UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04149
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FRANKLIN TAX-FREE TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 2/28
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Date of reporting period: 2/28/10
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ITEM 1. REPORTS TO STOCKHOLDERS.
FEBRUARY 28, 2010
ANNUAL REPORT
AND SHAREHOLDER LETTER
Franklin Insured Tax-Free Income Fund
Franklin Massachusetts Tax-Free Income Fund
Franklin Michigan Tax-Free Income Fund
Franklin Minnesota Tax-Free Income Fund
Franklin Ohio Tax-Free Income Fund
SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com
(GRAPHIC)
TAX-FREE INCOME
FRANKLIN TAX-FREE TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager structure
combines the specialized expertise of three world-class
investment management groups--Franklin, Templeton and
Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and staying
true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what has
become the industry's oldest global fund. Today, with
offices in over 25 countries, Templeton offers investors
a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as arbitrage
situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be used to
build truly diversified allocation plans covering every
major asset class.
RELIABILITY YOU At Franklin Templeton Investments, we seek to
CAN TRUST consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as the
reliable, accurate and personal service that has helped
us become one of the most trusted names in financial
services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Municipal Bond Market Overview ........................................... 4
Investment Strategy and Manager's Discussion ............................. 6
Franklin Insured Tax-Free Income Fund .................................... 7
Franklin Massachusetts Tax-Free Income Fund .............................. 17
Franklin Michigan Tax-Free Income Fund ................................... 27
Franklin Minnesota Tax-Free Income Fund .................................. 38
Franklin Ohio Tax-Free Income Fund ....................................... 48
Financial Highlights and Statements of Investments ....................... 59
Financial Statements ..................................................... 122
Notes to Financial Statements ............................................ 131
Report of Independent Registered Public Accounting Firm .................. 145
Tax Designation .......................................................... 146
Board Members and Officers ............................................... 147
Shareholder Information .................................................. 152
Shareholder Letter
Dear Shareholder:
In the third and fourth quarters of 2009, U.S. economic activity improved
compared with the second quarter. Although many observers considered the global
recession over, most economists warned that growth would be sluggish as
consumers and the financial system continued to climb out of debt.
The federal funds target rate remained unchanged over the period at a
historically low range of 0% to 0.25%; however, the Federal Reserve Board (Fed)
was very active and employed other strategies to help stem the crisis, resulting
in a substantial increase in its balance sheet. The Fed established various
lending and liquidity facilities and through quantitative easing purchased
mortgage securities and Treasuries, all in an effort to encourage long-term
interest rates to move lower. In testimony to Congress in February, Chairman
Bernanke once again stated that short-term rates are likely to remain
exceptionally low for an extended period until the Fed feels a dependable
economic recovery has taken hold.
Most major financial markets showed signs of recovery, and equity markets staged
a strong rally since March 2009. As financial markets moved off their lows,
commodity prices rebounded. Overall inflation, however, remained tame. Chairman
Bernanke began to prepare markets for the unwinding of the Fed's accommodative
policy and the exit strategy for its lending and liquidity facilities. On
February 18, the Fed raised the largely symbolic discount rate to 0.75%. This
first tightening move was designed to encourage banks to borrow short-term funds
from money markets rather than the central bank.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
The municipal bond market experienced a healthy rebound in the 12-month period
ended February 28, 2010; the Barclays Capital (BC) Municipal Bond Index returned
+9.98% and securities with maturities 22 years and longer, which make up a
substantial portion of our portfolios, returned +16.61%.(1)
Although it looked as if the banking and financial crisis may have turned the
corner and economic recovery was under way, we think a note of caution is
warranted. We believe such areas of the economy as employment, housing, state
and local government budgets, and the finance and banking sector will continue
to face challenges and show signs of pressure for an indefinite period.
We believe it is especially important during uncertain times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. We firmly believe that most people benefit from
professional advice, and that advice is invaluable as investors navigate
changing market conditions.
Franklin Tax-Free Trust's annual report goes into greater detail about municipal
bond market conditions during the period. In addition, you will find performance
data, financial information and discussions from the portfolio managers. Please
remember that all securities markets fluctuate, as do mutual fund share prices.
Municipal bonds can provide tax-free income and diversification from equities.
Despite periods of volatility, municipal bonds have a solid long-term record of
performance, driven mostly by their income component.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch. The BC Municipal Long Bond
Index is the long (22+ years) component of the BC Municipal Bond Index.
2 | Not part of the annual report
Please check our website at franklintempleton.com for special portfolio manager
commentary. Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the Funds, keeping in mind
the trust you have placed in us. We appreciate your confidence and encourage you
to contact us when you have questions about your Franklin Templeton tax-free
investment.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2010. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
Not part of the annual report | 3
Annual Report
Municipal Bond Market Overview
During the 12-month period ended February 28, 2010, the municipal bond market
delivered a strong +9.98% total return as measured by the Barclays Capital (BC)
Municipal Bond Index.(1) The municipal bond market rebounded after suffering one
of its worst performance years in 2008. In contrast, the U.S. Treasury market
trailed the tax-exempt market during this reporting period with a +1.83% total
return as measured by the BC U.S. Treasury Index.(2)
Different factors helped revive consumer and investor confidence during this
reporting period including federal fiscal stimulus measures. The initial influx
of capital infused the market with promise. Encouraged by these measures,
investors cautiously began to move assets from money market instruments toward
long-term investments seeking to maximize income opportunities. The tax-exempt
market fared well as investors focused on the municipal bond market's attractive
after-tax yields. Despite budgetary pressures at state and local levels and
concerns regarding some issuers' abilities to repay debt, municipal bond mutual
funds received record net inflows in 2009. In addition, because nearly all
municipal bond insurers were downgraded, many municipalities brought new issues
to market based on their own financial strength and credit ratings. As a result,
yield spreads between higher quality and lower grade credits widened, as opposed
to previous reporting periods when AAA-rated insured bonds dominated new
issuance. A recent Moody's Investors Service report bolstered the case for
municipal issuers. The study showed a 1.00% default rate for all municipal bonds
issued from 1970 through 2009 and higher recovery on average than for corporate
issuers, which helped remind investors of the asset class's underlying credit
strength. Investor interest also increased for lower investment-grade and
speculative-grade issues during the reporting period, which drove the BC Baa
Municipal Bond Index up 19.56%, compared with the BC Aaa Municipal Bond Index's
+6.98% total return.(3)
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch.
