-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hb+CvmZ1r37D2oOgxqX1matzE7SiAwQPYIsZUHEysAgUIHHwgO1eJNzkYAuhB3pX fs73Wtt/+/3MOIRFMg/Rjw== /in/edgar/work/0000757010-00-000013/0000757010-00-000013.txt : 20001114 0000757010-00-000013.hdr.sgml : 20001114 ACCESSION NUMBER: 0000757010-00-000013 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000831 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TAX FREE TRUST CENTRAL INDEX KEY: 0000757010 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04149 FILM NUMBER: 761172 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 N-30D 1 0001.txt 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 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
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
% OF TOTAL LONG-TERM INVESTMENTS - ----------------------------------------------- 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%
DIVIDEND DISTRIBUTIONS* Franklin Arizona Insured Tax-Free Income Fund - Class A 3/1/00 - 8/31/00
DIVIDEND MONTH PER SHARE - ------------------------------ 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
*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.
CLASS A 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR (4/30/93) - ---------------------------------------------------------------------------------------- Cumulative Total Return(1) +5.77% +30.28% +48.44% Average Annual Total Return(2) +1.28% +4.52% +4.86%
AS OF 8/31/00
SHARE CLASS A - -------------------------------------------------------------------------- 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ---------------------------------------------- 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%
*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
DIVIDEND MONTH PER SHARE - --------------------------------- 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
*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.
CLASS A 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR (4/30/93) - ------------------------------------------------------------------------------- Cumulative Total Return(1) +5.55% +30.72% +44.46% Average Annual Total Return(2) +1.05% +4.60% +4.47%
AS OF 8/31/00
SHARE CLASS A - --------------------------------------------------------------------- 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ------------------------------------------------ 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%
*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
DIVIDEND PER SHARE ----------------------------------------------------- MONTH CLASS A CLASS B CLASS 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
*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.
CLASS A 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
CLASS B 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
CLASS 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
Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - ---------------------------------------------------------------------------------------- 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%
INCEPTION CLASS B (2/1/00) - --------------------------------------------------------------- Cumulative Total Return(1) +7.38% Aggregate Total Return(2) +3.38%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - ------------------------------------------------------------------------------- Cumulative Total Return(1) +4.93% +24.43% +29.10% Average Annual Total Return(2) +2.87% +4.26% +4.63%
AS OF 8/31/00
SHARE CLASS A B 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ------------------------------------------- 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%
*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
DIVIDEND PER SHARE ------------------ MONTH CLASS A CLASS 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
*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.
CLASS A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - ------------------------------------------------------------------------------ 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +5.32% +23.97% +28.65% Average Annual Total Return(2) +3.29% +4.17% +4.57%
AS OF 8/31/00
SHARE CLASS A 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ----------------------------------- 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%
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
DIVIDEND PER SHARE ------------------ MONTH CLASS A CLASS B CLASS 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
*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.
CLASS A 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
CLASS B 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
CLASS 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
Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - ------------------------------------------------------------------------------------------------ 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%
INCEPTION CLASS B (2/1/00) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +6.94% Aggregate Total Return(2) +2.94%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - ------------------------------------------------------------------------------- Cumulative Total Return(1) +5.12% +25.92% +30.95% Average Annual Total Return(2) +3.07% +4.51% +4.91%
AS OF 8/31/00
SHARE CLASS A B 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ---------------------------------- 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%
*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
Dividend per Share ------------------ 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
*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.
Class A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - -------------------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------------------- Cumulative Total Return(1) +4.85% +21.97% +26.32% Average Annual Total Return(2) +2.78% +3.85% +4.21%
AS OF 8/31/00
Share Class A 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%
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
% OF TOTAL LONG-TERM INVESTMENTS - ---------------------------------- 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%
*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
Dividend per Share --------------------------------------- Month Class A Class B Class 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
*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.
CLASS A 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
CLASS B 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
CLASS 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
Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - -------------------------------------------------------------------------------------------- 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%
INCEPTION CLASS B (2/1/00) - -------------------------------------------------------------------------------------------- Cumulative Total Return(1) +7.09% Aggregate Total Return(2) +3.09%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------------------- Cumulative Total Return(1) +4.95% +25.34% +30.08% Average Annual Total Return(2) +2.91% +4.41% +4.78%
AS OF 8/31/00
SHARE CLASS A B 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%
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
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ------------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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)
PRINCIPAL FRANKLIN ARIZONA INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ARIZONA INSURED TAX - FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 ============
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
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31,2000 -------------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- 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%
(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)
PRINCIPAL FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 ============
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
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ---------------------------------------------------------------------- CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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.)
