UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04149
_Franklin Tax-Free Trust
(Exact name of registrant as specified in charter)
_One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
_Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
Date of fiscal year end: 2/28
Date of reporting period: 02/28/17
Item 1. Reports to Stockholders.
Annual Report
and Shareholder Letter
February 28, 2017
Franklin Tax-Free Trust
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Michigan Tax-Free Income Fund
Franklin Minnesota Tax-Free Income Fund
Franklin Ohio Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
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2 Not part of the annual report
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Municipal Bond Market Overview
The municipal bond market outperformed the U.S. Treasury market, but underperformed U.S. stock markets during the 12-month period ended February 28, 2017. Investment-grade municipal bonds, as measured by the Bloomberg Barclays Municipal Bond Index, generated a +0.25% total return for the period, while U.S. Treasuries, as measured by the Bloomberg Barclays U.S. Treasury Index, had a -1.24% total return.1 Both high yield corporates and high yield municipals outperformed their investment-grade counterparts. U.S. equities, as represented by the Standard & Poor’s® 500 Index, outperformed both municipals and U.S. Treasuries with a +24.98% total return for the reporting period.1 U.S. equities posted generally positive returns through the first three quarters of 2016, before selling off slightly in October in anticipation of higher interest rates. Donald Trump’s U.S. presidential victory in November shocked financial markets and pushed U.S. equities to all-time highs on the promise of lower taxes, de-regulation, and significant infrastructure spending. Both the municipal bond market and U.S. Treasury market sold off precipitously immediately following the election, but generated positive returns from December through the end of the reporting period.
The Federal Reserve (Fed) raised its target range for the federal funds rate by 0.25% to 0.50%–0.75% in December. It also increased the discount rate by 0.25% to 1.25%. After raising its target range by 0.25% just once in both 2015 and 2016, the Fed indicated that it expects three such increases in 2017. In fact, given the continued strength of the labor market and increasing inflation expectations, the Fed increased the federal funds rate by another 0.25% to 0.75%–1.0% at its March meeting.
Municipal bond funds experienced 13 consecutive months of inflows before significant outflows in November and December. Fund flows turned positive again in January, reflecting resilient demand for tax-exempt debt. Municipal bonds with longer maturities generally performed better than bonds with shorter maturities. In addition, high yield municipal bonds fared better than investment-grade municipal bonds. High yield tax-exempt bonds, as measured by the Bloomberg Barclays High Yield Municipal Bond Index, generated a +5.17% total return for the period.1 Approximately $388 billion in bonds were issued over the past 12 months; this was offset, however, by the approximately $351 billion in bonds that either matured or were called out of the market, making net supply positive for the period, at $37 billion.2 This somewhat weaker technical backdrop contributed to tepid returns for the period.
Benchmark 10-year and 30-year tax-exempt interest rates ended the period higher than where they began, despite touching record low levels in July. Bond prices will decline as interest rates rise, impacting total return performance. However, bouts of volatility, as experienced during the reporting period, provide opportunities for Franklin Templeton’s actively managed investment strategies to exploit market dislocations and potentially increase the income of its portfolios. In periods of low and declining interest rates, as has been the environment over the past several years, issuers can “pre-refund” their debt. After initial price appreciation, in most cases, these high quality, shorter duration, pre-refunded securities tend to decline in value as they approach their call or maturity dates. However, they continue to generate income that is higher than current market rates. Heightened exposure to pre-refunded debt in Franklin municipal bond portfolios has contributed to underperformance over the period, but has increased portfolio liquidity and reduced volatility.
Puerto Rico bonds increased in price over the period. However, these bonds declined substantially shortly after period-end. Several developments affected Puerto Rico bonds over the reporting period. On June 30, 2016, President Obama signed PROMESA, a bipartisan congressional effort that created the independent, seven-member Oversight Board. The board, appointed by the House of Representatives, Senate and President Obama, will have fiscal oversight over Puerto Rico’s finances for an initial term of five years. The board held its first meeting on September 30, 2016, and its term will expire once Puerto Rico has posted four structurally balanced budgets in a row and is deemed to have “adequate access at reasonable interest rates” to the capital markets. The board has the power to approve or reject the general government’s proposed budgets until the board is satisfied that the budgets are structurally responsible and based on reasonable expectations and accounting standards.
Additionally, PROMESA provides Puerto Rico with a path for restructuring its debts following a process based on Chapter 9 of the U.S. Bankruptcy Code, with some important protections and safeguards that are not available to creditors in a Chapter 9
1. Source: Morningstar. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed. 2. Source: Goldman Sachs Securities Division, Bloomberg.
See www.franklintempletondatasources.com for additional data provider information.
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MUNICIPAL BOND MARKET OVERVIEW
proceeding. This is important as the U.S. Supreme Court affirmed in June 2016 that neither Puerto Rico nor its municipalities or agencies can file for bankruptcy under Chapter 9.
As part of the Puerto Rico Electric Power Authority (PREPA) forbearing creditor group (Ad Hoc Group), we have been participating in discussions related to the PREPA bonds owned by our managed funds and accounts. Currently, we are still working with Puerto Rico to finalize all outstanding issues necessary to implement our agreement with PREPA. At the end of January 2017, after talks with Puerto Rico’s financial advisor, the restructuring support agreement was extended until March 31, 2017.
Since February 29, 2016, Puerto Rico has defaulted on debt issued by several different issuers including Puerto Rico General Obligation Bonds, Puerto Rico Public Building Authority Bonds and Government Development Bank, among others. As of February 2, 2017, all defaults mentioned in this section remain uncured; however, some debt service payments have been made from insurance companies.
COFINA, the Spanish name for debt secured by a dedicated portion of the sales tax, has to date made all principal and interest payments on time and in full. However, on November 22, 2016, certain Franklin Municipal Bond Funds that own COFINA bonds joined other bondholders in filing a Motion to Intervene in a lawsuit in Puerto Rico between a group of General Obligation hedge fund bondholders and the government in an effort to uphold the validity of the COFINA bond structure. The motion was granted on February 17, 2017.
On November 8, 2016, Ricardo Rosselló Nevares was elected governor of Puerto Rico, and assumed the office in January 2017. In addition, Jenniffer González was elected Resident Commissioner to represent Puerto Rico in the U.S. House of Representatives. Since taking office, Governor Rosselló signed an executive order reducing spending by 10%, created an expedited process for infrastructure projects, implemented a zero-based budgeting methodology, introduced several bills to promote economic development and outlined several labor reforms aimed at reducing the cost of doing business in Puerto Rico. He also signed an extension to an excise tax on foreign manufacturers, which contributes a significant amount of revenue to the general fund.
Governor Rosselló also signed the “Financial Emergency and Fiscal Responsibility Act,” which replaces the prior administration’s debt moratorium with a new approach that segregates revenues available after the payment of essential services to pay debt service.
On March 13, 2017, Puerto Rico’s federal Oversight Board certified a 10-year Fiscal Plan for Puerto Rico, as required by PROMESA. The plan, which is not reviewable by any other entity, leaves many questions unanswered about the eventual treatment of debt. The certification of the plan means that Puerto Rico will soon be approaching bondholders to engage in negotiations. As of this writing, we have not been contacted.
At period-end, we maintained our positive view of the municipal bond market. We believe municipal bonds continue to be an attractive asset class among fixed income securities, and we intend to follow our solid discipline of investing to maximize income, while seeking value in the municipal bond market.
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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Investment Strategy and Manager’s Discussion
Investment Strategy
We use a consistent, disciplined strategy with the objective of maximizing tax-free income and capital preservation by focusing on credit selection. We seek to maintain exposure to higher coupon securities, while balancing risk and return within each Fund’s range of allowable investments. We only purchase high yield securities in our high yield fund. We do not purchase high yield securities in our investment-grade funds, however if a security is downgraded we are not required to sell it. Our security selection process includes purchasing securities that we believe are undervalued in the market and which have met our credit selection criteria. We do not use leverage or derivatives, which could add volatility and contribute to underperformance in adverse markets.
Manager’s Discussion
Due to the positive sloping municipal yield curve, we found value in higher quality securities in the 15–30 year maturity range, which allowed us to achieve our objective of maximizing income for our investors. Typically, in declining rate environments, our turnover declines as we maintain exposure to securities that are producing income that exceeds their replacement value in the market. However, when rates rise, our turnover increases as opportunities to purchase securities that have the potential to increase income in the portfolios become available. We believe our consistent, disciplined strategy can help our investors achieve high, tax-free income over the long term.
We invite you to read your Fund report for more detailed performance and portfolio information. Thank you for your participation in Franklin Tax-Free Trust. We look forward to serving your future investment needs.
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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Franklin Arizona Tax-Free Income Fund
This annual report for Franklin Arizona Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Arizona Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Arizona personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its net assets in securities that pay interest free from such taxes.1
| | |
| Credit Quality Composition* | | |
| 2/28/17 | | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 7.61 | % |
| AA | 48.78 | % |
| A | 17.11 | % |
| BBB | 7.11 | % |
| Below Investment Grade | 1.12 | % |
| Refunded | 14.03 | % |
| Not Rated | 4.24 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $11.07 on February 29, 2016, to $10.78 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 37.78 cents per share for the reporting period.2 The Performance Summary beginning on page 9 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.42% based on an annualization of February’s 3.21 cent per share dividend and the maximum
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.15 | 2.63 | 3.24 |
| April | 3.15 | 2.63 | 3.24 |
| May | 3.15 | 2.63 | 3.24 |
| June | 3.15 | 2.63 | 3.24 |
| July | 3.12 | 2.60 | 3.21 |
| August | 3.12 | 2.60 | 3.21 |
| September | 3.12 | 2.59 | 3.21 |
| October | 3.12 | 2.59 | 3.21 |
| November | 3.12 | 2.59 | 3.21 |
| December | 3.16 | 2.64 | 3.25 |
| January | 3.21 | 2.69 | 3.30 |
| February | 3.21 | 2.69 | 3.30 |
| Total | 37.78 | 31.51 | 38.86 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
offering price of $11.26 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Arizona personal income tax bracket of 46.14% (including 3.8% Medicare tax) would need to earn a distribution rate of 6.35% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
State Update
Arizona’s economy continued to expand during the period under review. The state’s unemployment rate declined from 5.5% in February 2016 to 5.1% in February 2017, but remained
1. For state personal income taxes, the 80% minimum is measured by total Fund assets. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 63.
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FRANKLIN ARIZONA TAX-FREE INCOME FUND
higher than the 4.7% national rate.3 Job growth was subdued and declined marginally. In the state’s housing market, which was significantly hurt by the most recent recession, home prices rose during the period.
The state concluded fiscal year (FY) 2016 on June 30 with a budget surplus, which exceeded expectations. Collections across the state’s major revenue categories were mixed, with individual income tax collections contributing mainly to general fund revenues. The state legislature approved higher spending in FY 2017 on universities, the Department of Economic Security and the Department of Child Safety compared to FY 2016. Sales and use taxes and individual income tax collections are expected to contribute significantly to revenue generation. The budget also provided an additional tax cut for business owners. Although the forecasted budget surplus is lower than the previous fiscal year, the budget is structurally balanced as ongoing revenues are projected to exceed ongoing spending in FY 2017. Arizona’s proposed budget for FY 2018 included spending increases, largely on K-12 and higher education, while preserving the general fund’s structural balance.
Arizona does not issue general obligation bonds but instead issues appropriation-backed lease debt and revenue bonds. The state had moderate debt levels, with net tax-supported debt of $776 per capita and 2.1% of personal income, compared with the national medians of $1,025 and 2.5%, respectively.4 Independent credit rating agency Standard & Poor’s (S&P) affirmed Arizona’s AA issuer credit rating with a stable outlook.5 The rating reflected S&P’s view of Arizona’s long-term creditworthiness based on ongoing improvement in the state’s economy and continued population and job growth that are outpacing the nation’s. S&P further cited Arizona’s strong financial position, low other postemployment benefits and moderate debt burden.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| Refunded** | 24.2 | % |
| Utilities | 16.4 | % |
| Higher Education | 15.3 | % |
| Hospital & Health Care | 9.8 | % |
| Tax-Supported | 9.6 | % |
| Subject to Government Appropriations | 7.3 | % |
| Transportation | 5.1 | % |
| General Obligation | 4.6 | % |
| Housing | 4.0 | % |
| Other Revenue | 3.7 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
some of their gains shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Arizona Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico COFINA bonds, which contributed to positive performance over the annual period. However, these bonds lost
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate S&P’s rating of the Fund.
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FRANKLIN ARIZONA TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +0.77 | % | -3.50 | % |
| 5-Year | +15.44 | % | +2.02 | % |
| 10-Year | +45.84 | % | +3.39 | % |
| Advisor3 | | | | |
| 1-Year | +0.86 | % | +0.86 | % |
| 5-Year | +16.08 | % | +3.03 | % |
| 10-Year | +47.40 | % | +3.96 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.42 | % | 6.35 | % | 2.00 | % | 3.71 | % |
| Advisor | 3.66 | % | 6.80 | % | 2.20 | % | 4.08 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 11 for Performance Summary footnotes.
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FRANKLIN ARIZONA TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 11 for Performance Summary footnotes.
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PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FTAZX) | $ | 10.78 | | $ | 11.07 | -$ | 0.29 |
| C (FAZIX) | $ | 10.95 | | $ | 11.24 | -$ | 0.29 |
| Advisor (FAZZX) | $ | 10.81 | | $ | 11.10 | -$ | 0.29 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.3778 | | | | | |
| C | $ | 0.3151 | | | | | |
| Advisor | $ | 0.3886 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.62 | % | | | | |
| Advisor | | 0.52 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. The Fund holds a small portion of its assets in Puerto Rico municipal bonds thathave been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/1/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/1/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect ofClassA’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/1/08, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/1/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +45.90% and +4.46%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Arizona personal income tax rate of 46.14%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN ARIZONA TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 974.20 | $ | 3.13 | $ | 1,021.62 | $ | 3.21 | 0.64 | % |
| C | $ | 1,000 | $ | 970.90 | $ | 5.82 | $ | 1,018.89 | $ | 5.96 | 1.19 | % |
| Advisor | $ | 1,000 | $ | 974.70 | $ | 2.64 | $ | 1,022.12 | $ | 2.71 | 0.54 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
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Franklin Colorado Tax-Free Income Fund
This annual report for Franklin Colorado Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Colorado Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Colorado personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its net assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AA | 49.75 | % |
| A | 15.84 | % |
| BBB | 10.68 | % |
| Below Investment Grade | 3.20 | % |
| Refunded | 19.16 | % |
| Not Rated | 1.37 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $11.94 on February 29, 2016, to $11.66 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 43.77 cents per share for the reporting period.2 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 3.57% based on an annualization of February’s 3.62 cent per share dividend and the maximum offering price of $12.18 on February 28, 2017. An investor in
the 2017 maximum combined effective federal and Colorado personal income tax bracket of 46.20% (including 3.8% Medicare tax) would need to earn a distribution rate of 6.64% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.75 | 3.19 | 3.85 |
| April | 3.75 | 3.19 | 3.85 |
| May | 3.75 | 3.19 | 3.85 |
| June | 3.68 | 3.12 | 3.78 |
| July | 3.68 | 3.12 | 3.78 |
| August | 3.68 | 3.12 | 3.78 |
| September | 3.68 | 3.11 | 3.78 |
| October | 3.62 | 3.05 | 3.72 |
| November | 3.52 | 2.95 | 3.62 |
| December | 3.52 | 2.96 | 3.61 |
| January | 3.52 | 2.96 | 3.61 |
| February | 3.62 | 3.06 | 3.71 |
| Total | 43.77 | 37.02 | 44.94 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
1. For state personal income taxes, the 80% minimum is measured by total Fund assets. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 71.
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FRANKLIN COLORADO TAX-FREE INCOME FUND
State Update
Colorado’s economy continued to strengthen during the 12 months under review. The state’s economic indicators including population, workforce, personal income, housing market stability and cost of living generally improved. Colorado supports emerging industries, such as technology, telecommunications and renewable energy, and offers an outdoor lifestyle that appeals to new residents. Personal income has exceeded the national average, encouraging population growth that has been aided by migration. In addition, oil and gas prices improved during the reporting period, benefiting the state’s energy sector businesses. Colorado’s unemployment rate fell from 3.3% in February 2016 to 2.9% at the end of the review period, which was lower than the 4.7% national rate.3
Colorado’s 2016–2017 fiscal year budget provided increased funding for K-12 education, expanded capital construction projects and increased appropriations to health and human services. In December 2016, lawmakers issued an economic forecast that projected a modest shortfall in the current fiscal year. The gap, however, was less than lawmakers originally projected, aided by economic growth driven by improved energy prices and consumer spending. The governor presented a budget proposal for the 2017–2018 fiscal year in November 2016. The proposed budget was slightly larger than the previous year’s spending plan, and called for cuts to transportation funding to balance the budget. The proposal also called for a slight increase in health care and education spending.
Colorado’s debt levels were lower than those of most states, with net tax-supported debt at $424 per capita and 0.9% of personal income, compared with the national medians of $1,025 and 2.5%, respectively.4 Independent credit rating agency Moody’s Investors Service affirmed Colorado’s issuer credit rating of Aa1 with a stable outlook.5 The rating was based on Moody’s view of the state’s strong economic performance, higher-than-average income per capita and low relative debt levels, balanced against narrow reserves, above average pension liabilities and constitutional restrictions and voter initiatives that constrain its budgeting flexibility.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| Refunded** | 22.7 | % |
| Hospital & Health Care | 16.8 | % |
| Tax-Supported | 14.8 | % |
| Subject to Government Appropriations | 12.2 | % |
| Utilities | 11.5 | % |
| Higher Education | 10.2 | % |
| General Obligation | 7.1 | % |
| Transportation | 2.5 | % |
| Other Revenue | 2.2 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico bonds, which increased in price over the period. However, these bonds declined substantially shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Colorado Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate Moody’s rating of the Fund.
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FRANKLIN COLORADO TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio
holdings as of February 28, 2017, the end of the reporting period. The
way we implement our main investment strategies and the resulting
portfolio holdings may change depending on factors such as market
and economic conditions. These opinions may not be relied upon as
investment advice or an offer for a particular security. The information
is not a complete analysis of every aspect of any market, state,
industry, security or the Fund. Statements of fact are from sources
considered reliable, but the investment manager makes no
representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results,
these insights may help you understand our investment management
philosophy.
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15
FRANKLIN COLORADO TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +1.31 | % | -2.99 | % |
| 5-Year | +15.24 | % | +1.99 | % |
| 10-Year | +45.47 | % | +3.37 | % |
| Advisor3 | | | | |
| 1-Year | +1.41 | % | +1.41 | % |
| 5-Year | +15.81 | % | +2.98 | % |
| 10-Year | +46.57 | % | +3.90 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.57 | % | 6.64 | % | 2.08 | % | 3.87 | % |
| Advisor | 3.82 | % | 7.10 | % | 2.29 | % | 4.26 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 18 for Performance Summary footnotes.
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FRANKLIN COLORADO TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 18 for Performance Summary footnotes.
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FRANKLIN COLORADO TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FRCOX) | $ | 11.66 | | $ | 11.94 | -$ | 0.28 |
| C (FCOIX) | $ | 11.79 | | $ | 12.07 | -$ | 0.28 |
| Advisor (FCOZX) | $ | 11.66 | | $ | 11.94 | -$ | 0.28 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.4377 | | | | | |
| C | $ | 0.3702 | | | | | |
| Advisor | $ | 0.4494 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.65 | % | | | | |
| Advisor | | 0.55 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. The Fund holds a small portion of its assets in Puerto Rico municipal bonds thathave been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/15/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/15/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/15/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/15/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +42.13% and +4.72%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Colorado personal income tax rate of 46.20%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN COLORADO TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 980.60 | $ | 3.24 | $ | 1,021.52 | $ | 3.31 | 0.66 | % |
| C | $ | 1,000 | $ | 978.00 | $ | 5.93 | $ | 1,018.79 | $ | 6.06 | 1.21 | % |
| Advisor | $ | 1,000 | $ | 981.10 | $ | 2.75 | $ | 1,022.02 | $ | 2.81 | 0.56 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
franklintempleton.com
Annual Report
19
Franklin Connecticut Tax-Free Income Fund
This annual report for Franklin Connecticut Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Connecticut Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Connecticut personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its net assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 8.21 | % |
| AA | 41.36 | % |
| A | 29.77 | % |
| Below Investment Grade | 3.17 | % |
| Refunded | 17.49 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $10.69 on February 29, 2016, to $10.42 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 36.04 cents per share for the reporting period.2 The Performance Summary beginning on page 23 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.32% based on an annualization of February’s 3.01 cent per share dividend and the maximum offering price of $10.88 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Connecticut personal income tax bracket of 47.62% (including 3.8%
Medicare tax) would need to earn a distribution rate of 6.34% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.19 | 2.69 | 3.27 |
| April | 3.19 | 2.69 | 3.27 |
| May | 3.19 | 2.69 | 3.27 |
| June | 3.09 | 2.59 | 3.17 |
| July | 2.91 | 2.41 | 2.99 |
| August | 2.91 | 2.41 | 2.99 |
| September | 2.91 | 2.40 | 3.00 |
| October | 2.91 | 2.40 | 3.00 |
| November | 2.91 | 2.40 | 3.00 |
| December | 2.91 | 2.41 | 2.99 |
| January | 2.91 | 2.41 | 2.99 |
| February | 3.01 | 2.51 | 3.09 |
| Total | 36.04 | 30.01 | 37.03 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
State Update
Connecticut’s economy grew moderately during the 12 months under review. The state remained among the nation’s wealthiest, with strong per-capita income well above national
1. For state personal income taxes, the 80% minimum is measured by total Fund assets. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 79.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
levels. For the period under review, home prices rose and foreclosure rates generally declined. Connecticut’s unemployment rate fell from 5.5% in February 2016 to 4.7% at the end of the review period, which matched the 4.7% national rate.3
During the state’s fiscal year (FY) 2016, the budget office anticipated weaker-than-projected revenue growth and, subsequently, a potential budget deficit. Lower income tax collections led to lower-than-expected general fund revenues. The state legislature approved the FY 2017 budget, which included spending cuts and additional revenue measures. It included elimination of several state government jobs to substantially reduce future deficits, and spending cuts in grants for municipalities, school transportation and hospitals. The legislature also affirmed that future budgets would be based on fixed cost, such as debt service, Medicaid, pensions and other entitlements. In February 2017, the governor announced a biennium budget for FY 2018-2019 that included budget cuts, reduced local aid and various revenue enhancement measures. General fund revenue in FY 2018 is forecasted to decrease due to diversion of sales tax revenue, increased earned income tax credits and lower income taxes on retired teachers.
Connecticut’s debt levels remained among the nation’s highest, with net tax-supported debt at 9.8% of personal income and $6,155 per capita, compared with the national medians of 2.5% and $1,025, respectively.4 Independent credit rating agency Standard & Poor’s (S&P) affirmed its AA- rating on Connecticut’s general obligation bonds, and it revised its outlook from stable to negative.5 The revision to the outlook reflected S&P’s view that projected fixed costs for debt, pension and other post-employment benefits might rise to high levels in the future, which could reduce the state’s budget flexibility as it tries to address out-year budget gaps. S&P further noted that any further increase in fixed costs as a percentage of the budget, a decrease in pension funded ratios or the adoption of structurally unbalanced budget balancing measures could lead to the state’s credit rating being lowered. S&P noted that high wealth and income levels, a diverse economy, active monitoring of revenues and expenditures and adequate operating liquidity support its rating.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| Higher Education | 25.6 | % |
| Hospital & Health Care | 20.7 | % |
| Refunded** | 18.9 | % |
| Utilities | 13.8 | % |
| General Obligation | 9.5 | % |
| Transportation | 4.1 | % |
| Other Revenue | 3.3 | % |
| Tax-Supported | 3.2 | % |
| Housing | 0.9 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico bonds, which increased in price over the period. However, these bonds declined substantially shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Connecticut Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate S&P’s rating of the Fund.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +0.82 | % | -3.42 | % |
| 5-Year | +9.71 | % | +1.00 | % |
| 10-Year | +38.25 | % | +2.85 | % |
| Advisor3 | | | | |
| 1-Year | +1.01 | % | +1.01 | % |
| 5-Year | +10.37 | % | +1.99 | % |
| 10-Year | +39.32 | % | +3.37 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.32 | % | 6.34 | % | 1.98 | % | 3.78 | % |
| Advisor | 3.56 | % | 6.80 | % | 2.18 | % | 4.16 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 25 for Performance Summary footnotes.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 25 for Performance Summary footnotes.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FXCTX) | $ | 10.42 | | $ | 10.69 | -$ | 0.27 |
| C (FCTIX) | $ | 10.50 | | $ | 10.77 | -$ | 0.27 |
| Advisor (FCNZX) | $ | 10.42 | | $ | 10.68 | -$ | 0.26 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.3604 | | | | | |
| C | $ | 0.3001 | | | | | |
| Advisor | $ | 0.3703 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.69 | % | | | | |
| Advisor | | 0.59 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. The Fund holds a portion of its assets in Puerto Rico municipal bonds that have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/15/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/15/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/15/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/15/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +34.04% and +3.92%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Connecticut personal income tax rate of 47.62%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 974.73 | $ | 3.53 | $ | 1,021.22 | $ | 3.61 | 0.72 | % |
| C | $ | 1,000 | $ | 972.14 | $ | 6.21 | $ | 1,018.50 | $ | 6.36 | 1.27 | % |
| Advisor | $ | 1,000 | $ | 976.11 | $ | 3.04 | $ | 1,021.72 | $ | 3.11 | 0.62 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
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Franklin Michigan Tax-Free Income Fund
This annual report for Franklin Michigan Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Michigan Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Michigan personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its total assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 4.64 | % |
| AA | 58.80 | % |
| A | 12.54 | % |
| Below Investment Grade | 2.84 | % |
| Refunded | 21.18 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $11.78 on February 29, 2016, to $11.52 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 40.83 cents per share for the reporting period.2 The Performance Summary beginning on page 29 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.18% based on an annualization of February’s 3.19 cent per share dividend and the maximum offering price of $12.03 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Michigan personal income tax bracket of 45.97% (including 3.8%
Medicare tax) would need to earn a distribution rate of 5.89% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.42 | 2.87 | 3.51 |
| April | 3.47 | 2.92 | 3.56 |
| May | 3.47 | 2.92 | 3.56 |
| June | 3.47 | 2.91 | 3.56 |
| July | 3.47 | 2.91 | 3.56 |
| August | 3.44 | 2.88 | 3.53 |
| September | 3.44 | 2.88 | 3.54 |
| October | 3.44 | 2.88 | 3.54 |
| November | 3.44 | 2.88 | 3.54 |
| December | 3.29 | 2.74 | 3.38 |
| January | 3.29 | 2.74 | 3.38 |
| February | 3.19 | 2.64 | 3.28 |
| Total | 40.83 | 34.17 | 41.94 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
State Update
Michigan’s economy generally expanded for the 12 months under review. Although the state’s economy was diversified, the manufacturing sector continued to serve as a major
1. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 95.
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FRANKLIN MICHIGAN TAX-FREE INCOME FUND
employment source. Michigan’s unemployment rate rose from 5.0% in February 2016 to 5.3% at period-end, which was higher the 4.7% national average.3 The housing market was positive as home prices rose and the foreclosure rate declined during most of the review period.
Michigan’s fiscal year (FY) 2016 general fund-general purpose and school funding revenues were above FY 2015 levels, mainly due to higher income tax receipts, which was partially offset by higher refunds under the Michigan Business Tax, higher individual income tax refunds and lower corporate tax revenue. The FY 2017 budget prioritized sectors such as education, health, job creation and infrastructure investment. The budget proposed an increased investment in education funding and a substantial reduction in general fund support for transportation. Additionally, the governor’s FY 2017 budget proposal did not identify additional deposits to the budget stabilization fund (commonly referred to as the “rainy day fund”) above mandated annual deposits. In February 2017, the governor announced FY 2018 and 2019 budget recommendations. For FY 2018, a considerable portion of the budget was intended to support education and health and human services. The budget recommendations included increased spending in economic development, education and infrastructure.
Michigan maintained relatively low debt levels, with net tax-supported debt at $719 per capita and 1.8% of personal income, compared with the national medians of $1,025 and 2.5%, respectively.4 Independent credit rating agency Moody’s Investors Service assigned Michigan’s general obligation bonds a rating of Aa1 with a stable outlook.5 The rating reflected Moody’s assessment of the state’s strong financial and liquidity position; stabilization in the auto sector, which has led to improved trends in the economy and tax receipts; and moderate debt and pension burdens.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico COFINA bonds, which contributed to positive performance over the annual period. However, these bonds lost some of their gains shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| General Obligation | 28.7 | % |
| Refunded** | 25.1 | % |
| Hospital & Health Care | 19.5 | % |
| Higher Education | 11.8 | % |
| Utilities | 6.1 | % |
| Subject to Government Appropriations | 3.8 | % |
| Tax-Supported | 2.8 | % |
| Transportation | 2.0 | % |
| Housing | 0.2 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Michigan Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate Moody’s rating of the Fund.
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FRANKLIN MICHIGAN TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +1.24 | % | -3.04 | % |
| 5-Year | +12.77 | % | +1.55 | % |
| 10-Year | +39.98 | % | +2.98 | % |
| Advisor3 | | | | |
| 1-Year | +1.33 | % | +1.33 | % |
| 5-Year | +13.29 | % | +2.53 | % |
| 10-Year | +41.45 | % | +3.53 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.18 | % | 5.89 | % | 2.04 | % | 3.78 | % |
| Advisor | 3.41 | % | 6.31 | % | 2.25 | % | 4.16 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 31 for Performance Summary footnotes.
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FRANKLIN MICHIGAN TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 31 for Performance Summary footnotes.
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FRANKLIN MICHIGAN TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FTTMX) | $ | 11.52 | | $ | 11.78 | -$ | 0.26 |
| C (FRMTX) | $ | 11.69 | | $ | 11.95 | -$ | 0.26 |
| Advisor (FMTFX) | $ | 11.55 | | $ | 11.81 | -$ | 0.26 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.4083 | | | | | |
| C | $ | 0.3417 | | | | | |
| Advisor | $ | 0.4194 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.64 | % | | | | |
| Advisor | | 0.54 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. The Fund holds a small portion of its assets in Puerto Rico municipal bonds thathave been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/1/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/1/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect ofClassA’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/1/08, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/1/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +36.73% and +3.68%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Connecticut personal income tax rate of 45.97%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN MICHIGAN TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 976.70 | $ | 3.28 | $ | 1,021.47 | $ | 3.36 | 0.67 | % |
| C | $ | 1,000 | $ | 973.47 | $ | 5.97 | $ | 1,018.74 | $ | 6.11 | 1.22 | % |
| Advisor | $ | 1,000 | $ | 976.50 | $ | 2.79 | $ | 1,021.97 | $ | 2.86 | 0.57 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 184/365 to reflect the one-half year period.
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Franklin Minnesota Tax-Free Income Fund
This annual report for Franklin Minnesota Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Minnesota Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Minnesota personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its total assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 14.55 | % |
| AA | 67.77 | % |
| A | 10.42 | % |
| Refunded | 7.03 | % |
| Not Rated | 0.23 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $12.63 on February 29, 2016, to $12.27 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 37.58 cents per share for the reporting period.2 The Performance Summary beginning on page 35 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 2.81% based on an annualization of February’s 3.00 cent per share dividend and the maximum offering price of $12.81 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Minnesota personal income tax bracket of 49.35% (including 3.8%
Medicare tax) would need to earn a distribution rate of 5.55% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.18 | 2.59 | 3.28 |
| April | 3.18 | 2.59 | 3.28 |
| May | 3.18 | 2.59 | 3.28 |
| June | 3.13 | 2.54 | 3.23 |
| July | 3.13 | 2.54 | 3.23 |
| August | 3.13 | 2.54 | 3.23 |
| September | 3.13 | 2.53 | 3.23 |
| October | 3.13 | 2.53 | 3.23 |
| November | 3.13 | 2.53 | 3.23 |
| December | 3.13 | 2.54 | 3.23 |
| January | 3.13 | 2.54 | 3.23 |
| February | 3.00 | 2.41 | 3.10 |
| Total | 37.58 | 30.47 | 38.78 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
State Update
Minnesota’s broad-based economy expanded during the 12 months under review. The state’s unemployment rate rose from 3.9% in February 2016 to 4.0% at period-end, significantly
1. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 95.
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33
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
lower than the 4.7% national average.3 Overall, the state’s labor force participation declined during the review period. Home prices and building permits in the state rose, while foreclosure rates generally declined.
The state ended its fiscal year (FY) 2016 on June 30, 2016, and net general fund receipts exceeded February 2016 revenue forecasts, largely due to higher-than-expected corporate income tax and other receipts. The state also continued to shore up its reserve position, although the budget reserve remained below its target. The 2016 legislative session enacted some revenue and spending appropriation increases, but the state plans to maintain a moderate balance in FY 2017.
In January 2017, the governor proposed 2018–2019 biennium budget that stressed health care, education and transportation. The budget outlook for 2018–2019 improved with a revision in February 2017 as revenue forecasts increased for individual income, general sales and corporate tax revenue. The projected revenues were estimated to exceed higher spending over 2018–2019.
Minnesota’s net tax-supported debt was 3.2% of personal income and $1,527 per capita, compared with the national medians of 2.5% and $1,025, respectively.4 Independent credit rating agency Moody’s Investors Service maintained an Aa1 rating with a stable outlook on Minnesota’s general obligation debt, citing the state’s strong financial management that resulted in replenishment of budget reserves, structural budget balance and sound management practices.5 According to Moody’s, some of Minnesota’s challenges include high debt ratios and a history of budgetary gridlocks. Overall, the rating agency believes Minnesota’s economic fundamentals are strong.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| General Obligation | 27.5 | % |
| Refunded** | 17.6 | % |
| Hospital & Health Care | 16.0 | % |
| Utilities | 15.6 | % |
| Transportation | 7.9 | % |
| Higher Education | 7.2 | % |
| Subject to Government Appropriations | 3.8 | % |
| Housing | 3.5 | % |
| Tax-Supported | 0.9 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Breakdown.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
Thank you for your continued participation in Franklin Minnesota Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate Moody’s rating of the Fund.
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FRANKLIN MINNESOTA TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +0.11 | % | -4.14 | % |
| 5-Year | +12.31 | % | +1.46 | % |
| 10-Year | +44.07 | % | +3.27 | % |
| Advisor3 | | | | |
| 1-Year | +0.20 | % | +0.20 | % |
| 5-Year | +12.86 | % | +2.45 | % |
| 10-Year | +45.26 | % | +3.80 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 2.81 | % | 5.55 | % | 1.54 | % | 3.04 | % |
| Advisor | 3.03 | % | 5.98 | % | 1.72 | % | 3.40 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 37 for Performance Summary footnotes.
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FRANKLIN MINNESOTA TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 37 for Performance Summary footnotes.
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FRANKLIN MINNESOTA TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FMINX) | $ | 12.27 | | $ | 12.63 | -$ | 0.36 |
| C (FMNIX) | $ | 12.40 | | $ | 12.76 | -$ | 0.36 |
| Advisor (FMNZX) | $ | 12.28 | | $ | 12.64 | -$ | 0.36 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.3758 | | | | | |
| C | $ | 0.3047 | | | | | |
| Advisor | $ | 0.3878 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.64 | % | | | | |
| Advisor | | 0.54 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/1/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/1/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect ofClassA’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/1/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/1/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +34.57% and +3.95%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Minnesota personal income tax rate of 49.35%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P and Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN MINNESOTA TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 980.10 | $ | 3.24 | $ | 1,021.52 | $ | 3.31 | 0.66 | % |
| C | $ | 1,000 | $ | 977.50 | $ | 5.93 | $ | 1,018.79 | $ | 6.06 | 1.21 | % |
| Advisor | $ | 1,000 | $ | 980.60 | $ | 2.75 | $ | 1,022.02 | $ | 2.81 | 0.56 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
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Franklin Ohio Tax-Free Income Fund
This annual report for Franklin Ohio Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Ohio Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Ohio personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its total assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 11.13 | % |
| AA | 62.81 | % |
| A | 11.77 | % |
| BBB | 0.66 | % |
| Refunded | 13.63 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $12.90 on February 29, 2016, to $12.56 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 41.03 cents per share for the reporting period.2 The Performance Summary beginning on page 42 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 2.86% based on an annualization of February’s 3.13 cent per share dividend and the maximum offering price of $13.12 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Ohio personal income tax bracket of 46.42% (including 3.8%
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.49 | 2.88 | 3.59 |
| April | 3.59 | 2.98 | 3.69 |
| May | 3.59 | 2.98 | 3.69 |
| June | 3.46 | 2.85 | 3.56 |
| July | 3.46 | 2.85 | 3.56 |
| August | 3.41 | 2.80 | 3.51 |
| September | 3.41 | 2.80 | 3.51 |
| October | 3.41 | 2.80 | 3.51 |
| November | 3.41 | 2.80 | 3.51 |
| December | 3.41 | 2.81 | 3.51 |
| January | 3.26 | 2.66 | 3.36 |
| February | 3.13 | 2.53 | 3.23 |
| Total | 41.03 | 33.74 | 42.23 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Medicare tax) would need to earn a distribution rate of 5.34% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
State Update
Ohio’s economy continued to grow during the period under review. The state’s housing market improved as home sales increased and home prices rose. Ohio’s employment growth slowed toward the end of 2016, as did the state’s labor force
1. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 104.
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FRANKLIN OHIO TAX-FREE INCOME FUND
growth. The state’s major metropolitan centers attract significant employers, and consequently contain a substantial portion of the state’s population. Some large employers with headquarters located in Ohio’s metropolitan centers include Wal-Mart, Cleveland Clinic Health System, Kroger, Mercy Health and University Hospitals Health System. Ohio features one of the largest U.S. populations, a well-developed higher education system and a strong presence in the auto industry. However, population growth has slowed in recent years due to an outmigration among young professionals, partially attributed to below-average incomes and less attractive employment opportunities. Ohio’s unemployment rate increased slightly from 5.0% in February 2016 to 5.1% by period-end, which was higher than the national rate of 4.7%.3
The state ended fiscal year (FY) 2016 on June 30, 2016, with a higher-than-estimated general fund balance, despite lower-than-projected income and sales tax revenues given even lower-than-expected Medicaid and education spending. This trend allowed a healthy deposit into the state’s budget stabilization fund. Ohio’s enacted 2016–2017 biennium budget continued the implementation of significant tax reform by providing small-business tax relief and a personal income tax reduction. The tax reform efforts, however, were partially offset by an increase to the cigarette tax, restriction of the retirement income tax credit and an increased allocation of various taxes to the general revenue fund. The budget also included increased funding for K-12 education, higher education and Medicaid, and the development of new programs to provide employment opportunities for state residents with disabilities. Through November 2016, the year-to-date FY 2017 general revenue fund receipts were lower than estimated, primarily due to lower personal income tax receipts and non-auto sales taxes. The state’s proposed FY 2018–2019 biennium budget included lower income tax rates, fewer income tax brackets, an increase in the sales tax rate, an expansion of sales taxes to discretionary services and additional spending for the state’s schools. Ohio has a strong history of implementing budget adjustments regularly and on a timely basis.
Ohio’s net tax-supported debt, at $1,091 per capita and 2.6% of personal income was slightly above the $1,025 and 2.5% national medians.4 Independent credit rating agency Standard & Poor’s (S&P) affirmed Ohio’s AA+ general obligation debt rating with a stable outlook.5 The rating reflected S&P’s view
of Ohio’s long history of proactive financial and budget management, including frequent and prompt budget modifications to offset decreased revenue. The rating also reflected S&P’s view of the state’s commitment to funding budget reserves, better revenue and budget performance and renewal of the budget stabilization fund, moderate debt levels, and significant pension reform changes coupled with steady progress in funding other postemployment benefits. In S&P’s view, the stable outlook reflected Ohio’s improved structural budget alignment and steady economic growth that has allowed recent contributions to its budget stabilization fund.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| General Obligation | 31.0 | % |
| Refunded** | 19.0 | % |
| Higher Education | 13.4 | % |
| Utilities | 12.7 | % |
| Hospital & Health Care | 12.3 | % |
| Transportation | 3.7 | % |
| Subject to Government Appropriations | 3.2 | % |
| Other Revenue | 2.5 | % |
| Tax-Supported | 1.8 | % |
| Housing | 0.4 | % |
| *Does not include cash and cash equivalents. | | |
| **Includes all refunded bonds; the percentage may differ from that in the Credit | |
| Quality Breakdown. | | |
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
Thank you for your continued participation in Franklin Ohio Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate S&P’s rating of the Fund.
FRANKLIN OHIO TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio
holdings as of February 28, 2017, the end of the reporting period. The
way we implement our main investment strategies and the resulting
portfolio holdings may change depending on factors such as market
and economic conditions. These opinions may not be relied upon as
investment advice or an offer for a particular security. The information
is not a complete analysis of every aspect of any market, state,
industry, security or the Fund. Statements of fact are from sources
considered reliable, but the investment manager makes no
representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results,
these insights may help you understand our investment management
philosophy.
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FRANKLIN OHIO TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +0.52 | % | -3.73 | % |
| 5-Year | +15.61 | % | +2.05 | % |
| 10-Year | +45.76 | % | +3.39 | % |
| Advisor3 | | | | |
| 1-Year | +0.62 | % | +0.62 | % |
| 5-Year | +16.26 | % | +3.06 | % |
| 10-Year | +47.11 | % | +3.94 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 2.86 | % | 5.34 | % | 1.87 | % | 3.49 | % |
| Advisor | 3.08 | % | 5.75 | % | 2.07 | % | 3.86 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 44 for Performance Summary footnotes.
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FRANKLIN OHIO TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 44 for Performance Summary footnotes.
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FRANKLIN OHIO TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FTOIX) | $ | 12.56 | | $ | 12.90 | -$ | 0.34 |
| C (FOITX) | $ | 12.72 | | $ | 13.06 | -$ | 0.34 |
| Advisor (FROZX) | $ | 12.57 | | $ | 12.91 | -$ | 0.34 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.4103 | | | | | |
| C | $ | 0.3374 | | | | | |
| Advisor | $ | 0.4223 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.63 | % | | | | |
| Advisor | | 0.53 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/1/08, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/1/08, a restated figure is used based upon the Fund’s Class A performance, excluding the effect ofClassA’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/1/08, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/1/08 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +43.44% and +4.25%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Ohio personal income tax rate of 46.42%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P or Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Funds’ Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN OHIO TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 976.30 | $ | 3.14 | $ | 1,021.62 | $ | 3.21 | 0.64 | % |
| C | $ | 1,000 | $ | 973.10 | $ | 5.82 | $ | 1,018.89 | $ | 5.96 | 1.19 | % |
| Advisor | $ | 1,000 | $ | 976.80 | $ | 2.65 | $ | 1,022.12 | $ | 2.71 | 0.54 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
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Franklin Oregon Tax-Free Income Fund
This annual report for Franklin Oregon Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Oregon Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Oregon personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its net assets in securities that pay interest free from such taxes.1
Credit Quality Composition*
2/28/17
| | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 12.74 | % |
| AA | 52.30 | % |
| A | 13.05 | % |
| BBB | 5.65 | % |
| Below Investment Grade | 2.33 | % |
| Refunded | 13.93 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $11.89 on February 29, 2016, to $11.60 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 39.97 cents per share for the reporting period.2 The Performance Summary beginning on page 49 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.23% based on an annualization of February’s 3.26 cent per share dividend and the maximum offering price of $12.11 on February 28, 2017. An investor in
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.44 | 2.88 | 3.53 |
| April | 3.44 | 2.88 | 3.53 |
| May | 3.44 | 2.88 | 3.53 |
| June | 3.39 | 2.83 | 3.49 |
| July | 3.39 | 2.83 | 3.49 |
| August | 3.39 | 2.83 | 3.49 |
| September | 3.29 | 2.72 | 3.39 |
| October | 3.29 | 2.72 | 3.39 |
| November | 3.19 | 2.62 | 3.29 |
| December | 3.19 | 2.63 | 3.28 |
| January | 3.26 | 2.70 | 3.35 |
| February | 3.26 | 2.70 | 3.35 |
| Total | 39.97 | 33.22 | 41.11 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
the 2017 maximum combined effective federal and Oregon personal income tax bracket of 49.38% (including 3.8% Medicare tax) would need to earn a distribution rate of 6.38% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary. The Funds took advantage of higher yields over the last few months of the period to boost dividend distributions. However, dividends over the entire period were lower due to yields being low for most of the year.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
1. For state personal income taxes, the 80% minimum is measured by total Fund assets. For investors subject to alternative minimum tax, a small portion of Fund dividends may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S. investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 113.
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FRANKLIN OREGON TAX-FREE INCOME FUND
State Update
Oregon’s economy continued to expand during the 12 months under review. The state’s job market performed well and expanded faster than the nation’s, driven by new jobs in the professional and business services sector and the education and health care services sector. Oregon’s future economic growth may benefit from the technology sector and the state’s high concentration of semiconductor manufacturing. Oregon’s unemployment rate declined from 4.9% at the beginning of the reporting period to 4.0% at period-end, lower than the 4.7% national average.3 The state’s personal income growth increased along with accelerating population growth.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| Refunded** | 27.4 | % |
| General Obligation | 26.2 | % |
| Hospital & Health Care | 18.8 | % |
| Utilities | 8.9 | % |
| Higher Education | 8.2 | % |
| Transportation | 3.6 | % |
| Tax-Supported | 2.9 | % |
| Housing | 1.8 | % |
| Subject to Government Appropriations | 1.4 | % |
| Other Revenue | 0.8 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
According to December 2016 forecasts, Oregon’s combined general fund and lottery revenues for the 2015–2017 biennium are expected to be higher than original estimates, largely due to strong growth in income tax collections. The state’s 2015–2017 biennial general fund budget was mostly structurally balanced, and continued to prioritize replenishment of rainy day funds. The state expects total reserves at the end of fiscal year 2017 to continue to rise from recent levels. These reserves potentially offer a fiscal cushion against revenue volatility and Oregon’s unusually high dependence on personal income taxes. Additionally, budget increases in education and human services spending were balanced by projected revenue growth. In December 2016, the governor’s proposed 2017–2019 biennial budget included increased spending, largely in education. The executive budget also proposed revenue enhancement
measures, coupled with spending cuts for existing programs, to close an expected budget gap.
Oregon’s net tax-supported debt was 4.6% of personal income and $1,907 per capita, compared with the national medians of 2.5% and $1,025, respectively.4 Independent credit rating agency Standard & Poor’s (S&P) rated Oregon’s general obligation debt AA+ with a stable outlook.5 The rating and outlook reflected S&P’s assessment of the state’s willingness to adjust revenue and spending to correct structural imbalances that may arise, mechanisms to build up rainy day funds, solid budget reserve levels, sound financial policies and a well-funded retirement system. However, S&P cited challenges such as the state’s propensity for revenue volatility due to dependence on personal income taxes and a constitutional requirement to provide income tax rebates if certain criteria are met. Overall, S&P’s stable outlook reflected its view that Oregon’s finances were poised to remain strong and that solid reserves may mitigate potential future revenue cyclicality.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico bonds, which increased in price over the period. However, these bonds declined substantially shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Oregon Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate S&P’s rating of the Fund.
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FRANKLIN OREGON TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN OREGON TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +0.90 | % | -3.41 | % |
| 5-Year | +11.66 | % | +1.35 | % |
| 10-Year | +43.96 | % | +3.26 | % |
| Advisor3 | | | | |
| 1-Year | +0.99 | % | +0.99 | % |
| 5-Year | +12.20 | % | +2.33 | % |
| 10-Year | +45.13 | % | +3.79 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.23 | % | 6.38 | % | 1.92 | % | 3.79 | % |
| Advisor | 3.46 | % | 6.84 | % | 2.13 | % | 4.21 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 51 for Performance Summary footnotes.
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FRANKLIN OREGON TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 51 for Performance Summary footnotes.
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FRANKLIN OREGON TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FRORX) | $ | 11.60 | | $ | 11.89 | -$ | 0.29 |
| C (FORIX) | $ | 11.77 | | $ | 12.06 | -$ | 0.29 |
| Advisor (FOFZX) | $ | 11.61 | | $ | 11.90 | -$ | 0.29 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.3997 | | | | | |
| C | $ | 0.3322 | | | | | |
| Advisor | $ | 0.4111 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.63 | % | | | | |
| Advisor | | 0.53 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic and regulatory changes in that state than a geographically diversified fund. The Fund holds a portion of its assets in Puerto Rico municipal bonds that have been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen annualized.