(2.) Source: (C) 2010 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government Index and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.
(3.) Source: (C) 2010 Morningstar. The BC Baa Municipal Bond Index is the Baa
credit quality component of the BC Municipal Bond Index. The BC Aaa
Municipal Bond Index is the Aaa credit quality component of the BC
Municipal Bond Index.
4 | Annual Report
Further aiding positive municipal bond performance during the reporting period
was the prospect of rising taxes, lower new tax-exempt issuance and fewer tax
shelters. In February 2009, the American Recovery and Reinvestment Act was
signed into law, which allowed municipalities to issue taxable bonds and receive
a 35% federal government subsidy for all coupon payments distributed to
investors for the life of the bond. This rebate allowed municipalities to borrow
significantly below their after-tax cost in the traditional tax-exempt municipal
bond market. The success of this "Build America Bonds" program exceeded
expectations as it enticed taxable bond investors to these municipal products.
The Obama administration recently proposed continuing the program beyond 2010
but reducing the subsidy to 28% and expanding permissible uses. Historically, a
large supply of issuance can be detrimental to municipal bond market
performance; however, this was not the case during this reporting period.
Although 2009's $409 billion in total issuance surpassed the previous year's,
the popularity of Build America Bonds helped drive the municipal bond market's
strong total returns.(4) The taxable bonds accounted for approximately 20% of
long-term issuance, which reduced the supply of available municipal bonds for
traditional, tax-exempt investors.(5) Solid demand for tax-exempt bonds drove
municipal bond prices higher. We think these new, subsidized, taxable municipal
bonds are likely to restrain future supply of tax-exempt municipal bonds as long
as the government permits their use.
Given the various ratings changes, the relatively steep yield curve, and the
reduced tax-exempt supply during the reporting period, we looked for
opportunities to keep the portfolios fully invested in longer term bonds, which
helped support the Funds' dividend distributions. At period-end, we continued to
be active in the market and felt that municipal bonds at current yields
represented an attractive long-term opportunity.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28,
2010. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
(4.) Source: Thomson Reuters, THE BOND BUYER, 2/9/10.
(5.) Source: Municipal Securities Rulemaking Board, "Build America Bond Issuance
and Trade Activity, 2009," February 2010.
Annual Report | 5
Investment Strategy and Manager's Discussion
We use a consistent, disciplined strategy in an effort to maximize tax-exempt
income for our shareholders by seeking to maintain exposure to higher coupon
securities. We generally employ a buy-and-hold approach and invest in securities
we believe should provide the most relative value in the market. As we invest
during different interest rate environments, each Fund's portfolio becomes
progressively more diversified with a broad range of securities. This broad
diversification may help mitigate interest rate risk. We do not use leverage or
exotic derivatives, nor do we use hedging techniques that could add volatility
and contribute to underperformance in adverse markets. We generally stay fully
invested to help maximize income distribution.
The mixture of our value-oriented philosophy of investing primarily for income
and a positive sloping municipal yield curve favored the use of longer term
bonds. Consequently, we sought to purchase bonds from 15 to 30 years in maturity
with good call features. We intend to maintain our conservative, buy-and-hold
investment strategy as we attempt to provide shareholders with high, current,
tax-free income.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your continued 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, 2010, 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,
COUNTRY, 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.
6 | Annual Report
Franklin Insured Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Insured Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal 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) The Fund invests predominantly in insured municipal
securities.(2)
CREDIT QUALITY BREAKDOWN*
Franklin Insured Tax-Free Income Fund
2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 41.1%
AA 11.2%
A 26.7%
BBB 2.9%
Below Investment Grade 0.3%
Not Rated by S&P 17.8%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.2% 1.6%
AA or Aa 4.0% 0.3%
A 5.0% 1.1%
BBB or Baa 2.9% 2.7%
---- ---
Total 12.1% 5.7%
==== ===
We are pleased to bring you Franklin Insured Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(1.) Dividends are generally subject to state and local taxes, if any. 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.) Fund shares are not insured by any U.S. or other government agency. They
are subject to market risks and will fluctuate in value.
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.
Annual Report | 7
DIVIDEND DISTRIBUTIONS*
Franklin Insured Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
March 2009 4.40 cents 3.89 cents 3.89 cents 4.49 cents
April 2009 4.40 cents 3.89 cents 3.89 cents 4.49 cents
May 2009 4.40 cents 3.89 cents 3.89 cents 4.49 cents
June 2009 4.40 cents 3.88 cents 3.88 cents 4.49 cents
July 2009 4.40 cents 3.88 cents 3.88 cents 4.49 cents
August 2009 4.40 cents 3.88 cents 3.88 cents 4.49 cents
September 2009 4.40 cents 3.87 cents 3.87 cents 4.49 cents
October 2009 4.40 cents 3.87 cents 3.87 cents 4.49 cents
November 2009 4.40 cents 3.87 cents 3.87 cents 4.49 cents
December 2009 4.30 cents 3.73 cents 3.74 cents 4.40 cents
January 2010 4.30 cents 3.73 cents 3.74 cents 4.40 cents
February 2010 4.30 cents 3.73 cents 3.74 cents 4.40 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.20 on February 28, 2009, to $11.88 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 52.43 cents per share for the same period.(3) The
Performance Summary beginning on page 10 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.16% based on an
annualization of the current 4.30 cent per share dividend and the maximum
offering price of $12.41 on February 28, 2010. An investor in the 2010 maximum
federal income tax bracket of 35.00% would need to earn a distribution rate of
6.40% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class B, C and Advisor shares' performance,
please see the Performance Summary. During the year under review, renewed
investor interest in municipal bonds and limited new-issue supply tended to
reduce the Fund's income, which caused dividends to decline slightly.
(3.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
8 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Insured Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
PORTFOLIO BREAKDOWN
Franklin Insured Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Utilities 18.4%
Hospital & Health Care 17.5%
General Obligation 14.3%
Subject to Government Appropriations 13.2%
Prerefunded 10.8%
Transportation 8.7%
Other Revenue 5.7%
Higher Education 5.7%
Tax-Supported 5.2%
Housing 0.5%
* Does not include short-term investments and other net assets.
