000,000 1,970,520
5.00%, 7/01/09 .................................................................................... 2,400,000 2,344,656
------------
10,526,280
------------
UTAH .2%
Salt Lake County College Revenue, Westminster College Project, 5.50%, 10/01/12 ...................... 340,000 337,032
------------
VIRGINIA 3.7%
Covington-Alleghany County IDA, PCR, Westvaco Corp. Project, Refunding, 5.85%, 9/01/04 .............. 2,800,000 2,874,871
Virginia State HDA, Commonwealth Mortgage, Sub Series C-7,
5.60%, 1/01/03 .................................................................................... 1,695,000 1,737,391
5.70%, 1/01/04 .................................................................................... 1,475,000 1,524,176
------------
6,136,438
------------
WASHINGTON 1.0%
Marysville Water and Sewer Revenue, Refunding, MBIA Insured, 5.75%, 12/01/05 ........................ 600,000 623,040
Washington State Public Power Supply System Revenue, Nuclear Project No. 1, Refunding, Series A,
AMBAC Insured, 5.70%, 7/01/09 ..................................................................... 1,000,000 1,053,360
------------
1,676,400
------------
WEST VIRGINIA .8%
West Virginia Public Energy Authority Energy Revenue, Morgantown Association Project, Series A,
5.05%, 7/01/08 .................................................................................... 1,295,000 1,299,803
------------
WISCONSIN .3%
Wisconsin State GO, Refunding, Series 1, 5.50%, 5/01/10 ............................................. 500,000 520,274
------------
TOTAL BONDS ......................................................................................... 158,630,125
------------
ZERO COUPON BONDS 1.2%
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, Refunding, Series
A, 1/15/17 ........................................................................................ 3,000,000 1,984,560
------------
TOTAL LONG TERM INVESTMENTS (COST $161,306,796) ..................................................... 160,614,685
------------
(a) SHORT TERM INVESTMENTS 2.2%
Connecticut State Health and Educational Facilities Authority Revenue, Yale University, Series T-1,
Weekly VRDN and Put, 3.90%, 7/01/29 ............................................................... 200,000 200,000
Long Island Power Authority Electric System Revenue, Sub Series 5, Daily VRDN and Put, 4.30%,
5/01/33 ........................................................................................... 200,000 200,000
New York City Municipal Water Finance Authority Water and Sewer System Revenue, Series C, FGIC
Insured, Daily VRDN and Put, 4.15%,
6/15/22 ........................................................................................... 2,000,000 2,000,000
6/15/23 ........................................................................................... 1,200,000 1,200,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $3,600,000) ...................................................... 3,600,000
------------
TOTAL INVESTMENTS (COST $164,906,796) 99.0% ......................................................... 164,214,685
OTHER ASSETS, LESS LIABILITIES 1.0% ................................................................. 1,684,294
------------
NET ASSETS 100.0% ................................................................................... $165,898,979
============
</TABLE>
See glossary of terms on page 115.
(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) See Note 6 regarding defaulted securities.
See notes to financial statements. 71
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 --------------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999(g) 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ..... $ 10.41 $ 11.49 $ 11.68 $ 11.21 $ 11.19 $ 10.74
------------------------------------------------------------- ----------------------
Income from investment operations:
Net investment income(a)................ .32 .65 .66 .69 .71 .74
Net realized and unrealized gains (losses) .14 (1.08) (.18) .47 .04 .45
------------------------------------------------------------------------------------
Total from investment operations ......... .46 (.43) .48 1.16 .75 1.19
------------------------------------------------------------------------------------
Less distributions from:
Net investment income .................. (.32)(d) (.65) (.65) (.68) (.73) (.74)
In excess of net investment income ..... -- --(e) -- (.01) --(h) --
Net realized gains ..................... -- --(f) (.02) -- -- --
------------------------------------------------------------------------------------
Total distributions ...................... (.32) (.65) (.67) (.69) (.73) (.74)
------------------------------------------------------------------------------------
Net asset value, end of period ........... $ 10.55 $ 10.41 $ 11.49 $ 11.68 $ 11.21 $ 11.19
====================================================================================
Total return(b)........................... 4.55% (3.81)% 4.21% 10.64% 7.01% 11.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........ $4,947,799 $5,017,322 $5,988,204 $5,742,939 $4,505,258 $3,787,147
Ratios to average net assets:
Expenses ............................... .62%(c) .61% .62% .61% .62% .61%
Net investment income .................. 6.16%(c) 5.92% 5.64% 5.98% 6.41% 6.68%
Portfolio turnover rate ................ 8.22% 25.35% 18.55% 15.84% 6.98% 9.23%
CLASS B
-----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ..... $ 10.45 $ 11.52 $ 11.51
---------- ---------- ----------
Income from investment operations:
Net investment income(a) ............... .30 .59 .11
Net realized and unrealized gains (losses) .14 (1.07) --
---------- ---------- ----------
Total from investment operations ......... .44 (.48) .11
---------- ---------- ----------
Less distributions from:
Net investment income .................. (.30)(d) (.59)(e) (.10)
Net realized gains ..................... -- --(f) --
Total distributions ...................... (.30) (.59) (.10)
---------- ---------- ----------
Net asset value, end of period ........... $ 10.59 $ 10.45 $ 11.52
========== ========== ==========
Total return(b) .......................... 4.25% (4.27)% .96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........ $ 116,571 $ 92,099 $ 15,487
Ratios to average net assets:
Expenses ............................... 1.18%(c) 1.17% 1.18%(c)
Net investment income .................. 5.62%(c) 5.44% 5.06%(c)
Portfolio turnover rate .................. 8.22% 25.35% 18.55%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.004 and $.003 for Class A and Class B, respectively.
(e) Includes distributions in excess of net investment income in the amount of
$.003.
(f) The fund made a capital gain distribution of $.003.
(g) For the period January 1, 1999 (effective date) to February 28, 1999 for
Class B.
(h) Includes distributions in excess of net investment income in the amount of
$.008.
72
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights(continued)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND(CONT.)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ---------------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(f)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..... $ 10.48 $ 11.56 $ 11.75 $ 11.26 $ 11.24 $ 10.81
----------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............... .30 .59 .60 .63 .66 .56
Net realized and unrealized gains
(losses)................................ .15 (1.08) (.18) .48 .03 .42
----------------------------------------------------------------------------
Total from investment operations ......... .45 (.49) .42 1.11 .69 .98
----------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.30)(d) (.59)(d) (.59) (.62) (.67)(d) (.55)
Net realized gains ....................... -- --(e) (.02) -- -- --
----------------------------------------------------------------------------
Total distributions ...................... (.30) (.59) (.61) (.62) (.67) (.55)
----------------------------------------------------------------------------
Net asset value, end of period ........... $ 10.63 $ 10.48 $ 11.56 $ 11.75 $ 11.26 $ 11.24
============================================================================
Total return (b) ......................... 4.32% (4.41)% 3.69% 10.15% 6.36% 9.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........ $ 519,069 $540,932 $631,974 $ 423,264 $ 194,400 $ 48,163
Ratios to average net assets:
Expenses ............................... 1.18%(c) 1.17% 1.18% 1.18% 1.18% 1.18%(c)
Net investment income .................. 5.60%(c) 5.35% 5.07% 5.38% 5.78% 6.07%(c)
Portfolio turnover rate .................. 8.22% 25.35% 18.55% 15.84% 6.98% 9.23%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000
(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) Includes distributions in excess of net investment income in the amount of
$.003.
(e) The fund made a capital gain distribution of $.003.
(f) For the period May 1, 1995 (effective date) to February 29, 1996.
See notes to financial statements. 73
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 97.9%
BONDS 92.4%
ALABAMA .6%
Marshall County Health Care Authority Hospital Revenue, Boaz-Albertville Medical Center,
Refunding, 6.20%, 1/01/08 .......................................................................... $ 3,300,000 $ 3,244,560
(c) Mobile IDB, Solid Waste Disposal Revenue, Mobile Energy Service Co. Project, Refunding, 6.95%,
1/01/20 ............................................................................................ 46,500,000 20,460,000
Oneonta Eastern Health Systems Special Care Facilities Financing Authority, 7.75%, 7/01/21 ......... 12,000,000 12,090,240
------------
35,794,800
------------
ALASKA 1.1%
Alaska Industrial Development and Export Authority Power Revenue, Upper Lynn Canal Regional
Power,
5.70%, 1/01/12 ................................................................................... 3,000,000 2,907,390
5.80%, 1/01/18 ................................................................................... 1,245,000 1,149,098
5.875%, 1/01/32 .................................................................................. 6,900,000 6,184,884
Alaska Industrial Development and Export Authority Revenue, American President Lines Project,
Refunding, 8.00%, 11/01/09 ......................................................................... 6,685,000 6,728,987
Alaska Industrial Development and Export Authority, Revolving Fund, Series A, 6.20%, 4/01/10 ....... 720,000 753,422
Alaska State HFC,
Refunding, Series A, MBIA Insured, 6.00%, 12/01/15 ............................................... 3,085,000 3,196,554
Refunding, Series A, MBIA Insured, 5.875%, 12/01/30 .............................................. 12,475,000 12,535,629
Refunding, Series A, MBIA Insured, 6.10%, 12/01/37 ............................................... 22,000,000 22,369,600
Series A, MBIA Insured, 5.85%, 12/01/15 .......................................................... 4,670,000 4,788,431
------------
60,613,995
------------
ARIZONA 6.4%
Apache County IDA,
IDR, Tucson Electric Power Co. Project, Series C, 5.85%, 3/01/26 ................................. 16,500,000 15,077,535
PCR, Tucson Electric Power Co. Project, Series A, 5.85%, 3/01/28 ................................. 53,150,000 48,435,064
PCR, Tucson Electric Power Co. Project, Series B, 5.875%, 3/01/33 ................................ 38,950,000 35,189,767
Arizona Health Facilities Authority Revenue, Bethesda Foundation Project, Series A,
6.375%, 8/15/15 .................................................................................. 400,000 369,384
6.40%, 8/15/27 ................................................................................... 4,000,000 3,544,000
Coconino County PCR, Tucson Electric Power Navajo, Refunding,
Series A, 7.125%, 10/01/32 ....................................................................... 21,125,000 21,333,715
Series B, 7.00%, 10/01/32 ........................................................................ 9,500,000 9,594,430
Gila County IDAR, Asarco Inc., Refunding, 5.55%, 1/01/27 ........................................... 4,000,000 3,209,480
Gilbert Water Resources Municipal Property Corp. Water and Wastewater System Revenue, sub. lien,
6.875%,
4/01/14 .......................................................................................... 1,000,000 1,001,614
4/01/16 .......................................................................................... 1,000,000 1,007,500
Maricopa County IDA, Health Facilities Revenue, Catholic Healthcare West Project, Refunding,
Series A, 5.00%, 7/01/16 .......................................................................... 6,500,000 5,571,800
Maricopa County PCC, PCR, Public Service Co. of Colorado,
Palo Verde, Refunding, Series A, 6.375%, 8/15/23 ................................................. 8,500,000 8,544,115
Refunding, Series A, 5.75%, 11/01/22 ............................................................. 13,800,000 12,898,860
(b) Maricopa County Pollution Control Corp. PCR, El Paso Electric, Series A, 6.375%, 7/01/14 ....... 32,000,000 32,074,240
Pima County IDAR, Tucson Electric Power Co. Project,
Series A, 6.10%, 9/01/25 ......................................................................... 3,990,000 3,701,483
Series B, 6.00%, 9/01/29 ......................................................................... 94,690,000 87,965,116
Series C, 6.00%, 9/01/29 ......................................................................... 53,500,000 49,700,430
Red Hawk Canyon Community Facility Revenue, 7.625%, 6/01/05 ........................................ 11,990,000 12,175,126
Salt River Project Agricultural Improvement and Power District Electric System Revenue,
Series A, 6.00%, 1/01/31 ......................................................................... 5,000,000 5,006,750
------------
356,400,409
------------
ARKANSAS .2%
Baxter County IDR, Aeroquip/Trinova Corp. Project, Refunding, 5.80%, 10/01/13 ...................... 2,400,000 2,450,664
Independence County PCR, Arkansas Power and Light Co. Project, Refunding, 6.25%, 1/01/21 ........... 5,000,000 5,005,600
Jefferson County PCR, Entergy Arkansas Inc. Project, Refunding, 5.60%, 10/01/17 .................... 1,900,000 1,790,788
------------
9,247,052
------------
CALIFORNIA 7.1%
Adelanto Water Authority Revenue, Water Systems Acquisition Project, sub. lien, Series A, 7.50%,
9/01/28 .......................................................................................... 21,330,000 26,217,770
Alameda County MFHR, Claremont House Project, Refunding, Series A, 8.00%, 12/01/23 ................. 12,750,000 13,472,288
(c) Arroyo Grande Hospital System COP, Vista Hospital Systems,
Refunding, Series A, 7.315%, 7/01/20 ............................................................. 22,515,000 9,009,828
Series A, 6.45%, 7/01/06 ......................................................................... 2,500,000 1,000,325
</TABLE>
74
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Avenal PFA Revenue, Refunding,
7.00%, 9/02/10 .................................................................................. $ 1,585,000 $ 1,638,304
7.25%, 9/02/27 .................................................................................. 3,665,000 3,786,971
Azusa RDA, Tax Allocation, Merged Area Project, Refunding, Series A, 6.75%, 8/01/23 ............... 2,850,000 2,984,264
Bay Area Government Association 1915 Act Revenue, Windemere Ranch Assessment District 1, 7.45%,
9/02/30 ......................................................................................... 38,610,000 40,067,914
Beaumont PFA Revenue, Sewer Enterprise Project, Series A, Pre-Refunded, 6.90%, 9/01/23 ............ 4,565,000 5,170,867
Benicia 1915 Act, Fleetside Industrial Park Assessment, Refunding,
5.50%, 9/02/00 .................................................................................. 190,000 190,000
5.65%, 9/02/01 .................................................................................. 205,000 206,466
6.20%, 9/02/06 .................................................................................. 265,000 273,660
6.30%, 9/02/07 .................................................................................. 285,000 294,308
6.40%, 9/02/08 .................................................................................. 300,000 309,792
6.50%, 9/02/09 .................................................................................. 320,000 330,518
6.60%, 9/02/10 .................................................................................. 340,000 351,172
6.70%, 9/02/11 .................................................................................. 360,000 371,822
6.80%, 9/02/12 .................................................................................. 245,000 253,043
California Educational Facilities Authority Revenue, Pooled College and University Financing,
Series B, 6.125%, 6/01/09 ......................................................................... 3,000,000 3,164,310
California Special Districts Association Finance Corp. COP, Series V, 7.50%, 5/01/13 .............. 755,000 805,766
Capistrano USD, CFD,
Special Tax No. 9, Pre-Refunded, 6.60%, 9/01/05 ................................................. 285,000 310,302
Special Tax No. 9, Pre-Refunded, 6.70%, 9/01/06 ................................................. 280,000 305,640
Special Tax No. 9, Pre-Refunded, 6.80%, 9/01/07 ................................................. 325,000 355,664
Special Tax No. 9, Pre-Refunded, 6.90%, 9/01/08 ................................................. 260,000 284,869
Special Tax No. 92-1, Pre-Refunded, 7.00%, 9/01/18 .............................................. 1,000,000 1,099,930
Contra Costa County PFA Revenue, Refunding,
6.625%, 9/02/10 ................................................................................. 2,295,000 2,368,417
6.875%, 9/02/16 ................................................................................. 2,610,000 2,692,137
Corona COP,
Corona Community Hospital Project, ETM, 9.425%, 9/01/06 ......................................... 7,255,000 8,406,296
Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ................................ 8,820,000 11,891,389
(c) Vista Hospital System, Refunding, Series B, 6.45%, 7/01/06 .................................. 11,100,000 4,441,443
(c) Vista Hospital System, Refunding, Series B, 7.315%, 7/01/20 ................................. 10,885,000 4,355,850
Emeryville RDA, MFHR, Emery Bay Apartments II,
Refunding, Series A, 5.85%, 10/01/28 ............................................................ 14,840,000 13,407,792
sub. lien, Refunding, Series B, 6.35%, 10/01/28 ................................................. 3,495,000 3,274,081
sub. lien, Refunding, Series C, 7.875%, 10/01/28 ................................................ 2,060,000 1,950,161
Foothill/Eastern Corridor Agency Toll Road Revenue, senior lien, Series A, Pre-Refunded, 6.50%,
1/01/32 ......................................................................................... 37,675,000 42,482,707
Gateway Improvement Authority Revenue, Marin City CFD, Series A, Pre-Refunded, 7.75%, 9/01/25...... 4,500,000 5,227,560
Hawthorne CRDA, Hawthorne Plaza Project, Refunding, 8.50%, 7/01/20 ................................ 4,175,000 4,248,063
Hesperia PFA Revenue, Series B, 7.375%, 10/01/23 .................................................. 6,365,000 6,616,163
Lake Elsinore 1915 Act, AD No. 93-1, Series A, 7.90%, 9/02/24 ..................................... 6,000,000 6,247,620
Long Beach Special Tax, CFD No. 2, 7.50%, 9/01/11 ................................................. 3,065,000 3,076,892
Los Angeles County CFD No. 4 Special Tax, Improvement Area B, Series A, 9.25%, 9/01/22 ............ 29,100,000 30,040,512
Los Angeles MFR, Refunding,
Series J-1A, 7.125%, 1/01/24 .................................................................... 140,000 140,024
Series J-1B, 7.125%, 1/01/24 .................................................................... 675,000 675,115
Series J-1C, 7.125%, 1/01/24 .................................................................... 1,435,000 1,435,244
Series J-2A, 8.50%, 1/01/24 ..................................................................... 700,000 711,928
Series J-2B, 8.50%, 1/01/24 ..................................................................... 3,325,000 3,381,658
Series J-2C, 8.50%, 1/01/24 ..................................................................... 7,090,000 7,210,814
Los Angeles Regional Airports Improvement Corp. Lease Revenue,
Facilities sub. lease, International Airport, Refunding, 6.35%, 11/01/25 ........................ 25,000,000 24,904,000
United Airlines, International Airport, Refunding, 6.875%, 11/15/12 ............................. 9,500,000 9,842,000
Oakland Revenue, YMCA East Bay Project, Refunding, 7.10%, 6/01/10 ................................. 2,335,000 2,562,709
Orinda 1915 Act, AD No. 94-1, Oak Springs, 8.25%, 9/02/19 ......................................... 2,729,000 2,769,198
(c) Palmdale Special Tax CFD, No. 93-1 Ritter Ranch Project, Series A, 8.50%, 9/01/24 ............. 23,500,000 18,800,000
Perris PFA, Local Agency Revenue, Series B,
7.125%, 8/15/15 ................................................................................. 2,035,000 2,104,841
7.25%, 8/15/23 .................................................................................. 4,095,000 4,229,930
</TABLE>
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FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CALIFORNIA (CONT.)
Riverside County COP, Airforce Village Project West Inc., Series A, Pre-Refunded, 8.125%,
6/15/07 ....................................................................................... $ 7,160,000 $ 7,777,192
6/15/12 ....................................................................................... 5,290,000 5,745,998
Roseville Special Tax, North Central CFD No. 1, Pre-Refunded, 8.60%, 11/01/17 ................... 12,000,000 12,839,880
San Bernardino County Finance Authority Revenue, Public Improvement, AD, Refunding, Series A,
6.00%, 9/02/01 ................................................................................ 1,360,000 1,371,642
6.50%, 9/02/04 ................................................................................ 830,000 845,737
7.00%, 9/02/17 ................................................................................ 2,420,000 2,464,141
San Francisco Downtown Parking Corp. Parking Revenue,
6.55%, 4/01/12 ................................................................................ 1,800,000 1,920,186
6.65%, 4/01/18 ................................................................................ 2,150,000 2,275,001
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, senior lien, 5.00%, 1/01/33.. 5,930,000 5,186,082
San Jose MFHR, Timberwood Apartments, Series B, 9.25%, 2/01/10 .................................. 1,500,000 1,512,015
(c) San Luis Obispo COP, Vista Hospital System Inc., 6.45%, 7/01/29 ............................. 22,000,000 8,804,180
San Ramon 1915 Act, Fostoria Parkway Reassessment District No. 9,
6.30%, 9/02/03 ................................................................................ 120,000 124,865
6.80%, 9/02/15 ................................................................................ 680,000 704,004
South San Francisco RDA Tax Allocation, Gateway Redevelopment Project, Pre-Refunded, 7.60%,
9/01/18 ....................................................................................... 2,000,000 2,171,920
------------
395,493,180
------------
COLORADO 2.3%
Arvada Limited Sales and Use Tax Revenue, Pre-Refunded, 7.50%, 6/01/11 .......................... 2,485,000 2,541,410
Arvada MFHR, Springwood Community Project, 6.45%, 2/20/26 ....................................... 3,000,000 3,091,950
Colorado Health Facilities Authority Revenue,
Beneficial Living System Inc., Series A, 10.125%, 10/01/20 .................................... 12,300,000 2,460,000
Rocky Mountain Adventist Health Center, Refunding, 6.25%, 2/01/04 ............................. 1,900,000 1,870,265
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.45%, 7/01/08 .... 1,135,000 1,045,721
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.75%, 7/01/20 .... 3,000,000 2,494,590
Volunteers of America Care Facilities, Refunding and Improvement, Series A, 5.875%, 7/01/28 ... 5,290,000 4,317,169
Colorado HFA, SFMR, Series C, 9.075%, 8/01/03 ................................................... 350,000 359,440
Denver City and County Airport Revenue,
Series A, Pre-Refunded, 8.25%, 11/15/12 ....................................................... 5,840,000 5,995,977
Series A, Pre-Refunded, 8.50%, 11/15/23 ....................................................... 31,800,000 32,664,280
Series A, Pre-Refunded, 8.00%, 11/15/25 ....................................................... 145,000 148,804
Series D, 7.75%, 11/15/13 ..................................................................... 500,000 593,570
Series D, 7.75%, 11/15/21 ..................................................................... 3,425,000 3,591,969
Series D, Pre-Refunded, 7.75%, 11/15/21 ....................................................... 765,000 808,429
Denver City and County Special Facilities Airport Revenue, United Airlines Inc. Project, Series
A, 6.875%, 10/01/32 ............................................................................. 9,235,000 9,274,895
Eagle County Airport Terminal Project Revenue, 7.50%, 5/01/21 ................................... 2,105,000 2,168,929
Eagle County Sports and Housing Facilities Revenue, Vail Associate Project, Refunding, 6.95%,
8/01/19 ......................................................................................... 41,200,000 41,617,768
Littleton MFHR, Riverpoint, Refunding, Series C, 8.00%, 12/01/29 ................................ 2,990,000 3,240,771
McKay Landing Metropolitan District No. 2 GO, Limited Tax, 7.50%, 12/01/19 ...................... 4,000,000 4,044,000
Saddle Rock South Metropolitan District No. 2, Limited Mill Levy Obligation, 7.20%, 12/01/19 .... 1,000,000 1,016,470
Saddle Rock South Metropolitan District No. 3, Limited Mill Levy Obligation, 7.35%, 12/01/19 .... 3,750,000 3,796,425
(d) Villages Castle Rock Metropolitan District No. 4, Refunding, 8.50%, 6/01/31 ................. 3,000,000 2,060,490
------------
129,203,322
------------
CONNECTICUT 2.1%
Connecticut State Development Authority PCR,
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 .............................. 74,975,000 70,282,315
Western Massachusetts Electric Co., Refunding, Series A, 5.85%, 9/01/28 ....................... 12,500,000 11,717,625
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic Co
Project, 6.15%, 4/01/35 ......................................................................... 3,000,000 3,018,360
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Series C, 6.50%, 7/01/16 ............................................. 420,000 433,436
Sacred Heart University, Series C, Pre-Refunded, 6.50%, 7/01/16 ............................... 1,580,000 1,755,870
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ...................................... 5,650,000 4,855,780
Windham Community Memorial Hospital, Series C, 6.00%, 7/01/11 ................................. 2,200,000 2,102,650
</TABLE>
76
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
CONNECTICUT (CONT.)