YEAR ENDED FEBRUARY 28, SIX MONTHS ENDED AUGUST 31, 2000 --------------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d) - ---------------------------------------------------------------------------------------------------------------------------- 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%
(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)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 -----------
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 ------------
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 -----------
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 ------------
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 -----------
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 ===============
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
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) 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%
(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)
PRINCIPAL FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MASSACHUSETTS INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 ============
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
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, ------------------------------------------------------- 2000 CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996 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%
(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.)
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d) - ------------------------------------------------------------------------------------------------------------------------------- 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%
(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)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS 98.0% 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MICHIGAN INSURED TAX-FREE INCOME FUND AMOUNT VALUE LONG TERM INVESTMENTS (CONT.) 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 ===== ==============
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
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) 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%
(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)
PRINCIPAL FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE ................................................................................................................................... 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE .................................................................................................................................. 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE ................................................................................................................................... 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND AMOUNT VALUE ................................................................................................................................... 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 =============
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
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ..................................................... CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996 ............................................................................................................................... PER SHARE OPERATING PERFORMANCE (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%
(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.)
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 --------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d) - --------------------------------------------------------------------------------------------------------------------------------- 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%
(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)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS 98.8% 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) 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
FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OHIO INSURED TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG TERM INVESTMENTS (CONT.) 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 ============
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 - -------------------------------------------------------------------------------- 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
FRANKLIN TAX-FREE TRUST Financial Statements STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2000 (UNAUDITED)
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 ---------------------------------------------------------------------------- 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 ============================================================================
See notes to financial statements. FRANKLIN TAX-FREE TRUST Financial Statements(continued) STATEMENTS OF ASSETS AND LIABILITIES(CONT.) AUGUST 31, 2000 (UNAUDITED)
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 ----------------------------------------------------------------------- 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 =======================================================================
(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)
FRANKLIN FRANKLIN FRANKLIN MICHIGAN MINNESOTA OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND -------------------------------------------------------- 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 ========================================================
See notes to financial statements. FRANKLIN TAX-FREE TRUST Financial Statements(continued) STATEMENTS OF ASSETS AND LIABILITIES(CONT.) AUGUST 31, 2000 (UNAUDITED)
FRANKLIN FRANKLIN FRANKLIN MICHIGAN MINNESOTA OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND ------------------------------------------------------ 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 ======================================================
(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)
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 ------------------------------------------------------------------------- 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 =========================================================================
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)
FRANKLIN FRANKLIN FRANKLIN MICHIGAN MINNESOTA OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND ------------------------------------------------------ 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 ======================================================
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
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 ------------------------------------------------------------------- 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 ===================================================================
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
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 ---------------------------------------------------------------------- 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) ======================================================================
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
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 ---------------------------------------------------------------------- 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) ======================================================================
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
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND ------------------------------------- SIX MONTHS ENDED YEAR ENDED AUGUST 31, 2000 FEBRUARY 29, 2000 ------------------------------------- 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) =====================================
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.
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS 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
At August 31, 2000, there were an unlimited number of shares authorized (no par value). Transactions in the Funds' shares were as follows:
FRANKLIN ARIZONA INSURED FRANKLIN FLORIDA INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND ------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------ 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) ==================================================================
FRANKLIN FRANKLIN INSURED MASSACHUSETTS INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND ------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------ 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 ==============================
(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.)
FRANKLIN FRANKLIN INSURED MASSACHUSETTS INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND ------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------ 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 ==================================================================
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND ------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------ 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 ==============================
(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.)