Annual Report | 9
Performance Summary as of 2/28/10
FRANKLIN INSURED TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTFIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.68 $11.88 $11.20
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5243
CLASS B (SYMBOL: FBITX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.68 $11.94 $11.26
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4604
CLASS C (SYMBOL: FRITX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $12.01 $11.31
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4606
ADVISOR CLASS (SYMBOL: FINZX) CHANGE 2/28/10 2/28/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.68 $11.88 $11.20
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5355
10 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.93% +19.31% +67.20%
Average Annual Total Return(2) +6.19% +2.70% +4.82%
Avg. Ann. Total Return (3/31/10)(3) +5.98% +2.85% +4.59%
Distribution Rate(4) 4.16%
Taxable Equivalent Distribution Rate(5) 6.40%
30-Day Standardized Yield(6) 3.68%
Taxable Equivalent Yield(5) 5.66%
Total Annual Operating expenses(7) 0.63%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.27% +16.10% +60.47%
Average Annual Total Return(2) +6.27% +2.69% +4.84%
Avg. Ann. Total Return (3/31/10)(3) +6.15% +2.82% +4.62%
Distribution Rate(4) 3.77%
Taxable Equivalent Distribution Rate(5) 5.80%
30-Day Standardized Yield(6) 3.29%
Taxable Equivalent Yield(5) 5.06%
Total Annual Operating expenses(7) 1.18%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.41% +16.19% +58.41%
Average Annual Total Return(2) +9.41% +3.05% +4.71%
Avg. Ann. Total Return (3/31/10)(3) +9.19% +3.18% +4.48%
Distribution Rate(4) 3.73%
Taxable Equivalent Distribution Rate(5) 5.74%
30-Day Standardized Yield(6) 3.32%
Taxable Equivalent Yield(5) 5.11%
Total Annual Operating expenses(7) 1.18%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +11.04% +19.51% +67.48%
Average Annual Total Return(2) +11.04% +3.63% +5.29%
Avg. Ann. Total Return (3/31/10)(3) +10.92% +3.79% +5.07%
Distribution Rate(4) 4.44%
Taxable Equivalent Distribution Rate(5) 6.83%
30-Day Standardized Yield(6) 3.94%
Taxable Equivalent Yield(5) 6.06%
Total Annual Operating expenses(7) 0.53%
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.
Annual Report | 11
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.19%
5-Year +2.70%
10-Year +4.82%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN INSURED TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,804 $10,218 $10,082
4/30/2000 $ 9,747 $10,158 $10,088
5/31/2000 $ 9,681 $10,105 $10,100
6/30/2000 $ 9,931 $10,373 $10,153
7/31/2000 $10,088 $10,518 $10,177
8/31/2000 $10,237 $10,680 $10,177
9/30/2000 $10,166 $10,624 $10,230
10/31/2000 $10,282 $10,740 $10,247
11/30/2000 $10,370 $10,821 $10,253
12/31/2000 $10,653 $11,089 $10,247
1/31/2001 $10,715 $11,198 $10,312
2/28/2001 $10,747 $11,234 $10,353
3/31/2001 $10,831 $11,334 $10,377
4/30/2001 $10,706 $11,212 $10,418
5/31/2001 $10,815 $11,332 $10,465
6/30/2001 $10,904 $11,408 $10,483
7/31/2001 $11,062 $11,577 $10,453
8/31/2001 $11,227 $11,768 $10,453
9/30/2001 $11,179 $11,729 $10,501
10/31/2001 $11,309 $11,868 $10,465
11/30/2001 $11,242 $11,768 $10,448
12/31/2001 $11,140 $11,657 $10,406
1/31/2002 $11,308 $11,859 $10,430
2/28/2002 $11,434 $12,002 $10,471
3/31/2002 $11,238 $11,767 $10,530
4/30/2002 $11,416 $11,997 $10,589
5/31/2002 $11,472 $12,070 $10,589
6/30/2002 $11,573 $12,197 $10,595
7/31/2002 $11,707 $12,354 $10,607
8/31/2002 $11,819 $12,503 $10,642
9/30/2002 $12,078 $12,776 $10,660
10/31/2002 $11,893 $12,565 $10,677
11/30/2002 $11,870 $12,512 $10,677
12/31/2002 $12,104 $12,776 $10,654
1/31/2003 $12,083 $12,744 $10,701
2/28/2003 $12,224 $12,922 $10,783
3/31/2003 $12,265 $12,930 $10,848
4/30/2003 $12,371 $13,015 $10,824
5/31/2003 $12,665 $13,320 $10,807
6/30/2003 $12,631 $13,263 $10,819
7/31/2003 $12,156 $12,799 $10,830
8/31/2003 $12,252 $12,895 $10,872
9/30/2003 $12,571 $13,274 $10,907
10/31/2003 $12,528 $13,207 $10,895
11/30/2003 $12,664 $13,345 $10,866
12/31/2003 $12,765 $13,455 $10,854
1/31/2004 $12,853 $13,532 $10,907
2/29/2004 $13,039 $13,736 $10,966
3/31/2004 $12,995 $13,688 $11,037
4/30/2004 $12,679 $13,364 $11,072
5/31/2004 $12,625 $13,315 $11,137
6/30/2004 $12,651 $13,364 $11,172
7/31/2004 $12,804 $13,540 $11,154
8/31/2004 $13,032 $13,811 $11,160
9/30/2004 $13,101 $13,884 $11,184
10/31/2004 $13,223 $14,004 $11,243
11/30/2004 $13,113 $13,888 $11,249
12/31/2004 $13,290 $14,058 $11,207
1/31/2005 $13,445 $14,189 $11,231
2/28/2005 $13,418 $14,142 $11,296
3/31/2005 $13,350 $14,053 $11,384
4/30/2005 $13,537 $14,274 $11,461
5/31/2005 $13,633 $14,375 $11,449
6/30/2005 $13,706 $14,464 $11,455