Connecticut State HFA, Housing Mortgage Finance Program,
Series C-1, 6.30%, 11/15/17 .................................................................. $19,995,000 $21,087,727
Sub Series F-1, 6.00%, 5/15/17 ............................................................... 3,500,000 3,631,915
-----------
118,885,678
-----------
FLORIDA 11.1%
Beacon Tradeport CDD, Special Assessment,
Commercial Project, Series A, 5.80%, 5/01/04 ................................................. 4,350,000 4,318,637
Commercial Project, Series A, 6.00%, 5/01/16 ................................................. 27,760,000 26,616,566
Commercial Project, Series A, 6.20%, 5/01/22 ................................................. 23,590,000 22,352,469
Industrial Project, Series B, 6.00%, 5/01/17 ................................................. 15,305,000 14,599,133
Industrial Project, Series B, 6.00%, 5/01/22 ................................................. 8,835,000 8,560,585
Brooks of Bonita Springs CDD,
Capital Improvement Revenue, Series A, 6.20%, 5/01/19 ........................................ 10,805,000 10,310,671
District Florida Capital Improvement Revenue, Series B, 5.65%, 5/01/06 ......................... 570,000 558,104
Brooks of Bonita Springs II CDD, Capital Improvement Revenue,
Series A, 7.00%, 5/01/31 ..................................................................... 13,055,000 13,272,888
Series B, 6.60%, 5/01/07 ..................................................................... 15,025,000 15,184,115
Broward County Resource Recovery Revenue, Broward Waste Energy Co., LP, North Project, Series
1984, 7.95%, 12/01/08 .......................................................................... 17,055,000 17,534,587
Cape Canaveral Hospital District Revenue COP, Refunding, 5.25%, 1/01/28 ........................ 1,495,000 1,142,733
Capron Trails CDD,
9.375%, 12/01/01 ............................................................................. 765,000 783,452
9.50%, 12/01/10 .............................................................................. 5,795,000 5,934,428
Cedar Hammock CDD, Capital Improvement Revenue, 6.375%, 11/01/04 ............................... 24,315,000 24,483,746
Championsgate CDD, Capital Improvement Revenue,
Series A, 6.25%, 5/01/20 ..................................................................... 2,835,000 2,666,998
Series B, 5.70%, 5/01/05 ..................................................................... 1,520,000 1,502,186
East County Water Control District, Lee County Drain, Series 1991, Pre-Refunded,
8.75%, 9/01/01 ............................................................................... 1,250,000 1,275,000
8.625%, 9/01/11 .............................................................................. 10,565,000 10,776,300
Falcon Trace CDD, Special Assessment,
5.75%, 5/01/09 ............................................................................... 1,700,000 1,644,784
6.00%, 5/01/20 ............................................................................... 3,695,000 3,437,126
Fleming Island Plantation Community Development District Special Assessment, Series B, 7.375%,.. 10,000,000 10,269,400
5/01/31
Florida State Board of Education Capital Outlay, Public Education, Refunding, Series D, 6.00%,.. 5,000,000 5,396,500
6/01/23
Gateway Services District Water Management Benefit Tax Revenue, Second Assessment Area, Phase
One, 8.00%, 5/01/20 ............................................................................ 3,975,000 4,195,931
Halifax Hospital Medical Center Hospital Revenue, Series A, 7.25%,
10/01/24 ..................................................................................... 4,700,000 4,574,698
10/01/29 ..................................................................................... 1,400,000 1,352,302
Heritage Harbor CDD, Special Assessment Revenue,
Series A, 6.70%, 5/01/19 ..................................................................... 1,795,000 1,750,089
Series B, 6.00%, 5/01/03 ..................................................................... 2,110,000 2,104,198
Heritage Isles CDD, Special Assessment Revenue,
Series A, 5.75%, 5/01/05 ..................................................................... 1,725,000 1,698,659
Series B, 6.00%, 5/01/20 ..................................................................... 2,000,000 1,809,680
Heritage Palms CDD, Capital Improvement Revenue, 6.25%, 11/01/04 ............................... 5,000,000 5,023,000
Highlands County Health Facilities Authority Revenue, Adventist Health Systems, Refunding,
5.25%, 11/15/28 ................................................................................ 8,250,000 6,776,633
Indian Trace CDD, Water Management Special Benefit, Refunding, Sub Series B, 8.25%,
5/01/05 ...................................................................................... 6,550,000 7,011,382
5/01/11 ...................................................................................... 12,760,000 13,723,252
Indian Trail ID GO, Water Control and Improvement, Unit Development 18,
6.875%, 8/01/10 .............................................................................. 1,085,000 1,098,487
7.00%, 8/01/20 ............................................................................... 2,445,000 2,450,477
7.25%, 8/01/31 ............................................................................... 5,725,000 5,750,877
Indigo CDD, Capital Improvement Revenue,
Refunding, Series A, 7.00%, 5/01/31 .......................................................... 980,000 982,176
Series C, 7.00%, 5/01/30 ..................................................................... 5,315,000 5,326,799
Lakeland Retirement Community Revenue, First Mortgage, Carpenters Home, Refunding, Series A,
6.75%, 1/01/19 ............................................................................... 15,345,000 14,307,525
</TABLE>
77
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
Lakeside Plantation CDD, Capital Improvement Revenue, 7.00%, 5/01/07 ........................... $ 6,000,000 $ 5,989,800
Lakewood Ranch CDD No. 2, Benefit Special Assessment,
6.25%, 5/01/18 ............................................................................... 11,370,000 10,798,658
Series A, 8.125%, 5/01/17 .................................................................... 9,715,000 10,328,891
Series B, 8.125%, 5/01/17 .................................................................... 1,020,000 1,084,454
Lakewood Ranch CDD No. 3, Special Assessment Revenue, 7.625%, 5/01/18 .......................... 5,895,000 6,120,248
Manatee County IDR, Manatee Hospital and Health System Inc., Pre-Refunded, 9.25%, 3/01/21 ...... 6,500,000 6,776,510
Meadow Pointe II CDD, Capital Improvement Revenue,
Series A, 5.25%, 8/01/03 ..................................................................... 340,000 335,138
Series B, 5.50%, 8/01/05 ..................................................................... 3,675,000 3,599,222
Mediterra South CDD, Capital Improvement Revenue, Series B,
6.25%, 5/01/04 ............................................................................... 10,000,000 10,060,400
6.95%, 5/01/31 ............................................................................... 7,915,000 7,991,459
Miami-Dade County IDAR, Special Facilities, United Airlines Inc. Project, 6.05%, 3/01/35 ....... 5,000,000 5,028,600
Mount Dora County Club CDD, Special Assessment Revenue,
7.125%, 5/01/05 .............................................................................. 2,550,000 2,590,367
7.75%, 5/01/13 ............................................................................... 1,600,000 1,660,192
Naples Heritage CDD, Capital Improvement Revenue, 6.15%, 11/01/01 .............................. 625,000 625,831
North Springs ID,
Special Assessment Revenue, Parkland Isles Project, Series A, 7.00%, 5/01/19 ................. 1,240,000 1,262,580
Special Assessment Revenue, Parkland Isles Project, Series B, 6.25%, 5/01/05 ................. 1,745,000 1,748,996
Water Management, Series A, Pre-Refunded, 8.20%, 5/01/24 ..................................... 1,895,000 2,122,533
Water Management, Series B, 8.30%, 5/01/24 ................................................... 1,660,000 1,740,975
Northwood CDD, Special Assessment Revenue,
6.40%, 5/01/02 ............................................................................... 2,090,000 2,092,696
Series B, 7.60%, 5/01/17 ..................................................................... 1,485,000 1,503,845
Oaksted CDD, Capital Improvement, Series A, 7.20%, 5/01/32 ..................................... 3,500,000 3,525,375
Palm Beach County Health Facilities Authority Revenue, Abbey del Ray South Project, Refunding,
8.25%, 10/01/15 .............................................................................. 6,000,000 6,228,120
(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
Parkway Center CDD, Special Assessment,
Series A, 8.25%, 5/01/31 ..................................................................... 2,500,000 2,603,000
Series B, 8.00%, 5/01/10 ..................................................................... 3,000,000 3,070,800
Pelican Marsh CDD, Special Assessment Revenue,
Refunding, Series A, 5.00%, 5/01/11 .......................................................... 5,625,000 5,615,438
Refunding, Series A, 5.50%, 5/01/16 .......................................................... 4,370,000 4,337,968
Series A, 7.10%, 5/01/20 ..................................................................... 4,035,000 4,099,035
Series A, 7.20%, 5/01/31 ..................................................................... 6,495,000 6,597,491
Series A, ETM, 8.25%, 5/01/01 ................................................................ 250,000 256,315
Series A, ETM, 8.25%, 5/01/02 ................................................................ 270,000 286,548
Series A, ETM, 8.25%, 5/01/03 ................................................................ 295,000 323,196
Series A, ETM, 8.25%, 5/01/04 ................................................................ 315,000 355,030
Series A, Pre-Refunded, 8.25%, 5/01/16 ....................................................... 6,590,000 7,539,751
Series B, 6.90%, 5/01/11 ..................................................................... 17,150,000 17,408,794
Series C, 7.00%, 5/01/19 ..................................................................... 13,070,000 13,245,792
Series D, 6.95%, 5/01/19 ..................................................................... 6,760,000 6,829,087
Piney-Z CDD, Capital Improvement Revenue,
Series A, 7.25%, 5/01/19 ..................................................................... 970,000 953,345
Series B, 6.50%, 5/01/02 ..................................................................... 5,600,000 5,582,864
Poinciana CDD, Special Assessment, Series A, 7.125%, 5/01/31 ................................... 11,000,000 11,140,030
Reserve CDD No. 2, Capital Improvement Revenue, 7.125%, 5/01/30 ................................ 4,680,000 4,716,878
Reserve CDD,
Capital Improvement Revenue, Stormwater Management, 8.25%, 5/01/14 ........................... 3,955,000 4,069,181
Utility Revenue, Stormwater Management, Refunding, Series A, 6.625%, 12/01/22 ................ 4,400,000 4,292,068
River Ridge CDD, Capital Improvement Revenue, 5.75%, 5/01/08 ................................... 2,400,000 2,333,328
Riverwood Community Development Revenue, Special AD, Series A,
6.75%, 5/01/04 ............................................................................... 3,145,000 3,192,238
7.75%, 5/01/14 ............................................................................... 1,175,000 1,206,796
St. John's County IDA, Health Care, Glenmoor St. John's Project, Series A, 8.00%, 1/01/17 ...... 10,375,000 10,442,126
</TABLE>
78
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
FLORIDA (CONT.)
St. Lucie West Services District Capital Improvement Revenue,
Cascades Project, 6.10%, 5/01/18 ............................................................... $ 2,560,000 $ 2,417,254
Lake Charles Project, 6.375%, 8/01/02 .......................................................... 2,230,000 2,200,252
Lakeforest Project, 6.25%, 10/01/04 ............................................................ 7,235,000 7,193,688
Road Project, 5.875%, 5/01/09 .................................................................. 6,600,000 6,461,664
St. Lucie West Services District Revenue, Port St. Lucie, Pre-Refunded, 7.875%, 5/01/20 .......... 19,030,000 21,219,592
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie, Water Management
Benefit, Refunding, Series B,
6.00%, 5/01/09 ................................................................................. 1,320,000 1,311,974
6.25%, 5/01/25 ................................................................................. 5,080,000 4,840,681
St. Lucie West Services District Water Management Benefit Tax, Pre-Refunded, 7.70%, 5/01/25 ...... 4,820,000 5,417,487
Stoneybrook CDD, Capital Improvement Revenue,
Series A, 6.10%, 5/01/19 ....................................................................... 830,000 795,190
Series B, 5.70%, 5/01/08 ....................................................................... 2,315,000 2,274,071
Sumter County IDAR, Little Sumter Utility Co. Project,
6.75%, 10/01/27 ................................................................................ 2,915,000 2,678,710
7.25%, 10/01/27 ................................................................................ 4,145,000 4,096,255
Tampa Revenue, Aquarium Inc. Project, Pre-Refunded, 7.55%, 5/01/12 ............................... 8,500,000 9,078,425
Tara CDD No. 1, Capital Improvement Revenue, Series A, 7.15%, 5/01/31 ............................ 1,460,000 1,494,777
Village CDD No. 1, Capital Improvement Revenue,
8.40%, 5/01/12 ................................................................................. 510,000 533,098
8.00%, 5/01/15 ................................................................................. 2,320,000 2,407,046
Village Center CDD, Recreational Revenue,
Sub Series B, 6.25%, 1/01/13 ................................................................... 7,665,000 7,541,594
Sub Series B, 8.25%, 1/01/17 ................................................................... 2,615,000 2,744,207
Sub Series C, 7.375%, 1/01/19 .................................................................. 2,640,000 2,622,576
Vista Lake CDD, Capital Improvement Revenue, Series A, 7.20%, 5/01/32 ............................ 3,000,000 3,032,910
Westchase East CDD, Capital Improvement Revenue,
6.10%, 5/01/20 ................................................................................. 6,200,000 5,899,982
7.10%, 5/01/21 ................................................................................. 1,600,000 1,621,248
7.20%, 5/01/31 ................................................................................. 10,000,000 10,196,100
------------
620,547,343
------------
GEORGIA .3%
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.375%, 12/01/28 ...... 1,470,000 1,113,025
Forsyth County Hospital Authority Revenue, Anticipation Certificate, Georgia Baptist Health Care
System Project,
6.25%, 10/01/18 ................................................................................ 6,000,000 5,168,640
6.375%, 10/01/28 ............................................................................... 9,000,000 7,520,580
Tift County IDAR, Beverly Enterprises, 10.125%, 9/01/10 .......................................... 1,215,000 1,268,825
------------
15,071,070
------------
HAWAII .3%
Hawaii State Department of Transportation Special Facilities Revenue, Continental Airlines Inc.,
7.00%, 6/01/20 ................................................................................. 4,500,000 4,511,925
9.70%, 6/01/20 ................................................................................. 6,500,000 6,630,000
Hawaii State Special AD No. 17, AMBAC Insured, 9.50%, 8/01/11 .................................... 4,230,000 4,285,498
Hawaiian Home Lands Department Revenue, Pre-Refunded, 7.60%, 7/01/08 ............................. 1,315,000 1,374,083
------------
16,801,506
------------
IDAHO .3%
Nez Perce County PCR, Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 ......................... 20,360,000 19,607,291
------------
ILLINOIS 4.4%
Bryant PCR, Central Illinois Light Co. Project, Refunding, MBIA Insured, 5.90%, 8/01/23 .......... 11,000,000 11,073,590
Cary Special Tax,
Special Service Area, No. 1, Cambridge, 7.625%, 3/01/30 ........................................ 4,000,000 4,085,840
Special Service Area, No. 2, Foxford Hill, 7.50%, 3/01/30 ...................................... 5,500,000 5,435,540
Chicago O'Hare International Airport Special Facilities Revenue,
American Airlines Inc. Project, 8.20%, 12/01/24 ................................................ 7,830,000 8,537,597
United Airlines Inc. Project, Series A, 8.85%, 5/01/18 ......................................... 14,125,000 14,598,894
United Airlines Inc. Project, Series B, 8.85%, 5/01/18 ......................................... 3,395,000 3,508,902
</TABLE>
79
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
ILLINOIS (CONT.)
Illinois Development Finance Authority Hospital Revenue, Adventist Health System, Sunbelt
Obligation,
5.65%, 11/15/24 .............................................................................. $23,750,000 $ 20,112,450
5.50%, 11/15/29 .............................................................................. 15,450,000 12,704,072
Illinois Development Finance Authority PCR, Commonwealth Edison Co. Project, Refunding, Series
1991, 7.25%, 6/01/11 ......................................................................... 7,000,000 7,241,500
Illinois Educational Facilities Authority Revenue, Osteopathic Health Systems,
ETM, 7.125%, 5/15/11 ......................................................................... 2,330,000 2,462,530
Pre-Refunded, 7.25%, 5/15/22 ................................................................. 7,000,000 8,232,350
Illinois Health Facilities Authority Revenue,
Northwestern Medical Center, MBIA Insured, Pre-Refunded, 6.625%, 11/15/25 .................... 6,500,000 7,145,385
Rush Presbyterian Hospital, Refunding, Series A, MBIA Insured, 6.25%, 11/15/20 ............... 9,000,000 9,337,320
Sarah Bush Lincoln Health Center, Pre-Refunded, 7.25%, 5/15/12 ............................... 2,000,000 2,130,280
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 ........................ 3,370,000 3,356,958
St. Elizabeth's Hospital, 6.25%, 7/01/16 ..................................................... 1,215,000 1,217,102
St. Elizabeth's Hospital, 6.375%, 7/01/26 .................................................... 6,695,000 6,656,504
Thorek Hospital and Medical Center, Refunding, 5.25%, 8/15/18 ................................ 5,125,000 4,031,838
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 ............................... 8,595,000 6,489,483
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick Place
Convention Center,
6.25%, 7/01/17 ............................................................................... 11,000,000 12,127,060
7.00%, 7/01/26 ............................................................................... 7,500,000 8,955,225
Robbins Resource Recovery Revenue, Restructuring Project,
Series A, 6.829%, 10/15/16 ................................................................... 72,728,515 18,182,129
Series B, 6.829%, 10/15/16 ................................................................... 28,458,984 7,114,746
Series C, 7.25%, 10/15/09 .................................................................... 11,285,567 11,200,925
Series C, 7.25%, 10/15/24 .................................................................... 48,794,508 46,903,721
Southwestern Development Authority Revenue, Anderson Hospital, 5.625%, 8/15/29 ................. 2,425,000 1,959,958
------------
244,801,899
------------
INDIANA .4%
Crawfordsville Industrial EDR, Kroger Co., Refunding, 7.70%, 11/01/12 .......................... 5,000,000 5,298,400
Goshen Industrial Revenue, Greencroft Hospital Association Inc., Refunding, 5.75%,
8/15/19 ...................................................................................... 3,000,000 2,429,340
8/15/28 ...................................................................................... 5,000,000 3,877,500
Indiana Health Facility Financing Authority Hospital Revenue, Jackson County Scheck Memorial
Hospital, Refunding,
5.125%, 2/15/17 .............................................................................. 1,500,000 1,222,440
Indiana State Development Finance Authority Environmental Revenue, Refunding, Improvement-USX
Corp. Project,
5.60%, 12/01/32 .............................................................................. 8,200,000 7,228,218
------------
20,055,898
------------
KANSAS .1%
Manhattan Health Care Facility Revenue, Meadowlark Hills Retirement, Series A,
6.375%, 5/15/20 .............................................................................. 1,150,000 1,005,031
6.50%, 5/15/28 ............................................................................... 1,750,000 1,516,008
Prairie Village Revenue, Claridge Court Project, Series A, 8.75%, 8/15/23 ...................... 5,730,000 6,125,026
------------
8,646,065
------------
KENTUCKY .8%
Adair County Public Hospital Corp. Revenue, Refunding and Improvement,
5.40%, 1/01/12 ............................................................................... 460,000 411,346
5.70%, 1/01/19 ............................................................................... 1,100,000 903,441
Kenton County Airport Board Revenue, Special Facilities, Delta Airlines Inc. Project,
8.10%, 12/01/15 .............................................................................. 11,000,000 11,204,270
Series A, 7.50%, 2/01/20 ..................................................................... 11,230,000 11,697,730
Series B, 7.25%, 2/01/22 ..................................................................... 3,595,000 3,718,021
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian Regional
Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 .......................... 6,835,000 4,679,583
Powderly IDR, First Mortgage Revenue, Kroger Co., Refunding, 7.375%, 9/01/06 ................... 750,000 788,850
Russell Health System Revenue,
Franciscan Health Center, Series B, ETM, 8.10%, 7/01/01 ...................................... 400,000 403,932
Pre-Refunded, 8.10%, 7/01/15 ................................................................. 7,500,000 8,603,949
Stanford Health Facilities Revenue, Beverly Project, Refunding, 10.375%, 11/01/09 .............. 800,000 827,688
------------
43,238,810
------------
</TABLE>
80
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
LOUISIANA 1.8%
Calcasieu Parish Public Trust Authority Mortgage Revenue, Refunding, Series A, 7.75%, 6/01/12 .... $ 1,025,000 $ 1,062,720
Iberville Parish PCR, Entergy Gulf States Inc. Project, Refunding, 5.70%, 1/01/14 ................ 15,500,000 14,430,500
Lake Charles Harbor and Terminal District Port Facilities Revenue, Trunkline Co. Project,
Refunding, 7.75%, 8/15/22 ...................................................................... 35,000,000 37,422,000
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding, 6.70%, 3/01/13 ........... 4,850,000 4,934,584
St. Tammany Public Trust Financing Authority Revenue, Christwood Project, Refunding, 5.70%,
11/15/28 ....................................................................................... 4,000,000 3,129,200
West Feliciana Parish PCR,
Entergy Gulf States Project, Refunding, Series B, 6.60%, 9/01/28 ............................... 20,750,000 20,723,440
Gulf State Utility Co. Project, Series D, 5.80%, 12/01/15 ...................................... 4,000,000 3,850,920
Gulf State Utility Co. Project, Series D, 5.80%, 4/01/16 ....................................... 3,500,000 3,351,180
Series A, 7.50%, 5/01/15 ....................................................................... 8,740,000 9,143,438
-----------
98,047,982
-----------
MAINE .7%
Maine State Finance Authority Solid Waste Disposal Revenue, Boise Cascade Corp. Project, 7.90%,
6/01/15 ........................................................................................ 5,000,000 5,104,200
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ............................. 4,800,000 4,858,368
Skowhegan PCR, S.D. Warren Co.,
Series A, 6.65%, 10/15/15 ...................................................................... 24,570,000 24,452,064
Series B, 6.65%, 10/15/15 ...................................................................... 4,940,000 4,916,288
-----------
39,330,920
-----------
MARYLAND .8%
Gaithersberg Hospital Facilities Revenue, Shady Grove Adventist Hospital, Refunding and
Improvement, Series B,
8.50%, 9/01/03 ................................................................................. 3,605,000 3,814,775
8.50%, 9/01/07 ................................................................................. 5,340,000 6,031,049
Pre-Refunded, 8.50%, 9/01/22 ................................................................... 3,500,000 3,837,050
Maryland State CDA, Department of Housing and Community Development, Series A, 5.875%, 7/01/16 ... 3,705,000 3,823,856
Maryland State EDC Revenue, Chesapeake Bay, Series B, 7.75%, 12/01/31 ............................ 16,160,000 16,509,541
Takoma Park Hospital Facilities Revenue, Washington Adventist Hospital Project, Series B, 8.50%,
9/01/03 ........................................................................................ 3,770,000 3,978,933
9/01/07 ........................................................................................ 6,975,000 7,835,576
-----------
45,830,780
-----------
MASSACHUSETTS 1.5%
Massachusetts Bay Transportation Authority Revenue, General Transportation System, Series A,
7.00%, 3/01/21 ................................................................................. 2,000,000 2,366,480
Massachusetts Municipal Wholesale Electric Co. Power Supply System Revenue,
Series A, 6.75%, 7/01/11 ....................................................................... 4,435,000 4,634,797
Series B, 6.75%, 7/01/17 ....................................................................... 3,170,000 3,285,325
Massachusetts State Development Finance Agency Resource, Recovery Revenue, Waste Management Inc.
Project, Series B, 6.90%, 12/01/29 ............................................................. 3,000,000 3,075,660
Massachusetts State Development Finance Agency Revenue,
Berkshire Retirement Project, First Mortgage, 5.60%, 7/01/19 ................................... 1,030,000 847,680
Berkshire Retirement Project, First Mortgage, 5.625%, 7/01/29 .................................. 1,620,000 1,255,565
Loomis Community Project, First Mortgage, Series A, 5.625%, 7/01/15 ............................ 1,850,000 1,589,983
Loomis Community Project, First Mortgage, Refunding, Series A, 5.75%, 7/01/23 .................. 3,500,000 2,851,380
Massachusetts State Health and Educational Facilities Authority Revenue, Saint Memorial Medical
Center, Refunding, Series A,
5.75%, 10/01/06 ................................................................................ 3,250,000 2,964,683
6.00%, 10/01/23 ................................................................................ 6,235,000 4,941,923
Massachusetts State Industrial Finance Agency Resource Recovery Revenue, Semass Project,
Series A, 9.00%, 7/01/15 ....................................................................... 15,415,000 16,276,544
Series B, 9.25%, 7/01/15 ....................................................................... 20,070,000 21,214,592
Massachusetts State Industrial Finance Agency Revenue, Cape Cod Health Systems, Pre-Refunded,
8.50%, 11/15/20 ................................................................................ 4,500,000 4,624,515
(c) Massachusetts State Industrial Finance Agency Solid Waste Disposal Revenue, Massachusetts
Paper Co. Project, senior lien,
8.50%, 11/01/12 ................................................................................ 42,402,544 14,840,890
-----------
84,770,017
-----------
MICHIGAN 3.1%
Cadillac Local Development Finance Authority Tax Increment Revenue, Refunding, 8.50%, 3/01/10 .... 5,110,000 5,365,500
Detroit GO,
Refunding, Series B, 6.375%, 4/01/07 ........................................................... 7,535,000 8,010,232
Refunding, Series B, 6.25%, 4/01/08 ............................................................ 3,000,000 3,167,760
Series A, Pre-Refunded, 6.80%, 4/01/15 ......................................................... 5,160,000 5,700,665
</TABLE>
81
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MICHIGAN (CONT.)