3. Effective 7/15/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 7/15/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/15/09, actual Advisor Class performance is used reflecting all charges and fees applicable to that class. Since 7/15/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +36.79% and +4.19%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Oregon personal income tax rate of 49.38%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following agencies: Moody’s, S&P or Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Funds’ Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
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FRANKLIN OREGON TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 974.80 | $ | 3.13 | $ | 1,021.62 | $ | 3.21 | 0.64 | % |
| C | $ | 1,000 | $ | 972.30 | $ | 5.82 | $ | 1,018.89 | $ | 5.96 | 1.19 | % |
| Advisor | $ | 1,000 | $ | 975.30 | $ | 2.64 | $ | 1,022.12 | $ | 2.71 | 0.54 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
52 Annual Report
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Franklin Pennsylvania Tax-Free Income Fund
This annual report for Franklin Pennsylvania Tax-Free Income Fund covers the fiscal year ended February 28, 2017.
Your Fund’s Goal and Main Investments
Franklin Pennsylvania Tax-Free Income Fund seeks to provide as high a level of income exempt from federal and Pennsylvania personal income taxes as is consistent with prudent investment management and preservation of capital by investing at least 80% of its net assets in securities that pay interest free from such taxes.1
| | |
| Credit Quality Composition* | | |
| 2/28/17 | | |
| | % of Total | |
| Ratings | Investments | |
| AAA | 0.51 | % |
| AA | 42.29 | % |
| A | 25.89 | % |
| BBB | 5.96 | % |
| Below Investment Grade | 3.38 | % |
| Refunded | 21.50 | % |
| Not Rated | 0.47 | % |
*Securities, except for those labeled Not Rated, are assigned ratings by one or more Nationally Recognized Statistical Credit Rating Organizations (NRSROs), such as Standard & Poor’s, Moody’s and Fitch, that can be considered by the investment manager as part of its independent securities analysis. When ratings from multiple agencies are available, the highest is used, consistent with the portfolio investment process. Ratings reflect an NRSRO’s opinion of an issuer’s creditworthiness and typically range from AAA (highest) to D (lowest). The Below Investment Grade category consists of bonds rated below BBB-. The Refunded category generally consists of refunded bonds secured by U.S. government or other high-quality securities and not rerated by an NRSRO. The Not Rated category consists of ratable securities that have not been rated by an NRSRO. Cash and equivalents are excluded from this composition.
Performance Overview
The Fund’s Class A share price, as measured by net asset value, decreased from $10.33 on February 29, 2016, to $10.12 on February 28, 2017. The Fund’s Class A shares paid dividends totaling 37.83 cents per share for the reporting period.2 The Performance Summary beginning on page 56 shows that at the end of this reporting period the Fund’s Class A shares’ distribution rate was 3.69% based on an annualization of February’s 3.25 cent per share dividend and the maximum
offering price of $10.57 on February 28, 2017. An investor in the 2017 maximum combined effective federal and Pennsylvania personal income tax bracket of 45.25% (including 3.8% Medicare tax) would need to earn a distribution rate of 6.74% from a taxable investment to match the Fund’s Class A tax-free distribution rate. For other performance data, please see the Performance Summary.
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
| | | |
| Distributions* | | | |
| 3/1/16–2/28/17 | | | |
| | Distributions per Share (cents) |
| | | | Advisor |
| Month | Class A | Class C | Class |
| March | 3.20 | 2.72 | 3.28 |
| April | 3.20 | 2.72 | 3.28 |
| May | 3.20 | 2.72 | 3.28 |
| June | 3.10 | 2.61 | 3.18 |
| July | 3.10 | 2.61 | 3.18 |
| August | 3.10 | 2.61 | 3.18 |
| September | 3.10 | 2.61 | 3.18 |
| October | 3.10 | 2.61 | 3.18 |
| November | 3.15 | 2.66 | 3.23 |
| December | 3.15 | 2.66 | 3.23 |
| January | 3.18 | 2.69 | 3.26 |
| February | 3.25 | 2.76 | 3.33 |
| Total | 37.83 | 31.98 | 38.79 |
*The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. 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. All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
Commonwealth Update
Pennsylvania’s broad and diverse economy remained stable and was less volatile than the U.S. economy overall during the fiscal year. Home sales were down, but prices increased. The
1. For state personal income taxes, the 80% minimum is measured by total Fund assets. For investors subject to alternative minimum tax, a small portion of Fund dividends
may be taxable. Distributions of capital gains are generally taxable. To avoid imposition of 28% backup withholding on all Fund distributions and redemption proceeds, U.S.
investors must be properly certified on Form W-9 and non-U.S. investors on Form W-8BEN.
2. The distribution amount is the sum of all distributions to shareholders for the period shown and includes only net investment income. All Fund distributions will vary depending
upon current market conditions, and past distributions are not indicative of future trends.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI).
The SOI begins on page 122.
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53
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
local economy experienced a slight gain in jobs during the period and hotel occupancy rates although not yet released for 2016 are expected to see an increase. Contributors to the increase included multiple citywide conventions, major sporting events and strong performance in the leisure sector. Pennsylvania’s unemployment rate began the period at 5.4% and ended at 5.0%, which was slightly higher than the 4.7% national average.3
During the period under review, the fiscal year 2017 budget experienced a shortfall in tax revenues. The governor has taken steps to curb spending in the proposed 2018 fiscal year budget. Some of the proposed cost savings included consolidation of several health-related agencies to create one unified department of health and human services, prioritizing agency expenditures and cost efficiencies and proposed new taxes targets at business interests rather than broad-based tax increases. The budget proposal also includes funding for key priorities, such as education, implementing new healthcare programs and continued investment in training Pennsylvania’s workforce and funding job creation initiatives.
Pennsylvania’s debt levels were moderate and similar to the national medians. Net tax-supported debt was 2.5% of personal income and $1,172 per capita, compared with the national medians of $1,025 and 2.5%, respectively.4 Independent credit rating agency Moody’s Investors Service maintained an Aa3 rating with a stable outlook for Pennsylvania’s general obligation bonds.5 The rating and outlook reflect Moody’s continued view of the commonwealth’s large and diverse tax base, moderate debt burden and recent and planned progress toward improving funding of its elevated pension liabilities. The rating outlook recognizes that while Pennsylvania has challenges with budget imbalances, political gridlock, pension underfunding and expenditures growing more quickly than revenues, Moody’s believes that the magnitude of the budget gaps could be solvable.
| | |
| Portfolio Composition | | |
| 2/28/17 | | |
| | % of Total | |
| | Investments* | |
| Refunded** | 27.8 | % |
| Higher Education | 20.0 | % |
| Hospital & Health Care | 16.4 | % |
| Utilities | 13.8 | % |
| General Obligation | 9.3 | % |
| Transportation | 5.0 | % |
| Housing | 3.1 | % |
| Subject to Government Appropriations | 2.7 | % |
| Tax-Supported | 1.9 | % |
*Does not include cash and cash equivalents.
**Includes all refunded bonds; the percentage may differ from that in the Credit Quality Composition.
these bonds declined substantially shortly after period-end. Additionally, Puerto Rico and its municipal issuers continued to experience significant financial difficulties, which we discussed in the Municipal Bond Market Overview beginning on page 3. The Fund is not required to sell securities that have been downgraded to below investment grade, but it is prohibited from making further purchases of such securities as long as the securities are not rated investment grade by at least one U.S. nationally recognized rating service. We continue to closely monitor developments in Puerto Rico; however, the municipal bond market’s overall fundamentals, such as general creditworthiness and low default rates, remained stable.
Thank you for your continued participation in Franklin Pennsylvania Tax-Free Income Fund. We believe our conservative, buy-and-hold investment strategy can help us achieve high, current, tax-free income for shareholders.
Manager’s Discussion
We used various investment strategies during the 12 months under review as we sought to maximize tax-free income for shareholders. Please read the Investment Strategy and Manager’s Discussion on page 5 for more information.
The Fund holds a small portion of its assets in Puerto Rico bonds, which increased in price over the period. However,
3. Source: Bureau of Labor Statistics.
4. Source: Moody’s Investors Service, State Debt Medians 2016: Medians—Total Debt Remains Static in 2016, 5/6/16.
5. This does not indicate Moody’s rating of the Fund.
54 Annual Report
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FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
The foregoing information reflects our analysis, opinions and portfolio holdings as of February 28, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, state, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
Performance Summary as of February 28, 2017
The performance tables and graphs do not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund’s dividends and capital gain distributions, if any, and any unrealized gains or losses. Your dividend income will vary depending on dividends or interest paid by securities in the Fund’s portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities.
Performance as of 2/28/17
Cumulative total return excludes sales charges. Average annual total return includes maximum sales charges. Sales charges will vary depending on the size of the investment and the class of share purchased. The maximum is 4.25% and the minimum is 0%. Class A: 4.25% maximum initial sales charge; Advisor Class: no sales charges. For other share classes, visit franklintempleton.com.
| | | | |
| | Cumulative | | Average Annual | |
| Share Class | Total Return1 | | Total Return2 | |
| A | | | | |
| 1-Year | +1.62 | % | -2.71 | % |
| 5-Year | +13.79 | % | +1.73 | % |
| 10-Year | +45.78 | % | +3.40 | % |
| Advisor3 | | | | |
| 1-Year | +1.72 | % | +1.72 | % |
| 5-Year | +14.33 | % | +2.71 | % |
| 10-Year | +46.97 | % | +3.93 | % |
| | | | | | | | |
| | Distribution | | Taxable Equivalent | | 30 | -Day | Taxable Equivalent 30-Day | |
| Share Class | Rate4 | | Distribution Rate5 | | Standardized Yield6 | | Standardized Yield5 | |
| A | 3.69 | % | 6.74 | % | 1.97 | % | 3.60 | % |
| Advisor | 3.94 | % | 7.20 | % | 2.18 | % | 3.98 | % |
Performance data represent past performance, which does not guarantee future results. Investment return and principal value will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
See page 58 for Performance Summary footnotes.
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FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
Total Return Index Comparison for a Hypothetical $10,000 Investment
Total return represents the change in value of an investment over the periods shown. It includes any applicable maximum sales charge, Fund expenses, account fees and reinvested distributions. The unmanaged indexes include reinvestment of any income or distributions. They differ from the Fund in composition and do not pay management fees or expenses. One cannot invest directly in an index.
See page 58 for Performance Summary footnotes.
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FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
PERFORMANCE SUMMARY
| | | | | | | |
| Net Asset Value | | | | | | | |
| Share Class (Symbol) | | 2/28/17 | | | 2/29/16 | | Change |
| A (FRPAX) | $ | 10.12 | | $ | 10.33 | -$ | 0.21 |
| C (FRPTX) | $ | 10.24 | | $ | 10.45 | -$ | 0.21 |
| Advisor (FPFZX) | $ | 10.13 | | $ | 10.34 | -$ | 0.21 |
| |
| Distributions (3/1/16–2/28/17) | | | | | | | |
| | | Net Investment | | | | | |
| Share Class | | Income | | | | | |
| A | $ | 0.3783 | | | | | |
| C | $ | 0.3198 | | | | | |
| Advisor | $ | 0.3879 | | | | | |
| |
| Total Annual Operating Expenses9 | | | | | |
| Share Class | | | | | | | |
| A | | 0.64 | % | | | | |
| Advisor | | 0.54 | % | | | | |
Each class of shares is available to certain eligible investors and has different annual fees and expenses, as described in the prospectus.
All investments involve risks, including possible loss of principal. Because municipal bonds are sensitive to interest rate movements, the Fund’s yield and share
price will fluctuate with market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in the Fund adjust to a
rise in interest rates, the Fund’s share price may decline. Because the Fund invests principally in a single state, it is subject to greater risk of adverse economic
and regulatory changes in that state than a geographically diversified fund. The Fund holds a small portion of its assets in Puerto Rico municipal bonds thathave
been impacted by recent adverse economic and market changes, which may cause the Fund’s share price to decline. Changes in the credit rating of a bond, or in
the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. The Fund may invest a significant part of its assets in
municipal securities that finance similar types of projects, such as utilities, hospitals, higher education and transportation. A change that affects one project
would likely affect all similar projects, thereby increasing market risk. The Fund is actively managed but there is no guarantee that the manager’s investment
decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
1. Cumulative total return represents the change in value of an investment over the periods indicated.
2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Return for less than one year, ifany,hasnotbeen
annualized.
3. Effective 7/15/09, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. Performance quotations for this class reflect the
following methods of calculation: (a) For periods prior to 7/15/09, a restated figure is used based upon the Fund’s Class A performance, excluding the effect of Class A’s
maximum initial sales charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 7/15/09, actual Advisor Class performance is used reflecting all
charges and fees applicable to that class. Since 7/15/09 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +39.85% and
+4.50%.
4. Distribution rate is based on an annualization of the respective class’s February dividend and the maximum offering price (NAV for Advisor Class) per share on 2/28/17.
5. Taxable equivalent distribution rate and yield assume the published rates as of 12/19/16 for the maximum combined effective federal and Pennsylvania personal income tax
rate of 45.25%, based on the federal income tax rate of 39.60% plus 3.8% Medicare tax.
6. The Fund’s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal
the Fund’s actual income distribution rate, which reflects the Fund’s past dividends paid to shareholders.
7. Source: Morningstar. The Bloomberg Barclays Municipal Bond Index is a market value-weighted index engineered for the long-term tax-exempt bond market. To be included
in the index, bonds must be fixed rate, have at least one year to final maturity and be rated investment grade (Baa3/BBB- or higher) by at least two of the following
agencies: Moody’s, S&P or Fitch.
8. Source: Bureau of Labor Statistics, bls.gov/cpi. The Consumer Price Index is a commonly used measure of the inflation rate.
9. Figures are as stated in the Fund’s current prospectus and may differ from the expense ratios disclosed in the Your Fund’s and Financial Highlights sections in this report. In
periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
See www.franklintempletondatasources.com for additional data provider information.
58 Annual Report
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FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
| | | | | | | | | | | | |
| | | | | | | Actual | | Hypothetical | | |
| | | | | (actual return after expenses) | | (5% annual return before expenses) | | |
| |
| | | | | | | Expenses | | | | Expenses | | |
| | | Beginning | | Ending | | Paid During | | Ending | | Paid During | Annualized | |
| Share | | Account | | Account | | Period | | Account | | Period | Expense | |
| Class | | Value 9/1/16 | | Value 2/28/17 | | 9/1/16–2/28/171 | | Value 2/28/17 | | 9/1/16–2/28/171 | Ratio | |
| |
| A | $ | 1,000 | $ | 982.80 | $ | 3.24 | $ | 1,021.52 | $ | 3.31 | 0.66 | % |
| C | $ | 1,000 | $ | 979.30 | $ | 5.94 | $ | 1,018.79 | $ | 6.06 | 1.21 | % |
| Advisor | $ | 1,000 | $ | 983.30 | $ | 2.75 | $ | 1,022.02 | $ | 2.81 | 0.56 | % |
1. Expenses are equal to the annualized expense ratio for the six-month period as indicated above–in the far right column–multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
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| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Arizona Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.07 | | $ | 11.22 | | $ | 10.80 | | $ | 11.52 | | $ | 11.28 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.38 | | | 0.41 | | | 0.43 | | | 0.45 | | | 0.45 | |
| Net realized and unrealized gains (losses) | | (0.29 | ) | | (0.15 | ) | | 0.42 | | | (0.73 | ) | | 0.23 | |
| Total from investment operations | | 0.09 | | | 0.26 | | | 0.85 | | | (0.28 | ) | | 0.68 | |
| Less distributions from net investment income | | (0.38 | ) | | (0.41 | ) | | (0.43 | ) | | (0.44 | ) | | (0.44 | ) |
| Net asset value, end of year. | $ | 10.78 | | $ | 11.07 | | $ | 11.22 | | $ | 10.80 | | $ | 11.52 | |
| |
| Total returnd | | 0.77 | % | | 2.39 | % | | 7.98 | % | | (2.37 | )% | | 6.14 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.63 | % | | 0.62 | % | | 0.62 | % | | 0.62 | % | | 0.63 | % |
| Net investment income | | 3.47 | % | | 3.69 | % | | 3.93 | % | | 4.10 | % | | 3.93 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 769,835 | | $ | 799,510 | | $ | 815,973 | | $ | 798,957 | | $ | 982,621 | |
| Portfolio turnover rate | | 13.02 | % | | 13.28 | % | | 12.31 | % | | 14.75 | % | | 6.40 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
60 Annual Report | The accompanying notes are an integral part of these financial statements.
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| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.24 | | $ | 11.39 | | $ | 10.96 | | $ | 11.68 | | $ | 11.43 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.33 | | | 0.35 | | | 0.38 | | | 0.39 | | | 0.39 | |
| Net realized and unrealized gains (losses) | | (0.30 | ) | | (0.15 | ) | | 0.42 | | | (0.73 | ) | | 0.24 | |
| Total from investment operations | | 0.03 | | | 0.20 | | | 0.80 | | | (0.34 | ) | | 0.63 | |
| Less distributions from net investment income | | (0.32 | ) | | (0.35 | ) | | (0.37 | ) | | (0.38 | ) | | (0.38 | ) |
| Net asset value, end of year. | $ | 10.95 | | $ | 11.24 | | $ | 11.39 | | $ | 10.96 | | $ | 11.68 | |
| |
| Total returnd | | 0.19 | % | | 1.79 | % | | 7.36 | % | | (2.87 | )% | | 5.56 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.18 | % | | 1.17 | % | | 1.17 | % | | 1.17 | % | | 1.18 | % |
| Net investment income | | 2.92 | % | | 3.14 | % | | 3.38 | % | | 3.55 | % | | 3.38 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 118,381 | | $ | 113,370 | | $ | 107,612 | | $ | 100,188 | | $ | 150,778 | |
| Portfolio turnover rate | | 13.02 | % | | 13.28 | % | | 12.31 | % | | 14.75 | % | | 6.40 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 61
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.10 | | $ | 11.25 | | $ | 10.83 | | $ | 11.55 | | $ | 11.30 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.40 | | | 0.42 | | | 0.45 | | | 0.46 | | | 0.46 | |
| Net realized and unrealized gains (losses) | | (0.30 | ) | | (0.15 | ) | | 0.41 | | | (0.73 | ) | | 0.24 | |
| Total from investment operations | | 0.10 | | | 0.27 | | | 0.86 | | | (0.27 | ) | | 0.70 | |
| Less distributions from net investment income | | (0.39 | ) | | (0.42 | ) | | (0.44 | ) | | (0.45 | ) | | (0.45 | ) |
| Net asset value, end of year. | $ | 10.81 | | $ | 11.10 | | $ | 11.25 | | $ | 10.83 | | $ | 11.55 | |
| |
| Total return | | 0.86 | % | | 2.48 | % | | 8.07 | % | | (2.26 | )% | | 6.33 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.53 | % | | 0.52 | % | | 0.52 | % | | 0.52 | % | | 0.53 | % |
| Net investment income | | 3.57 | % | | 3.79 | % | | 4.03 | % | | 4.20 | % | | 4.03 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 90,707 | | $ | 57,674 | | $ | 48,670 | | $ | 29,842 | | $ | 36,297 | |
| Portfolio turnover rate | | 13.02 | % | | 13.28 | % | | 12.31 | % | | 14.75 | % | | 6.40 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
62 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
| | | | |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Arizona Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 98.3% | | | | |
| Arizona 93.8% | | | | |
| Arizona Board of Regents Arizona State University Revenue, | | | | |
| Stimulus Plan for Economic and Educational Development, 5.00%, 8/01/33 | $ | 2,200,000 | $ | 2,462,460 |
| Stimulus Plan for Economic and Educational Development, 5.00%, 8/01/34 | | 3,320,000 | | 3,699,841 |
| Stimulus Plan for Economic and Educational Development, 5.00%, 8/01/44 | | 4,145,000 | | 4,556,184 |
| Arizona Board of Regents Arizona State University System Revenue, | | | | |
| Green Bond, Series B, 5.00%, 7/01/42 | | 2,000,000 | | 2,284,780 |
| Polytechnic Campus Project, Series C, Pre-Refunded, 6.00%, 7/01/26 | | 2,500,000 | | 2,667,175 |
| Polytechnic Campus Project, Series C, Pre-Refunded, 6.00%, 7/01/27 | | 3,000,000 | | 3,200,610 |
| Polytechnic Campus Project, Series C, Pre-Refunded, 6.00%, 7/01/28 | | 3,350,000 | | 3,574,014 |
| Refunding, Series B, 5.00%, 7/01/41 | | 14,070,000 | | 15,831,423 |
| Series C, 5.00%, 7/01/46 | | 5,000,000 | | 5,694,700 |
| Series D, 5.00%, 7/01/41 | | 5,000,000 | | 5,625,950 |
| Series D, 5.00%, 7/01/46 | | 7,000,000 | | 7,849,170 |
| Arizona Board of Regents COP, University of Arizona, Refunding, Series C, 5.00%, 6/01/31 | | 7,025,000 | | 7,919,774 |
| Arizona Board of Regents Northern Arizona University System Revenue, | | | | |
| Pre-Refunded, 5.00%, 6/01/38 | | 5,000,000 | | 5,253,050 |
| Refunding, 5.00%, 6/01/40 | | 7,365,000 | | 8,145,543 |
| Refunding, 5.00%, 6/01/44 | | 8,005,000 | | 8,761,713 |
| Stimulus Plan for Economic and Educational Development, 5.00%, 8/01/26 | | 2,380,000 | | 2,747,163 |
| Stimulus Plan for Economic and Educational Development, 5.00%, 8/01/38 | | 5,000,000 | | 5,597,750 |
| Arizona Board of Regents University of Arizona Revenue, Stimulus Plan for Economic and Educational | | | | |
| Development, 5.00%, 8/01/38 | | 10,150,000 | | 11,350,846 |
| Arizona Board of Regents University of Arizona System Revenue, | | | | |
| Green Bonds, Refunding, Series B, 5.00%, 6/01/46. | | 5,000,000 | | 5,689,350 |
| Refunding, 5.00%, 6/01/39 | | 2,750,000 | | 3,145,670 |
| Series A, 5.00%, 6/01/39 | | 8,650,000 | | 9,403,761 |
| Arizona Health Facilities Authority Healthcare Education Facilities Revenue, Kirksville College of | | | | |
| Osteopathic Medicine Inc., Arizona School of Health Sciences Project, 5.125%, 1/01/30 | | 2,250,000 | | 2,446,852 |
| Arizona Health Facilities Authority Hospital Revenue, Phoenix Children’s Hospital, Refunding, Series A, | | | | |
| 5.00%, 2/01/42 | | 8,000,000 | | 8,364,080 |
| Arizona Health Facilities Authority Revenue, | | | | |
| Banner Health, Series A, Pre-Refunded, 5.00%, 1/01/35 | | 10,000,000 | | 10,346,600 |
| Banner Health, Series D, BHAC Insured, Pre-Refunded, 5.50%, 1/01/38 | | 15,000,000 | | 15,581,550 |
| Banner Health, Series D, Pre-Refunded, 5.50%, 1/01/38 | | 17,500,000 | | 18,178,475 |
| Catholic Healthcare West, Series B, AGMC Insured, 5.00%, 3/01/41 | | 5,000,000 | | 5,300,300 |
| Catholic Healthcare West, Series B, Sub Series B-1, 5.25%, 3/01/39 | | 10,000,000 | | 10,755,200 |
| Scottsdale Lincoln Hospital Project, Refunding, Series A, 5.00%, 12/01/39 | | 15,000,000 | | 16,333,500 |
| Scottsdale Lincoln Hospital Project, Refunding, Series A, 5.00%, 12/01/42 | | 9,535,000 | | 10,362,543 |
| Arizona School Facilities Board COP, Pre-Refunded, 5.50%, 9/01/23 | | 10,000,000 | | 10,673,600 |
| Arizona Sports and Tourism Authority Senior Revenue, Multipurpose Stadium Facility Project, Refunding, | | | | |
| Series A, 5.00%, 7/01/36 | | 3,160,000 | | 3,333,389 |
| Arizona State COP, | | | | |
| Department of Administration, Series A, AGMC Insured, 5.25%, 10/01/26 | | 8,500,000 | | 9,334,700 |
| Department of Administration, Series A, AGMC Insured, 5.00%, 10/01/29 | | 5,855,000 | | 6,378,964 |
| Department of Administration, Series B, AGMC Insured, 5.00%, 10/01/28 | | 5,000,000 | | 5,511,650 |
| Department of Administration, Series B, AGMC Insured, 5.00%, 10/01/29 | | 3,000,000 | | 3,304,140 |
| Arizona State Lottery Revenue, | | | | |
| Series A, AGMC Insured, 5.00%, 7/01/28 | | 15,540,000 | | 16,927,100 |
| Series A, AGMC Insured, 5.00%, 7/01/29 | | 7,500,000 | | 8,160,750 |
franklintempleton.com
Annual Report
63
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Arizona (continued) | | | | |
| Arizona Transportation Board Highway Revenue, | | | | |
| Refunding, 5.00%, 7/01/31 | $ | 10,000,000 | $ | 11,584,300 |
| Subordinated, Refunding, Series A, 5.00%, 7/01/38 | | 5,750,000 | | 6,545,742 |
| Subordinated, Series A, Pre-Refunded, 5.00%, 7/01/36 | | 10,000,000 | | 11,474,700 |
| Central Arizona Water Conservation District Water Delivery O and M Revenue, | | | | |
| Central Arizona Project, 5.00%, 1/01/34. | | 1,000,000 | | 1,140,740 |
| Central Arizona Project, 5.00%, 1/01/36. | | 1,000,000 | | 1,133,320 |
| El Mirage GO, AGMC Insured, 5.00%, 7/01/42. | | 2,200,000 | | 2,454,078 |
| Gilbert Public Facilities Municipal Property Corp. Revenue, 5.50%, 7/01/28. | | 10,000,000 | | 10,998,600 |
| Gilbert Water Resources Municipal Property Corp. Water System Development Fee and Water Utility | | | | |
| Revenue, sub. lien, NATL Insured, Pre-Refunded, 5.00%, 10/01/29 | | 13,500,000 | | 13,830,885 |
| Glendale IDA Hospital Revenue, John C. Lincoln Health Network, Pre-Refunded, 5.00%, 12/01/42 | | 12,870,000 | | 13,267,297 |
| Glendale IDA Senior Living Facilities Revenue, Royal Oaks Life Care Community, Refunding, 5.00%, | | | | |
| 5/15/39 | | 8,500,000 | | 9,134,865 |
| Glendale IDAR, | | | | |
| Midwestern University, 5.00%, 5/15/35. | | 5,000,000 | | 5,457,700 |
| Midwestern University, 5.125%, 5/15/40 | | 10,000,000 | | 10,918,200 |
| Midwestern University, Refunding, 5.00%, 5/15/31 | | 3,455,000 | | 3,891,574 |
| Glendale Municipal Property Corp. Excise Tax Revenue, | | | | |
| Subordinate, Refunding, Series C, 5.00%, 7/01/38 | | 12,000,000 | | 13,280,760 |
| Subordinate, Refunding, Series C, AGMC Insured, 5.00%, 7/01/38 | | 6,530,000 | | 7,300,997 |
| Goodyear Water and Sewer Revenue, | | | | |
| sub. lien, Obligations, AGMC Insured, 5.00%, 7/01/45 | | 1,000,000 | | 1,127,780 |
| sub. lien, Obligations, Refunding, AGMC Insured, 5.25%, 7/01/31 | | 1,000,000 | | 1,133,620 |
| sub. lien, Obligations, Refunding, AGMC Insured, 5.50%, 7/01/41 | | 1,500,000 | | 1,710,555 |
| Lake Havasu Wastewater System Revenue, | | | | |
| senior lien, Refunding, Series B, AGMC Insured, 5.00%, 7/01/40 | | 15,000,000 | | 16,808,100 |
| senior lien, Refunding, Series B, AGMC Insured, 5.00%, 7/01/43 | | 9,155,000 | | 10,237,396 |
| Marana Municipal Property Corp. Municipal Facilities Revenue, Series A, 5.00%, 7/01/28 | | 3,000,000 | | 3,153,360 |
| Maricopa County Cartwright Elementary School District No. 83 GO, School Improvement, Project of 2010, | | | | |
| Series A, AGMC Insured, 5.375%, 7/01/30 | | 5,415,000 | | 6,173,750 |
| Maricopa County Hospital Revenue, Sun Health Corp., Pre-Refunded, 5.00%, 4/01/35 | | 12,090,000 | | 14,419,622 |
| Maricopa County IDA, | | | | |
| MFHR, Senior, National Voluntary Health Facilities II Project, Series A, AGMC Insured, ETM, 5.50%, | | | | |
| 1/01/18 | | 455,000 | | 465,551 |
| MFHR, Senior, Western Groves Apartments Project, Series A-1, AMBAC Insured, 5.30%, 12/01/22 | | 1,125,000 | | 1,125,349 |
| Maricopa County IDA Educational Revenue, | | | | |
| Reid Traditional Schools Projects, 5.00%, 7/01/36. | | 1,120,000 | | 1,195,634 |
| Reid Traditional Schools Projects, 5.00%, 7/01/47. | | 2,125,000 | | 2,231,526 |
| Maricopa County IDA Health Facility Revenue, Catholic Healthcare West, Refunding, Series A, 6.00%, | | | | |
| 7/01/39 | | 4,860,000 | | 5,311,494 |
| Maricopa County IDA Senior Living Facilities Revenue, | | | | |
| Christian Care Retirement Apartments Inc. Project, Refunding, Series A, 5.00%, 1/01/36 | | 5,000,000 | | 5,369,100 |
| Christian Care Retirement Apartments Inc. Project, Refunding, Series D, 5.00%, 1/01/40 | | 5,000,000 | | 5,339,850 |
| Maricopa County IDAR, Banner Health Obligation Group, Refunding, Series A, 5.00%, 1/01/38. | | 20,000,000 | | 22,369,800 |
| Maricopa County PCC, | | | | |
| PCR, El Paso Electric Co. Palo Verde Project, Refunding, Series A, 4.50%, 8/01/42 | | 10,000,000 | | 10,009,200 |
| PCR, El Paso Electric Co. Palo Verde Project, Series A, 7.25%, 2/01/40 | | 10,000,000 | | 10,953,600 |
| PCR, Public Service Co. of New Mexico Palo Verde Project, Refunding, Series A, 6.25%, 1/01/38 | | 5,000,000 | | 5,534,900 |
| PCR, Southern California Edison Co., Refunding, Series B, 5.00%, 6/01/35 | | 14,745,000 | | 16,112,894 |
| Maricopa County USD No. 11 Peoria GO, School Improvement, 5.00%, 7/01/31 | | 5,100,000 | | 5,781,105 |
64 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Arizona (continued) | | | | |
| Maricopa County USD No. 89 Dysart GO, School Improvement, Project of 2006, Series B, AGMC Insured, | | | | |
| Pre-Refunded, 5.00%, 7/01/27 | $ | 5,015,000 | $ | 5,085,611 |
| McAllister Academic Village LLC Revenue, | | | | |
| Arizona State University, Refunding, 5.00%, 7/01/33 | | 2,000,000 | | 2,264,120 |
| Arizona State University, Refunding, 5.00%, 7/01/35 | | 2,500,000 | | 2,806,700 |
| Arizona State University, Refunding, 5.00%, 7/01/36 | | 4,140,000 | | 4,633,861 |
| Arizona State University, Refunding, 5.00%, 7/01/38 | | 4,515,000 | | 5,038,379 |
| Arizona State University, Refunding, 5.00%, 7/01/39 | | 4,150,000 | | 4,620,610 |
| Arizona State University Hassayampa Academic Village Project, Assured Guaranty, Pre-Refunded, | | | | |
| 5.25%, 7/01/33 | | 2,525,000 | | 2,668,925 |
| Arizona State University Hassayampa Academic Village Project, Assured Guaranty, Pre-Refunded, | | | | |
| 5.00%, 7/01/38 | | 3,825,000 | | 4,030,441 |
| Arizona State University Hassayampa Academic Village Project, Pre-Refunded, 5.25%, 7/01/33 | | 5,000,000 | | 5,285,000 |
| Arizona State University Hassayampa Academic Village Project, Pre-Refunded, 5.00%, 7/01/38 | | 5,000,000 | | 5,268,550 |
| Navajo County USD No. 6 Heber-Overgaard GO, School Improvement, Project of 2008, Assured Guaranty, | | | | |
| 5.50%, 7/01/28 | | 1,045,000 | | 1,139,991 |
| Phoenix Civic Improvement Corp. Airport Revenue, | | | | |
| junior lien, Series A, 5.00%, 7/01/40 | | 10,000,000 | | 10,856,600 |
| senior lien, Series A, 5.00%, 7/01/38 | | 10,000,000 | | 10,436,600 |
| Phoenix Civic Improvement Corp. Distribution Revenue, | | | | |
| Capital Appreciation, Civic Plaza Expansion Project, Series B, NATL Insured, 5.50%, 7/01/27 | | 3,945,000 | | 4,834,834 |
| Capital Appreciation, Civic Plaza Expansion Project, Series B, NATL Insured, 5.50%, 7/01/28 | | 2,000,000 | | 2,425,620 |
| Capital Appreciation, Civic Plaza Expansion Project, Series B, NATL Insured, 5.50%, 7/01/29 | | 2,000,000 | | 2,438,040 |
| Capital Appreciation, Civic Plaza Expansion Project, Series B, NATL Insured, 5.50%, 7/01/36 | | 5,000,000 | | 6,274,350 |
| Capital Appreciation, Civic Plaza Expansion Project, Series B, NATL Insured, 5.50%, 7/01/37 | | 7,000,000 | | 8,811,880 |
| Phoenix Civic Improvement Corp. Excise Tax Revenue, Subordinate, Refunding, Series A, 5.00%, 7/01/41 | | 10,000,000 | | 11,236,300 |
| Phoenix Civic Improvement Corp. Wastewater System Revenue, senior lien, Refunding, 5.50%, 7/01/24 | | 2,500,000 | | 2,648,325 |
| Phoenix Civic Improvement Corp. Water System Revenue, | | | | |
| junior lien, 5.00%, 7/01/39 | | 5,000,000 | | 5,759,850 |
| junior lien, Series A, 5.00%, 7/01/39 | | 10,000,000 | | 11,320,500 |
| junior lien, Series A, Pre-Refunded, 5.00%, 7/01/39 | | 14,780,000 | | 16,108,131 |
| Phoenix IDA Education Revenue, | | | | |
| Facility, Great Hearts Academies Projects, Refunding, Series A, 5.00%, 7/01/36 | | 4,065,000 | | 4,350,282 |
| Facility, Great Hearts Academies Projects, Refunding, Series A, 5.00%, 7/01/41 | | 1,225,000 | | 1,298,500 |
| Facility, Great Hearts Academies Projects, Refunding, Series A, 5.00%, 7/01/46 | | 1,335,000 | | 1,408,251 |
| Facility, JMF-Higley 2012 LLC Project, 5.00%, 12/01/34 | | 1,355,000 | | 1,509,063 |
| Facility, JMF-Higley 2012 LLC Project, 5.00%, 12/01/39 | | 5,610,000 | | 6,157,368 |
| Phoenix IDA Student Housing Revenue, | | | | |
| Downtown Phoenix Student Housing LLC Arizona State University Project, Series A, AMBAC Insured, | | | | |
| 5.00%, 7/01/37 | | 18,095,000 | | 18,098,981 |
| Downtown Phoenix Student Housing LLC Arizona State University Project, Series C, AMBAC Insured, | | | | |
| 5.00%, 7/01/37 | | 8,735,000 | | 8,635,508 |
| Pima County IDA Lease Revenue, | | | | |
| Clark County Detention Facility Project, 5.125%, 9/01/27 | | 8,655,000 | | 8,988,044 |
| Clark County Detention Facility Project, 5.00%, 9/01/39. | | 15,000,000 | | 15,507,150 |
| Pima County USD No. 20 Vail GO, School Improvement, Refunding, BAM Insured, 5.00%, 7/01/36 | | 3,305,000 | | 3,724,504 |
| Pinal County Community College District Revenue, Central Arizona College, BAM Insured, 5.00%, 7/01/34 . | | 1,065,000 | | 1,198,370 |
| Pinal County Electrical District No. 3 Electric System Revenue, | | | | |
| Pre-Refunded, 5.25%, 7/01/33 | | 1,500,000 | | 1,743,720 |
| Pre-Refunded, 5.25%, 7/01/41 | | 6,800,000 | | 7,904,864 |
| Refunding, 5.00%, 7/01/35 | | 1,195,000 | | 1,344,650 |
franklintempleton.com
Annual Report
65
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Arizona (continued) | | | | |
| Pinal County Electrical District No. 4 Electric System Revenue, | | | | |
| Pre-Refunded, 6.00%, 12/01/23 | $ | 525,000 | $ | 570,371 |
| Pre-Refunded, 6.00%, 12/01/28 | | 740,000 | | 803,951 |
| Pre-Refunded, 6.00%, 12/01/38 | | 1,150,000 | | 1,249,383 |
| Rio Nuevo Multipurpose Facilities District Excise Tax Revenue, sub. lien, Assured Guaranty, Pre-Refunded, | | | | |
| 6.50%, 7/15/24 | | 4,220,000 | | 4,539,032 |
| Salt River Project Agricultural Improvement and Power District Electric System Revenue, | | | | |
| Refunding, Series A, 5.00%, 12/01/30 | | 4,500,000 | | 5,168,835 |
| Refunding, Series A, 5.00%, 1/01/38 | | 9,745,000 | | 11,293,968 |
| Salt River Project, Series A, 5.00%, 1/01/39 | | 5,000,000 | | 5,312,400 |
| Salt River Project, Series A, Pre-Refunded, 5.00%, 1/01/38 | | 7,000,000 | | 7,242,620 |
| Salt Verde Financial Corp. Senior Gas Revenue, | | | | |
| 5.00%, 12/01/32 | | 10,000,000 | | 11,437,100 |
| 5.00%, 12/01/37 | | 5,000,000 | | 5,700,050 |
| Scottsdale Municipal Property Corp. Excise Tax Revenue, Water and Sewer Improvements Project, | | | | |
| Pre-Refunded, 5.00%, 7/01/33 | | 10,660,000 | | 11,984,825 |
| Student and Academic Services LLC Lease Revenue, | | | | |
| Northern Arizona University Project, BAM Insured, 5.00%, 6/01/33 | | 1,000,000 | | 1,104,630 |
| Northern Arizona University Project, BAM Insured, 5.00%, 6/01/39 | | 1,400,000 | | 1,532,342 |
| Northern Arizona University Project, BAM Insured, 5.00%, 6/01/44 | | 3,155,000 | | 3,442,704 |
| Tempe Excise Tax Revenue, Series A, Pre-Refunded, 5.00%, 7/01/31 | | 2,325,000 | | 2,678,423 |