7/31/2005 $13,667 $14,399 $11,508
8/31/2005 $13,773 $14,544 $11,567
9/30/2005 $13,689 $14,446 $11,708
10/31/2005 $13,626 $14,359 $11,731
11/30/2005 $13,689 $14,428 $11,637
12/31/2005 $13,795 $14,552 $11,590
1/31/2006 $13,807 $14,591 $11,678
2/28/2006 $13,908 $14,689 $11,702
3/31/2006 $13,838 $14,588 $11,767
4/30/2006 $13,843 $14,583 $11,867
5/31/2006 $13,884 $14,648 $11,926
6/30/2006 $13,831 $14,592 $11,949
7/31/2006 $13,974 $14,766 $11,985
8/31/2006 $14,141 $14,985 $12,008
9/30/2006 $14,236 $15,089 $11,949
10/31/2006 $14,324 $15,184 $11,885
11/30/2006 $14,442 $15,311 $11,867
12/31/2006 $14,400 $15,257 $11,885
1/31/2007 $14,371 $15,217 $11,921
2/28/2007 $14,536 $15,418 $11,985
3/31/2007 $14,497 $15,380 $12,094
4/30/2007 $14,537 $15,426 $12,172
5/31/2007 $14,495 $15,357 $12,247
6/30/2007 $14,440 $15,278 $12,270
7/31/2007 $14,540 $15,396 $12,267
8/31/2007 $14,472 $15,330 $12,245
9/30/2007 $14,669 $15,557 $12,279
10/31/2007 $14,736 $15,626 $12,305
11/30/2007 $14,811 $15,726 $12,378
12/31/2007 $14,863 $15,769 $12,370
1/31/2008 $14,889 $15,968 $12,431
2/29/2008 $14,143 $15,237 $12,467
3/31/2008 $14,628 $15,672 $12,575
4/30/2008 $14,889 $15,856 $12,652
5/31/2008 $14,994 $15,952 $12,758
6/30/2008 $14,772 $15,771 $12,887
7/31/2008 $14,751 $15,831 $12,954
8/31/2008 $14,857 $16,017 $12,903
9/30/2008 $14,015 $15,265 $12,885
10/31/2008 $13,947 $15,110 $12,755
11/30/2008 $13,708 $15,158 $12,510
12/31/2008 $13,969 $15,379 $12,381
1/31/2009 $14,253 $15,942 $12,435
2/28/2009 $14,434 $16,025 $12,497
3/31/2009 $14,495 $16,028 $12,527
4/30/2009 $14,847 $16,349 $12,558
5/31/2009 $15,009 $16,522 $12,595
6/30/2009 $14,935 $16,367 $12,703
7/31/2009 $15,111 $16,641 $12,683
8/31/2009 $15,405 $16,925 $12,711
9/30/2009 $16,028 $17,532 $12,719
10/31/2009 $15,719 $17,164 $12,731
11/30/2009 $15,736 $17,306 $12,740
12/31/2009 $15,832 $17,365 $12,718
1/31/2010 $15,891 $17,455 $12,761
2/28/2010 $16,008 $17,624 $12,764
Total Returns 60.08% 76.24% 27.64%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +6.27%
5-Year +2.69%
10-Year +4.84%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN INSURED TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,235 $10,218 $10,082
4/30/2000 $10,179 $10,158 $10,088
5/31/2000 $10,105 $10,105 $10,100
6/30/2000 $10,361 $10,373 $10,153
7/31/2000 $10,519 $10,518 $10,177
8/31/2000 $10,669 $10,680 $10,177
9/30/2000 $10,600 $10,624 $10,230
10/31/2000 $10,707 $10,740 $10,247
11/30/2000 $10,802 $10,821 $10,253
12/31/2000 $11,092 $11,089 $10,247
1/31/2001 $11,151 $11,198 $10,312
2/28/2001 $11,180 $11,234 $10,353
3/31/2001 $11,271 $11,334 $10,377
4/30/2001 $11,135 $11,212 $10,418
5/31/2001 $11,243 $11,332 $10,465
6/30/2001 $11,330 $11,408 $10,483
7/31/2001 $11,497 $11,577 $10,453
8/31/2001 $11,664 $11,768 $10,453
9/30/2001 $11,609 $11,729 $10,501
10/31/2001 $11,739 $11,868 $10,465
11/30/2001 $11,664 $11,768 $10,448
12/31/2001 $11,553 $11,657 $10,406
1/31/2002 $11,721 $11,859 $10,430
2/28/2002 $11,846 $12,002 $10,471
3/31/2002 $11,637 $11,767 $10,530
4/30/2002 $11,816 $11,997 $10,589
5/31/2002 $11,877 $12,070 $10,589
6/30/2002 $11,976 $12,197 $10,595
7/31/2002 $12,099 $12,354 $10,607
8/31/2002 $12,219 $12,503 $10,642
9/30/2002 $12,480 $12,776 $10,660
10/31/2002 $12,283 $12,565 $10,677
11/30/2002 $12,254 $12,512 $10,677
12/31/2002 $12,489 $12,776 $10,654
1/31/2003 $12,461 $12,744 $10,701
2/28/2003 $12,600 $12,922 $10,783
3/31/2003 $12,636 $12,930 $10,848
4/30/2003 $12,739 $13,015 $10,824
5/31/2003 $13,035 $13,320 $10,807
6/30/2003 $13,005 $13,263 $10,819
7/31/2003 $12,502 $12,799 $10,830
8/31/2003 $12,594 $12,895 $10,872
9/30/2003 $12,915 $13,274 $10,907
10/31/2003 $12,864 $13,207 $10,895
11/30/2003 $12,997 $13,345 $10,866
12/31/2003 $13,095 $13,455 $10,854
1/31/2004 $13,180 $13,532 $10,907
2/29/2004 $13,366 $13,736 $10,966
3/31/2004 $13,315 $13,688 $11,037
4/30/2004 $12,986 $13,364 $11,072
5/31/2004 $12,924 $13,315 $11,137
6/30/2004 $12,944 $13,364 $11,172
7/31/2004 $13,094 $13,540 $11,154
8/31/2004 $13,320 $13,811 $11,160
9/30/2004 $13,385 $13,884 $11,184
10/31/2004 $13,503 $14,004 $11,243
11/30/2004 $13,384 $13,888 $11,249
12/31/2004 $13,558 $14,058 $11,207
1/31/2005 $13,720 $14,189 $11,231
2/28/2005 $13,676 $14,142 $11,296
3/31/2005 $13,611 $14,053 $11,384
4/30/2005 $13,784 $14,274 $11,461
5/31/2005 $13,886 $14,375 $11,449
6/30/2005 $13,953 $14,464 $11,455
7/31/2005 $13,896 $14,399 $11,508
8/31/2005 $13,997 $14,544 $11,567
9/30/2005 $13,906 $14,446 $11,708
10/31/2005 $13,836 $14,359 $11,731
11/30/2005 $13,904 $14,428 $11,637
12/31/2005 $14,005 $14,552 $11,590
1/31/2006 $14,011 $14,591 $11,678
2/28/2006 $14,096 $14,689 $11,702
3/31/2006 $14,019 $14,588 $11,767