FRANKLIN MICHIGAN INSURED FRANKLIN MINNESOTA INSURED TAX-FREE INCOME FUND TAX-FREE INCOME FUND -------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- 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 ===================================================================
FRANKLIN OHIO INSURED TAX-FREE INCOME FUND -------------------------------- SHARES AMOUNT -------------------------------- 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 ================================
(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:
ANNUALIZED FEE RATE MONTH-END NET ASSETS --------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Funds. 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:
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 -------------------------------------------------------------------------- Net commissions received (paid) . $ (6,260) $ 4,634 $ (78,334) $ (15,643) Contingent deferred sales charges $ 7,138 $ -- $ 32,189 $ 8,187
FRANKLIN FRANKLIN MICHIGAN MINNESOTA FRANKLIN OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND -------------------------------------------------------- Net commissions received (paid) . $ (96,115) $ (22,840) $ (37,023) Contingent deferred sales charges $ 43,832 $ 4,657 $ 13,565
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:
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 ------------------------------------------------------------------------- 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 =========================================================================
FRANKLIN FRANKLIN MICHIGAN MINNESOTA FRANKLIN OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND ------------------------------------------------------ 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 ======================================================
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.
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 - -------------------------------------------------------------------------------------------------------------- $ 165,561 $ 44,406 $ 1,050,135 $ 143,844 $ 1,107,270 $ 96,932
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:
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 ------------------------------------------------------------------------- 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 =========================================================================
FRANKLIN FRANKLIN MICHIGAN MINNESOTA FRANKLIN OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND ------------------------------------------------------ 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 ======================================================
5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended August 31, 2000, were as follows:
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 ------------------------------------------------------------------------- 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
FRANKLIN FRANKLIN MICHIGAN MINNESOTA FRANKLIN OHIO INSURED TAX-FREE INSURED TAX-FREE INSURED TAX-FREE INCOME FUND INCOME FUND INCOME FUND ------------------------------------------------------ Purchases $ 76,098,484 $67,267,293 $60,574,673 Sales ... $122,335,880 $81,446,612 $85,174,387
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 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
[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. 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 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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
*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 DIVIDEND DISTRIBUTIONS* Franklin Alabama Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ----------------------------------- MONTH CLASS A CLASS 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
*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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +3.17% +22.19% +27.06% Average Annual Total Return(2) +1.19% +3.87% +4.33%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
(4.) Source: The Bond Buyer, 9/1/00. 9 DIVIDEND DISTRIBUTIONS* Franklin Florida Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ---------------------------------------------- MONTH CLASS A CLASS B CLASS 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
*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 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 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. 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
Past performance does not guarantee future results. 12 ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS B (2/1/00) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +6.93% Aggregate Total Return(2) +2.93%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.33% +24.27% +29.93% Average Annual Total Return(2) +2.35% +4.23% +4.76%
AS OF 8/31/00
SHARE CLASS A B 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
15 DIVIDEND DISTRIBUTIONS* Franklin Georgia Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ---------------------------- MONTH CLASS A CLASS 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
*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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.26% +23.11% +27.89% Average Annual Total Return(2) +2.20% +4.04% +4.45%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
3. Source: Standard & Poor's,Ratings Direct, 6/22/00. This does not indicate Standard & Poor's rating of the Fund. 19 DIVIDEND DISTRIBUTIONS* Franklin Kentucky Tax-Free Income Fund- Class A 3/1/00- 8/31/00
DIVIDEND MONTH PER SHARE - -------------------------------------------------------------------------------- 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
*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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR (10/12/91) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.36% +29.16% +73.53% Average Annual Total Return(2) -0.08% +4.34% +5.83%
AS OF 8/31/00
SHARE CLASS A - -------------------------------------------------------------------------------- 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
23 DIVIDEND DISTRIBUTIONS* Franklin Louisiana Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ----------------------------- MONTH CLASS A CLASS 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
*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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.26% +24.43% +29.56% Average Annual Total Return(2) +2.24% +4.26% +4.70%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
*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 DIVIDEND DISTRIBUTIONS* Franklin Maryland Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ------------------------------------ MONTH CLASS A CLASS 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
*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 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 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.
CLASS A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +5.01% +24.90% +31.46% Average Annual Total Return(2) +2.98% +4.34% +4.98%
AS OF 8/31/00
SHARE CLASS A 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%
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. 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 PORTFOLIO BREAKDOWN Franklin Missouri Tax-Free Income Fund 8/31/00
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
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 DIVIDEND DISTRIBUTIONS* Franklin Missouri Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ----------------------------- MONTH CLASS A CLASS 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
*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 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.