Dickinson County, Memorial Hospital System Revenue, Pre-Refunded, 8.125%, 11/01/24 ............... $ 4,250,000 $ 4,878,703
Garden City Hospital Financing Authority Hospital Revenue, Refunding,
5.625%, 9/01/10 ................................................................................ 2,000,000 1,727,000
5.75%, 9/01/17 ................................................................................. 1,000,000 816,910
Kent Hospital Finance Authority Health Care Revenue, Butterworth Health System, Series A, MBIA
Insured, Pre-Refunded, 6.125%, 1/15/21 ......................................................... 11,770,000 12,826,946
Michigan State Hospital Finance Authority Revenue,
Ascension Health Credit, Refunding, Series A, MBIA Insured, 6.125%, 11/15/23 ................... 18,000,000 18,555,300
Detroit Medical Center Obligation Group, Refunding, Series A, 6.25%, 8/15/13 ................... 7,500,000 6,518,700
Detroit Medical Center Obligation Group, Refunding, Series A, 6.50%, 8/15/18 ................... 30,205,000 25,977,206
Detroit Medical Center Obligation Group, Refunding, Series B, 5.50%, 8/15/23 ................... 500,000 364,215
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/23 .............................. 500,000 351,315
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/28 .............................. 7,000,000 4,759,160
Memorial Healthcare Center, Refunding, 5.75%, 11/15/15 ......................................... 1,000,000 869,860
Memorial Healthcare Center, Refunding, 5.875%, 11/15/21 ........................................ 1,000,000 842,460
Mercy Health Services, Series Q, AMBAC Insured, 5.75%, 8/15/16 ................................. 7,310,000 7,473,159
Sinai Hospital, Refunding, 6.625%, 1/01/16 ..................................................... 2,990,000 2,634,967
Sinai Hospital, Refunding, 6.70%, 1/01/26 ...................................................... 7,250,000 6,211,655
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co., Pollution Project,
Refunding, Series BB, MBIA Insured, 6.20%, 8/15/25 ............................................. 7,825,000 8,146,373
Midland County EDR, Refunding,
Series A, 6.875%, 7/23/09 ...................................................................... 35,000,000 35,700,000
Series B, 6.75%, 7/23/09 ....................................................................... 4,000,000 4,080,000
Tawas City Hospital Finance Authority, Tawas St. Joseph's Hospital Project, Refunding, Series A,
5.60%, 2/15/13 ................................................................................. 2,280,000 2,352,436
Wayne County Downriver Systems Sewer Disposal Revenue, Series A, Pre-Refunded, 7.00%, 11/01/13 ... 1,900,000 2,016,356
Wayne County GO,
IDA, Building Authority, Pre-Refunded, 8.00%, 3/01/17 .......................................... 4,500,000 4,812,885
South Huron Valley Wastewater Control, Refunding, 7.875%, 5/01/02 .............................. 460,000 460,000
------------
174,619,763
------------
MINNESOTA 2.0%
Burnsville Solid Waste Revenue, Freeway Transfer Inc. Project, 9.00%,
10/01/00 ....................................................................................... 55,000 55,138
4/01/10 ........................................................................................ 1,500,000 1,531,875
Duluth Commercial Development Revenue, Duluth Radisson Hotel Project, Refunding, 8.00%, 12/01/15.. 5,000,000 4,042,500
International Falls PCR, Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/22 ................. 7,250,000 6,451,920
Maplewood Health Care Facility Revenue, Health East Project, 5.95%, 11/15/06 ..................... 2,200,000 2,056,978
Minneapolis CDA, Supported Development Revenue, Limited Tax,
Series 2, 8.40%, 12/01/12 ...................................................................... 2,675,000 2,696,935
Series 3-A, 8.375%, 12/01/19 ................................................................... 600,000 621,456
Minneapolis Revenue, Walker Methodist Senior Services, Series A,
5.875%, 11/15/18 ............................................................................... 2,500,000 2,168,950
6.00%, 11/15/28 ................................................................................ 2,500,000 2,129,175
Minnesota Agriculture and Economic Development Board Revenue, Health Care System, Series A,
6.375%, 11/15/29 ............................................................................... 7,500,000 7,634,400
Minnesota State HFA, Rental Housing, Refunding, Series D, MBIA Insured, 5.95%, 2/01/18 ........... 3,175,000 3,252,756
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 4,326,350
Roseville MFHR, Rosepointe I Project, Refunding, Series C, 8.00%, 12/01/29 ....................... 3,400,000 3,670,572
(d) South Central Multi-County Housing and RDAR, Pooled Housing, 8.00%, 2/01/25 .................. 10,000,000 6,400,000
St. Cloud IDR, Nahan Printing, 9.75%, 6/01/20 .................................................... 5,610,000 5,879,729
St. Paul Housing and RDA, Housing Tax, 8.625%, 9/01/07 ........................................... 1,240,000 1,294,250
St. Paul Port Authority Commercial Development, Theole Printing Project, 9.00%, 10/01/21 ......... 560,000 568,562
St. Paul Port Authority IDR,
Brown and Bigelow Co., Series 1979-2, 7.50%, 10/01/09 .......................................... 40,000 38,624
SDA Enterprises, Series K, 10.25%, 10/01/10 .................................................... 1,095,000 1,035,443
Series A-I, 8.50%, 12/01/01 .................................................................... 460,000 455,474
Series A-I, 9.00%, 12/01/02 .................................................................... 260,000 258,495
Series A-I, 9.00%, 12/01/12 .................................................................... 4,300,000 3,862,819
Series A-II, 8.50%, 12/01/01 ................................................................... 450,000 445,572
</TABLE>
82
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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 A-II, 9.00%, 12/01/02 ................................................................ $ 255,000 $ 253,524
Series A-II, 9.00%, 12/01/12 ................................................................ 4,235,000 3,804,428
Series A-III, 8.50%, 12/01/01 ............................................................... 470,000 465,375
Series A-III, 9.00%, 12/01/02 ............................................................... 265,000 263,466
Series A-III, 9.00%, 12/01/12 ............................................................... 4,430,000 3,979,602
Series A-IV, 8.50%, 12/01/01 ................................................................ 365,000 361,408
Series A-IV, 9.00%, 12/01/02 ................................................................ 205,000 203,813
Series A-IV, 9.00%, 12/01/12 ................................................................ 3,375,000 3,031,864
Series C, 10.00%, 12/01/01 .................................................................. 860,000 871,137
Series C, 10.00%, 12/01/02 .................................................................. 715,000 724,259
Series C, 10.00%, 12/01/06 .................................................................. 2,930,000 2,808,112
Series C, 9.875%, 12/01/08 .................................................................. 3,100,000 2,959,663
Series F, 8.00%, 9/01/00 .................................................................... 25,000 25,000
Series F, 10.25%, 10/01/00 .................................................................. 70,000 69,982
Series F, 8.00%, 9/01/01 .................................................................... 25,000 24,856
Series F, 10.25%, 10/01/01 .................................................................. 80,000 79,982
Series F, 8.00%, 9/01/02 .................................................................... 25,000 24,780
Series F, 10.25%, 10/01/02 .................................................................. 90,000 89,839
Series F, 8.00%, 9/01/19 .................................................................... 1,025,000 816,587
Series I, 10.75%, 12/01/00 .................................................................. 15,000 15,002
Series I, 10.75%, 12/01/01 .................................................................. 15,000 15,054
Series I, 10.75%, 12/01/02 .................................................................. 15,000 15,033
Series J, 9.50%, 12/01/01 ................................................................... 80,000 80,078
Series J, 9.50%, 12/01/02 ................................................................... 95,000 94,842
Series J, 9.50%, 12/01/11 ................................................................... 1,325,000 1,239,193
Series L, 9.50%, 12/01/01 ................................................................... 40,000 40,039
Series L, 9.75%, 12/01/01 ................................................................... 25,000 25,024
Series L, 9.50%, 12/01/02 ................................................................... 45,000 44,925
Series L, 9.75%, 12/01/02 ................................................................... 30,000 29,944
Series L, 9.50%, 12/01/14 ................................................................... 1,025,000 950,524
Series L, 9.75%, 12/01/14 ................................................................... 1,530,000 1,424,476
Series N, 10.00%, 12/01/01 .................................................................. 65,000 65,047
Series N, 10.75%, 10/01/02 .................................................................. 1,020,000 1,022,417
Series N, 10.00%, 12/01/02 .................................................................. 65,000 64,878
Series N, 10.00%, 12/01/14 .................................................................. 1,405,000 1,315,094
Series S, 9.625%, 12/01/01 .................................................................. 55,000 55,063
Series S, 9.625%, 12/01/02 .................................................................. 60,000 59,894
Series S, 9.625%, 12/01/14 .................................................................. 1,280,000 1,198,682
Series T, 9.625%, 12/01/01 .................................................................. 30,000 30,031
Series T, 9.625%, 12/01/02 .................................................................. 35,000 34,938
Series T, 9.625%, 12/01/14 .................................................................. 910,000 852,188
St. Paul Port Authority Lease Revenue, Mears Park Center Project, 6.50%,
6/01/16 ..................................................................................... 4,815,000 4,786,303
6/01/26 ..................................................................................... 10,660,000 10,579,624
Victoria Private School Facility Revenue, Holy Family Catholic High School, Series A, 5.875%,
9/01/29 ..................................................................................... 4,000,000 3,661,040
------------
113,308,733
------------
MISSISSIPPI 1.0%
Claiborne County PCR, Systems Energy Resources Inc., Refunding, 6.20%, 2/01/26 ................ 33,295,000 30,332,744
Corinth and Alcorn County Hospital Revenue, Magnolia Regional Health Center Project,
Refunding, Series A, 5.50%, 10/01/21 ........................................................ 4,000,000 3,278,960
Series B, 5.50%, 10/01/21 ................................................................... 1,000,000 819,740
Lowndes County Hospital Revenue, Golden Triangle Medical Center, 8.50%, 2/01/10 ............... 3,750,000 3,816,863
Mississippi Business Finance Corp. PCR, System Energy Resource Inc. Project,
5.875%, 4/01/22 ............................................................................. 5,000,000 4,678,350
Refunding, 5.90%, 5/01/22 ................................................................... 12,475,000 11,706,665
------------
54,633,322
------------
</TABLE>
83
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
MISSOURI 1.2%
Lake of the Ozarks Community Bridge Corp. Bridge System Revenue,
Pre-Refunded, 6.25%, 12/01/16 .................................................................. $ 1,000,000 $ 1,107,580
Pre-Refunded, 6.40%, 12/01/25 .................................................................. 3,000,000 3,338,250
Refunding, 5.25%, 12/01/20 ..................................................................... 12,280,000 10,676,355
Refunding, 5.25%, 12/01/26 ..................................................................... 8,875,000 7,525,290
St. Louis County IDA, Kiel Center, Refunding,
7.625%, 12/01/09 ............................................................................... 8,000,000 8,391,920
7.75%, 12/01/13 ................................................................................ 5,175,000 5,430,749
7.875%, 12/01/24 ............................................................................... 6,000,000 6,299,100
St. Louis Municipal Finance Corp. Leasehold Revenue,
City Justice Center, Refunding, Series A, AMBAC Insured, 5.95%, 2/15/16 ........................ 8,640,000 9,040,723
Refunding, Series A, 6.00%, 7/15/13 ............................................................ 14,250,000 14,838,240
West Plains IDA, Hospital Revenue,
Ozarks Medical Center, 6.30%, 11/15/11 ......................................................... 1,000,000 917,840
Ozarks Medical Center, 6.75%, 11/15/24 ......................................................... 1,870,000 1,663,066
Ozarks Medical Center Project, Refunding, 5.50%, 11/15/12 ...................................... 500,000 419,885
-----------
69,229,113
-----------
MONTANA .4%
Montana State Board of Housing SFM,
Senior Bonds, Series B-2, 8.90%, 10/01/00 ...................................................... 15,000 15,007
Series A, FHA Insured, 8.275%, 10/01/03 ........................................................ 215,000 220,450
Montana State Board of Investments Resource Recovery Revenue, Yellowstone Energy Project, 7.00%,
12/31/19 ....................................................................................... 20,750,000 20,086,830
-----------
20,322,287
-----------
NEBRASKA .3%
Kearney IDR, Great Platte River Road, 6.75%,
1/01/23 ........................................................................................ 9,000,000 7,450,110
1/01/28 ........................................................................................ 6,500,000 5,310,045
Scotts Bluff County Hospital Authority No. 1 Hospital Revenue, Regional West Medical Center,
6.375%, 12/15/08 ............................................................................... 1,145,000 1,180,392
Pre-Refunded, 6.375%, 12/15/08 ................................................................. 955,000 1,012,415
-----------
14,952,962
-----------
NEVADA 2.8%
Clark County IDR, Southwest Gas Corp., Series A, 6.50%, 12/01/33 ................................. 13,775,000 13,736,017
Clark County Special ID No. 108, Summerlin, 6.625%, 2/01/17 ...................................... 7,550,000 7,653,586
Henderson Local ID,
No. 2, 9.50%, 8/01/11 .......................................................................... 5,220,000 5,402,596
No. T-1, Series A, 8.50%, 8/01/13 .............................................................. 21,095,000 22,697,376
No. T-10, 7.50%, 8/01/15 ....................................................................... 6,980,000 7,093,844
No. T-12, Series A, 7.375%, 8/01/18 ............................................................ 48,305,000 49,888,921
Henderson Local Improvement Districts No. T-4C, Green Valley, Refunding, Series A, 5.90%,
11/01/18 ...................................................................................... 3,190,000 3,062,815
Las Vegas Downtown RDA, Tax Increment Revenue, Fremont Street Project, Series A, 6.10%, 6/15/14.. 3,500,000 3,553,970
Las Vegas Local Improvement Bond Special Assessment,
ID No. 404, FSA Insured, 5.85%, 11/01/09 ....................................................... 3,310,000 3,383,118
ID No. 707, 6.60%, 6/01/05 ..................................................................... 985,000 1,018,608
ID No. 707, 6.70%, 6/01/06 ..................................................................... 1,220,000 1,261,907
ID No. 707, 6.80%, 6/01/07 ..................................................................... 1,780,000 1,841,552
ID No. 707, 7.10%, 6/01/16 ..................................................................... 7,900,000 8,178,712
Las Vegas Special Assessment ID No. 505, Elkhorn Springs, 8.00%, 9/15/13 ......................... 7,100,000 7,316,834
Nevada Housing Division, SF Program, Subordinated,
FI/GML, Series A, 9.30%, 10/01/00 .............................................................. 15,000 15,011
FI/GML, Series A-1, 8.75%, 10/01/04 ............................................................ 160,000 165,142
FI/GML, Series A-2, 9.375%, 10/01/00 ........................................................... 15,000 15,011
FI/GML, Series A-2, 8.65%, 10/01/01 ............................................................ 95,000 95,576
FI/GML, Series A-3, 9.20%, 10/01/00 ............................................................ 25,000 25,016
FI/GML, Series B, 9.50%, 10/01/01 .............................................................. 75,000 75,987
FI/GML, Series B-1, 7.90%, 10/01/05 ............................................................ 470,000 481,731
FI/GML, Series C-1, 7.55%, 10/01/05 ............................................................ 580,000 586,252
</TABLE>
84
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FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
NEVADA (CONT.)
Nevada Housing Division, SF Program, Subordinated, (cont.)
Series B-2, 9.65%, 10/01/02 ................................................................ $ 60,000 $ 60,357
Series C-1, 9.60%, 10/01/02 ................................................................ 115,000 115,388
Washoe County Revenue, Reno-Sparks Convention Center Project, FSA Insured, 6.40%, 7/01/29 ..... 15,415,000 16,443,181
--------------
154,168,508
--------------
NEW HAMPSHIRE 1.6%
New Hampshire Higher Education and Health Facilities Authority Revenue,
Hillcrest Terrace, 7.50%, 7/01/24 .......................................................... 18,150,000 17,831,286
Littleton Hospital Association, Series B, 5.90%, 5/01/28 ................................... 2,000,000 1,590,100
New Hampshire Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 ...................... 1,300,000 1,192,243
New Hampshire State Business Finance Authority PCR,
Connecticut Light and Power Co., Refunding, Series A, 5.85%, 12/01/22 ...................... 21,000,000 19,450,410
United Illuminating Co., Refunding, Series A, 5.875%, 10/01/33 ............................. 3,000,000 2,855,400
New Hampshire State IDAR, Pollution Control, Public Service Co. of New Hampshire Project,
Series A, 7.65%, 5/01/21 ................................................................... 10,970,000 11,254,123
Series C, 7.65%, 5/01/21 ................................................................... 34,635,000 35,532,047
--------------
89,705,609
--------------
NEW JERSEY 3.2%
Health Care Facilities Financing Authority Revenue, Trinitas Hospital Obligation Group,
Refunding, 7.50%, 7/01/30 .................................................................. 5,000,000 5,145,350
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 ................................................................... 2,180,000 2,120,050
Series 1, 6.00%, 1/01/29 ................................................................... 5,000,000 4,768,750
Series 2, 6.125%, 1/01/19 .................................................................. 2,125,000 2,095,781
Series 2, 6.125%, 1/01/29 .................................................................. 5,105,000 4,951,850
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 10,396,783
New Jersey EDA, Special Facility Revenue, Continental Airlines Inc. Project,
6.625%, 9/15/12 ............................................................................ 18,500,000 18,969,900
6.25%, 9/15/19 ............................................................................. 54,420,000 51,918,857
6.40%, 9/15/23 ............................................................................. 73,030,000 70,475,411
6.25%, 9/15/29 ............................................................................. 3,125,000 2,934,688
New Jersey EDA Revenue, First Mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 .............. 1,500,000 1,212,675
New Jersey Health Care Facilities Financing Authority Revenue, Lutheran Home, Series A,
8.40%, 7/01/19 ............................................................................. 2,100,000 2,115,876
--------------
177,105,971
--------------
NEW MEXICO 3.5%
Farmington PCR,
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.30%, 12/01/16 ... 24,045,000 23,564,100
Public Service Co. of New Mexico, San Juan Project, Refunding, Series A, 6.40%, 8/15/23 .... 58,250,000 56,879,960
Public Service Co. of New Mexico, San Juan Project, Refunding, Series D, 6.375%, 4/01/22 ... 66,125,000 64,793,904
Public Service Co. Project, Series A, 6.60%, 10/01/29 ...................................... 6,000,000 5,961,240
Tucson Electric Power Co., Series A, 6.95%, 10/01/20 ....................................... 37,000,000 37,543,530
New Mexico Mortgage Finance Authority SFM Program, Refunding,
Series A-1, 7.90%, 7/01/04 ................................................................. 225,000 229,842
Series A, 9.10%, 9/01/03 ................................................................... 410,000 420,619
Sub Series A, 9.55%, 9/01/02 ............................................................... 310,000 313,643
Rio Rancho Water and Wastewater Revenue, Series A, FSA Insured, Pre-Refunded, 5.90%, 5/15/15 .. 3,620,000 3,866,088
--------------
193,572,926
--------------
NEW YORK 9.3%
MTA Service Contract Revenue,
Commuter Facilities, Refunding, Series 5, 6.50%, 7/01/16 ................................... 3,860,000 3,974,989
Commuter Facilities, Refunding, Series N, 6.80%, 7/01/04 ................................... 3,330,000 3,525,904
Commuter Facilities, Refunding, Series N, 6.90%, 7/01/05 ................................... 3,050,000 3,233,610
Transit Facilities, Refunding, Series N, 6.80%, 7/01/04 .................................... 2,330,000 2,467,074
Transit Facilities, Refunding, Series N, 6.90%, 7/01/05 .................................... 2,470,000 2,618,694
Transit Facilities, Refunding, Series N, 7.125%, 7/01/09 ................................... 7,830,000 8,338,872
MTA Transit Facilities Revenue, Series A, MBIA Insured, 5.875%, 7/01/27 ....................... 22,700,000 23,222,781
</TABLE>
85
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FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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,
Refunding, Series F, 6.00%, 8/01/11 ........................................................ $ 10,000,000 $ 10,643,600
Refunding, Series H, 6.25%, 8/01/15 ........................................................ 25,000,000 26,725,000
Refunding, Series H, 6.125%, 8/01/25 ....................................................... 5,600,000 5,830,384
Refunding, Series J, 6.00%, 8/01/21 ........................................................ 10,000,000 10,354,800
Series A, 6.125%, 8/01/06 .................................................................. 9,955,000 10,597,894
Series A, 6.25%, 8/01/08 ................................................................... 10,000,000 10,697,300
Series A, 7.25%, 3/15/20 ................................................................... 100,000 101,559
Series A, 6.25%, 8/01/21 ................................................................... 845,000 867,232
Series A, Pre-Refunded, 6.125%, 8/01/06 .................................................... 235,000 252,442
Series B, 7.00%, 2/01/18 ................................................................... 3,255,000 3,399,229
Series B, 7.00%, 2/01/19 ................................................................... 3,375,000 3,520,800
Series B, 7.00%, 2/01/20 ................................................................... 3,305,000 3,445,925
Series B, 6.00%, 8/15/26 ................................................................... 4,355,000 4,484,953
Series B, Pre-Refunded, 6.75%, 10/01/15 .................................................... 100,000 106,151
Series B, Pre-Refunded, 7.00%, 2/01/18 ..................................................... 835,000 877,009
Series B, Pre-Refunded, 7.00%, 2/01/19 ..................................................... 1,625,000 1,706,754
Series B, Pre-Refunded, 7.00%, 2/01/20 ..................................................... 2,440,000 2,562,756
Series B, Pre-Refunded, 6.00%, 8/15/26 ..................................................... 645,000 703,063
Series B, Sub Series B-1, Pre-Refunded, 7.00%, 8/15/16 ..................................... 17,070,000 18,842,378
Series B, Sub Series B-1, Pre-Refunded, 7.25%, 8/15/19 ..................................... 5,000,000 5,564,000
Series C, Pre-Refunded, 7.25%, 8/15/24 ..................................................... 7,905,000 8,127,289
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/16 ..................................... 55,000 58,485
Series C, Sub Series C-1, Pre-Refunded, 7.00%, 8/01/17 ..................................... 370,000 393,443
Series C, Sub Series C-1, Pre-Refunded, 7.50%, 8/01/21 ..................................... 435,000 466,494
Series D, 6.00%, 2/15/10 ................................................................... 8,155,000 8,598,061
Series D, 7.625%, 2/01/14 .................................................................. 40,000 42,124
Series D, 7.50%, 2/01/18 ................................................................... 5,000 5,255
Series D, Pre-Refunded, 7.70%, 2/01/11 ..................................................... 150,000 159,066
Series D, Pre-Refunded, 7.625%, 2/01/13 .................................................... 400,000 423,772
Series D, Pre-Refunded, 7.625%, 2/01/14 .................................................... 810,000 858,138
Series D, Pre-Refunded, 7.50%, 2/01/18 ..................................................... 380,000 401,945
Series D, Pre-Refunded, 7.50%, 2/01/19 ..................................................... 330,000 349,058
Series E, 6.25%, 2/15/07 ................................................................... 3,270,000 3,500,273
Series E, 7.50%, 2/01/18 ................................................................... 45,000 47,295
Series E, Pre-Refunded, 7.50%, 2/01/18 ..................................................... 480,000 507,720
Series F, 7.625%, 2/01/13 .................................................................. 45,000 47,415
Series F, 7.625%, 2/01/15 .................................................................. 5,000 5,265
Series F, 7.50%, 2/01/21 ................................................................... 110,000 115,381
Series F, Pre-Refunded, 7.625%, 2/01/13 .................................................... 310,000 328,423
Series F, Pre-Refunded, 7.625%, 2/01/14 .................................................... 275,000 291,343
Series F, Pre-Refunded, 7.625%, 2/01/15 .................................................... 25,000 26,486
Series F, Pre-Refunded, 7.50%, 2/01/21 ..................................................... 575,000 608,206
Series F, Pre-Refunded, 6.625%, 2/15/25 .................................................... 8,625,000 9,455,070
Series G, 5.75%, 8/01/10 ................................................................... 505,000 526,690
Series G, 6.125%, 10/15/11 ................................................................. 20,480,000 22,050,611
Series G, 6.20%, 10/15/14 .................................................................. 10,000,000 10,712,100
Series G, 7.50%, 2/01/22 ................................................................... 10,000 10,486
Series G, Pre-Refunded, 7.50%, 2/01/22 ..................................................... 50,000 52,852
Series H, 7.20%, 2/01/15 ................................................................... 875,000 916,361
Series H, 7.00%, 2/01/22 ................................................................... 10,000 10,420
Series H, Pre-Refunded, 7.20%, 2/01/14 ..................................................... 625,000 658,125
Series H, Pre-Refunded, 7.20%, 2/01/15 ..................................................... 500,000 526,500
Series H, Pre-Refunded, 7.00%, 2/01/19 ..................................................... 2,245,000 2,359,517
Series H, Pre-Refunded, 7.00%, 2/01/20 ..................................................... 280,000 294,087
Series H, Pre-Refunded, 7.00%, 2/01/22 ..................................................... 25,000 26,258
Series I, 6.25%, 4/15/17 ................................................................... 23,865,000 25,282,342
Series I, 6.25%, 4/15/27 ................................................................... 7,705,000 8,057,427
Series I, Pre-Refunded, 6.25%, 4/15/17 ..................................................... 1,505,000 1,661,610
Series I, Pre-Refunded, 6.25%, 4/15/27 ..................................................... 15,215,000 16,798,273
</TABLE>
86
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)(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 IDA,
Civic Facility Revenue, Amboy Properties Corp. Project, Refunding, 6.75%, 6/01/20 .......... $ 7,105,000 $ 6,922,899
IDR, La Guardia Association LP Project, Refunding, 6.00%, 11/01/28 ......................... 7,500,000 6,590,475
New York State Dormitory Authority Revenue,
City University System, Third General, Series 2, 6.00%, 7/01/26 ............................ 6,100,000 6,275,558
Mental Health Services Facilities, Series A, 6.00%, 8/15/17 ................................ 11,240,000 11,738,382
State University Educational Facilities, Pre-Refunded, 6.00%, 5/15/18 ...................... 5,000,000 5,455,450
New York State HFA, Service Contract Obligation Revenue, Series A,
6.00%, 3/15/26 ............................................................................. 4,975,000 5,082,808
Pre-Refunded, 7.80%, 9/15/10 ............................................................... 6,850,000 6,992,823
Pre-Refunded, 7.80%, 9/15/20 ............................................................... 9,715,000 9,917,558
New York State HFAR, Refunding, Series A, 5.90%, 11/01/05 ..................................... 12,515,000 13,118,473
New York State Medical Care Facilities Finance Agency Revenue, Hospital and Nursing, Series B,
FHA Insured, 6.95%, 2/15/32 ................................................................ 3,305,000 3,434,325
Pre-Refunded, 6.95%, 2/15/32 ............................................................... 695,000 733,927
New York State Mortgage Agency Revenue, Homeowners Mortgage,
Series 59, 6.10%, 10/01/15 ................................................................. 2,000,000 2,094,500
Series 59, 6.15%, 10/01/17 ................................................................. 2,750,000 2,865,088
Series 61, 5.80%, 10/01/16 ................................................................. 5,000,000 5,125,450
New York State Urban Development Corp. Revenue, Correctional Capital Facilities, Series 7,
5.70%, 1/01/27 ............................................................................. 4,750,000 4,749,573
Oneida County IDAR, Civic Facility, St. Elizabeth Medical,
Series A, 5.75%, 12/01/19 .................................................................. 1,575,000 1,313,219
Series A, 5.875%, 12/01/29 ................................................................. 2,750,000 2,245,073
Series B, 6.00%, 12/01/19 .................................................................. 2,520,000 2,179,220
Series B, 6.00%, 12/01/29 .................................................................. 7,560,000 6,284,099
Onondaga County IDA Solid Waste Disposal Facility Revenue, Solvay Paperboard LLC Project,
Refunding,
6.80%, 11/01/14 ............................................................................ 5,000,000 4,985,900
7.00%, 11/01/30 ............................................................................ 7,000,000 6,929,720
Port Authority of New York and New Jersey Special Obligation Revenue,
2nd Installment, 6.50%, 10/01/01 ........................................................... 1,000,000 1,011,680
3rd Installment, 7.00%, 10/01/07 ........................................................... 8,000,000 8,641,200
4th Installment, Special Project, 6.75%, 10/01/11 .......................................... 925,000 977,281
5th Installment, 6.75%, 10/01/19 ........................................................... 17,500,000 18,046,875
Continental Airlines Inc., Eastern Project, La Guardia, 9.00%, 12/01/10 .................... 10,000,000 10,285,300
Continental Airlines Inc., Eastern Project, La Guardia, 9.125%, 12/01/15 ................... 27,650,000 28,446,873
TSASC Inc. New York, TFABS, Series 1, 6.25%,
7/15/27 .................................................................................... 19,630,000 20,062,645
7/15/34 .................................................................................... 22,375,000 22,868,145
Ulster County IDA, Civic Facility Revenue, Benedictine Hospital Project, Series A,
6.40%, 6/01/14 ............................................................................. 725,000 650,369
6.45%, 6/01/24 ............................................................................. 1,950,000 1,687,706
Warren and Washington Counties IDAR, Adirondack Resource Recovery Project, Refunding,
Series A, 7.90%, 12/15/07 .................................................................. 1,060,000 1,067,611
--------------
522,205,024
--------------
NORTH CAROLINA 1.4%
Eastern Municipal Power Agency Power System Revenue,
Refunding, Series D, 6.75%, 1/01/26 ........................................................ 5,000,000 5,149,100
Series D, 6.70%, 1/01/19 ................................................................... 2,000,000 2,075,160
North Carolina Eastern Municipal Power Agency Power System Revenue, Refunding,
Series A, 5.75%, 1/01/26 ................................................................... 37,500,000 34,478,625
Series B, 5.75%, 1/01/24 ................................................................... 35,750,000 33,024,778
North Carolina HFA, SF, Series II, GNMA Secured, 6.20%,
3/01/16 .................................................................................... 2,675,000 2,793,610
9/01/17 .................................................................................... 1,770,000 1,841,880
--------------
79,363,153
--------------
NORTH DAKOTA .5%
Mercer County PCR, Basin Electric Power Corp., Refunding, Second Series, AMBAC Insured,
6.05%, 1/01/19 ............................................................................. 24,655,000 25,487,846
--------------
</TABLE>
87
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
OHIO 3.4%
Dayton Special Facilities Revenue, Emery Air Freight Corp., Emery Worldwide Air
Inc., Refunding,
Series C, 6.05%, 10/01/09 .................................................................. $ 7,500,000 $ 7,604,025
Series E, 6.05%, 10/01/09 .................................................................. 4,000,000 4,055,480
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services,
Refunding, 5.50%, 7/01/17 .................................................................. 3,100,000 2,538,187
Refunding, 5.50%, 7/01/21 .................................................................. 4,700,000 3,737,534
Series A, 6.625%, 7/01/13 .................................................................. 1,000,000 1,000,870
Lucas County Health Facilities Revenue, Presbyterian Retirement Services, Refunding, Series A,
6.625%, 7/01/14 ............................................................................ 1,000,000 969,580
6.75%, 7/01/20 ............................................................................. 2,000,000 1,932,040
Montgomery County Health Systems Revenue,
Refunding, Series B, 8.10%, 7/01/01 ........................................................ 300,000 302,949
Refunding, Series B-1, 8.10%, 7/01/01 ...................................................... 300,000 302,949
Refunding, Series B-1, 8.10%, 7/01/18 ...................................................... 1,955,000 2,244,223
Series B-1, Pre-Refunded, 8.10%, 7/01/18 ................................................... 4,345,000 5,172,592
Series B-2, 8.10%, 7/01/18 ................................................................. 1,995,000 2,292,315
Series B-2, Pre-Refunded, 8.10%, 7/01/18 ................................................... 4,505,000 5,375,862
St. Leonard, Series B, 8.10%, 7/01/18 ...................................................... 3,100,000 3,561,745
St. Leonard, Series B, Pre-Refunded, 8.10%, 7/01/18 ........................................ 6,500,000 7,756,515
Ohio State Air Quality Development Authority Revenue,
Dayton Power and Light Co. Project, Refunding, 6.10%, 9/01/30 .............................. 17,900,000 17,850,954
PCR, Cleveland Electric, Refunding, Series B, 6.00%, 8/01/20 ............................... 39,760,000 37,852,713
Ohio State Solid Waste Revenue, Republic Engineered Steels Inc., 9.00%, 6/01/21 ............... 16,650,000 6,077,250
Ohio State Water Development Authority PCR, Facilities Revenue, Cleveland Electric,
Refunding, Series A, 8.00%, 10/01/23 ....................................................... 27,700,000 29,785,533
Ohio State Water Development Authority Revenue, Fresh Water Service, AMBAC Insured, 5.90%,
12/01/21 ................................................................................... 9,250,000 9,481,158
Toledo-Lucas County Port Authority Airport Revenue, Burlington Air Express,
Project 1, 7.00%, 4/01/04 .................................................................. 3,445,000 3,558,478
Project 1, 7.25%, 4/01/09 .................................................................. 5,385,000 5,650,104
Project 1, 7.375%, 4/01/14 ................................................................. 8,200,000 8,611,476
Project 1, 7.50%, 4/01/19 .................................................................. 14,365,000 14,584,928
Series 1, Pre-Refunded, 9.125%, 9/15/01 .................................................... 510,000 520,746
Series 1, Pre-Refunded, 9.125%, 9/15/13 .................................................... 5,875,000 5,998,786
Toledo-Lucas County Port Authority Development Revenue, Northwest Ohio Bond Fund,
Series A, Pre-Refunded, 8.625%, 5/15/10 .................................................... 1,035,000 1,058,629
Series B, 9.00%, 11/15/08 .................................................................. 765,000 770,080
Willoughby IDR, Presbyterian Retirement Services, Refunding, Series A, 6.875%, 7/01/16 ........ 1,500,000 1,440,555
--------------
192,088,256
--------------
OKLAHOMA .3%
Tulsa County Municipal Airport Revenue, American Airlines Inc., 7.375%, 12/01/20 .............. 12,845,000 13,156,877
Valley View Hospital Authority Revenue, Valley View Regional Medical Center, Refunding,
6.00%, 8/15/14 ............................................................................. 4,000,000 3,747,160
--------------
16,904,037
--------------
OREGON 1.8%
Klamath Falls Electric Revenue, Klamath Cogen, senior lien, Refunding,
5.75%, 1/01/13 ............................................................................. 13,000,000 12,025,130
5.875%, 1/01/16 ............................................................................ 19,400,000 17,879,428
6.00%, 1/01/25 ............................................................................. 61,060,000 55,015,060
Oregon State Department of Administrative Services COP, Series A, AMBAC Insured,
6.00%, 5/01/26 ............................................................................. 9,400,000 9,851,576
Oregon State Health Housing Educational and Cultural Facilities Authority, Linfield College
Project, Series A, 6.75%, 10/01/25 ......................................................... 5,220,000 5,589,472
--------------
100,360,666
--------------
PENNSYLVANIA 6.0%
Allegheny County Hospital Development Authority Revenue,
Allegheny Valley Health Facilities Management Co., 7.50%, 8/01/13 .......................... 9,100,000 9,151,324
Allegheny Valley Hospital, 7.75%, 8/01/20 .................................................. 2,100,000 2,142,924
Health System, Series A, 6.50%, 11/15/30 ................................................... 10,000,000 10,649,800
Health System, Series B, 8.65%, 11/15/05 ................................................... 1,000,000 1,002,670
Health System, Series B, 9.25%, 11/15/15 ................................................... 25,000,000 24,594,750
Health System, Series B, 9.25%, 11/15/22 ................................................... 25,000,000 23,866,500
Health System, Series B, 9.25%, 11/15/30 ................................................... 25,000,000 23,554,000
</TABLE>
88
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
PENNSYLVANIA (CONT.)