4/30/2006 $14,017 $14,583 $11,867
5/31/2006 $14,052 $14,648 $11,926
6/30/2006 $14,003 $14,592 $11,949
7/31/2006 $14,130 $14,766 $11,985
8/31/2006 $14,303 $14,985 $12,008
9/30/2006 $14,381 $15,089 $11,949
10/31/2006 $14,463 $15,184 $11,885
11/30/2006 $14,588 $15,311 $11,867
12/31/2006 $14,539 $15,257 $11,885
1/31/2007 $14,502 $15,217 $11,921
2/28/2007 $14,650 $15,418 $11,985
3/31/2007 $14,616 $15,380 $12,094
4/30/2007 $14,649 $15,426 $12,172
5/31/2007 $14,600 $15,357 $12,247
6/30/2007 $14,538 $15,278 $12,270
7/31/2007 $14,632 $15,396 $12,267
8/31/2007 $14,544 $15,330 $12,245
9/30/2007 $14,747 $15,557 $12,279
10/31/2007 $14,807 $15,626 $12,305
11/30/2007 $14,876 $15,726 $12,378
12/31/2007 $14,909 $15,769 $12,370
1/31/2008 $14,942 $15,968 $12,431
2/29/2008 $14,179 $15,237 $12,467
3/31/2008 $14,666 $15,672 $12,575
4/30/2008 $14,928 $15,856 $12,652
5/31/2008 $15,031 $15,952 $12,758
6/30/2008 $14,810 $15,771 $12,887
7/31/2008 $14,789 $15,831 $12,954
8/31/2008 $14,892 $16,017 $12,903
9/30/2008 $14,051 $15,265 $12,885
10/31/2008 $13,981 $15,110 $12,755
11/30/2008 $13,738 $15,158 $12,510
12/31/2008 $14,004 $15,379 $12,381
1/31/2009 $14,287 $15,942 $12,435
2/28/2009 $14,468 $16,025 $12,497
3/31/2009 $14,532 $16,028 $12,527
4/30/2009 $14,885 $16,349 $12,558
5/31/2009 $15,044 $16,522 $12,595
6/30/2009 $14,974 $16,367 $12,703
7/31/2009 $15,150 $16,641 $12,683
8/31/2009 $15,445 $16,925 $12,711
9/30/2009 $16,070 $17,532 $12,719
10/31/2009 $15,758 $17,164 $12,731
11/30/2009 $15,777 $17,306 $12,740
12/31/2009 $15,874 $17,365 $12,718
1/31/2010 $15,930 $17,455 $12,761
2/28/2010 $16,047 $17,624 $12,764
Total Returns 60.47% 76.24% 27.64%
12 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.41%
5-Year +3.05%
10-Year +4.71%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN INSURED TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,234 $10,218 $10,082
4/30/2000 $10,169 $10,158 $10,088
5/31/2000 $10,096 $10,105 $10,100
6/30/2000 $10,351 $10,373 $10,153
7/31/2000 $10,508 $10,518 $10,177
8/31/2000 $10,657 $10,680 $10,177
9/30/2000 $10,588 $10,624 $10,230
10/31/2000 $10,694 $10,740 $10,247
11/30/2000 $10,780 $10,821 $10,253
12/31/2000 $11,077 $11,089 $10,247
1/31/2001 $11,127 $11,198 $10,312
2/28/2001 $11,155 $11,234 $10,353
3/31/2001 $11,245 $11,334 $10,377
4/30/2001 $11,110 $11,212 $10,418
5/31/2001 $11,208 $11,332 $10,465
6/30/2001 $11,295 $11,408 $10,483
7/31/2001 $11,462 $11,577 $10,453
8/31/2001 $11,627 $11,768 $10,453
9/30/2001 $11,572 $11,729 $10,501
10/31/2001 $11,700 $11,868 $10,465
11/30/2001 $11,626 $11,768 $10,448
12/31/2001 $11,516 $11,657 $10,406
1/31/2002 $11,691 $11,859 $10,430
2/28/2002 $11,806 $12,002 $10,471
3/31/2002 $11,599 $11,767 $10,530
4/30/2002 $11,777 $11,997 $10,589
5/31/2002 $11,838 $12,070 $10,589
6/30/2002 $11,937 $12,197 $10,595
7/31/2002 $12,058 $12,354 $10,607
8/31/2002 $12,178 $12,503 $10,642
9/30/2002 $12,436 $12,776 $10,660
10/31/2002 $12,242 $12,565 $10,677
11/30/2002 $12,213 $12,512 $10,677
12/31/2002 $12,447 $12,776 $10,654
1/31/2003 $12,420 $12,744 $10,701
2/28/2003 $12,568 $12,922 $10,783
3/31/2003 $12,595 $12,930 $10,848
4/30/2003 $12,697 $13,015 $10,824
5/31/2003 $12,992 $13,320 $10,807
6/30/2003 $12,960 $13,263 $10,819
7/31/2003 $12,460 $12,799 $10,830
8/31/2003 $12,551 $12,895 $10,872
9/30/2003 $12,879 $13,274 $10,907
10/31/2003 $12,829 $13,207 $10,895
11/30/2003 $12,961 $13,345 $10,866
12/31/2003 $13,057 $13,455 $10,854
1/31/2004 $13,140 $13,532 $10,907
2/29/2004 $13,325 $13,736 $10,966
3/31/2004 $13,274 $13,688 $11,037
4/30/2004 $12,937 $13,364 $11,072
5/31/2004 $12,886 $13,315 $11,137
6/30/2004 $12,896 $13,364 $11,172
7/31/2004 $13,055 $13,540 $11,154
8/31/2004 $13,280 $13,811 $11,160
9/30/2004 $13,344 $13,884 $11,184
10/31/2004 $13,461 $14,004 $11,243
11/30/2004 $13,343 $13,888 $11,249
12/31/2004 $13,516 $14,058 $11,207
1/31/2005 $13,666 $14,189 $11,231
2/28/2005 $13,633 $14,142 $11,296
3/31/2005 $13,569 $14,053 $11,384
4/30/2005 $13,740 $14,274 $11,461
5/31/2005 $13,841 $14,375 $11,449
6/30/2005 $13,908 $14,464 $11,455
7/31/2005 $13,852 $14,399 $11,508
8/31/2005 $13,952 $14,544 $11,567
9/30/2005 $13,862 $14,446 $11,708
10/31/2005 $13,792 $14,359 $11,731
11/30/2005 $13,848 $14,428 $11,637
12/31/2005 $13,948 $14,552 $11,590
1/31/2006 $13,966 $14,591 $11,678
2/28/2006 $14,050 $14,689 $11,702
3/31/2006 $13,973 $14,588 $11,767
4/30/2006 $13,971 $14,583 $11,867
5/31/2006 $14,005 $14,648 $11,926
6/30/2006 $13,957 $14,592 $11,949
7/31/2006 $14,094 $14,766 $11,985
8/31/2006 $14,255 $14,985 $12,008
9/30/2006 $14,344 $15,089 $11,949
10/31/2006 $14,425 $15,184 $11,885
11/30/2006 $14,537 $15,311 $11,867
12/31/2006 $14,489 $15,257 $11,885