CLASS A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) Cumulative Total Return(1) +4.44% +25.00% +30.21% Average Annual Total Return(2) +2.38% +4.35% +4.79%
AS OF 8/31/00
SHARE CLASS A 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%
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. 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 PORTFOLIO BREAKDOWN Franklin North Carolina Tax-Free Income Fund 8/31/00
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
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 DIVIDEND DISTRIBUTIONS* Franklin North Carolina Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ------------------------------------ MONTH CLASS A CLASS 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
*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 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 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.
CLASS A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.20% +24.43% +29.48% Average Annual Total Return(2) +2.15% +4.25% +4.68%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
(3.) Source: The Bond Buyer, 9/1/00. 41 DIVIDEND DISTRIBUTIONS* Franklin Texas Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE ---------------------------------- MONTH CLASS A CLASS 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
*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 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.
CLASS A 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
CLASS 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +1.87% +21.93% +27.70% Average Annual Total Return(2) -0.11% +3.83% +4.43%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
(4.) Source: The Bond Buyer, 9/1/00. 45 DIVIDEND DISTRIBUTIONS* Franklin Virginia Tax-Free Income Fund 3/1/00- 8/31/00
DIVIDEND PER SHARE -------------------------------- MONTH CLASS A CLASS 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
*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 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 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.
CLASS A 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - ----------------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - ----------------------------------------------------------------------------------------- Cumulative Total Return(1) +4.48% +23.67% +29.26% Average Annual Total Return(2) +2.49% +4.13% +4.66%
AS OF 8/31/00
SHARE CLASS A 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%
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. 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 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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN ALABAMA TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ---------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d) - ----------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
52 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- 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 ------------
53 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ALABAMA TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- (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 ============
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. FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN FLORIDA TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ------------------------------------------------------------------- CLASS A (UNAUDITED) 2000(d) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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%
(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 FRANKLIN TAX-FREE TRUST Financial Highlights (continued) FRANKLIN FLORIDA TAX-FREE INCOME FUND (CONT.)
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ------------------------------------------------------------------ CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(d) - --------------------------------------------------------------------------------------------------------------------------------- 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%
(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. FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
57 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
58 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
59 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
60 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
61 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
62 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
63 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FLORIDA TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 ==============
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. FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN GEORGIA TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ----------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d) - --------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
66 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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 -----------
67 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN GEORGIA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- (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 ============
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. FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN KENTUCKY TAX-FREE INCOME FUND
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ------------------------------------------------------------ (UNAUDITED) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 97.5% 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
70 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN KENTUCKY TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) 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 ===========
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN LOUISIANA TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, 2000 YEAR ENDED FEBRUARY 28, ------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(d) - --------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 97.9% BONDS 96.4% 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
73 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) 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 -----------
74 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN LOUISIANA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) ZERO COUPON BONDS 1.5% 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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN MARYLAND TAX-FREE INCOME FUND
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) 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 97.4% 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
77 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 -----------
78 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MARYLAND TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ (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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN MISSOURI TAX-FREE INCOME FUND
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) 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS 98.6% 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
81 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) 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
82 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM INVESTMENTS (CONT.) 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 ===========
83 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN MISSOURI TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ (a)SHORT TERM INVESTMENTS 2.3% 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 =============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
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) 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------- 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
86 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
87 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 ============
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. FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN TEXAS TAX-FREE INCOME FUND
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) 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
90 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN TEXAS TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- 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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN VIRGINIA TAX-FREE INCOME FUND
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) 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%
(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. FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------ 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
93 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------- 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
94 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN VIRGINIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 ============
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 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 FRANKLIN TAX-FREE TRUST Financial Statements STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2000 (UNAUDITED)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE INCOME FUND INCOME FUND INCOME FUND INCOME FUND --------------------------------------------------------------------------- Assets: Investments in securities: 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 -- ==========================================================================
(a) Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 97 FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF ASSETS AND LIABILITIES (CONT.) AUGUST 31, 2000 (UNAUDITED)
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 --------------------------------------------------------------- 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 =============================================================
(a) Redemption price is equal to net asset value less any applicable contingent deferred sales charge. 98 See notes to financial statements. FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF ASSETS AND LIABILITIES (CONT.) AUGUST 31, 2000 (UNAUDITED)
FRANKLIN FRANKLIN TEXAS TAX-FREE VIRGINIA TAX-FREE INCOME FUND INCOME FUND ----------------------------------- 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 =================================
(a) Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 99 FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE KENTUCKY TAX-FREE INCOME FUND INCOME FUND INCOME FUND INCOME FUND --------------------------------------------------------------------------- Investment income: 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 ======================================================================
100 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)
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 ---------------------------------------------------------- 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 ==========================================================
See notes to financial statements. 101 FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF OPERATIONS (CONT.) FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
Franklin Franklin Texas Tax-Free Virginia Tax-Free Income Fund Income Fund ---------------------------------------- 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 ========================================
See notes to financial statements. 102 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
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 ---------------------------------------------------------------------------- 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) ============================================================================
See notes to financial statements. 103 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
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 ----------------------------------------------------------------------- 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) =======================================================================
See notes to financial statements 104 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
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 ----------------------------------------------------------------------- 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) =======================================================================
See notes to financial statements. 105 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
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 ----------------------------------------------------------------------- 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 =======================================================================
See notes to financial statements. 106 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
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 ----------------------------------------------------------------------- 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) =======================================================================
See notes to financial statements. 107 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.