| Town of Gilbert Pledged Revenue, sub. lien, 5.00%, 7/01/45 | | 10,000,000 | | 11,136,200 |
| Tucson Airport Authority Inc. Revenue, sub. lien, AMBAC Insured, 5.35%, 6/01/31 | | 10,000,000 | | 10,035,100 |
| Tucson IDA Lease Revenue, University of Arizona/Marshall Foundation Project, Series A, AMBAC Insured, | | | | |
| 5.00%, 7/15/32 | | 985,000 | | 985,788 |
| Tucson Water System Revenue, | | | | |
| 5.00%, 7/01/32 | | 5,000,000 | | 5,674,350 |
| Refunding, 5.00%, 7/01/28 | | 1,230,000 | | 1,336,666 |
| Refunding, 5.00%, 7/01/29 | | 1,765,000 | | 1,916,772 |
| University Medical Center Corp. Hospital Revenue, | | | | |
| Tucson, Pre-Refunded, 5.625%, 7/01/36 | | 5,000,000 | | 6,055,600 |
| Tucson, Pre-Refunded, 6.00%, 7/01/39 | | 5,000,000 | | 5,911,650 |
| Tucson, Pre-Refunded, 6.50%, 7/01/39 | | 4,750,000 | | 5,334,297 |
| Yavapai County IDA Hospital Revenue, | | | | |
| Yavapai Regional Medical Center, Refunding, 5.00%, 8/01/34 | | 4,250,000 | | 4,549,455 |
| Yavapai Regional Medical Center, Refunding, 5.00%, 8/01/36 | | 1,310,000 | | 1,392,831 |
| Yavapai Regional Medical Center, Series B, Pre-Refunded, 5.625%, 8/01/33 | | 2,315,000 | | 2,463,623 |
| Yavapai Regional Medical Center, Series B, Pre-Refunded, 5.625%, 8/01/37 | | 12,435,000 | | 13,233,327 |
| | | | | 917,681,030 |
| |
| |
| U.S. Territories 4.5% | | | | |
| Guam 3.4% | | | | |
| Guam Government Business Privilege Tax Revenue, | | | | |
| Refunding, Series D, 5.00%, 11/15/39 | | 10,000,000 | | 10,436,500 |
| Series A, 5.125%, 1/01/42 | | 7,075,000 | | 7,304,796 |
| Series B-1, 5.00%, 1/01/29 | | 2,980,000 | | 3,104,177 |
| Guam Power Authority Revenue, | | | | |
| Series A, AGMC Insured, 5.00%, 10/01/39. | | 6,490,000 | | 7,027,307 |
| Series A, AGMC Insured, 5.00%, 10/01/44. | | 5,325,000 | | 5,749,722 |
| | | | | 33,622,502 |
66 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Arizona Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| U.S. Territories (continued) | | | | |
| Puerto Rico 1.1% | | | | |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, | | | | |
| First Subordinate, Refunding, Series C, 6.00%, 8/01/39 | $ | 5,100,000 | $ | 2,601,000 |
| First Subordinate, Series A, 5.50%, 8/01/37 | | 6,000,000 | | 2,925,000 |
| First Subordinate, Series C, 5.25%, 8/01/41 | | 10,930,000 | | 5,219,075 |
| | | | | 10,745,075 |
| Total U.S. Territories | | | | 44,367,577 |
| Total Municipal Bonds before Short Term Investments (Cost $928,340,341) | | | | 962,048,607 |
| |
| Short Term Investments (Cost $8,800,000) 0.9% | | | | |
| Municipal Bonds 0.9% | | | | |
| Arizona 0.9% | | | | |
| a Phoenix IDA Healthcare Facilities Revenue, Mayo Clinic, Series B, Daily VRDN and Put, 0.56%, 11/15/52 | | 8,800,000 | | 8,800,000 |
| Total Investments (Cost $937,140,341) 99.2% | | | | 970,848,607 |
| Other Assets, less Liabilities 0.8% | | | | 8,073,360 |
| Net Assets 100.0%. | | | $ | 978,921,967 |
See Abbreviations on page 149.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 67
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Colorado Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.94 | | $ | 12.13 | | $ | 11.66 | | $ | 12.44 | | $ | 12.24 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.44 | | | 0.46 | | | 0.47 | | | 0.47 | | | 0.47 | |
| Net realized and unrealized gains (losses) | | (0.28 | ) | | (0.20 | ) | | 0.47 | | | (0.79 | ) | | 0.19 | |
| Total from investment operations | | 0.16 | | | 0.26 | | | 0.94 | | | (0.32 | ) | | 0.66 | |
| Less distributions from net investment income | | (0.44 | ) | | (0.45 | ) | | (0.47 | ) | | (0.46 | ) | | (0.46 | ) |
| Net asset value, end of year. | $ | 11.66 | | $ | 11.94 | | $ | 12.13 | | $ | 11.66 | | $ | 12.44 | |
| |
| Total returnd | | 1.31 | % | | 2.26 | % | | 8.22 | % | | (2.56 | )% | | 5.48 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.65 | % | | 0.65 | % | | 0.65 | % | | 0.64 | % | | 0.65 | % |
| Net investment income | | 3.67 | % | | 3.87 | % | | 3.94 | % | | 4.00 | % | | 3.77 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 553,317 | | $ | 553,114 | | $ | 549,134 | | $ | 520,275 | | $ | 660,432 | |
| Portfolio turnover rate | | 13.61 | % | | 5.17 | % | | 2.20 | % | | 7.74 | % | | 9.30 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
68 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.07 | | $ | 12.26 | | $ | 11.78 | | $ | 12.56 | | $ | 12.36 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.38 | | | 0.40 | | | 0.41 | | | 0.41 | | | 0.40 | |
| Net realized and unrealized gains (losses) | | (0.29 | ) | | (0.20 | ) | | 0.48 | | | (0.80 | ) | | 0.19 | |
| Total from investment operations | | 0.09 | | | 0.20 | | | 0.89 | | | (0.39 | ) | | 0.59 | |
| Less distributions from net investment income | | (0.37 | ) | | (0.39 | ) | | (0.41 | ) | | (0.39 | ) | | (0.39 | ) |
| Net asset value, end of year. | $ | 11.79 | | $ | 12.07 | | $ | 12.26 | | $ | 11.78 | | $ | 12.56 | |
| |
| Total returnd | | 0.73 | % | | 1.67 | % | | 7.64 | % | | (3.07 | )% | | 4.84 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.20 | % | | 1.20 | % | | 1.20 | % | | 1.19 | % | | 1.20 | % |
| Net investment income | | 3.12 | % | | 3.32 | % | | 3.39 | % | | 3.45 | % | | 3.22 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 115,472 | | $ | 111,450 | | $ | 109,552 | | $ | 107,705 | | $ | 160,856 | |
| Portfolio turnover rate | | 13.61 | % | | 5.17 | % | | 2.20 | % | | 7.74 | % | | 9.30 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 69
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.94 | | $ | 12.13 | | $ | 11.66 | | $ | 12.43 | | $ | 12.24 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.45 | | | 0.47 | | | 0.48 | | | 0.48 | | | 0.48 | |
| Net realized and unrealized gains (losses) | | (0.28 | ) | | (0.19 | ) | | 0.48 | | | (0.78 | ) | | 0.18 | |
| Total from investment operations | | 0.17 | | | 0.28 | | | 0.96 | | | (0.30 | ) | | 0.66 | |
| Less distributions from net investment income | | (0.45 | ) | | (0.47 | ) | | (0.49 | ) | | (0.47 | ) | | (0.47 | ) |
| Net asset value, end of year. | $ | 11.66 | | $ | 11.94 | | $ | 12.13 | | $ | 11.66 | | $ | 12.43 | |
| |
| Total return | | 1.41 | % | | 2.36 | % | | 8.34 | % | | (2.39 | )% | | 5.50 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.55 | % | | 0.55 | % | | 0.55 | % | | 0.54 | % | | 0.55 | % |
| Net investment income | | 3.77 | % | | 3.97 | % | | 4.04 | % | | 4.10 | % | | 3.87 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 73,538 | | $ | 50,589 | | $ | 44,988 | | $ | 34,393 | | $ | 41,990 | |
| Portfolio turnover rate | | 13.61 | % | | 5.17 | % | | 2.20 | % | | 7.74 | % | | 9.30 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
70 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
| | | | |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Colorado Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 98.3% | | | | |
| Colorado 94.3% | | | | |
| Adams 12 Five Star Schools GO, Series B, 5.00%, 12/15/36 | $ | 5,000,000 | $ | 5,777,950 |
| Adams and Weld Counties School District No. 27J Brighton GO, 5.00%, 12/01/40 | | 7,500,000 | | 8,473,425 |
| Adams State College Board of Trustees Auxiliary Facilities Revenue, | | | | |
| Improvement, Series A, Pre-Refunded, 5.50%, 5/15/34 | | 2,000,000 | | 2,193,020 |
| Improvement, Series A, Pre-Refunded, 5.50%, 5/15/39 | | 2,150,000 | | 2,357,497 |
| Adams State College Board of Trustees Institutional Enterprise Revenue, | | | | |
| 5.00%, 5/15/32 | | 1,360,000 | | 1,567,046 |
| 5.00%, 5/15/37 | | 1,000,000 | | 1,136,840 |
| Anthem West Metropolitan District GO, City and County of Broomfield, Refunding, BAM Insured, 5.00%, | | | | |
| 12/01/35 | | 3,000,000 | | 3,310,140 |
| Auraria Higher Education Center Parking Enterprise Revenue, 5th and Walnut Parking Garage Project, | | | | |
| Series A, AGMC Insured, 5.00%, 4/01/34 | | 6,150,000 | | 6,941,505 |
| Aurora COP, Refunding, Series A, 5.00%, 12/01/30 | | 5,680,000 | | 6,189,950 |
| Aurora Hospital Revenue, The Children’s Hospital Assn. Project, Series A, 5.00%, 12/01/40 | | 2,500,000 | | 2,680,600 |
| Aurora Water Improvement Revenue, | | | | |
| first lien, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 8/01/36 | | 5,880,000 | | 5,984,782 |
| first lien, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 8/01/39 | | 10,000,000 | | 10,178,200 |
| Aurora Water Revenue, Green Bonds, first lien, Refunding, 5.00%, 8/01/46. | | 10,000,000 | | 11,478,800 |
| Board of Trustees for Western State College Revenue, | | | | |
| Pre-Refunded, 5.00%, 5/15/34 | | 2,000,000 | | 2,171,340 |
| Pre-Refunded, 5.00%, 5/15/39 | | 2,000,000 | | 2,171,340 |
| Board of Trustees of the Colorado School of Mines Revenue, | | | | |
| Golden, Enterprise Improvement, Series A, Pre-Refunded, 5.25%, 12/01/37 | | 2,000,000 | | 2,146,960 |
| Golden, Institutional Enterprise, Series B, 5.00%, 12/01/32 | | 1,000,000 | | 1,153,200 |
| Boulder Larimer and Weld Counties St. Vrain Valley School District No. RE-1J GO, Pre-Refunded, 5.00%, | | | | |
| 12/15/33 | | 5,300,000 | | 5,669,781 |
| Boulder Valley School District No. RE-2 Boulder GO, | | | | |
| 5.00%, 12/01/34 | | 6,000,000 | | 6,479,640 |
| 5.00%, 12/01/41 | | 5,000,000 | | 5,632,000 |
| Brighton Water Activity Enterprise Revenue, Water System Project, Series A, Assured Guaranty, Pre- | | | | |
| Refunded, 5.25%, 12/01/34 | | 5,380,000 | | 5,974,113 |
| Castle Rock Sales and Use Tax Revenue, | | | | |
| 5.00%, 6/01/31 | | 1,800,000 | | 2,075,472 |
| 5.00%, 6/01/32 | | 1,845,000 | | 2,122,728 |
| 5.00%, 6/01/35 | | 2,775,000 | | 3,168,523 |
| Colorado Health Facilities Authority Revenue, Hospital, Parkview Medical Center Inc. Project, 5.00%, | | | | |
| 9/01/46 | | 5,000,000 | | 5,537,500 |
| Colorado Mesa University Enterprise Revenue, Colorado Mesa University, 5.00%, 5/15/45 | | 4,000,000 | | 4,576,560 |
| Colorado Springs Public Facilities Authority COP, U.S. Olympic Committee Project, Assured Guaranty, | | | | |
| 5.00%, 11/01/39 | | 11,305,000 | | 12,262,081 |
| Colorado Springs Utilities System Revenue, | | | | |
| Improvement, Series B-1, 5.00%, 11/15/38 | | 4,000,000 | | 4,581,360 |
| Refunding, Series A, 5.00%, 11/15/40 | | 3,000,000 | | 3,385,230 |
| Refunding, Series A, 5.00%, 11/15/45 | | 2,665,000 | | 2,996,499 |
| Refunding, Series A-2, 5.00%, 11/15/44 | | 5,000,000 | | 5,624,200 |
| Series D-1, 5.25%, 11/15/33 | | 5,000,000 | | 5,666,500 |
| Colorado State Board of Governors University Enterprise System Revenue, | | | | |
| Refunding, Series B, 5.00%, 3/01/41 | | 1,000,000 | | 1,128,290 |
| Series A, 5.00%, 3/01/34 | | 20,000 | | 21,407 |
| Series A, 5.00%, 3/01/39 | | 145,000 | | 154,847 |
| Series A, 5.00%, 3/01/40 | | 7,000,000 | | 7,752,430 |
| Series A, NATL Insured, 5.00%, 3/01/37 | | 1,755,000 | | 1,755,000 |
franklintempleton.com
Annual Report
71
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Colorado (continued) | | | | |
| Colorado State Board of Governors University Enterprise System Revenue, (continued) | | | | |
| Series A, Pre-Refunded, 5.00%, 3/01/34 | $ | 2,230,000 | $ | 2,402,023 |
| Series A, Pre-Refunded, 5.00%, 3/01/39 | | 7,055,000 | | 7,599,223 |
| Series C, 5.00%, 3/01/44 | | 5,135,000 | | 5,730,403 |
| Colorado State Building Excellent Schools Today COP, | | | | |
| Series G, 5.00%, 3/15/32 | | 10,000,000 | | 11,115,800 |
| Series I, 5.00%, 3/15/36. | | 3,000,000 | | 3,307,860 |
| Colorado State COP, | | | | |
| UCDHSC Fitzsimons Academic Projects, Refunding, Series A, 5.00%, 11/01/28 | | 1,500,000 | | 1,752,795 |
| UCDHSC Fitzsimons Academic Projects, Refunding, Series A, 5.00%, 11/01/29 | | 3,105,000 | | 3,613,661 |
| Colorado State Educational and Cultural Facilities Authority Revenue, | | | | |
| Alexander Dawson School, Colorado Project, 5.00%, 2/15/40 | | 5,280,000 | | 5,717,290 |
| Charter School, James Irwin Educational Foundation Project, Improvement, Pre-Refunded, 5.00%, | | | | |
| 8/01/37 | | 6,060,000 | | 6,167,989 |
| Student Housing, Campus Village Apartments Project, Refunding, 5.50%, 6/01/38 | | 13,500,000 | | 14,004,360 |
| University of Denver Project, Refunding, NATL Insured, 5.00%, 3/01/35 | | 5,000,000 | | 5,978,150 |
| Colorado State Health Facilities Authority Revenue, | | | | |
| Boulder Community Hospital Project, Refunding, Series A, 6.00%, 10/01/35 | | 5,500,000 | | 6,197,015 |
| Catholic Health Initiatives, Refunding, Series A, 5.00%, 7/01/39 | | 5,000,000 | | 5,170,550 |
| Catholic Health Initiatives, Series D, 6.125%, 10/01/28 | | 2,500,000 | | 2,666,600 |
| Catholic Health Initiatives, Series D, 6.25%, 10/01/33 | | 2,000,000 | | 2,134,560 |
| Children’s Hospital Colorado Project, Series A, 5.00%, 12/01/44. | | 5,000,000 | | 5,550,200 |
| Covenant Retirement Communities Inc., Refunding, Series A, 5.00%, 12/01/35 | | 7,150,000 | | 7,468,604 |
| Covenant Retirement Communities Inc., Series A, 5.75%, 12/01/36 | | 5,000,000 | | 5,612,900 |
| The Evangelical Lutheran Good Samaritan Society Project, 5.50%, 6/01/33 | | 1,000,000 | | 1,092,490 |
| The Evangelical Lutheran Good Samaritan Society Project, 5.625%, 6/01/43 | | 4,000,000 | | 4,346,560 |
| The Evangelical Lutheran Good Samaritan Society Project, Refunding, 5.25%, 6/01/31 | | 1,155,000 | | 1,156,282 |
| The Evangelical Lutheran Good Samaritan Society Project, Refunding, 5.00%, 12/01/33. | | 2,500,000 | | 2,596,675 |
| The Evangelical Lutheran Good Samaritan Society Project, Refunding, Series A, 5.00%, 6/01/40. | | 4,000,000 | | 4,144,600 |
| The Evangelical Lutheran Good Samaritan Society Project, Refunding, Series A, 5.00%, 6/01/45. | | 2,750,000 | | 2,839,815 |
| Hospital, NCMC Inc. Project, Series A, AGMC Insured, Pre-Refunded, 5.50%, 5/15/30 | | 7,900,000 | | 8,662,429 |
| Hospital, Refunding, Series C, AGMC Insured, 5.25%, 3/01/40 | | 5,000,000 | | 5,308,250 |
| Parkview Medical Center Inc. Project, Series A, Pre-Refunded, 5.00%, 9/01/37 | | 8,000,000 | | 8,164,640 |
| Poudre Valley Health Care Inc. and Medical Center of the Rockies, Refunding, Series A, AGMC | | | | |
| Insured, 5.20%, 3/01/31 | | 9,500,000 | | 10,128,330 |
| Sisters of Charity of Leavenworth Health System, Refunding, Series A, 5.00%, 1/01/40 | | 7,320,000 | | 7,839,134 |
| Valley View Hospital Assn. Project, 5.00%, 5/15/40 | | 2,000,000 | | 2,201,660 |
| Valley View Hospital Assn. Project, 5.00%, 5/15/45 | | 1,000,000 | | 1,097,100 |
| Valley View Hospital Assn. Project, Refunding, 5.75%, 5/15/36. | | 2,000,000 | | 2,068,580 |
| Yampa Valley Medical Center Project, Refunding, 5.125%, 9/15/29 | | 4,000,000 | | 4,053,760 |
| Colorado State Higher Education Capital Construction Lease Purchase Financing Program COP, | | | | |
| Pre-Refunded, 5.50%, 11/01/27 | | 7,275,000 | | 7,815,387 |
| Colorado Water Resources and Power Development Authority Water Resources Revenue, | | | | |
| Donala Water and Sanitation District Project, Series C, 5.00%, 9/01/36 | | 1,900,000 | | 2,136,873 |
| Fountain Colorado Electric Water and Wastewater Utility Enterprise Project, Series A, AGMC Insured, | | | | |
| 5.00%, 9/01/38 | | 1,210,000 | | 1,354,498 |
| Commerce City COP, AMBAC Insured, 5.00%, 12/15/37 | | 13,975,000 | | 13,995,404 |
| Commerce City Northern Infrastructure General Improvement District GO, Refunding and Improvement, | | | | |
| AGMC Insured, 5.00%, 12/01/31 | | 2,040,000 | | 2,333,556 |
| Commerce City Sales and Use Tax Revenue, AGMC Insured, 5.00%, 8/01/41. | | 4,000,000 | | 4,436,800 |
| Consolidated Bell Mountain Ranch Metropolitan District GO, Douglas County, Refunding, AGMC Insured, | | | | |
| 5.00%, 12/01/39 | | 3,160,000 | | 3,442,946 |
72 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Colorado (continued) | | | | |
| Denver City and County Airport System Revenue, Subordinate, Series B, 5.00%, 11/15/43 | $ | 5,000,000 | $ | 5,532,300 |
| Denver City and County Dedicated Tax Revenue, Refunding and Improvement, Series A, 5.00%, 8/01/44 | | 6,915,000 | | 7,805,445 |
| Denver City and County School District No. 1 COP, Series C, 5.00%, 12/15/30 | | 4,000,000 | | 4,590,640 |
| Denver City and County School District No. 1 GO, 5.00%, 12/01/41 | | 12,440,000 | | 14,278,756 |
| Denver Convention Center Hotel Authority Revenue, Senior, Refunding, 5.00%, 12/01/40 | | 9,775,000 | | 10,697,271 |
| Denver Health and Hospital Authority Healthcare Revenue, | | | | |
| Recovery Zone Facility, 5.50%, 12/01/30 | | 1,500,000 | | 1,614,165 |
| Recovery Zone Facility, 5.625%, 12/01/40 | | 4,000,000 | | 4,229,400 |
| Refunding, Series A, 5.25%, 12/01/31 | | 9,250,000 | | 9,268,963 |
| Series A, 5.25%, 12/01/45 | | 9,250,000 | | 9,764,670 |
| E-470 Public Highway Authority Senior Revenue, | | | | |
| Capital Appreciation, Series A, NATL Insured, zero cpn., 9/01/33 | | 3,000,000 | | 1,254,030 |
| Capital Appreciation, Series B, NATL Insured, zero cpn., 9/01/32 | | 7,800,000 | | 3,456,726 |
| Capital Appreciation, Series B, NATL Insured, zero cpn., 9/01/34 | | 14,075,000 | | 5,549,491 |
| Series C, 5.25%, 9/01/25 | | 2,500,000 | | 2,685,300 |
| Eagle River Fire Protection District GO, AGMC Insured, 4.00%, 12/01/46 | | 3,500,000 | | 3,669,855 |
| Eagle River Water and Sanitation District Enterprise Wastewater Revenue, 5.00%, 12/01/42 | | 3,500,000 | | 3,945,410 |
| Eagle River Water and Sanitation District GO, 5.00%, 12/01/45 | | 1,360,000 | | 1,546,388 |
| Erie Wastewater Enterprise Revenue, | | | | |
| Series A, Assured Guaranty, Pre-Refunded, 5.00%, 12/01/33. | | 2,860,000 | | 3,156,582 |
| Series A, Assured Guaranty, Pre-Refunded, 5.00%, 12/01/37. | | 5,120,000 | | 5,650,944 |
| Erie Water Enterprise Revenue, | | | | |
| Series A, AGMC Insured, 5.00%, 12/01/32. | | 2,645,000 | | 2,718,214 |
| Series A, AGMC Insured, Pre-Refunded, 5.00%, 12/01/32 | | 7,355,000 | | 7,584,844 |
| Fort Lewis College Board of Trustees Enterprise Revenue, | | | | |
| NATL Insured, Pre-Refunded, 5.00%, 10/01/37 | | 11,315,000 | | 11,592,331 |
| Series B, NATL Insured, 5.00%, 10/01/37 | | 1,515,000 | | 1,545,815 |
| Gunnison Watershed School District No. RE-1J GO, Gunnison and Saguache Counties, Pre-Refunded, | | | | |
| 5.25%, 12/01/33 | | 1,240,000 | | 1,331,115 |
| Ignacio School District 11JT GO, La Plata and Archuleta Counties, Pre-Refunded, 5.00%, 12/01/31 | | 1,215,000 | | 1,409,619 |
| Meridian Metropolitan District GO, Douglas County, Refunding, Series A, 5.00%, 12/01/41 | | 5,000,000 | | 5,485,300 |
| Mesa State College Board of Trustees Auxiliary Facilities System Enterprise Revenue, | | | | |
| Pre-Refunded, 6.00%, 5/15/38 | | 7,000,000 | | 7,255,010 |
| Refunding, Series A, 5.00%, 5/15/33 | | 3,455,000 | | 3,710,186 |
| Mesa State College Enterprise Revenue, BHAC Insured, Pre-Refunded, 5.125%, 5/15/37 | | 5,765,000 | | 5,815,963 |
| Metropolitan State University of Denver Institutional Enterprise Revenue, Aerospace and Engineering | | | | |
| Sciences Building Project, 5.00%, 12/01/45 | | 4,000,000 | | 4,538,680 |
| Park 70 Metropolitan District GO, | | | | |
| Refunding and Improvement, 5.00%, 12/01/36 | | 1,000,000 | | 1,049,490 |
| Refunding and Improvement, 5.00%, 12/01/46 | | 1,500,000 | | 1,564,560 |
| Park Creek Metropolitan District GO, Senior Limited Property Tax Supported, Refunding, Series A, 5.00%, | | | | |
| 12/01/45 | | 7,000,000 | | 7,395,360 |
| Park Creek Metropolitan District Revenue, | | | | |
| Senior Limited Property Tax Supported, Improvement, Assured Guaranty, Pre-Refunded, 6.375%, | | | | |
| 12/01/37. | | 7,000,000 | | 7,985,180 |
| Senior Limited Property Tax Supported, Series A, AGMC Insured, Pre-Refunded, 6.00%, 12/01/38 | | 2,500,000 | | 2,928,025 |
| Senior Limited Property Tax Supported, Series A, AGMC Insured, Pre-Refunded, 6.125%, 12/01/41 | | 2,500,000 | | 2,939,400 |
| Platte River Power Authority Power Revenue, Series II, 5.00%, 6/01/37 | | 12,000,000 | | 13,598,040 |
| Poudre Tech Metropolitan District Unlimited Property Tax Supported Revenue, Refunding and | | | | |
| Improvement, Series A, AGMC Insured, 5.00%, 12/01/39 | | 7,435,000 | | 7,946,751 |
| Public Authority for Colorado Energy Natural Gas Purchase Revenue, 6.50%, 11/15/38 | | 9,900,000 | | 13,171,950 |
| Pueblo County COP, County Judicial Complex Project, AGMC Insured, 5.00%, 9/15/42 | | 10,000,000 | | 11,180,200 |
franklintempleton.com
Annual Report
73
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Colorado (continued) | | | | |
| Pueblo Urban Renewal Authority Revenue, | | | | |
| Refunding and Improvement, Series B, 5.25%, 12/01/28 | $ | 1,000,000 | $ | 1,102,020 |
| Refunding and Improvement, Series B, 5.50%, 12/01/31 | | 1,010,000 | | 1,095,244 |
| Refunding and Improvement, Series B, 5.25%, 12/01/38 | | 3,615,000 | | 3,829,116 |
| Rangeview Library District COP, Rangeview Library District Projects, Assured Guaranty, Pre-Refunded, | | | | |
| 5.00%, 12/15/30 | | 3,840,000 | | 4,111,488 |
| Regional Transportation District COP, Series A, 5.375%, 6/01/31 | | 19,000,000 | | 21,137,120 |
| Regional Transportation District Sales Tax Revenue, | | | | |
| FasTracks Project, Series A, 5.00%, 11/01/38 | | 10,000,000 | | 11,238,300 |
| FasTracks Project, Series A, 5.00%, 11/01/41 | | 10,000,000 | | 11,449,500 |
| South Timnath Metropolitan District No. 2 GO, Limited Tax, Refunding and Improvement, 5.00%, 12/01/42 | | 5,690,000 | | 6,027,246 |
| Thompson Crossing Metropolitan District No. 5 GO, Series B, AGMC Insured, 5.00%, 12/01/46 | | 4,500,000 | | 4,867,470 |
| Triview Metropolitan District GO, El Paso County, Pre-Refunded, 5.00%, 11/01/34 | | 10,855,000 | | 11,950,052 |
| University of Colorado Enterprise Revenue, | | | | |
| Refunding, Series A, 5.00%, 6/01/38 | | 5,655,000 | | 6,374,146 |
| Series A, Pre-Refunded, 5.375%, 6/01/38 | | 3,000,000 | | 3,286,320 |
| Series B, NATL Insured, Pre-Refunded, 5.00%, 6/01/32 | | 3,000,000 | | 3,031,650 |
| University of Colorado Hospital Authority Revenue, Refunding, Series A, 6.00%, 11/15/29 | | 5,000,000 | | 5,542,450 |
| University of Northern Colorado Greeley Institutional Enterprise Revenue, | | | | |
| Refunding, Series A, 5.00%, 6/01/30 | | 1,690,000 | | 1,903,346 |
| Series A, 5.00%, 6/01/46 | | 4,000,000 | | 4,490,360 |
| Weld County School District No. Re-4 GO, 5.25%, 12/01/41 | | 5,000,000 | | 5,856,600 |
| Woodmoor Water and Sanitation District No. 1 Enterprise Water and Wastewater Revenue, 5.00%, | | | | |
| 12/01/36 | | 5,000,000 | | 5,656,200 |
| | | | | 700,273,505 |
| |
| |
| U.S. Territories 4.0% | | | | |
| Guam 0.8% | | | | |
| Guam Government Limited Obligation Revenue, | | | | |
| Section 30, Series A, Pre-Refunded, 5.375%, 12/01/24 | | 2,000,000 | | 2,223,580 |
| Section 30, Series A, Pre-Refunded, 5.75%, 12/01/34 | | 3,565,000 | | 3,999,502 |
| | | | | 6,223,082 |
| Puerto Rico 3.2% | | | | |
| Puerto Rico Electric Power Authority Power Revenue, Series XX, 5.25%, 7/01/40 | | 11,410,000 | | 7,445,025 |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, | | | | |
| First Subordinate, Refunding, Series C, 5.375%, 8/01/38 | | 2,370,000 | | 1,149,450 |
| First Subordinate, Series A, 5.50%, 8/01/37 | | 5,000,000 | | 2,437,500 |
| First Subordinate, Series A, 6.375%, 8/01/39 | | 10,000,000 | | 5,212,500 |
| First Subordinate, Series A, 5.50%, 8/01/42 | | 3,000,000 | | 1,462,500 |
| First Subordinate, Series C, 5.50%, 8/01/40 | | 5,000,000 | | 2,437,500 |
| Senior, Series C, 5.25%, 8/01/40. | | 4,560,000 | | 3,209,100 |
| | | | | 23,353,575 |
| Total U.S. Territories | | | | 29,576,657 |
| Total Municipal Bonds before Short Term Investments (Cost $713,285,899) | | | | 729,850,162 |
74 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Colorado Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Short Term Investments (Cost $4,600,000) 0.6% | | | | |
| Municipal Bonds 0.6% | | | | |
| Colorado 0.6% | | | | |
| a Colorado Educational and Cultural Facilities Authority Revenue, National Jewish Federation Bond Program, | | | | |
| Series B-4, Daily VRDN and Put, 0.56%, 12/01/35 | $ | 4,600,000 | $ | 4,600,000 |
| Total Investments (Cost $717,885,899) 98.9% | | | | 734,450,162 |
| Other Assets, less Liabilities 1.1% | | | | 7,876,396 |
| Net Assets 100.0%. | | | $ | 742,326,558 |
See Abbreviations on page 149.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 75
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Connecticut Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.69 | | $ | 10.86 | | $ | 10.65 | | $ | 11.43 | | $ | 11.36 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.37 | | | 0.39 | | | 0.41 | | | 0.40 | | | 0.40 | |
| Net realized and unrealized gains (losses) | | (0.28 | ) | | (0.17 | ) | | 0.21 | | | (0.80 | ) | | 0.08 | |
| Total from investment operations | | 0.09 | | | 0.22 | | | 0.62 | | | (0.40 | ) | | 0.48 | |
| Less distributions from net investment income | | (0.36 | ) | | (0.39 | ) | | (0.41 | ) | | (0.38 | ) | | (0.41 | ) |
| Net asset value, end of year. | $ | 10.42 | | $ | 10.69 | | $ | 10.86 | | $ | 10.65 | | $ | 11.43 | |
| |
| Total returnd | | 0.82 | % | | 2.09 | % | | 5.88 | % | | (3.34 | )% | | 4.25 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.71 | % | | 0.69 | % | | 0.68 | % | | 0.67 | % | | 0.66 | % |
| Net investment income | | 3.42 | % | | 3.66 | % | | 3.76 | % | | 3.71 | % | | 3.49 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 222,705 | | $ | 253,012 | | $ | 282,020 | | $ | 301,323 | | $ | 404,713 | |
| Portfolio turnover rate | | 12.40 | % | | 7.86 | % | | 4.63 | % | | 8.24 | % | | 20.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
76 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Connecticut Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.77 | | $ | 10.93 | | $ | 10.73 | | $ | 11.51 | | $ | 11.43 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.31 | | | 0.33 | | | 0.35 | | | 0.34 | | | 0.34 | |
| Net realized and unrealized gains (losses) | | (0.28 | ) | | (0.16 | ) | | 0.20 | | | (0.80 | ) | | 0.08 | |
| Total from investment operations | | 0.03 | | | 0.17 | | | 0.55 | | | (0.46 | ) | | 0.42 | |
| Less distributions from net investment income | | (0.30 | ) | | (0.33 | ) | | (0.35 | ) | | (0.32 | ) | | (0.34 | ) |
| Net asset value, end of year. | $ | 10.50 | | $ | 10.77 | | $ | 10.93 | | $ | 10.73 | | $ | 11.51 | |
| |
| Total returnd | | 0.25 | % | | 1.62 | % | | 5.17 | % | | (3.94 | )% | | 3.73 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.26 | % | | 1.24 | % | | 1.23 | % | | 1.22 | % | | 1.21 | % |
| Net investment income | | 2.87 | % | | 3.11 | % | | 3.21 | % | | 3.16 | % | | 2.94 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 61,813 | | $ | 68,311 | | $ | 73,569 | | $ | 75,730 | | $ | 122,232 | |
| Portfolio turnover rate | | 12.40 | % | | 7.86 | % | | 4.63 | % | | 8.24 | % | | 20.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 77
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Connecticut Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.68 | | $ | 10.85 | | $ | 10.64 | | $ | 11.42 | | $ | 11.35 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.38 | | | 0.40 | | | 0.42 | | | 0.41 | | | 0.41 | |
| Net realized and unrealized gains (losses) | | (0.27 | ) | | (0.17 | ) | | 0.21 | | | (0.80 | ) | | 0.08 | |
| Total from investment operations | | 0.11 | | | 0.23 | | | 0.63 | | | (0.39 | ) | | 0.49 | |
| Less distributions from net investment income | | (0.37 | ) | �� | (0.40 | ) | | (0.42 | ) | | (0.39 | ) | | (0.42 | ) |
| Net asset value, end of year. | $ | 10.42 | | $ | 10.68 | | $ | 10.85 | | $ | 10.64 | | $ | 11.42 | |
| |
| Total return | | 1.01 | % | | 2.19 | % | | 6.00 | % | | (3.34 | )% | | 4.35 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.61 | % | | 0.59 | % | | 0.58 | % | | 0.57 | % | | 0.56 | % |
| Net investment income | | 3.52 | % | | 3.76 | % | | 3.86 | % | | 3.81 | % | | 3.59 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 26,253 | | $ | 21,254 | | $ | 20,384 | | $ | 15,904 | | $ | 30,975 | |
| Portfolio turnover rate | | 12.40 | % | | 7.86 | % | | 4.63 | % | | 8.24 | % | | 20.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
78 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| FRANKLIN TAX-FREE TRUST | | | | |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Connecticut Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 99.5% | | | | |
| Connecticut 96.3% | | | | |
| City of Bridgeport GO, Series A, 5.00%, 2/15/32 | $ | 10,000,000 | $ | 10,908,700 |
| Connecticut State GO, | | | | |
| Series A, 5.00%, 2/15/29 | | 10,000,000 | | 10,710,100 |
| Series F, 5.00%, 11/15/34 | | 5,000,000 | | 5,562,050 |
| Connecticut State Health and Educational Facilities Authority Revenue, | | | | |
| Ascension Health Senior Credit Group, Series A, 5.00%, 11/15/40 | | 18,520,000 | | 19,916,964 |
| Child Care Facilities Program, Series G, Assured Guaranty, Pre-Refunded, 6.00%, 7/01/28 | | 1,940,000 | | 2,047,806 |
| Connecticut College Issue, Refunding, Series L-1, 4.00%, 7/01/46 | | 5,000,000 | | 4,982,650 |
| Connecticut State University System Issue, Series N, 5.00%, 11/01/29 | | 5,060,000 | | 5,778,216 |
| Fairfield University Issue, Refunding, Series M, 5.00%, 7/01/26 | | 90,000 | | 94,221 |
| Fairfield University Issue, Refunding, Series M, 5.00%, 7/01/34 | | 180,000 | | 187,810 |
| Fairfield University Issue, Series M, Pre-Refunded, 5.00%, 7/01/26 | | 360,000 | | 379,336 |
| Fairfield University Issue, Series M, Pre-Refunded, 5.00%, 7/01/34 | | 820,000 | | 864,042 |
| Fairfield University Issue, Series N, 5.00%, 7/01/29 | | 7,000,000 | | 7,318,850 |
| Fairfield University Issues, New Money, Series O, 5.00%, 7/01/35 | | 4,000,000 | | 4,370,840 |
| Fairfield University Issues, New Money, Series O, 5.00%, 7/01/40 | | 5,000,000 | | 5,438,350 |
| Hartford Healthcare Issue, Refunding, Series A, 5.00%, 7/01/41. | | 12,000,000 | | 12,652,320 |
| The Loomis Chafee School Issue, Series G, Pre-Refunded, 5.00%, 7/01/30. | | 3,000,000 | | 3,137,070 |
| The Loomis Chafee School Issue, Series G, Pre-Refunded, 5.00%, 7/01/38. | | 6,285,000 | | 6,553,495 |
| Lutheran General Health Care System, ETM, 7.375%, 7/01/19. | | 140,000 | | 151,131 |
| Quinnipiac University Issue, Refunding, Series L, 5.00%, 7/01/45 | | 8,250,000 | | 8,993,738 |
| Quinnipiac University Issue, Refunding, Series M, 5.00%, 7/01/36 | | 1,400,000 | | 1,552,894 |
| Quinnipiac University Issue, Series J, NATL Insured, 5.00%, 7/01/37 | | 385,000 | | 401,289 |
| Quinnipiac University Issue, Series J, NATL Insured, Pre-Refunded, 5.00%, 7/01/37 | | 14,615,000 | | 15,399,972 |
| Sacred Heart University Issue, Series G, 5.375%, 7/01/31 | | 1,500,000 | | 1,656,930 |
| Sacred Heart University Issue, Series G, 5.625%, 7/01/41 | | 5,500,000 | | 5,957,050 |
| Sacred Heart University Issue, Series H, AGMC Insured, 5.00%, 7/01/27 | | 1,190,000 | | 1,335,608 |
| Sacred Heart University Issue, Series H, AGMC Insured, 5.00%, 7/01/28 | | 2,290,000 | | 2,562,922 |
| Salisbury School Issue, Series C, Assured Guaranty, Pre-Refunded, 5.00%, 7/01/38 | | 5,000,000 | | 5,268,550 |
| Stamford Hospital Issue, Series I, 5.00%, 7/01/30 | | 5,000,000 | | 5,355,250 |
| Stamford Hospital Issue, Series J, 5.00%, 7/01/42 | | 5,000,000 | | 5,301,500 |
| Trinity Health Credit Group, Refunding, Series CT, 5.00%, 12/01/45 | | 7,060,000 | | 7,795,935 |
| Wesleyan University Issue, Series G, Pre-Refunded, 5.00%, 7/01/39. | | 10,000,000 | | 11,225,400 |
| Western Connecticut Health Network Issue, Series M, 5.375%, 7/01/41 | | 7,000,000 | | 7,572,180 |
| Westminster School Issue, Series E, XLCA Insured, Pre-Refunded, 5.00%, 7/01/37 | | 8,660,000 | | 8,781,933 |
| The William W. Backus Hospital Issue, Series F, AGMC Insured, Pre-Refunded, 5.00%, 7/01/28. | | 1,500,000 | | 1,580,565 |
| The William W. Backus Hospital Issue, Series F, AGMC Insured, Pre-Refunded, 5.125%, 7/01/35 | | 4,025,000 | | 4,247,784 |
| Yale University Issue, Mandatory Put 7/01/26, Refunding, Series A-1, 2.00%, 7/01/42 | | 5,000,000 | | 4,709,050 |
| Yale University Issue, Series A-2, 5.00%, 7/01/40 | | 9,000,000 | | 9,440,460 |
| Yale-New Haven Hospital Issue, Series N, 5.00%, 7/01/48 | | 5,000,000 | | 5,442,900 |
| Connecticut State HFA Housing Mortgage Finance Program Revenue, Series C, Sub Series C-1, 4.85%, | | | | |
| 11/15/34 | | 685,000 | | 691,877 |
| Connecticut State HFAR, | | | | |
| State Supported Special Obligation, Series 10, 5.00%, 6/15/28 | | 420,000 | | 450,412 |
| State Supported Special Obligation, Series 13, 5.00%, 6/15/40 | | 1,500,000 | | 1,617,450 |
| Connecticut State Higher Education Supplemental Loan Authority Revenue, CHESLA Loan Program, | | | | |
| Series A, 5.05%, 11/15/27 | | 605,000 | | 634,663 |
| Connecticut State Municipal Electric Energy Cooperative Power Supply System Revenue, Refunding, | | | �� | |
| Series A, 5.00%, 1/01/38 | | 3,000,000 | | 3,301,650 |
franklintempleton.com
Annual Report
79
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Connecticut Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Connecticut (continued) | | | | |
| Connecticut State Revolving Fund General Revenue, | | | | |
| Green Bonds, Series A, 5.00%, 3/01/34. | $ | 5,000,000 | $ | 5,740,600 |
| Green Bonds, Series A, 5.00%, 3/01/35. | | 1,000,000 | | 1,145,810 |
| Series A, 5.00%, 3/01/25 | | 3,000,000 | | 3,507,870 |
| Connecticut State Special Tax Obligation Revenue, | | | | |
| Transportation Infrastructure Purposes, Series A, 5.00%, 10/01/30 | | 5,000,000 | | 5,711,400 |
| Transportation Infrastructure Purposes, Series A, 5.00%, 9/01/32 | | 1,000,000 | | 1,134,980 |
| Transportation Infrastructure Purposes, Series A, 5.00%, 9/01/34 | | 5,000,000 | | 5,663,100 |
| Connecticut Transmission Municipal Electric Energy Cooperative Transmission System Revenue, Series A, | | | | |
| 5.00%, 1/01/42 | | 5,000,000 | | 5,521,850 |
| Greater New Haven Water Pollution Control Authority Regional Water Revenue, Series A, AGMC Insured, | | | | |
| Pre-Refunded, 5.00%, 11/15/37 | | 3,000,000 | | 3,200,160 |
| Hartford County Metropolitan District Clean Water Project Revenue, | | | | |
| Green Bonds, Refunding, Series A, 5.00%, 11/01/42. | | 5,000,000 | | 5,574,650 |
| Refunding, Series A, 5.00%, 4/01/36 | | 5,000,000 | | 5,542,150 |
| a New Britain GO, Series C, AGMC Insured, 5.00%, 3/01/36 | | 1,000,000 | | 1,116,310 |
| New Haven GO, | | | | |
| Series A, Assured Guaranty, Pre-Refunded, 5.00%, 3/01/29. | | 1,000,000 | | 1,078,170 |
| Series C, NATL Insured, ETM, 5.00%, 11/01/22 | | 25,000 | | 25,085 |
| South Central Regional Water Authority Water System Revenue, | | | | |
| Eighteenth Series B, NATL Insured, 5.25%, 8/01/29 | | 1,000,000 | | 1,043,230 |
| Eighteenth Series B, NATL Insured, 5.25%, 8/01/32 | | 1,000,000 | | 1,042,240 |
| Refunding, Thirty-Second Series B, 5.00%, 8/01/37 | | 780,000 | | 883,132 |
| Refunding, Thirty-Second Series B, 5.00%, 8/01/38 | | 3,720,000 | | 4,208,622 |
| Refunding, Thirty-Second Series B, 5.00%, 8/01/39 | | 500,000 | | 565,245 |
| Thirtieth Series A, 5.00%, 8/01/39. | | 1,500,000 | | 1,687,380 |
| Thirtieth Series A, 5.00%, 8/01/44. | | 1,615,000 | | 1,809,931 |
| Twenty-Second Series, AGMC Insured, Pre-Refunded, 5.00%, 8/01/38 | | 4,000,000 | | 4,227,680 |
| Stamford Water Pollution Control System and Facility Revenue, Refunding, Series A, 5.25%, 8/15/43 | | 1,000,000 | | 1,155,130 |
| Stratford GO, Refunding, 5.00%, 7/01/33 | | 1,000,000 | | 1,130,630 |
| University of Connecticut GO, | | | | |
| Series A, 5.00%, 8/15/28 | | 6,590,000 | | 7,565,715 |
| Series A, 5.00%, 2/15/31 | | 2,000,000 | | 2,249,220 |
| University of Connecticut Revenue GO, Series A, 5.00%, 1/15/37 | | 4,000,000 | | 4,450,880 |
| | | | | 299,313,083 |
| |
| |
| U.S. Territories 3.2% | | | | |
| Puerto Rico 3.2% | | | | |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, First Subordinate, Series A, 6.00%, 8/01/42 | | 19,000,000 | | 9,785,000 |
| Total Municipal Bonds before Short Term Investments (Cost $306,136,777) | | | | 309,098,083 |
80 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Connecticut Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Short Term Investments (Cost $900,000) 0.3% | | | | |
| Municipal Bonds 0.3% | | | | |
| Connecticut 0.3% | | | | |
| b Connecticut State Health and Educational Facilities Authority Revenue, Yale University Issue, Series V-1, | | | | |
| Daily VRDN and Put, 0.41%, 7/01/36 | $ | 900,000 | $ | 900,000 |
| Total Investments (Cost $307,036,777) 99.8% | | | | 309,998,083 |
| Other Assets, less Liabilities 0.2% | | | | 773,388 |
| Net Assets 100.0%. | | | $ | 310,771,471 |
See Abbreviations on page 149.
aSecurity purchased on a when-issued basis. See Note 1(b).