Allegheny County IDAR, Environmental Improvement, USX Corp., Refunding, 6.10%, 7/15/20 ........ $ 6,460,000 $ 6,292,751
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%, 5/01/10 .................. 4,000,000 4,099,680
Chartiers Valley Industrial and Commercial Development Authority First Mortgage Revenue,
Asbury Health Center, Refunding,
7.40%, 12/01/15 ............................................................................ 5,250,000 5,225,430
6.375%, 12/01/19 ........................................................................... 1,000,000 880,710
6.375%, 12/01/24 ........................................................................... 1,750,000 1,512,210
Delaware County IDAR, Resource Recovery Facility,
Refunding, Series A, 6.10%, 1/01/04 ........................................................ 1,310,000 1,283,721
Refunding, Series A, 6.10%, 1/01/06 ........................................................ 2,140,000 2,066,427
Refunding, Series A, 6.50%, 1/01/08 ........................................................ 425,000 413,406
Refunding, Series A, 6.10%, 7/01/13 ........................................................ 20,500,000 18,822,895
Refunding, Series A, 6.20%, 7/01/19 ........................................................ 6,500,000 5,865,795
Franklin County IDA, Health Facilities Revenue, Encore Nursing Center,
10.375%, 7/01/11 ........................................................................... 650,000 675,727
Refunding, 10.375%, 7/01/11 ................................................................ 2,700,000 2,806,866
Gettysburg IDA Health Facilities Revenue, Encore Nursing Center, Refunding, 10.375%, 7/01/11 .. 2,900,000 3,014,782
Lancaster IDAR, Garden Spot Village Project, Series A, 7.625%, 5/01/31 ........................ 1,650,000 1,669,520
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding, Series A, MBIA
Insured, 6.15%, 8/01/29 .................................................................... 4,000,000 4,140,440
Montgomery County Higher Education and Health Authority Revenue, First Mortgage, Holy Redeemer
Long Term Care, Series A, Pre-Refunded,
8.20%, 6/01/06 ............................................................................. 1,295,000 1,369,307
8.00%, 6/01/22 ............................................................................. 3,500,000 3,724,735
Montgomery County IDAR, Resource Recovery, 7.50%, 1/01/12 ..................................... 10,000,000 10,238,800
Pennsylvania Convention Center Authority Revenue, Refunding, Series A,
6.25%, 9/01/04 ............................................................................. 5,000,000 5,121,800
6.60%, 9/01/09 ............................................................................. 16,000,000 16,509,120
6.70%, 9/01/14 ............................................................................. 20,760,000 21,471,030
6.75%, 9/01/19 ............................................................................. 15,800,000 16,276,528
Pennsylvania EDA, Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%,
12/01/15 ................................................................................... 10,000,000 10,337,500
Pennsylvania State Higher Educational Facilities Authority Health Services Revenue,
Allegheny Delaware Valley Obligation Group, Series A, MBIA Insured, 5.875%, 11/15/16 ....... 13,000,000 13,282,490
University of Pennsylvania Health Services, Refunding, Series A, 5.875%, 1/01/15 ........... 700,000 660,954
Philadelphia Gas Works Revenue,
14th Series A, Pre-Refunded, 6.375%, 7/01/26 ............................................... 885,000 945,481
Refunding, 14th Series A, 6.375%, 7/01/26 .................................................. 1,965,000 1,986,242
Philadelphia GO, Refunding, Series B, 6.00%, 5/15/05 .......................................... 3,080,000 3,222,265
Philadelphia IDA, Health Care Facility Revenue, Pauls Run, Series A,
5.85%, 5/15/13 ............................................................................. 2,200,000 1,900,976
5.75%, 5/15/18 ............................................................................. 1,500,000 1,228,485
5.875%, 5/15/28 ............................................................................ 2,500,000 1,987,375
Philadelphia Municipal Authority Revenue, Lease,
Refunding, Series D, 6.30%, 7/15/17 ........................................................ 3,500,000 3,500,000
Sub. Series C, 8.625%, 11/15/16 ............................................................ 1,555,000 1,624,975
Sub. Series D, 6.25%, 7/15/13 .............................................................. 3,000,000 3,018,750
Philadelphia Water and Sewer Revenue, Series 10, ETM, 7.35%, 9/01/04 .......................... 14,155,000 15,201,055
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc., 6.50%,
1/01/10 .................................................................................... 27,190,000 27,283,534
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital Project,
Series A, MBIA Insured, 5.75%, 7/01/16 ..................................................... 8,130,000 8,329,673
South Wayne County Water and Sewer Authority Revenue, Refunding, 8.20%, 4/15/13 ............... 7,735,000 7,812,814
Washington County IDA, PCR, West Pennsylvania Power Co., Series G, AMBAC Insured, 6.05%,
4/01/14 .................................................................................... 5,025,000 5,274,140
--------------
336,040,357
--------------
RHODE ISLAND .3%
Rhode Island Housing and Mortgage Finance Corp Revenue, Homeownership Opportunity, Series
17-A, 6.25%, 4/01/17 ....................................................................... 5,000,000 5,193,000
Rhode Island State Health and Educational Building Corp Revenue,
Hospital Financing Lifespan Obligation Group, MBIA Insured, 5.75%, 5/15/23 ................. 3,500,000 3,518,690
Landmark Medical Center, Asset Guaranteed, 5.875%, 10/01/19 ................................ 6,000,000 6,024,420
</TABLE>
89
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
RHODE ISLAND (CONT.)
West Warwick GO, Series A,
7.00%, 8/15/02 ............................................................................. $ 90,000 $ 91,271
7.30%, 7/15/08 ............................................................................. 770,000 826,649
--------------
15,654,030
--------------
SOUTH CAROLINA .3%
Charleston County Hospital Facilities First Mortgage Revenue, Sandpiper Village Inc., 8.00%,
11/01/13 ................................................................................... 3,410,000 3,262,961
Piedmont Municipal Power Agency Electric Revenue, Refunding,
6.60%, 1/01/21 ............................................................................. 3,660,000 3,663,733
Series A, AMBAC Insured, 6.55%, 1/01/16 .................................................... 4,110,000 4,113,946
South Carolina Jobs EDA, Health Facilities Revenue, 1st Mortgage Lutheran Homes, Refunding,
5.65%, 5/01/18 ............................................................................. 3,200,000 2,639,072
5.70%, 5/01/26 ............................................................................. 4,235,000 3,332,013
--------------
17,011,725
--------------
SOUTH DAKOTA .2%
South Dakota HDA Revenue, Homeownership Mortgage, Series A, 6.125%, 5/01/17 ................... 5,000,000 5,180,000
South Dakota Health and Educational Facilities Authority Revenue, Prairie Lakes Health Care,
Pre-Refunded, 7.25%, 4/01/22 ............................................................... 2,480,000 2,688,494
Refunding, 7.25%, 4/01/22 .................................................................. 1,020,000 1,038,095
--------------
8,906,589
--------------
TENNESSEE .2%
Knox County Health, Educational and Housing Facilities Board MFHR, East Towne Village Project,
GNMA Secured, 8.20%, 7/01/28 ............................................................... 3,000,000 3,068,100
Memphis-Shelby County Airport Authority Special Facilities and Project Revenue, Federal Express
Corp., 7.875%, 9/01/09 ..................................................................... 6,000,000 6,308,520
Shelby County Health and Education Housing Facility Revenue, Beverly Enterprise, 10.125%,
12/01/11 ................................................................................... 2,700,000 2,798,982
Tennessee HDA, Mortgage Finance, Series A, 6.90%, 7/01/25 ..................................... 175,000 184,737
--------------
12,360,339
--------------
TEXAS 2.0%
Alliance Airport Authority Special Facilities Revenue, 7.50%, 12/01/29 ........................ 10,000,000 10,253,700
Bexar County Health Facilities Development Corp Revenue, Incarnate Word Health Services,
Refunding, FSA Insured, ETM, 6.00%, 11/15/15 ............................................... 8,750,000 9,412,550
Coppell Special Assessment, Gateway Project, 8.70%, 3/01/12 ................................... 4,010,000 4,146,821
Decatur Hospital Authority Hospital Revenue, Series A, 5.75%, 9/01/29 ......................... 5,000,000 4,093,550
El Paso HFC, SFMR, Refunding, Series A, 8.75%, 10/01/11 ....................................... 3,005,000 3,156,542
Georgetown Health Facilities Development Corp Revenue, Georgetown Healthcare System,
Refunding, 6.25%, 8/15/29 .................................................................. 10,975,000 9,053,058
Nueces River Authority Environmental Improvement Revenue, Asarco Inc. Project, Refunding,
5.60%, 1/01/27 ............................................................................. 8,640,000 6,700,579
Series A, 5.60%, 4/01/18 ................................................................... 4,500,000 3,653,550
Sabine River Authority PCR, Southwestern Electric Power Co., Refunding, MBIA Insured, 6.10%,
4/01/18 .................................................................................... 7,000,000 7,296,450
Sam Rayburn Municipal Power Agency Supply System Revenue, Refunding,
Series A, 6.50%, 10/01/08 .................................................................. 755,000 755,483
Series A, 6.75%, 10/01/14 .................................................................. 12,990,000 13,007,407
Series A, 6.25%, 10/01/17 .................................................................. 4,795,000 4,657,767
Series B, 5.75%, 10/01/08 .................................................................. 1,315,000 1,287,582
Series B, 6.125%, 10/01/13 ................................................................. 5,340,000 5,174,246
Series B, 5.50%, 10/01/20 .................................................................. 11,255,000 10,025,616
Texas State GO, Veterans Housing Assistance Fund I, Refunding, 6.15%, 12/01/25 ................ 7,430,000 7,603,119
Texas Water Development Board Revenue, State Revolving Fund, 6.00%, 7/15/13 ................... 4,000,000 4,152,960
Tomball Hospital Authority Revenue, Refunding, 6.125%, 7/01/23 ................................ 8,750,000 7,549,413
--------------
111,980,393
--------------
U.S TERRITORIES 3.7%
American Samoa EDA, Executive Office Building Revenue, 10.125%, 9/01/08 ....................... 2,040,000 2,060,400
District of Columbia GO,
Refunding, Series A, 5.875%, 6/01/05 ....................................................... 3,935,000 4,039,907
Refunding, Series A, 6.00%, 6/01/07 ........................................................ 10,905,000 11,281,768
Series A, ETM, 5.875%, 6/01/05 ............................................................. 3,865,000 4,085,730
Series A, ETM, 6.00%, 6/01/07 .............................................................. 870,000 937,703
Series A, Pre-Refunded, 6.375%, 6/01/11 .................................................... 22,770,000 25,039,258
</TABLE>
90
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
U.S TERRITORIES (CONT.)
District of Columbia GO, (cont.)
Series A, Pre-Refunded, 6.375%, 6/01/16 .................................................... $ 27,230,000 $ 29,943,742
Series E, FSA Insured, 6.00%, 6/01/11 ...................................................... 5,000,000 5,226,400
District of Columbia Hospital Revenue,
Medlantic Healthcare Group, Refunding, Series A, MBIA Insured, ETM, 5.875%, 8/15/19 ........ 8,850,000 9,170,282
Washington Hospital Center Corp., Series A, Pre-Refunded, 7.00%, 8/15/05 ................... 1,585,000 1,658,766
Washington Hospital Center Corp., Series A, Pre-Refunded, 9.00%, 1/01/08 ................... 11,480,000 11,869,402
Washington Hospital Center Corp., Series A, Pre-Refunded, 8.75%, 1/01/15 ................... 3,750,000 3,874,913
Washington Hospital Center Corp., Series A, Pre-Refunded, 7.125%, 8/15/19 .................. 4,500,000 4,798,800
District of Columbia Redevelopment Land Agency Washington D.C. Sports Arena Special
Tax Revenue, 5.625%, 11/01/10 .............................................................. 795,000 801,010
District of Columbia Revenue,
Carnegie Endowment Revenue, 5.75%, 11/15/26 ................................................ 5,410,000 5,419,954
Methodist Home Issue, 6.00%, 1/01/29 ....................................................... 4,750,000 3,856,383
Northern Mariana Islands Commonwealth Ports Authority Airport Revenue, senior lien,
Series A, 6.25%, 3/15/28 ................................................................... 14,620,000 14,099,674
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A,
6.85%, 3/15/28 ............................................................................. 8,855,000 8,789,739
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.75%, 7/01/08 ............................................................................. 700,000 702,639
Virgin Islands PFA Revenue,
Matching Fund Loan Notes, Series A, Pre-Refunded, 7.25%, 10/01/18 .......................... 14,000,000 15,129,100
sub. lien, Fund Loan Notes, Refunding, Series E, 5.75%, 10/01/13 ........................... 15,000,000 14,478,750
sub. lien, Fund Loan Notes, Refunding, Series E, 5.875%, 10/01/18 .......................... 9,000,000 8,543,880
sub. lien, Fund Loan Notes, Refunding, Series E, 6.00%, 10/01/22 ........................... 15,000,000 14,380,500
Virgin Islands Water and Power Authority Electric System Revenue, Series A, Pre-Refunded,
7.40%, 7/01/11 ............................................................................. 335,000 349,063
Virgin Islands Water and Power Authority Water System Revenue, Series B, Pre-Refunded,
7.60%, 1/01/12 ............................................................................. 4,000,000 4,314,800
--------------
204,852,563
--------------
UTAH .1%
Box Elder County PCR, Nucor Corp. Project, 6.90%, 5/15/17 ..................................... 2,000,000 2,103,860
Carbon County Solid Waste Disposal Revenue, Laidlaw Environmental Services, Refunding,
Series A, 7.45%, 7/01/17 ................................................................... 2,500,000 2,404,825
(c)Tooele County PCR, Laidlaw Environmental, Refunding, Series A, 7/01/27 ..................... 3,500,000 350,000
Utah State HFA, SFM,
Series A-2, 9.625%, 7/01/02 ................................................................ 10,000 10,046
Series A-2, 9.45%, 7/01/03 ................................................................. 15,000 15,113
Series B-2, 9.50%, 7/01/02 ................................................................. 5,000 5,061
Series B-2, 9.45%, 7/01/03 ................................................................. 20,000 20,181
Series C-2, 9.05%, 7/01/03 ................................................................. 40,000 41,074
Series D-2, 9.00%, 7/01/03 ................................................................. 115,000 118,061
Series E-1, 8.70%, 7/01/03 ................................................................. 140,000 143,604
Sub Series B-2, 8.70%, 7/01/04 ............................................................. 280,000 288,504
Sub Series D, 8.45%, 7/01/04 ............................................................... 125,000 125,659
--------------
5,625,988
--------------
VERMONT .3%
Vermont Educational and Health Buildings Financing Agency Revenue, Fletcher Allen Health,
Series A, AMBAC Insured, 6.00%, 12/01/23 ................................................... 15,000,000 15,544,500
--------------
VIRGINIA .4%
Virginia Beach Development Authority Residential Care Facility Mortgage Revenue, Westminster
Canterbury Project, Series A,
7.125%, 11/01/23 ........................................................................... 5,000,000 4,957,350
7.25%, 11/01/32 ............................................................................ 9,000,000 9,012,420
Virginia State HDA, Commonwealth Mortgage, Series D, Sub Series D-3, 6.125%, 1/01/19 .......... 9,715,000 9,999,844
--------------
23,969,614
--------------
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 12,822,300
West Virginia State Water Development Authority Revenue, Solid Waste Management, Series C,
8.125%, 8/01/15 ............................................................................ 2,215,000 2,282,314
--------------
15,104,614
--------------
WISCONSIN .3%
Kaukauna Environmental Improvement Revenue, International Paper Company Project, Series A,
6.70%, 5/01/24 ............................................................................. 4,100,000 4,223,246
Wisconsin Housing and EDA, Homeownership Revenue, Series C, 6.15%, 9/01/17 .................... 2,275,000 2,349,734
</TABLE>
91
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
WISCONSIN (CONT.)
Wisconsin State Health and Educational Facilities Authority Revenue,
Clement Manor, Refunding, 5.75%, 8/15/24 ................................................... $ 4,000,000 $ 3,234,120
Franciscan Skemp Medical Center Inc. Project, 6.25%, 11/15/20 .............................. 9,510,000 9,882,221
--------------
19,689,321
--------------
WYOMING .2%
Sweetwater County PCR, Idaho Power Co. Project, Refunding, Series A, 6.05%, 7/15/26 ........... 10,500,000 10,616,620
Wyoming CDA, Housing Revenue, Series 1, 6.15%, 6/01/17 ........................................ 1,000,000 1,033,800
--------------
11,650,420
--------------
TOTAL BONDS ................................................................................... 5,159,226,531
--------------
ZERO COUPON BONDS 5.5%
CALIFORNIA 4.3%
Foothill/Eastern Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, 1/15/31 ................................................... 4,000,000 601,360
Capital Appreciation, Refunding, 1/15/36 ................................................... 4,000,000 440,160
Capital Appreciation, Refunding, MBIA Insured, 1/15/22 ..................................... 49,115,000 13,220,776
Convertible Capital Appreciation, Refunding, 1/15/23 ....................................... 35,000,000 20,265,700
Convertible Capital Appreciation, Refunding, 1/15/34 ....................................... 4,500,000 561,015
San Francisco City and County RDA, Lease Revenue, George R. Moscone Center,
7/1/09 ..................................................................................... 3,750,000 2,482,950
7/1/10 ..................................................................................... 4,500,000 2,816,325
7/1/12 ..................................................................................... 4,500,000 2,492,910
7/1/13 ..................................................................................... 4,250,000 2,203,583
7/1/14 ..................................................................................... 2,250,000 1,092,038
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
junior lien, ETM, 1/01/04 .................................................................. 7,400,000 6,419,130
junior lien, ETM, 1/01/05 .................................................................. 8,000,000 6,634,560
junior lien, ETM, 1/01/06 .................................................................. 9,000,000 7,128,810
junior lien, ETM, 1/01/07 .................................................................. 9,400,000 7,104,426
junior lien, ETM, 1/01/08 .................................................................. 10,400,000 7,492,784
junior lien, ETM, 1/01/09 .................................................................. 21,900,000 14,940,180
junior lien, ETM, 1/01/10 .................................................................. 15,000,000 9,658,200
junior lien, ETM, 1/01/12 .................................................................. 30,100,000 17,248,504
junior lien, ETM, 1/01/24 .................................................................. 52,700,000 14,470,893
junior lien, ETM, 1/01/25 .................................................................. 45,200,000 11,714,484
junior lien, ETM, 1/01/26 .................................................................. 131,900,000 32,258,783
junior lien, ETM, 1/01/27 .................................................................. 139,100,000 32,097,325
senior lien, Refunding, Series A, 1/15/23 .................................................. 20,000,000 12,887,600
senior lien, Refunding, Series A, 1/15/24 .................................................. 20,000,000 12,864,400
--------------
239,096,896
--------------
FLORIDA .2%
Miami-Dade County Special Obligation,
Capital Appreciation, Series B, MBIA Insured, 10/01/28 ..................................... 11,860,000 2,268,699
Capital Appreciation, Series B, MBIA Insured, 10/01/29 ..................................... 20,000,000 3,596,800
Capital Appreciation, Series B, MBIA Insured, 10/01/32 ..................................... 7,780,000 1,161,243
Capital Appreciation, Series B, MBIA Insured, 10/01/33 ..................................... 2,000,000 281,320
Capital Appreciation, Series B, MBIA Insured, 10/01/35 ..................................... 6,765,000 845,151
sub. lien, Series B, MBIA Insured, 10/01/34 ................................................ 3,895,000 516,321
--------------
8,669,534
--------------
ILLINOIS .2%
Robbins Resource Recovery Revenue, Restructuring Project, Series D, 10/15/09 .................. 22,651,189 10,532,803
--------------
NEBRASKA .1%
Kearney IDR, Great Platte River Road, Capital Appreciation, zero cpn. to 1/01/06, 7.00%
thereafter,
1/01/11 .................................................................................... 4,255,000 2,650,269
1/01/17 .................................................................................... 8,895,000 5,329,172
--------------
7,979,441
--------------
</TABLE>
92
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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 .2%
MAC for City of Troy, Capital Appreciation, Series C, MBIA Insured,
7/15/21 .............................................................................. $ 428,010 $ 133,342
1/15/22 .............................................................................. 649,658 196,002
Westchester Tobacco Asset Securitization Corp. Revenue, Capital Appreciation, zero cpn
to 7/15/02, 6.75% thereafter, 7/15/29 .................................................... 15,000,000 13,716,900
-------------
14,046,244
-------------
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 1,654,219
6.40% thereafter, 12/01/06 ........................................................... 1,685,000 1,654,940
6.50% thereafter, 12/01/07 ........................................................... 1,750,000 1,730,838
6.90% thereafter, 12/01/16 ........................................................... 2,500,000 2,485,025
-------------
7,525,022
-------------
SOUTH CAROLINA
Connector 2000 Association Inc. Toll Road Revenue, Series B,
1/1/30 ............................................................................... 750,000 84,908
1/1/33 ............................................................................... 20,750,000 1,879,743
-------------
1,964,651
-------------
TENNESSEE .3%
Johnson City Health and Educational Facilities Board Hospital Revenue,
Refunding, First Mortgage Mountain States Health, Series A, MBIA Insured,
7/1/27 ............................................................................... 19,365,000 3,935,936
7/1/28 ............................................................................... 19,400,000 3,735,858
7/1/29 ............................................................................... 19,365,000 3,514,554
7/1/30 ............................................................................... 19,370,000 3,313,432
-------------
14,499,780
-------------
TOTAL ZERO COUPON BONDS ..................................................................... 304,314,371
-------------
TOTAL LONG TERM INVESTMENTS (COST $5,577,772,292) ........................................... 5,463,540,902
-------------
(a)SHORT TERM INVESTMENTS 1.2%
Berkeley County Revenue, Bayer Corp. Project, Daily VRDN and Put, 4.35%, 3/01/09 ............ 2,000,000 2,000,000
Delta County EDC, Environmental Improvement Revenue, Mead Escanaba Paper Project,
Refunding, Series C, Daily VRDN and Put, 4.25%, 12/01/23 ................................. 3,900,000 3,900,000
Harris County IDC, Shell Oil Co. Project, Refunding, Daily VRDN and Put, 4.30%, 4/01/27 ..... 1,000,000 1,000,000
Hillsborough County IDA, PCR, Daily VRDN and Put, 4.25%, 5/15/18 ............................ 8,900,000 8,900,000
Jackson County PCR, Chevron USA Inc. Project, Daily VRDN and Put, 4.30%, 6/01/23 ............ 1,000,000 1,000,000
Long Island Power Authority Electric System Revenue, Sub Series 5, Daily VRDN and Put,
4.30%, 5/01/33 ........................................................................... 2,800,000 2,800,000
Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc.,
1st Stage, ACES, Refunding, Daily VRDN and Put, 4.35%, 9/01/06 ........................... 700,000 700,000
Massachusetts State Water Resource Authority Revenue, Multi-Modal Project, sub. lien,
Series B, AMBAC Insured, Weekly VRDN and Put, 4.00%, 8/01/28 ............................. 8,900,000 8,900,000
McIntosh IDB, Environmental Improvement Revenue, Refunding, Series D, Daily VRDN and
Put, 4.30%, 7/01/28 ...................................................................... 5,300,000 5,300,000
Midland County EDC, Limited Obligation Revenue, Dow Chemical Co. Project, Refunding,
Series B, Daily VRDN and Put, 4.30%, 12/01/15 ............................................ 2,000,000 2,000,000
Mt. Vernon PCR, General Electric Co. Project, Refunding, Daily VRDN and Put,
4.35%, 11/01/18 .......................................................................... 6,200,000 6,200,000
New York City GO, Daily VRDN and Put, 4.15%, 8/01/17 ........................................ 1,000,000 1,000,000
North Carolina Medical Care Commission Hospital Revenue, Lexington Memorial Hospital
Project, Refunding, Daily VRDN and Put, 4.35%, 4/01/10 ................................... 500,000 500,000
Orange County School Board COP, Series B, Daily VRDN and Put, 4.30%, 8/01/25 ................ 3,300,000 3,300,000
Port Arthur Navigation District IDC, American Petrofina Inc., Daily VRDN and Put,
4.30%, 5/01/03 ........................................................................... 1,900,000 1,900,000
Port Authority of New York and New Jersey Special Obligation Revenue, Versatile
Structure, Series 2, Daily VRDN and Put, 4.05%, 5/01/19 .................................. 8,900,000 8,900,000
Princeton PCR, PSI Energy Inc. Project, Refunding, Daily VRDN and Put, 4.25%, 4/01/22 ....... 600,000 600,000
Uinta County PCR, Chevron USA Inc. Project, Refunding, Daily VRDN and Put, 4.30%, 8/15/20 ... 4,500,000 4,500,000
</TABLE>
93
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)SHORT TERM INVESTMENTS (CONT.)
Washington State Health Care Facilities Authority Revenue, Sisters of Providence,
Series C, Daily VRDN and Put, 4.35%, 10/01/05 ...................................... $ 1,300,000 $ 1,300,000
Series E, Daily VRDN and Put, 4.35%, 10/01/05 ...................................... 2,300,000 2,300,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $67,000,000) ........................................... 67,000,000
--------------
TOTAL INVESTMENTS (COST $5,644,772,292) 99.1% ............................................. 5,530,540,902
OTHER ASSETS, LESS LIABILITIES .9% ........................................................ 52,898,392
--------------
NET ASSETS 100.0% ......................................................................... $5,583,439,294
==============
</TABLE>
See glossary of terms on page 115.
(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
when-issued or delayed delivery basis.
(c) See Note 6 regarding defaulted securities.
(d) 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.
94
<PAGE>
FRANKLIN TAX-FREE TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 -----------------------------------------------------------
CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 10.99 $ 11.96 $ 11.92 $ 11.61 $ 11.68 $ 11.28
--------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... .30 .60 .61 .63 .64 .65
Net realized and unrealized gains (losses) .42 (.96) .05 .32 (.06) .39
--------------------------------------------------------------------------
Total from investment operations ................. .72 (.36) .66 .95 .58 1.04
--------------------------------------------------------------------------
Less distributions from net investment income .... (.30)(d) (.61)(f,g) (.62) (.64) (.65) (.64)
--------------------------------------------------------------------------
Net asset value, end of period ................... $ 11.41 $ 10.99 $ 11.96 $ 11.92 $ 11.61 $ 11.68
==========================================================================
Total return(b) .................................. 6.67% (3.08)% 5.63% 8.37% 5.13% 9.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $621,190 $617,407 $681,818 $636,929 $574,691 $564,864
Ratios to average net assets:
Expenses ..................................... .66%(c) .65% .65% .66% .64% .65%
Net investment income ........................ 5.36%(c) 5.23% 5.06% 5.34% 5.58% 5.65%
Portfolio turnover rate .......................... 13.49% 21.21% 5.43% 12.77% 8.87% 12.04%
CLASS B
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 11.00 $ 10.89
------------------------
Income from investment operations:
Net investment income(a) ..................... .27 .06
Net realized and unrealized gains ............ .44 .10
------------------------
Total from investment operations ................. .71 .16
------------------------
Less distributions from net investment income .... (.27)(d) (.05)
------------------------
Net asset value, end of period ................... $ 11.44 $ 11.00
========================
Total return(b) .................................. 6.54% 1.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $ 2,506 $ 226
Ratios to average net assets:
Expenses ..................................... 1.22%(c) 1.20%(c)
Net investment income ........................ 4.76%(c) 4.66%(c)
Portfolio turnover rate .......................... 13.49% 21.21%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29,
2000.