CLASS A CLASS A & CLASS C CLASS A, CLASS B, & CLASS 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
108 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:
FRANKLIN ALABAMA FRANKLIN FLORIDA TAX-FREE INCOME FUND TAX-FREE INCOME FUND ----------------------------------------------------------- CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------- 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) ===========================================================
(a)For the period February 1, 2000 (effective date) to February 29, 2000 109 FRANKLIN TAX-FREE TRUST Notes to Financial Statements (unaudited)(continued) 2. SHARES OF BENEFICIAL INTEREST (cont.)
FRANKLIN GEORGIA FRANKLIN KENTUCKY TAX-FREE INCOME FUND TAX-FREE INCOME FUND -------------------------------------------------------------------- CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- 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) ================================
FRANKLIN LOUISIANA FRANKLIN MARYLAND TAX-FREE INCOME FUND TAX-FREE INCOME FUND -------------------------------------------------------------------- CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- 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 ====================================================================
110 FRANKLIN TAX-FREE TRUST Notes to Financial Statements (unaudited)(continued) 2. SHARES OF BENEFICIAL INTEREST (cont.)
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND TAX-FREE INCOME FUND -------------------------------------------------------------------- CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- 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 ====================================================================
FRANKLIN TEXAS FRANKLIN VIRGINIA TAX-FREE INCOME FUND TAX-FREE INCOME FUND -------------------------------------------------------------------- CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- 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 ====================================================================
111 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:
ANNUALIZED FEE RATE MONTH-END NET ASSETS - -------------------------------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Funds. Advisers agreed in advance to waive a portion of the management fees for the Franklin Kentucky Tax-Free Income Fund, as noted in the Statement of Operations. The Funds reimburse Distributors up to .10%, .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:
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 --------------------------------------------------------------------------- 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
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 --------------------------------------------------------------------------- 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
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:
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 ---------------------------------------------------------------------------------------------- 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 ==============================================================================================
112 FRANKLIN TAX-FREE TRUST Notes to Financial Statements (unaudited)(continued) 4. INCOME TAXES (cont.)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN MARYLAND MISSOURI NORTH CAROLINA TEXAS VIRGINIA TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND ---------------------------------------------------------------------------------------------- Capital loss carryovers expiring in: 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 ==============================================================================================
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.