1/31/2007 $14,452 $15,217 $11,921
2/28/2007 $14,610 $15,418 $11,985
3/31/2007 $14,577 $15,380 $12,094
4/30/2007 $14,597 $15,426 $12,172
5/31/2007 $14,549 $15,357 $12,247
6/30/2007 $14,488 $15,278 $12,270
7/31/2007 $14,581 $15,396 $12,267
8/31/2007 $14,507 $15,330 $12,245
9/30/2007 $14,695 $15,557 $12,279
10/31/2007 $14,767 $15,626 $12,305
11/30/2007 $14,835 $15,726 $12,378
12/31/2007 $14,868 $15,769 $12,370
1/31/2008 $14,900 $15,968 $12,431
2/29/2008 $14,142 $15,237 $12,467
3/31/2008 $14,615 $15,672 $12,575
4/30/2008 $14,879 $15,856 $12,652
5/31/2008 $14,975 $15,952 $12,758
6/30/2008 $14,749 $15,771 $12,887
7/31/2008 $14,709 $15,831 $12,954
8/31/2008 $14,819 $16,017 $12,903
9/30/2008 $13,969 $15,265 $12,885
10/31/2008 $13,894 $15,110 $12,755
11/30/2008 $13,652 $15,158 $12,510
12/31/2008 $13,903 $15,379 $12,381
1/31/2009 $14,177 $15,942 $12,435
2/28/2009 $14,349 $16,025 $12,497
3/31/2009 $14,402 $16,028 $12,527
4/30/2009 $14,755 $16,349 $12,558
5/31/2009 $14,921 $16,522 $12,595
6/30/2009 $14,829 $16,367 $12,703
7/31/2009 $15,007 $16,641 $12,683
8/31/2009 $15,289 $16,925 $12,711
9/30/2009 $15,894 $17,532 $12,719
10/31/2009 $15,584 $17,164 $12,731
11/30/2009 $15,594 $17,306 $12,740
12/31/2009 $15,681 $17,365 $12,718
1/31/2010 $15,731 $17,455 $12,761
2/28/2010 $15,841 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +11.04%
5-Year +3.63%
10-Year +5.29%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN INSURED TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,239 $10,218 $10,082
4/30/2000 $10,179 $10,158 $10,088
5/31/2000 $10,111 $10,105 $10,100
6/30/2000 $10,372 $10,373 $10,153
7/31/2000 $10,536 $10,518 $10,177
8/31/2000 $10,691 $10,680 $10,177
9/30/2000 $10,617 $10,624 $10,230
10/31/2000 $10,739 $10,740 $10,247
11/30/2000 $10,830 $10,821 $10,253
12/31/2000 $11,126 $11,089 $10,247
1/31/2001 $11,191 $11,198 $10,312
2/28/2001 $11,224 $11,234 $10,353
3/31/2001 $11,312 $11,334 $10,377
4/30/2001 $11,181 $11,212 $10,418
5/31/2001 $11,295 $11,332 $10,465
6/30/2001 $11,388 $11,408 $10,483
7/31/2001 $11,553 $11,577 $10,453
8/31/2001 $11,726 $11,768 $10,453
9/30/2001 $11,675 $11,729 $10,501
10/31/2001 $11,811 $11,868 $10,465
11/30/2001 $11,741 $11,768 $10,448
12/31/2001 $11,635 $11,657 $10,406
1/31/2002 $11,810 $11,859 $10,430
2/28/2002 $11,941 $12,002 $10,471
3/31/2002 $11,737 $11,767 $10,530
4/30/2002 $11,923 $11,997 $10,589
5/31/2002 $11,982 $12,070 $10,589
6/30/2002 $12,087 $12,197 $10,595
7/31/2002 $12,226 $12,354 $10,607
8/31/2002 $12,344 $12,503 $10,642
9/30/2002 $12,614 $12,776 $10,660
10/31/2002 $12,421 $12,565 $10,677
11/30/2002 $12,397 $12,512 $10,677
12/31/2002 $12,641 $12,776 $10,654
1/31/2003 $12,619 $12,744 $10,701
2/28/2003 $12,766 $12,922 $10,783
3/31/2003 $12,809 $12,930 $10,848
4/30/2003 $12,920 $13,015 $10,824
5/31/2003 $13,228 $13,320 $10,807
6/30/2003 $13,192 $13,263 $10,819
7/31/2003 $12,696 $12,799 $10,830
8/31/2003 $12,796 $12,895 $10,872
9/30/2003 $13,129 $13,274 $10,907
10/31/2003 $13,084 $13,207 $10,895
11/30/2003 $13,226 $13,345 $10,866
12/31/2003 $13,331 $13,455 $10,854
1/31/2004 $13,423 $13,532 $10,907
2/29/2004 $13,618 $13,736 $10,966
3/31/2004 $13,572 $13,688 $11,037
4/30/2004 $13,242 $13,364 $11,072
5/31/2004 $13,185 $13,315 $11,137
6/30/2004 $13,212 $13,364 $11,172
7/31/2004 $13,372 $13,540 $11,154
8/31/2004 $13,611 $13,811 $11,160
9/30/2004 $13,683 $13,884 $11,184
10/31/2004 $13,810 $14,004 $11,243
11/30/2004 $13,695 $13,888 $11,249
12/31/2004 $13,880 $14,058 $11,207
1/31/2005 $14,041 $14,189 $11,231
2/28/2005 $14,014 $14,142 $11,296
3/31/2005 $13,943 $14,053 $11,384
4/30/2005 $14,138 $14,274 $11,461
5/31/2005 $14,238 $14,375 $11,449
6/30/2005 $14,314 $14,464 $11,455
7/31/2005 $14,274 $14,399 $11,508
8/31/2005 $14,384 $14,544 $11,567
9/30/2005 $14,297 $14,446 $11,708
10/31/2005 $14,231 $14,359 $11,731
11/30/2005 $14,297 $14,428 $11,637
12/31/2005 $14,407 $14,552 $11,590
1/31/2006 $14,420 $14,591 $11,678
2/28/2006 $14,525 $14,689 $11,702
3/31/2006 $14,453 $14,588 $11,767
4/30/2006 $14,457 $14,583 $11,867
5/31/2006 $14,500 $14,648 $11,926
6/30/2006 $14,445 $14,592 $11,949
7/31/2006 $14,595 $14,766 $11,985
8/31/2006 $14,769 $14,985 $12,008
9/30/2006 $14,868 $15,089 $11,949
10/31/2006 $14,960 $15,184 $11,885
11/30/2006 $15,083 $15,311 $11,867
12/31/2006 $15,040 $15,257 $11,885
1/31/2007 $15,009 $15,217 $11,921
2/28/2007 $15,181 $15,418 $11,985
3/31/2007 $15,141 $15,380 $12,094
4/30/2007 $15,182 $15,426 $12,172
5/31/2007 $15,138 $15,357 $12,247
6/30/2007 $15,081 $15,278 $12,270
7/31/2007 $15,186 $15,396 $12,267
8/31/2007 $15,114 $15,330 $12,245
9/30/2007 $15,320 $15,557 $12,279
10/31/2007 $15,390 $15,626 $12,305
11/30/2007 $15,469 $15,726 $12,378