(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) Includes distributions in excess of net investment income in the amount of
$.004.
(e) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(f) Includes distributions in excess of net investment income in the amount of
$.006.
(g) The fund made a capital gain distribution of $.003.
95
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights (continued)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 -----------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(g)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.05 $ 12.03 $ 11.98 $ 11.66 $ 11.72 $ 11.30
------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................... .27 .54 .54 .56 .57 .49
Net realized and unrealized gains (losses) .42 (.98) .06 .33 (.05) .40
------------------------------------------------------------------------------
Total from investment operations ............... .69 (.44) .60 .89 .52 .89
------------------------------------------------------------------------------
Less distributions from net investment income .. (.27)(d) (.54)(e,f) (.55) (.57) (.58) (.47)
------------------------------------------------------------------------------
Net asset value, end of period ................. $ 11.47 $ 11.05 $ 12.03 $ 11.98 $ 11.66 $ 11.72
------------------------------------------------------------------------------
Total return(b) ................................ 6.34% (3.69)% 5.09% 7.84% 4.57% 8.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $47,588 $46,403 $48,715 $28,139 $13,095 $ 4,542
Ratios to average net assets:
Expenses ................................... 1.22%(c) 1.20% 1.21% 1.21% 1.21% 1.23%(c)
Net investment income ...................... 4.80%(c) 4.67% 4.50% 4.77% 5.01% 5.15%(c)
Portfolio turnover rate ........................ 13.49% 21.21% 5.43% 12.77% 8.87% 12.04%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.004.
(e) Includes distributions in excess of net investment income in the amount of
$.005.
(f) The fund made a capital gain distribution of $.003.
(g) For the period May 1, 1995 (effective date) to February 29, 1996.
See notes to financial statements.
96
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 98.3%
BONDS 98.2%
Aberdeen Township, Refunding, FGIC Insured, 5.70%, 2/01/22 ............................................. $ 4,100,000 $ 4,176,424
Allamuchy Town Board of Education COP, MBIA Insured, 6.00%, 11/01/14 ................................... 1,000,000 1,044,790
Atlantic County Improvement Authority Luxury Tax Revenue, Convention Center Project, MBIA Insured, ETM,
7.40%, 7/01/16 .................................................................................. 9,500,000 11,464,125
Atlantic County Utilities Authority, Solid Waste Revenue,
7.00%, 3/01/08 .................................................................................. 2,000,000 1,952,500
7.125%, 3/01/16 ................................................................................. 6,600,000 6,377,250
Bedminister Township Board of Education COP, Pre-Refunded, 7.125%, 9/01/10 ............................. 2,000,000 2,066,340
Bergen County Utility Authority Solid Waste System Revenue, Series A, FGIC Insured, 6.25%, 6/15/11 ..... 1,325,000 1,385,023
Camden County Improvement Authority Health System Revenue, Catholic Health East, Series B, AMBAC Insured,
5.00%, 11/15/28 .................................................................................... 11,600,000 10,496,608
Cape May County IPC, Financing Authority Revenue, Atlantic City Electric Co., Refunding, Series A,
MBIA Insured, 6.80%, 3/01/21 ....................................................................... 5,400,000 6,329,988
Carteret Board of Education COP, MBIA Insured,
5.75%, 1/15/30 .................................................................................. 1,155,000 1,168,386
Pre-Refunded, 6.25%, 4/15/19 .................................................................... 2,750,000 2,986,225
Church Street Corp. Keansburg Elderly Housing Mortgage Revenue, Refunding, 5.625%, 3/01/11 ............. 1,890,000 1,918,898
Delaware River and Bay Development Authority Revenue,
FGIC Insured, 5.25%, 1/01/26 .................................................................... 10,200,000 9,758,952
Series A, AMBAC Insured, 5.75%, 1/01/29 ................................................................ 4,000,000 4,089,840
Delaware River Port Authority Pennsylvania and New Jersey Revenue, Delaware River Bridges Revenue,
FSA Insured, 5.75%,
1/01/22 ......................................................................................... 8,500,000 8,702,385
1/01/26 ......................................................................................... 10,000,000 10,216,100
East Orange GO, Water Utility, AMBAC Insured, 5.70%,
6/15/23 ......................................................................................... 1,200,000 1,225,128
6/15/24 ......................................................................................... 1,385,000 1,412,949
6/15/25 ......................................................................................... 1,465,000 1,493,450
Gloucester County Improvement Authority Solid Waste Resource Recovery Revenue, Waste Management Inc.
Project, Refunding,
Series A, 6.85%, 12/01/29 ....................................................................... 1,375,000 1,429,120
Series B, 7.00%, 12/01/29 ....................................................................... 1,250,000 1,270,188
Guam Power Authority Revenue, Refunding, Series A, 5.25%, 10/01/34 ..................................... 4,000,000 3,691,240
Hamilton Township Board of Education COP, Series B, FSA Insured, 7.00%, 12/15/15 ....................... 4,670,000 4,831,349
Higher Education Student Assistance Authority, Student Loan Revenue, Series A, MBIA Insured,
6.15%, 6/01/19 .................................................................................. 2,500,000 2,593,225
Highland Park School District GO, Refunding, MBIA Insured, 5.125%, 2/15/25 ............................. 7,120,000 6,744,847
Howell Township GO, Refunding, FGIC Insured, 6.80%, 1/01/14 ............................................ 1,750,000 1,835,715
Hudson County Improvement Authority Solid Waste Systems Revenue, Koppers Site Project, Series A,
6.125%, 1/01/29 ................................................................................. 6,510,000 6,233,325
Jersey City GO, Series A, FSA Insured, 5.625%, 3/01/20 ................................................. 1,000,000 1,020,780
Lafayette Yard Community Development Revenue, Hotel/Conference Center Project, Trenton Guaranteed,
MBIA Insured,
6.00%, 4/01/29 .................................................................................. 1,750,000 1,827,910
5.80%, 4/01/35 .................................................................................. 2,520,000 2,573,802
Middlesex County COP, MBIA Insured, Pre-Refunded, 6.125%, 2/15/19 ...................................... 1,300,000 1,380,340
Middletown Township GO, Board of Education, MBIA Insured, 5.85%,
8/01/24 ......................................................................................... 4,295,000 4,407,357
8/01/25 ......................................................................................... 4,300,000 4,409,994
New Jersey EDA,
EDR, School Revenue, Blair Academy, 1995 Project, Series N, 6.90%, 12/01/11 ..................... 3,370,000 3,497,723
EDR, School Revenue, Blair Academy, 1995 Project, Series P, 6.90%, 12/01/11 ..................... 375,000 389,213
Heating and Cooling Revenue, Trigen-Trenton Project, Series A, 6.20%, 12/01/10 .................. 6,370,000 6,405,927
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.10%, 12/01/04 .................. 2,910,000 2,930,137
Heating and Cooling Revenue, Trigen-Trenton Project, Series B, 6.20%, 12/01/07 .................. 2,720,000 2,742,603
Lease Revenue, International Center for Public Health Project, University of Medicine and
Dentistry, AMBAC Insured, 6.00%, 6/01/32 ................................................ 5,000,000 5,216,650
Market Transition Facilities Revenue, senior lien, Series A, MBIA Insured, 5.875%, 7/01/11 ...... 3,000,000 3,166,530
Natural Gas Facilities Revenue, New Jersey Natural Gas Co. Project, Series A, AMBAC Insured,
6.25%, 8/01/24 .......................................................................... 8,200,000 8,543,908
PCR, Jersey Central Power and Light, 7.10%, 7/01/15 ............................................. 550,000 573,997
School Revenue, Blair Academy, 1995 Project, Series A, 5.85%, 9/01/16 ........................... 1,640,000 1,670,438
State Lease Revenue, Liberty State Park Lease Rental, Refunding, AMBAC Insured, 5.75%, 3/15/20 .. 4,605,000 4,686,416
Terminal Revenue, GATX Terminals Corp. Project, 6.65%, 9/01/22 .................................. 7,440,000 7,601,225
Water Facilities Revenue, Hackensack Water Co. Project, Refunding, Series A, MBIA Insured,
5.80%, 3/01/24 .......................................................................... 1,000,000 1,012,150
Water Facilities Revenue, Middlesex Water Co. Project, 7.25%, 7/01/21 ........................... 6,000,000 6,210,840
</TABLE>
97
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (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 Revenue,
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%, 1/01/16 ............ $ 2,500,000 $ 2,483,050
Jewish Community Housing Corp. Metropolitan Project, 5.90%, 12/01/31 ........................... 5,110,000 5,109,438
Transportation Project, sub. lease, Series A, FSA Insured, 5.25%, 5/01/17 ...................... 5,000,000 4,944,950
Transportation Project, sub. lease, Series A, FSA Insured, 5.00%, 5/01/18 ...................... 2,000,000 1,894,300
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Series C, 6.80%, 7/01/11 ......................................... 2,500,000 2,603,225
Atlantic Health Systems, Series A, AMBAC Insured, 5.00%, 7/01/27 ............................... 7,500,000 6,744,450
Berkeley Heights Convalescent Hospital, AMBAC Insured, 5.00%, 7/01/26 .......................... 6,000,000 5,450,340
Burdette Tomlin Memorial Hospital, 5.50%, 7/01/29 .............................................. 5,725,000 5,203,510
Cathedral Health Services, Pre-Refunded, 7.25%, 2/15/21 ........................................ 2,020,000 2,085,589
Cathedral Health Services, Refunding, MBIA Insured, 5.25%, 8/01/21 ............................. 5,000,000 4,797,600
Cathedral Health Services, Series A, FHA Insured, Pre-Refunded, 7.25%, 2/15/10 ................. 9,230,000 9,529,698
Christian Health Care Center, Refunding, Series A, 5.50%, 7/01/18 .............................. 1,200,000 1,018,224
East Orange General Hospital, Series B, 7.75%, 7/01/20 ......................................... 5,445,000 5,574,428
Franciscan St. Mary's Hospital, 5.875%, 7/01/12 ................................................ 4,850,000 5,118,399
Hackensack University Medical Center, 6.00%, 1/01/34 ........................................... 10,000,000 10,021,900
Holy Name Hospital, 6.00%, 7/01/25 ............................................................. 3,000,000 2,745,450
Holy Name Hospital, AMBAC Insured, 5.25%, 7/01/20 .............................................. 4,380,000 4,217,809
Jersey Shore Medical Center, Refunding, AMBAC Insured, 5.875%, 7/01/24 ......................... 975,000 983,346
JFK Medical Center/Hartwyck, Refunding, MBIA Insured, 5.00%, 7/01/25 ........................... 7,855,000 7,094,636
Medical Center at Princeton Obligation Group, AMBAC Insured, 5.00%, 7/01/28 .................... 7,000,000 6,337,870
Meridian Health Systems Obligation Group, FSA Insured, 5.375%, 7/01/24 ......................... 6,500,000 6,333,405
Meridian Health Systems Obligation Group, FSA Insured, 5.25%, 7/01/29 .......................... 20,000,000 18,893,800
Monmouth Medical Center, Series C, FSA Insured, Pre-Refunded, 6.25%, 7/01/16 ................... 4,900,000 5,299,938
Monmouth Medical Center, Series C, FSA Insured, Pre-Refunded, 6.25%, 7/01/24 ................... 8,250,000 8,923,365
New Jersey Geriatric Center of Workmen's Circle Inc., Series A, FHA Insured, 8.00%, 2/01/28 .... 125,000 126,603
Pascack Valley Hospital Association, 5.125%, 7/01/28 ........................................... 6,000,000 4,355,220
Pascack Valley Hospital, Pre-Refunded, 6.90%, 7/01/21 .......................................... 3,565,000 3,706,816
Robert Wood Johnson University Hospital, 5.75%, 7/01/25 ........................................ 5,000,000 4,947,400
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 .................................... 2,000,000 1,811,160
St. Barnabas Health, Refunding, Series B, MBIA Insured, 5.00%, 7/01/24 ......................... 8,000,000 7,248,240
St. Joseph's Hospital and Medical Center, Refunding, Connie Lee Insured, 5.75%, 7/01/16 ........ 1,000,000 1,023,920
St. Joseph's Hospital and Medical Center, Refunding, Connie Lee Insured, 6.00%, 7/01/26 ........ 1,000,000 1,025,590
New Jersey State Building Authority Revenue, Refunding, 5.00%, 6/15/15 ................................ 5,000,000 4,872,200
New Jersey State Educational Facilities Authority Revenue,
Capital Improvement Funding Project, Series A, FSA Insured, 5.00%, 9/01/20 ..................... 8,000,000 7,564,880
FGIC Insured, 5.50%, 7/01/30 ................................................................... 6,615,000 6,556,920
New Jersey Institute of Technology, Refunding, Series A, MBIA Insured, 6.00%, 7/01/24 .......... 1,455,000 1,492,859
New Jersey Institute of Technology, Series A, MBIA Insured, 6.00%, 7/01/15 ..................... 4,000,000 4,168,760
Rider College, Series D, AMBAC Insured, 6.20%, 7/01/17 ......................................... 3,000,000 3,095,100
Rowan College, Series E, AMBAC Insured, 6.00%, 7/01/26 ......................................... 9,810,000 10,123,724
Seton Hall University Project, Series D, 7.00%, 7/01/21 ........................................ 2,665,000 2,774,238
Seton Hall University Project, Series D, Pre-Refunded, 7.00%, 7/01/21 .......................... 1,735,000 1,806,118
Stevens Institute of Technology, Series I, 5.00%, 7/01/18 ...................................... 1,100,000 1,004,201
Stevens Institute of Technology, Series I, 5.00%, 7/01/28 ...................................... 1,575,000 1,383,275
University of Medical Dentistry, Series C, AMBAC Insured, 5.20%, 12/01/19 ...................... 1,000,000 956,570
University of Medical Dentistry, Series C, AMBAC Insured, 5.125%, 12/01/29 ..................... 2,700,000 2,498,094
New Jersey State Facilities Educational Authority Revenue, Bloomfield College, Series A, 6.85%, 7/01/30 1,400,000 1,469,734
New Jersey State Highway Authority Garden State Parkway General Revenue,
6.25%, 1/01/14 ................................................................................. 2,195,000 2,271,693
6.00%, 1/01/16 ................................................................................. 2,615,000 2,641,438
Pre-Refunded, 6.25%, 1/01/14 ................................................................... 305,000 318,255
New Jersey State Highway Authority Garden State Parkway Senior Parkway Revenue, 6.20%, 1/01/10 ........ 5,000,000 5,536,450
New Jersey State Housing and Mortgage Finance Agency MFHR,
Refunding, Series A, AMBAC Insured, 6.00%, 11/01/14 ............................................ 5,000,000 5,207,900
Refunding, Series A, AMBAC Insured, 6.05%, 11/01/20 ............................................ 12,500,000 12,863,625
Series A1, FSA Insured, 6.35%, 11/01/31 ........................................................ 2,000,000 2,086,780
</TABLE>
98
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (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 Housing and Mortgage Finance Agency MFHR, (cont.)
Series B, FSA Insured, 6.25%, 11/01/26 ........................................................... $ 2,000,000 $ 2,087,160
Series E1, FSA Insured, 5.70%, 5/01/20 ........................................................... 6,000,000 6,099,480
Series E1, FSA Insured, 5.75%, 5/01/25 ........................................................... 4,000,000 4,057,040
New Jersey State Housing and Mortgage Finance Agency Revenue,
Home Buyer, Series J, MBIA Insured, 6.20%, 10/01/25 .............................................. 4,980,000 5,116,253
Home Buyer, Series N, MBIA Insured, 6.35%, 10/01/27 .............................................. 4,000,000 4,121,240
Home Buyer, Series U, MBIA Insured, 5.85%, 4/01/29 ............................................... 12,000,000 12,032,880
Section 8, Refunding, Series 1, 6.70%, 11/01/28 .................................................. 2,885,000 3,007,843
Section 8, Refunding, Series A, 6.95%, 11/01/13 .................................................. 12,400,000 12,945,972
SFMR, Home Buyer, Series Z, MBIA Insured, 5.70%, 10/01/17 ........................................ 6,325,000 6,445,744
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 8,464,720
6.25%, 7/01/20 ................................................................................... 5,000,000 5,260,150
New Jersey State Transportation Corp. COP, Federal Transportation Administration Grants, Series A,
AMBAC Insured, 6.125%, 9/15/15 ................................................................... 2,000,000 2,148,280
New Jersey State Turnpike Authority Turnpike Revenue, Series A, MBIA Insured,
5.60%, 1/01/22 ................................................................................... 7,500,000 7,575,225
5.50%, 1/01/25 ................................................................................... 16,300,000 16,322,168
Newark Board of Education, MBIA Insured, 5.875%, 12/15/14 ............................................... 3,250,000 3,394,138
North Brunswick Township Board of Education GO, Refunding, FGIC Insured, 5.00%, 2/01/15 ................. 2,000,000 1,957,720
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.85%, 3/15/28 ......... 1,955,000 1,940,592
Passaic Valley Sewer Commissioners GO, Sewer System, Refunding, Series E, AMBAC Insured,
5.75%, 12/01/22 .................................................................................. 8,925,000 9,083,062
Passaic Valley Sewer Commissioners Sewer System Revenue, Refunding, Series D, AMBAC Insured,
5.80%, 12/01/18 .................................................................................. 7,400,000 7,512,850
Port Authority of New York and New Jersey Revenue,
Consolidated 71st Series, 6.50%, 1/15/26 ......................................................... 2,500,000 2,538,350
Consolidated 72nd Series, 7.35%, 10/01/27 ........................................................ 7,000,000 7,393,750
Consolidated 74th Series, 6.75%, 8/01/26 ......................................................... 1,000,000 1,025,740
Consolidated 84th Series, 6.00%, 1/15/28 ......................................................... 1,125,000 1,141,661
Consolidated 94th Series, 6.00%, 12/01/16 ........................................................ 2,000,000 2,070,640
Consolidated 94th Series, 6.00%, 6/01/17 ......................................................... 5,000,000 5,174,650
Consolidated 109th Series, FSA Insured, 5.375%, 7/15/27 .......................................... 2,500,000 2,418,775
Delta Air Lines Special Project, Series 1, 6.95%, 6/01/08 ........................................ 5,000,000 5,230,150
Port Authority of New York and New Jersey Special Obligation Revenue,
4th Installment, Special Project, 6.75%, 10/01/11 ................................................ 2,500,000 2,641,300
John F. Kennedy International Air Terminal, MBIA Insured, 5.75%, 12/01/22 ........................ 8,000,000 8,090,560
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 ............................................... 3,000,000 3,287,460
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series B, 6.00%, 7/01/39 ......... 10,000,000 10,527,800
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ................................................................................... 120,000 120,452
7.75%, 7/01/08 ................................................................................... 1,350,000 1,355,090
7.50%, 7/01/09 ................................................................................... 100,000 100,377
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation, Refunding,
7.875%, 10/01/04 ................................................................................. 1,000,000 1,012,800
Puerto Rico Electric Power Authority Revenue,
Series T, 6.00%, 7/01/16 ......................................................................... 11,535,000 11,998,130
Series X, 6.00%, 7/01/15 ......................................................................... 2,000,000 2,100,060
Series X, Pre-Refunded, 6.125%, 7/01/21 .......................................................... 5,000,000 5,513,650
Puerto Rico HFC, SFMR, Portfolio No. 1, Series B, GNMA Secured, 7.65%, 10/15/22 ......................... 150,000 153,116
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ....................................................... 4,025,000 4,109,123
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 ........................... 125,000 146,861
Rutgers State University, Series A, 6.50%, 5/01/18 ...................................................... 4,250,000 4,421,020
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 5,295,350
South Brunswick Township Board of Education GO, Refunding, Series AA, FGIC Insured, 5.50%, 8/01/24 ...... 1,720,000 1,722,838
South Jersey Transportation Authority Transportation Systems Revenue, AMBAC Insured, 5.00%, 11/01/29 .... 12,000,000 10,986,480
Union County Utilities Authority Solid Waste Revenue, sub. lease, Ogden Martin, Series A, AMBAC
Insured, 5.35%, 6/01/23 .......................................................................... 2,850,000 2,720,012
University of Medicine and Dentistry COP, Series A, MBIA Insured, 5.00%, 9/01/22 ........................ 1,700,000 1,584,111
</TABLE>
99
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%,
10/01/15 ......................................................................... $ 2,500,000 $ 2,432,550
10/01/18 ......................................................................... 3,045,000 2,897,620
10/01/22 ......................................................................... 2,000,000 1,871,500
West Orange County Board of Education COP, MBIA Insured, 5.625%, 10/01/29 ............. 2,000,000 2,012,200
------------
TOTAL BONDS ........................................................................... 659,175,486
------------
ZERO COUPON BONDS .1%
Middlesex County COP, MBIA Insured, 6/15/24 ........................................... 1,000,000 262,840
------------
TOTAL LONG TERM INVESTMENTS (COST $645,539,959) ....................................... 659,438,326
------------
(a) SHORT TERM INVESTMENTS .6%
New Jersey EDA, PCR, Refunding, Exxon Project, Daily VRDN and Put,
3.45%, 4/01/22 ..................................................................... 100,000 100,000
New Jersey EDA Revenue, El Dorado Terminals, Refunding, Series B,
Daily VRDN and Put, 3.95%, 12/01/21 .................................................. 300,000 300,000
New Jersey Sports and Exposition Revenue, Series C, MBIA Insured,
Weekly VRDN and Put, 4.15%, 9/01/24 .................................................. 595,000 595,000
Port Authority of New York and New Jersey Special Obligation Revenue,
Versatile Structure, Obligation Series 2, Daily VRDN and Put, 4.05%, 5/01/19 .. 3,000,000 3,000,000
Versatile Structure, Obligation Series 6, Daily VRDN and Put, 4.15%, 12/01/17.. 200,000 200,000
TOTAL SHORT TERM INVESTMENTS (COST $4,195,000) ........................................ 4,195,000 ------------
TOTAL INVESTMENTS (COST $649,734,959) 98.9% ........................................... 663,633,326
OTHER ASSETS, LESS LIABILITIES 1.1% ................................................... 7,650,911
------------
NET ASSETS 100.0% ..................................................................... $671,284,237
============
</TABLE>
See glossary of terms on page 115
(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.
100
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN OREGON TAX-FREE INCOME FUND
SIX MONTHS ENDED
AUGUST 31, YEAR ENDED FEBRUARY 28,
2000 ---------------------------------------------------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 10.81 $ 11.83 $ 11.86 $ 11.55 $ 11.60 $ 11.22
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) ................. .29 .58 .59 .62 .63 .63
Net realized and unrealized gains (losses) .43 (1.02) (.01) .31 (.05) .38
-------- -------- -------- -------- -------- --------
Total from investment operations ................. .72 (.44) .58 .93 .58 1.01
-------- -------- -------- -------- -------- --------
Less distributions from net investment income .... (.29) (.58) (.61) (.62) (.63) (.63)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................... $ 11.24 $ 10.81 $ 11.83 $ 11.86 $ 11.55 $ 11.60
======== ======== ========= ======== ======== ========
Total return(b) .................................. 6.79% (3.76)% 5.12% 8.21% 5.13% 9.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $441,514 $432,675 $483,664 $427,022 $384,003 $375,415
Ratios to average net assets:
Expenses ................................. .67%(c) .66% .67% .67% .66% .66%
Net investment income(a) ................. 5.33%(c) 5.16% 5.00% 5.33% 5.52% 5.51%
Portfolio turnover rate .......................... 6.24% 24.58% 10.65% 12.18% 4.47% 6.52%
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 10.88 $ 11.90 $ 11.92 $ 11.61 $11.65 $ 11.23
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) ................. .26 .52 .53 .56 .56 .47
Net realized and unrealized gains (losses) .44 (1.02) -- .31 (.04) .41
-------- -------- -------- -------- -------- --------
Total from investment operations ................. .70 (.50) .53 .87 .52 .88
-------- -------- -------- -------- -------- --------
Less distributions from net investment income .... (.26) (.52) (.55) (.56) (.56) (.46)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................... $ 11.32 $ 10.88 $ 11.90 $ 11.92 $ 11.61 $ 11.65
======== ======== ======== ======== ======== =========
Total return(b) .................................. 6.54% (4.36)% 4.59% 7.66% 4.59% 7.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $35,168 $34,071 $32,962 $15,946 $7,100 $ 2,044
Ratios to average net assets:
Expenses ................................. 1.22%(c) 1.21% 1.23% 1.22% 1.23% 1.24%(c)
Net investment income .................... 4.78%(c) 4.62% 4.44% 4.74% 4.93% 4.87%(c)
Portfolio turnover rate .......................... 6.24% 24.58% 10.65% 12.18% 4.47% 6.52%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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.