bVariable 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. The coupon rate shown represents the rate at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 81
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Michigan Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.78 | | $ | 12.02 | | $ | 11.67 | | $ | 12.36 | | $ | 12.23 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.40 | | | 0.42 | | | 0.44 | | | 0.46 | | | 0.43 | |
| Net realized and unrealized gains (losses) | | (0.25 | ) | | (0.25 | ) | | 0.36 | | | (0.70 | ) | | 0.13 | |
| Total from investment operations | | 0.15 | | | 0.17 | | | 0.80 | | | (0.24 | ) | | 0.56 | |
| Less distributions from net investment income | | (0.41 | ) | | (0.41 | ) | | (0.45 | ) | | (0.45 | ) | | (0.43 | ) |
| Net asset value, end of year. | $ | 11.52 | | $ | 11.78 | | $ | 12.02 | | $ | 11.67 | | $ | 12.36 | |
| |
| Total returnd | | 1.24 | % | | 1.48 | % | | 6.96 | % | | (1.90 | )% | | 4.61 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.65 | % | | 0.64 | % | | 0.65 | % | | 0.63 | % | | 0.63 | % |
| Net investment income | | 3.43 | % | | 3.55 | % | | 3.73 | % | | 3.91 | % | | 3.53 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 861,662 | | $ | 896,978 | | $ | 953,732 | | $ | 951,409 | | $ | 1,257,112 | |
| Portfolio turnover rate | | 12.35 | % | | 12.04 | % | | 12.80 | % | | 9.37 | % | | 16.87 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned, and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
82 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.95 | | $ | 12.20 | | $ | 11.83 | | $ | 12.52 | | $ | 12.39 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.35 | | | 0.36 | | | 0.38 | | | 0.40 | | | 0.37 | |
| Net realized and unrealized gains (losses) | | (0.27 | ) | | (0.26 | ) | | 0.37 | | | (0.71 | ) | | 0.12 | |
| Total from investment operations | | 0.08 | | | 0.10 | | | 0.75 | | | (0.31 | ) | | 0.49 | |
| Less distributions from net investment income | | (0.34 | ) | | (0.35 | ) | | (0.38 | ) | | (0.38 | ) | | (0.36 | ) |
| Net asset value, end of year. | $ | 11.69 | | $ | 11.95 | | $ | 12.20 | | $ | 11.83 | | $ | 12.52 | |
| |
| Total returnd | | 0.66 | % | | 0.83 | % | | 6.45 | % | | (2.42 | )% | | 3.97 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.20 | % | | 1.19 | % | | 1.20 | % | | 1.18 | % | | 1.18 | % |
| Net investment income | | 2.88 | % | | 3.00 | % | | 3.18 | % | | 3.36 | % | | 2.98 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 142,248 | | $ | 145,491 | | $ | 148,898 | | $ | 148,136 | | $ | 212,347 | |
| Portfolio turnover rate | | 12.35 | % | | 12.04 | % | | 12.80 | % | | 9.37 | % | | 16.87 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 83
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.81 | | $ | 12.06 | | $ | 11.70 | | $ | 12.39 | | $ | 12.26 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.42 | | | 0.43 | | | 0.46 | | | 0.47 | | | 0.45 | |
| Net realized and unrealized gains (losses) | | (0.26 | ) | | (0.26 | ) | | 0.36 | | | (0.70 | ) | | 0.12 | |
| Total from investment operations | | 0.16 | | | 0.17 | | | 0.82 | | | (0.23 | ) | | 0.57 | |
| Less distributions from net investment income | | (0.42 | ) | | (0.42 | ) | | (0.46 | ) | | (0.46 | ) | | (0.44 | ) |
| Net asset value, end of year. | $ | 11.55 | | $ | 11.81 | | $ | 12.06 | | $ | 11.70 | | $ | 12.39 | |
| |
| Total return | | 1.33 | % | | 1.50 | % | | 7.13 | % | | (1.80 | )% | | 4.70 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.55 | % | | 0.54 | % | | 0.55 | % | | 0.53 | % | | 0.53 | % |
| Net investment income | | 3.53 | % | | 3.65 | % | | 3.83 | % | | 4.01 | % | | 3.63 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 67,672 | | $ | 39,846 | | $ | 36,020 | | $ | 26,577 | | $ | 20,317 | |
| Portfolio turnover rate | | 12.35 | % | | 12.04 | % | | 12.80 | % | | 9.37 | % | | 16.87 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned, and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
84 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
| | | | |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Michigan Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 97.4% | | | | |
| Michigan 94.6% | | | | |
| Allendale Public School District GO, School Building and Site, Series A, AGMC Insured, Pre-Refunded, | | | | |
| 5.00%, 5/01/37 | $ | 11,810,000 | $ | 11,892,670 |
| Ann Arbor Public School District GO, | | | | |
| Refunding, 5.00%, 5/01/26 | | 750,000 | | 874,373 |
| Refunding, 5.00%, 5/01/28 | | 1,000,000 | | 1,152,390 |
| Refunding, 5.00%, 5/01/29 | | 1,235,000 | | 1,414,495 |
| Battle Creek School District GO, | | | | |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/31 | | 4,000,000 | | 4,028,000 |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/34 | | 10,165,000 | | 10,236,155 |
| Battle Creek Water and Wastewater System Revenue, Series A, 5.00%, 6/01/36 | | 1,300,000 | | 1,445,210 |
| Bloomfield Township GO, | | | | |
| Refunding, 5.00%, 5/01/27 | | 680,000 | | 809,200 |
| Refunding, 5.00%, 5/01/29 | | 470,000 | | 551,780 |
| Refunding, 5.00%, 5/01/32 | | 1,000,000 | | 1,154,790 |
| Caledonia Community Schools GO, | | | | |
| Counties of Kent, Allegan and Barry, Refunding, 5.00%, 5/01/24 | | 1,000,000 | | 1,163,670 |
| Counties of Kent, Allegan and Barry, Refunding, 5.00%, 5/01/25 | | 1,000,000 | | 1,170,610 |
| Counties of Kent, Allegan and Barry, Refunding, 5.00%, 5/01/26 | | 1,000,000 | | 1,174,000 |
| Counties of Kent, Allegan and Barry, Refunding, Series A, 5.00%, 5/01/30 | | 1,850,000 | | 2,112,533 |
| Counties of Kent, Allegan and Barry, Refunding, Series A, 5.00%, 5/01/32 | | 1,900,000 | | 2,145,480 |
| Counties of Kent, Allegan and Barry, School Building and Site, NATL Insured, Pre-Refunded, 5.00%, | | | | |
| 5/01/26 | | 3,665,000 | | 3,690,655 |
| Central Michigan University Revenue, | | | | |
| General, Refunding, 5.00%, 10/01/30 | | 1,910,000 | | 2,169,932 |
| General, Refunding, 5.00%, 10/01/31 | | 1,055,000 | | 1,194,756 |
| General, Refunding, 5.00%, 10/01/34 | | 1,600,000 | | 1,784,416 |
| General, Refunding, 5.00%, 10/01/39 | | 2,000,000 | | 2,199,520 |
| Chippewa Valley Schools GO, | | | | |
| Refunding, 5.00%, 5/01/28 | | 6,075,000 | | 6,848,287 |
| Refunding, 5.00%, 5/01/29 | | 6,425,000 | | 7,207,950 |
| Refunding, 5.00%, 5/01/30 | | 6,420,000 | | 7,175,441 |
| Refunding, 5.00%, 5/01/31 | | 3,000,000 | | 3,340,470 |
| Refunding, 5.00%, 5/01/32 | | 6,590,000 | | 7,306,597 |
| Commerce Charter Township GO, Capital Improvement, Refunding, 5.00%, 12/01/38 | | 3,250,000 | | 3,624,725 |
| Detroit City School District GO, School Building and Site Improvement, Series A, AGMC Insured, 6.00%, | | | | |
| 5/01/29 | | 10,000,000 | | 12,182,600 |
| Detroit GO, | | | | |
| Distributable State Aid, Pre-Refunded, 5.00%, 11/01/30 | | 5,000,000 | | 5,150,000 |
| Distributable State Aid, Pre-Refunded, 5.25%, 11/01/35 | | 5,000,000 | | 5,150,000 |
| Detroit Water and Sewerage Department Sewage Disposal System Revenue, senior lien, Refunding, | | | | |
| Series A, AGMC Insured, 5.00%, 7/01/39 | | 5,000,000 | | 5,434,850 |
| Detroit Water Supply System Revenue, | | | | |
| second lien, Series B, NATL Insured, 5.00%, 7/01/34 | | 25,000 | | 25,081 |
| senior lien, Series A, AGMC Insured, 5.00%, 7/01/34 | | 30,000 | | 30,127 |
| senior lien, Series B, BHAC Insured, Pre-Refunded, 5.25%, 7/01/35. | | 17,500,000 | | 18,497,500 |
| DeWitt Public Schools GO, | | | | |
| School Building and Site, 5.00%, 5/01/30 | | 500,000 | | 582,720 |
| School Building and Site, 5.00%, 5/01/33 | | 815,000 | | 932,996 |
| School Building and Site, 5.00%, 5/01/34 | | 1,000,000 | | 1,139,220 |
| School Building and Site, 5.00%, 5/01/35 | | 1,000,000 | | 1,133,690 |
| School Building and Site, 5.00%, 5/01/36 | | 1,000,000 | | 1,130,940 |
franklintempleton.com
Annual Report
85
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Michigan (continued) | | | | |
| Farmington Public School District GO, | | | | |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/27 | $ | 1,000,000 | $ | 1,153,170 |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/28 | | 2,000,000 | | 2,293,800 |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/32 | | 4,035,000 | | 4,531,305 |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/33 | | 2,900,000 | | 3,241,272 |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/34 | | 3,000,000 | | 3,339,450 |
| School Building and Site, Refunding, AGMC Insured, 5.00%, 5/01/35 | | 1,000,000 | | 1,110,140 |
| Grand Rapids Building Authority Revenue, Series A, AMBAC Insured, 5.00%, 10/01/28 | | 3,590,000 | | 3,601,632 |
| Grand Rapids Sanitary Sewer System Revenue, | | | | |
| Improvement and Refunding, 5.00%, 1/01/26. | | 1,000,000 | | 1,162,810 |
| Improvement and Refunding, 5.00%, 1/01/28. | | 1,560,000 | | 1,793,844 |
| Improvement and Refunding, 5.00%, 1/01/29. | | 1,000,000 | | 1,144,510 |
| Improvement and Refunding, 5.00%, 1/01/31. | | 2,095,000 | | 2,373,991 |
| Improvement and Refunding, 5.00%, 1/01/32. | | 1,175,000 | | 1,325,247 |
| Improvement and Refunding, 5.00%, 1/01/33. | | 1,125,000 | | 1,263,679 |
| Improvement and Refunding, 5.00%, 1/01/34. | | 1,000,000 | | 1,118,030 |
| Improvement and Refunding, 5.00%, 1/01/35. | | 1,500,000 | | 1,672,155 |
| Improvement and Refunding, 5.00%, 1/01/39. | | 880,000 | | 975,286 |
| Improvement and Refunding, 5.00%, 1/01/44. | | 2,000,000 | | 2,210,100 |
| Refunding, 5.00%, 1/01/36 | | 1,250,000 | | 1,415,625 |
| Refunding, 5.00%, 1/01/38 | | 1,000,000 | | 1,129,230 |
| Grand Rapids Water Supply System Revenue, | | | | |
| Assured Guaranty, Pre-Refunded, 5.10%, 1/01/39 | | 3,000,000 | | 3,221,610 |
| Improvement and Refunding, 5.00%, 1/01/28. | | 300,000 | | 354,123 |
| Improvement and Refunding, 5.00%, 1/01/29. | | 250,000 | | 293,385 |
| Improvement and Refunding, 5.00%, 1/01/30. | | 250,000 | | 291,468 |
| Improvement and Refunding, 5.00%, 1/01/31. | | 300,000 | | 347,226 |
| Improvement and Refunding, 5.00%, 1/01/32. | | 300,000 | | 345,213 |
| Improvement and Refunding, 5.00%, 1/01/33. | | 550,000 | | 628,771 |
| Improvement and Refunding, 5.00%, 1/01/34. | | 990,000 | | 1,126,877 |
| Improvement and Refunding, 5.00%, 1/01/36. | | 1,000,000 | | 1,129,230 |
| Improvement and Refunding, 5.00%, 1/01/41. | | 1,000,000 | | 1,121,090 |
| Improvement and Refunding, 5.00%, 1/01/46. | | 2,775,000 | | 3,099,814 |
| Grand Traverse County Hospital Finance Authority Revenue, | | | | |
| Munson Healthcare Obligated Group, Series A, 5.00%, 7/01/44 | | 2,000,000 | | 2,158,780 |
| Munson Healthcare Obligated Group, Series A, 5.00%, 7/01/47 | | 2,500,000 | | 2,693,500 |
| Grand Valley State University Revenue, | | | | |
| General, Series A, AGMC Insured, Pre-Refunded, 5.00%, 12/01/28 | | 17,165,000 | | 18,033,721 |
| General, Series A, AGMC Insured, Pre-Refunded, 5.00%, 12/01/33 | | 8,570,000 | | 9,003,728 |
| Refunding, Series A, 5.00%, 12/01/32. | | 4,295,000 | | 4,854,166 |
| Grandville Public School District GO, | | | | |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/29 | | 750,000 | | 846,255 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/30 | | 1,000,000 | | 1,123,760 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/31 | | 1,150,000 | | 1,287,080 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/32 | | 1,165,000 | | 1,296,820 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/34 | | 1,315,000 | | 1,450,971 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/35 | | 1,225,000 | | 1,347,108 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/37 | | 2,915,000 | | 3,190,438 |
| School Building and Site, Series II, AGMC Insured, 5.00%, 5/01/40 | | 6,215,000 | | 6,788,520 |
| Holly Area School District GO, | | | | |
| Refunding, 5.00%, 5/01/30 | | 1,045,000 | | 1,168,028 |
| Refunding, 5.00%, 5/01/32 | | 1,040,000 | | 1,152,601 |
86 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Michigan (continued) | | | | |
| Jackson County Hospital Finance Authority Revenue, W.A. Foote Memorial Hospital, Series C, Assured | | | | |
| Guaranty, Pre-Refunded, 5.00%, 6/01/26 | $ | 10,000,000 | $ | 11,181,700 |
| Kalamazoo Hospital Finance Authority Hospital Facility Revenue, | | | | |
| Bronson Methodist Hospital, AGMC Insured, Pre-Refunded, 5.25%, 5/15/36 | | 5,530,000 | | 6,229,103 |
| Bronson Methodist Hospital, Refunding, AGMC Insured, 5.25%, 5/15/36 | | 4,470,000 | | 4,821,297 |
| Bronson Methodist Hospital, Refunding, Series B, AGMC Insured, 5.00%, 5/15/26 | | 7,000,000 | | 7,267,120 |
| Kelloggsville Public Schools GO, | | | | |
| School Building and Site, AGMC Insured, 5.00%, 5/01/33 | | 1,045,000 | | 1,163,242 |
| School Building and Site, AGMC Insured, 5.00%, 5/01/35 | | 1,150,000 | | 1,270,623 |
| School Building and Site, AGMC Insured, 5.00%, 5/01/38 | | 3,815,000 | | 4,203,787 |
| Kent County GO, | | | | |
| Capital Improvement, 5.00%, 6/01/32 | | 1,305,000 | | 1,514,296 |
| Capital Improvement, 5.00%, 6/01/33 | | 1,275,000 | | 1,471,681 |
| Capital Improvement, 5.00%, 6/01/36 | | 745,000 | | 850,269 |
| Kentwood Public Schools GO, | | | | |
| School Building and Site, 5.00%, 5/01/35 | | 1,205,000 | | 1,357,637 |
| School Building and Site, 5.00%, 5/01/36 | | 1,205,000 | | 1,353,601 |
| School Building and Site, 5.00%, 5/01/38 | | 1,210,000 | | 1,355,176 |
| School Building and Site, 5.00%, 5/01/41 | | 1,120,000 | | 1,251,578 |
| School Building and Site, 5.00%, 5/01/44 | | 1,800,000 | | 2,006,982 |
| L’Anse Creuse Public Schools GO, | | | | |
| Refunding, 5.00%, 5/01/28 | | 5,230,000 | | 5,994,208 |
| Refunding, 5.00%, 5/01/30 | | 5,560,000 | | 6,294,921 |
| Refunding, 5.00%, 5/01/32 | | 5,890,000 | | 6,601,041 |
| Refunding, 5.00%, 5/01/34 | | 6,220,000 | | 6,909,736 |
| Refunding, 5.00%, 5/01/35 | | 2,840,000 | | 3,144,278 |
| Lansing Board of Water and Light Utility System Revenue, Series A, 5.50%, 7/01/41 | | 10,000,000 | | 11,452,800 |
| Lansing Community College GO, College Building and Site, Refunding, 5.00%, 5/01/32. | | 3,000,000 | | 3,393,540 |
| Lansing School District GO, | | | | |
| Counties of Ingham, Eaton and Clinton, School Building and Site, Series I, 5.00%, 5/01/36 | | 1,395,000 | | 1,549,650 |
| Counties of Ingham, Eaton and Clinton, School Building and Site, Series I, 5.00%, 5/01/37 | | 1,490,000 | | 1,651,486 |
| Counties of Ingham, Eaton and Clinton, School Building and Site, Series I, 5.00%, 5/01/39 | | 2,125,000 | | 2,344,831 |
| Counties of Ingham, Eaton and Clinton, School Building and Site, Series I, 5.00%, 5/01/40 | | 2,200,000 | | 2,425,808 |
| Lapeer Community Schools GO, | | | | |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/33 | | 4,400,000 | | 4,608,384 |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/37 | | 4,325,000 | | 4,529,832 |
| Lenawee County Hospital Finance Authority Hospital Revenue, ProMedica Healthcare Obligated Group, | | | | |
| Refunding, Series B, 6.00%, 11/15/35 | | 5,000,000 | | 5,771,250 |
| Livonia Public Schools School District GO, | | | | |
| School Building and Site, Series I, AGMC Insured, 5.00%, 5/01/36. | | 5,725,000 | | 6,147,734 |
| School Building and Site, Series I, AGMC Insured, 5.00%, 5/01/38. | | 6,000,000 | | 6,429,360 |
| School Building and Site, Series I, AGMC Insured, 5.00%, 5/01/43. | | 16,850,000 | | 18,007,763 |
| Mason County CSD, | | | | |
| GO, Counties of Mason, Lake and Oceana, Refunding, 5.00%, 5/01/25 | | 1,050,000 | | 1,229,141 |
| GO, Counties of Mason, Lake and Oceana, Refunding, 5.00%, 5/01/26 | | 1,100,000 | | 1,272,821 |
| Mattawan Consolidated School District GO, | | | | |
| Series I, 5.00%, 5/01/30 | | 1,000,000 | | 1,128,340 |
| Series I, 5.00%, 5/01/31 | | 1,915,000 | | 2,150,545 |
| Series I, 5.00%, 5/01/32 | | 1,110,000 | | 1,239,781 |
| Series I, 5.00%, 5/01/34 | | 2,325,000 | | 2,579,332 |
| Series I, 5.00%, 5/01/39 | | 3,375,000 | | 3,713,917 |
franklintempleton.com
Annual Report
87
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Michigan (continued) | | | | |
| Meridian Public School District GO, | | | | |
| Refunding, 5.00%, 5/01/25 | $ | 500,000 | $ | 585,305 |
| Refunding, 5.00%, 5/01/27 | | 735,000 | | 844,125 |
| Refunding, 5.00%, 5/01/29 | | 775,000 | | 878,633 |
| Refunding, 5.00%, 5/01/31 | | 1,130,000 | | 1,268,990 |
| Michigan Finance Authority Revenue, | | | | |
| Clean Water Revolving Fund, Refunding, Series B, 4.00%, 10/01/30 | | 2,750,000 | | 2,958,422 |
| Henry Ford Health System, Refunding, 5.00%, 11/15/32 | | 2,725,000 | | 3,030,173 |
| Henry Ford Health System, Refunding, 5.00%, 11/15/41 | | 32,015,000 | | 34,726,991 |
| Hospital, Oakwood Obligated Group, Refunding, 5.00%, 8/15/28 | | 5,585,000 | | 6,245,985 |
| Hospital, Oakwood Obligated Group, Refunding, 5.00%, 8/15/29 | | 5,865,000 | | 6,526,337 |
| Hospital, Oakwood Obligated Group, Refunding, AGMC Insured, 5.00%, 11/01/32 | | 10,005,000 | | 10,984,690 |
| Hospital, Oakwood Obligated Group, Refunding, AGMC Insured, 5.00%, 11/01/42 | | 12,000,000 | | 12,980,640 |
| Hospital, Sparrow Obligated Group, AGMC Insured, 5.00%, 11/15/42. | | 8,000,000 | | 8,696,720 |
| Hospital, Trinity Health Credit Group, Refunding, Series MI, 5.00%, 12/01/45 | | 20,000,000 | | 21,953,200 |
| State Revolving Fund, Clean Water, 5.00%, 10/01/28 | | 3,000,000 | | 3,483,060 |
| State Revolving Fund, Clean Water, 5.00%, 10/01/29 | | 3,000,000 | | 3,469,290 |
| State Revolving Fund, Clean Water, 5.00%, 10/01/32 | | 2,000,000 | | 2,290,140 |
| Michigan State Building Authority Revenue, | | | | |
| Facilities Program, Refunding, Series I, 6.25%, 10/15/38 | | 555,000 | | 598,984 |
| Facilities Program, Refunding, Series I, 5.00%, 4/15/41 | | 13,000,000 | | 14,456,650 |
| Facilities Program, Refunding, Series I, 5.00%, 10/15/46 | | 6,500,000 | | 7,183,800 |
| Facilities Program, Refunding, Series I-A, 5.00%, 10/15/33 | | 5,000,000 | | 5,605,500 |
| Facilities Program, Refunding, Series I-A, 5.50%, 10/15/45 | | 2,000,000 | | 2,242,400 |
| Facilities Program, Refunding, Series I-A, 5.25%, 10/15/47 | | 5,000,000 | | 5,581,400 |
| Facilities Program, Series I, Pre-Refunded, 6.25%, 10/15/38 | | 14,445,000 | | 15,655,491 |
| Michigan State HDA Rental Housing Revenue, Series A, 5.25%, 10/01/46 | | 1,810,000 | | 1,919,342 |
| Michigan State Hospital Finance Authority Revenue, | | | | |
| Ascension Health Senior Credit Group, Refunding, Series F, 5.00%, 11/15/46 | | 5,000,000 | | 5,542,650 |
| Hospital, Sparrow Obligated Group, NATL Insured, 5.00%, 11/15/31 | | 2,410,000 | | 2,466,418 |
| Hospital, Sparrow Obligated Group, NATL Insured, Pre-Refunded, 5.00%, 11/15/31 | | 6,090,000 | | 6,269,411 |
| Hospital, Sparrow Obligated Group, Pre-Refunded, 5.00%, 11/15/31 | | 7,060,000 | | 7,267,988 |
| Hospital, Sparrow Obligated Group, Refunding, 5.00%, 11/15/31 | | 2,940,000 | | 3,008,414 |
| Hospital, Sparrow Obligated Group, Refunding, NATL Insured, 5.00%, 11/15/36 | | 6,165,000 | | 6,288,855 |
| McLaren Healthcare, Refunding, Series A, 5.00%, 6/01/26 | | 2,065,000 | | 2,306,419 |
| McLaren Healthcare, Refunding, Series A, 5.00%, 6/01/27 | | 2,285,000 | | 2,542,657 |
| McLaren Healthcare, Refunding, Series A, 5.00%, 6/01/28 | | 2,615,000 | | 2,899,067 |
| McLaren Healthcare, Refunding, Series A, 5.00%, 6/01/35 | | 2,250,000 | | 2,438,347 |
| MidMichigan Obligated Group, Series A, Pre-Refunded, 6.125%, 6/01/39 | | 5,000,000 | | 5,560,150 |
| St. John Health System, Series A, AMBAC Insured, ETM, 5.125%, 5/15/17. | | 3,900,000 | | 3,913,572 |
| Trinity Health Credit Group, Refunding, Series A-1, 6.50%, 12/01/33 | | 915,000 | | 989,316 |
| Trinity Health Credit Group, Series A-1, Pre-Refunded, 6.50%, 12/01/33 | | 24,085,000 | | 26,308,045 |
| Trinity Health Credit Group, Series B, 5.00%, 12/01/48 | | 20,000,000 | | 21,574,000 |
| Michigan State Revenue, Grant Anticipation Bonds, AGMC Insured, Pre-Refunded, 5.25%, 9/15/27 | | 10,000,000 | | 10,240,700 |
| Michigan State Strategic Fund Limited Obligation Revenue, The Detroit Edison Co. Pollution Control | | | | |
| Bonds Project, Refunding, Collateralized Series BB, AMBAC Insured, 7.00%, 5/01/21 | | 3,000,000 | | 3,609,240 |
| Michigan State Technological University Revenue, General, Refunding, Series A, 5.00%, 10/01/45 | | 2,400,000 | | 2,676,000 |
| Michigan State University Revenue, | | | | |
| General, Refunding, Series C, 5.00%, 2/15/44 | | 14,630,000 | | 15,929,437 |
| General, Series A, 5.00%, 8/15/40 | | 8,500,000 | | 9,624,805 |
88 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Michigan (continued) | | | | |
| Muskegon County GO, | | | | |
| Waste Water Management System No. 1, Refunding, 5.00%, 11/01/33 | $ | 1,360,000 | $ | 1,543,845 |
| Waste Water Management System No. 1, Refunding, 5.00%, 11/01/36 | | 1,735,000 | | 1,948,596 |
| North Kent Sewer Authority Revenue, | | | | |
| Refunding, 5.00%, 11/01/26 | | 750,000 | | 894,398 |
| Refunding, 5.00%, 11/01/30 | | 1,315,000 | | 1,534,118 |
| Refunding, 5.00%, 11/01/31 | | 1,000,000 | | 1,162,980 |
| Northview Public Schools District GO, School Building and Site, 5.00%, 5/01/41 | | 3,000,000 | | 3,182,340 |
| Oakland Schools Intermediate School District GO, | | | | |
| Refunding, 5.00%, 5/01/35 | | 1,500,000 | | 1,715,430 |
| Refunding, 5.00%, 5/01/36 | | 1,005,000 | | 1,148,474 |
| Oakland University Board of Trustees Revenue, | | | | |
| General, 5.00%, 3/01/47 | | 7,230,000 | | 7,990,162 |
| General, Refunding, 5.00%, 3/01/27 | | 1,000,000 | | 1,142,960 |
| General, Refunding, 5.00%, 3/01/30 | | 1,010,000 | | 1,135,240 |
| General, Refunding, 5.00%, 3/01/31 | | 1,260,000 | | 1,409,499 |
| General, Refunding, 5.00%, 3/01/32 | | 1,000,000 | | 1,111,340 |
| General, Refunding, 5.00%, 3/01/33 | | 1,285,000 | | 1,422,983 |
| General, Refunding, 5.00%, 3/01/34 | | 1,000,000 | | 1,103,440 |
| General, Refunding, 5.00%, 3/01/39 | | 3,000,000 | | 3,273,150 |
| Rochester Community School District GO, | | | | |
| Counties of Oakland and Macomb, School Building and Site, Series I, 5.00%, 5/01/30 | | 3,350,000 | | 3,862,784 |
| Counties of Oakland and Macomb, School Building and Site, Series I, 5.00%, 5/01/31 | | 1,500,000 | | 1,720,560 |
| Counties of Oakland and Macomb, School Building and Site, Series I, 5.00%, 5/01/32 | | 5,575,000 | | 6,356,615 |
| Counties of Oakland and Macomb, School Building and Site, Series I, 5.00%, 5/01/35 | | 6,450,000 | | 7,256,250 |
| Counties of Oakland and Macomb, School Building and Site, Series I, 5.00%, 5/01/36 | | 2,800,000 | | 3,142,972 |
| Rockford Public Schools GO, School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/33 | | 5,000,000 | | 5,233,800 |
| Roseville School District GO, | | | | |
| Refunding, 5.00%, 5/01/25 | | 1,000,000 | | 1,173,820 |
| Refunding, 5.00%, 5/01/26 | | 1,400,000 | | 1,628,816 |
| Refunding, 5.00%, 5/01/27 | | 1,370,000 | | 1,584,158 |
| Refunding, 5.00%, 5/01/28 | | 3,040,000 | | 3,493,720 |
| Refunding, 5.00%, 5/01/29 | | 3,300,000 | | 3,769,359 |
| Refunding, 5.00%, 5/01/30 | | 1,620,000 | | 1,841,632 |
| Refunding, 5.00%, 5/01/31 | | 1,585,000 | | 1,793,285 |
| Royal Oak Hospital Finance Authority Hospital Revenue, | | | | |
| William Beaumont Hospital Obligated Group, Refunding, Series D, 5.00%, 9/01/27 | | 3,350,000 | | 3,785,667 |
| William Beaumont Hospital Obligated Group, Refunding, Series D, 5.00%, 9/01/28 | | 2,500,000 | | 2,808,325 |
| William Beaumont Hospital Obligated Group, Refunding, Series D, 5.00%, 9/01/39 | | 17,500,000 | | 18,868,325 |
| William Beaumont Hospital Obligated Group, Series V, Pre-Refunded, 8.25%, 9/01/39 | | 10,000,000 | | 11,072,700 |
| Saginaw City School District GO, School Building and Site, AGMC Insured, 5.00%, 5/01/38 | | 10,555,000 | | 10,915,137 |
| Saginaw Valley State University Revenue, | | | | |
| General, AGMC Insured, Pre-Refunded, 5.00%, 7/01/28 | | 7,050,000 | | 7,428,655 |
| General, Refunding, Series A, 5.00%, 7/01/30 | | 1,750,000 | | 1,999,182 |
| General, Refunding, Series A, 5.00%, 7/01/31 | | 2,170,000 | | 2,465,879 |
| General, Refunding, Series A, 5.00%, 7/01/33 | | 1,240,000 | | 1,393,177 |
| Saline Area Schools GO, | | | | |
| County of Washtenaw, School Building and Site, 5.00%, 5/01/28 | | 500,000 | | 579,995 |
| County of Washtenaw, School Building and Site, 5.00%, 5/01/30 | | 1,400,000 | | 1,604,652 |
| County of Washtenaw, School Building and Site, 5.00%, 5/01/31 | | 500,000 | | 570,100 |
| County of Washtenaw, School Building and Site, 5.00%, 5/01/34 | | 2,750,000 | | 3,086,847 |
| County of Washtenaw, School Building and Site, 5.00%, 5/01/36 | | 2,950,000 | | 3,289,220 |
franklintempleton.com
Annual Report
89
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Michigan (continued) | | | | |
| South Haven Public Schools GO, | | | | |
| School Building and Site, Series B, AGMC Insured, 5.00%, 5/01/33 | $ | 350,000 | $ | 385,669 |
| School Building and Site, Series B, AGMC Insured, 5.00%, 5/01/35 | | 1,575,000 | | 1,722,656 |
| Southfield Public Schools GO, Refunding, NATL Insured, 4.75%, 5/01/29. | | 9,040,000 | | 9,099,664 |
| Trenton Public Schools GO, | | | | |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/31 | | 4,575,000 | | 4,791,672 |
| School Building and Site, AGMC Insured, Pre-Refunded, 5.00%, 5/01/38 | | 8,150,000 | | 8,535,984 |
| Troy City School District GO, | | | | |
| Refunding, 5.00%, 5/01/23 | | 635,000 | | 737,299 |
| Refunding, 5.00%, 5/01/25 | | 1,000,000 | | 1,174,620 |
| Refunding, 5.00%, 5/01/26 | | 1,230,000 | | 1,428,104 |
| University of Michigan Revenue, | | | | |
| General, Refunding, 5.00%, 4/01/46 | | 2,000,000 | | 2,286,700 |
| General, Refunding, Series A, 5.00%, 4/01/37 | | 2,700,000 | | 3,141,045 |
| General, Refunding, Series A, 5.00%, 4/01/42 | | 5,660,000 | | 6,558,016 |
| Warren Consolidated School District GO, School Building and Site, 5.00%, 5/01/32 | | 2,500,000 | | 2,747,375 |
| Wayne County Airport Authority Revenue, | | | | |
| Detroit Metropolitan Wayne County Airport, Refunding, NATL Insured, 5.00%, 12/01/27 | | 9,910,000 | | 10,200,066 |
| Detroit Metropolitan Wayne County Airport, Refunding, NATL Insured, 5.00%, 12/01/28 | | 10,170,000 | | 10,466,964 |
| Wayne State University Revenue, | | | | |
| General, AGMC Insured, Pre-Refunded, 5.00%, 11/15/28 | | 10,455,000 | | 11,161,758 |
| General, AGMC Insured, Pre-Refunded, 5.00%, 11/15/35 | | 9,965,000 | | 10,638,634 |
| General, Refunding, AGMC Insured, 5.00%, 11/15/28 | | 13,095,000 | | 13,870,224 |
| General, Refunding, AGMC Insured, 5.00%, 11/15/35 | | 12,470,000 | | 13,154,229 |
| General, Refunding, Series A, 5.00%, 11/15/31 | | 1,860,000 | | 2,088,148 |
| General, Refunding, Series A, 5.00%, 11/15/33 | | 1,500,000 | | 1,663,455 |
| Western Michigan University Revenue, | | | | |
| General, AGMC Insured, Pre-Refunded, 5.00%, 11/15/28 | | 5,500,000 | | 5,765,760 |
| General, AGMC Insured, Pre-Refunded, 5.00%, 11/15/32 | | 6,410,000 | | 6,719,731 |
| Refunding, Series A, 5.00%, 11/15/26. | | 1,500,000 | | 1,740,225 |
| Refunding, Series A, 5.00%, 11/15/27. | | 2,160,000 | | 2,482,034 |
| Refunding, Series A, 5.00%, 11/15/28. | | 1,635,000 | | 1,864,701 |
| Refunding, Series A, 5.00%, 11/15/29. | | 2,000,000 | | 2,265,460 |
| Refunding, Series A, 5.00%, 11/15/30. | | 2,500,000 | | 2,814,500 |
| Refunding, Series A, 5.00%, 11/15/40. | | 1,560,000 | | 1,702,225 |
| Refunding, Series A, 5.00%, 11/15/45. | | 2,000,000 | | 2,167,620 |
| Zeeland Public Schools GO, | | | | |
| School Building and Site, Series A, AGMC Insured, 5.00%, 5/01/31 | | 1,530,000 | | 1,712,376 |
| School Building and Site, Series A, AGMC Insured, 5.00%, 5/01/33 | | 2,000,000 | | 2,215,780 |
| School Building and Site, Series A, AGMC Insured, 5.00%, 5/01/34 | | 2,000,000 | | 2,206,800 |
| School Building and Site, Series A, AGMC Insured, 5.00%, 5/01/35 | | 2,000,000 | | 2,199,360 |
| | | | | 1,014,111,179 |
| |
| |
| U.S. Territories 2.8% | | | | |
| Puerto Rico 2.8% | | | | |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, | | | | |
| First Subordinate, Series A, 5.375%, 8/01/39. | | 9,000,000 | | 4,252,500 |
| First Subordinate, Series A, 6.375%, 8/01/39. | | 10,000,000 | | 5,212,500 |
| First Subordinate, Series A, 6.00%, 8/01/42 | | 25,000,000 | | 12,875,000 |
90 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Michigan Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| U.S. Territories (continued) | | | | |
| Puerto Rico (continued) | | | | |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, (continued) | | | | |
| First Subordinate, Series C, 5.50%, 8/01/40 | $ | 15,000,000 | $ | 7,312,500 |
| | | | | 29,652,500 |
| Total Municipal Bonds before Short Term Investments (Cost $1,043,437,352) | | | | 1,043,763,679 |
| |
| Short Term Investments (Cost $15,000,000) 1.4% | | | | |
| Municipal Bonds 1.4% | | | | |
| Michigan 1.4% | | | | |
| a Regents of the University of Michigan Revenue, General, Series A, Daily VRDN and Put, 0.46%, 4/01/38 . | | 15,000,000 | | 15,000,000 |
| Total Investments (Cost $1,058,437,352) 98.8% | | | | 1,058,763,679 |
| Other Assets, less Liabilities 1.2%. | | | | 12,819,204 |
| Net Assets 100.0% | | | $ | 1,071,582,883 |
See Abbreviations on page 149.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to
receive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 91
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Minnesota Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.63 | | $ | 12.69 | | $ | 12.39 | | $ | 12.98 | | $ | 12.80 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.37 | | | 0.40 | | | 0.41 | | | 0.41 | | | 0.42 | |
| Net realized and unrealized gains (losses) | | (0.35 | ) | | (0.06 | ) | | 0.30 | | | (0.60 | ) | | 0.18 | |
| Total from investment operations | | 0.02 | | | 0.34 | | | 0.71 | | | (0.19 | ) | | 0.60 | |
| Less distributions from net investment income | | (0.38 | ) | | (0.40 | ) | | (0.41 | ) | | (0.40 | ) | | (0.42 | ) |
| Net asset value, end of year. | $ | 12.27 | | $ | 12.63 | | $ | 12.69 | | $ | 12.39 | | $ | 12.98 | |
| |
| Total returnd | | 0.11 | % | | 2.71 | % | | 5.78 | % | | (1.45 | )% | | 4.77 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.65 | % | | 0.64 | % | | 0.65 | % | | 0.64 | % | | 0.64 | % |
| Net investment income | | 2.99 | % | | 3.16 | % | | 3.23 | % | | 3.27 | % | | 3.27 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 695,040 | | $ | 731,215 | | $ | 719,848 | | $ | 717,104 | | $ | 904,813 | |
| Portfolio turnover rate | | 13.80 | % | | 8.61 | % | | 6.53 | % | | 6.93 | % | | 6.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
92 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.76 | | $ | 12.82 | | $ | 12.51 | | $ | 13.10 | | $ | 12.92 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.31 | | | 0.33 | | | 0.34 | | | 0.34 | | | 0.36 | |
| Net realized and unrealized gains (losses) | | (0.37 | ) | | (0.06 | ) | | 0.31 | | | (0.60 | ) | | 0.17 | |
| Total from investment operations | | (0.06 | ) | | 0.27 | | | 0.65 | | | (0.26 | ) | | 0.53 | |
| Less distributions from net investment income | | (0.30 | ) | | (0.33 | ) | | (0.34 | ) | | (0.33 | ) | | (0.35 | ) |
| Net asset value, end of year. | $ | 12.40 | | $ | 12.76 | | $ | 12.82 | | $ | 12.51 | | $ | 13.10 | |
| |
| Total returnd | | (0.45 | )% | | 2.12 | % | | 5.23 | % | | (1.97 | )% | | 4.15 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.20 | % | | 1.19 | % | | 1.20 | % | | 1.19 | % | | 1.19 | % |
| Net investment income | | 2.44 | % | | 2.61 | % | | 2.68 | % | | 2.72 | % | | 2.72 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 223,444 | | $ | 217,904 | | $ | 211,768 | | $ | 205,745 | | $ | 270,570 | |
| Portfolio turnover rate | | 13.80 | % | | 8.61 | % | | 6.53 | % | | 6.93 | % | | 6.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 93
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.64 | | $ | 12.70 | | $ | 12.40 | | $ | 12.99 | | $ | 12.81 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.39 | | | 0.41 | | | 0.42 | | | 0.42 | | | 0.44 | |
| Net realized and unrealized gains (losses) | | (0.36 | ) | | (0.06 | ) | | 0.30 | | | (0.60 | ) | | 0.18 | |
| Total from investment operations | | 0.03 | | | 0.35 | | | 0.72 | | | (0.18 | ) | | 0.62 | |
| Less distributions from net investment income | | (0.39 | ) | | (0.41 | ) | | (0.42 | ) | | (0.41 | ) | | (0.44 | ) |
| Net asset value, end of year. | $ | 12.28 | | $ | 12.64 | | $ | 12.70 | | $ | 12.40 | | $ | 12.99 | |
| |
| Total return | | 0.20 | % | | 2.81 | % | | 5.88 | % | | (1.35 | )% | | 4.88 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.55 | % | | 0.54 | % | | 0.55 | % | | 0.54 | % | | 0.54 | % |
| Net investment income | | 3.09 | % | | 3.26 | % | | 3.33 | % | | 3.37 | % | | 3.37 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 169,533 | | $ | 121,685 | | $ | 123,174 | | $ | 98,382 | | $ | 49,398 | |
| Portfolio turnover rate | | 13.80 | % | | 8.61 | % | | 6.53 | % | | 6.93 | % | | 6.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
94 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
Statement of Investments, February 28, 2017
Franklin Minnesota Tax-Free Income Fund
| | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 99.2% | | | | |
| Minnesota 99.2% | | | | |
| Alexandria ISD No. 206 GO, School Building, Minnesota School District Credit Enhancement Program, | | | | |
| Series A, 5.00%, 2/01/37 | $ | 11,700,000 | $ | 13,079,430 |
| Anoka-Hennepin ISD No. 11 GO, Anoka and Hennepin Counties, School Building, Minnesota School | | | | |
| District Credit Enhancement Program, Refunding, Series A, Assured Guaranty, 5.00%, 2/01/20 | | 5,870,000 | | 6,511,532 |
| Bemidji GO, Sales Tax Revenue, Refunding, 5.25%, 2/01/38 | | 12,055,000 | | 13,531,376 |
| Big Lake ISD No. 727 GO, | | | | |
| Refunding, Series B, 5.00%, 2/01/23 | | 2,990,000 | | 3,465,201 |
| Refunding, Series B, 5.00%, 2/01/24 | | 3,000,000 | | 3,469,110 |
| Refunding, Series B, 5.00%, 2/01/25 | | 1,225,000 | | 1,413,430 |
| Blue Earth County EDA Public Project Lease Revenue, Series A, NATL Insured, 4.50%, 12/01/24 | | 1,055,000 | | 1,080,942 |
| Brainerd ISD No. 181 GO, | | | | |
| School Building, Refunding, Series A, 4.00%, 2/01/19. | | 5,025,000 | | 5,308,661 |
| School Building, Refunding, Series A, 4.00%, 2/01/20. | | 5,025,000 | | 5,292,933 |
| Cambridge ISD No. 911 GO, | | | | |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 3.00%, 2/01/27 | | 3,410,000 | | 3,474,040 |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 3.00%, 2/01/30 | | 5,585,000 | | 5,561,208 |
| Center City Health Care Facilities Revenue, Hazelden Foundation Project, 5.00%, 11/01/41. | | 1,600,000 | | 1,655,872 |
| Central Municipal Power Agency Revenue, | | | | |
| Brookings, South East Twin Cities Transmission Project, 5.00%, 1/01/32 | | 1,150,000 | | 1,279,398 |
| Brookings, South East Twin Cities Transmission Project, 5.00%, 1/01/42 | | 1,615,000 | | 1,767,456 |
| Chaska ISD No. 112 GO, | | | | |
| Alternative Facilities, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 5.00%, 2/01/20 | | 4,135,000 | | 4,583,151 |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 4.00%, 2/01/20 | | 4,475,000 | | 4,832,373 |
| Circle Pines ISD No. 12 GO, | | | | |
| School Building, Minnesota School District Credit Enhancement Program, Capital Appreciation, | | | | |
| Series A, zero cpn., 2/01/32 | | 1,450,000 | | 851,614 |
| School Building, Minnesota School District Credit Enhancement Program, Capital Appreciation, | | | | |
| Series A, zero cpn., 2/01/34 | | 1,600,000 | | 846,336 |
| School Building, Minnesota School District Credit Enhancement Program, Capital Appreciation, | | | | |
| Series A, zero cpn., 2/01/35 | | 350,000 | | 176,614 |
| Cloquet Public Schools ISD No. 94 GO, School Building, Series B, 5.00%, 2/01/32 | | 3,615,000 | | 4,134,403 |
| Dakota County CDA, SFMR, MBS Program, Series A, GNMA Secured, 4.875%, 12/01/33 | | 1,020,000 | | 1,066,665 |
| Dakota County CDA Governmental Housing Development GO, Senior Housing Facilities, Series A, | | | | |
| 5.125%, 1/01/35 | | 2,625,000 | | 2,659,860 |
| Duluth ISD No. 709 COP, | | | | |
| Full Term Certificates, Series B, AGMC Insured, Pre-Refunded, 5.00%, 2/01/28 | | 18,890,000 | | 20,309,206 |
| Full Term Certificates, Series B, Pre-Refunded, 4.75%, 2/01/25 | | 8,445,000 | | 9,039,612 |
| Series A, Refunding, 4.00%, 2/01/27 | | 3,750,000 | | 4,077,937 |
| Series A, Refunding, 4.00%, 2/01/28 | | 1,500,000 | | 1,620,150 |
| Duluth ISD No. 709 GO, | | | | |
| Refunding, Series B, 4.00%, 2/01/25 | | 3,450,000 | | 3,814,079 |
| Refunding, Series B, 2.50%, 2/01/26 | | 2,840,000 | | 2,775,390 |
| Elk River ISD No. 728 GO, School Building, Elk River Area Schools, Series A, 4.00%, 2/01/32 | | 6,130,000 | | 6,470,705 |
| Farmington ISD No. 192 GO, | | | | |
| School Building, Refunding, Series C, 5.00%, 2/01/24 | | 7,165,000 | | 8,439,582 |
| School Building, Series A, 4.00%, 2/01/28 | | 5,230,000 | | 5,687,363 |
| Fergus Falls ISD No. 544 GO, School Building, Minnesota School District Credit Enhancement Program, | | | | |
| Series A, AGMC Insured, 5.00%, 1/01/25 | | 1,655,000 | | 1,705,080 |
| Fridley ISD No. 14 GO, School Building, Fridley Public Schools, Series A, 4.00%, 2/01/28 | | 1,005,000 | | 1,101,168 |
franklintempleton.com
Annual Report
95
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Minnesota (continued) | | | | |
| Hennepin County Regional Railroad Authority GO, | | | | |
| Refunding, Series A, 4.00%, 12/01/27. | $ | 2,475,000 | $ | 2,617,387 |
| Refunding, Series A, 4.00%, 12/01/28. | | 1,590,000 | | 1,677,959 |
| Hennepin County Sales Tax Revenue, | | | | |
| Ballpark Project, first lien, Series A, Pre-Refunded, 4.75%, 12/15/37 | | 25,000,000 | | 25,783,250 |
| Ballpark Project, second lien, Series B, 5.00%, 12/15/17 | | 1,740,000 | | 1,797,768 |
| Ballpark Project, second lien, Series B, 5.00%, 12/15/21 | | 5,000,000 | | 5,162,000 |
| Hermantown ISD No. 700 GO, School Building, Series A, 4.00%, 2/01/29 | | 2,310,000 | | 2,481,541 |
| Hutchinson ISD No. 423 GO, School Building, Series A, 5.00%, 2/01/28 | | 1,685,000 | | 2,007,728 |
| Jackson County GO, Capital Improvement Plan, Series A, 3.125%, 2/01/38 | | 3,000,000 | | 2,899,050 |
| Jordan ISD No. 717 GO, | | | | |
| School Building, Series A, 5.00%, 2/01/31 | | 1,460,000 | | 1,687,161 |
| School Building, Series A, 5.00%, 2/01/32 | | 2,000,000 | | 2,306,380 |
| School Building, Series A, 5.00%, 2/01/33 | | 1,700,000 | | 1,979,871 |
| School Building, Series A, 5.00%, 2/01/34 | | 1,805,000 | | 2,102,157 |
| School Building, Series A, 5.00%, 2/01/35 | | 1,000,000 | | 1,164,630 |
| Lakeville GO, | | | | |
| Refunding, Series B, 4.00%, 2/01/21 | | 1,000,000 | | 1,099,810 |
| Refunding, Series B, 3.00%, 2/01/30 | | 4,690,000 | | 4,692,064 |
| Lakeville ISD No. 194 GO, Alternative Facilities, Series B, 3.00%, 2/01/25 | | 3,560,000 | | 3,663,347 |
| Maple Grove GO, | | | | |
| Improvement, Refunding, Series A, 4.00%, 2/01/21 | | 2,100,000 | | 2,313,822 |
| Improvement, Refunding, Series A, 4.00%, 2/01/22 | | 2,470,000 | | 2,748,888 |
| Metropolitan Council Minneapolis-St. Paul Metropolitan Area GO, Wastewater, Series C, 5.00%, 3/01/24 | | 6,250,000 | | 7,504,312 |
| Minneapolis and St. Paul Housing and RDA Health Care Facilities Revenue, Children’s Hospitals and | | | | |
| Clinics, Series A-1, AGMC Insured, 5.00%, 8/15/34 | | 1,000,000 | | 1,081,440 |
| Minneapolis Health Care System Revenue, | | | | |
| Fairview Health Services, Refunding, Series A, 5.00%, 11/15/44 | | 10,000,000 | | 10,959,000 |
| Fairview Health Services, Series B, Assured Guaranty, 6.50%, 11/15/38 | | 29,485,000 | | 31,685,466 |
| Fairview Health Services, Series B, Assured Guaranty, Pre-Refunded, 6.50%, 11/15/38 | | 5,515,000 | | 6,021,994 |
| Minneapolis-St. Paul Metropolitan Airports Commission Airport Revenue, | | | | |
| Senior, Refunding, Series A, 5.00%, 1/01/26 | | 6,000,000 | | 7,239,480 |
| Senior, Refunding, Series A, 5.00%, 1/01/30 | | 11,750,000 | | 13,945,957 |
| Senior, Refunding, Series C, 5.00%, 1/01/34 | | 2,870,000 | | 3,326,187 |
| Senior, Refunding, Series C, 5.00%, 1/01/35 | | 4,025,000 | | 4,646,299 |
| Senior, Refunding, Series C, 5.00%, 1/01/41 | | 19,655,000 | | 22,492,396 |
| Senior, Refunding, Series C, 5.00%, 1/01/46 | | 15,500,000 | | 17,667,675 |
| senior bond, Refunding, Series A, 5.00%, 1/01/35 | | 9,295,000 | | 10,103,200 |
| Subordinate Airport, Refunding, Series B, 5.00%, 1/01/26 | | 1,250,000 | | 1,409,438 |
| Subordinate Airport, Refunding, Series B, 5.00%, 1/01/27 | | 1,500,000 | | 1,690,590 |
| Subordinate Airport, Refunding, Series B, 5.00%, 1/01/28 | | 2,250,000 | | 2,529,315 |
| Minnesota Agricultural and Economic Development Board Revenue, | | | | |
| Health Care Facilities, Essentia Health Obligated Group, Series C-1, Assured Guaranty, 5.00%, | | | | |
| 2/15/30 | | 14,600,000 | | 15,709,308 |
| Health Care Facilities, Essentia Health Obligated Group, Series E, Assured Guaranty, 5.00%, | | | | |
| 2/15/37 | | 20,600,000 | | 21,091,928 |
| Minnesota Public Facilities Authority State Revenue, | | | | |
| Revolving Fund, Refunding, Series A, 5.00%, 3/01/24. | | 17,010,000 | | 20,313,172 |
| Revolving Fund, Series C, Pre-Refunded, 5.00%, 3/01/26 | | 16,530,000 | | 18,382,517 |
96 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Minnesota (continued) | | | | |
| Minnesota State 911 Revenue, | | | | |
| Public Safety Radio Communication System Project, Assured Guaranty, Pre-Refunded, 4.50%, | | | | |
| 6/01/22 | $ | 1,000,000 | $ | 1,076,080 |
| Public Safety Radio Communication System Project, Assured Guaranty, Pre-Refunded, 4.50%, | | | | |
| 6/01/24 | | 3,745,000 | | 4,029,920 |
| Public Safety Radio Communication System Project, Assured Guaranty, Pre-Refunded, 5.00%, | | | | |
| 6/01/24 | | 3,000,000 | | 3,151,830 |
| Minnesota State Colleges and Universities Revenue, | | | | |
| Board of Trustees, Fund, Refunding, Series A, 5.00%, 10/01/22 | | 1,410,000 | | 1,648,403 |
| Board of Trustees, Fund, Series A, 4.00%, 10/01/24. | | 1,535,000 | | 1,701,379 |
| Board of Trustees, Fund, Series A, 5.00%, 10/01/28. | | 2,135,000 | | 2,432,897 |
| Board of Trustees, Fund, Series A, 4.625%, 10/01/29. | | 6,615,000 | | 7,125,281 |
| Minnesota State COP, Legislative Office Facility Project, 5.00%, 6/01/36 | | 4,115,000 | | 4,629,992 |
| Minnesota State General Fund Revenue, | | | | |
| Appropriation, Refunding, Series A, 4.00%, 3/01/26 | | 4,000,000 | | 4,309,320 |
| Appropriation, Refunding, Series A, 3.00%, 3/01/30 | | 5,000,000 | | 4,878,750 |
| Appropriation, Refunding, Series B, 5.00%, 3/01/22 | | 1,530,000 | | 1,777,156 |
| Appropriation, Series A, 5.00%, 6/01/32 | | 7,000,000 | | 8,040,620 |
| Appropriation, Series A, 5.00%, 6/01/38 | | 8,500,000 | | 9,512,435 |
| Minnesota State GO, | | | | |
| Highway and Various Purpose, AGMC Insured, 5.00%, 8/01/22 | | 1,000,000 | | 1,017,610 |
| Highway and Various Purpose, AGMC Insured, 5.00%, 8/01/25 | | 10,000,000 | | 10,176,100 |
| Highway and Various Purpose, Pre-Refunded, 5.00%, 8/01/23 | | 2,935,000 | | 2,986,685 |
| Highway and Various Purpose, Pre-Refunded, 5.00%, 8/01/23 | | 65,000 | | 66,131 |
| Various Purpose, Refunding, Series F, 4.00%, 10/01/24 | | 12,720,000 | | 14,197,428 |
| Various Purpose, Refunding, Series F, 4.00%, 10/01/25 | | 15,000,000 | | 16,596,450 |
| Various Purpose, Series A, 5.00%, 8/01/28 | | 5,570,000 | | 6,757,245 |
| Various Purpose, Series A, Pre-Refunded, 4.25%, 12/01/27 | | 5,000,000 | | 5,417,500 |
| Various Purpose, Series A, Pre-Refunded, 4.50%, 12/01/28 | | 15,540,000 | | 16,942,174 |
| Various Purpose, Series H, 5.00%, 11/01/27 | | 325,000 | | 357,334 |
| Various Purpose, Series H, Pre-refunded, 5.00%, 11/01/27 | | 2,175,000 | | 2,391,391 |
| Minnesota State HFA Homeownership Finance Revenue, | | | | |
| MBS Program, Series E, GNMA Secured, 4.45%, 7/01/31. | | 3,085,000 | | 3,192,852 |
| MBS Program, Series G, GNMA Secured, 4.00%, 7/01/26 | | 1,670,000 | | 1,726,262 |
| MBS Program, Series G, GNMA Secured, 4.40%, 7/01/32 | | 2,775,000 | | 2,881,172 |
| Minnesota State HFAR, | | | | |
| Nonprofit Housing State Appropriation, 4.00%, 8/01/29. | | 3,675,000 | | 3,875,582 |
| Nonprofit Housing State Appropriation, 5.00%, 8/01/31. | | 2,225,000 | | 2,492,445 |
| Residential Housing Finance, Refunding, Series B, 3.10%, 7/01/35 | | 9,235,000 | | 8,684,225 |
| Residential Housing Finance, Series E, 4.90%, 7/01/29 | | 6,925,000 | | 7,151,378 |
| Residential Housing Finance, Series E, 5.10%, 1/01/40 | | 6,560,000 | | 6,778,251 |
| Minnesota State Higher Education Facilities Authority Revenue, | | | | |
| Carleton College, Series 7-D, 5.00%, 3/01/40 | | 4,000,000 | | 4,271,640 |
| College of St. Olaf, Refunding, Series 8-N, 4.00%, 10/01/33 | | 1,500,000 | | 1,564,275 |
| College of St. Olaf, Refunding, Series 8-N, 4.00%, 10/01/35 | | 500,000 | | 516,890 |
| Macalester College, Series 7-I, 5.00%, 6/01/35 | | 5,000,000 | | 5,526,900 |
| University of St. Thomas, Refunding, Series 8-L, 5.00%, 4/01/35 | | 750,000 | | 844,283 |
| University of St. Thomas, Refunding, Series 8-M, 4.00%, 4/01/22 | | 1,215,000 | | 1,339,173 |
| University of St. Thomas, Series 6-X, Pre-Refunded, 5.00%, 4/01/29 | | 2,250,000 | | 2,257,718 |
| University of St. Thomas, Series 6-X, Pre-Refunded, 5.25%, 4/01/39 | | 10,000,000 | | 10,036,300 |
| University of St. Thomas, Series 7-A, 5.00%, 10/01/29 | | 5,420,000 | | 5,876,310 |
| University of St. Thomas, Series 7-A, 5.00%, 10/01/39 | | 4,485,000 | | 4,829,538 |
| University of St. Thomas, Series 8-L, 4.00%, 4/01/31 | | 4,200,000 | | 4,422,180 |
franklintempleton.com
Annual Report
97
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Minnesota (continued) | | | | |
| Minnesota State Municipal Power Agency Electric Revenue, | | | | |
| 4.00%, 10/01/41. | $ | 3,000,000 | $ | 3,136,020 |
| 5.00%, 10/01/47. | | 4,650,000 | | 5,245,618 |
| Refunding, Series A, 4.00%, 10/01/31. | | 1,265,000 | | 1,348,389 |
| Refunding, Series A, 4.00%, 10/01/32. | | 1,200,000 | | 1,272,420 |
| Refunding, Series A, 4.00%, 10/01/33. | | 1,000,000 | | 1,055,500 |
| Refunding, Series A, 5.00%, 10/01/34. | | 1,000,000 | | 1,115,970 |
| Refunding, Series A, 5.00%, 10/01/35. | | 1,005,000 | | 1,117,982 |
| Series A, 5.25%, 10/01/35 | | 12,000,000 | | 13,383,960 |
| Minnesota State Public Facilities Authority Clean Water Revenue, Series B, Pre-Refunded, 4.75%, | | | | |
| 3/01/27 | | 5,000,000 | | 5,000,000 |
| New London Spicer ISD No. 345 GO, | | | | |
| School Building, Series A, 4.00%, 2/01/28 | | 1,160,000 | | 1,271,000 |
| School Building, Series A, 4.00%, 2/01/29 | | 1,095,000 | | 1,183,607 |
| School Building, Series A, 4.00%, 2/01/31 | | 1,300,000 | | 1,388,374 |
| New Prague ISD No. 721 GO, | | | | |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 4.00%, 2/01/22 | | 3,090,000 | | 3,386,053 |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 4.00%, 2/01/23 | | 3,045,000 | | 3,317,345 |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 4.00%, 2/01/24 | | 3,245,000 | | 3,519,819 |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series A, | | | | |
| 4.00%, 2/01/25 | | 3,300,000 | | 3,559,974 |
| Northern Municipal Power Agency Electric System Revenue, | | | | |
| Refunding, Series A, Assured Guaranty, 5.00%, 1/01/21 | | 1,505,000 | | 1,549,789 |
| Series A, 5.00%, 1/01/30. | | 1,190,000 | | 1,333,228 |
| Series A, AMBAC Insured, Pre-Refunded, 5.00%, 1/01/26 | | 2,000,000 | | 2,067,620 |
| Northfield ISD No. 659 GO, School Building, Refunding, Series A, 4.00%, 2/01/20 | | 3,420,000 | | 3,607,040 |
| Perham ISD No. 549 GO, | | | | |
| Perham Dent Public Schools, School Building, Series A, 4.00%, 2/01/27 | | 715,000 | | 780,773 |
| Perham Dent Public Schools, School Building, Series A, 4.00%, 2/01/28 | | 1,045,000 | | 1,131,474 |
| Perham Dent Public Schools, School Building, Series A, 4.00%, 2/01/29 | | 500,000 | | 535,505 |
| Ramsey GO, | | | | |
| Capital Improvement Plan, Refunding, Series A, 3.00%, 12/15/28 | | 1,105,000 | | 1,110,857 |
| Capital Improvement Plan, Refunding, Series A, 3.375%, 12/15/31 | | 1,215,000 | | 1,244,938 |
| Rochester Electricity Utility Revenue, | | | | |
| Refunding, Series A, 5.00%, 12/01/42. | | 2,000,000 | | 2,299,240 |
| a Refunding, Series A, 5.00%, 12/01/47. | | 9,210,000 | | 10,521,688 |
| Series B, 5.00%, 12/01/43 | | 1,000,000 | | 1,125,150 |
| Rochester Health Care Facilities Revenue, | | | | |
| Mayo Clinic, Mandatory Put 11/15/21, Series C, 4.50%, 11/15/38 | | 10,190,000 | | 11,502,880 |
| Mayo Clinic, Refunding, Series B, 5.00%, 11/15/33. | | 4,425,000 | | 5,461,999 |
| Mayo Clinic, Refunding, Series B, 5.00%, 11/15/34. | | 10,235,000 | | 12,630,911 |
| Mayo Clinic, Refunding, Series B, 5.00%, 11/15/35. | | 5,000,000 | | 6,170,900 |
| Mayo Clinic, Refunding, Series B, 5.00%, 11/15/36. | | 3,200,000 | | 3,951,584 |
| Mayo Clinic, Series D, 5.00%, 11/15/38 | | 5,000,000 | | 5,426,900 |
| Mayo Clinic, Series E, 5.00%, 11/15/38. | | 20,000,000 | | 21,707,600 |
| Rosemount ISD No. 196 GO, | | | | |
| School Building, Refunding, Series C, 4.00%, 2/01/21 | | 1,365,000 | | 1,503,984 |
| School Building, Refunding, Series C, 4.00%, 2/01/22 | | 2,380,000 | | 2,654,700 |
| Saint Cloud ISD No. 742, COP, 4.00%, 2/01/38 | | 1,000,000 | | 1,013,530 |
| Sartell ISD No. 748 GO, | | | | |
| Capital Appreciation, School Building, Series B, zero cpn., 2/01/36 | | 3,000,000 | | 1,400,910 |
| Capital Appreciation, School Building, Series B, zero cpn., 2/01/37 | | 2,820,000 | | 1,266,265 |
| Capital Appreciation, School Building, Series B, zero cpn., 2/01/38 | | 5,220,000 | | 2,250,655 |
98 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Minnesota (continued) | | | | |
| Sartell ISD No. 748 GO, (continued) | | | | |
| Capital Appreciation, School Building, Series B, zero cpn., 2/01/39 | $ | 2,820,000 | $ | 1,161,473 |
| School Building, Series A, 5.00%, 2/01/26 | | 1,500,000 | | 1,780,650 |
| School Building, Series A, 5.00%, 2/01/27 | | 2,075,000 | | 2,446,840 |
| Scott County GO, Capital Improvement Plan, Series A, AMBAC Insured, 5.00%, 12/01/27 | | 5,590,000 | | 5,746,855 |
| South Washington County ISD No. 833 GO, | | | | |
| School Building, Series A, 4.00%, 2/01/29 | | 4,220,000 | | 4,578,700 |
| School Building, Series A, 4.00%, 2/01/30 | | 9,640,000 | | 10,396,547 |
| Southern Minnesota Municipal Power Agency Power Supply System Revenue, | | | | |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/19 | | 5,875,000 | | 5,730,181 |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/20 | | 14,035,000 | | 13,424,056 |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/23 | | 4,000,000 | | 3,511,000 |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/26 | | 5,395,000 | | 4,213,387 |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/27 | | 6,600,000 | | 4,939,836 |
| Capital Appreciation, Refunding, Series C, AMBAC Insured, zero cpn., 1/01/18 | | 15,935,000 | | 15,787,123 |
| Refunding, Series A, 5.00%, 1/01/46 | | 9,345,000 | | 10,408,741 |
| Series A, Pre-Refunded, 5.00%, 1/01/21 | | 1,000,000 | | 1,072,060 |
| Series A, Pre-Refunded, 5.00%, 1/01/22 | | 2,060,000 | | 2,208,444 |
| Series A, Pre-Refunded, 5.50%, 1/01/24 | | 1,000,000 | | 1,081,100 |
| Series A, Pre-Refunded, 5.25%, 1/01/30 | | 2,000,000 | | 2,153,160 |
| St. Cloud Health Care Revenue, | | | | |
| CentraCare Health System, Refunding, Series A, 5.125%, 5/01/30. | | 750,000 | | 817,575 |
| CentraCare Health System, Refunding, Series A, 4.00%, 5/01/37 | | 12,310,000 | | 12,565,432 |
| CentraCare Health System, Series A, Pre-Refunded, 5.125%, 5/01/30 | | 9,250,000 | | 10,369,620 |
| CentraCare Health System Project, Series D, Assured Guaranty, Pre-Refunded, 5.375%, 5/01/31 | | 1,000,000 | | 1,091,030 |
| CentraCare Health System Project, Series D, Assured Guaranty, Pre-Refunded, 5.50%, 5/01/39 | | 27,400,000 | | 29,967,380 |
| St. Cloud Public Schools ISD No. 742 GO, | | | | |
| Series A, 4.00%, 2/01/28. | | 2,080,000 | | 2,266,763 |
| Series A, 4.00%, 2/01/29. | | 1,000,000 | | 1,080,180 |
| Series B, 4.00%, 2/01/30 | | 4,060,000 | | 4,395,153 |
| Series B, 4.00%, 2/01/36 | | 2,500,000 | | 2,624,250 |
| Series B, 4.00%, 2/01/37 | | 2,250,000 | | 2,356,515 |
| St. Michael ISD No. 885 GO, Refunding, Series A, 4.25%, 2/01/32 | | 10,295,000 | | 11,122,615 |
| St. Paul Housing and RDA Health Care System Revenue, | | | | |
| Allina Health System, Refunding, Series A-1, 5.25%, 11/15/29 | | 5,000,000 | | 5,491,400 |
| Allina Health System, Series A, NATL Insured, 5.00%, 11/15/22 | | 5,000,000 | | 5,129,450 |
| St. Paul ISD No. 625 GO, | | | | |
| School Building, Minnesota School District Credit Enhancement Program, Refunding, Series B, | | | | |
| 5.00%, 2/01/24 | | 2,925,000 | | 3,417,190 |
| School Building, Minnesota School District Credit Enhancement Program, Series A, 3.00%, 2/01/30 . | | 1,385,000 | | 1,379,100 |
| School Building, Minnesota School District Credit Enhancement Program, Series A, 3.00%, 2/01/31 . | | 1,195,000 | | 1,178,891 |
| St. Paul Sales Tax Revenue, | | | | |
| Series G, 5.00%, 11/01/31. | | 1,000,000 | | 1,141,820 |
| Series G, 5.00%, 11/01/32. | | 1,000,000 | | 1,136,680 |
| sub. bond, Series A, XLCA Insured, Pre-Refunded, 5.00%, 11/01/30 | | 7,360,000 | | 7,564,829 |
| University of Minnesota GO, | | | | |
| Series A, 4.00%, 2/01/26. | | 2,425,000 | | 2,645,990 |
| Series A, 5.25%, 4/01/29. | | 1,000,000 | | 1,083,070 |
| Series A, 5.125%, 4/01/34 | | 1,000,000 | | 1,076,220 |
| Series A, 5.00%, 4/01/41. | | 5,000,000 | | 5,729,500 |
| Series B, 5.00%, 1/01/38 | | 4,500,000 | | 5,114,205 |
| University of Minnesota Regents Revenue, State Supported Biomedical Science Research Facilities | | | | |
| Funding Program, Series B, 5.00%, 8/01/36 | | 5,000,000 | | 5,657,350 |
| University of Minnesota Revenue, | | | | |
| Special Purpose, State Supported Stadium Debt, Refunding, Series A, 5.00%, 8/01/25 | | 5,000,000 | | 6,043,950 |
| Special Purpose, State Supported Stadium Debt, Refunding, Series A, 5.00%, 8/01/28 | | 7,225,000 | | 8,461,775 |
franklintempleton.com
Annual Report
99
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Minnesota Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Minnesota (continued) | | | | |
| Waconia ISD No. 110 GO, School Building, Refunding, Series B, 4.125%, 2/01/22 | $ | 3,000,000 | $ | 3,117,660 |
| Western Minnesota Municipal Power Agency Revenue, | | | | |
| Refunding, Series A, 5.00%, 1/01/24 | | 5,000,000 | | 5,818,150 |
| Refunding, Series A, 5.00%, 1/01/25 | | 3,370,000 | | 3,911,391 |
| Refunding, Series A, 5.00%, 1/01/29 | | 1,200,000 | | 1,378,560 |
| Refunding, Series A, 5.00%, 1/01/35 | | 3,000,000 | | 3,419,730 |
| Refunding, Series A, 5.00%, 1/01/36 | | 2,035,000 | | 2,301,300 |
| Series A, 5.00%, 1/01/20. | | 3,725,000 | | 4,116,237 |
| Series A, 5.00%, 1/01/40. | | 8,075,000 | | 8,944,112 |
| Series A, 5.00%, 1/01/46. | | 11,870,000 | | 13,094,034 |
| Willmar GO, Rice Memorial Hospital Project, Refunding, Series A, 3.00%, 2/01/29 | | 1,000,000 | | 994,030 |
| Total Municipal Bonds before Short Term Investments (Cost $1,042,500,403) | | | | 1,079,749,290 |
| |
| Short Term Investments 0.6% | | | | |
| Municipal Bonds 0.6% | | | | |
| Minnesota 0.6% | | | | |
| b Minneapolis and St. Paul Housing and RDA Health Care Facilities Revenue, | | | | |
| Children’s Hospitals and Clinics, Series B, AGMC Insured, Daily VRDN and Put, 0.57%, 8/15/25 | | 5,500,000 | | 5,500,000 |
| Children’s Hospitals and Clinics of Minnesota, Tranche I, Series A, AGMC Insured, Daily VRDN and | | | | |
| Put, 0.57%, 8/15/37 | | 900,000 | | 900,000 |
| Total Short Term Investments (Cost $6,400,000) | | | | 6,400,000 |
| Total Investments (Cost $1,048,900,403) 99.8% | | | | 1,086,149,290 |
| Other Assets, less Liabilities 0.2%. | | | | 1,868,043 |
| Net Assets 100.0% | | | $ | 1,088,017,333 |
See Abbreviations on page 149.