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 - ------------------------------------------------------------------------------------------------------------------------------------ $11,393,824 $584,348 $10,804 $190,735 $699,016 $652,651 $4,093,603 $283,669 $1,477,537
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:
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 ------------------------------------------------------------------------------------- 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 =====================================================================================
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 ------------------------------------------------------------------------------------- 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 =====================================================================================
113 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:
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 ----------------------------------------------------------------------------------------------- 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
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 ----------------------------------------------------------------------------------------------- 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
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 This page intentionally left blank. 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] 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 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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
*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 DIVIDEND DISTRIBUTIONS* Franklin Arizona Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ---------------------------------------------------- MONTH CLASS A CLASS B CLASS 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
*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 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 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. 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
Past performance does not guarantee future results. 8 ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS B (2/1/00) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +7.34% Aggregate Total Return(2) +3.34%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +3.90% +23.19% +28.32% Average Annual Total Return(2) +1.87% +4.06% +4.52%
AS OF 8/31/00
SHARE CLASS A B 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
11 DIVIDEND DISTRIBUTIONS* Franklin Colorado Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ----------------------------- MONTH CLASS A CLASS 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
*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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +3.97% +24.31% +29.77% Average Annual Total Return(2) +1.99% +4.24% +4.72%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
*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 DIVIDEND DISTRIBUTIONS* Franklin Connecticut Tax-Free Income Fund 3/1/00-8/31/00
DIVIDEND PER SHARE ----------------------------- MONTH CLASS A CLASS 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
*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 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 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. 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
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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (10/3/88) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +2.81% +21.66% +27.03% Average Annual Total Return(2) +0.78% +3.79% +4.32%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 PORTFOLIO BREAKDOWN Franklin Federal Intermediate-Term Tax-Free Income Fund 8/31/00
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
*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
DIVIDEND MONTH PER SHARE - -------------------------------------------------------------------------------- March 4.3 cents April 4.3 cents May 4.3 cents June 4.3 cents July 4.3 cents August 4.3 cents - -------------------------------------------------------------------------------- TOTAL 25.8 CENTS
* 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 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. 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
ADDITIONAL PERFORMANCE As of 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR (9/21/92) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +3.70% +26.12% +57.32% Average Annual Total Return(2) +1.36% +4.27% +5.51%
AS OF 8/31/00
SHARE CLASS A - -------------------------------------------------------------------------------- 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
* 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 DIVIDEND DISTRIBUTIONS* Franklin High Yield Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ---------------------------------------------------- MONTH CLASS A CLASS B CLASS 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
* 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 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 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. 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
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
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
Past performance does not guarantee future results. 26 ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (3/18/86) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS B 1-YEAR (1/1/99) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +1.09% +0.30% Average Annual Total Return(2) -2.74% -1.93%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +1.09% +25.31% +31.79% Average Annual Total Return(2) -0.85% +4.41% +5.03%
AS OF 8/31/00
SHARE CLASS A B 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%
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 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] AAA- 69.1% AA- 7.9% A- 9.4% BBB- 12.3% Below Investment Grade- 1.3%
*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 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
% OF TOTAL LONG-TERM INVESTMENTS ----------- 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%
3. Source: Standard and Poor's,Ratings Direct, 8/17/00. 4. Source: The Bond Buyer, 9/1/00. 29 DIVIDEND DISTRIBUTIONS* Franklin New Jersey Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ------------------ MONTH CLASS A CLASS B CLASS 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
*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 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 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. 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
32 Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (5/12/88) 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS ----------- 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%
35 DIVIDEND DISTRIBUTIONS* Franklin Oregon Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ------------------ MONTH CLASS A CLASS 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
*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 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 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. 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (9/1/87) 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) Cumulative Total Return(1) +4.54% +23.27% +28.57% Average Annual Total Return(2) +2.53% +4.06% +4.56%
AS OF 8/31/00
SHARE CLASS A 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%
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. 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] AAA - 61.2% AA - 7.9% A - 12.3% BBB - 16.3% Below Investment Grade - 2.3%
*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 PORTFOLIO BREAKDOWN Franklin Pennsylvania Tax-Free Income Fund 8/31/00
% OF TOTAL LONG-TERM INVESTMENTS 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%
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 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 DIVIDEND DISTRIBUTIONS* Franklin Pennsylvania Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ---------------------------------------- MONTH CLASS A CLASS B CLASS 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
*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 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 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.
CLASS A 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
44 Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (12/1/86) 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%
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 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 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
% OF TOTAL LONG-TERM INVESTMENTS - -------------------------------------------------------------------------------- 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%
47 DIVIDEND DISTRIBUTIONS* Franklin Puerto Rico Tax-Free Income Fund 3/1/00 - 8/31/00
DIVIDEND PER SHARE ----------------------------------- MONTH CLASS A CLASS 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
*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 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.