12/31/2007 $15,523 $15,769 $12,370
1/31/2008 $15,550 $15,968 $12,431
2/29/2008 $14,771 $15,237 $12,467
3/31/2008 $15,278 $15,672 $12,575
4/30/2008 $15,550 $15,856 $12,652
5/31/2008 $15,660 $15,952 $12,758
6/30/2008 $15,428 $15,771 $12,887
7/31/2008 $15,394 $15,831 $12,954
8/31/2008 $15,519 $16,017 $12,903
9/30/2008 $14,628 $15,265 $12,885
10/31/2008 $14,558 $15,110 $12,755
11/30/2008 $14,309 $15,158 $12,510
12/31/2008 $14,583 $15,379 $12,381
1/31/2009 $14,881 $15,942 $12,435
2/28/2009 $15,084 $16,025 $12,497
3/31/2009 $15,136 $16,028 $12,527
4/30/2009 $15,505 $16,349 $12,558
5/31/2009 $15,689 $16,522 $12,595
6/30/2009 $15,600 $16,367 $12,703
7/31/2009 $15,798 $16,641 $12,683
8/31/2009 $16,107 $16,925 $12,711
9/30/2009 $16,760 $17,532 $12,719
10/31/2009 $16,438 $17,164 $12,731
11/30/2009 $16,457 $17,306 $12,740
12/31/2009 $16,559 $17,365 $12,718
1/31/2010 $16,622 $17,455 $12,761
2/28/2010 $16,748 $17,624 $12,764
Annual Report | 13
Performance Summary (CONTINUED)
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY 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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/08, 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 +8.17% and +4.84%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
14 | Annual Report
Your Fund's Expenses
FRANKLIN INSURED TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 15
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,039.30 $3.13
Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.11
CLASS B
Actual $1,000 $1,036.30 $5.86
Hypothetical (5% return before expenses) $1,000 $1,019.04 $5.81
CLASS C
Actual $1,000 $1,036.10 $5.91
Hypothetical (5% return before expenses) $1,000 $1,018.99 $5.86
ADVISOR CLASS
Actual $1,000 $1,039.80 $2.63
Hypothetical (5% return before expenses) $1,000 $1,022.22 $2.61
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.62%; B: 1.16%; C: 1.17%; and Advisor:
0.52%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
16 | Annual Report
Franklin Massachusetts Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Massachusetts Tax-Free Income
Fund seeks to provide as high a level of income exempt from federal and
Massachusetts 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 BREAKDOWN*
Franklin Massachusetts Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA................ 25.9%
AA................. 29.3%
A.................. 33.9%
Not Rated by S&P... 10.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 2.3%
AA or Aa 3.1% 0.4%
A 0.8% --
BBB or Baa 4.3% --
--- ---
Total 8.2% 2.7%
=== ===
We are pleased to bring you Franklin Massachusetts Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 82.
Annual Report | 17
DIVIDEND DISTRIBUTIONS*
Franklin Massachusetts Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.06 cents 3.56 cents --
April 2009 4.06 cents 3.56 cents --
May 2009 4.06 cents 3.56 cents --
June 2009 4.06 cents 3.54 cents --
July 2009 4.06 cents 3.54 cents 2.54 cents
August 2009 4.06 cents 3.54 cents 4.15 cents
September 2009 4.06 cents 3.55 cents 4.15 cents
October 2009 4.06 cents 3.55 cents 4.15 cents
November 2009 4.06 cents 3.55 cents 4.15 cents
December 2009 4.06 cents 3.52 cents 4.15 cents
January 2010 4.06 cents 3.52 cents 4.15 cents
February 2010 4.06 cents 3.52 cents 4.15 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.94 on February 28, 2009, to $11.60 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 48.68 cents per share for the same period.(2) The
Performance Summary beginning on page 21 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.02% based on an
annualization of the current 4.06 cent per share dividend and the maximum
offering price of $12.11 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Massachusetts personal income tax bracket of
38.45% would need to earn a distribution rate of 6.53% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class C
and Advisor shares' performance, please see the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
18 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Massachusetts Tax-Free
Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Higher Education** 25.2%
Prerefunded 22.1%
Other Revenue 13.1%
Transportation 12.1%
General Obligation 8.5%
Utilities 7.1%
Tax-Supported 5.7%
Hospital & Health Care 3.5%
Housing 2.3%
Subject to Government Appropriations 0.4%
* Does not include short-term investments and other net assets.
** The Fund may invest more than 25% in municipal securities that finance
similar types of projects such as higher education. A change that affects
one project may affect all similar projects, thereby increasing market
risk.