101
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS 99.8%
Bay Area Health District Hospital Facility Authority, Health Facilities Revenue,
Evergreen Court Project, 7.25%, 10/01/14 $ 2,000,000 $2,043,000
Benton County Hospital Facilities Authority Revenue, Samaritan Health Services
Project, Refunding,
5.20%, 10/01/17 4,000,000 3,701,440
5.125%, 10/01/28 4,500,000 3,907,890
Clackamas County GO, School District No. 86, 5.25%, 6/15/20 3,000,000 2,920,590
Clackamas County Health Facilities Authority Hospital Revenue, Adventist Health,
Refunding, Series A, MBIA Insured, 6.35%, 3/01/09 4,945,000 5,151,750
Clackamas County Hospital Facilities Authority Revenue,
Gross Willamette Falls, Refunding, 5.75%, 4/01/15 2,250,000 2,112,413
Jennings Lodge Project, 7.50%, 10/20/31 2,990,000 3,050,637
Kaiser Permanente, Series A, 6.50%, 4/01/11 1,635,000 1,677,706
Kaiser Permanente, Series A, 5.375%, 4/01/14 2,500,000 2,437,650
Sisters of Providence Project, 8.125%, 10/01/07 110,000 110,309
Willamette Falls Hospital Project, 6.00%, 4/01/19 1,000,000 950,600
Willamette View Inc. Project, Refunding, 6.10%, 11/01/12 500,000 462,750
Willamette View Inc. Project, Refunding, 6.30%, 11/01/21 1,500,000 1,349,820
Clairmont Water District Revenue, 6.50%, 2/01/12 1,125,000 1,130,985
Deschutes County Hospital Facilities Authority Hospital Revenue, St. Charles
Medical Center, Refunding, 6.00%, 1/01/13 3,000,000 3,082,110
Douglas County Hospital Facilities Authority Revenue, Catholic Health Facilities,
Series B, MBIA Insured, 6.00%, 11/15/15 1,950,000 2,044,127
Eugene Electric Utility System Revenue, Pre-Refunded,
6.65%, 8/01/10 655,000 668,336
6.70%, 8/01/11 700,000 714,560
Eugene Public Safety Facilities, FGIC Insured, 5.70%, 6/01/16 500,000 512,215
Eugene Trojan Nuclear Project Revenue, Refunding, 5.90%, 9/01/09 770,000 771,101
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 750,000 798,600
6.70%, 10/01/23 1,900,000 2,017,268
Guam Power Authority Revenue,
Refunding, Series A, 5.125%, 10/01/29 2,000,000 1,832,260
Refunding, Series A, 5.25%, 10/01/34 10,000,000 9,228,100
Series A, Pre-Refunded, 6.30%, 10/01/12 825,000 874,442
Hermiston GO, AMBAC Insured, 6.00%, 8/01/15 1,000,000 1,031,790
Klamath Falls Intercommunity Hospital Revenue, Merle West Medical Center Project,
7.00%, 6/01/02 780,000 796,832
7.25%, 6/01/06 2,310,000 2,376,320
Lane County PCR, Weyerhaeuser Co. Project, Refunding, 6.50%, 7/01/09 11,575,000 12,108,955
Lebanon Wastewater Revenue, Refunding, 5.875%, 6/01/20 2,425,000 2,403,781
Linn County Community School District No. 9 GO, MBIA Insured, 5.375%, 6/15/30 5,000,000 4,908,500
Marion County Housing Authority Revenue, Elliott Residence Project, GNMA Secured,
7.50%, 10/20/25 1,225,000 1,345,797
Medford Hospital Facilities Authority Revenue,
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/18 8,000,000 7,608,480
Asante Health System, Series A, MBIA Insured, 5.00%, 8/15/24 5,300,000 4,949,458
Gross Rogue Valley Health Services, MBIA Insured, Pre-Refunded, 6.75%, 12/01/20 4,475,000 4,588,218
Metropolitan Service District Convention Center GO, Series A, 6.25%, 1/01/13 4,865,000 4,933,013
Multnomah County COP, Series A, 4.75%, 8/01/16 1,000,000 931,550
Multnomah County Educational Facilities Revenue, University of Portland Project,
6.00%, 4/01/25 2,000,000 1,977,100
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A,
6.85%, 3/15/28 3,400,000 3,374,942
Oak Lodge Water District GO, AMBAC Insured,
7.40%, 12/01/08 215,000 237,128
7.50%, 12/01/09 215,000 237,511
Ontario Catholic Health Revenue, Dominican Sisters Holy Rosary, 6.10%, 11/15/17 1,500,000 1,530,900
Oregon City Sewer Revenue, Pre-Refunded, 6.875%, 10/01/19 4,000,000 4,444,640
Oregon State Department of Administrative Services COP,
Refunding, Series A, AMBAC Insured, 5.00%, 5/01/24 29,000,000 27,237,960
Series A, AMBAC Insured, 6.00%, 5/01/26 2,000,000 2,096,080
Series A, AMBAC Insured, Pre-Refunded, 5.80%, 5/01/24 5,000,000 5,380,100
Oregon State Department of General Services COP,
Real Property Financing Program, Series A, AMBAC Insured, Pre-Refunded,
7.50%, 9/01/15 750,000 765,000
Refunding, Series D, MBIA Insured, 5.80%, 3/01/15 1,000,000 1,020,110
Series F, AMBAC Insured, Pre-Refunded, 7.50%, 9/01/15 950,000 969,000
Series G, AMBAC Insured, 6.25%, 9/01/15 750,000 775,605
</TABLE>
102
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Oregon State Department of Transportation Revenue, Regional Light Rail Federal
Westside Project, MBIA Insured,
6.10%, 6/01/07 $ 2,000,000 $2,135,560
6.20%, 6/01/08 2,500,000 2,671,600
6.25%, 6/01/09 1,750,000 1,873,148
Oregon State EDR, Georgia-Pacific Corp. Project,
Refunding, Series 183, 5.70%, 12/01/25 1,500,000 1,352,160
Series CLVII, 6.35%, 8/01/25 23,360,000 23,070,570
Oregon State Elderly Housing GO, Series A, 7.125%, 8/01/30 475,000 484,320
Oregon State GO,
Alternative Energy Project, Refunding, Series D, 5.00%, 1/01/28 4,265,000 3,868,568
Board of Higher Education, 6.50%, 10/01/17 750,000 761,618
Board of Higher Education, Baccalaureate, Series A, 5.00%, 8/01/27 6,000,000 5,436,720
Board of Higher Education, Series A, 5.65%, 8/01/27 4,440,000 4,458,204
Board of Higher Education, Series C, 5.65%, 8/01/27 1,460,000 1,463,957
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/15 910,000 950,695
Elderly and Disabled Housing Authority, Series A, 6.00%, 8/01/21 455,000 469,210
Elderly and Disabled Housing Authority, Series A, 5.375%, 8/01/28 1,950,000 1,846,280
Elderly and Disabled Housing Authority, Series B, 6.10%, 8/01/17 1,410,000 1,467,965
Elderly and Disabled Housing Authority, Series B, 6.25%, 8/01/23 2,015,000 2,077,888
Elderly and Disabled Housing Authority, Series B, 6.375%, 8/01/24 2,155,000 2,227,149
Elderly and Disabled Housing Authority, Series C, 6.50%, 8/01/22 6,000,000 6,232,500
State Board of Higher Education, Series A, 5.60%, 8/01/25 8,000,000 8,006,000
State Board of Higher Education, Series A, 5.50%, 8/01/29 2,000,000 1,965,780
Veteran's Welfare, Series 75, 5.85%, 10/01/15 735,000 758,108
Veteran's Welfare, Series 75, 5.875%, 10/01/18 420,000 429,101
Veteran's Welfare, Series 75, 6.00%, 4/01/27 2,305,000 2,346,006
Veteran's Welfare, Series 76A, 6.05%, 10/01/28 2,795,000 2,900,735
Veteran's Welfare, Series 77, 5.30%, 10/01/29 4,000,000 3,795,640
(b) Veteran's Welfare, Series 80A, 5.70%, 10/01/32 6,000,000 5,990,940
Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Reed College Project, Series A, 5.75%, 7/01/32 10,735,000 10,889,477
Lewis and Clark College Project, Series A, MBIA Insured, 6.125%, 10/01/24 10,500,000 10,867,080
Oregon State Housing and Community Services Department,
Finance Housing Revenue, Multi-Unit, Series A, 6.80%, 7/01/13. 6,710,000 6,914,856
Finance Housing Revenue, Multi-Unit, Series A, 6.15%, 7/01/21 910,000 943,588
Finance Housing Revenue, Multi-Unit, Series C, 6.85%, 7/01/22 180,000 185,126
MFHR, Series B, 6.00%, 7/01/31 5,000,000 5,054,050
Mortgage Revenue SFM, Series A, 6.35%, 7/01/14 2,720,000 2,858,394
Mortgage Revenue SFM, Series A, 6.40%, 7/01/18 1,080,000 1,125,565
Mortgage Revenue SFM, Series A, 6.45%, 7/01/26 2,420,000 2,497,682
Mortgage Revenue SFM, Series B, 6.875%, 7/01/28 10,655,000 11,072,889
Mortgage Revenue SFM, Series C, 6.20%, 7/01/15 2,060,000 2,130,246
Mortgage Revenue SFM, Series C, 6.40%, 7/01/26 925,000 952,130
Mortgage Revenue SFM, Series D, 6.80%, 7/01/27 1,750,000 1,798,580
Oregon State Solid Waste Disposal Facilities EDR, USG Corp. Project, Series 192,
6.40%, 12/01/29 3,500,000 3,510,675
Polk Marion and Benton Counties GO, School District No. 13J, FSA Insured, 5.80%,
6/15/20 1,985,000 2,041,473
Port Astoria GO, MBIA Insured, Pre-Refunded, 6.60%, 9/01/11 450,000 460,017
Port Astoria PCR, James River Project, Refunding, 6.55%, 2/01/15 945,000 963,324
Port of Portland International Airport Revenue, Portland International Airport,
Series 7A, MBIA Insured, Pre-Refunded, 6.75%, 7/01/09 1,500,000 1,544,010
Series 7B, MBIA Insured, Pre-Refunded, 7.10%, 7/01/21 3,000,000 3,493,548
Series 12C, FGIC Insured, 5.00%, 7/01/18 1,500,000 1,440,060
Series 12C, FGIC Insured, 5.00%, 7/01/28 2,500,000 2,289,575
Series A, AMBAC Insured, 5.50%, 7/01/24 22,000,000 22,114,180
Port of Portland International Airport Special Obligation Revenue, Delta Airlines
Inc. Project, 6.20%, 9/01/22 4,000,000 3,938,680
</TABLE>
103
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LONG TERM INVESTMENTS (CONT.)
Port St. Helens PCR,
Boise Cascade Corp. Project, Refunding, 5.65%, 12/01/27 $ 7,750,000 $6,868,283
Portland General Electric Co. Project, Series A, 5.25%, 8/01/14 3,600,000 3,435,732
Port Umpqua PCR, International Paper Co. Project, Refunding, Series B, 5.20%, 6/01/11. 1,200,000 1,156,752
Portland GO, Central City Streetcar Project, Series A,
4.75%, 4/01/21 3,600,000 3,208,572
5.00%, 4/01/24 2,000,000 1,831,100
Portland Hospital Facilities Authority Hospital Revenue, Legacy Health System, Refunding,
Series A, AMBAC Insured, 6.70%, 5/01/21 5,500,000 5,677,595
Series B, AMBAC Insured, 6.70%, 5/01/21 8,475,000 8,748,658
Portland Housing Authority MFR, Berry Ridge Project, 6.30%, 5/01/29 1,500,000 1,510,275
Portland Housing Authority Revenue, 7.10%, 7/01/15 1,000,000 1,030,020
Portland Hydroelectric Power Revenue, Bull Run Project, Series C, 7.00%, 10/01/16 635,000 636,213
Portland MFHR, Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 1,000,000 1,006,700
Portland Revenue, Limited Tax, Series A, 5.00%, 4/01/18 2,880,000 2,743,920
Portland Sewer System Revenue, Series A, Pre-Refunded, 6.25%, 6/01/15. 9,100,000 9,737,819
Portland Urban Renewal and Redevelopment, Downtown Waterfront, Refunding,
Series A, 6.40%, 6/01/08 5,555,000 5,722,317
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, Series A,
FSA Insured, Pre-Refunded, 9.00%, 7/01/09 75,000 87,008
Puerto Rico Commonwealth GO, Pre-Refunded, 6.45%, 7/01/17 1,000,000 1,095,820
Puerto Rico Commonwealth Highway and Transportation Authority Revenue, Series Y, 5.50%,
7/01/26 7,275,000 7,254,485
7/01/36 13,000,000 13,080,990
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series A, 7.75%, 7/01/08 280,000 281,056
Puerto Rico Electric Power Authority Revenue, Series X,
6.00%, 7/01/15 2,500,000 2,625,075
5.50%, 7/01/25 2,600,000 2,571,998
Puerto Rico HFC, SFMR, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/27 75,000 76,558
Puerto Rico HFC Revenue, Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded,
7.75%, 12/01/26 395,000 464,082
Puerto Rico PBA Revenue,
Government Facilities, Series B, 5.25%, 7/01/21 3,700,000 3,581,415
Public Education and Health Facilities, Refunding, Series M, 5.75%, 7/01/15 2,500,000 2,555,600
Salem Educational Facilities Revenue, Willamette University, Refunding, 6.10%, 4/01/14 1,000,000 1,036,270
Salem-Keizer GO, School District No. 24J, 5.00%, 6/01/19. 13,500,000 12,791,250
Taft-Nelscott-Delake Rural Fire Protection District, 6.00%, 6/01/16 1,110,000 1,138,516
Tri-County Metropolitan Transportation District Revenue, Limited Obligation,
Airport Light Rail, Series 1, 5.65%, 6/01/29 14,080,000 13,746,445
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding,
Series A, 5.50%,
10/01/15 1,635,000 1,590,888
10/01/18 2,400,000 2,283,840
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 2,500,000 2,421,400
7/01/21 1,400,000 1,335,403
Washington, Multnomah and Yamhill Counties School District No. 1J, FSA Insured,
5.60%, 4/01/20 1,000,000 1,014,000
Washington County Housing Authority MFHR, Bethany Meadows II Project, 5.85%, 9/01/27 1,435,000 1,441,944
Washington County School District No. 088 GO, J Sherwood, FSA Insured, 6.10%, 6/01/12 190,000 199,598
Washington County Unified Sewer Agency Revenue, senior lien, Series A,
AMBAC Insured, 6.20%, 10/01/10 470,000 495,285
AMBAC Insured, Pre-Refunded, 6.125%, 10/01/12 1,000,000 1,062,069
Pre-Refunded, 6.20%, 10/01/10 3,530,000 3,758,849
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 4,635,796
-----------
TOTAL LONG TERM INVESTMENTS (COST $472,427,784) 475,644,652
-----------
</TABLE>
104
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SHORT TERM INVESTMENTS .3%
Multnomah County Higher Educational Revenue, Concordia University Portland Project,
Daily VRDN and Put, 4.35%, 12/01/29 $ 500,000 $500,000
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured,
Weekly VRDN and Put, 3.75%, 12/01/15 500,000 500,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series A, AMBAC Insured, Weekly VRDN and Put, 3.50%, 7/01/28 300,000 300,000
------------
TOTAL SHORT TERM INVESTMENTS (COST $1,300,000) 1,300,000
------------
TOTAL INVESTMENTS (COST $473,727,784) 100.1% 476,944,652
OTHER ASSETS, LESS LIABILITIES (.1)% (262,626)
------------
NET ASSETS 100.0% $476,682,026
============
</TABLE>
See glossary of terms on page 115.
(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.
105
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ---------------------------------------------------------
CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996
------- ----------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................ $9.55 $10.52 $10.56 $10.39 $10.44 $ 10.16
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) .......................... .27 .53 .55 .58 .60 .62
Net realized and unrealized gains (losses) ........ .41 (.97) (.02) 32 (.04) .29
-------- -------- -------- -------- -------- --------
Total from investment operations .................... .68 (.44) .53 .90 .56 .91
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ............................. (.27) (.53) (.55) (.58) (.61) (.63)
In excess of net investment income ................ --(d) --(f) (.01) (.01) -- --
Net realized gains ................................ -- --(g) (.01) (.14) -- --
-------- -------- -------- -------- -------- --------
Total distributions ................................. (.27) (.53) (.57) (.73) (.61) (.63)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ...................... $9.96 $ 9.55 $10.52 $10.56 $10.39 $ 10.44
======== ======== ======== ======== ======== ========
Total return(b) ..................................... 7.18% (4.24)% 5.11% 8.90% 5.53% 9.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................... $644,565 $639,004 $758,942 $713,141 $658,339 $639,847
Ratios to average net assets:
Expenses .......................................... .66%(c) .66% .65% .65% .64% .64%
Net investment income ............................. 5.48%(c) 5.32% 5.17% 5.49% 5.84% 5.96%
Portfolio turnover rate ............................. 6.08% 24.21% 11.11% 12.74% 22.24% 9.71%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $9.55 $9.47
----- -----
Income from investment operations:
Net investment income(a) .................... .24 .04
Net realized and unrealized gains ........... .42 .08
----- -----
Total from investment operations .............. .66 .12
----- -----
Less distributions from net investment income . (.24)(d) (.04)
----- -----
Net asset value, end of period ................ $9.97 $9.55
===== =====
Total return(b) ............................... 6.99% 1.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $1,434 $186
Ratios to average net assets:
Expenses .................................... 1.21%(c) 1.21%(c)
Net investment income ....................... 4.90%(c) 5.06%(c)
Portfolio turnover rate ....................... 6.08% 24.21%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Annualize
(d) Includes distributions in excess of net investment income in the amount of
$.0002.
(e) For the period February 1, 2000 (effective date) to February 29, 2000 for
Class B.
(f) Includes distributions in excess of net investment income in the amount of
$.0001.
(g) The fund made a capital gain distribution of $.0002.
106
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights(continued)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND(CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28,
AUGUST 31, 2000 ---------------------------------------------------------
CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(h)
------- ----------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $9.60 $10.57 $10.61 $10.43 $10.47 $10.17
------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income(a) ........................... .24 .48 .49 .52 .55 .47
Net realized and unrealized gains (losses) ......... .41 (.97) (.03) .33 (.05) .30
------- ------- ------- ------- ------- ------
Total from investment operations ..................... .65 (.49) .46 .85 .50 .77
------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income .............................. (.24)(d) (.48)(e) (.49)(g) (.53) (.54) (.47)
Net realized gains ................................. -- --(f) (.01) (.14) -- --
------- ------- ------- ------- ------- ------
Total distributions .................................. (.24) (.48) (.50) (.67) (.54) (.47)
------- ------- ------- ------- ------- ------
Net asset value, end of period ....................... $10.01 $9.60 $10.57 $10.61 $10.43 $10.47
======= ======= ======= ======= ======= ======
Total return(b) ...................................... 6.85% (4.76)% 4.50% 8.35% 4.98% 7.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $41,829 $40,973 $41,917 $25,899 $11,935 $3,110
Ratios to average net assets:
Expenses ........................................... 1.21%(c) 1.21% 1.21% 1.21% 1.21% 1.22%(c)
Net investment income .............................. 4.92%(c) 4.77% 4.61% 4.89% 5.22% 5.36%(c)
Portfolio turnover rate .............................. 6.08% 24.21% 11.11% 12.74% 22.24% 9.71%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.0002.
(e) Includes distributions in excess of net investment income in the amount of
$.0001.
(f) The fund made a capital gain distribution of $.0002.
(g) Includes distributions in excess of net investment income in the amount of
$.004.
(h) For the period May 1, 1995 (effective date) to February 29, 1996.
See notes to financial statements.
107
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
<S> <C> <C>
LONG TERM INVESTMENTS 98.7%
BONDS 98.0%
Allegheny County Airport Authority Airport Revenue, Pittsburgh International Airport,
Refunding, 5.75%, 1/01/18 .............................................................. $1,000,000 $1,016,250
Allegheny County Airport Revenue, Pittsburgh International Airport,
Refunding, Series B, MBIA Insured, 5.00%, 1/01/19 ...................................... 6,000,000 5,695,800
Allegheny County COP, AMBAC Insured, 5.00%, 12/01/28 ..................................... 4,000,000 3,619,280
Allegheny County Higher Education Building Authority, Duquesne University Project,
AMBAC Insured, 5.00%, 3/01/21 .......................................................... 1,000,000 934,340
Allegheny County Hospital Development Authority Revenue,
Allegheny General Hospital Project, Series A, MBIA Insured,
6.25%, 9/01/20 ..................................................................... 10,000,000 10,896,400
Allegheny Hospital, South Hills Health System, Series A, MBIA Insured,
5.875%, 5/01/26 .................................................................... 1,700,000 1,721,250
Health Center, Canterbury Place, AMBAC Insured, 5.375%, 12/01/21 ..................... 4,500,000 4,369,275
Health Center, University of Pittsburgh Medical Center, Series B, MBIA Insured,
5.00%, 7/01/16 ..................................................................... 4,000,000 3,782,120
Health System, Series A, 6.50%, 11/15/30 ............................................. 10,000,000 10,649,800
University of Pittsburgh Health Center, Refunding, Series A, MBIA Insured,
5.625%, 4/01/27 .................................................................... 10,450,000 10,258,765
Allegheny County IDAR,
Environmental Improvement, USX Corp., Refunding, 6.10%, 1/15/18 ...................... 2,000,000 1,970,380
Environmental Improvement, USX Corp., Refunding, 5.50%, 12/01/29 ..................... 10,000,000 8,740,000
Environmental Improvement, USX Corp., Refunding, 5.60%, 9/01/30 ...................... 7,530,000 6,680,089
Kaufmann Medical Project, Refunding, Series A, MBIA Insured, 6.80%, 3/01/15 .......... 1,000,000 1,050,380
Allegheny County Port Authority Special Revenue, Transportation Project,
MBIA Insured, 6.125%, 3/01/29 ........................................................ 15,000,000 15,663,000
Allegheny County RDA Tax Increment Revenue, Robinson Mall Project,
Series A, 7.00%, 11/01/17 ............................................................ 8,500,000 8,578,795
Series B, 6.875%, 11/01/17 ........................................................... 2,600,000 2,623,296
Allegheny County RDAR, Home Improvement Loan, Refunding, Series A, 5.90%, 2/01/11 ........ 1,555,000 1,589,459
Allegheny County Residential Finance Authority Mortgage Revenue,
Ladies Grand Army Republic Health Facilities Project, Series G, FHA Insured,
6.35%, 10/01/36 .................................................................... 1,930,000 1,969,160
Lexington Home, Series E, 7.125%, 2/01/27 ............................................ 3,620,000 3,673,395
MFMR, Series D, FHA Insured, 7.50%, 6/01/33 .......................................... 1,400,000 1,431,738
SF, Series FF-2, GNMA Secured, 6.00%, 11/01/31 ....................................... 5,110,000 5,163,706
SFM, Series DD-1, GNMA Secured, 5.35%, 11/01/19 ...................................... 720,000 702,259
SFM, Series DD-2, GNMA Secured, 5.40%, 11/01/29 ...................................... 1,990,000 1,870,540
SFMR, Series M, GNMA Secured, 7.90%, 6/01/11 ......................................... 725,000 741,095
SFMR, Series T, GNMA Secured, 6.95%, 5/01/17 ......................................... 810,000 842,173
Beaver County Hospital Authority Revenue, Beaver County Medical Center Inc.,
AMBAC Insured, Pre-Refunded, 6.625%, 7/01/10 ......................................... 5,000,000 5,288,100
Beaver County IDA, PCR, Beaver Valley Project, Pennsylvania Power and Light,
Refunding, Series A, 7.15%, 9/01/21 ................................................... 4,400,000 4,543,132
Bensalem Township, Refunding, FGIC Insured, 5.75%, 12/01/16 .............................. 3,000,000 3,135,060
Berks County Municipal Authority Revenue, FGIC Insured, Pre-Refunded, 7.00%, 5/15/18 ..... 4,000,000 4,344,800
Bradford County IDA, Solid Waste Disposal Revenue, International Paper Co. Projects,
Series A, 6.60%, 3/01/19 ............................................................... 2,500,000 2,544,725
Butler Area School District, Refunding, Series B, FGIC Insured, 5.00%, 10/01/26 .......... 5,000,000 4,597,450
Butler County IDA, PCR, Witco Corp. Project, Refunding, 5.85%, 12/01/23 .................. 2,000,000 1,897,720
Cambria County IDA, PCR, Pennsylvania Electric Co. Project, Refunding,
Series A, MBIA Insured, 5.80%, 11/01/20 ................................................ 5,000,000 5,081,400
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%, 5/01/10 ............. 4,000,000 4,099,680
Chartiers Valley Industrial and Commercial Development Authority First Mortgage Revenue,
Asbury Place Project, Refunding, 6.50%, 2/01/36 ........................................ 4,250,000 4,418,938
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding,
5.40%, 7/01/07 ....................................................................... 1,000,000 925,530
5.55%, 7/01/09 ....................................................................... 2,365,000 2,150,589
5.60%, 7/01/10 ....................................................................... 600,000 536,286
5.75%, 7/01/12 ....................................................................... 1,795,000 1,574,395
5.75%, 7/01/17 ....................................................................... 700,000 582,757
5.625%, 7/01/21 ...................................................................... 1,500,000 1,189,875
Cranberry Township Municipal Authority Water and Sewer Revenue, MBIA Insured,
5.125%, 12/01/26 ....................................................................... 1,450,000 1,357,650
Dauphin County General Authority, Sub Series 0003, AMBAC Insured, 4.75%, 6/01/26 ......... 1,000,000 1,010,090
Dauphin County General Authority Health System Revenue, Pinnacle Health System
Project, Refunding, MBIA Insured, 5.50%, 5/15/17 ....................................... 2,000,000 2,005,300
Dauphin County General Authority Hospital Revenue, Hapsco-Western Hospital
Project, Refunding,
Series A, MBIA Insured, 6.50%, 7/01/12 ............................................... 4,500,000 4,735,755
Series B, MBIA Insured, 6.25%, 7/01/16 ............................................... 5,000,000 5,187,750
Deer Lakes School District, Series A, FSA Insured, 5.00%, 1/15/23 ........................ 1,000,000 929,970
</TABLE>
108
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Delaware County Authority College Revenue,
Cabrini College, Asset Guaranty, 5.875%, 7/01/29 .................................................. $ 6,385,000 $ 6,439,017
Eastern College, Series C, 5.625%, 10/01/28 ....................................................... 2,210,000 1,953,088
Haverford College, 5.75%, 11/15/29 ................................................................ 3,500,000 3,542,525
Haverford College, 6.00%, 11/15/30 ................................................................ 1,750,000 1,823,658
Delaware County Authority Health Facility Revenue, Mercy Health Corp. Project,
ETM, 6.00%, 12/15/26 ................................................................................ 10,800,000 11,263,428
Delaware County Authority Healthcare Revenue, Mercy Health Corp. Southeastern,
Series B, Pre-Refunded, 6.00%, 11/15/07 ............................................................. 9,000,000 9,377,820
Delaware County IDAR,
Philadelphia Electric, Refunding, Series 1991, 7.375%, 4/01/21 .................................... 5,000,000 5,185,850
Philadelphia Suburban Water Co. Project, FGIC Insured, 6.00%, 6/01/29 ............................. 2,000,000 2,060,720
Delaware County University Authority Revenue, Villanova University, Series A,
MBIA Insured, 5.00%, 12/01/28 ....................................................................... 3,000,000 2,726,190
Delaware Valley Regional Finance Authority Local Government Revenue, Series B, AMBAC Insured,
5.60%, 7/01/17 ...................................................................................... 5,000,000 5,148,300
Erie County Hospital Authority Revenue,
Nursing Home, Sarah A. Reed Retirement Center, Refunding, 5.625%, 7/01/14 .......................... 3,660,000 3,148,698
St. Vincent Health Center Project, Series A, MBIA Insured, 6.375%, 7/01/22 ......................... 7,000,000 7,258,020
Erie School District GO, AMBAC Insured, 5.80%, 9/01/29 ............................................... 3,000,000 3,059,190
Erie-Western Pennsylvania Port Authority General Revenue, 6.875%, 6/15/16 ............................ 920,000 953,148
Hazleton Area School District, Series B, FGIC Insured, 5.00%, 3/01/23 ................................ 4,455,000 4,142,393
Hazleton Health Services Authority Hospital Revenue,
Hazleton General Hospital, 5.50%, 7/01/27 .......................................................... 2,475,000 1,974,555
Jeannette County Municipal Authority Sewer Revenue, Pre-Refunded, 7.00%, 7/01/17 ..................... 1,250,000 1,304,788
Jeannette Health Service Authority Hospital Revenue, Jeannette District Memorial Hospital,
Refunding, Series A, 6.00%, 11/01/18 ............................................................... 785,000 724,249
Lancaster County Hospital Authority Revenue, Health Center, Masonic Homes Project,
Refunding, AMBAC Insured, 5.00%, 11/15/20 .......................................................... 1,600,000 1,490,128
Lawrence County IDA, PCR, Pennsylvania Power Co., New Castle Project, Refunding,
7.15%, 3/01/17 ...................................................................................... 5,595,000 5,777,005
Lebanon County Good Samaritan Hospital Authority Revenue, Good Samaritan Hospital Project,
Refunding, 6.00%, 11/15/18 ......................................................................... 2,500,000 2,304,525
Lehigh County General Purpose Authority Revenue,
Good Shepard Rehabilitation Hospital, Refunding, AMBAC Insured, 5.25%, 11/15/27 ................... 5,000,000 4,690,450
Lehigh Valley Hospital, Health Network, Series A, MBIA Insured, 5.00%, 7/01/28 .................... 4,000,000 3,606,160
Lehigh Valley Hospital, Refunding, Series A, MBIA Insured, 5.875%, 7/01/15 ........................ 1,000,000 1,031,890
Muhlenburg Hospital Center, Series A, Pre-Refunded, 6.60%, 7/15/22 ................................ 5,800,000 6,228,736
Lehigh County IDA, PCR, Pennsylvania Power and Light Co. Project, Refunding,
Series A, MBIA Insured, 6.40%, 11/01/21 ........................................................... 5,000,000 5,220,250
Series A, MBIA Insured, 6.15%, 8/01/29 ............................................................ 5,550,000 5,744,861
Series B, MBIA Insured, 6.40%, 9/01/29 ............................................................ 10,000,000 10,589,900
Luzerne County IDA, Exempt Facility Revenue, Gas and Water Co. Project, Refunding,
Series A, AMBAC Insured,
7.00%, 12/01/17 ................................................................................... 5,000,000 5,508,550
6.05%, 1/01/19 .................................................................................... 4,750,000 4,770,900
Mercer County IDA Water Facilities Revenue, MBIA Insured, 6.00%, 7/01/30 ............................. 5,000,000 5,045,100