aA portion or all of the security purchased on a delayed delivery basis. See Note 1(b).
bVariable 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. The coupon rate shown represents the rate at period end.
100 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Ohio Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.90 | | $ | 12.91 | | $ | 12.44 | | $ | 13.12 | | $ | 12.96 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.41 | | | 0.44 | | | 0.46 | | | 0.48 | | | 0.48 | |
| Net realized and unrealized gains (losses) | | (0.34 | ) | | (0.01 | ) | | 0.49 | | | (0.71 | ) | | 0.15 | |
| Total from investment operations | | 0.07 | | | 0.43 | | | 0.95 | | | (0.23 | ) | | 0.63 | |
| Less distributions from net investment income | | (0.41 | ) | | (0.44 | ) | | (0.48 | ) | | (0.45 | ) | | (0.47 | ) |
| Net asset value, end of year. | $ | 12.56 | | $ | 12.90 | | $ | 12.91 | | $ | 12.44 | | $ | 13.12 | |
| |
| Total returnd | | 0.52 | % | | 3.43 | % | | 7.76 | % | | (1.69 | )% | | 4.96 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.63 | % | | 0.63 | % | | 0.63 | % | | 0.63 | % | | 0.63 | % |
| Net investment income | | 3.17 | % | | 3.41 | % | | 3.65 | % | | 3.86 | % | | 3.69 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 1,120,704 | | $ | 1,186,318 | | $ | 1,160,630 | | $ | 1,144,885 | | $ | 1,445,535 | |
| Portfolio turnover rate | | 14.17 | % | | 6.53 | % | | 13.88 | % | | 8.78 | % | | 9.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 101
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 13.06 | | $ | 13.07 | | $ | 12.58 | | $ | 13.27 | | $ | 13.10 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.34 | | | 0.37 | | | 0.40 | | | 0.42 | | | 0.42 | |
| Net realized and unrealized gains (losses) | | (0.34 | ) | | (0.01 | ) | | 0.50 | | | (0.73 | ) | | 0.15 | |
| Total from investment operations | | — | | | 0.36 | | | 0.90 | | | (0.31 | ) | | 0.57 | |
| Less distributions from net investment income | | (0.34 | ) | | (0.37 | ) | | (0.41 | ) | | (0.38 | ) | | (0.40 | ) |
| Net asset value, end of year. | $ | 12.72 | | $ | 13.06 | | $ | 13.07 | | $ | 12.58 | | $ | 13.27 | |
| |
| Total returnd | | (0.05 | )% | | 2.82 | % | | 7.25 | % | | (2.28 | )% | | 4.41 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.18 | % | | 1.18 | % | | 1.18 | % | | 1.18 | % | | 1.18 | % |
| Net investment income | | 2.62 | % | | 2.86 | % | | 3.10 | % | | 3.31 | % | | 3.14 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 330,566 | | $ | 322,560 | | $ | 312,055 | | $ | 301,447 | | $ | 416,262 | |
| Portfolio turnover rate | | 14.17 | % | | 6.53 | % | | 13.88 | % | | 8.78 | % | | 9.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
102 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.91 | | $ | 12.92 | | $ | 12.44 | | $ | 13.12 | | $ | 12.96 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.42 | | | 0.45 | | | 0.48 | | | 0.49 | | | 0.50 | |
| Net realized and unrealized gains (losses) | | (0.34 | ) | | (0.01 | ) | | 0.49 | | | (0.71 | ) | | 0.15 | |
| Total from investment operations | | 0.08 | | | 0.44 | | | 0.97 | | | (0.22 | ) | | 0.65 | |
| Less distributions from net investment income | | (0.42 | ) | | (0.45 | ) | | (0.49 | ) | | (0.46 | ) | | (0.49 | ) |
| Net asset value, end of year. | $ | 12.57 | | $ | 12.91 | | $ | 12.92 | | $ | 12.44 | | $ | 13.12 | |
| |
| Total return | | 0.62 | % | | 3.53 | % | | 7.95 | % | | (1.59 | )% | | 5.07 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.53 | % | | 0.53 | % | | 0.53 | % | | 0.53 | % | | 0.53 | % |
| Net investment income | | 3.27 | % | | 3.51 | % | | 3.75 | % | | 3.96 | % | | 3.79 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 143,603 | | $ | 80,279 | | $ | 73,386 | | $ | 37,153 | | $ | 45,364 | |
| Portfolio turnover rate | | 14.17 | % | | 6.53 | % | | 13.88 | % | | 8.78 | % | | 9.69 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 103
| | | | |
| FRANKLIN TAX-FREE TRUST | | | | |
| |
| |
| |
| |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Ohio Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 99.6% | | | | |
| Ohio 99.6% | | | | |
| Akron Income Tax Revenue, | | | | |
| Community Learning Centers, 5.00%, 12/01/33 | $ | 4,250,000 | $ | 4,863,445 |
| Community Learning Centers, Series A, 4.50%, 12/01/33 | | 10,000,000 | | 10,797,700 |
| Allen County Hospital Facilities Revenue, | | | | |
| Catholic Healthcare Partners, Refunding, Series A, 5.25%, 6/01/38 | | 15,000,000 | | 16,054,500 |
| Catholic Healthcare Partners, Refunding, Series B, 5.25%, 9/01/27 | | 7,570,000 | | 8,273,026 |
| American Municipal Power Inc. Revenue, | | | | |
| Combined Hydroelectric Projects, Green Bonds, Refunding, Series A, 5.00%, 2/15/46 | | 7,500,000 | | 8,213,025 |
| Greenup Hydroelectric Project, Series A, 4.00%, 2/15/36 | | 1,000,000 | | 1,010,490 |
| Meldahl Hydroelectric Project, Green Bonds, Series A, 4.00%, 2/15/41. | | 7,250,000 | | 7,255,292 |
| Prairie State Energy Campus, Refunding, Series A, BAM Insured, 5.25%, 2/15/31 | | 10,000,000 | | 11,362,600 |
| Prairie State Energy Campus Project, Refunding, Series A, 5.00%, 2/15/28 | | 5,000,000 | | 5,680,150 |
| Prairie State Energy Campus Project, Refunding, Series A, Assured Guaranty, 5.25%, 2/15/33 | | 1,725,000 | | 1,785,617 |
| Prairie State Energy Campus Project, Refunding, Series A, BHAC Insured, 5.00%, 2/15/38 | | 1,275,000 | | 1,316,310 |
| Prairie State Energy Campus Project, Series A, Assured Guaranty, Pre-Refunded, 5.25%, 2/15/33 | | 28,275,000 | | 29,463,398 |
| Prairie State Energy Campus Project, Series A, BHAC Insured, Pre-Refunded, 5.00%, 2/15/38 | | 20,725,000 | | 21,547,161 |
| Ashland City School District GO, Classroom Facilities and School Improvement, Series 2, 4.00%, | | | | |
| 11/01/49 | | 6,685,000 | | 6,704,788 |
| Bath Local School District GO, | | | | |
| School Improvement, AGMC Insured, 4.00%, 12/01/44 | | 1,295,000 | | 1,315,202 |
| School Improvement, AGMC Insured, 5.00%, 12/01/49 | | 5,380,000 | | 5,701,347 |
| Beaver Local School District GO, School Facilities, 4.00%, 12/01/40 | | 3,000,000 | | 3,061,080 |
| Brookfield Local School District GO, School Facilities Improvement, AGMC Insured, 5.25%, 1/15/36 | | 1,300,000 | | 1,344,096 |
| Brooklyn City School District GO, | | | | |
| School Improvement, AGMC Insured, 5.25%, 12/01/43 | | 3,000,000 | | 3,344,220 |
| School Improvement, Refunding, AGMC Insured, 5.50%, 12/01/49. | | 7,780,000 | | 8,414,848 |
| Butler County Hospital Facilities Revenue, | | | | |
| Cincinnati Children’s Hospital Medical Center, Refunding, Series X, 5.00%, 5/15/29 | | 6,750,000 | | 7,991,460 |
| Kettering Health Network Obligated Group Project, 6.375%, 4/01/36 | | 5,000,000 | | 5,715,250 |
| Kettering Health Network Obligated Group Project, 5.625%, 4/01/41 | | 5,000,000 | | 5,465,950 |
| UC Health, Refunding, 5.00%, 11/15/45 | | 20,270,000 | | 22,140,921 |
| Canal Winchester Local School District GO, | | | | |
| Capital Appreciation, NATL Insured, zero cpn., 12/01/32 | | 3,955,000 | | 2,269,142 |
| Capital Appreciation, NATL Insured, zero cpn., 12/01/33 | | 2,000,000 | | 1,091,420 |
| Central Solid Waste Authority GO, | | | | |
| Improvement, Solid Waste Facilities, Pre-Refunded, 4.00%, 12/01/32 | | 1,505,000 | | 1,680,348 |
| Improvement and Refunding, Solid Waste Facilities, 4.00%, 12/01/32 | | 15,440,000 | | 16,321,933 |
| Chillicothe City School District GO, | | | | |
| Capital Appreciation, School Improvement, Refunding, NATL Insured, zero cpn., 12/01/22 | | 1,905,000 | | 1,661,027 |
| Capital Appreciation, School Improvement, Refunding, NATL Insured, zero cpn., 12/01/23 | | 1,905,000 | | 1,590,846 |
| Capital Appreciation, School Improvement, Refunding, NATL Insured, zero cpn., 12/01/24 | | 1,905,000 | | 1,524,248 |
| Cincinnati City School District GO, | | | | |
| Classroom Facilities Construction and Improvement, Refunding, NATL Insured, 5.25%, 12/01/27 | | 14,900,000 | | 18,189,026 |
| Classroom Facilities Construction and Improvement, Refunding, NATL Insured, 5.25%, 12/01/28 | | 8,180,000 | | 10,026,553 |
| Cincinnati GO, | | | | |
| Various Purpose, Improvement and Refunding, Series A, 5.00%, 12/01/18 | | 2,000,000 | | 2,139,420 |
| Various Purpose, Improvement and Refunding, Series A, 5.00%, 12/01/19 | | 5,925,000 | | 6,532,668 |
| Various Purpose, Improvement and Refunding, Series A, 5.25%, 12/01/40 | | 6,500,000 | | 7,555,730 |
| City of Akron Waterworks System Mortgage Revenue, Refunding and Improvement, Assured Guaranty, | | | | |
| 5.00%, 3/01/34 | | 1,000,000 | | 1,048,140 |
104 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Ohio (continued) | | | | |
| Cleveland Airport System Revenue, | | | | |
| Refunding, Series A, AGMC Insured, 5.00%, 1/01/30 | $ | 3,000,000 | $ | 3,324,570 |
| Refunding, Series A, AGMC Insured, 5.00%, 1/01/31 | | 1,500,000 | | 1,652,265 |
| Series C, Assured Guaranty, 5.00%, 1/01/27 | | 27,385,000 | | 28,993,869 |
| Cleveland GO, Various Purpose, Refunding, 5.00%, 12/01/30 | | 3,000,000 | | 3,436,920 |
| Cleveland Municipal School District GO, | | | | |
| School Improvement, Refunding, 5.00%, 12/01/25 | | 3,600,000 | | 4,189,608 |
| School Improvement, Refunding, 5.00%, 12/01/27 | | 1,000,000 | | 1,162,600 |
| Cleveland Public Power System Revenue, | | | | |
| Capital Appreciation, Series B-2, NATL Insured, zero cpn., 11/15/38 | | 10,000,000 | | 3,952,600 |
| Series B-1, NATL Insured, 5.00%, 11/15/28. | | 2,000,000 | | 2,083,140 |
| Series B-1, NATL Insured, 5.00%, 11/15/38. | | 10,000,000 | | 10,379,100 |
| Cleveland Water PCR, Green Bonds, 5.00%, 11/15/41. | | 2,000,000 | | 2,240,760 |
| Columbus GO, | | | | |
| Various Purpose, Refunding, Series 3, 5.00%, 2/15/27 | | 15,000,000 | | 18,523,350 |
| Various Purpose, Refunding, Series 3, 5.00%, 2/15/28 | | 5,500,000 | | 6,693,720 |
| Various Purpose, Series A, 5.00%, 2/15/23 | | 14,365,000 | | 17,009,884 |
| Various Purpose, Series A, 5.00%, 2/15/24 | | 12,655,000 | | 15,161,323 |
| Various Purpose, Series A, 5.00%, 2/15/25 | | 5,000,000 | | 5,925,950 |
| Columbus Metropolitan Library Special Obligation Revenue, | | | | |
| Library Fund Facilities Notes, Series 1, 4.00%, 12/01/27 | | 3,765,000 | | 4,045,154 |
| Library Fund Facilities Notes, Series 1, 4.00%, 12/01/28 | | 2,970,000 | | 3,185,414 |
| Library Fund Facilities Notes, Series 1, 4.00%, 12/01/29 | | 4,125,000 | | 4,416,473 |
| Library Fund Facilities Notes, Series 1, 4.00%, 12/01/37 | | 6,620,000 | | 6,805,228 |
| Columbus Sewerage System Revenue, | | | | |
| Refunding, 5.00%, 6/01/29 | | 5,000,000 | | 5,948,600 |
| Refunding, 4.00%, 6/01/31 | | 15,000,000 | | 16,039,950 |
| Coventry Local School District GO, School Improvement, 5.25%, 11/01/47 | | 5,000,000 | | 5,328,750 |
| Cuyahoga Community College District General Receipts Revenue, Series D, 5.00%, 8/01/32 | | 2,310,000 | | 2,631,899 |
| Cuyahoga County EDR, Recovery Zone Facility, Medical Mart/Convention Center Project, Series F, | | | | |
| 5.00%, 12/01/27 | | 15,000,000 | | 16,782,150 |
| Cuyahoga County Excise Tax Revenue, | | | | |
| Sports Facilities Improvement Project, 5.00%, 12/01/24 | | 1,000,000 | | 1,162,330 |
| Sports Facilities Improvement Project, 5.00%, 12/01/25 | | 500,000 | | 579,475 |
| Dayton City School District GO, Refunding, 5.00%, 11/01/30 | | 5,000,000 | | 5,995,600 |
| Dayton Metro Library GO, Library Improvement, Series A, 4.75%, 12/01/38 | | 20,000,000 | | 21,822,800 |
| Defiance City School District GO, Various Purpose, 5.00%, 12/01/46 | | 6,635,000 | | 7,483,152 |
| Delaware City School District GO, School Facilities Construction and Improvement, 5.75%, 12/01/49 | | 6,000,000 | | 6,812,220 |
| Delaware General Income Tax Special Obligation, 4.75%, 12/01/37 | | 4,000,000 | | 4,318,960 |
| Franklin County Convention Facilities Authority Revenue, Tax and Lease Revenue Anticipation, | | | | |
| Refunding, 5.00%, 12/01/35 | | 20,000,000 | | 22,671,200 |
| Franklin County Hospital Facilities Revenue, | | | | |
| Nationwide Children’s Hospital Project, Refunding, Series C, 5.00%, 11/01/34. | | 2,600,000 | | 2,949,986 |
| Nationwide Children’s Hospital Project, Refunding, Series C, 4.00%, 11/01/40. | | 5,000,000 | | 5,028,900 |
| OhioHealth Corp., 5.00%, 5/15/33 | | 6,290,000 | | 7,081,282 |
| Franklin County Hospital Revenue, Improvement, Nationwide Children’s Hospital Project, Pre-Refunded, | | | | |
| 5.25%, 11/01/40 | | 15,000,000 | | 16,611,150 |
| Franklin County Revenue, Trinity Health Credit Group, Series 2017, 5.00%, 12/01/46 | | 7,500,000 | | 8,297,700 |
| Greene County Hospital Facilities Revenue, Kettering Health Network Obligated Group Project, 5.50%, | | | | |
| 4/01/39 | | 12,930,000 | | 13,721,187 |
| Greenville City School District GO, School Improvement, 5.25%, 1/01/41 | | 2,000,000 | | 2,300,640 |
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Annual Report
105
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Ohio (continued) | | | | |
| Groveport-Madison Local School District GO, School Facilities Construction and Improvement, 5.00%, | | | | |
| 10/01/44 | $ | 6,205,000 | $ | 6,976,902 |
| Hamilton County Sewer System Revenue, The Metropolitan Sewer District of Greater Cincinnati, | | | | |
| Refunding, Series A, 5.00%, 12/01/27 | | 6,875,000 | | 8,136,494 |
| Hamilton County Student Housing Revenue, | | | | |
| Stratford Heights Project, University of Cincinnati, Refunding, AGMC Insured, 5.00%, 6/01/30 | | 7,000,000 | | 7,624,050 |
| Stratford Heights Project, University of Cincinnati, Refunding, AGMC Insured, 4.75%, 6/01/39 | | 7,000,000 | | 7,351,400 |
| Hilliard School District GO, | | | | |
| Capital Appreciation, School Construction, Refunding, NATL Insured, zero cpn., 12/01/19 | | 2,190,000 | | 2,106,014 |
| Capital Appreciation, School Construction, Refunding, NATL Insured, zero cpn., 12/01/20 | | 4,525,000 | | 4,251,826 |
| School Improvement, 4.00%, 12/01/46 | | 10,000,000 | | 10,317,600 |
| Huber Heights City School District GO, | | | | |
| School Improvement, Pre-Refunded, 5.00%, 12/01/33 | | 4,500,000 | | 4,966,650 |
| School Improvement, Pre-Refunded, 5.00%, 12/01/36 | | 5,000,000 | | 5,518,500 |
| JobsOhio Beverage System Statewide Liquor Profits Revenue, senior lien, Series A, 5.00%, 1/01/38 | | 26,010,000 | | 28,625,305 |
| Kent State University Revenues, General Receipts, Series B, Assured Guaranty, 4.25%, 5/01/31 | | 2,395,000 | | 2,498,536 |
| Kings Local School District GO, School Improvement, NATL Insured, Pre-Refunded, 5.00%, 12/01/33. | | 10,000,000 | | 10,312,500 |
| Lakewood City School District GO, | | | | |
| School Facilities Improvement, NATL Insured, Pre-Refunded, 5.00%, 12/01/30 | | 9,170,000 | | 9,456,562 |
| School Facilities Improvement, NATL Insured, Pre-Refunded, 4.50%, 12/01/34 | | 6,000,000 | | 6,165,300 |
| School Facilities Improvement, Refunding, Series A, 5.00%, 11/01/43 | | 10,895,000 | | 12,281,171 |
| School Improvement, Refunding, AGMC Insured, 4.50%, 12/01/31. | | 1,000,000 | | 1,022,410 |
| Lakota Local School District GO, | | | | |
| Refunding, Series A, NATL Insured, 5.25%, 12/01/26 | | 2,000,000 | | 2,440,080 |
| Refunding, Series C, 5.00%, 12/01/30 | | 4,035,000 | | 4,731,804 |
| Lancaster City School District GO, School Facilities Construction and Improvement, 5.00%, 10/01/49 | | 10,000,000 | | 10,939,300 |
| Little Miami Local School District GO, AGMC Insured, Pre-Refunded, 4.50%, 12/01/34 | | 14,255,000 | | 14,387,999 |
| Lorain County Hospital Revenue, | | | | |
| Catholic Healthcare Partners, Refunding, Series C-1, AGMC Insured, 5.00%, 4/01/33 | | 19,410,000 | | 20,048,589 |
| Catholic Healthcare Partners, Refunding, Series C-2, AGMC Insured, 5.00%, 4/01/33 | | 8,000,000 | | 8,263,760 |
| Lucas County GO, Various Purpose, Pre-Refunded, 4.50%, 10/01/35 | | 10,685,000 | | 11,275,774 |
| Lucas-Plaza HDC Revenue, Refunding, FHA Insured, ETM, zero cpn., 6/01/24. | | 35,230,000 | | 29,787,317 |
| Madeira City School District GO, School Improvement, Refunding, AGMC Insured, 5.25%, 12/01/32 | | 9,605,000 | | 11,966,005 |
| Mahoning County Career and Technical Center Board of Education COP, Series B, 4.75%, 12/01/36 | | 3,500,000 | | 3,577,770 |
| Mahoning County Hospital Facilities Revenue, Western Reserve Care System Project, NATL Insured, | | | | |
| ETM, 5.50%, 10/15/25 | | 4,380,000 | | 5,052,768 |
| Marysville Exempted Village School District GO, | | | | |
| Capital Appreciation, Refunding, NATL Insured, zero cpn., 12/01/20. | | 1,000,000 | | 926,820 |
| Capital Appreciation, Refunding, NATL Insured, zero cpn., 12/01/21. | | 1,000,000 | | 901,820 |
| Marysville Wastewater Treatment System Revenue, | | | | |
| Assured Guaranty, Pre-Refunded, 4.25%, 12/01/27 | | 1,170,000 | | 1,200,069 |
| Assured Guaranty, Pre-Refunded, 4.75%, 12/01/47 | | 5,000,000 | | 5,147,000 |
| Refunding, BAM Insured, 4.00%, 12/01/40 | | 3,015,000 | | 3,048,919 |
| Refunding, BAM Insured, 4.00%, 12/01/46 | | 9,370,000 | | 9,438,401 |
| Refunding, BAM Insured, 5.00%, 12/01/47 | | 5,035,000 | | 5,525,308 |
| Marysville Water System Mortgage Revenue, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/32 | | 1,250,000 | | 1,289,063 |
| Medina School District COP, School Facilities Project, Assured Guaranty, Pre-Refunded, 5.25%, 12/01/31 . | | 5,725,000 | | 6,032,432 |
| Miami University Revenue, | | | | |
| General Receipts, Refunding, 5.00%, 9/01/31 | | 4,000,000 | | 4,528,080 |
| General Receipts, Refunding, 5.00%, 9/01/31 | | 2,320,000 | | 2,669,670 |
| General Receipts, Refunding, 5.00%, 9/01/34 | | 3,500,000 | | 3,964,170 |
| General Receipts, Refunding, 5.00%, 9/01/41 | | 5,000,000 | | 5,653,200 |
106 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Ohio (continued) | | | | |
| Middletown City School District GO, | | | | |
| School Improvement, 5.25%, 12/01/40 | $ | 2,625,000 | $ | 3,018,041 |
| School Improvement, 5.25%, 12/01/48 | | 15,000,000 | | 16,860,600 |
| Monroe Local School District GO, School Improvement, Refunding, AMBAC Insured, 4.50%, 12/01/29 | | 400,000 | | 400,708 |
| Montgomery County Revenue, | | | | |
| Catholic Health Initiatives, Refunding, Series A, 5.50%, 5/01/34 | | 12,500,000 | | 13,018,000 |
| Catholic Health Initiatives, Series C-1, AGMC Insured, Pre-Refunded, 5.00%, 10/01/41 | | 10,000,000 | | 10,471,400 |
| Napoleon City School District GO, School Facilities Construction and Improvement, 5.00%, 12/01/49 | | 11,460,000 | | 12,379,092 |
| New Albany Community Authority Community Facilities Revenue, | | | | |
| Refunding, Series C, 5.00%, 10/01/23 | | 1,100,000 | | 1,271,446 |
| Refunding, Series C, 5.00%, 10/01/24 | | 1,250,000 | | 1,444,825 |
| New Albany Plain Local School District GO, School Improvement, Refunding, 4.00%, 12/01/49 | | 10,000,000 | | 10,138,000 |
| Northeast Ohio Medical University General Receipts Revenue, 5.00%, 12/01/42 | | 10,000,000 | | 10,538,100 |
| Northeast Regional Sewer District Revenue, | | | | |
| Wastewater Improvement, Refunding, 5.00%, 11/15/32. | | 5,500,000 | | 6,324,450 |
| Wastewater Improvement, Refunding, 4.00%, 11/15/49. | | 6,000,000 | | 6,079,200 |
| Northmont City School District GO, School Improvement, Series A, 5.00%, 11/01/49 | | 5,130,000 | | 5,575,335 |
| Northwest Local School District Hamilton and Butler Counties GO, School Improvement, 5.00%, 12/01/45. | | 3,760,000 | | 4,191,610 |
| Ohio Center for Local Government Capital Asset Financing Program Fractionalized Interests GO, | | | | |
| AGMC Insured, 4.875%, 12/01/18 | | 173,264 | | 173,791 |
| AGMC Insured, 5.25%, 12/01/23 | | 540,000 | | 541,199 |
| Ohio HFA Capital Fund Revenue, Series A, AGMC Insured, 5.00%, 4/01/27 | | 5,545,000 | | 5,561,358 |
| Ohio State Air Quality Development Authority Revenue, Environmental Improvement, Buckeye Power Inc. | | | | |
| Project, 6.00%, 12/01/40. | | 6,020,000 | | 6,938,471 |
| Ohio State GO, Refunding, Series A, 5.00%, 9/01/28 | | 5,465,000 | | 6,785,563 |
| Ohio State Higher Educational Facility Commission Revenue, | | | | |
| BHAC Insured, 4.75%, 1/15/46 | | 5,935,000 | | 5,938,264 |
| Case Western Reserve University Project, Refunding, 5.00%, 12/01/40 | | 6,000,000 | | 6,726,840 |
| Denison University Project, Refunding and Improvement, 5.00%, 11/01/26 | | 1,445,000 | | 1,652,719 |
| Hospital Facilities, Summa Health System, 2010 Project, Refunding, AGMC Insured, 5.25%, | | | | |
| 11/15/40 | | 21,805,000 | | 23,359,260 |
| Hospital Facilities, Summa Health System, AGMC Insured, 5.75%, 11/15/40 | | 1,665,000 | | 1,840,624 |
| Hospital Facilities, Summa Health System, AGMC Insured, Pre-Refunded, 5.75%, 11/15/40 | | 2,835,000 | | 3,237,740 |
| Kenyon College Project, Pre-Refunded, 5.25%, 7/01/44 | | 20,460,000 | | 23,097,703 |
| Kenyon College Project, Refunding, 5.00%, 7/01/42 | | 10,500,000 | | 11,585,385 |
| Kenyon College Project, Refunding, 4.00%, 7/01/44 | | 10,000,000 | | 10,131,900 |
| Kenyon College Project, Refunding, 5.25%, 7/01/44 | | 9,540,000 | | 10,529,870 |
| University Hospital, BHAC Insured, 4.75%, 1/15/46 | | 4,155,000 | | 4,157,285 |
| Xavier University Project, 5.00%, 5/01/40 | | 14,500,000 | | 15,617,660 |
| Xavier University Project, 4.375%, 5/01/42 | | 8,070,000 | | 8,157,721 |
| Ohio State Turnpike and Infrastructure Commission Revenue, Infrastructure Projects, junior lien, Series | | | | |
| A-1, 5.25%, 2/15/33 | | 4,200,000 | | 4,804,842 |
| Ohio State Turnpike Commission Turnpike Revenue, Refunding, Series A, NATL Insured, 5.50%, 2/15/24 . | | 16,000,000 | | 18,887,200 |
| Ohio State University Revenue, General Receipts, Series A, 4.00%, 12/01/30. | | 4,325,000 | | 4,603,271 |
| Ohio State Water Development Authority Revenue, | | | | |
| Drinking Water Assistance Fund, 4.00%, 12/01/32 | | 3,000,000 | | 3,207,210 |
| Drinking Water Assistance Fund, 4.00%, 12/01/33 | | 6,000,000 | | 6,378,180 |
| Fresh Water, Series A, 5.00%, 12/01/35 | | 5,000,000 | | 5,801,900 |
| Fresh Water, Series B, 5.00%, 6/01/27 | | 4,775,000 | | 5,843,215 |
| Fresh Water, Series B, 5.00%, 12/01/27 | | 5,000,000 | | 6,099,100 |
franklintempleton.com
Annual Report
107
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Ohio (continued) | | | | |
| Ohio State Water Development Authority Water PCR, | | | | |
| Series A, 5.00%, 12/01/25 | $ | 6,350,000 | $ | 7,734,554 |
| Series A, 5.00%, 6/01/26. | | 10,000,000 | | 12,227,300 |
| Ohio Turnpike Commission Revenue, Capital Appreciation, junior lien, zero cpn., Series A-2, BAM | | | | |
| Insured, zero cpn., 2/15/38 | | 3,665,000 | | 1,578,992 |
| a Ohio University General Receipts Athens Revenue, Refunding, Series A, 5.00%, 12/01/44. | | 7,000,000 | | 7,897,050 |
| Olentangy Local School District GO, | | | | |
| School Facilities Construction and Improvement, 5.00%, 12/01/41 | | 2,125,000 | | 2,434,400 |
| School Facilities Construction and Improvement, Assured Guaranty, Pre-Refunded, 5.00%, 12/01/36. | | 7,505,000 | | 7,889,631 |
| Perrysburg Exempted Village School GO, School Facilities Construction and Improvement, 5.00%, | | | | |
| 12/01/38 | | 3,225,000 | | 3,622,610 |
| Princeton City School District COP, Board of Education, School Facilities Project, 4.50%, 12/01/41 | | 3,000,000 | | 3,152,730 |
| Princeton City School District GO, | | | | |
| School Improvement, Capital Appreciation, Refunding, zero cpn., 12/01/40 | | 6,000,000 | | 2,215,560 |
| School Improvement, Capital Appreciation, Refunding, zero cpn., 12/01/41 | | 6,000,000 | | 2,114,280 |
| School Improvement, Refunding, 5.00%, 12/01/39 | | 12,000,000 | | 13,567,320 |
| Reading Community City School District GO, Classroom Facilities, Refunding, Series A, 5.00%, 11/01/46 . | | 2,000,000 | | 2,217,000 |
| Reynoldsburg City School District GO, School Facilities Construction, AGMC Insured, Pre-Refunded, | | | | |
| 5.00%, 12/01/32 | | 3,000,000 | | 3,151,830 |
| Ross County Hospital Revenue, Facilities, Adena Health System, Refunding, Assured Guaranty, 5.25%, | | | | |
| 12/01/38 | | 15,000,000 | | 15,704,550 |
| Shawnee State University Revenue, General Receipts, NATL Insured, Pre-Refunded, 5.00%, 6/01/28. | | 5,780,000 | | 5,840,979 |
| Sheffield Lake City School District GO, | | | | |
| School Improvement, 5.00%, 12/01/37 | | 1,920,000 | | 2,081,606 |
| School Improvement, Pre-Refunded, 5.00%, 12/01/37 | | 7,715,000 | | 8,504,013 |
| South-Western City School District of Ohio Franklin and Pickaway Counties GO, School Facilities | | | | |
| Construction and Improvement, 4.00%, 12/01/42 | | 10,000,000 | | 10,198,800 |
| Springboro Community City School District GO, | | | | |
| Refunding, AGMC Insured, 5.25%, 12/01/27 | | 5,175,000 | | 6,322,660 |
| Refunding, AGMC Insured, 5.25%, 12/01/28 | | 2,000,000 | | 2,455,940 |
| St. Bernard Income Tax Revenue, Various Purpose, Special Obligations, AGMC Insured, 5.00%, | | | | |
| 12/01/43 | | 3,760,000 | | 4,098,362 |
| St. Mary’s City School District GO, School Facilities Construction and Improvement, AGMC Insured, | | | | |
| Pre-Refunded, 5.00%, 12/01/35. | | 3,500,000 | | 3,679,376 |
| Strongsville City School District GO, School Improvement, 4.00%, 12/01/45 | | 17,515,000 | | 17,714,671 |
| Summit County Port Authority Lease Revenue, | | | | |
| The University of Akron Student Housing Project, 6.00%, 1/01/42 | | 3,420,000 | | 3,901,228 |
| The University of Akron Student Housing Project, Pre-Refunded, 6.00%, 1/01/42 | | 8,160,000 | | 9,594,120 |
| Switzerland of Local School District GO, School Improvement, Refunding, 4.00%, 12/01/37 | | 5,500,000 | | 5,659,060 |
| Sylvania City School District GO, | | | | |
| School Improvement, Assured Guaranty, Pre-Refunded, 5.25%, 12/01/36 | | 7,660,000 | | 7,745,486 |
| School Improvement, Refunding, BAM Insured, 5.00%, 12/01/36 | | 9,700,000 | | 10,844,212 |
| Three Rivers Local School District GO, Refunding, 5.00%, 12/01/39 | | 5,885,000 | | 6,597,673 |
| Toledo City School District GO, | | | | |
| School Facilities Improvement, Pre-Refunded, 5.375%, 12/01/35 | | 4,565,000 | | 4,910,297 |
| School Facilities Improvement, Refunding, Series B, 5.00%, 12/01/32. | | 7,830,000 | | 9,075,440 |
| Toledo GO, | | | | |
| Capital Improvement, Refunding, Assured Guaranty, 5.00%, 12/01/29 | | 2,500,000 | | 2,720,225 |
| Various Purpose Improvement, Refunding, AGMC Insured, 5.00%, 12/01/28 | | 3,000,000 | | 3,363,030 |
| Toledo Special Obligation, Industrial Development, Vehicle Storage Project, AMBAC Insured, 5.25%, | | | | |
| 12/01/26 | | 1,500,000 | | 1,505,145 |
108 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Ohio Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Ohio (continued) | | | | |
| Toledo Water System Revenue, | | | | |
| Improvement and Refunding, 5.00%, 11/15/38 | $ | 19,395,000 | $ | 21,516,037 |
| Series A, 4.00%, 11/15/36 | | 9,125,000 | | 9,300,930 |
| University of Akron General Receipts Revenue, | | | | |
| Refunding, Series A, 5.00%, 1/01/31 | | 4,365,000 | | 4,917,958 |
| Refunding, Series A, 5.00%, 1/01/36 | | 11,065,000 | | 12,347,655 |
| Refunding, Series A, 5.00%, 1/01/38 | | 13,225,000 | | 14,713,606 |
| Refunding, Series A, BAM Insured, 5.00%, 1/01/34 | | 6,000,000 | | 6,766,680 |
| Series A, AGMC Insured, Pre-Refunded, 5.00%, 1/01/33 | | 5,000,000 | | 5,171,150 |
| Series B, AGMC Insured, Pre-Refunded, 5.00%, 1/01/38 | | 19,000,000 | | 19,650,370 |
| University of Cincinnati General Receipts Revenue, | | | | |
| Refunding, Series F, 5.00%, 6/01/32 | | 5,805,000 | | 6,488,016 |
| Series C, 5.00%, 6/01/39 | | 6,255,000 | | 6,964,942 |
| Series C, 5.00%, 6/01/41 | | 2,500,000 | | 2,819,125 |
| Series C, AGMC Insured, 5.00%, 6/01/31 | | 8,000,000 | | 8,356,960 |
| University of Toledo General Receipts Revenue, Refunding, Series A, AMBAC Insured, 4.50%, 6/01/30 | | 10,000,000 | | 10,029,800 |
| Westerville City School District GO, Refunding, XLCA Insured, 5.00%, 12/01/27 | | 3,820,000 | | 4,538,427 |
| Westerville Ohio Special Obligation Non-Tax Revenue, 5.00%, 12/01/30 | | 2,765,000 | | 3,214,368 |
| Willoughby Eastlake City School District GO, School Improvement, 5.00%, 12/01/46 | | 10,000,000 | | 11,168,900 |
| Wright State University Revenue, General Receipts, Series A, 5.00%, 5/01/31 | | 10,120,000 | | 11,274,692 |
| Wyoming City School District GO, School Improvement, 5.00%, 12/01/42. | | 7,250,000 | | 8,120,290 |
| Xenia Community School District GO, School Facilities Construction and Improvement, Refunding, 5.00%, | | | | |
| 12/01/40 | | 7,285,000 | | 8,119,642 |
| Youngstown State University General Receipts Revenue, | | | | |
| Assured Guaranty, Pre-Refunded, 5.25%, 12/15/29 | | 4,000,000 | | 4,377,040 |
| Assured Guaranty, Pre-Refunded, 5.50%, 12/15/33 | | 4,225,000 | | 4,646,993 |
| Total Municipal Bonds before Short Term Investments (Cost $1,528,105,708) | | | | 1,587,802,363 |
| |
| Short Term Investments (Cost $1,700,000) 0.1% | | | | |
| Municipal Bonds 0.1% | | | | |
| Ohio 0.1% | | | | |
| b Ohio State Higher Educational Facility Revenue, Cleveland Clinic Health System Obligation Group, | | | | |
| Refunding, Series B, Daily VRDN and Put, 0.57%, 1/01/39 | | 1,700,000 | | 1,700,000 |
| Total Investments (Cost $1,529,805,708) 99.7% | | | | 1,589,502,363 |
| Other Assets, less Liabilities 0.3%. | | | | 5,371,212 |
| Net Assets 100.0% | | | $ | 1,594,873,575 |
See Abbreviations on page 149.
aSecurity purchased on a when-issued basis. See Note 1(b).