CLASS A 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
ADDITIONAL PERFORMANCE AS OF 9/30/00
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (4/3/85) - -------------------------------------------------------------------------------- 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%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/1/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) +4.30% +26.27% +31.19% Average Annual Total Return(2) +2.31% +4.56% +4.95%
AS OF 8/31/00
SHARE CLASS A 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%
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 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 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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN ARIZONA TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ---------------------------------------------------------------- CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST Financial Highlights (continued) FRANKLIN ARIZONA TAX-FREE INCOME FUND (CONT.)
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 -------------------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(f) - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------------- 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
54 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
55 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------ 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
56 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------- 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 -----------
57 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN ARIZONA TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------- (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 ============
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. FRANKLIN TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN COLORADO TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 --------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(f) - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------- 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
60 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- 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
61 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN COLORADO TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------- 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 =============
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. FRANKLIN TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
SIX MONTHS AUGUST 31, ENDED YEAR ENDED FEBRUARY 28, 2000 ------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(e) - -------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
64 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN CONNECTICUT TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 =============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ---------------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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. FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
67 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- 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
68 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------ 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
69 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------- 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
70 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 -------------------------------------------------------------------- CLASS A (UNAUDITED) 2000 1999(g) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST Financial Highlights(continued) FRANKLIN HIGH YIELD TAX-FREE INCOME FUND(CONT.)
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 --------------------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(f) - ---------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
74 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
75 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------ 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
76 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------- 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
77 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------- 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
78 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
79 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------- 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 ------------
80 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------ 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
81 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
82 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------- 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 ------------
83 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------ 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
84 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
85 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
86 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)(CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 --------------
87 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
88 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
89 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
90 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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
91 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ---------------------------------------------------------------------------------------------------------------------------------- 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 --------------
92 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
93 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN HIGH YIELD TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ (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 ==============
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 FRANKLIN TAX-FREE TRUST FINANCIAL HIGHLIGHTS FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, YEAR ENDED FEBRUARY 28, 2000 ----------------------------------------------------------- CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST Financial Highlights (continued) FRANKLIN NEW JERSEY TAX-FREE INCOME FUND (CONT.)
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 ----------------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(g) - ---------------------------------------------------------------------------------------------------------------------------------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED)
PRINCIPAL FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
97 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
98 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
99 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN NEW JERSEY TAX-FREE INCOME FUND AMOUNT VALUE --------------------------------------------------------------------------------------------------------------------- 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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights
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) - ------------------------------------------------------------------------------------------------------------------------------------ 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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
102 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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
103 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ 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 -----------
104 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN OREGON TAX-FREE INCOME FUND AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- (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 ============
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 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 --------------------------------------------------------- CLASS A (UNAUDITED) 2000(e) 1999 1998 1997 1996 - ------- ----------- ------- ---- ---- ---- ---- 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%
CLASS B - ------- 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%
(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 FRANKLIN TAX-FREE TRUST Financial Highlights(continued) FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND(CONT.)
SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, AUGUST 31, 2000 --------------------------------------------------------- CLASS C (UNAUDITED) 2000 1999 1998 1997 1996(h) - ------- ----------- ---- ---- ---- ---- ------- 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%
(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 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------ ------ ----- 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
108 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------ ------ ----- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) 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
109 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------ ------ ----- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) Northeastern Pennsylvania Hospital and Educational Authority Revenue, Kings College Project, Refunding, Series B, 6.00%, 7/15/11 .................................... $ 1,000,000 $ 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
110 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND AMOUNT VALUE - ------------------------------------------ ------ ----- LONG TERM INVESTMENTS (CONT.) BONDS (CONT.) 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 ============
See glossary of terms on page 115. See notes to financial statements. 111 FRANKLIN TAX-FREE TRUST Financial Highlights FRANKLIN PUERTO RICO TAX-FREE INCOME FUND
SIX MONTHS ENDED AUGUST 31, 2000 YEAR ENDED FEBRUARY 28, ----------------------- CLASS A (UNAUDITED) 2000 1999 1998 1997 1996(f) - ------- ----------- ---- ---- ---- ---- ------- 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%
(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. FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED)
PRINCIPAL FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------- ------ ----- LONG TERM INVESTMENTS 98.7% 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