Montgomery County Higher Education and Health Authority Revenue,
Faulkeways At Gwynedd Project, 6.75%, 11/15/24 .................................................... 400,000 402,580
Faulkeways At Gwynedd Project, 6.75%, 11/15/30 .................................................... 1,000,000 1,006,450
Pottstown Memorial Medical Center Project, Pre-Refunded, 7.35%, 11/15/05 .......................... 1,315,000 1,385,984
St. Joseph's University, Refunding, Connie Lee Insured, 6.50%, 12/15/22 ........................... 1,750,000 1,832,653
Montgomery County IDA, Retirement Community Revenue,
Act Retirement-Life Communities, 5.25%, 11/15/28 .................................................. 5,000,000 4,211,350
Adult Community Total Services, Refunding, Series A, 5.875%, 11/15/22 ............................. 4,850,000 4,544,499
Adult Community Total Services, Series B, 5.75%, 11/15/17 ......................................... 3,000,000 2,810,010
Montgomery County IDAR,
PCR, Philadelphia Electric Co., Refunding, Series A, 7.60%, 4/01/21 ............................... 2,530,000 2,625,305
PCR, Philadelphia Electric Co., Series B, MBIA Insured, 6.70%, 12/01/21 ........................... 5,000,000 5,225,000
Resource Recovery, 7.50%, 1/01/12 ................................................................. 10,000,000 10,238,800
Mount Pleasant Business District Authority Hospital Revenue, Frick Hospital, Refunding,
5.70%, 12/01/13 ................................................................................... 1,205,000 1,079,776
5.75%, 12/01/17 ................................................................................... 500,000 434,160
5.75%, 12/01/27 ................................................................................... 1,600,000 1,328,544
Muhlenberg School District GO, FGIC Insured, 6.00%, 9/01/23 .......................................... 4,000,000 4,169,960
Neshaminy School District GO, FGIC Insured, Pre-Refunded, 7.00%, 2/15/14 ............................. 1,000,000 1,091,600
New Wilmington Municipal Authority College Revenue, Westminster College, 5.35%, 3/01/28 .............. 2,250,000 1,975,905
North Hampton County IDAR, PCR, Metropolitan Edison Co., Refunding,
Series A, MBIA Insured, 6.10%, 7/15/21 ............................................................... 6,100,000 6,299,226
</TABLE>
109
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Northeastern Pennsylvania Hospital and Educational Authority Revenue,
Kings College Project, Refunding, Series B, 6.00%, 7/15/11 .................................... $ 1,000,000 $ 1,015,450
Kings College Project, Refunding, Series B, 6.00%, 7/15/18 .................................... 1,000,000 992,340
Wilkes University, Refunding, 6.125%, 10/01/11 ................................................ 5,000,000 5,000,900
Norwin School District GO, FGIC Insured, 6.00%, 4/01/30 .......................................... 5,000,000 5,165,050
Pennsylvania Convention Center Authority Revenue, Refunding, Series A, 6.60%, 9/01/09 ............ 5,000,000 5,159,100
Pennsylvania EDA,
Financing Authority Revenue, MacMillan, LP Project, Pre-Refunded, 7.60%, 12/01/20 ............. 3,000,000 3,443,370
Financing Resources Recovery Revenue, Colver Project, Series D, 7.125%, 12/01/15 .............. 5,000,000 5,168,750
Solid Waste Disposal Revenue, USG Corp. Project, 6.00%, 6/01/31 ............................... 10,650,000 9,984,375
Pennsylvania HFA,
Rental Housing, Refunding, FNMA Insured, 5.75%, 7/01/14 ....................................... 10,000,000 10,175,600
SFM, Series 30, 7.30%, 10/01/17 ............................................................... 275,000 282,257
SFM, Series 34-A, 6.85%, 4/01/16 .............................................................. 3,000,000 3,095,880
SFM, Series 34-B, 7.00%, 4/01/24 .............................................................. 6,000,000 6,206,760
SFM, Series 38, 6.125%, 10/01/24 .............................................................. 3,900,000 3,983,538
SFM, Series 67-A, 5.85%, 10/01/18 ............................................................. 5,000,000 5,046,650
SFM, Series 1991, 7.15%, 4/01/15 .............................................................. 4,370,000 4,490,656
SFMR, Refunding, Series 54-A, 6.15%, 10/01/22 ................................................. 1,500,000 1,530,465
Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue,
Philadelphia Funding Program, FGIC Insured, Pre-Refunded, 7.00%, 6/15/14 ...................... 6,000,000 6,645,660
Pennsylvania State Financial Authority Revenue, Municipal Capital
Improvements Program, Refunding, 6.60%, 11/01/09 ............................................... 12,565,000 13,381,474
Pennsylvania State Higher Educational Facilities Authority, College and University Revenues,
Marywood University Project, 5.65%, 6/01/25 ..................................................... 2,500,000 2,527,750
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 17,190,904
University of Pennsylvania Health Services, Refunding, Series A, 5.75%, 1/01/22 ............... 10,000,000 9,161,700
Pennsylvania State Higher Educational Facilities Authority Revenue,
Allegheny College Project, Refunding, Series B, 6.125%, 11/01/13 .............................. 1,000,000 1,018,660
Drexel University, Refunding, 6.375%, 5/01/17 ................................................. 5,220,000 5,402,648
Drexel University, Refunding, MBIA Insured, 5.75%, 5/01/22 .................................... 4,000,000 4,065,040
Geneva College, 5.45%, 4/01/18 ................................................................ 2,360,000 2,180,026
Philadelphia College of Textiles and Science, 6.75%, 4/01/20 .................................. 3,040,000 3,136,277
State System of Higher Education, Series N, MBIA Insured, 5.80%, 6/15/24 ...................... 4,000,000 4,050,400
State System of Higher Education, Series R, FSA Insured, 5.00%, 6/15/24 ....................... 3,140,000 2,909,336
Temple University, 7.40%, 10/01/10 ............................................................ 30,000 30,069
Thomas Jefferson University, AMBAC Insured, 5.00%, 7/01/19 .................................... 3,000,000 2,845,500
Pennsylvania State IDAR, Economic Revenue, AMBAC Insured, 6.00%, 1/01/12 ......................... 4,250,000 4,462,330
Philadelphia Airport Revenue, Philadelphia Airport System, Series A, AMBAC Insured, 6.10%, 6/15/25 5,000,000 5,141,650
Philadelphia Gas Works Revenue,
2nd Series, FSA Insured, 5.00%, 7/01/29 ....................................................... 10,000,000 9,119,300
12th Series B, MBIA Insured, ETM, 7.00%, 5/15/20 .............................................. 1,000,000 1,175,690
14th Series A, Pre-Refunded, 6.375%, 7/01/26 .................................................. 3,360,000 3,589,622
Refunding, 14th Series, 6.375%, 7/01/26 ....................................................... 6,740,000 6,812,859
Philadelphia GO, FSA Insured, 5.00%, 3/15/28 ..................................................... 10,000,000 9,162,700
Philadelphia Hospitals and Higher Educational Facilities Authority Revenue,
Albert Einstein Medical Center, Pre-Refunded, 7.30%, 10/01/08 ................................. 5,225,000 5,485,623
Children's Hospital, Refunding, Series A, 5.00%, 2/15/21 ...................................... 2,465,000 2,190,054
Children's Seashore House, Series A, 7.00%, 8/15/17 ........................................... 1,000,000 1,039,030
Children's Seashore House, Series B, 7.00%, 8/15/22 ........................................... 2,600,000 2,697,084
Frankford Hospital, Series A, ETM, 6.00%, 6/01/14 ............................................. 2,500,000 2,631,650
Temple University Hospital, 5.875%, 11/15/23 .................................................. 5,000,000 4,264,850
Philadelphia Municipal Authority Revenue, Lease, Refunding, Series D, 6.30%, 7/15/17 ............. 2,000,000 2,000,000
Philadelphia Parking Authority Parking Revenue, Airport, FSA Insured, 5.25%, 9/01/29 ............. 14,000,000 13,263,040
Philadelphia RDA, Home Improvement Loan Revenue, Series B, FHA Insured, 6.10%, 6/01/17 ........... 600,000 617,946
Philadelphia School District, Series C, MBIA Insured, 5.75%, 3/01/29 ............................. 8,000,000 8,128,480
Philadelphia School District GO, Series B, AMBAC Insured, 5.375%, 4/01/19 ........................ 5,000,000 4,962,100
Philadelphia Water and Sewer Revenue, Series 10, ETM, 7.35%, 9/01/04 ............................. 6,805,000 7,307,890
</TABLE>
110
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE
------------------------------------------ ------ -----
LONG TERM INVESTMENTS (CONT.)
BONDS (CONT.)
<S> <C> <C>
Philadelphia Water and Wastewater Revenue, Refunding, 5.75%, 6/15/13 ............................... $ 6,015,000 $ 6,039,301
Pittsburgh Public Parking Authority Parking Revenue, AMBAC Insured, 6.00%, 12/01/24 ................ 2,000,000 2,075,940
Pittsburgh Urban RDA,
6.10%, 5/01/19 ................................................................................... 1,000,000 1,028,850
Mortgage Revenue, Series A, 7.15%, 10/01/27 ...................................................... 840,000 880,631
Mortgage Revenue, Series C, GNMA Secured, 5.70%, 4/01/30 ......................................... 1,525,000 1,504,550
Mortgage Revenue, Series D, 6.25%, 10/01/17 ...................................................... 1,695,000 1,768,495
Pittsburgh Water and Sewer System Authority Revenue, Refunding, FGIC Insured, ETM, 7.25%, 9/01/14 .. 1,250,000 1,482,088
Schuylkill County IDA, Resource Recovery Revenue, Schuylkill Energy Resources Inc., 6.50%, 1/01/10 . 15,545,000 15,598,475
Schuylkill County RDA, Lease Revenue, Series A, FGIC Insured, 7.125%, 6/01/13 ...................... 1,500,000 1,559,100
South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital Project, Series
A, MBIA Insured, 5.75%, 7/01/26 .................................................................... 10,000,000 10,049,000
Southeastern Pennsylvania Transportation Authority Special Revenue, FGIC Insured, 5.375%, 3/01/22 .. 5,000,000 4,946,600
State Public School Building Authority School Revenue, Northwestern School
District Project, Series E, FGIC Insured, 5.75%, 1/15/19 ........................................... 3,000,000 3,067,620
University of Pittsburgh Revenue, Higher Education, Refunding, Series B, MBIA Insured, 5.00%,
6/01/21 ............................................................................................ 10,000,000 9,338,300
Upper St. Clair Township School District GO, Refunding, 5.20%, 7/15/27 ............................. 5,000,000 4,632,150
Washington County Authority Revenue, Capital Projects and Equipment Program, Refunding, AMBAC
Insured, 6.15%, 12/01/29 ........................................................................... 5,000,000 5,477,200
Wilkes Barre Area School District GO, FGIC Insured, Pre-Refunded, 6.375%, 4/01/15 .................. 2,000,000 2,142,560
------------
TOTAL BONDS ........................................................................................ 674,054,934
------------
ZERO COUPON BONDS .7%
Pennsylvania HFA,
SFM, Series 63A, 4/01/30 ......................................................................... 11,000,000 1,792,890
SFMR, Series 64, 4/01/30 ......................................................................... 6,000,000 3,281,460
------------
TOTAL ZERO COUPON BONDS ............................................................................ 5,074,350
------------
TOTAL INVESTMENTS (COST $670,916,298) 98.7% ........................................................ 679,129,284
OTHER ASSETS, LESS LIABILITIES 1.3% ................................................................ 8,698,965
------------
NET ASSETS 100.0% .................................................................................. $687,828,249
============
</TABLE>
See glossary of terms on page 115.
See notes to financial statements.
111
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Highlights
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 2000 YEAR ENDED FEBRUARY 28,
-----------------------
CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(f)
------- ----------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.95 $11.88 $11.86 $11.51 $11.59 $11.31
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income (a)..................... .30 .59 .60 .62 .65 .66
Net realized and unrealized gains (losses) ... .43 (.92) .06 .36 .02 .30
-------- -------- -------- -------- -------- --------
Total from investment operations .............. .73 (.33) .66 .98 .67 .96
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ........................ (.30) (.58) (.60)(d) (.62) (.65)(e) (.67)(g)
Net realized gains ........................... -- (.02) (.04) (.01) (.10) (.01)
-------- -------- -------- -------- -------- --------
Total distributions ........................... (.30) (.60) (.64) (.63) (.75) (.68)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $11.38 $10.95 $11.88 $11.86 $11.51 $11.59
======== ======== ======== ======== ======== ========
Total return (b)............................... 6.71% (2.91)% 5.68% 8.78% 6.03% 8.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $200,879 $195,157 $218,753 $210,325 $192,525 $190,577
Ratios to average net assets:
Expenses ..................................... .74%(c) .74% .74% .75% .73% .74%
Net investment income ........................ 5.31%(c) 5.14% 4.98% 5.35% 5.62% 5.71%
Portfolio turnover rate ....................... 21.86% 13.41% 20.19% 7.94% 21.09% 27.99%
CLASS C
-------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $10.97 $11.89 $11.87 $11.53 $11.62 $11.32
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income(a) ..................... .27 .53 .53 .56 .58 .50
Net realized and unrealized gains (losses) ... .43 (.92) .06 .34 .02 .30
-------- -------- -------- -------- -------- --------
Total from investment operations .............. .70 (.39) .59 .90 .60 .80
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ........................ (.27) (.51) (.53)(d) (.55) (.59) (.49)
Net realized gains ........................... -- (.02) (.04) (.01) (.10) (.01)
-------- -------- -------- -------- -------- --------
Total distributions ........................... (.27) (.53) (.57) (.56) (.69) (.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ................ $11.40 $10.97 $11.89 $11.87 $11.53 $11.62
======== ======== ======== ======== ======== ========
Total return(b) ............................... 6.41% (3.37)% 5.09% 8.07% 5.33% 7.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $8,246 $7,270 $7,050 $3,615 $1,679 $533
Ratios to average net assets:
Expenses ..................................... 1.29%(c) 1.30% 1.30% 1.31% 1.30% 1.32%(c)
Net investment income ........................ 4.76%(c) 4.60% 4.43% 4.78% 5.04% 5.16%(c)
Portfolio turnover rate ....................... 21.86% 13.41% 20.19% 7.94% 21.09% 27.99%
</TABLE>
(a) Based on average shares outstanding effective year ended February 29, 2000.
(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) Includes distributions in excess of net investment income in the amount of
$.006 and $.004 for Class A and Class C, respectively.
(e) Includes distributions in excess of net investment income in the amount of
$.006.
(f) For the period May 1, 1995 (effective date) to February 29, 1996 for Class
C.
(g) Includes distributions in excess of net investment income in the amount of
$.001.
112 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------- ------ -----
LONG TERM INVESTMENTS 98.7%
<S> <C> <C>
Guam Airport Authority Revenue, Series B,
6.60%, 10/01/10 .................................................................................... $1,675,000 $1,783,540
6.70%, 10/01/23 .................................................................................... 5,800,000 6,157,976
Guam Government GO, Series A,
5.90%, 9/01/05 ..................................................................................... 4,575,000 4,613,064
6.00%, 9/01/06 ..................................................................................... 1,085,000 1,093,821
Guam Government Limited Obligation Highway Revenue, Refunding, Series A, FSA Insured, 6.30%,
5/01/12 ............................................................................................ 5,590,000 5,850,159
Guam Power Authority Revenue, Series A, Pre-Refunded,
6.30%, 10/01/22 .................................................................................... 6,190,000 6,573,718
6.75%, 10/01/24 .................................................................................... 2,680,000 2,985,842
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A, 6.85%, 3/15/28 ...... 6,825,000 6,774,700
Puerto Rico Commonwealth GO,
Pre-Refunded, 6.40%, 7/01/11 ....................................................................... 2,000,000 2,188,140
Public Improvement, MBIA Insured, 5.75%, 7/01/26 ................................................... 10,000,000 10,317,000
Puerto Rico Commonwealth Highway and Transportation Authority Revenue,
Series B, 6.00%, 7/01/39 ........................................................................... 10,000,000 10,527,800
Series Y, 5.50%, 7/01/36 ........................................................................... 9,575,000 9,634,652
Series Y, Pre-Refunded, 6.00%, 7/01/22 ............................................................. 8,000,000 8,795,440
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series A,
7.90%, 7/01/07 ..................................................................................... 580,000 582,187
7.75%, 7/01/08 ..................................................................................... 300,000 301,131
7.50%, 7/01/09 ..................................................................................... 660,000 662,488
Puerto Rico Commonwealth Urban Renewal and Housing Corp. Commonwealth Appropriation,
Refunding, 7.875%, 10/01/04 ........................................................................ 3,350,000 3,392,880
Puerto Rico Electric Power Authority Revenue,
Series DD, MBIA Insured, 5.00%, 7/01/28 ............................................................ 5,175,000 4,857,100
Series P, Pre-Refunded, 7.00%, 7/01/11 ............................................................. 615,000 641,845
Series P, Pre-Refunded, 7.00%, 7/01/21 ............................................................. 1,000,000 1,043,650
Series T, Pre-Refunded, 6.375%, 7/01/24 ............................................................ 5,000,000 5,487,400
Puerto Rico HFC, SFMR, Portfolio No. 1, Series C, GNMA Secured, 6.85%, 10/15/23 ...................... 2,320,000 2,394,379
Puerto Rico HFC Revenue,
MF Mortgage, Portfolio A-I, 7.50%, 4/01/22 ......................................................... 1,410,000 1,439,469
MF, Portfolio A, Series I, 7.50%, 10/01/15 ......................................................... 415,000 423,698
Sixth Portfolio, Section 8, FHA Insured, Pre-Refunded, 7.75%, 12/01/26 ............................. 2,060,000 2,420,273
Puerto Rico Housing Bank and Financing Authority SFMR, Affordable Housing Mortgage, First Portfolio,
6.25%, 4/01/29 ..................................................................................... 2,010,000 2,079,767
Puerto Rico Industrial Medical and Environmental Pollution Control Facilities Financing Authority
Revenue,
PepsiCo Inc. Project, 6.25%, 11/15/13 .............................................................. 900,000 941,274
Special Facilities, American Airlines Project, Series A, 6.45%, 12/01/25 ........................... 2,000,000 2,058,220
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 2,555,475
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.25%, 8/01/32 .................................. 500,000 513,185
Hospital Auxilio Mutuo Obligation, Series A, MBIA Insured, 6.25%, 7/01/24 .......................... 8,445,000 8,865,645
Mennonite General Hospital Project, 5.625%, 7/01/17 ................................................ 885,000 773,074
Mennonite General Hospital Project, 6.50%, 7/01/26 ................................................. 5,000,000 4,742,550
Mennonite General Hospital Project, 5.625%, 7/01/27 ................................................ 2,000,000 1,643,920
San Lucas and Cristo Project, Refunding, Series A, 5.75%, 6/01/19 .................................. 3,000,000 2,651,190
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 6,248,700
7/01/22 ............................................................................................ 3,160,000 2,961,868
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities Financing
Authority Industrial Revenue, Guaynabo Warehouse, Series A, 5.20%, 7/01/24 ........................... 4,120,000 3,610,315
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 1,917,600
Ana G. Mendez University Systems Project, Refunding, 5.375%, 2/01/29 ............................... 4,000,000 3,748,600
Cogen Facilities, 6.625%, 6/01/26 .................................................................. 10,000,000 10,528,700
Inter-American University, Series A, MBIA Insured, 5.00%, 10/01/22 ................................. 2,000,000 1,904,900
</TABLE>
113
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE
----------------------------------------- ------ -----
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
Puerto Rico Municipal Finance Agency, Series A, Pre-Refunded, 6.50%, 7/01/19 ....................... $1,000,000 $1,095,710
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.50%, 8/01/23 ..................... 6,400,000 6,478,144
Puerto Rico Port Authority Revenue,
Series D, FGIC Insured, 6.00%, 7/01/21 .......................................................... 1,250,000 1,258,013
Special Facilities, American Airlines, Series A, 6.25%, 6/01/26 ................................. 1,900,000 1,928,842
Puerto Rico Telephone Authority Revenue, Series L, Pre-Refunded, 6.125%, 1/01/22 ................... 5,000,000 5,180,400
University of Puerto Rico Revenues, Series O, MBIA Insured, 5.375%, 6/01/30 ........................ 7,000,000 6,902,210
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 .................................................................................. 365,000 380,669
6.50%, 3/01/25 .................................................................................. 865,000 894,981
Virgin Islands PFA Revenue, senior lien, Fund Loan Notes, Refunding, Series A,
5.50%, 10/01/18 .................................................................................. 3,000,000 2,854,800
5.50%, 10/01/22 .................................................................................. 3,000,000 2,807,250
5.625%, 10/01/25 ................................................................................. 3,000,000 2,814,390
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 ....................................................................... 1,700,000 1,646,552
Refunding, 5.30%, 7/01/21 ....................................................................... 1,000,000 953,860
Series A, Pre-Refunded, 7.40%, 7/01/11 .......................................................... 4,645,000 4,839,997
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.25%, 7/01/12 .................................................................................. 4,000,000 3,886,560
5.50%, 7/01/17 .................................................................................. 4,000,000 3,740,480
------------
TOTAL LONG TERM INVESTMENTS (COST $200,180,558) .................................................... 206,350,193
------------
(a)SHORT TERM INVESTMENTS .2%
Puerto Rico Commonwealth Government Development Bank, Refunding, MBIA Insured, Weekly VRDN and Put,
3.75%, 12/01/15 (COST $500,000) ................................................................. 500,000 500,000
------------
TOTAL INVESTMENTS (COST $200,680,558) 98.9% ........................................................ 206,850,193
OTHER ASSETS, LESS LIABILITIES 1.1% ................................................................ 2,274,242
------------
NET ASSETS 100.0% .................................................................................. $209,124,435
============
</TABLE>
See glossary of terms on page 115.
(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.
114 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
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
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FI/GML - Federally Insured or Guaranteed Mortgage Loans
FNMA - Federal National Mortgage Association
FSA - Financial Security Assistance
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
LLC - Limited Liability Corporation
LP - Limited Partnership
MAC - Municipal Assistance Corporation
MBIA - Municipal Bond Investors Assurance Corp.
MBS - Mortgage Backed Securities
MF - Multi-Family
MFH - Multi-Family Housing
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
VRDN - Variable Rate Demand Notes
115
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL
ARIZONA COLORADO CONNECTICUT INTERMEDIATE-TERM
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 ...................................................... $782,298,913 $291,917,024 $233,804,303 $164,906,796
============ ============ ============ ============
Value ..................................................... 781,341,272 295,887,747 231,370,932 164,214,685
Cash ........................................................ 5,550,966 2,968,065 71,671 17,554
Receivables:
Capital shares sold ........................................ 679,036 235,632 137,349 147,132
Interest ................................................... 10,385,460 4,743,846 3,563,402 2,383,495
------------ ------------ ------------ ------------
Total assets ............................................. 797,956,734 303,835,290 235,143,354 166,762,866
------------ ------------ ------------ ------------
Liabilities:
Payables:
Investment securities purchased ........................... 2,242,930 8,717,279 -- --
Capital shares redeemed ................................... 3,015,443 239,427 319,202 398,324
Affiliates ................................................ 409,394 175,469 144,261 96,793
Shareholders .............................................. 360,337 211,316 270,333 45,034
Distributions to shareholders ............................... 1,526,429 555,593 417,603 293,765
Other liabilities ........................................... 69,373 32,701 27,078 29,971
------------ ------------ ------------ ------------
Total liabilities ..................................... 7,623,906 9,931,785 1,178,477 863,887
------------ ------------ ------------ ------------
Net assets, at value .................................. $790,332,828 $293,903,505 $233,964,877 $165,898,979
============ ============ ============ ============
Net assets consist of:
Undistributed net investment income ........................ $ -- $ -- $ -- $ 193,660
Accumulated distributions in excess of net investment income (976,887) (221,254) (119,397) --
Net unrealized appreciation (depreciation) ................. (957,641) 3,970,723 (2,433,371) (692,111)
Accumulated net realized loss .............................. (732,323) (4,545,698) (6,539,425) (2,654,676)
Capital shares ............................................. 792,999,679 294,699,734 243,057,070 169,052,106
------------ ------------ ------------ ------------
Net assets, at value .................................... $790,332,828 $293,903,505 $233,964,877 $165,898,979
============ ============ ============ ============
CLASS A:
Net assets, at value ....................................... $765,929,649 $271,630,447 $210,013,257 $165,898,979
============ ============ ============ ============
Shares outstanding ......................................... 71,518,459 23,931,557 20,084,772 15,390,061
============ ============ ============ ============
Net asset value per share(a) .............................. $10.71 $11.35 $10.46 $10.78
============ ============ ============ ============
Maximum offering price per share (net asset value
per share / 95.75%) ........................................ $11.19 $11.85 $10.92 $11.03(b)
============ ============ ============ ============
CLASS B:
Net assets, at value ....................................... $1,613,113 -- -- --
============ ============ ============ ============
Shares outstanding ......................................... 150,215 -- -- --
============ ============ ============ ============
Net asset value and maximum offering price per share(a) .... $10.74 -- -- --
============ ============ ============ ============
CLASS C:
Net assets, at value ....................................... $22,790,066 $22,273,058 $23,951,620 --
============ ============ ============ ============
Shares outstanding ......................................... 2,113,270 1,951,803 2,282,993 --
============ ============ ============ ============
Net asset value per share(a) ............................... $10.78 $11.41 $10.49 --
============ ============ ============ ============
Maximum offering price per share (net asset
value per share / 99%) ..................................... $10.89 $11.53 $10.60 --
============ ============ ============ ============
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
(b) The maximum offering price for the Franklin Federal Intermediate-Term
Tax-Free Income Fund is calculated at $10.78 / 97.75%.