bVariable 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. The coupon rate shown represents the rate at period end.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 109
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Oregon Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.89 | | $ | 12.02 | | $ | 11.69 | | $ | 12.58 | | $ | 12.45 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.40 | | | 0.42 | | | 0.46 | | | 0.46 | | | 0.44 | |
| Net realized and unrealized gains (losses) | | (0.29 | ) | | (0.12 | ) | | 0.33 | | | (0.91 | ) | | 0.13 | |
| Total from investment operations | | 0.11 | | | 0.30 | | | 0.79 | | | (0.45 | ) | | 0.57 | |
| Less distributions from net investment income | | (0.40 | ) | | (0.43 | ) | | (0.46 | ) | | (0.44 | ) | | (0.44 | ) |
| Net asset value, end of year. | $ | 11.60 | | $ | 11.89 | | $ | 12.02 | | $ | 11.69 | | $ | 12.58 | |
| |
| Total returnd | | 0.90 | % | | 2.54 | % | | 6.88 | % | | (3.50 | )% | | 4.64 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.63 | % | | 0.63 | % | | 0.63 | % | | 0.62 | % | | 0.62 | % |
| Net investment income | | 3.37 | % | | 3.55 | % | | 3.84 | % | | 3.88 | % | | 3.53 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 962,953 | | $ | 960,516 | | $ | 951,107 | | $ | 924,611 | | $ | 1,189,801 | |
| Portfolio turnover rate | | 16.89 | % | | 11.84 | % | | 7.87 | % | | 8.28 | % | | 7.51 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
110 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | | | | | | | | �� | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 12.06 | | $ | 12.19 | | $ | 11.84 | | $ | 12.74 | | $ | 12.60 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.34 | | | 0.36 | | | 0.40 | | | 0.40 | | | 0.38 | |
| Net realized and unrealized gains (losses) | | (0.30 | ) | | (0.13 | ) | | 0.35 | | | (0.92 | ) | | 0.13 | |
| Total from investment operations | | 0.04 | | | 0.23 | | | 0.75 | | | (0.52 | ) | | 0.51 | |
| Less distributions from net investment income | | (0.33 | ) | | (0.36 | ) | | (0.40 | ) | | (0.38 | ) | | (0.37 | ) |
| Net asset value, end of year. | $ | 11.77 | | $ | 12.06 | | $ | 12.19 | | $ | 11.84 | | $ | 12.74 | |
| |
| Total returnd | | 0.32 | % | | 1.95 | % | | 6.38 | % | | (4.07 | )% | | 4.08 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.18 | % | | 1.18 | % | | 1.18 | % | | 1.17 | % | | 1.17 | % |
| Net investment income | | 2.82 | % | | 3.00 | % | | 3.29 | % | | 3.33 | % | | 2.98 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 197,041 | | $ | 190,047 | | $ | 186,572 | | $ | 188,147 | | $ | 266,819 | |
| Portfolio turnover rate | | 16.89 | % | | 11.84 | % | | 7.87 | % | | 8.28 | % | | 7.51 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 111
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 11.90 | | $ | 12.03 | | $ | 11.70 | | $ | 12.59 | | $ | 12.46 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.41 | | | 0.43 | | | 0.47 | | | 0.47 | | | 0.46 | |
| Net realized and unrealized gains (losses) | | (0.29 | ) | | (0.12 | ) | | 0.33 | | | (0.90 | ) | | 0.12 | |
| Total from investment operations | | 0.12 | | | 0.31 | | | 0.80 | | | (0.43 | ) | | 0.58 | |
| Less distributions from net investment income | | (0.41 | ) | | (0.44 | ) | | (0.47 | ) | | (0.46 | ) | | (0.45 | ) |
| Net asset value, end of year. | $ | 11.61 | | $ | 11.90 | | $ | 12.03 | | $ | 11.70 | | $ | 12.59 | |
| |
| Total return | | 0.99 | % | | 2.64 | % | | 6.99 | % | | (3.41 | )% | | 4.74 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.53 | % | | 0.53 | % | | 0.53 | % | | 0.52 | % | | 0.52 | % |
| Net investment income | | 3.47 | % | | 3.65 | % | | 3.94 | % | | 3.98 | % | | 3.63 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 96,539 | | $ | 51,607 | | $ | 50,011 | | $ | 34,225 | | $ | 48,678 | |
| Portfolio turnover rate | | 16.89 | % | | 11.84 | % | | 7.87 | % | | 8.28 | % | | 7.51 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
112 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
| | | | |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Oregon Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 98.5% | | | | |
| Oregon 94.1% | | | | |
| Astoria Hospital Facilities Authority Revenue, | | | | |
| Columbia Memorial Hospital, 5.00%, 8/01/41. | $ | 4,250,000 | $ | 4,515,328 |
| Columbia Memorial Hospital, 4.00%, 8/01/46. | | 1,750,000 | | 1,646,085 |
| Columbia Memorial Hospital, Refunding, 5.00%, 8/01/28 | | 1,325,000 | | 1,418,784 |
| Beaverton School District GO, | | | | |
| Washington County School District No. 48J, Assured Guaranty, Pre-Refunded, 5.00%, 6/01/31 | | 1,280,000 | | 1,391,539 |
| Washington County School District No. 48J, Assured Guaranty, Pre-Refunded, 5.125%, 6/01/36 | | 1,000,000 | | 1,089,910 |
| Central Lincoln People’s Utility District Electric System Revenue, 5.00%, 12/01/45 | | 2,900,000 | | 3,236,661 |
| Chemeketa Community College District GO, | | | | |
| Marion, Polk, Yamhill and Linn Counties, Pre-Refunded, 5.00%, 6/15/25 | | 1,500,000 | | 1,578,270 |
| Marion, Polk, Yamhill and Linn Counties, Pre-Refunded, 5.00%, 6/15/26 | | 2,615,000 | | 2,751,451 |
| City of Lake Oswego GO, Clackamas, Multnomah and Washington Counties, Refunding, Series A, | | | | |
| 5.00%, 12/01/31 | | 6,400,000 | | 6,923,520 |
| City of Redmond Airport Revenue, 6.25%, 6/01/39 | | 1,010,000 | | 1,070,620 |
| City of Redmond GO, Terminal Expansion Project, 5.00%, 6/01/39 | | 1,000,000 | | 1,075,330 |
| City of Tigard Water System Revenue, | | | | |
| Washington County, 5.00%, 8/01/37 | | 11,050,000 | | 12,523,517 |
| Washington County, 5.00%, 8/01/42 | | 20,915,000 | | 23,749,610 |
| Washington County, 5.00%, 8/01/45 | | 23,545,000 | | 26,444,802 |
| Clackamas County Hospital Facility Authority Revenue, Legacy Health System, Series A, Pre-Refunded, | | | | |
| 5.50%, 7/15/35 | | 6,525,000 | | 7,197,010 |
| Clackamas County School District No. 7J Lake Oswego GO, Refunding, AGMC Insured, 5.25%, 6/01/25 | | 3,075,000 | | 3,775,916 |
| Clackamas County School District No. 12 North Clackamas GO, | | | | |
| a Capital Appreciation, Series A, zero cpn., 6/15/40 | | 10,000,000 | | 3,544,500 |
| a Capital Appreciation, Series A, zero cpn., 6/15/41 | | 17,030,000 | | 5,751,712 |
| a Capital Appreciation, Series A, zero cpn., 6/15/42 | | 16,625,000 | | 5,349,260 |
| a Series B, 5.00%, 6/15/34 | | 8,000,000 | | 9,283,440 |
| a Series B, 5.00%, 6/15/37 | | 10,000,000 | | 11,490,600 |
| Series B, AGMC Insured, Pre-Refunded, 5.00%, 6/15/27 | | 25,000,000 | | 25,305,500 |
| Clackamas County School District No. 46 Oregon Trail GO, | | | | |
| 5.00%, 6/15/32 | | 6,855,000 | | 7,428,489 |
| Capital Appreciation, Refunding, zero cpn., 6/15/37 | | 12,130,000 | | 5,272,668 |
| Capital Appreciation, Refunding, zero cpn., 6/15/38 | | 12,495,000 | | 5,201,918 |
| Refunding, Series A, 5.00%, 6/15/28 | | 2,210,000 | | 2,401,165 |
| Refunding, Series A, 5.00%, 6/15/29 | | 2,655,000 | | 2,882,772 |
| Clackamas County School District No. 62C Oregon City GO, | | | | |
| Refunding, MAC Insured, 5.00%, 6/01/29 | | 1,000,000 | | 1,136,280 |
| Refunding, MAC Insured, 5.00%, 6/01/34 | | 1,770,000 | | 1,968,417 |
| Refunding, MAC Insured, 5.00%, 6/01/39 | | 1,250,000 | | 1,382,475 |
| Clackamas River Water Revenue, | | | | |
| Clackamas County, 5.00%, 11/01/38 | | 680,000 | | 767,795 |
| Clackamas County, 5.00%, 11/01/40 | | 500,000 | | 563,790 |
| Clackamas County, 5.00%, 11/01/43 | | 1,970,000 | | 2,216,821 |
| Clackamas County, 5.00%, 11/01/46 | | 1,000,000 | | 1,123,000 |
| Columbia and Washington Counties School District No. 47J Vernonia GO, Pre-Refunded, 5.00%, 6/15/35 . | | 5,175,000 | | 5,802,624 |
| Crook County School District GO, | | | | |
| Crook and Deschutes Counties, 5.00%, 6/15/34 | | 4,475,000 | | 5,180,797 |
| Crook and Deschutes Counties, 5.00%, 6/15/37 | | 8,090,000 | | 9,294,520 |
| Deschutes and Jefferson Counties School District No. 2J Redmond GO, | | | | |
| Pre-Refunded, 5.50%, 6/15/34 | | 5,000,000 | | 5,292,750 |
| Series A, NATL Insured, 5.00%, 6/15/21 | | 85,000 | | 85,271 |
franklintempleton.com
Annual Report
113
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Oregon (continued) | | | | |
| Deschutes County Hospital Facility Authority Hospital Revenue, | | | | |
| Cascade Healthcare Community Inc., Pre-Refunded, 8.25%, 1/01/38 | $ | 20,000,000 | $ | 22,556,600 |
| Cascade Healthcare Community Inc., Series B, AMBAC Insured, Pre-Refunded, 5.375%, 1/01/35 | | 7,000,000 | | 7,261,240 |
| St. Charles Health System Inc., Refunding, Series A, 5.00%, 1/01/48 | | 8,440,000 | | 9,186,518 |
| Eugene Electric Utility System Revenue, | | | | |
| Pre-Refunded, 5.00%, 8/01/33 | | 10,060,000 | | 10,632,615 |
| Series A, Pre-Refunded, 5.00%, 8/01/40 | | 6,745,000 | | 7,770,712 |
| Eugene Water Utility System Revenue, Refunding, 5.00%, 8/01/40 | | 4,425,000 | | 4,972,771 |
| Forest Grove Revenue, Campus Improvement, Pacific University Project, Refunding, Series A, 5.00%, | | | | |
| 5/01/36 | | 2,500,000 | | 2,612,225 |
| Independence GO, | | | | |
| City Hall Project, AGMC Insured, Pre-Refunded, 5.00%, 6/15/35 | | 2,110,000 | | 2,365,901 |
| City Hall Project, AGMC Insured, Pre-Refunded, 5.00%, 6/15/40 | | 3,975,000 | | 4,457,088 |
| Jackson County Airport Revenue, | | | | |
| Series A, XLCA Insured, Pre-Refunded, 5.25%, 12/01/27 | | 1,000,000 | | 1,032,720 |
| Series A, XLCA Insured, Pre-Refunded, 5.25%, 12/01/32 | | 1,000,000 | | 1,032,720 |
| Series A, XLCA Insured, Pre-Refunded, 5.25%, 12/01/37 | | 1,475,000 | | 1,523,262 |
| Jackson County School District No. 549C Medford GO, | | | | |
| Pre-Refunded, 5.00%, 6/15/33 | | 3,225,000 | | 3,393,281 |
| Pre-Refunded, 5.00%, 6/15/34 | | 5,000,000 | | 5,260,900 |
| Series B, AGMC Insured, Pre-Refunded, 5.00%, 12/15/32. | | 5,765,000 | | 5,954,553 |
| Jefferson County School District No. 509J GO, | | | | |
| Refunding, 5.00%, 6/15/30 | | 1,000,000 | | 1,160,260 |
| Refunding, 5.00%, 6/15/31 | | 1,410,000 | | 1,633,288 |
| Series B, 5.00%, 6/15/30 | | 2,000,000 | | 2,320,520 |
| Keizer Special Assessment, Keizer Station Area A Local ID, 5.20%, 6/01/31. | | 2,025,000 | | 2,120,843 |
| Klamath County School District GO, | | | | |
| 5.00%, 6/15/29 | | 1,155,000 | | 1,343,046 |
| 5.00%, 6/15/30 | | 1,095,000 | | 1,270,485 |
| 5.00%, 6/15/31 | | 1,000,000 | | 1,158,360 |
| Klamath Falls Intercommunity Hospital Authority Revenue, Sky Lakes Medical Center Project, Refunding, | | | | |
| 5.00%, 9/01/46 | | 3,625,000 | | 3,953,896 |
| Lane and Douglas Counties School District No. 28J Fern Ridge GO, | | | | |
| Series A, 5.00%, 6/15/26. | | 1,265,000 | | 1,527,842 |
| Series A, 5.00%, 6/15/30. | | 3,175,000 | | 3,716,941 |
| Series A, 5.00%, 6/15/33. | | 2,115,000 | | 2,444,306 |
| Series A, 5.00%, 6/15/36. | | 2,000,000 | | 2,283,620 |
| Lane County Metropolitan Wastewater Management Commission Revenue, Pre-Refunded, 5.25%, | | | | |
| 11/01/28 | | 5,000,000 | | 5,350,850 |
| Lane County School District No. 19 Springfield GO, | | | | |
| AGMC Insured, Pre-Refunded, zero cpn., 6/15/27 | | 5,580,000 | | 3,513,614 |
| AGMC Insured, Pre-Refunded, zero cpn., 6/15/28 | | 2,000,000 | | 1,201,360 |
| AGMC Insured, Pre-Refunded, zero cpn., 6/15/29 | | 1,925,000 | | 1,101,562 |
| Lebanon GO, AMBAC Insured, Pre-Refunded, 5.00%, 6/01/25 | | 1,635,000 | | 1,652,249 |
| Medford Hospital Facilities Authority Revenue, | | | | |
| Hospital, Asante Health System, Refunding, AGMC Insured, 5.125%, 8/15/40 | | 25,000,000 | | 26,873,000 |
| Hospital, Asante Health System, Series A, AGMC Insured, 5.00%, 8/15/40 | | 10,050,000 | | 10,727,772 |
| Rogue Valley Manor, Refunding, 5.00%, 10/01/33 | | 1,500,000 | | 1,613,790 |
| Rogue Valley Manor, Refunding, 5.00%, 10/01/42 | | 9,420,000 | | 9,920,861 |
| Multnomah and Clackamas Counties School District No. 10Jt Gresham-Barlow GO, Series B, 5.00%, | | | | |
| 6/15/37 | | 7,885,000 | | 9,134,930 |
114 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Oregon (continued) | | | | |
| Multnomah County David Douglas School District No. 40 GO, | | | | |
| Series B, zero cpn., 6/15/24. | $ | 1,640,000 | $ | 1,363,627 |
| Series B, zero cpn., 6/15/25. | | 1,325,000 | | 1,054,992 |
| Series B, zero cpn., 6/15/26. | | 2,585,000 | | 1,971,476 |
| Series B, zero cpn., 6/15/27. | | 2,655,000 | | 1,938,920 |
| Series B, zero cpn., 6/15/28. | | 2,495,000 | | 1,739,963 |
| Series B, zero cpn., 6/15/29. | | 2,595,000 | | 1,725,467 |
| Series B, zero cpn., 6/15/30. | | 1,885,000 | | 1,188,907 |
| Series B, zero cpn., 6/15/31. | | 2,030,000 | | 1,216,051 |
| Series B, zero cpn., 6/15/32. | | 2,000,000 | | 1,133,520 |
| Multnomah County Hospital Facilities Authority Revenue, | | | | |
| Adventist Health System/West, Series A, 5.125%, 9/01/40 | | 6,500,000 | | 6,853,600 |
| Terwilliger Plaza Inc., Refunding, 5.00%, 12/01/29 | | 3,690,000 | | 3,930,108 |
| Terwilliger Plaza Inc., Refunding, 5.00%, 12/01/30 | | 325,000 | | 355,940 |
| Terwilliger Plaza Inc., Refunding, 5.00%, 12/01/36 | | 1,350,000 | | 1,440,005 |
| Multnomah County School District No. 1J Portland Public Schools GO, Series B, 3.00%, 6/15/33 | | 9,135,000 | | 8,647,739 |
| Multnomah County School District No. 3 Park Rose GO, | | | | |
| Series A, 5.00%, 6/30/35. | | 2,000,000 | | 2,261,540 |
| Series A, 5.00%, 6/30/36. | | 1,500,000 | | 1,693,485 |
| Multnomah County School District No. 7 Reynolds GO, Refunding, 5.00%, 6/01/35 | | 6,605,000 | | 7,338,683 |
| North Bend School District No. 13 GO, Coos County, AGMC Insured, 5.00%, 6/15/22 | | 55,000 | | 55,171 |
| Oregon Health and Science University Revenue, | | | | |
| Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 7/01/21 | | 11,480,000 | | 10,007,920 |
| Series A, 5.00%, 7/01/42. | | 10,000,000 | | 11,355,200 |
| Series A, Pre-Refunded, 5.875%, 7/01/33 | | 2,500,000 | | 2,777,850 |
| Series A, Pre-Refunded, 5.75%, 7/01/39 | | 13,175,000 | | 14,601,457 |
| Oregon State Department of Administrative Services COP, | | | | |
| Series A, Pre-Refunded, 5.25%, 5/01/39 | | 3,800,000 | | 4,140,100 |
| Series C, 5.00%, 11/01/34. | | 4,435,000 | | 4,818,938 |
| Series C, Pre-Refunded, 5.00%, 11/01/34 | | 3,565,000 | | 3,919,682 |
| Oregon State Department of Administrative Services Lottery Revenue, | | | | |
| Series A, 5.00%, 4/01/28. | | 5,800,000 | | 6,780,200 |
| Series A, 5.00%, 4/01/32. | | 5,000,000 | | 5,755,450 |
| Series A, Pre-Refunded, 5.00%, 4/01/27 | | 17,880,000 | | 19,331,498 |
| Series A, Pre-Refunded, 5.00%, 4/01/28 | | 18,225,000 | | 19,704,505 |
| Series A, Pre-Refunded, 5.00%, 4/01/29 | | 1,750,000 | | 1,892,065 |
| Oregon State Department of Transportation Highway User Tax Revenue, | | | | |
| senior lien, Series A, Pre-Refunded, 5.00%, 11/15/29 | | 3,085,000 | | 3,349,292 |
| senior lien, Series A, Pre-Refunded, 5.00%, 11/15/33 | | 21,530,000 | | 23,374,475 |
| Oregon State Facilities Authority Revenue, | | | | |
| College Housing North West Project, Series A, 4.00%, 10/01/26 | | 2,175,000 | | 2,196,402 |
| College Housing North West Project, Series A, 5.00%, 10/01/36 | | 1,670,000 | | 1,747,572 |
| College Housing North West Project, Series A, 5.00%, 10/01/48 | | 4,000,000 | | 4,132,080 |
| Legacy Health Project, Refunding, Series A, 5.00%, 6/01/46 | | 17,500,000 | | 19,266,450 |
| Legacy Health System, Refunding, Series A, 5.00%, 3/15/30. | | 1,500,000 | | 1,613,880 |
| Lewis and Clark College Project, Refunding, Series A, 5.75%, 10/01/41 | | 30,000,000 | | 34,840,200 |
| Limited College Project, Refunding, Series A, 5.00%, 10/01/31 | | 2,000,000 | | 2,175,080 |
| Limited College Project, Refunding, Series A, 5.00%, 10/01/34 | | 2,975,000 | | 3,200,475 |
| Limited College Project, Refunding, Series A, 5.25%, 10/01/40 | | 3,750,000 | | 3,997,388 |
| PeaceHealth, Refunding, Series A, 5.00%, 11/01/39. | | 32,790,000 | | 34,419,663 |
| Providence Health and Services, Series C, 5.00%, 10/01/45 | | 4,000,000 | | 4,379,080 |
| Reed College Project, Refunding, Series A, 5.00%, 7/01/29 | | 1,500,000 | | 1,662,540 |
franklintempleton.com
Annual Report
115
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Oregon (continued) | | | | |
| Oregon State Facilities Authority Revenue, (continued) | | | | |
| Reed College Project, Refunding, Series A, 4.75%, 7/01/32 | $ | 2,000,000 | $ | 2,184,960 |
| Reed College Project, Refunding, Series A, 5.125%, 7/01/41. | | 10,000,000 | | 11,017,900 |
| Samaritan Health Services, Refunding, Series A, 5.25%, 10/01/40 | | 13,990,000 | | 14,633,540 |
| Samaritan Health Services Project, Refunding, Series A, 5.00%, 10/01/35 | | 8,185,000 | | 8,790,281 |
| Samaritan Health Services Project, Refunding, Series A, 5.00%, 10/01/41 | | 7,800,000 | | 8,306,688 |
| Samaritan Health Services Project, Refunding, Series A, 5.00%, 10/01/46 | | 3,500,000 | | 3,713,150 |
| Student Housing, CHF Ashland LLC, Southern Oregon University Project, Assured Guaranty, 5.00%, | | | | |
| 7/01/44 | | 8,910,000 | | 9,644,095 |
| University of Portland Projects, Series A, Pre-Refunded, 5.00%, 4/01/32 | | 8,795,000 | | 9,182,772 |
| Willamette University Projects, Refunding, Series B, 5.00%, 10/01/40 | | 3,000,000 | | 3,394,740 |
| Oregon State GO, | | | | |
| Alternative Energy Project, Series B, Pre-Refunded, 6.00%, 10/01/26. | | 1,680,000 | | 1,812,250 |
| Article XI-Q State Project, Series A, 5.00%, 5/01/42 | | 10,000,000 | | 11,607,000 |
| Elderly and Disabled Housing, Series A, 6.00%, 8/01/21 | | 115,000 | | 115,463 |
| Elderly and Disabled Housing, Series A, 5.375%, 8/01/28 | | 605,000 | | 607,105 |
| Elderly and Disabled Housing, Series A, 4.70%, 8/01/42 | | 3,050,000 | | 3,058,601 |
| Higher Education, Article XI-F(1), Series A, 5.00%, 8/01/41. | | 7,000,000 | | 8,115,450 |
| Higher Education, Article XI-F(1), Series M, 5.00%, 8/01/45 | | 3,315,000 | | 3,809,863 |
| Higher Education, Article XI-G, Series C, 5.00%, 8/01/41 | | 7,000,000 | | 8,115,450 |
| Higher Education, Article XI-G, Series O, 5.00%, 8/01/40 | | 7,005,000 | | 8,078,867 |
| State Board of Higher Education, Refunding, Series B, 5.00%, 8/01/38 | | 1,020,000 | | 1,072,734 |
| State Board of Higher Education, Series A, Pre-Refunded, 5.00%, 8/01/34 | | 5,000,000 | | 5,284,600 |
| State Board of Higher Education, Series A, Pre-Refunded, 5.00%, 8/01/37 | | 5,555,000 | | 5,652,824 |
| State Board of Higher Education, Series B, Pre-Refunded, 5.00%, 8/01/38 | | 5,000,000 | | 5,284,600 |
| State Board of Higher Education, Series B, Pre-Refunded, 5.00%, 8/01/38 | | 480,000 | | 506,971 |
| State Board of Higher Education, Series C, Pre-Refunded, 5.00%, 8/01/37 | | 1,115,000 | | 1,134,635 |
| Various Projects, Series H, 5.00%, 5/01/36 | | 1,000,000 | | 1,136,920 |
| Oregon State Housing and Community Services Department Mortgage Revenue, SFM Program, Series | | | | |
| C, 4.75%, 7/01/42 | | 1,500,000 | | 1,539,780 |
| Oregon State University General Revenue, Series A, 5.00%, 4/01/45. | | 12,500,000 | | 14,024,000 |
| Philomath School District No. 17J Benton and Polk Counties GO, Series B, zero cpn., 6/15/31 | | 1,000,000 | | 583,290 |
| Port of Portland International Airport Revenue, | | | | |
| Series Nineteen, Pre-Refunded, 5.50%, 7/01/38 | | 23,000,000 | | 24,386,670 |
| Series Twenty-Four A, 5.00%, 7/01/47 | | 3,700,000 | | 4,207,455 |
| Series Twenty-Four B, 5.00%, 7/01/47 | | 9,395,000 | | 10,475,143 |
| Portland Community College District GO, | | | | |
| Multomah Washington Yamhill Clackamas and Columbia Counties, Refunding, 5.00%, 6/15/28 | | 2,000,000 | | 2,411,880 |
| Refunding, 5.00%, 6/15/29 | | 3,000,000 | | 3,595,830 |
| Portland EDR, Broadway Project, Series A, Pre-Refunded, 6.50%, 4/01/35 | | 5,000,000 | | 5,432,650 |
| Portland GO, | | | | |
| Oregon Convention Center Completion Project, Limited Tax, Capital Appreciation, Series B, zero | | | | |
| cpn., 6/01/21 | | 1,000,000 | | 928,710 |
| Oregon Convention Center Completion Project, Limited Tax, Refunding, Series A, 5.00%, 6/01/28 | | 7,840,000 | | 8,953,672 |
| Oregon Convention Center Completion Project, Limited Tax, Refunding, Series A, 5.00%, 6/01/29 | | 8,330,000 | | 9,502,281 |
| Oregon Convention Center Completion Project, Limited Tax, Refunding, Series A, 5.00%, 6/01/30 | | 8,750,000 | | 9,969,750 |
| Portland River District Urban Renewal and Redevelopment Tax Allocation, | | | | |
| Refunding, Series B, 5.00%, 6/15/22 | | 1,035,000 | | 1,196,657 |
| Series C, 5.00%, 6/15/28 | | 1,000,000 | | 1,116,680 |
| Series C, 5.00%, 6/15/30 | | 1,000,000 | | 1,112,500 |
| Portland Sewer System Revenue, second lien, Series A, 5.00%, 3/01/34 | | 25,270,000 | | 27,756,821 |
116 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Oregon (continued) | | | | |
| Portland Urban Renewal and Redevelopment Tax Allocation, | | | | |
| Interstate Corridor, Series B, 5.00%, 6/15/29 | $ | 1,000,000 | $ | 1,103,910 |
| Interstate Corridor, Series B, 5.00%, 6/15/30 | | 1,000,000 | | 1,103,910 |
| Interstate Corridor, Series B, 5.00%, 6/15/31 | | 1,000,000 | | 1,099,210 |
| Lents Town Center, Series B, 5.00%, 6/15/27. | | 2,500,000 | | 2,713,025 |
| Lents Town Center, Series B, 5.00%, 6/15/28. | | 1,175,000 | | 1,273,959 |
| Lents Town Center, Series B, 4.75%, 6/15/29. | | 1,000,000 | | 1,067,210 |
| Lents Town Center, Series B, 5.00%, 6/15/30. | | 1,800,000 | | 1,937,988 |
| North Macadam, Series B, 5.00%, 6/15/29 | | 4,250,000 | | 4,582,775 |
| North Macadam, Series B, 5.00%, 6/15/30 | | 4,725,000 | | 5,087,219 |
| Salem Hospital Facility Authority Revenue, | | | | |
| Salem Health Projects, Refunding, Series A, 5.00%, 5/15/46 | | 31,000,000 | | 33,888,890 |
| Salem Hospital Project, Series A, Pre-Refunded, 5.75%, 8/15/23 | | 10,000,000 | | 10,692,600 |
| Salem-Keizer School District No. 24J GO, Marion and Polk Counties, Series B, zero cpn., 6/15/30 | | 8,500,000 | | 5,553,560 |
| Sherwood GO, Washington County, Full Faith and Credit Obligations, Refunding, AGMC Insured, 5.00%, | | | | |
| 6/01/36 | | 4,240,000 | | 4,727,558 |
| Tri-County Metropolitan Transportation District Revenue, | | | | |
| Payroll Tax, senior lien, Series A, 5.00%, 9/01/40 | | 6,000,000 | | 6,826,440 |
| Payroll Tax, senior lien, Series A, 5.00%, 9/01/41 | | 18,650,000 | | 21,396,399 |
| Payroll Tax, senior lien, Series A, Pre-Refunded, 5.00%, 9/01/37 | | 11,000,000 | | 12,953,380 |
| Umatilla County Pendleton School District No. 16R GO, Series A, 5.00%, 6/15/37 | | 4,970,000 | | 5,612,323 |
| University of Oregon General Revenue, Series A, 5.00%, 4/01/45 | | 20,000,000 | | 22,438,400 |
| Washington Clackamas and Yamhill Counties Sherwood School District No. 88J GO, | | | | |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 6/15/26 | | 6,850,000 | | 4,520,589 |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 6/15/27 | | 7,090,000 | | 4,460,035 |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 6/15/28 | | 2,960,000 | | 1,776,118 |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 6/15/29 | | 3,110,000 | | 1,779,666 |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 6/15/30 | | 3,260,000 | | 1,778,721 |
| Capital Appreciation, Series A, NATL Insured, Pre-Refunded, zero cpn., 12/15/31 | | 3,515,000 | | 1,783,722 |
| Series B, 5.00%, 6/15/32 | | 3,050,000 | | 3,621,845 |
| Series B, 5.00%, 6/15/33 | | 2,500,000 | | 2,951,625 |
| Series B, NATL Insured, Pre-Refunded, 4.50%, 12/15/31 | | 2,900,000 | | 2,931,349 |
| Washington County School District No. 15 Forest Grove GO, | | | | |
| Series B, zero cpn., 6/15/29. | | 2,545,000 | | 1,712,810 |
| Series B, zero cpn., 6/15/30. | | 2,490,000 | | 1,591,135 |
| Series B, zero cpn., 6/15/31. | | 3,140,000 | | 1,894,205 |
| Washington County School District No. 48J Beaverton GO, | | | | |
| Series B, 5.00%, 6/15/32 | | 10,750,000 | | 12,459,142 |
| Series B, 5.00%, 6/15/33 | | 8,000,000 | | 9,248,960 |
| Series B, 5.00%, 6/15/34 | | 11,000,000 | | 12,709,400 |
| Woodburn School District No. 103 GO, | | | | |
| Marion County, 5.00%, 6/15/33 | | 2,930,000 | | 3,380,077 |
| Marion County, 5.00%, 6/15/34 | | 3,200,000 | | 3,676,288 |
| Marion County, 5.00%, 6/15/35 | | 2,075,000 | | 2,377,286 |
| Yamhill County McMinnville School District No. 40 GO, AGMC Insured, Pre-Refunded, 5.00%, 6/15/28 | | 4,000,000 | | 4,048,880 |
| | | | | 1,182,715,891 |
franklintempleton.com
Annual Report
117
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Oregon Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| U.S. Territories 4.4% | | | | |
| Guam 0.4% | | | | |
| Guam Government Limited Obligation Revenue, | | | | |
| Section 30, Series A, Pre-Refunded, 5.625%, 12/01/24. | $ | 840,000 | $ | 939,548 |
| Section 30, Series A, Pre-Refunded, 5.625%, 12/01/29. | | 3,250,000 | | 3,635,158 |
| | | | | 4,574,706 |
| Puerto Rico 4.0% | | | | |
| Children’s Trust Fund Tobacco Settlement Revenue, Asset-Backed, Refunding, 5.625%, 5/15/43 | | 10,000,000 | | 10,016,800 |
| Puerto Rico Commonwealth GO, Public Improvement, Refunding, Sub-Series C-7, NATL Insured, 6.00%, | | | | |
| 7/01/28 | | 4,500,000 | | 4,725,000 |
| Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.25%, 7/01/33 | | 9,690,000 | | 6,322,725 |
| Puerto Rico PBA Guaranteed Revenue, Government Facilities, Refunding, Series M-3, NATL Insured, | | | | |
| 6.00%, 7/01/25 | | 14,900,000 | | 16,603,517 |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, | | | | |
| Convertible Capital Appreciation, First Subordinate, Series A, 6.75%, 8/01/32 | | 20,000,000 | | 10,550,000 |
| Senior, Series C, 5.25%, 8/01/40 | | 2,860,000 | | 2,012,725 |
| | | | | 50,230,767 |
| Total U.S. Territories | | | | 54,805,473 |
| Total Municipal Bonds before Short Term Investments (Cost $1,193,055,076) | | | | 1,237,521,364 |
| |
| Short Term Investments 1.3% | | | | |
| Municipal Bonds 1.3% | | | | |
| Oregon 1.3% | | | | |
| b Oregon State Facilities Authority Revenue, Providence Health and Services, Refunding, Series C, Weekly | | | | |
| VRDN and Put, 1.64%, 10/01/22 | | 100,000 | | 100,219 |
| b Oregon State GO, | | | | |
| Veterans Welfare, Series 86, Daily VRDN and Put, 0.53%, 6/01/40 | | 5,630,000 | | 5,630,000 |
| Veterans Welfare, Series 88D, Daily VRDN and Put, 0.53%, 12/01/41. | | 10,200,000 | | 10,200,000 |
| Total Short Term Investments (Cost $15,930,000) | | | | 15,930,219 |
| Total Investments (Cost $1,208,985,076) 99.8% | | | | 1,253,451,583 |
| Other Assets, less Liabilities 0.2%. | | | | 3,081,471 |
| Net Assets 100.0% | | | $ | 1,256,533,054 |
See Abbreviations on page 149.
aSecurity purchased on a when-issued basis. See Note 1(b).
bVariable 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. The coupon rate shown represents the rate at period end.
118 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| |
| |
| Financial Highlights | | | | | | | | | | | | | | | |
| Franklin Pennsylvania Tax-Free Income Fund | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.33 | | $ | 10.51 | | $ | 10.17 | | $ | 10.94 | | $ | 10.79 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.39 | | | 0.40 | | | 0.43 | | | 0.42 | | | 0.41 | |
| Net realized and unrealized gains (losses) | | (0.22 | ) | | (0.18 | ) | | 0.34 | | | (0.78 | ) | | 0.14 | |
| Total from investment operations | | 0.17 | | | 0.22 | | | 0.77 | | | (0.36 | ) | | 0.55 | |
| Less distributions from net investment income | | (0.38 | ) | | (0.40 | ) | | (0.43 | ) | | (0.41 | ) | | (0.40 | ) |
| Net asset value, end of year. | $ | 10.12 | | $ | 10.33 | | $ | 10.51 | | $ | 10.17 | | $ | 10.94 | |
| |
| Total returnd | | 1.62 | % | | 2.15 | % | | 7.72 | % | | (3.28 | )% | | 5.21 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.64 | % | | 0.64 | % | | 0.64 | % | | 0.63 | % | | 0.63 | % |
| Net investment income | | 3.73 | % | | 3.92 | % | | 4.15 | % | | 4.04 | % | | 3.77 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 942,320 | | $ | 965,479 | | $ | 1,001,684 | | $ | 981,992 | | $ | 1,310,224 | |
| Portfolio turnover rate | | 10.88 | % | | 4.73 | % | | 6.04 | % | | 7.04 | % | | 4.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 119
| | | | | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | | | | |
| FINANCIAL HIGHLIGHTS | | | | | | | | | | | | | | | |
| |
| |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Class C | | | | | | | | | | | | | | | |
| Per share operating performance | | | | | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.45 | | $ | 10.63 | | $ | 10.28 | | $ | 11.06 | | $ | 10.90 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.33 | | | 0.35 | | | 0.38 | | | 0.36 | | | 0.35 | |
| Net realized and unrealized gains (losses) | | (0.22 | ) | | (0.19 | ) | | 0.34 | | | (0.79 | ) | | 0.15 | |
| Total from investment operations | | 0.11 | | | 0.16 | | | 0.72 | | | (0.43 | ) | | 0.50 | |
| Less distributions from net investment income | | (0.32 | ) | | (0.34 | ) | | (0.37 | ) | | (0.35 | ) | | (0.34 | ) |
| Net asset value, end of year. | $ | 10.24 | | $ | 10.45 | | $ | 10.63 | | $ | 10.28 | | $ | 11.06 | |
| |
| Total returnd | | 1.04 | % | | 1.56 | % | | 7.15 | % | | (3.86 | )% | | 4.67 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 1.19 | % | | 1.19 | % | | 1.19 | % | | 1.18 | % | | 1.18 | % |
| Net investment income | | 3.18 | % | | 3.37 | % | | 3.60 | % | | 3.49 | % | | 3.22 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 283,260 | | $ | 282,541 | | $ | 279,987 | | $ | 268,291 | | $ | 350,937 | |
| Portfolio turnover rate | | 10.88 | % | | 4.73 | % | | 6.04 | % | | 7.04 | % | | 4.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
dTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
120 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL HIGHLIGHTS | |
| |
| |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | | | | | | | | | | | | |
| | | | | | Year Ended February 28, | | | | |
| | | 2017 | | | 2016 | a | | 2015 | | | 2014 | | | 2013 | |
| Advisor Class | | | | | | | | | | | | | | | |
| Per share operating performance | | | | �� | | | | | | | | | | | |
| (for a share outstanding throughout the year) | | | | | | | | | | | | | | | |
| Net asset value, beginning of year | $ | 10.34 | | $ | 10.52 | | $ | 10.18 | | $ | 10.95 | | $ | 10.80 | |
| Income from investment operationsb: | | | | | | | | | | | | | | | |
| Net investment incomec | | 0.40 | | | 0.41 | | | 0.44 | | | 0.43 | | | 0.42 | |
| Net realized and unrealized gains (losses) | | (0.22 | ) | | (0.18 | ) | | 0.34 | | | (0.78 | ) | | 0.15 | |
| Total from investment operations | | 0.18 | | | 0.23 | | | 0.78 | | | (0.35 | ) | | 0.57 | |
| Less distributions from net investment income | | (0.39 | ) | | (0.41 | ) | | (0.44 | ) | | (0.42 | ) | | (0.42 | ) |
| Net asset value, end of year. | $ | 10.13 | | $ | 10.34 | | $ | 10.52 | | $ | 10.18 | | $ | 10.95 | |
| |
| Total return | | 1.72 | % | | 2.25 | % | | 7.82 | % | | (3.18 | )% | | 5.31 | % |
| |
| Ratios to average net assets | | | | | | | | | | | | | | | |
| Expenses | | 0.54 | % | | 0.54 | % | | 0.54 | % | | 0.53 | % | | 0.53 | % |
| Net investment income | | 3.83 | % | | 4.02 | % | | 4.25 | % | | 4.14 | % | | 3.87 | % |
| |
| Supplemental data | | | | | | | | | | | | | | | |
| Net assets, end of year (000’s) | $ | 85,753 | | $ | 52,807 | | $ | 49,301 | | $ | 42,043 | | $ | 57,430 | |
| Portfolio turnover rate | | 10.88 | % | | 4.73 | % | | 6.04 | % | | 7.04 | % | | 4.99 | % |
aFor the year ended February 29.
bThe amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and
repurchases of the Fund’s shares in relation to income earned and/or fluctuating fair value of the investments of the Fund.