113 FRANKLIN TAX-FREE TRUST STATEMENT OF INVESTMENTS, AUGUST 31, 2000(UNAUDITED) (CONT.)
PRINCIPAL FRANKLIN PUERTO RICO TAX-FREE INCOME FUND AMOUNT VALUE - ----------------------------------------- ------ ----- LONG TERM INVESTMENTS (CONT.) 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 ============
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. 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 FRANKLIN TAX-FREE TRUST Financial Statements STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2000 (UNAUDITED)
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 ----------- ----------- ----------- ----------- 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 -- ============ ============ ============ ============
(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. FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF ASSETS AND LIABILITIES (CONT.) AUGUST 31, 2000 (UNAUDITED)
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 ----------- ----------- ----------- ----------- 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 ============== ============ ============ ============
(a) Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 117 FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF ASSETS AND LIABILITIES (CONT.) AUGUST 31, 2000 (UNAUDITED)
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND ----------- 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 =============
(a) Redemption price is equal to net asset value less any applicable contingent deferred sales charge. 118 See notes to financial statements. FRANKLIN TAX-FREE TRUST Financial Statements (continued) STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
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 ----------- ----------- ----------- ----------- 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 ============ ============ ============ ============
See notes to financial statements. 119 FRANKLIN TAX-FREE TRUST Financial Statements(continued) STATEMENTS OF OPERATIONS (CONT.) FOR THE SIX MONTHS ENDED AUGUST 31, 2000 (UNAUDITED)
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 ----------- ----------- ----------- ----------- 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 ============= ============= ============= =============
120 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)
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND ----------- 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 ============
See notes to financial statements. 121 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
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 ------------------------------------------------------------------------- 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) =========================================================================
See notes to financial statements. 122 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
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 -------------------------------------------------------------------------- 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 ==========================================================================
See notes to financial statements. 123 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
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 -------------------------------------------------------------------------- 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) ==========================================================================
See notes to financial statements. 124 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
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 ------------------------------------------------------------------------- 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) =========================================================================
See notes to financial statements. 125 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
FRANKLIN PUERTO RICO TAX-FREE INCOME FUND ---------------------------------------- SIX MONTHS YEAR ENDED ENDED AUGUST 31, 2000 FEBRUARY 29, 2000 ---------------------------------------- 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 ========================================
See notes to financial statements. 126 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.
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS 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
127 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:
FRANKLIN ARIZONA FRANKLIN COLORADO FRANKLIN CONNECTICUT TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ 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 ===============================================================================================
(a) For the period February 1, 2000 (effective date) to February 29, 2000. 128 FRANKLIN TAX-FREE TRUST Notes to Financial Statements (unaudited)(continued) 2. SHARES OF BENEFICIAL INTEREST (cont.)
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 ------ ------ ------ ------ ------ ------ 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 ================================================================
(a) For the period February 1, 2000 (effective date) to February 29, 2000 for the Franklin New Jersey Tax-Free Income Fund. 129 FRANKLIN TAX-FREE TRUST Notes to Financial Statements (unaudited)(continued) 2. SHARES OF BENEFICIAL INTEREST (cont.)
FRANKLIN OREGON FRANKLIN PENNSYLVANIA FRANKLIN PUERTO RICO TAX-FREE INCOME FUND TAX-FREE INCOME FUND TAX-FREE INCOME FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ ------ ------ 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 ===============================================================================================
(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:
ANNUALIZED FEE RATE MONTH-END NET ASSETS -------- -------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million
130 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:
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 ----------- ----------- ----------- ----------- ----------- 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
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 ----------- ----------- ----------- ----------- Net commissions paid .................. $103,802 $ 16,590 $ 74,114 $ 3,869 Contingent deferred sales charges...... $ 31,767 $ 24,707 $ 10,412 $ 355
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:
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 ----------- ----------- ----------- ----------- ----------- 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 ===============================================================================
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 ----------- ----------- ----------- ----------- 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 ================================================================
131 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.
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 - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $974,614 $810,539 $1,015,325 $33,366,062 $782,289 $1,190,349 $3,747,221 $33,438
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:
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 ----------- ----------- ----------- ----------- ----------- 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) -------------------------------------------------------------------------------------------
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 ----------- ----------- ----------- ----------- 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 --------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended August 31, 2000, were as follows:
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 ----------- ----------- ----------- ----------- ----------- 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
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 ----------- ----------- ----------- ----------- 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
132 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. -----END PRIVACY-ENHANCED MESSAGE-----