116 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
AUGUST 31, 2000 (UNAUDITED)
<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 ................................................ $5,644,772,292 $649,734,959 $473,727,784 $670,916,298
============== ============ ============ ============
Value ............................................... 5,530,540,902 663,633,326 476,944,652 679,129,284
Cash ................................................. -- 13,342 94,149 --
Receivables:
Investment securities sold ........................... 1,234,697 -- -- --
Capital shares sold .................................. 4,886,103 793,675 1,011,014 599,748
Interest ............................................. 110,145,921 9,496,709 6,863,463 11,874,921
-------------- ------------ ------------ ------------
Total assets ........................................ 5,646,807,623 673,937,052 484,913,278 691,603,953
-------------- ------------ ------------ ------------
Liabilities:
Payables:
Investment securities purchased ....................... 32,039,667 -- 6,040,850 --
Capital shares redeemed ............................... 11,526,326 527,906 740,853 1,171,068
Affiliates ............................................ 3,040,337 379,582 275,970 380,430
Shareholders .......................................... 4,637,968 763,487 290,126 605,348
Distributions to shareholders ......................... 11,052,128 927,860 828,741 1,318,398
Funds advanced by custodian ........................... 321,873 -- -- 234,213
Other liabilities ..................................... 750,030 53,980 54,712 66,247
-------------- ------------ ------------ ------------
Total liabilities .................................... 63,368,329 2,652,815 8,231,252 3,775,704
-------------- ------------ ------------ ------------
Net assets, at value ............................... $5,583,439,294 $671,284,237 $476,682,026 $687,828,249
============== ============ ============ ============
Net assets consist of:
Undistributed net investment income ................... $ -- $ -- $ 639,046 $ --
Accumulated distributions in excess of
net investment income ................................ (7,414,737) (594,665) -- (854,311)
Net unrealized appreciation (depreciation) ............ (114,231,390) 13,898,367 3,216,868 8,212,986
Accumulated net realized loss ......................... (98,499,431) (3,891,300) (3,241,176) (6,063,716)
Capital shares ........................................ 5,803,584,852 661,871,835 476,067,288 686,533,290
-------------- ------------ ------------ ------------
Net assets, at value ................................ $5,583,439,294 $671,284,237 $476,682,026 $687,828,249
============== ============ ============ ============
CLASS A:
Net assets, at value .................................. $4,947,798,664 $621,190,024 $441,513,688 $644,565,335
============== ============ ============ ============
Shares outstanding .................................... 469,108,544 54,459,759 39,270,620 64,705,463
============== ============ ============ ============
Net asset value per share(a) .......................... $10.55 $11.41 $11.24 $9.96
============== ============ ============ ============
Maximum offering price per share (net asset value
per share / 95.75%) ................................... $11.02 $11.92 $11.74 $10.40
============== ============ ============ ============
CLASS B:
Net assets, at value .................................. $116,571,141 $2,505,952 -- $1,434,287
============== ============ ============ ============
Shares outstanding .................................... 11,005,249 219,143 -- 143,881
============== ============ ============ ============
Net asset value and maximum offering price per share(a) $10.59 $11.44 -- $9.97
============== ============ ============ ============
CLASS C:
Net assets, at value ................................. $519,069,489 $47,588,261 $35,168,338 $41,828,627
============== ============ ============ ============
Shares outstanding ................................... 48,845,528 4,148,765 3,106,522 4,176,674
============== ============ ============ ============
Net asset value per share(a) ......................... $10.63 $11.47 $11.32 $10.01
============== ============ ============ ============
Maximum offering price per share (net asset value
per share / 99%) ..................................... $10.74 $11.59 $11.43 $10.11
============== ============ ============ ============
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements. 117
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
PUERTO RICO
TAX-FREE
INCOME FUND
-----------
<S> <C>
Assets:
Investments in securities:
Cost ............................................................ $ 200,680,558
=============
Value ........................................................... 206,850,193
Cash .............................................................. 67,462
Receivables:
Capital shares sold ............................................. 82,006
Interest ........................................................ 3,066,263
-------------
Total assets ................................................ 210,065,924
-------------
Liabilities:
Payables:
Capital shares redeemed ......................................... 308,153
Affiliates ...................................................... 118,604
Shareholders .................................................... 109,054
Distributions to shareholders ..................................... 392,729
Other liabilities ................................................. 12,949
-------------
Total liabilities ........................................... 941,489
-------------
Net assets, at value ...................................... $ 209,124,435
=============
Net assets consist of:
Undistributed net investment income ............................... $ 37,621
Net unrealized appreciation ....................................... 6,169,635
Accumulated net realized loss ..................................... (757,823)
Capital shares .................................................... 203,675,002
-------------
Net assets, at value ...................................... $ 209,124,435
=============
CLASS A:
Net assets, at value .............................................. $ 200,878,767
=============
Shares outstanding ................................................ 17,650,281
=============
Net asset value per share (a)...................................... $ 11.38
=============
Maximum offering price per share (net asset value per share / 95.75%) $ 11.89
=============
CLASS C:
Net assets, at value .............................................. $ 8,245,668
=============
Shares outstanding ................................................ 723,335
=============
Net asset value per share (a)...................................... $ 11.40
=============
Maximum offering price per share (net asset value per share / 99%) $ 11.52
=============
</TABLE>
(a) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
118 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FEDERAL
ARIZONA COLORADO CONNECTICUT INTERMEDIATE-TERM
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Interest ......................................... $ 23,796,155 $ 8,661,675 $ 7,208,297 $ 4,696,508
------------ ------------ ------------ ------------
Expenses:
Management fees (Note 3) ......................... 1,879,251 768,032 641,045 470,500
Distribution fees (Note 3)
Class A ........................................ 366,523 130,539 105,138 82,568
Class B ........................................ 2,499 -- -- --
Class C ........................................ 72,914 69,106 76,924 --
Transfer agent fees (Note 3) ....................... 153,296 66,636 56,327 33,643
Custodian fees ..................................... 3,910 1,599 1,135 856
Reports to shareholders ............................ 33,350 12,527 8,805 5,911
Registration and filing fees ....................... 16,816 9,689 5,895 22,175
Professional fees (Note 3) ......................... 11,201 4,586 4,051 3,981
Trustees' fees and expenses ........................ 4,091 1,564 1,165 977
Other .............................................. 17,829 9,990 7,334 11,616
------------ ------------ ------------ ------------
Total expenses ............................... 2,561,680 1,074,268 907,819 632,227
------------ ------------ ------------ ------------
Net investment income ...................... 21,234,475 7,587,407 6,300,478 4,064,281
------------ ------------ ------------ ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ........ 2,689,483 (992,375) 282,713 (209,659)
Net unrealized appreciation on investments ....... 26,938,871 12,627,192 8,569,777 4,254,621
------------ ------------ ------------ ------------
Net realized and unrealized gain ................... 29,628,354 11,634,817 8,852,490 4,044,962
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations $ 50,862,829 $ 19,222,224 $ 15,152,968 $ 8,109,243
============ ============ ============ ============
</TABLE>
See notes to financial statements. 119
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<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 ......................................... $ 189,918,831 $ 19,824,666 $ 14,053,602 $ 20,866,743
------------- ------------- ------------- -------------
Expenses:
Management fees (Note 3) ......................... 12,692,462 1,610,325 1,180,161 1,653,114
Distribution fees (Note 3)
Class A ........................................ 2,278,386 298,809 212,692 311,781
Class B ........................................ 338,423 3,389 -- 2,755
Class C ........................................ 1,711,067 149,755 110,142 132,143
Transfer agent fees (Note 3)...................... 1,367,276 170,562 104,195 202,843
Custodian fees ................................... 29,601 3,292 2,394 3,438
Reports to shareholders .......................... 248,941 25,917 21,348 38,156
Registration and filing fees...................... 231,223 13,857 14,692 11,209
Professional fees (Note 3) ....................... 304,405 8,838 6,439 7,899
Trustees' fees and expenses ...................... 29,459 3,397 3,104 3,781
Other ............................................ 105,709 15,527 14,885 16,386
------------- ------------- ------------- -------------
Total expenses ............................... 19,336,952 2,303,668 1,670,052 2,383,505
------------- ------------- ------------- -------------
Net investment income ...................... 170,581,879 17,520,998 12,383,550 18,483,238
------------- ------------- ------------- -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ........ (27,598,425) (195,708) 465,206 (62,140)
Net unrealized appreciation on investments ....... 105,029,997 24,849,930 18,252,488 28,425,154
------------- ------------- ------------- -------------
Net realized and unrealized gain ................... 77,431,572 24,654,222 18,717,694 28,363,014
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations $ 248,013,451 $ 42,175,220 $ 31,101,244 $ 46,846,252
============= ============= ============= =============
</TABLE>
120 See notes to financial statements.
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements(continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
FRANKLIN
PUERTO RICO
TAX-FREE
INCOME FUND
-----------
<S> <C>
Investment income:
Interest ......................................... $ 6,190,338
------------
Expenses:
Management fees (Note 3) ......................... 574,499
Distribution fees (Note 3)
Class A ........................................ 94,749
Class C ........................................ 25,266
Transfer agent fees (Note 3) ..................... 49,525
Custodian fees ................................... 744
Reports to shareholders .......................... 11,275
Registration and filing fees ..................... 18,022
Professional fees (Note 3) ....................... 5,328
Trustees' fees and expenses ...................... 1,082
Other ............................................ 7,393
------------
Total expenses ............................... 787,883
------------
Net investment income ...................... 5,402,455
------------
Realized and unrealized gains (losses):
Net realized loss from investments ............... (711,585)
Net unrealized appreciation on investments ....... 8,585,583
------------
Net realized and unrealized gain ................... 7,873,998
------------
Net increase in net assets resulting from operations $ 13,276,453
============
</TABLE>
See notes to financial statements. 121
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 21,234,475 $ 44,840,713 $ 7,587,407 $ 15,827,272
Net realized gain (loss) from investments .......... 2,689,483 (3,418,024) (992,375) (3,552,435)
Net unrealized appreciation (depreciation)
on investments ................................... 26,938,871 (77,707,910) 12,627,192 (26,930,378)
-------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. 50,862,829 (36,285,221) 19,222,224 (14,655,541)
Distributions to shareholders from:
Net investment income:
Class A .......................................... (20,668,868) (43,683,113) (7,077,764) (14,827,705)
Class B .......................................... (17,654) (281) -- --
Class C .......................................... (547,953) (1,157,319) (509,643) (999,567)
In excess of net investment income:
Class A .......................................... (186,715) (68,986) (56,839) (143,841)
Class B .......................................... (159) -- -- --
Class C .......................................... (4,950) (1,828) (4,095) (9,697)
Net realized gains:
Class A .......................................... -- (2,664,446) -- (298,232)
Class C .......................................... -- (79,924) -- (21,969)
-------------------------------------------------------------------------
Total distributions to shareholders ................ (21,426,299) (47,655,897) (7,648,341) (16,301,011)
Capital share transactions: (Note 2)
Class A .......................................... (18,888,069) (23,235,695) (3,625,778) (8,021,689)
Class B .......................................... 1,400,170 175,000 -- --
Class C .......................................... (736,481) 1,231,605 828,055 825,521
-------------------------------------------------------------------------
Total capital share transactions ................... (18,224,380) (21,829,090) (2,797,723) (7,196,168)
Net increase (decrease) in net assets .......... 11,212,150 (105,770,208) 8,776,160 (38,152,720)
Net assets:
Beginning of period .................................. 779,120,678 884,890,886 285,127,345 323,280,065
-------------------------------------------------------------------------
End of period ........................................ $ 790,332,828 $ 779,120,678 $ 293,903,505 $ 285,127,345
=========================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of period ...................................... $ (976,887) $ (785,063) $ (221,254) $ (160,320)
=========================================================================
</TABLE>
See notes to financial statements.
122
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN CONNECTICUT FRANKLIN FEDERAL INTERMEDIATE-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 6,300,478 $ 13,546,970 $ 4,064,281 $ 8,788,841
Net realized gain (loss) from investments .......... 282,713 (3,264,467) (209,659) (1,329,609)
Net unrealized appreciation (depreciation)
on investments ................................... 8,569,777 (26,223,575) 4,254,621 (12,117,956)
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations .............................. 15,152,968 (15,941,072) 8,109,243 (4,658,724)
Distributions to shareholders from:
Net investment income:
Class A .......................................... (5,702,631) (12,310,990) (4,039,569) (8,686,728)
Class C .......................................... (586,536) (1,216,102) -- --
--------------------------------------------------------------------------
Total distributions to shareholders .................. (6,289,167) (13,527,092) (4,039,569) (8,686,728)
Capital share transactions: (Note 2)
Class A .......................................... (5,696,785) (10,761,404) (9,077,898) (11,345,713)
Class C .......................................... (1,954,783) 4,523,167 -- --
--------------------------------------------------------------------------
Total capital share transactions ..................... (7,651,568) (6,238,237) (9,077,898) (11,345,713)
Net increase (decrease) in net assets .......... 1,212,233 (35,706,401) (5,008,224) (24,691,165)
Net assets:
Beginning of period .................................. 232,752,644 268,459,045 170,907,203 195,598,368
--------------------------------------------------------------------------
End of period ........................................ $ 233,964,877 $ 232,752,644 $ 165,898,979 $ 170,907,203
==========================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of period ...................................... $ (119,397) $ (130,708) $ 193,660 $ 168,948
==========================================================================
</TABLE>
See notes to financial statements.
123
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................. $ 170,581,879 $ 369,858,131 $ 17,520,998 $ 37,249,154
Net realized loss from investments ................ (27,598,425) (70,898,507) (195,708) (3,695,592)
Net unrealized appreciation (depreciation)
on investments .................................. 105,029,997 (549,458,729) 24,849,930 (57,381,137)
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... 248,013,451 (250,499,105) 42,175,220 (23,827,575)
Distributions to shareholders from:
Net investment income:
Class A ......................................... (153,246,648) (333,761,601) (16,394,337) (34,978,876)
Class B ......................................... (2,891,200) (3,398,175) (23,659) (165)
Class C ......................................... (14,444,031) (32,717,855) (1,103,002) (2,345,061)
In excess of net investment income:
Class A ......................................... (1,758,659) (1,707,824) (235,612) (321,319)
Class B ......................................... (33,083) (17,388) (340) --
Class C ......................................... (165,804) (167,414) (15,852) (21,542)
Net realized gains:
Class A ......................................... -- (1,468,995) -- (187,767)
Class B ......................................... -- (13,236) -- --
Class C ......................................... -- (159,594) -- (14,238)
--------------------------------------------------------------------------
Total distributions to shareholders ................. (172,539,425) (373,412,082) (17,772,802) (37,868,968)
Capital share transactions: (Note 2)
Class A ......................................... (136,087,471) (414,585,880) (18,858,697) (7,054,102)
Class B ......................................... 22,981,245 83,389,918 2,229,109 225,225
Class C ......................................... (29,281,617) (30,205,413) (525,205) 2,028,843
--------------------------------------------------------------------------
Total capital share transactions .................... (142,387,843) (361,401,375) (17,154,793) (4,800,034)
Net increase (decrease) in net assets ......... (66,913,817) (985,312,562) 7,247,625 (66,496,577)
Net assets:
Beginning of period ................................. 5,650,353,111 6,635,665,673 664,036,612 730,533,189
--------------------------------------------------------------------------
End of period ....................................... $ 5,583,439,294 $ 5,650,353,111 $ 671,284,237 $ 664,036,612
==========================================================================
Accumulated distributions in excess of net investment
income included in net assets:
End of period ..................................... $ (7,414,737) $ (5,457,191) $ (594,665) $ (342,861)
==========================================================================
</TABLE>
See notes to financial statements.
124
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000 AUGUST 31, 2000 FEBRUARY 29, 2000
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................. $ 12,383,550 $ 25,741,910 $ 18,483,238 $ 39,617,513
Net realized gain (loss) from investments ......... 465,206 (3,602,485) (62,140) (6,001,576)
Net unrealized appreciation (depreciation)
on investments .................................. 18,252,488 (42,421,295) 28,425,154 (67,094,411)
-------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................. 31,101,244 (20,281,870) 46,846,252 (33,478,474)
Distributions to shareholders from:
Net investment income:
Class A ......................................... (11,630,269) (24,122,463) (17,468,993) (37,535,097)
Class B ......................................... -- -- (20,388) (155)
Class C ......................................... (808,773) (1,617,439) (993,857) (2,082,261)
In excess of net investment income:
Class A ......................................... -- -- (11,057) (10,157)
Class B ......................................... -- -- (13) --
Class C ......................................... -- -- (629) (563)
Net realized gains:
Class A ......................................... -- -- -- (14,421)
Class C ......................................... -- -- -- (865)
-------------------------------------------------------------------------
Total distributions to shareholders ................. (12,439,042) (25,739,902) (18,494,937) (39,643,519)
Capital share transactions: (Note 2)
Class A ......................................... (8,471,691) (8,214,243) (21,047,949) (51,118,450)
Class B ......................................... -- -- 1,215,203 185,598
Class C ......................................... (254,398) 4,355,248 (853,597) 3,358,574
-------------------------------------------------------------------------
Total capital share transactions .................... (8,726,089) (3,858,995) (20,686,343) (47,574,278)
Net increase (decrease) in net assets ......... 9,936,113 (49,880,767) 7,664,972 (120,696,271)
Net assets:
Beginning of period ................................. 466,745,913 516,626,680 680,163,277 800,859,548
-------------------------------------------------------------------------
End of period ....................................... $ 476,682,026 $ 466,745,913 $ 687,828,249 $ 680,163,277
=========================================================================
Undistributed net investment income (accumulated
distributions in excess of net investment income)
included in net assets:
End of period ..................................... $ 639,046 $ 694,538 $ (854,311) $ (842,612)
=========================================================================
</TABLE>
See notes to financial statements.
125
<PAGE>
FRANKLIN TAX-FREE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
AND THE YEAR ENDED FEBRUARY 29, 2000
<TABLE>
<CAPTION>
FRANKLIN PUERTO RICO
TAX-FREE INCOME FUND
----------------------------------------
SIX MONTHS YEAR
ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
----------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 5,402,455 $ 11,155,310
Net realized loss from investments ................................................ (711,585) (46,238)
Net unrealized appreciation (depreciation) on investments ......................... 8,585,583 (17,629,792)
----------------------------------------
Net increase (decrease) in net assets resulting from operations ............... 13,276,453 (6,520,720)
Distributions to shareholders from:
Net investment income:
Class A ......................................................................... (5,215,147) (10,605,773)
Class C ......................................................................... (184,590) (352,376)
Net realized gains:
Class A ......................................................................... -- (290,247)
Class C ......................................................................... -- (10,841)
----------------------------------------
Total distributions to shareholders ................................................. (5,399,737) (11,259,237)
Capital share transactions: (Note 2)
Class A ........................................................................... (1,854,896) (6,472,518)
Class C ........................................................................... 675,336 876,544
----------------------------------------
Total capital share transactions .................................................... (1,179,560) (5,595,974)
Net increase (decrease) in net assets ......................................... 6,697,156 (23,375,931)
Net assets:
Beginning of period ................................................................. 202,427,279 225,803,210
----------------------------------------
End of period ....................................................................... $ 209,124,435 $ 202,427,279
========================================
Undistributed net investment income included in net assets:
End of period ....................................................................... $ 37,621 $ 34,903
========================================
</TABLE>
See notes to financial statements.
126
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Tax-Free Trust (the Trust) is registered under the Investment Company
Act of 1940 as an open-end investment company, consisting of twenty-six separate
series. All Funds included in this report (the Funds) are diversified except the
Franklin Connecticut Tax-Free Income Fund and the Franklin Federal
Intermediate-Term Tax-Free Income Fund. The investment objective of the Funds is
to provide tax-free income.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION
Tax-free bonds generally trade in the over-the-counter market and are valued
within the range of the latest quoted bid and asked prices. In the absence of a
sale or reported bid and asked prices, information with respect to bond and note
transactions, quotations from bond dealers, market transactions in comparable
securities, and various relationships between securities are used to determine
the value of the security. The Trust may utilize a pricing service, bank or
broker/dealer experienced in such matters to perform any of the pricing
functions under procedures approved by the Board of Trustees. Securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and 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. 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 Franklin Colorado Tax-Free Income Fund Franklin Arizona Tax-Free Income Fund
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>
127
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
At August 31, 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 FRANKLIN CONNECTICUT
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:
Six months ended August 31, 2000
Shares sold ..................... 3,860,793 $ 40,513,792 1,325,836 $ 14,716,989 1,317,858 $ 13,447,271
Shares issued in reinvestment
of distributions ... ........... 820,052 8,579,511 302,693 3,357,088 252,618 2,585,063
Shares redeemed ................. (6,498,935) (67,981,372) (1,961,287) (21,699,855) (2,127,159) (21,729,119)
-----------------------------------------------------------------------------------------------
Net decrease .................... (1,818,090) $ (18,888,069) (332,758) $ (3,625,778) (556,683) $ (5,696,785)
===============================================================================================
Year ended February 29, 2000
Shares sold ..................... 11,257,100 $ 122,221,296 3,456,328 $ 39,518,546 3,529,444 $ 37,826,779
Shares issued in reinvestment
of distributions ............... 1,770,923 19,158,086 659,447 7,531,347 555,135 5,915,822
Shares redeemed ................. (15,367,639) (164,615,077) (4,862,223) (55,071,582) (5,185,098) (54,504,005)
-----------------------------------------------------------------------------------------------
Net decrease .................... (2,339,616) $ (23,235,695) (746,448) $ (8,021,689) (1,100,519) $(10,761,404)
===============================================================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold ..................... 136,440 $ 1,435,024
Shares issued in reinvestment
of distributions ............... 864 9,109
Shares redeemed ................. (4,113) (43,963)
--------------------------
Net increase .................... 133,191 $ 1,400,170
==========================
Year ended February 29, 2000(a)
Shares sold ..................... 17,024 $ 175,000
--------------------------
Net increase .................... 17,024 $ 175,000
==========================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold ..................... 160,534 $ 1,694,828 227,166 $ 2,515,870 190,737 $ 1,956,266
Shares issued in reinvestment
of distributions ............... 29,202 307,751 33,010 368,157 36,496 374,692
Shares redeemed ................. (260,050) (2,739,060) (184,479) (2,055,972) (420,804) (4,285,741)
-----------------------------------------------------------------------------------------------
Net increase (decrease) ......... (70,314) $ (736,481) 75,697 $ 828,055 (193,571) $ (1,954,783)
===============================================================================================
Year ended February 29, 2000
Shares sold ..................... 797,807 $ 8,762,481 755,856 $ 8,701,764 869,808 $ 9,464,940
Shares issued in reinvestment
of distributions ............... 68,432 744,813 64,059 734,922 76,342 813,102
Shares redeemed ................. (767,300) (8,275,689) (752,058) (8,611,165) (543,743) (5,754,875)
-----------------------------------------------------------------------------------------------
Net increase .................... 98,939 $ 1,231,605 67,857 $ 825,521 402,407 $ 4,523,167
===============================================================================================
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000.
128
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
2. SHARES OF BENEFICIAL INTEREST (cont.)
<TABLE>
<CAPTION>
FRANKLIN
FEDERAL INTERMEDIATE-TERM FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
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:
Six months ended August 31, 2000
Shares sold .................... 2,848,920 $ 30,134,864 26,039,319 $ 272,395,246 2,641,157 $ 29,472,910
Shares issued in reinvestment
of distributions .............. 248,461 2,631,158 6,327,501 66,088,012 770,706 8,598,733
Shares redeemed ................ (3,947,395) (41,843,920) (45,384,007) (474,570,729) (5,124,133) (56,930,340)
------------------------------------------------------------------------------------------------
Net decrease ................... (850,014) $ (9,077,898) (13,017,187) $ (136,087,471) (1,712,270) $(18,858,697)
================================================================================================
Year ended February 29, 2000
Shares sold .................... 13,550,371 $ 147,891,639 85,317,678 $ 937,163,857 9,654,038 $111,062,207
Shares issued in reinvestment
of distributions .............. 515,841 5,612,481 13,414,032 147,114,366 1,630,713 18,621,021
Shares redeemed ................ (15,135,397) (164,849,833) (137,782,074) (1,498,864,103) (12,099,348) (136,737,330)
------------------------------------------------------------------------------------------------
Net decrease ................... (1,069,185) $ (11,345,713) (39,050,364) $ (414,585,880) (814,597) $ (7,054,102)
================================================================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold .................... 2,678,858 $ 28,111,727 213,877 $ 2,400,898
Shares issued in reinvestment
of distributions .............. 152,155 1,595,597 1,410 15,803
Shares redeemed ................ (640,341) (6,726,079) (16,716) (187,592)
----------------------------------------------------------------
Net increase ................... 2,190,672 $ 22,981,245 198,571 $ 2,229,109
================================================================
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
================================================================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold .................... 2,801,683 $ 29,407,277 468,804 $ 5,263,426
Shares issued in reinvestment
of distributions .............. 791,503 8,329,003 57,387 643,704
Shares redeemed ................ (6,366,691) (67,017,897) (576,311) (6,432,335)
----------------------------------------------------------------
Net decrease ................... (2,773,505) $ (29,281,617) (50,120) $ (525,205)
================================================================
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
================================================================
</TABLE>
(a) For the period February 1, 2000 (effective date) to February 29, 2000 for
the Franklin New Jersey Tax-Free Income Fund.
129
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(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 A SHARES:
Six months ended August 31, 2000
Shares sold .................... 2,066,910 $ 22,621,162 2,028,173 $ 19,749,907 599,581 $ 6,660,903
Shares issued in reinvestment
of distributions............... 579,176 6,358,597 805,324 7,824,103 229,456 2,549,341
Shares redeemed ................ (3,416,098) (37,451,450) (5,011,894) (48,621,959) (997,315) (11,065,140)
-----------------------------------------------------------------------------------------------
Net decrease ................... (770,012) $ (8,471,691) (2,178,397) $ (21,047,949) (168,278) $ (1,854,896)
===============================================================================================
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)
===============================================================================================
CLASS B SHARES:
Six months ended August 31, 2000
Shares sold .................... 126,192 $ 1,232,513
Shares issued in reinvestment
of distributions .............. 1,233 12,037
Shares redeemed ................ (3,019) (29,347)
----------------------------
Net increase ................... 124,406 $ 1,215,203
============================
Year ended February 29, 2000(a)
Shares sold .................... 19,470 $ 185,551
Shares issued in reinvestment
of distributions .............. 5 47
----------------------------
Net increase ................... 19,475 $ 185,598
============================
CLASS C SHARES:
Six months ended August 31, 2000
Shares sold .................... 352,459 $ 3,900,184 343,786 $ 3,356,808 116,912 $ 1,299,527
Shares issued in reinvestment
of distributions .............. 47,557 525,802 62,885 614,156 7,717 85,901
Shares redeemed ................ (425,178) (4,680,384) (496,217) (4,824,561) (64,013) (710,092)
-----------------------------------------------------------------------------------------------
Net increase (decrease) ........ (25,162) $ (254,398) (89,546) $ (853,597) 60,616 $ 675,336
===============================================================================================
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
===============================================================================================
</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 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>
130
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
3. TRANSACTIONS WITH AFFILIATES (cont.)
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
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 period 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 ............... $96,799 $22,895 $13,381 $98,446 $1,300,370
Contingent deferred sales charges... $ 9,381 $ 7,300 $19,171 $56,737 $ 342,479
</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>
Net commissions paid .................. $103,802 $ 16,590 $ 74,114 $ 3,869
Contingent deferred sales charges...... $ 31,767 $ 24,707 $ 10,412 $ 355
</TABLE>
The Funds paid transfer agent fees of $2,204,303 of which $1,831,646 was paid
to Investor Services.
Included in professional fees are legal fees of $30,123 that were paid to a law
firm in which a partner of that firm was an officer of the Funds.
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>
131
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
4. INCOME TAXES (cont.)
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 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 investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatment of wash sales.
At August 31, 2000, the net unrealized appreciation (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 ........... $782,302,695 $291,917,024 $233,826,929 $164,906,796 $5,644,772,292
-------------------------------------------------------------------------------------------
Unrealized appreciation ....... $ 22,844,031 $ 8,760,133 $ 7,049,098 $ 3,347,861 $ 221,980,143
Unrealized depreciation ....... (23,805,454) (4,789,410) (9,505,095) (4,039,972) (336,211,533)
-------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) ............... $ (961,423) $ 3,970,723 $ (2,455,997) $ (692,111) $ (114,231,390)
-------------------------------------------------------------------------------------------
</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 ... $ 649,734,959 $ 473,727,784 $ 670,916,298 $ 200,680,558
--------------------------------------------------------------------------
Unrealized appreciation $ 22,196,281 $ 11,500,420 $ 20,268,518 $ 8,742,987
Unrealized depreciation (8,297,914) (8,283,552) (12,055,532) (2,573,352)
--------------------------------------------------------------------------
Net unrealized ........ $ 13,898,367 $ 3,216,868 $ 8,212,986 $ 6,169,635
--------------------------------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended August 31, 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 $ 93,330,184 $ 74,117,103 $ 6,715,937 $ 5,061,048 $451,437,752
Sales ... $116,719,193 $ 75,222,259 $ 16,258,225 $ 18,009,320 $647,850,725
</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 $ 88,048,751 $ 28,878,893 $ 40,890,375 $ 44,015,544
Sales ... $111,309,797 $ 33,558,245 $ 64,807,283 $ 44,651,712
</TABLE>
132
<PAGE>
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements (unaudited)(continued)
6. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin High Yield Tax-Free Income Fund has 41.8% of its portfolio invested
in lower rated and comparable quality unrated high yield securities, which tend
to be more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At August
31, 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 $98,262,516 representing .51% and 1.76%, 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.