cBased on average daily shares outstanding.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 121
| | | | |
| FRANKLIN TAX-FREE TRUST | | | | |
| |
| |
| |
| |
| Statement of Investments, February 28, 2017 | | | | |
| Franklin Pennsylvania Tax-Free Income Fund | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds 98.3% | | | | |
| Pennsylvania 95.1% | | | | |
| Allegheny County GO, | | | | |
| Refunding, Series C-76, 5.00%, 11/01/41 | $ | 5,620,000 | $ | 6,266,693 |
| Series C-60, AGMC Insured, Pre-Refunded, 5.00%, 11/01/27 | | 3,000,000 | | 3,083,490 |
| Series C-61, Assured Guaranty, Pre-Refunded, 5.00%, 12/01/33 | | 5,000,000 | | 5,345,850 |
| Series C-65, 5.375%, 5/01/31 | | 2,160,000 | | 2,452,399 |
| Series C-65, Pre-Refunded, 5.375%, 5/01/31 | | 2,840,000 | | 3,289,742 |
| Allegheny County Higher Education Building Authority University Revenue, | | | | |
| Duquesne University, Pre-Refunded, 5.00%, 3/01/28 | | 3,000,000 | | 3,121,200 |
| Duquesne University, Pre-Refunded, 5.00%, 3/01/33 | | 1,300,000 | | 1,352,520 |
| Duquesne University, Series A, Pre-Refunded, 5.50%, 3/01/31 | | 3,000,000 | | 3,481,290 |
| Robert Morris University, Refunding, 5.00%, 10/15/34. | | 2,555,000 | | 2,669,949 |
| Robert Morris University, Refunding, 5.00%, 10/15/38. | | 2,080,000 | | 2,147,226 |
| Allegheny County Hospital Development Authority Revenue, University of Pittsburgh Medical Center, | | | | |
| Series A, 5.625%, 8/15/39 | | 12,000,000 | | 12,957,000 |
| Allegheny County Sanitary Authority Sewer Revenue, | | | | |
| AGMC Insured, 5.00%, 6/01/40 | | 5,000,000 | | 5,511,750 |
| NATL Insured, Pre-Refunded, 5.00%, 12/01/37 | | 6,745,000 | | 6,816,160 |
| Refunding, AGMC Insured, 4.00%, 12/01/34 | | 2,250,000 | | 2,345,895 |
| Refunding, AGMC Insured, 4.00%, 12/01/35 | | 2,650,000 | | 2,740,763 |
| Refunding, AGMC Insured, 4.00%, 12/01/36 | | 2,250,000 | | 2,319,570 |
| The Berks County Municipal Authority Revenue, The Reading Hospital and Medical Center Project, | | | | |
| Series A, 5.00%, 11/01/44 | | 10,000,000 | | 10,834,800 |
| Bethel Park School District GO, Pre-Refunded, 5.10%, 8/01/33 | | 3,600,000 | | 3,947,112 |
| Bethlehem Area School District GO, AGMC Insured, Pre-Refunded, 5.25%, 1/15/26 | | 6,605,000 | | 7,366,424 |
| Bethlehem GO, Refunding, Series B, AGMC Insured, 6.50%, 12/01/32 | | 4,980,000 | | 5,772,866 |
| Bucks County IDAR, George School Project, 5.00%, 9/15/41 | | 5,000,000 | | 5,575,700 |
| Bucks County Water and Sewer Authority Sewer System Revenue, Refunding, Series A, AGMC Insured, | | | | |
| 5.00%, 12/01/35 | | 2,500,000 | | 2,771,100 |
| Bucks County Water and Sewer Authority Water System Revenue, AGMC Insured, 5.00%, 12/01/41 | | 10,000,000 | | 11,073,800 |
| Butler County Hospital Authority Hospital Revenue, | | | | |
| Butler Health System Project, Refunding, Series A, 5.00%, 7/01/39 | | 1,625,000 | | 1,729,569 |
| Butler Health System Project, Series B, Pre-Refunded, 7.25%, 7/01/39 | | 4,500,000 | | 5,119,650 |
| Centennial School District Bucks County GO, Series A, 5.00%, 12/15/37 | | 5,855,000 | | 6,478,265 |
| Central Bradford Progress Authority Revenue, Guthrie Health Issue, Refunding, 5.375%, 12/01/41 | | 3,000,000 | | 3,254,700 |
| Centre County Hospital Authority Revenue, Mount Nittany Medical Center, Refunding, Series A, 5.00%, | | | | |
| 11/15/46 | | 6,050,000 | | 6,545,918 |
| Chester County IDA Student Housing Revenue, | | | | |
| University Student Housing LLC Project at West Chester University of Pennsylvania, Series A, | | | | |
| 5.00%, 8/01/35 | | 500,000 | | 526,565 |
| University Student Housing LLC Project at West Chester University of Pennsylvania, Series A, | | | | |
| 5.00%, 8/01/45 | | 1,500,000 | | 1,560,795 |
| Clarion County IDA Student Housing Revenue, Clarion University Foundation Inc., Student Housing | | | | |
| Project at Clarion University, Series A, 5.00%, 7/01/45 | | 2,335,000 | | 2,377,847 |
| Commonwealth Financing Authority Revenue, | | | | |
| Series A, 5.00%, 6/01/34. | | 10,000,000 | | 11,013,000 |
| Series B, 5.00%, 6/01/32 | | 5,000,000 | | 5,487,000 |
| Cumberland County Municipal Authority College Revenue, | | | | |
| Dickinson College Project, Assn. of Independent Colleges and Universities of Pennsylvania | | | | |
| Financing Program, Series GG1, NATL Insured, Pre-Refunded, 5.00%, 5/01/34. | | 3,500,000 | | 3,524,500 |
| Dickinson College Project, Assn. of Independent Colleges and Universities of Pennsylvania | | | | |
| Financing Program, Series HH1, 5.00%, 11/01/39 | | 1,200,000 | | 1,296,708 |
| Cumberland County Municipal Authority Revenue, Dickinson College Project, 5.00%, 11/01/42 | | 4,500,000 | | 4,960,260 |
122 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Pennsylvania (continued) | | | | |
| Dallas Area Municipal Authority University Revenue, Misericordia University Project, Refunding, 5.00%, | | | | |
| 5/01/37 | $ | 2,500,000 | $ | 2,580,275 |
| Dauphin County General Authority Health System Revenue, | | | | |
| Pinnacle Health System Project, Refunding, Series A, 5.00%, 6/01/36 | | 1,000,000 | | 1,101,770 |
| Pinnacle Health System Project, Series A, 6.00%, 6/01/36 | | 1,610,000 | | 1,750,601 |
| Pinnacle Health System Project, Series A, 5.00%, 6/01/42 | | 15,590,000 | | 16,646,846 |
| Pinnacle Health System Project, Series A, Pre-Refunded, 6.00%, 6/01/36 | | 8,390,000 | | 9,296,791 |
| Deer Lakes School District GO, Assured Guaranty, 5.50%, 4/01/39 | | 7,500,000 | | 8,092,125 |
| Delaware County Authority Revenue, | | | | |
| Cabrini College, Refunding, Assured Guaranty, 5.875%, 7/01/29 | | 1,140,000 | | 1,144,446 |
| Haverford College, Refunding, 5.00%, 11/15/40 | | 3,000,000 | | 3,250,350 |
| Delaware County Authority University Revenue, | | | | |
| Neumann University, 5.00%, 10/01/25. | | 1,250,000 | | 1,364,738 |
| Neumann University, 5.25%, 10/01/31. | | 1,250,000 | | 1,328,550 |
| Delaware County Regional Water Quality Control Authority Revenue, 4.00%, 11/01/36 | | 2,005,000 | | 2,061,621 |
| Delaware County Vocational and Technical School Authority Lease Revenue, Intermediate No. 25 Project, | | | | |
| BAM Insured, 5.00%, 11/01/38 | | 1,250,000 | | 1,364,375 |
| Delaware Valley Regional Finance Authority Local Government Revenue, Series B, AMBAC Insured, | | | | |
| 5.60%, 7/01/17 | | 5,000,000 | | 5,080,850 |
| East Hempfield Township IDAR, | | | | |
| Student Services Inc., Student Housing Project at Millersville University of Pennsylvania, 5.00%, | | | | |
| 7/01/45 | | 3,250,000 | | 3,318,673 |
| Student Services Inc., Student Housing Project at Millersville University of Pennsylvania, 5.00%, | | | | |
| 7/01/47 | | 3,750,000 | | 3,808,462 |
| Erie Parking Authority Parking Facilities Revenue, | | | | |
| Guaranteed, AGMC Insured, Pre-Refunded, 5.125%, 9/01/32 | | 1,100,000 | | 1,244,892 |
| Guaranteed, Refunding, AGMC Insured, 5.125%, 9/01/32 | | 3,150,000 | | 3,487,397 |
| Erie Water Authority Water Revenue, | | | | |
| AGMC Insured, Pre-Refunded, 5.00%, 12/01/43 | | 5,575,000 | | 5,960,623 |
| Refunding, 5.00%, 12/01/43 | | 6,000,000 | | 6,658,860 |
| Refunding, AGMC Insured, 5.00%, 12/01/43 | | 1,425,000 | | 1,502,919 |
| Falls Township Authority Water and Sewer Revenue, Guaranteed, 5.00%, 12/01/41 | | 2,210,000 | | 2,497,897 |
| Franklin County IDAR, Chambersburg Hospital Project, 5.375%, 7/01/42 | | 10,000,000 | | 10,733,300 |
| General Authority of Southcentral Pennsylvania Revenue, | | | | |
| Assn. of Independent Colleges and Universities, York College of Pennsylvania Project, 5.75%, | | | | |
| 11/01/41 | | 9,500,000 | | 10,894,885 |
| WellSpan Health Obligated Group, Refunding, Series A, 6.00%, 6/01/25. | | 4,270,000 | | 4,507,540 |
| WellSpan Health Obligated Group, Refunding, Series A, 5.00%, 6/01/44. | | 10,000,000 | | 11,005,800 |
| WellSpan Health Obligated Group, Series A, Pre-Refunded, 6.00%, 6/01/25 | | 5,730,000 | | 6,087,036 |
| Indiana County Hospital Authority Hospital Revenue, Indiana Regional Medical Center, Series A, 6.00%, | | | | |
| 6/01/39 | | 1,625,000 | | 1,777,539 |
| Lackawanna County GO, | | | | |
| Series B, AGMC Insured, 5.00%, 9/01/30 | | 8,100,000 | | 8,641,971 |
| Series B, AGMC Insured, 5.00%, 9/01/35 | | 7,500,000 | | 7,925,175 |
| Lancaster County Hospital Authority Revenue, University of Pennsylvania Health System Obligated | | | | |
| Group, Refunding, 5.00%, 8/15/46 | | 4,165,000 | | 4,593,412 |
| Lancaster Parking Authority Parking Revenue, | | | | |
| Guaranteed, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/32 | | 1,700,000 | | 1,753,125 |
| Guaranteed, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 12/01/35 | | 2,500,000 | | 2,578,125 |
| Latrobe IDA College Revenue, St. Vincent College Project, 5.00%, 5/01/43 | | 4,120,000 | | 4,335,888 |
| Lehigh County Authority Water and Sewer Revenue, City of Allentown Concession, Series A, 5.00%, | | | | |
| 12/01/43 | | 5,240,000 | | 5,744,560 |
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123
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Pennsylvania (continued) | | | | |
| Lehigh County General Purpose Authority Hospital Revenue, Lehigh Valley Health Network, Series B, | | | | |
| AGMC Insured, Pre-Refunded, 5.00%, 7/01/35 | $ | 11,250,000 | $ | 11,965,387 |
| Lehigh County General Purpose Authority Revenue, Muhlenberg College Project, Pre-Refunded, 5.25%, | | | | |
| 2/01/34 | | 1,500,000 | | 1,619,775 |
| Luzerne County IDA Water Facility Revenue, Pennsylvania American Water Co. Water Facilities, | | | | |
| Refunding, 5.50%, 12/01/39 | | 10,000,000 | | 11,037,100 |
| Lycoming County Authority Health System Revenue, Susquehanna Health System Project, Refunding, | | | | |
| Series A, 5.75%, 7/01/39 | | 25,000,000 | | 26,719,750 |
| Lycoming County Authority Revenue, | | | | |
| AICUP Financing Program, Lycoming College Project, Series MM1, 5.25%, 11/01/38. | | 1,400,000 | | 1,589,756 |
| AICUP Financing Program, Lycoming College Project, Series MM1, 5.25%, 11/01/43. | | 1,495,000 | | 1,688,961 |
| Lycoming County Water and Sewer Authority Revenue, Guaranteed Sewer, AGMC Insured, Pre- | | | | |
| Refunded, 5.00%, 11/15/35. | | 5,835,000 | | 6,432,096 |
| Marple Newtown School District GO, Delaware County, AGMC Insured, Pre-Refunded, 5.00%, 6/01/31 | | 11,225,000 | | 12,203,146 |
| McKeesport Municipal Authority Sewer Revenue, 5.75%, 12/15/39 | | 5,000,000 | | 5,368,450 |
| Monroe County Hospital Authority Hospital Revenue, Pocono Medical Center, Series A, 5.00%, 1/01/41 | | 4,000,000 | | 4,198,880 |
| Montgomery County Higher Education and Health Authority Revenue, Arcadia University, 5.625%, | | | | |
| 4/01/40 | | 5,750,000 | | 6,115,527 |
| Montgomery County IDA Health System Revenue, Jefferson Health System, Series A, 5.00%, 10/01/41 | | 9,600,000 | | 10,366,368 |
| Montgomery County IDAR, | | | | |
| FHA Insured Mortgage Revenue, Pre-Refunded, 5.375%, 8/01/38 | | 4,995,000 | | 5,682,712 |
| Foulkeways at Gwynedd, Project, Refunding, 5.00%, 12/01/46 | | 2,000,000 | | 2,058,040 |
| Montour School District GO, AGMC Insured, Pre-Refunded, 5.00%, 4/01/37. | | 12,500,000 | | 12,542,375 |
| Northampton County General Purpose Authority College Revenue, Lafayette College, Refunding, 5.00%, | | | | |
| 11/01/34 | | 20,000,000 | | 21,160,800 |
| Northampton County General Purpose Authority Hospital Revenue, | | | | |
| St. Luke’s Hospital Project, Series A, Pre-Refunded, 5.50%, 8/15/35 | | 10,000,000 | | 10,649,100 |
| St. Luke’s Hospital Project, Series B, 5.50%, 8/15/33 | | 2,200,000 | | 2,385,724 |
| St. Luke’s University Health Network Project, Refunding, Series A, 5.00%, 8/15/46 | | 10,000,000 | | 10,715,200 |
| Northampton County General Purpose Authority Revenue, | | | | |
| Higher Education, Lehigh University, Pre-Refunded, 5.00%, 11/15/39 | | 20,000,000 | | 21,713,400 |
| Higher Education, Lehigh University, Refunding, Series A, 4.00%, 11/15/36 | | 6,000,000 | | 6,224,700 |
| Northeastern Hospital and Education Authority Revenue, Wilkes University Project, Series A, 5.25%, | | | | |
| 3/01/42 | | 2,400,000 | | 2,505,600 |
| Northeastern York School District GO, | | | | |
| Series B, NATL Insured, Pre-Refunded, 5.00%, 4/01/30 | | 1,000,000 | | 1,003,390 |
| Series B, NATL Insured, Pre-Refunded, 5.00%, 4/01/31 | | 2,000,000 | | 2,006,780 |
| Norwin School District GO, AGMC Insured, Pre-Refunded, 5.00%, 4/01/37. | | 10,000,000 | | 10,033,900 |
| Owen J. Roberts School District GO, AGMC Insured, Pre-Refunded, 5.00%, 9/01/36. | | 2,710,000 | | 2,767,154 |
| Pennsylvania State Economic Development Financing Authority Revenue, | | | | |
| UPMC, Series A, 5.00%, 2/01/33 | | 5,000,000 | | 5,558,100 |
| UPMC, Series A, 5.00%, 2/01/45 | | 5,000,000 | | 5,448,250 |
| Pennsylvania State Economic Development Financing Authority Water Facilities Revenue, Aqua | | | | |
| Pennsylvania Inc. Project, Series B, 5.00%, 12/01/43 | | 25,000,000 | | 27,625,250 |
| Pennsylvania State Economic Development Financing Authority Water Facility Revenue, Pennsylvania- | | | | |
| American Water Co. Project, 6.20%, 4/01/39 | | 12,000,000 | | 13,144,200 |
| Pennsylvania State GO, | | | | |
| Second Series, Pre-Refunded, 5.00%, 4/15/23 | | 10,000,000 | | 10,837,800 |
| Second Series A, Pre-Refunded, 5.00%, 8/01/25 | | 5,000,000 | | 5,088,050 |
124 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Pennsylvania (continued) | | | | |
| Pennsylvania State Higher Educational Facilities Authority Revenue, | | | | |
| AICUP Financing Program, Gwynedd Mercy College Project, Series KK1, 5.375%, 5/01/42 | $ | 1,800,000 | $ | 1,879,290 |
| AICUP Financing Program, St. Francis University Project, Series JJ2, 6.25%, 11/01/41 | | 3,840,000 | | 4,158,029 |
| Bryn Mawr College, Refunding, 5.00%, 12/01/44 | | 6,365,000 | | 7,145,094 |
| Bryn Mawr College, Refunding, AMBAC Insured, 5.00%, 12/01/37 | | 5,000,000 | | 5,042,500 |
| Drexel University, Series A, NATL Insured, Pre-Refunded, 5.00%, 5/01/37 | | 25,525,000 | | 26,235,361 |
| Edinboro University Foundation, Student Housing Project, Pre-Refunded, 6.00%, 7/01/43 | | 3,500,000 | | 4,030,250 |
| Foundation for Indiana University, Student Housing Project, Refunding, Series B, 5.00%, 7/01/41 | | 1,250,000 | | 1,315,500 |
| La Salle University, Series A, 5.00%, 5/01/37 | | 2,500,000 | | 2,535,025 |
| Philadelphia University, Refunding, 5.00%, 6/01/30. | | 2,295,000 | | 2,313,819 |
| Shippensburg University Student Services Inc. Student Housing Project at Shippensburg University | | | | |
| of Pennsylvania, 5.00%, 10/01/35. | | 1,400,000 | | 1,430,674 |
| Shippensburg University Student Services Inc. Student Housing Project at Shippensburg University | | | | |
| of Pennsylvania, 6.25%, 10/01/43. | | 7,000,000 | | 7,655,690 |
| Shippensburg University Student Services Inc. Student Housing Project at Shippensburg University | | | | |
| of Pennsylvania, 5.00%, 10/01/44. | | 2,000,000 | | 2,020,260 |
| St. Joseph’s University, Series A, 5.00%, 11/01/40 | | 15,000,000 | | 16,474,800 |
| State System of Higher Education, Series AF, NATL Insured, Pre-Refunded, 5.00%, 6/15/37 | | 7,000,000 | | 7,085,540 |
| Temple University, First Series, 5.00%, 4/01/42 | | 15,000,000 | | 16,618,950 |
| The Trustees of the University of Pennsylvania, Series A, 5.00%, 8/15/36. | | 2,750,000 | | 3,184,170 |
| The Trustees of the University of Pennsylvania, Series A, 5.00%, 8/15/46. | | 14,000,000 | | 16,030,000 |
| Thomas Jefferson University, Pre-Refunded, 5.00%, 3/01/40 | | 16,980,000 | | 18,882,949 |
| Thomas Jefferson University, Refunding, Series A, 5.00%, 9/01/45. | | 7,465,000 | | 8,115,127 |
| The Trustees of the University of Pennsylvania, Series A, Pre-Refunded, 5.00%, 9/01/41 | | 25,000,000 | | 28,526,250 |
| University of the Sciences in Philadelphia, 5.00%, 11/01/42 | | 5,000,000 | | 5,459,700 |
| University of the Sciences in Philadelphia, Assured Guaranty, Pre-Refunded, 5.00%, 11/01/32 | | 5,000,000 | | 5,321,750 |
| University of the Sciences in Philadelphia, Series A, 5.00%, 11/01/36 | | 4,250,000 | | 4,669,262 |
| University of Pennsylvania Health System, 5.00%, 8/15/40 | | 6,475,000 | | 7,140,241 |
| University of Pennsylvania Health System, Pre-Refunded, 5.75%, 8/15/41 | | 3,950,000 | | 4,683,120 |
| University of Pennsylvania Health System, Series B, Pre-Refunded, 6.00%, 8/15/26 | | 5,000,000 | | 5,360,450 |
| University of Pittsburgh Medical Center, Series E, 5.00%, 5/15/31 | | 13,000,000 | | 14,101,620 |
| Pennsylvania State Higher Educational Facilities Authority Student Housing Revenue, | | | | |
| University Properties Inc. Student Housing Project at East Stroudsburg University of Pennsylvania, | | | | |
| 5.00%, 7/01/42 | | 5,500,000 | | 5,675,780 |
| University Properties Inc. Student Housing Project at East Stroudsburg University of Pennsylvania, | | | | |
| Refunding, Series A, 5.00%, 7/01/35. | | 1,000,000 | | 1,070,730 |
| Pennsylvania State Public School Building Authority College Revenue, Delaware County Community | | | | |
| College Project, AGMC Insured, Pre-Refunded, 5.00%, 10/01/32 | | 1,000,000 | | 1,044,090 |
| Pennsylvania State Public School Building Authority Community College Revenue, Community College of | | | | |
| Philadelphia Project, Pre-Refunded, 6.00%, 6/15/28 | | 5,000,000 | | 5,441,650 |
| Pennsylvania State Turnpike Commission Turnpike Revenue, | | | | |
| Series C, 5.00%, 12/01/43. | | 10,000,000 | | 10,969,200 |
| Series C, Sub Series C-1, Assured Guaranty, Pre-Refunded, 6.25%, 6/01/38 | | 5,000,000 | | 5,333,450 |
| Series D, 5.125%, 12/01/40 | | 10,000,000 | | 10,830,200 |
| Special, Motor License Fund Enhanced Turnpike, Series A, 5.50%, 12/01/41 | | 5,000,000 | | 5,628,150 |
| Sub Series A, Assured Guaranty, 5.00%, 6/01/39 | | 17,200,000 | | 18,338,296 |
| Sub Series A, Assured Guaranty, Pre-Refunded, 5.00%, 6/01/39 | | 2,800,000 | | 3,043,992 |
| Pennsylvania State University Revenue, | | | | |
| 5.00%, 3/01/40 | | 1,500,000 | | 1,644,840 |
| Refunding, Series B, 4.00%, 9/01/35 | | 3,470,000 | | 3,614,838 |
| Refunding, Series B, 4.00%, 9/01/36 | | 3,460,000 | | 3,593,037 |
| Series A, 5.00%, 9/01/36. | | 1,300,000 | | 1,493,739 |
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Annual Report
125
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Pennsylvania (continued) | | | | |
| Pennsylvania State University Revenue, (continued) | | | | |
| Series A, 5.00%, 9/01/40. | $ | 10,490,000 | $ | 11,859,679 |
| Series A, 5.00%, 9/01/41. | | 20,450,000 | | 23,371,487 |
| Philadelphia Airport Revenue, | | | | |
| Series A, AGMC Insured, 5.00%, 6/15/35 | | 5,000,000 | | 5,399,700 |
| Series A, AGMC Insured, 5.00%, 6/15/40 | | 5,000,000 | | 5,380,050 |
| Philadelphia Authority for IDR, | | | | |
| The Children’s Hospital of Philadelphia Project, Series A, 5.00%, 7/01/42 | | 5,000,000 | | 5,604,350 |
| International Apartments at Temple University, Series A, 5.625%, 6/15/42. | | 4,000,000 | | 4,195,360 |
| Temple University, First Series, 5.00%, 4/01/40 | | 5,000,000 | | 5,494,100 |
| Temple University, Second Series, 5.00%, 4/01/36 | | 5,000,000 | | 5,519,900 |
| Thomas Jefferson University, Refunding, Series A, 5.00%, 9/01/47. | | 5,000,000 | | 5,430,050 |
| Philadelphia Gas Works Revenue, | | | | |
| 1998 General Ordinance, Refunding, Fourteenth Series, 5.00%, 10/01/32. | | 2,000,000 | | 2,238,840 |
| Ninth Series, 5.25%, 8/01/40 | | 3,490,000 | | 3,769,793 |
| Ninth Series, Pre-Refunded, 5.25%, 8/01/40 | | 2,230,000 | | 2,523,736 |
| Twelfth Series B, NATL Insured, ETM, 7.00%, 5/15/20 | | 390,000 | | 426,434 |
| Philadelphia GO, | | | | |
| Refunding, Series A, Assured Guaranty, 5.125%, 8/01/25 | | 4,480,000 | | 4,846,464 |
| Refunding, Series A, Assured Guaranty, 5.25%, 8/01/26 | | 4,460,000 | | 4,839,055 |
| Series A, 5.25%, 7/15/33. | | 5,000,000 | | 5,656,000 |
| Series A, Assured Guaranty, Pre-Refunded, 5.125%, 8/01/25 | | 520,000 | | 569,790 |
| Series A, Assured Guaranty, Pre-Refunded, 5.25%, 8/01/26 | | 540,000 | | 593,309 |
| Philadelphia Hospitals and Higher Education Facilities Authority Revenue, The Children’s Hospital of | | | | |
| Philadelphia Project, Series C, 5.00%, 7/01/41 | | 5,000,000 | | 5,473,000 |
| Philadelphia Housing Authority Capital Fund Program Revenue, Series A, AGMC Insured, 5.00%, | | | | |
| 12/01/21 | | 5,000,000 | | 5,077,150 |
| Philadelphia Municipal Authority Lease Revenue, | | | | |
| 6.50%, 4/01/34 | | 3,250,000 | | 3,569,215 |
| 6.50%, 4/01/39 | | 2,500,000 | | 2,742,850 |
| Philadelphia School District GO, | | | | |
| Series E, Pre-Refunded, 6.00%, 9/01/38 | | 4,905,000 | | 5,271,698 |
| Series E, Pre-Refunded, 6.00%, 9/01/38 | | 95,000 | | 102,028 |
| Philadelphia Water and Wastewater Revenue, | | | | |
| Series A, 5.00%, 7/01/40. | | 10,000,000 | | 11,084,400 |
| Series A, 5.00%, 1/01/41. | | 13,000,000 | | 14,159,080 |
| Series A, 5.125%, 1/01/43 | | 5,000,000 | | 5,502,350 |
| Series A, 5.00%, 7/01/45. | | 5,000,000 | | 5,521,650 |
| Series A, Pre-Refunded, 5.25%, 1/01/36 | | 3,000,000 | | 3,229,740 |
| Series C, AGMC Insured, 5.00%, 8/01/35 | | 7,000,000 | | 7,693,840 |
| Pine-Richland School District GO, Allegheny County, Assured Guaranty, 5.00%, 3/01/39 | | 15,130,000 | | 16,531,341 |
| Pocono Mountains Industrial Park Authority Hospital Revenue, St. Luke’s Hospital, Monroe Project, Series | | | | |
| A, 5.00%, 8/15/40 | | 5,000,000 | | 5,348,050 |
| Reading GO, | | | | |
| AGMC Insured, Pre-Refunded, 6.00%, 11/01/28 | | 590,000 | | 638,675 |
| Refunding, AGMC Insured, 6.00%, 11/01/28 | | 1,410,000 | | 1,519,007 |
| Scranton School District GO, | | | | |
| Series A, AGMC Insured, 5.00%, 7/15/38 | | 5,430,000 | | 5,555,433 |
| Series C, AGMC Insured, 5.00%, 7/15/38 | | 5,000,000 | | 5,115,500 |
| Scranton-Lackawanna Health and Welfare Authority Revenue, | | | | |
| University of Scranton, Refunding, 5.00%, 11/01/37 | | 4,000,000 | | 4,377,960 |
| University of Scranton, XLCA Insured, Pre-Refunded, 5.00%, 11/01/37 | | 8,125,000 | | 8,351,119 |
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franklintempleton.com
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| |
| Municipal Bonds (continued) | | | | |
| Pennsylvania (continued) | | | | |
| Snyder County Higher Education Authority University Revenue, Susquehanna University Project, 5.00%, | | | | |
| 1/01/38 | $ | 4,000,000 | $ | 4,170,880 |
| South Fork Municipal Authority Hospital Revenue, Conemaugh Valley Memorial Hospital, Series B, | | | | |
| Assured Guaranty, Pre-Refunded, 5.375%, 7/01/35 | | 10,000,000 | | 11,294,800 |
| State College Area School District GO, 5.00%, 3/15/40 | | 16,400,000 | | 18,476,404 |
| State Public School Building Authority Revenue, | | | | |
| Commonwealth of Pennsylvania, School Lease, The School District of Philadelphia Project, | | | | |
| Refunding, Series A, AGMC Insured, 5.00%, 6/01/32 | | 7,095,000 | | 7,800,740 |
| Commonwealth of Pennsylvania, School Lease, The School District of Philadelphia Project, | | | | |
| Refunding, Series A, AGMC Insured, 5.00%, 6/01/33 | | 3,000,000 | | 3,280,500 |
| State Public School Building Authority School Lease Revenue, The School District of the City of | | | | |
| Harrisburg Project, Series A, Assured Guaranty, Pre-Refunded, 5.00%, 11/15/33 | | 5,000,000 | | 5,428,349 |
| Susquehanna Area Regional Airport Authority Airport System Revenue, Series A, 6.50%, 1/01/38 | | 4,000,000 | | 4,109,400 |
| Swarthmore Borough Authority College Revenue, Swarthmore College Project, 5.00%, 9/15/43 | | 1,000,000 | | 1,133,700 |
| Swarthmore Borough Authority Revenue, Swarthmore College, Series B, 4.00%, 9/15/46 | | 5,345,000 | | 5,485,734 |
| Union County Higher Educational Facilities Financing Authority University Revenue, Bucknell University, | | | | |
| Series A, 5.00%, 4/01/42 | | 5,000,000 | | 5,582,400 |
| University of Pittsburgh of the Commonwealth System of Higher Education Revenue, | | | | |
| University Capital Project, Series B, Pre-Refunded, 5.00%, 9/15/31 | | 10,000,000 | | 10,796,800 |
| University Capital Project, Series C, Pre-Refunded, 5.00%, 9/15/35 | | 5,000,000 | | 5,484,500 |
| Washington County IDA College Revenue, | | | | |
| Washington and Jefferson College, Refunding, 5.25%, 11/01/30 | | 7,525,000 | | 8,314,222 |
| Washington and Jefferson College, Refunding, 5.00%, 11/01/36 | | 8,470,000 | | 9,214,513 |
| West Mifflin Area School District GO, Allegheny County, AGMC Insured, Pre-Refunded, 5.125%, 4/01/31 . | | 1,000,000 | | 1,065,060 |
| Westmoreland County Municipal Authority Revenue, Municipal Service, Refunding, BAM Insured, 5.00%, | | | | |
| 8/15/42 | | 7,500,000 | | 8,293,575 |
| Whitehall-Coplay School District GO, Lehigh County, Series A, AGMC Insured, 5.375%, 11/15/34. | | 6,000,000 | | 6,438,900 |
| Wilkes-Barre Finance Authority Revenue, Wilkes University Project, Refunding, 5.00%, 3/01/37 | | 1,810,000 | | 1,810,000 |
| | | | | 1,247,595,287 |
| |
| |
| U.S. Territories 3.2% | | | | |
| Puerto Rico 3.2% | | | | |
| Puerto Rico Electric Power Authority Power Revenue, | | | | |
| Refunding, Series A, 5.00%, 7/01/42 | | 5,000,000 | | 3,262,500 |
| Series TT, 5.00%, 7/01/32 | | 5,100,000 | | 3,327,750 |
| Series XX, 5.25%, 7/01/40 | | 16,020,000 | | 10,453,050 |
| Puerto Rico Sales Tax FICO Sales Tax Revenue, | | | | |
| First Subordinate, Series A, 5.375%, 8/01/39. | | 6,000,000 | | 2,835,000 |
| First Subordinate, Series A, 6.00%, 8/01/42 | | 34,000,000 | | 17,510,000 |
| First Subordinate, Series C, 5.50%, 8/01/40 | | 9,000,000 | | 4,387,500 |
| | | | | 41,775,800 |
| Total Municipal Bonds before Short Term Investments (Cost $1,255,511,164) | | | | 1,289,371,087 |
franklintempleton.com
Annual Report
127
FRANKLIN TAX-FREE TRUST
STATEMENT OF INVESTMENTS
| | | | |
| Franklin Pennsylvania Tax-Free Income Fund (continued) | | | | |
| | | Principal | | |
| | | Amount | | Value |
| Short Term Investments 0.5% | | | | |
| Municipal Bonds 0.5% | | | | |
| Pennsylvania 0.5% | | | | |
| a Emmaus General Authority Revenue, Weekly VRDN and Put, 0.67%, 12/01/28 | $ | 2,200,000 | $ | 2,200,000 |
| a Geisinger Authority Revenue, Geisinger Health System, Series A, Daily VRDN and Put, 0.57%, 10/01/43 . | | 4,500,000 | | 4,500,000 |
| Total Short Term Investments (Cost $6,700,000) | | | | 6,700,000 |
| Total Investments (Cost $1,262,211,164) 98.8% | | | | 1,296,071,087 |
| Other Assets, less Liabilities 1.2%. | | | | 15,261,543 |
| Net Assets 100.0% | | | $ | 1,311,332,630 |
See Abbreviations on page 149.
aVariable rate demand notes (VRDNs) are tax-exempt obligations which contain a floating or variable interest rate adjustment formula and an unconditional right of demand to
receive payment of the principal balance plus accrued interest at specified dates. The coupon rate shown represents the rate at period end.
128 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| |
| |
| |
| |
| Financial Statements | | | | | | | | | | | | |
| |
| |
| Statements of Assets and Liabilities | | | | | | | | | | | | |
| February 28, 2017 | | | | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Arizona | | | Colorado | | | Connecticut | | | Michigan | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| Assets: | | | | | | | | | | | | |
| Investments in securities: | | | | | | | | | | | | |
| Cost | $ | 937,140,341 | | $ | 717,885,899 | | $ | 307,036,777 | | $ | 1,058,437,352 | |
| Value | $ | 970,848,607 | | $ | 734,450,162 | | $ | 309,998,083 | | $ | 1,058,763,679 | |
| Cash | | 59,963 | | | 31,901 | | | 86,834 | | | 70,350 | |
| Receivables: | | | | | | | | | | | | |
| Investment securities sold | | — | | | — | | | — | | | 1,165,023 | |
| Capital shares sold | | 1,157,541 | | | 837,913 | | | 92,162 | | | 1,650,995 | |
| Interest. | | 9,536,131 | | | 9,551,094 | | | 2,768,005 | | | 14,506,093 | |
| Other assets | | 979 | | | 745 | | | 312 | | | 1,071 | |
| Total assets. | | 981,603,221 | | | 744,871,815 | | | 312,945,396 | | | 1,076,157,211 | |
| Liabilities: | | | | | | | | | | | | |
| Payables: | | | | | | | | | | | | |
| Investment securities purchased | | — | | | — | | | 1,104,840 | | | 1,260,444 | |
| Capital shares redeemed | | 1,640,635 | | | 1,890,052 | | | 669,322 | | | 2,204,881 | |
| Management fees | | 387,285 | | | 298,781 | | | 137,305 | | | 421,906 | |
| Distribution fees. | | 118,356 | | | 100,117 | | | 48,112 | | | 136,680 | |
| Transfer agent fees | | 55,957 | | | 49,319 | | | 22,127 | | | 76,134 | |
| Distributions to shareholders | | 435,398 | | | 164,373 | | | 166,977 | | | 405,968 | |
| Accrued expenses and other liabilities | | 43,623 | | | 42,615 | | | 25,242 | | | 68,315 | |
| Total liabilities | | 2,681,254 | | | 2,545,257 | | | 2,173,925 | | | 4,574,328 | |
| Net assets, at value | $ | 978,921,967 | | $ | 742,326,558 | | $ | 310,771,471 | | $ | 1,071,582,883 | |
| Net assets consist of: | | | | | | | | | | | | |
| Paid-in capital | $ | 985,835,996 | | $ | 749,225,241 | | $ | 328,622,454 | | $ | 1,092,766,418 | |
| Undistributed net investment income | | 1,742,964 | | | 1,272,599 | | | 921,122 | | | 1,908,459 | |
| Net unrealized appreciation (depreciation) | | 33,708,266 | | | 16,564,263 | | | 2,961,306 | | | 326,327 | |
| Accumulated net realized gain (loss) | | (42,365,259 | ) | | (24,735,545 | ) | | (21,733,411 | ) | | (23,418,321 | ) |
| Net assets, at value | $ | 978,921,967 | | $ | 742,326,558 | | $ | 310,771,471 | | $ | 1,071,582,883 | |
| Class A: | | | | | | | | | | | | |
| Net assets, at value | $ | 769,834,770 | | $ | 553,316,584 | | $ | 222,705,265 | | $ | 861,662,281 | |
| Shares outstanding | | 71,434,591 | | | 47,466,147 | | | 21,365,356 | | | 74,819,411 | |
| Net asset value per sharea | $ | 10.78 | | $ | 11.66 | | $ | 10.42 | | $ | 11.52 | |
| Maximum offering price per share (net asset value per share ÷ | | | | | | | | | | | | |
| 95.75%) | $ | 11.26 | | $ | 12.18 | | $ | 10.88 | | $ | 12.03 | |
| Class C: | | | | | | | | | | | | |
| Net assets, at value | $ | 118,380,673 | | $ | 115,471,618 | | $ | 61,813,217 | | $ | 142,248,117 | |
| Shares outstanding | | 10,809,999 | | | 9,791,796 | | | 5,884,466 | | | 12,165,500 | |
| Net asset value and maximum offering price per sharea | $ | 10.95 | | $ | 11.79 | | $ | 10.50 | | $ | 11.69 | |
| Advisor Class: | | | | | | | | | | | | |
| Net assets, at value | $ | 90,706,524 | | $ | 73,538,356 | | $ | 26,252,989 | | $ | 67,672,485 | |
| Shares outstanding | | 8,393,278 | | | 6,308,699 | | | 2,520,410 | | | 5,857,701 | |
| Net asset value and maximum offering price per share | $ | 10.81 | | $ | 11.66 | | $ | 10.42 | | $ | 11.55 | |
| |
| |
| aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable. | | | | | | | | | | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 129
| | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Assets and Liabilities (continued) | | | | | | | | | | | | |
| February 28, 2017 | | | | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Minnesota | | | Ohio | | | Oregon | | | Pennsylvania | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| Assets: | | | | | | | | | | | | |
| Investments in securities: | | | | | | | | | | | | |
| Cost | $ | 1,048,900,403 | | $ | 1,529,805,708 | | $ | 1,208,985,076 | | $ | 1,262,211,164 | |
| Value | $ | 1,086,149,290 | | $ | 1,589,502,363 | | $ | 1,253,451,583 | | $ | 1,296,071,087 | |
| Cash | | 567,343 | | | 97,980 | | | 27,577,193 | | | 95,070 | |
| Receivables: | | | | | | | | | | | | |
| Investment securities sold | | 5,585,505 | | | — | | | — | | | — | |
| Capital shares sold | | 1,242,704 | | | 1,169,649 | | | 1,947,776 | | | 1,789,119 | |
| Interest | | 10,073,631 | | | 16,054,895 | | | 12,608,429 | | | 17,211,174 | |
| Other assets | | 1,084 | | | 1,602 | | | 1,246 | | | 1,306 | |
| Total assets | | 1,103,619,557 | | | 1,606,826,489 | | | 1,295,586,227 | | | 1,315,167,756 | |
| Liabilities: | | | | | | | | | | | | |
| Payables: | | | | | | | | | | | | |
| Investment securities purchased. | | 12,213,582 | | | 7,839,790 | | | 35,351,272 | | | — | |
| Capital shares redeemed. | | 2,485,785 | | | 2,682,249 | | | 2,604,779 | | | 2,474,276 | |
| Management fees | | 428,319 | | | 618,165 | | | 491,004 | | | 511,703 | |
| Distribution fees | | 164,949 | | | 250,795 | | | 171,970 | | | 213,420 | |
| Transfer agent fees | | 95,335 | | | 143,795 | | | 75,059 | | | 102,456 | |
| Distributions to shareholders | | 165,048 | | | 322,889 | | | 298,256 | | | 459,571 | |
| Accrued expenses and other liabilities | | 49,206 | | | 95,231 | | | 60,833 | | | 73,700 | |
| Total liabilities. | | 15,602,224 | | | 11,952,914 | | | 39,053,173 | | | 3,835,126 | |
| �� Net assets, at value | $ | 1,088,017,333 | | $ | 1,594,873,575 | | $ | 1,256,533,054 | | $ | 1,311,332,630 | |
| Net assets consist of: | | | | | | | | | | | | |
| Paid-in capital | $ | 1,061,206,805 | | $ | 1,569,304,311 | | $ | 1,267,341,791 | | $ | 1,331,365,590 | |
| Undistributed net investment income. | | 558,759 | | | 1,372,978 | | | 1,502,275 | | | 4,270,822 | |
| Net unrealized appreciation (depreciation) | | 37,248,887 | | | 59,696,655 | | | 44,466,507 | | | 33,859,923 | |
| Accumulated net realized gain (loss) | | (10,997,118 | ) | | (35,500,369 | ) | | (56,777,519 | ) | | (58,163,705 | ) |
| Net assets, at value | $ | 1,088,017,333 | | $ | 1,594,873,575 | | $ | 1,256,533,054 | | $ | 1,311,332,630 | |
| Class A: | | | | | | | | | | | | |
| Net assets, at value | $ | 695,039,897 | | $ | 1,120,704,044 | | $ | 962,952,845 | | $ | 942,319,634 | |
| Shares outstanding | | 56,665,621 | | | 89,230,081 | | | 83,045,879 | | | 93,159,201 | |
| Net asset value per sharea | $ | 12.27 | | $ | 12.56 | | $ | 11.60 | | $ | 10.12 | |
| Maximum offering price per share (net asset value per | | | | | | | | | | | | |
| share ÷ 95.75%) | $ | 12.81 | | $ | 13.12 | | $ | 12.11 | | $ | 10.57 | |
| Class C: | | | | | | | | | | | | |
| Net assets, at value | $ | 223,444,391 | | $ | 330,566,290 | | $ | 197,041,220 | | $ | 283,259,803 | |
| Shares outstanding | | 18,021,382 | | | 25,978,704 | | | 16,741,774 | | | 27,661,511 | |
| Net asset value and maximum offering price per sharea | $ | 12.40 | | $ | 12.72 | | $ | 11.77 | | $ | 10.24 | |
| Advisor Class: | | | | | | | | | | | | |
| Net assets, at value | $ | 169,533,045 | | $ | 143,603,241 | | $ | 96,538,989 | | $ | 85,753,193 | |
| Shares outstanding | | 13,806,450 | | | 11,423,110 | | | 8,316,075 | | | 8,467,176 | |
| Net asset value and maximum offering price per share | $ | 12.28 | | $ | 12.57 | | $ | 11.61 | | $ | 10.13 | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
130 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL STATEMENTS | |
| |
| |
| Statements of Operations | | | | | | | | | | | | |
| for the year ended February 28, 2017 | | | | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Arizona | | | Colorado | | | Connecticut | | | Michigan | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| Investment income: | | | | | | | | | | | | |
| Interest. | $ | 41,211,951 | | $ | 32,280,200 | | $ | 13,726,642 | | $ | 44,582,136 | |
| Expenses: | | | | | | | | | | | | |
| Management fees (Note 3a) | | 4,769,830 | | | 3,608,473 | | | 1,739,045 | | | 5,155,535 | |
| Distribution fees: (Note 3c) | | | | | | | | | | | | |
| Class A. | | 811,254 | | | 569,701 | | | 244,132 | | | 898,347 | |
| Class C | | 786,830 | | | 757,808 | | | 431,643 | | | 947,472 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | | | | |
| Class A. | | 277,973 | | | 238,090 | | | 102,974 | | | 424,833 | |
| Class C | | 41,479 | | | 48,727 | | | 28,007 | | | 68,930 | |
| Advisor Class | | 24,543 | | | 24,583 | | | 9,110 | | | 21,607 | |
| Custodian fees | | 8,340 | | | 6,172 | | | 2,685 | | | 8,915 | |
| Reports to shareholders | | 42,053 | | | 41,296 | | | 23,227 | | | 66,526 | |
| Registration and filing fees | | 21,385 | | | 18,313 | | | 13,612 | | | 39,131 | |
| Professional fees | | 73,745 | | | 94,899 | | | 65,909 | | | 140,501 | |
| Trustees’ fees and expenses | | 5,320 | | | 3,786 | | | 1,795 | | | 5,806 | |
| Other | | 65,676 | | | 60,635 | | | 32,820 | | | 84,057 | |
| Total expenses | | 6,928,428 | | | 5,472,483 | | | 2,694,959 | | | 7,861,660 | |
| Net investment income | | 34,283,523 | | | 26,807,717 | | | 11,031,683 | | | 36,720,476 | |
| Realized and unrealized gains (losses): | | | | | | | | | | | | |
| Net realized gain (loss) from investments | | (2,425,011 | ) | | (4,235,549 | ) | | 18,221 | | | (9,548,801 | ) |
| Net change in unrealized appreciation (depreciation) on | | | | | | | | | | | | |
| investments. | | (26,538,485 | ) | | (14,628,581 | ) | | (8,567,551 | ) | | (14,769,293 | ) |
| Net realized and unrealized gain (loss) | | (28,963,496 | ) | | (18,864,130 | ) | | (8,549,330 | ) | | (24,318,094 | ) |
| Net increase (decrease) in net assets resulting from operations | $ | 5,320,027 | | $ | 7,943,587 | | $ | 2,482,353 | | $ | 12,402,382 | |
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 131
| | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Operations (continued) | | | | | | | | | | | | |
| for the year ended February 28, 2017 | | | | | | | | | | | | |
| |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Minnesota | | | Ohio | | | Oregon | | | Pennsylvania | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| Investment income: | | | | | | | | | | | | |
| Interest | $ | 39,752,491 | | $ | 62,249,589 | | $ | 50,063,133 | | $ | 58,348,021 | |
| Expenses: | | | | | | | | | | | | |
| Management fees (Note 3a) | | 5,177,782 | | | 7,605,717 | | | 5,890,086 | | | 6,243,294 | |
| Distribution fees: (Note 3c) | | | | | | | | | | | | |
| Class A | | 727,895 | | | 1,195,781 | | | 986,642 | | | 979,213 | |
| Class C | | 1,468,810 | | | 2,180,356 | | | 1,291,541 | | | 1,874,594 | |
| Transfer agent fees: (Note 3e) | | | | | | | | | | | | |
| Class A | | 398,692 | | | 588,755 | | | 378,376 | | | 471,535 | |
| Class C | | 123,757 | | | 165,139 | | | 76,196 | | | 138,872 | |
| Advisor Class | | 76,476 | | | 50,504 | | | 25,009 | | | 30,697 | |
| Custodian fees | | 9,178 | | | 13,722 | | | 10,370 | | | 10,934 | |
| Reports to shareholders. | | 53,920 | | | 100,226 | | | 53,539 | | | 84,153 | |
| Registration and filing fees | | 34,598 | | | 43,053 | | | 17,462 | | | 20,359 | |
| Professional fees | | 43,473 | | | 48,182 | | | 86,599 | | | 140,198 | |
| Trustees’ fees and expenses | | 5,801 | | | 8,659 | | | 6,596 | | | 7,067 | |
| Other | | 84,400 | | | 97,049 | | | 85,982 | | | 90,161 | |
| Total expenses | | 8,204,782 | | | 12,097,143 | | | 8,908,398 | | | 10,091,077 | |
| Net investment income | | 31,547,709 | | | 50,152,446 | | | 41,154,735 | | | 48,256,944 | |
| Realized and unrealized gains (losses): | | | | | | | | | | | | |
| Net realized gain (loss) from investments | | 148,317 | | | 3,543,771 | | | (4,282,919 | ) | | (5,382,806 | ) |
| Net change in unrealized appreciation (depreciation) on | | | | | | | | | | | | |
| investments | | (32,958,290 | ) | | (48,565,678 | ) | | (29,228,138 | ) | | (23,695,785 | ) |
| Net realized and unrealized gain (loss) | | (32,809,973 | ) | | (45,021,907 | ) | | (33,511,057 | ) | | (29,078,591 | ) |
| Net increase (decrease) in net assets resulting from operations | $ | (1,262,264 | ) | $ | 5,130,539 | | $ | 7,643,678 | | $ | 19,178,353 | |
132 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL STATEMENTS | |
| |
| |
| Statements of Changes in Net Assets | | | | | | | | | | | | |
| |
| | | Franklin Arizona | | | Franklin Colorado | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | Year Ended February 28, | | | Year Ended February 28, | |
| | | 2017 | | | 2016 | a | | 2017 | | | 2016 | a |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 34,283,523 | | $ | 34,710,193 | | $ | 26,807,717 | | $ | 26,352,395 | |
| Net realized gain (loss) | | (2,425,011 | ) | | (18,382,512 | ) | | (4,235,549 | ) | | 270,879 | |
| Net change in unrealized appreciation (depreciation) | | (26,538,485 | ) | | 5,697,611 | | | (14,628,581 | ) | | (11,775,136 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations | | 5,320,027 | | | 22,025,292 | | | 7,943,587 | | | 14,848,138 | |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (27,754,363 | ) | | (29,515,256 | ) | | (20,966,161 | ) | | (20,623,649 | ) |
| Class C. | | (3,399,047 | ) | | (3,361,094 | ) | | (3,588,003 | ) | | (3,506,195 | ) |
| Advisor Class | | (2,517,420 | ) | | (1,945,389 | ) | | (2,221,484 | ) | | (1,823,837 | ) |
| Total distributions to shareholders | | (33,670,830 | ) | | (34,821,739 | ) | | (26,775,648 | ) | | (25,953,681 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (7,095,706 | ) | | (5,611,014 | ) | | 14,540,649 | | | 12,685,132 | |
| Class C. | | 8,471,828 | | | 7,109,658 | | | 6,939,231 | | | 3,592,645 | |
| Advisor Class | | 35,343,590 | | | 9,596,040 | | | 24,526,227 | | | 6,305,800 | |
| Total capital share transactions | | 36,719,712 | | | 11,094,684 | | | 46,006,107 | | | 22,583,577 | |
| Net increase (decrease) in net assets | | 8,368,909 | | | (1,701,763 | ) | | 27,174,046 | | | 11,478,034 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 970,553,058 | | | 972,254,821 | | | 715,152,512 | | | 703,674,478 | |
| End of year | $ | 978,921,967 | | $ | 970,553,058 | | $ | 742,326,558 | | $ | 715,152,512 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 1,742,964 | | $ | 1,132,228 | | $ | 1,272,599 | | $ | 1,250,949 | |
aFor the year ended February 29.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 133
| | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | | | | | | | |
| |
| | | Franklin Connecticut | | | Franklin Michigan | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | Year Ended February 28, | | | Year Ended February 28, | |
| | | 2017 | | | 2016 | a | | 2017 | | | 2016 | a |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 11,031,683 | | $ | 12,547,137 | | $ | 36,720,476 | | $ | 38,119,246 | |
| Net realized gain (loss) | | 18,221 | | | (2,584,573 | ) | | (9,548,801 | ) | | 152,459 | |
| Net change in unrealized appreciation (depreciation) | | (8,567,551 | ) | | (3,274,341 | ) | | (14,769,293 | ) | | (24,044,137 | ) |
| Net increase (decrease) in net assets resulting from | | | | | | | | | | | | |
| operations | | 2,482,353 | | | 6,688,223 | | | 12,402,382 | | | 14,227,568 | |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (8,261,296 | ) | | (9,622,253 | ) | | (31,200,232 | ) | | (31,918,830 | ) |
| Class C | | (1,857,149 | ) | | (2,127,375 | ) | | (4,174,362 | ) | | (4,204,644 | ) |
| Advisor Class | | (752,290 | ) | | (783,436 | ) | | (1,616,095 | ) | | (1,360,718 | ) |
| Total distributions to shareholders | | (10,870,735 | ) | | (12,533,064 | ) | | (36,990,689 | ) | | (37,484,192 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (24,113,740 | ) | | (24,622,072 | ) | | (14,936,884 | ) | | (37,218,288 | ) |
| Class C | | (4,847,400 | ) | | (4,121,097 | ) | | 20,592 | | | (433,704 | ) |
| Advisor Class | | 5,543,976 | | | 1,192,084 | | | 28,771,520 | | | 4,574,118 | |
| Total capital share transactions | | (23,417,164 | ) | | (27,551,085 | ) | | 13,855,228 | | | (33,077,874 | ) |
| Net increase (decrease) in net assets | | (31,805,546 | ) | | (33,395,926 | ) | | (10,733,079 | ) | | (56,334,498 | ) |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 342,577,017 | | | 375,972,943 | | | 1,082,315,962 | | | 1,138,650,460 | |
| End of year. | $ | 310,771,471 | | $ | 342,577,017 | | $ | 1,071,582,883 | | $ | 1,082,315,962 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year. | $ | 921,122 | | $ | 764,962 | | $ | 1,908,459 | | $ | 2,372,694 | |
aFor the year ended February 29.
134 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
| | | | | | | | | | | | |
| | | | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | | | | | FINANCIAL STATEMENTS | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | | | | | | | |
| |
| | | Franklin Minnesota | | | Franklin Ohio | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | Year Ended February 28, | | | Year Ended February 28, | |
| | | 2017 | | | 2016 | a | | 2017 | | | 2016 | a |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 31,547,709 | | $ | 32,301,000 | | $ | 50,152,446 | | $ | 51,183,911 | |
| Net realized gain (loss) | | 148,317 | | | (23,293 | ) | | 3,543,771 | | | 1,301,401 | |
| Net change in unrealized appreciation (depreciation) | | (32,958,290 | ) | | (4,860,950 | ) | | (48,565,678 | ) | | (1,609,090 | ) |
| Net increase (decrease) in net assets resulting | | | | | | | | | | | | |
| from operations | | (1,262,264 | ) | | 27,416,757 | | | 5,130,539 | | | 50,876,222 | |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (21,864,587 | ) | | (22,690,185 | ) | | (38,215,219 | ) | | (39,989,539 | ) |
| Class C | | (5,442,955 | ) | | (5,434,117 | ) | | (8,697,787 | ) | | (8,975,392 | ) |
| Advisor Class | | (4,322,349 | ) | | (4,128,321 | ) | | (3,359,379 | ) | | (2,702,675 | ) |
| Total distributions to shareholders | | (31,629,891 | ) | | (32,252,623 | ) | | (50,272,385 | ) | | (51,667,606 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | (14,505,341 | ) | | 14,726,957 | | | (32,847,434 | ) | | 26,523,104 | |
| Class C | | 12,283,388 | | | 7,026,977 | | | 17,312,799 | | | 10,512,758 | |
| Advisor Class | | 52,327,393 | | | (903,464 | ) | | 66,393,085 | | | 6,841,577 | |
| Total capital share transactions | | 50,105,440 | | | 20,850,470 | | | 50,858,450 | | | 43,877,439 | |
| Net increase (decrease) in net assets | | 17,213,285 | | | 16,014,604 | | | 5,716,604 | | | 43,086,055 | |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 1,070,804,048 | | | 1,054,789,444 | | | 1,589,156,971 | | | 1,546,070,916 | |
| End of year | $ | 1,088,017,333 | | $ | 1,070,804,048 | | $ | 1,594,873,575 | | $ | 1,589,156,971 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 558,759 | | $ | 823,845 | | $ | 1,372,978 | | $ | 1,808,873 | |
aFor the year ended February 29.
franklintempleton.com
The accompanying notes are an integral part of these financial statements. | Annual Report 135
| | | | | | | | | | | | |
| FRANKLIN TAX-FREE TRUST | | | | | | | | | | | | |
| FINANCIAL STATEMENTS | | | | | | | | | | | | |
| |
| |
| Statements of Changes in Net Assets (continued) | | | | | | | | | | | | |
| |
| | | Franklin Oregon | | | Franklin Pennsylvania | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | Year Ended February 28, | | | Year Ended February 28, | |
| | | 2017 | | | 2016 | a | | 2017 | | | 2016 | a |
| Increase (decrease) in net assets: | | | | | | | | | | | | |
| Operations: | | | | | | | | | | | | |
| Net investment income | $ | 41,154,735 | | $ | 40,802,641 | | $ | 48,256,944 | | $ | 49,484,460 | |
| Net realized gain (loss) | | (4,282,919 | ) | | (17,617,662 | ) | | (5,382,806 | ) | | (13,597,118 | ) |
| Net change in unrealized appreciation (depreciation) | | (29,228,138 | ) | | 5,561,749 | | | (23,695,785 | ) | | (10,645,372 | ) |
| Net increase (decrease) in net assets resulting | | | | | | | | | | | | |
| from operations | | 7,643,678 | | | 28,746,728 | | | 19,178,353 | | | 25,241,970 | |
| Distributions to shareholders from: | | | | | | | | | | | | |
| Net investment income: | | | | | | | | | | | | |
| Class A | | (33,229,698 | ) | | (33,895,481 | ) | | (35,941,849 | ) | | (37,494,624 | ) |
| Class C | | (5,480,046 | ) | | (5,517,511 | ) | | (8,844,832 | ) | | (9,070,810 | ) |
| Advisor Class | | (2,253,961 | ) | | (1,867,443 | ) | | (2,398,738 | ) | | (1,992,321 | ) |
| Total distributions to shareholders | | (40,963,705 | ) | | (41,280,435 | ) | | (47,185,419 | ) | | (48,557,755 | ) |
| Capital share transactions: (Note 2) | | | | | | | | | | | | |
| Class A | | 28,510,410 | | | 19,478,407 | | | (2,589,605 | ) | | (18,546,978 | ) |
| Class C | | 12,176,238 | | | 5,350,053 | | | 6,619,909 | | | 7,353,412 | |
| Advisor Class | | 46,995,666 | | | 2,186,658 | | | 34,481,884 | | | 4,365,345 | |
| Total capital share transactions | | 87,682,314 | | | 27,015,118 | | | 38,512,188 | | | (6,828,221 | ) |
| Net increase (decrease) in net assets | | 54,362,287 | | | 14,481,411 | | | 10,505,122 | | | (30,144,006 | ) |
| Net assets: | | | | | | | | | | | | |
| Beginning of year | | 1,202,170,767 | | | 1,187,689,356 | | | 1,300,827,508 | | | 1,330,971,514 | |
| End of year | $ | 1,256,533,054 | | $ | 1,202,170,767 | | $ | 1,311,332,630 | | $ | 1,300,827,508 | |
| Undistributed net investment income included in net assets: | | | | | | | | | | | | |
| End of year | $ | 1,502,275 | | $ | 1,373,844 | | $ | 4,270,822 | | $ | 3,198,288 | |
aFor the year ended February 29.
136 Annual Report | The accompanying notes are an integral part of these financial statements.
franklintempleton.com
FRANKLIN TAX-FREE TRUST
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Franklin Tax-Free Trust (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of twenty-two separate funds, eight of which are included in this report (Funds) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The financial statements of the remaining funds in the Trust are presented separately. The Funds offer three classes of shares: Class A, Class C, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.
The following summarizes the Funds’ significant accounting policies.
a. Financial Instrument Valuation
The Funds’ investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Funds calculate the net asset value (NAV) per share as of 4 p.m. Eastern time each day the New York Stock Exchange (NYSE) is open for trading. Under compliance policies and procedures approved by the Trust’s Board of Trustees (the Board), the Funds’ administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Funds’ valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Funds to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Funds’ pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value.
The Funds have procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.
b. Securities Purchased on a When-Issued or Delayed Delivery Basis
Certain or all Funds purchase securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of holding the securities, they may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
franklintempleton.com
Annual Report
137
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting
Policies (continued)
c. Income Taxes
It is each Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. Each Fund intends to distribute to shareholders substantially all of its income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
Each Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of February 28, 2017, each Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
d. 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. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividends from net investment income are normally declared daily; these dividends may be reinvested or paid monthly to shareholders. Distributions from realized capital gains and other distributions, if any, are recorded on the ex-dividend date. Distributions to shareholders are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
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 of the Trust. Fund specific expenses are charged directly to the Fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, not including class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.
e. Insurance
The scheduled payments of interest and principal for each insured municipal security in the Trust are insured by either a new issue insurance policy or a secondary insurance policy. Some municipal securities in the Funds are secured 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 or paid by a third party.
Insurance companies typically insure municipal bonds that tend to be of very high quality, with the majority of underlying municipal bonds rated A or better. However, an event involving an insurer could have an adverse effect on the value of the securities insured by that insurance company. There can be no assurance the insurer will be able to fulfill its obligations under the terms of the policy.
f. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP 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 expenses during the reporting period. Actual results could differ from those estimates.
g. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Funds, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
138 Annual Report
franklintempleton.com
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
2. Shares of Beneficial Interest
At February 28, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Funds’ shares were as follows:
| | | | | | | | | | |
| | Franklin Arizona | | Franklin Colorado | |
| | Tax-Free Income Fund | | Tax-Free Income Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 9,237,877 | | $ | 102,364,427 | | 7,242,713 | | $ | 86,248,755 | |
| Shares issued in reinvestment of distributions | 2,125,764 | | | 23,459,688 | | 1,627,285 | | | 19,343,269 | |
| Shares redeemed | (12,132,210 | ) | | (132,919,821 | ) | (7,727,443 | ) | | (91,051,375 | ) |
| Net increase (decrease) | (768,569 | ) | $ | (7,095,706 | ) | 1,142,555 | | $ | 14,540,649 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 7,814,439 | | $ | 86,276,363 | | 5,328,564 | | $ | 63,493,478 | |
| Shares issued in reinvestment of distributions | 2,227,478 | | | 24,552,064 | | 1,576,345 | | | 18,768,039 | |
| Shares redeemed | (10,566,055 | ) | | (116,439,441 | ) | (5,840,995 | ) | | (69,576,385 | ) |
| Net increase (decrease) | (524,138 | ) | $ | (5,611,014 | ) | 1,063,914 | | $ | 12,685,132 | |
| Class C Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 2,365,215 | | $ | 26,698,263 | | 1,681,407 | | $ | 20,327,936 | |
| Shares issued in reinvestment of distributions | 272,122 | | | 3,049,633 | | 281,326 | | | 3,381,970 | |
| Shares redeemed | (1,909,414 | ) | | (21,276,068 | ) | (1,402,403 | ) | | (16,770,675 | ) |
| Net increase (decrease) | 727,923 | | $ | 8,471,828 | | 560,330 | | $ | 6,939,231 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 2,078,439 | | $ | 23,293,031 | | 1,416,306 | | $ | 17,068,954 | |
| Shares issued in reinvestment of distributions | 265,797 | | | 2,973,921 | | 269,961 | | | 3,249,018 | |
| Shares redeemed | (1,712,687 | ) | | (19,157,294 | ) | (1,388,807 | ) | | (16,725,327 | ) |
| Net increase (decrease) | 631,549 | | $ | 7,109,658 | | 297,460 | | $ | 3,592,645 | |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 4,756,945 | | $ | 52,442,293 | | 3,276,844 | | $ | 38,742,143 | |
| Shares issued in reinvestment of distributions | 164,917 | | | 1,820,725 | | 168,230 | | | 1,996,514 | |
| Shares redeemed | (1,723,987 | ) | | (18,919,428 | ) | (1,373,600 | ) | | (16,212,430 | ) |
| Net increase (decrease) | 3,197,875 | | $ | 35,343,590 | | 2,071,474 | | $ | 24,526,227 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 1,982,184 | | $ | 21,932,274 | | 1,233,888 | | $ | 14,714,278 | |
| Shares issued in reinvestment of distributions | 120,703 | | | 1,333,368 | | 132,482 | | | 1,576,906 | |
| Shares redeemed | (1,235,241 | ) | | (13,669,602 | ) | (837,637 | ) | | (9,985,384 | ) |
| Net increase (decrease) | 867,646 | | $ | 9,596,040 | | 528,733 | | $ | 6,305,800 | |
franklintempleton.com
Annual Report
139
FRANKLIN TAX-FREE TRUST
NOTES TO FINANCIAL STATEMENTS
| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin Connecticut | | Franklin Michigan | |
| | Tax-Free Income Fund | | Tax-Free Income Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 1,622,002 | | $ | 17,341,618 | | 6,459,022 | | $ | 76,066,528 | |
| Shares issued in reinvestment of distributions | 637,140 | | | 6,791,610 | | 2,251,666 | | | 26,484,885 | |
| Shares redeemed | (4,555,924 | ) | | (48,246,968 | ) | (10,035,981 | ) | | (117,488,297 | ) |
| Net increase (decrease) | (2,296,782 | ) | $ | (24,113,740 | ) | (1,325,293 | ) | $ | (14,936,884 | ) |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 1,647,223 | | $ | 17,558,558 | | 4,525,783 | | $ | 53,385,088 | |
| Shares issued in reinvestment of distributions | 727,255 | | | 7,736,395 | | 2,245,230 | | | 26,435,783 | |
| Shares redeemed | (4,688,972 | ) | | (49,917,025 | ) | (9,945,943 | ) | | (117,039,159 | ) |
| Net increase (decrease) | (2,314,494 | ) | $ | (24,622,072 | ) | (3,174,930 | ) | $ | (37,218,288 | ) |
| Class C Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 488,307 | | $ | 5,280,801 | | 1,762,233 | | $ | 21,071,556 | |
| Shares issued in reinvestment of distributions | 141,126 | | | 1,515,449 | | 308,143 | | | 3,678,444 | |
| Shares redeemed | (1,086,835 | ) | | (11,643,650 | ) | (2,076,800 | ) | | (24,729,408 | ) |
| Net increase (decrease) | (457,402 | ) | $ | (4,847,400 | ) | (6,424 | ) | $ | 20,592 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 555,776 | | $ | 5,965,233 | | 1,334,158 | | $ | 15,958,953 | |
| Shares issued in reinvestment of distributions | 160,393 | | | 1,718,758 | | 302,813 | | | 3,617,302 | |
| Shares redeemed | (1,102,419 | ) | | (11,805,088 | ) | (1,674,087 | ) | | (20,009,959 | ) |
| Net increase (decrease) | (386,250 | ) | $ | (4,121,097 | ) | (37,116 | ) | $ | (433,704 | ) |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 1,126,599 | | $ | 11,865,928 | | 3,745,258 | | $ | 43,561,070 | |
| Shares issued in reinvestment of distributions | 44,211 | | | 470,164 | | 119,547 | | | 1,407,210 | |
| Shares redeemed | (639,735 | ) | | (6,792,116 | ) | (1,380,497 | ) | | (16,196,760 | ) |
| Net increase (decrease) | 531,075 | | $ | 5,543,976 | | 2,484,308 | | $ | 28,771,520 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 408,759 | | $ | 4,355,644 | | 926,757 | | $ | 10,952,343 | |
| Shares issued in reinvestment of distributions | 44,539 | | | 473,356 | | 99,348 | | | 1,172,871 | |
| Shares redeemed | (343,038 | ) | | (3,636,916 | ) | (640,614 | ) | | (7,551,096 | ) |
| Net increase (decrease) | 110,260 | | $ | 1,192,084 | | 385,491 | | $ | 4,574,118 | |
140 Annual Report
franklintempleton.com
| | | | | | | | | | |
| | | | | | | FRANKLIN TAX-FREE TRUST | |
| | | | | NOTES TO FINANCIAL STATEMENTS | |
| |
| |
| |
| |
| | Franklin Minnesota | | Franklin Ohio | |
| | Tax-Free Income Fund | | Tax-Free Income Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 8,156,603 | | $ | 102,076,942 | | 10,587,873 | | $ | 136,479,455 | |
| Shares issued in reinvestment of distributions | 1,626,236 | | | 20,344,858 | | 2,720,099 | | | 34,929,118 | |
| Shares redeemed | (10,998,862 | ) | | (136,927,141 | ) | (16,026,550 | ) | | (204,256,007 | ) |
| Net increase (decrease) | (1,216,023 | ) | $ | (14,505,341 | ) | (2,718,578 | ) | $ | (32,847,434 | ) |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 7,060,587 | | $ | 88,802,386 | | 9,522,757 | | $ | 121,924,716 | |
| Shares issued in reinvestment of distributions | 1,639,646 | | | 20,622,216 | | 2,794,799 | | | 35,749,309 | |
| Shares redeemed | (7,532,903 | ) | | (94,697,645 | ) | (10,264,831 | ) | | (131,150,921 | ) |
| Net increase (decrease) | 1,167,330 | | $ | 14,726,957 | | 2,052,725 | | $ | 26,523,104 | |
| Class C Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 3,399,245 | | $ | 43,148,979 | | 4,055,318 | | $ | 53,011,032 | |
| Shares issued in reinvestment of distributions | 402,154 | | | 5,082,798 | | 618,103 | | | 8,036,545 | |
| Shares redeemed | (2,851,451 | ) | | (35,948,389 | ) | (3,384,895 | ) | | (43,734,778 | ) |
| Net increase (decrease) | 949,948 | | $ | 12,283,388 | | 1,288,526 | | $ | 17,312,799 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 2,700,190 | | $ | 34,300,299 | | 3,070,809 | | $ | 39,778,715 | |
| Shares issued in reinvestment of distributions | 389,438 | | | 4,947,962 | | 632,231 | | | 8,186,390 | |
| Shares redeemed | (2,536,410 | ) | | (32,221,284 | ) | (2,892,892 | ) | | (37,452,347 | ) |
| Net increase (decrease) | 553,218 | | $ | 7,026,977 | | 810,148 | | $ | 10,512,758 | |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 7,033,639 | | $ | 87,704,285 | | 6,898,103 | | $ | 87,905,592 | |
| Shares issued in reinvestment of distributions | 327,395 | | | 4,094,145 | | 221,234 | | | 2,833,912 | |
| Shares redeemed | (3,178,413 | ) | | (39,471,037 | ) | (1,914,258 | ) | | (24,346,419 | ) |
| Net increase (decrease) | 4,182,621 | | $ | 52,327,393 | | 5,205,079 | | $ | 66,393,085 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 2,163,058 | | $ | 27,240,902 | | 1,660,105 | | $ | 21,264,348 | |
| Shares issued in reinvestment of distributions | 310,851 | | | 3,912,303 | | 171,436 | | | 2,194,497 | |
| Shares redeemed | (2,546,226 | ) | | (32,056,669 | ) | (1,294,069 | ) | | (16,617,268 | ) |
| Net increase (decrease) | (72,317 | ) | $ | (903,464 | ) | 537,472 | | $ | 6,841,577 | |
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| | | | | | | | | | |
| 2. Shares of Beneficial Interest (continued) | | | | | | | | | | |
| |
| | Franklin Oregon | | Franklin Pennsylvania | |
| | Tax-Free Income Fund | | Tax-Free Income Fund | |
| | Shares | | | Amount | | Shares | | | Amount | |
| Class A Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 13,156,595 | | $ | 156,419,128 | | 10,758,583 | | $ | 110,974,434 | |
| Shares issued in reinvestment of distributions | 2,541,956 | | | 30,150,645 | | 3,111,483 | | | 32,062,824 | |
| Shares redeemed | (13,416,469 | ) | | (158,059,363 | ) | (14,204,397 | ) | | (145,626,863 | ) |
| Net increase (decrease) | 2,282,082 | | $ | 28,510,410 | | (334,331 | ) | $ | (2,589,605 | ) |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 9,693,283 | | $ | 114,801,497 | | 9,046,291 | | $ | 93,331,408 | |
| Shares issued in reinvestment of distributions | 2,531,731 | | | 29,959,351 | | 3,184,465 | | | 32,802,159 | |
| Shares redeemed | (10,596,108 | ) | | (125,282,441 | ) | (14,043,490 | ) | | (144,680,545 | ) |
| Net increase (decrease) | 1,628,906 | | $ | 19,478,407 | | (1,812,734 | ) | $ | (18,546,978 | ) |
| Class C Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 3,068,701 | | $ | 37,077,563 | | 3,576,800 | | $ | 37,364,636 | |
| Shares issued in reinvestment of distributions | 428,575 | | | 5,157,276 | | 750,267 | | | 7,823,427 | |
| Shares redeemed | (2,508,529 | ) | | (30,058,601 | ) | (3,706,894 | ) | | (38,568,154 | ) |
| Net increase (decrease) | 988,747 | | $ | 12,176,238 | | 620,173 | | $ | 6,619,909 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 2,257,004 | | $ | 27,107,526 | | 3,198,901 | | $ | 33,389,468 | |
| Shares issued in reinvestment of distributions | 424,151 | | | 5,090,911 | | 755,186 | | | 7,868,379 | |
| Shares redeemed | (2,238,514 | ) | | (26,848,384 | ) | (3,253,410 | ) | | (33,904,435 | ) |
| Net increase (decrease) | 442,641 | | $ | 5,350,053 | | 700,677 | | $ | 7,353,412 | |
| Advisor Class Shares: | | | | | | | | | | |
| Year ended February 28, 2017 | | | | | | | | | | |
| Shares sold | 5,383,920 | | $ | 63,458,721 | | 4,468,007 | | $ | 45,826,070 | |
| Shares issued in reinvestment of distributions | 174,059 | | | 2,061,686 | | 192,811 | | | 1,986,481 | |
| Shares redeemed | (1,577,190 | ) | | (18,524,741 | ) | (1,302,399 | ) | | (13,330,667 | ) |
| Net increase (decrease) | 3,980,789 | | $ | 46,995,666 | | 3,358,419 | | $ | 34,481,884 | |
| Year ended February 29, 2016 | | | | | | | | | | |
| Shares sold | 1,340,229 | | $ | 15,897,124 | | 1,305,234 | | $ | 13,472,925 | |
| Shares issued in reinvestment of distributions | 138,730 | | | 1,642,940 | | 156,864 | | | 1,617,090 | |
| Shares redeemed | (1,300,987 | ) | | (15,353,406 | ) | (1,039,848 | ) | | (10,724,670 | ) |
| Net increase (decrease) | 177,972 | | $ | 2,186,658 | | 422,250 | | $ | 4,365,345 | |
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NOTES TO FINANCIAL STATEMENTS
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
| |
| Subsidiary | Affiliation |
| Franklin Advisers, Inc. (Advisers) | Investment manager |
| Franklin Templeton Services, LLC (FT Services) | Administrative manager |
| Franklin Templeton Distributors, Inc. (Distributors) | Principal underwriter |
| Franklin Templeton Investor Services, LLC (Investor Services) | Transfer agent |
a. Management Fees
| | |
| Annualized Fee Rate | | Net Assets |
| 0.625 | % | Up to and including $100 million |
| 0.500 | % | Over $100 million, up to and including $250 million |
| 0.450 | % | Over $250 million, up to and including $7.5 billion |
| 0.440 | % | Over $7.5 billion, up to and including $10 billion |
| 0.430 | % | Over $10 billion, up to and including $12.5 billion |
| 0.420 | % | Over $12.5 billion, up to and including $15 billion |
| 0.400 | % | Over $15 billion, up to and including $17.5 billion |
| 0.380 | % | Over $17.5 billion, up to and including $20 billion |
| 0.360 | % | In excess of $20 billion |
For the year ended February 28, 2017, each Fund’s effective investment management fee rate based on average daily net assets was as follows:
| | | | | | | |
| Franklin | | Franklin | | Franklin | | Franklin | |
| Arizona | | Colorado | | Connecticut | | Michigan | |
| Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free | |
| Income Fund | | Income Fund | | Income Fund | | Income Fund | |
| |
| 0.475 | % | 0.484 | % | 0.523 | % | 0.473 | % |
| |
| Franklin | | Franklin | | Franklin | | Franklin | |
| Minnesota | | Ohio | | Oregon | | Pennsylvania | |
| Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free | |
| Income Fund | | Income Fund | | Income Fund | | Income Fund | |
| |
| 0.473 | % | 0.465 | % | 0.470 | % | 0.468 | % |
b. Administrative Fees
Under an agreement with Advisers, FT Services provides administrative services to the Funds. The fee is paid by Advisers based on each of the Funds’ average daily net assets, and is not an additional expense of the Funds.
c. Distribution Fees
The Board has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Funds’ Class A reimbursement distribution plans, the Funds reimburse Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. Under the Class A
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| 3. | Transactions with Affiliates (continued) |
| c. | Distribution Fees (continued) |
reimbursement distribution plans, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. In addition, under the Funds’ Class C compensation distribution plans, the Funds pay Distributors for costs incurred in connection with the servicing, sale and distribution of each Fund’s shares up to the maximum annual plan rate. The plan year, for purposes of monitoring compliance with the maximum annual plan rates, is February 1 through January 31 for each Fund.
The maximum annual plan rates, based on the average daily net assets, for each class, are as follows:
| | |
| Class A | 0.10 | % |
| Class C | 0.65 | % |
| |
| d. Sales Charges/Underwriting Agreements | | |
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Funds. These charges are deducted from the proceeds of sales of fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Funds of the following commission transactions related to the sales and redemptions of the Funds’ shares for the year:
| | | | | | | | |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Arizona | | Colorado | | Connecticut | | Michigan |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | | | |
| unaffiliated brokers/dealers | $ | 224,103 | $ | 216,794 | $ | 42,077 | $ | 217,148 |
| CDSC retained | $ | 43,669 | $ | 16,024 | $ | 3,126 | $ | 9,601 |
| |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Minnesota | | Ohio | | Oregon | | Pennsylvania |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Sales charges retained net of commissions paid to | | | | | | | | |
| unaffiliated brokers/dealers | $ | 214,234 | $ | 374,321 | $ | 415,041 | $ | 287,173 |
| CDSC retained | $ | 28,055 | $ | 51,537 | $ | 19,819 | $ | 13,691 |
e. Transfer Agent Fees
Each class of shares pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholder servicing fees paid to third parties. These fees are allocated daily based upon their relative proportion of such classes’ aggregate net assets.
For the year ended February 28, 2017, the Funds paid transfer agent fees as noted in the Statements of Operations of which the following amounts were retained by Investor Services:
| | | | | | | | |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Arizona | | Colorado | | Connecticut | | Michigan |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Transfer agent fees | $ | 112,421 | $ | 98,006 | $ | 53,693 | $ | 225,990 |
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| | | | | | |
| | | | | | FRANKLIN TAX-FREE TRUST |
| | | | | NOTES TO FINANCIAL STATEMENTS |
| |
| |
| |
| |
| | | Franklin | | Franklin | Franklin | Franklin |
| | | Minnesota | | Ohio | Oregon | Pennsylvania |
| | | Tax-Free | | Tax-Free | Tax-Free | Tax-Free |
| | | Income Fund | | Income Fund | Income Fund | Income Fund |
| |
| Transfer agent fees | $ | 188,221 | $ | 257,769 | $158,683 | $254,776 |
f. Interfund Transactions
Certain or all Funds engaged in purchases and sales of investments with funds or other accounts that have common investment managers (or affiliated investment managers), directors, trustees or officers. Purchases and sales for the year ended February 28, 2017, were as follows:
| | | | | | | | |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Arizona | | Colorado | | Connecticut | | Michigan |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Purchases | $ | 2,000,000 | $ | 5,050,000 | $ | — | $ | — |
| Sales. | $ | 19,200,000 | $ | — | $ | 1,500,000 | $ | 12,900,000 |
| |
| | | Franklin | | Franklin | | Franklin | | |
| | | Minnesota | | Ohio | | Oregon | | |
| | | Tax-Free | | Tax-Free | | Tax-Free | | |
| | | Income Fund | | Income Fund | | Income Fund | | |
| |
| Purchases | $ | 700,000 | $ | 9,600,000 | $ | — | | |
| Sales. | $ | 25,100,000 | $ | 19,400,000 | $ | 4,600,000 | | |
4. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains. Capital loss carryforwards with no expiration, if any, must be fully utilized before those losses with expiration dates.
| | | | | | | | | |
| At February 28, 2017, the capital loss carryforwards were as follows: | | | | | | |
| |
| | | | Franklin | | Franklin | | Franklin | | Franklin |
| | | | Arizona | | Colorado | | Connecticut | | Michigan |
| | | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| Capital loss carryforwards subject to expiration: | | | | | | | | | |
| 2018 | | $ | — | $ | 2,700,288 | $ | — | $ | — |
| 2019 | | | — | | 1,448,482 | | — | | — |
| Capital loss carryforwards not subject to expiration: | | | | | | | | | |
| Short term | | | 13,125,300 | | 13,203,249 | | 7,078,540 | | 11,645,731 |
| Long term | | | 28,447,793 | | 6,519,028 | | 13,842,041 | | 11,441,115 |
| Total capital loss carryforwards | $ | 41,573,093 | $ | 23,871,047 | $ | 20,920,581 | $ | 23,086,846 |
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| | | | | | | | |
| 4. Income Taxes (continued) | | | | | | | | |
| |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Minnesota | | Ohio | | Oregon | | Pennsylvania |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| Capital loss carryforwards subject to expiration: | | | | | | | | |
| 2018 | $ | 286,131 | $ | — | $ | — | $ | 3,499,532 |
| Capital loss carryforwards not subject to expiration: | | | | | | | | |
| Short term | | 7,440,612 | | 17,100,578 | | 17,383,130 | | 11,013,011 |
| Long term | | 3,270,375 | | 15,281,468 | | 39,344,343 | | 40,129,291 |
| Total capital loss carryforwards | $ | 10,997,118 | $ | 32,382,046 | $ | 56,727,473 | $ | 54,641,834 |
During the year ended February 28, 2017, Franklin Connecticut Tax-Free Income Fund and Franklin Ohio Tax-Free Income Fund utilized $187,752 and $1,645,643, respectively, of capital loss carryforwards.
On February 28, 2017, Franklin Minnesota Tax-Free Income Fund and Franklin Ohio Tax-Free Income Fund had expired capital loss carryforwards of $1,004,796 and $264,319, respectively, which were reclassified to paid-in capital.
The tax character of distributions paid during the years ended February 28, 2017 and February 29, 2016, was as follows:
| | | | | | | | | | | | |
| | | Franklin Arizona | | | Franklin Colorado | | | Franklin Connecticut | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | 2017 | 2016 | | | 2017 | 2016 | | | 2017 | 2016 | |
| Distributions paid from tax exempt | | | | | | | | | | | | |
| income | $ | 33,670,830 | $34,821,739 | $ | 26,775,648 | $25,953,681 | $ | 10,870,735 | $12,533,064 |
| |
| | | Franklin Michigan | | | Franklin Minnesota | | | Franklin Ohio | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | | | Tax-Free Income Fund | |
| | | 2017 | 2016 | | | 2017 | 2016 | | | 2017 | 2016 | |
| Distributions paid from tax exempt | | | | | | | | | | | | |
| income | $ | 36,990,689 | $37,484,192 | $ | 31,629,891 | $32,252,623 | $ | 50,272,385 | $51,667,606 |
| |
| | | Franklin Oregon | | | Franklin Pennsylvania | | | | | |
| | | Tax-Free Income Fund | | | Tax-Free Income Fund | | | | | |
| | | 2017 | 2016 | | | 2017 | 2016 | | | | | |
| Distributions paid from tax exempt | | | | | | | | | | | | |
| income | $ | 40,963,705 | $41,280,435 | $ | 47,185,419 | $48,557,755 | | | | |
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NOTES TO FINANCIAL STATEMENTS
At February 28, 2017, the cost of investments, net unrealized appreciation (depreciation) and undistributed tax exempt income for income tax purposes were as follows:
| | | | | | | | | | | | |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Arizona | | | Colorado | | | Connecticut | | | Michigan | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| |
| Cost of investments | $ | 937,780,876 | | $ | 718,697,749 | | $ | 307,851,855 | | $ | 1,058,731,318 | |
| |
| Unrealized appreciation | $ | 50,195,835 | | $ | 38,456,930 | | $ | 13,332,377 | | $ | 34,834,920 | |
| Unrealized depreciation | | (17,128,104 | ) | | (22,704,517 | ) | | (11,186,149 | ) | | (34,802,559 | ) |
| Net unrealized appreciation (depreciation) | $ | 33,067,731 | | $ | 15,752,413 | | $ | 2,146,228 | | $ | 32,361 | |
| Distributable earnings - undistributed tax exempt | | | | | | | | | | | | |
| income | $ | 2,026,729 | | $ | 1,384,327 | | $ | 1,090,345 | | $ | 2,276,921 | |
| |
| | | Franklin | | | Franklin | | | Franklin | | | Franklin | |
| | | Minnesota | | | Ohio | | | Oregon | | | Pennsylvania | |
| | | Tax-Free | | | Tax-Free | | | Tax-Free | | | Tax-Free | |
| | | Income Fund | | | Income Fund | | | Income Fund | | | Income Fund | |
| |
| Cost of investments. | $ | 1,048,713,589 | | $ | 1,532,605,970 | | $ | 1,208,678,869 | | $ | 1,265,716,766 | |
| |
| Unrealized appreciation | $ | 44,732,452 | | $ | 69,104,962 | | $ | 63,673,225 | | $ | 74,780,551 | |
| Unrealized depreciation | | (7,296,751 | ) | | (12,208,569 | ) | | (18,900,511 | ) | | (44,426,230 | ) |
| Net unrealized appreciation (depreciation) | $ | 37,435,701 | | $ | 56,896,393 | | $ | 44,772,714 | | $ | 30,354,321 | |
| Distributable earnings - undistributed tax exempt | | | | | | | | | | | | |
| income | $ | 536,990 | | $ | 1,377,809 | | $ | 1,444,282 | | $ | 4,714,124 | |
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of bond discounts, bond workout expenditures and wash sales.
5. Investment Transactions
Purchases and sales of investments (excluding short term securities) for the year ended February 28, 2017, were as follows:
| | | | | | | | |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Arizona | | Colorado | | Connecticut | | Michigan |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Purchases | $ | 171,046,039 | $ | 157,918,183 | $ | 39,962,238 | $ | 164,109,895 |
| Sales. | $ | 127,332,490 | $ | 98,805,470 | $ | 55,876,917 | $ | 129,445,166 |
| |
| | | Franklin | | Franklin | | Franklin | | Franklin |
| | | Minnesota | | Ohio | | Oregon | | Pennsylvania |
| | | Tax-Free | | Tax-Free | | Tax-Free | | Tax-Free |
| | | Income Fund | | Income Fund | | Income Fund | | Income Fund |
| |
| Purchases | $ | 212,961,233 | $ | 296,991,559 | $ | 283,376,539 | $ | 219,462,863 |
| Sales. | $ | 149,584,495 | $ | 228,567,934 | $ | 206,677,941 | $ | 140,075,520 |
6. Concentration of Risk
Certain or all Funds invest a large percentage of their total assets in obligations of issuers within their respective state and U.S. territories. Such concentration may subject the Funds to risks associated with industrial or regional matters, and economic, political or legal developments occurring within those states and U.S. territories. Investing in Puerto Rico securities may expose the Funds to
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6. Concentration of Risk (continued)
heightened risks due to recent adverse economic and market changes, credit downgrades and ongoing restructuring discussions. In addition, investments in these securities are sensitive to interest rate changes and credit risk of the issuer and may subject the Funds to increased market volatility. The market for these investments may be limited, which may make them difficult to buy or sell.
7. Credit Facility
The Funds, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $2 billion (Global Credit Facility) which matures on February 9, 2018. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to interest charged on any borrowings made by the Funds and other costs incurred by the Funds, pay their share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon their relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in other expenses in the Statements of Operations. During the year ended February 28, 2017, the Funds did not use the Global Credit Facility.
8. Fair Value Measurements
The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:
- Level 1 – quoted prices in active markets for identical financial instruments
- Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Funds’ own assumptions in determining the fair value of financial instruments)
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Funds have adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
At February 28, 2017, all of the Funds’ investments in financial instruments carried at fair value were valued using Level 2 inputs.
9. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the Funds’ financial statements and related disclosures.
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NOTES TO FINANCIAL STATEMENTS
10. Subsequent Events
The Funds have evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
Abbreviations
Selected Portfolio
| | | |
| AGMC | Assured Guaranty Municipal Corp. | ID | Improvement District |
| AMBAC | American Municipal Bond Assurance Corp. | IDA | Industrial Development Authority/Agency |
| BAM | Build America Mutual Assurance Co. | IDAR | Industrial Development Authority Revenue |
| BHAC | Berkshire Hathaway Assurance Corp. | IDR | Industrial Development Revenue |
| CDA | Community Development Authority/Agency | ISD | Independent School District |
| COP | Certificate of Participation | MAC | Municipal Assistance Corp. |
| CSD | Central School District | MBS | Mortgage-Backed Security |
| EDA | Economic Development Authority | MFHR | Multi-Family Housing Revenue |
| EDR | Economic Development Revenue | NATL | National Public Financial Guarantee Corp. |
| ETM | Escrow to Maturity | PBA | Public Building Authority |
| FHA | Federal Housing Authority/Agency | PCC | Pollution Control Corp. |
| FICO | Financing Corp. | PCR | Pollution Control Revenue |
| GNMA | Government National Mortgage Association | RDA | Redevelopment Agency/Authority |
| GO | General Obligation | SFM | Single Family Mortgage |
| HDA | Housing Development Authority/Agency | SFMR | Single Family Mortgage Revenue |
| HDC | Housing Development Corp. | USD | Unified/Union School District |
| HFA | Housing Finance Authority/Agency | XLCA | XL Capital Assurance |
| HFAR | Housing Finance Authority Revenue | | |
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Franklin Tax-Free Trust
In our opinion, the accompanying statements of assets and liabilities, including the statements of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Arizona Tax-Free Income Fund, Franklin Colorado Tax-Free Income Fund, Franklin Connecticut Tax-Free Income Fund, Franklin Michigan Tax-Free Income Fund, Franklin Minnesota Tax-Free Income Fund, Franklin Ohio Tax-Free Income Fund, Franklin Oregon Tax-Free Income Fund, and Franklin Pennsylvania Tax-Free Income Fund (the "Funds") as of February 28, 2017, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of February 28, 2017 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 18, 2017
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Tax Information (unaudited)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds hereby report 100% of the distributions paid from net investment income as exempt-interest dividends for the fiscal year ended February 28, 2017. A portion of the Fund’s exempt-interest dividends may be subject to the federal alternative minimum tax. By mid-February 2018, shareholders will be notified of amounts for use in preparing their 2017 income tax returns.
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Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
| | | | |
| Independent Board Members | | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Harris J. Ashton (1932) | Trustee | Since 1984 | 142 | Bar-S Foods (meat packing company) |
| One Franklin Parkway | | | | (1981-2010). |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
| | | | |
| Mary C. Choksi (1950) | Trustee | Since 2014 | 136 | Avis Budget Group Inc. (car rental) |
| One Franklin Parkway | | | | (2007-present), Omnicom Group Inc. |
| San Mateo, CA 94403-1906 | | | | (advertising and marketing |
| | | | | communications services) |
| | | | | (2011-present) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1998-2006). |
Principal Occupation During at Least the Past 5 Years:
Senior Advisor, Strategic Investment Group (investment management group) (2015-present); director of various companies; and formerly, Founding Partner and Senior Managing Director, Strategic Investment Group (1987-2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987).
| | | | |
| Edith E. Holiday (1952) | Trustee | Since 1998 | 142 | Hess Corporation (exploration and |
| One Franklin Parkway | | | | refining of oil and gas) (1993-present), |
| San Mateo, CA 94403-1906 | | | | Canadian National Railway (railroad) |
| | | | | (2001-present), White Mountains |
| | | | | Insurance Group, Ltd. (holding |
| | | | | company) (2004-present), Santander |
| | | | | Consumer USA Holdings, Inc. |
| | | | | (consumer finance) (2016-present), |
| | | | | RTI International Metals, Inc. |
| | | | | (manufacture and distribution of |
| | | | | titanium) (1999-2015) and H.J. Heinz |
| | | | | Company (processed foods and allied |
| | | | | products) (1994-2013). |
Principal Occupation During at Least the Past 5 Years:
Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison – United States Treasury Department (1988-1989).
| | | | |
| J. Michael Luttig (1954) | Trustee | Since 2009 | 142 | Boeing Capital Corporation (aircraft |
| One Franklin Parkway | | | | financing) (2006-2013). |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
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| | | | |
| Independent Board Members (continued) | | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Larry D. Thompson (1945) | Trustee | Since 2007 | 142 | The Southern Company (energy |
| One Franklin Parkway | | | | company) (2014-present; previously |
| San Mateo, CA 94403-1906 | | | | 2010-2012), Graham Holdings |
| | | | | Company (education and media |
| | | | | organization) (2011-present) and |
| | | | | Cbeyond, Inc. (business |
| | | | | communications provider) |
| | | | | (2010-2012). |
Principal Occupation During at Least the Past 5 Years:
Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-Present; previously 2011-2012); and formerly, Executive Vice President – Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President – Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003).
| | | | |
| John B. Wilson (1959) | Lead | Trustee since | 116 | None |
| One Franklin Parkway | Independent | 2007 and Lead | | |
| San Mateo, CA 94403-1906 | Trustee | Independent | | |
| | | Trustee since | | |
| 2008 |
Principal Occupation During at Least the Past 5 Years:
President, Staples Europe (office supplies) (2012-present); President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and formerly, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President – Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President –Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990).
| | | | |
| Interested Board Members and Officers | | |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| **Gregory E. Johnson (1961) | Trustee | Since 2007 | 158 | None |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Chairman of the Board, Member - Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015).
| | | | |
| **Rupert H. Johnson, Jr. (1940) | Chairman of | Since 2013 | 142 | None |
| One Franklin Parkway | the Board and | | | |
| San Mateo, CA 94403-1906 | Trustee | | | |
Principal Occupation During at Least the Past 5 Years:
Vice Chairman, Member – Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments.
| | | | |
| Sheila Amoroso (1959) | Vice President | Since 1999 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Advisers, Inc.; and officer of seven of the investment companies in Franklin Templeton Investments.
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Alison E. Baur (1964) | Vice President | Since 2012 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Rafael R. Costas, Jr. (1965) | Vice President | Since 1999 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Advisers, Inc.; and officer of seven of the investment companies in Franklin Templeton Investments.
| | | | |
| Laura F. Fergerson (1962) | Chief | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Executive | | | |
| San Mateo, CA 94403-1906 | Officer – | | | |
| | Finance and | | | |
| | Administration | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Gaston Gardey (1967) | Treasurer, | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief Financial | | | |
| San Mateo, CA 94403-1906 | Officer and | | | |
| | Chief | | | |
| | Accounting | | | |
| | Officer | | | |
Principal Occupation During at Least the Past 5 Years:
Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments.
| | | | |
| Aliya S. Gordon (1973) | Vice President | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Steven J. Gray (1955) | Vice President | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin Alternative Strategies Advisers, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Robert Lim (1948) | Vice President | Since 2016 | Not Applicable | Not Applicable |
| One Franklin Parkway | - AML | | | |
| San Mateo, CA 94403-1906 | Compliance | | | |
Principal Occupation During at Least the Past 5 Years:
Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
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| | | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | | Number of Portfolios in | |
| Name, Year of Birth | | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Christopher J. Molumphy | | President and | Since 2010 | Not Applicable | Not Applicable |
| (1962) | | Chief Executive | | | |
| One Franklin Parkway | | Officer – | | | |
| San Mateo, CA 94403-1906 | | Investment | | | |
| | | Management | | | |
Principal Occupation During at Least the Past 5 Years:
Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer and/or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 22 of the investment companies in Franklin Templeton Investments.
| | | | |
| Kimberly H. Novotny (1972) | Vice President | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Robert C. Rosselot (1960) | Chief | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | Compliance | | | |
| Fort Lauderdale, FL 33301-1923 | Officer | | | |
Principal Occupation During at Least the Past 5 Years:
Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013).
| | | | |
| Karen L. Skidmore (1952) | Vice President | Since 2006 | Not Applicable | Not Applicable |
| One Franklin Parkway | and Secretary | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Navid J. Tofigh (1972) | Vice President | Since 2015 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Craig S. Tyle (1960) | Vice President | Since 2005 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
| | | | |
| Thomas Walsh (1961) | Vice President | Since 1999 | Not Applicable | Not Applicable |
| One Franklin Parkway | | | | |
| San Mateo, CA 94403-1906 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Vice President, Franklin Advisers, Inc.; and officer of seven of the investment companies in Franklin Templeton Investments.
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| | | | |
| Interested Board Members and Officers (continued) | |
| |
| |
| |
| | | | Number of Portfolios in | |
| Name, Year of Birth | | Length of | Fund Complex Overseen | Other Directorships Held |
| and Address | Position | Time Served | by Board Member* | During at Least the Past 5 Years |
| |
| Lori A. Weber (1964) | Vice President | Since 2011 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | | | | |
| Fort Lauderdale, FL 33301-1923 | | | | |
Principal Occupation During at Least the Past 5 Years:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments.
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These
portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director ofFranklin
Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person
of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report. It is possible that after this date, information about officers may change.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the Trust.
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit
Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined
that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board
believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of
Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2007. As a result of such background and
experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general
application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that
present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under
the relevant Securities and Exchange Commission Rules and Releases.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request.
Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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Shareholder Information
Board Approval of Investment Management Agreements
At an in-person meeting held on February 28, 2017 (Meeting), the Board of Trustees (Board) of Franklin Tax-Free Trust (Trust), including a majority of the trustees who are not “interested persons” as defined in the Investment Company Act of 1940 (Independent Trustees), reviewed and approved the continuance of the investment management agreement between Franklin Advisers, Inc. (Manager) and each Fund (each a Management Agreement) for an additional one-year period. The Independent Trustees received advice from and met separately with Independent Trustee counsel in considering whether to approve the continuation of each Management Agreement. Although the Management Agreements for the Funds were considered at the same Board meeting, the Board considered the information provided to it about the Funds together and with respect to each Fund separately as the Board deemed appropriate.
In considering the continuation of each Management Agreement, the Board reviewed and considered information provided by the Manager at the Meeting and throughout the year at meetings of the Board and its committees. The Board also reviewed and considered information provided in response to a detailed set of requests for information submitted to the Manager by Independent Trustee counsel on behalf of the Independent Trustees in connection with the annual contract renewal process. In addition, prior to the Meeting, the Independent Trustees held a telephonic contract renewal meeting at which the Independent Trustees conferred amongst themselves and Independent Trustee counsel about contract renewal matters. The Board reviewed and considered all of the factors it deemed relevant in approving the continuance of each Management Agreement, including, but not limited to: (i) the nature, extent, and quality of the services provided by the Manager; (ii) the investment performance of each Fund; (iii) the costs of the services provided and profits realized by the Manager and its affiliates from the relationship with each Fund; (iv) the extent to which economies of scale are realized as each Fund grows; and (v) whether fee levels reflect these economies of scale for the benefit of Fund investors.
In approving the continuance of each Management Agreement, the Board, including a majority of the Independent Trustees, determined that the existing management fees are fair and reasonable and that the continuance of such Management Agreement is in the interests of the applicable Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s determination.
Nature, Extent and Quality of Services
The Board reviewed and considered information regarding the nature, extent and quality of investment management services provided by the Manager and its affiliates to the Funds and their shareholders. This information included, among other things, the qualifications, background and experience of the senior management and investment personnel of the Manager; the structure of investment personnel compensation; oversight of third-party service providers; investment performance reports and related financial information for each Fund; reports on expenses, shareholder services, marketing support payments made to financial intermediaries and third party servicing arrangements; legal and compliance matters; risk controls; pricing and other services provided by the Manager and its affiliates; and management fees charged by the Manager and its affiliates to U.S. funds and other accounts, including management’s explanation of differences among accounts where relevant. The Board noted management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address areas of heightened concern in the mutual fund industry, such as cybersecurity, derivatives and liquidity risk management.
The Board also reviewed and considered the benefits provided to Fund shareholders of investing in a fund that is part of the Franklin Templeton family of funds. The Board noted the financial position of Franklin Resources, Inc. (FRI), the Manager’s parent, and its commitment to the mutual fund business as evidenced by its continued introduction of new funds, reassessment of the fund offerings in response to the market environment and project initiatives and capital investments relating to the services provided to the Funds by the Franklin Templeton Investments (FTI) organization.
Following consideration of such information, the Board was satisfied with the nature, extent and quality of services provided by the Manager and its affiliates to the Funds and their shareholders.
Fund Performance
The Board reviewed and considered the performance results of each Fund over various time periods ended December 31, 2016. The Board considered the performance returns for each Fund in comparison to the performance returns of mutual funds deemed comparable to the Fund included in a universe (Performance Universe) selected by Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company
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data. The Board received a description of the methodology used by Broadridge to select the mutual funds included in a Performance Universe. The Board also reviewed and considered Fund performance reports provided and discussions that occurred with portfolio managers at Board meetings throughout the year. A summary of each Fund’s performance results is below.
Franklin Arizona Tax-Free Income Fund and Franklin Colorado Tax-Free Income Fund - The Performance Universe for these Funds included the Funds and all retail and institutional “other states” municipal debt funds. The Board noted that the Funds’ annualized income returns and annualized total returns for the one-, three-, five- and 10-year periods were above the median of their Performance Universe. The Board concluded that the Funds’ performance was satisfactory.
Franklin Connecticut Tax-Free Income Fund – The Performance Universe for this Fund included the Fund and all retail and institutional “other states” municipal debt funds. The Board noted that the Fund’s annualized income return for the one-, three-, five- and 10-year periods was above the median of its Performance Universe. The Board also noted that the Fund’s annualized total return for the one-year period was above the median of its Performance Universe, but for the three-, five-and 10-year periods was below the median of its Performance Universe. Given the Fund’s income-oriented investment objective, the Board concluded that the Fund’s performance was satisfactory.
Franklin Michigan Tax-Free Income Fund and Franklin Oregon Tax-Free Income Fund – The Performance Universe for these Funds included the Funds and all retail and institutional “other states” municipal debt funds. The Board noted that the Funds’ annualized income returns for the one-, three-, five- and 10-year periods were above the medians of their Performance Universe. The Board also noted that the Funds’ annualized total returns for the one-, three-, and 10-year periods were above the medians of their Performance Universe, but for the five-year period were below the medians of their Performance Universe. The Board concluded that the Funds’ performance was satisfactory.
Franklin Minnesota Tax-Free Income Fund – The Performance Universe for this Fund included the Fund and all retail and institutional Minnesota municipal debt funds. The Board noted that the Fund’s annualized income return for the one-, five- and 10-year periods was above the median of its Performance Universe, and for the three-year period was below the median of its Performance Universe. The Board also noted that the
Fund’s annualized total return for the one- and 10-year periods was above the median of its Performance Universe, but for the three- and five-year periods was below the median of its Performance Universe. Given the Fund’s income-oriented investment objective, the Board concluded that the Fund’s performance was satisfactory.
Franklin Ohio Tax-Free Income Fund – The Performance Universe for this Fund included the Fund and all retail and institutional Ohio municipal debt funds. The Board noted that the Fund’s annualized income return and annualized total return for the one-, three-, five- and 10-year periods were above the medians of its Performance Universe. The Board concluded that the Fund’s performance was satisfactory.
Franklin Pennsylvania Tax-Free Income Fund – The Performance Universe for this Fund included the Fund and all retail and institutional Pennsylvania municipal debt funds. The Board noted that the Fund’s annualized income return for the one-, three-, five- and 10-year periods was above the median of its Performance Universe. The Board also noted that the Fund’s annualized total return for the one-, three- and 10-year periods was above the median of its Performance Universe, but for the five-year period was below the median of its Performance Universe. The Board concluded that the Fund’s performance was satisfactory.
Comparative Fees and Expenses
The Board reviewed and considered information regarding each Fund’s actual total expense ratio and its various components, including management fees; transfer agent expenses; underlying fund expenses, if any; Rule 12b-1 and non-Rule 12b-1 service fees; and other non-management fees. The Board also noted that at its February meeting each year, it receives an annual report on all marketing support payments made by FTI to financial intermediaries. The Board considered the actual total expense ratio and, separately, the contractual management fee rate (Management Rate) of each Fund in comparison to the median ratio and median Management Rate, respectively, of other mutual funds deemed comparable to and with a similar expense structure as the Fund selected by Broadridge (Expense Group). Broadridge fee and expense data is based upon information taken from each fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios and Management Rates generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted
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SHAREHOLDER INFORMATION
by Broadridge to be an appropriate measure of comparative fees and expenses. The Broadridge Management Rate includes administrative charges, and the actual total expense ratio, for comparative consistency, was shown for Class A shares for funds with multiple classes of shares. The Board received a description of the methodology used by Broadridge to select the mutual funds included in an Expense Group.
Franklin Arizona Tax-Free Income Fund, Franklin Colorado Tax-Free Income Fund, Franklin Michigan Tax-Free Income Fund, Franklin Minnesota Tax-Free Income Fund, and Franklin Oregon Tax-Free Income Fund – The Expense Group for each Fund, except for the Franklin Minnesota Tax-Free Income Fund, included the Fund and between five and eleven other “other states” municipal debt funds. The Expense Group for the Franklin Minnesota Tax-Free Income Fund included the Fund and eight other Minnesota municipal debt funds. The Board noted that the Management Rates and actual total expense ratios for these Funds were below the medians of their respective Expense Groups. The Board concluded that the Management Rates charged to these Funds are fair and reasonable.
Franklin Connecticut Tax-Free Income Fund, Franklin Ohio Tax-Free Income Fund, and Franklin Pennsylvania Tax-Free Income Fund – The Expense Group for the Franklin Connecticut Tax-Free Income Fund included the Fund and 11 other “other states” municipal debt funds. The Expense Group for the Franklin Ohio Tax-Free Income Fund included the Fund and five other Ohio municipal debt funds. The Expense Group for the Franklin Pennsylvania Tax-Free Income Fund included the Fund and seven other Pennsylvania municipal debt funds. The Board noted that the Management Rates for these Funds were equal to the medians of their respective Expense Groups, and their actual total expense ratios were below the medians of their respective Expense Groups. The Board concluded that the Management Rates charged to these Funds are fair and reasonable.
Profitability
The Board reviewed and considered information regarding the profits realized by the Manager and its affiliates in connection with the operation of each Fund. In this respect, the Board considered the Fund profitability analysis provided by the Manager that addresses the overall profitability of FTI’s U.S. fund business, as well as its profits in providing investment management and other services to each of the individual funds during the 12-month period ended September 30, 2016, being the most recent fiscal year-end for FRI. The Board noted that although management continually makes refinements to its methodologies used in calculating profitability in response to organizational and product-related changes, the overall methodology has remained consistent with that used in the Funds’ profitability report presentations from prior years. Additionally, the Funds’ independent registered public accounting firm has been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Funds’ Board with respect to the profitability analysis.
The Board noted management’s belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to each Fund in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also noted management’s expenditures in improving shareholder services provided to the Funds, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from recent SEC and other regulatory requirements.
The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services, potential benefits resulting from personnel and systems enhancements necessitated by fund growth, as well as increased leverage with service providers and counterparties. Based upon its consideration of all these factors, the Board concluded that the level of profits realized by the Manager and its affiliates from providing services to each Fund was not excessive in view of the nature, quality and extent of services provided to each Fund.
Economies of Scale
The Board reviewed and considered the extent to which the Manager may realize economies of scale, if any, as each Fund grows larger and whether the Fund’s management fee structure reflects any economies of scale for the benefit of shareholders. With respect to possible economies of scale, the Board noted the existence of management fee breakpoints, which operate generally to share any economies of scale with a Fund’s shareholders by reducing the Fund’s effective management fees as the Fund grows in size. The Board considered the Manager’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments the Manager incurs
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SHAREHOLDER INFORMATION
across the Franklin Templeton family of funds as a whole. The Board concluded that to the extent economies of scale may be realized by the Manager and its affiliates, each Fund’s management fee structure provided a sharing of benefits with the Fund and its shareholders as the Fund grows.
Conclusion
Based on its review, consideration and evaluation of all factors it believed relevant, including the above-described factors and conclusions, the Board unanimously approved the continuation of each Management Agreement for an additional one-year period.
Proxy Voting Policies and Procedures
The Trust’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Trust’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Statement of Investments
The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive each Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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Annual Report and Shareholder Letter
Franklin Tax-Free Trust
Investment Manager
Franklin Advisers, Inc.
Distributor
Franklin Templeton Distributors, Inc.
(800) DIAL BEN® / 342-5236
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Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
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Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is John B. Wilson, and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $814,565 for the fiscal year ended February 28, 2017 and $869,327 for the fiscal year ended February 29, 2016.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended February 28, 2017 and $11,563 for the fiscal year ended February 29, 2016. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a)-(c) of Item 4 were $255,000 for the fiscal year ended February 28, 2017 and $672,151 for the fiscal year ended February 29, 2016. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process and derivatives assessments, and review of system processes related to fixed income securities.
(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $255,000 for the fiscal year ended February 28, 2017 and $683,714 for the fiscal year ended February 29, 2016.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein.
Item 11. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
Item 12. Exhibits.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TAX-FREE TRUST
By /s/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date April 26, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer –
Finance and Administration
Date April 26, 2017
By /s/Gaston Gardey
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date April 26, 2017