COMMONWEALTH UPDATE
Massachusetts' well-educated labor force and diverse economy continued to
decline but at a slower pace than during the height of the recession. The
state's primary employment sector, education and health services, provided some
economic stability over the period. Despite a solid employment base,
Massachusetts' unemployment rate increased from 7.4% at the beginning of the
period to 9.5% by February 2010, which was slightly lower than the 9.7% national
rate.(3) One of the state's large sectors, financial services, suffered
considerable job losses in 2009. Massachusetts' population experienced
out-migration, as high business and housing costs posed an economic challenge
for the commonwealth as well.
The state's strong and conservative financial management practices helped
restore some of the budget balance that was compromised by the economic
downturn. Fiscal year 2009 revenues decreased from the previous fiscal year,
with declines in personal income tax and sales tax revenues. State officials
proactively responded to the shortfall by adjusting the budget several times,
effectively closing a $3.6 billion budget gap.(4) Massachusetts resolved the gap
through spending cuts and the use of federal stimulus funds, stabilization funds
and reserves. State officials faced further revenue declines in fiscal year 2010
and worked to successfully resolve a $5 billion budget gap through a mix of new
revenues, higher sales tax, spending cuts, federal stimulus funds, reserves and
one-time measures.(5) Massachusetts' net tax-supported debt as a percentage of
personal income was 7.9% and debt per capita was $4,022, compared with the
national medians of 2.1% and $739.(6) This relatively high debt burden was
further impacted by the state's sizable outlays to the Massachusetts School
Building Authority and the Massachusetts Turnpike Authority.
Independent credit rating agency Moody's Investors Service rated Massachusetts'
general obligation bonds Aa2 with a stable outlook.(7) This rating and outlook
reflect Moody's assessment that the commonwealth will continue to react quickly
to emerging budget gaps stemming from revenue weakness. Additionally,
independent credit rating agency Standard & Poor's gave Massachusetts' general
obligation bonds a rating of AA with a stable outlook, citing the state's solid
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "Research: Massachusetts; General Obligation,"
RATINGSDIRECT, 11/5/09.
(5.) Source: Moody's Investors Service, "New Issue: Moody's Assigns Aa2 Rating
to Commonwealth of Massachusetts $500 Million GO Bonds Consolidated Loan of
2009, Series E," 11/3/09.
(6.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," RATINGSDIRECT, 12/16/09.
(7.) This does not indicate a rating of the Fund.
Annual Report | 19
economic fundamentals and historically resilient employment sectors, which could
contribute to positive growth if the state and national economies continue to
recover from the recession.7
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Massachusetts Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
20 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMISX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.66 $11.60 $10.94
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4868
CLASS C (SYMBOL: FMAIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.67 $11.70 $11.03
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4246
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/1/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.52 $11.60 $11.08
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3263
Annual Report | 21
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ -------
Cumulative Total Return(1) +10.66% +19.57% +68.13%
Average Annual Total Return(2) +5.91% +2.75% +4.87%
Avg. Ann. Total Return (3/31/10)(3) +6.08% +2.85% +4.65%
Distribution Rate(4) 4.02%
Taxable Equivalent Distribution Rate(5) 6.53%
30-Day Standardized Yield(6) 3.09%
Taxable Equivalent Yield(5) 5.02%
Total Annual Operating expenses(7) 0.66%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------ -------
Cumulative Total Return(1) +10.06% +16.38% +59.15%
Average Annual Total Return(2) +9.06% +3.08% +4.76%
Avg. Ann. Total Return (3/31/10)(3) +9.24% +3.19% +4.54%
Distribution Rate(4) 3.58%
Taxable Equivalent Distribution Rate(5) 5.82%
30-Day Standardized Yield(6) 2.67%
Taxable Equivalent Yield(5) 4.34%
Total Annual Operating expenses(7) 1.21%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------ -------
Cumulative Total Return(1) +10.73% +19.64% +68.23%
Average Annual Total Return(2) +10.73% +3.65% +5.34%
Avg. Ann. Total Return (3/31/10)(3) +10.83% +3.76% +5.12%
Distribution Rate(4) 4.30%
Taxable Equivalent Distribution Rate(5) 6.99%
30-Day Standardized Yield(6) 3.31%
Taxable Equivalent Yield(5) 5.38%
Total Annual Operating expenses(7) 0.56%
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.
22 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +5.91%
5-Year +2.75%
10-Year +4.87%
(PERFORMANCE GRAPH)
CLASS A (3/1/00-2/28/10)
FRANKLIN MASSACHUSETTS TAX- BARCLAYS CAPITAL
DATE FREE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,803 $10,218 $10,082
4/30/2000 $ 9,731 $10,158 $10,088
5/31/2000 $ 9,642 $10,105 $10,100
6/30/2000 $ 9,928 $10,373 $10,153
7/31/2000 $10,107 $10,518 $10,177
8/31/2000 $10,241 $10,680 $10,177
9/30/2000 $10,165 $10,624 $10,230
10/31/2000 $10,302 $10,740 $10,247
11/30/2000 $10,400 $10,821 $10,253
12/31/2000 $10,730 $11,089 $10,247
1/31/2001 $10,774 $11,198 $10,312
2/28/2001 $10,814 $11,234 $10,353
3/31/2001 $10,889 $11,334 $10,377
4/30/2001 $10,737 $11,212 $10,418
5/31/2001 $10,838 $11,332 $10,465
6/30/2001 $10,947 $11,408 $10,483
7/31/2001 $11,109 $11,577 $10,453
8/31/2001 $11,298 $11,768 $10,453
9/30/2001 $11,244 $11,729 $10,501
10/31/2001 $11,377 $11,868 $10,465
11/30/2001 $11,294 $11,768 $10,448
12/31/2001 $11,176 $11,657 $10,406
1/31/2002 $11,328 $11,859 $10,430
2/28/2002 $11,449 $12,002 $10,471
3/31/2002 $11,252 $11,767 $10,530
4/30/2002 $11,407 $11,997 $10,589
5/31/2002 $11,513 $12,070 $10,589
6/30/2002 $11,597 $12,197 $10,595
7/31/2002 $11,735 $12,354 $10,607
8/31/2002 $11,880 $12,503 $10,642
9/30/2002 $12,147 $12,776 $10,660
10/31/2002 $11,931 $12,565 $10,677
11/30/2002 $11,883 $12,512 $10,677
12/31/2002 $12,134 $12,776 $10,654
1/31/2003 $12,118 $12,744 $10,701
2/28/2003 $12,272 $12,922 $10,783
3/31/2003 $12,310 $12,930 $10,848
4/30/2003 $12,417 $13,015 $10,824
5/31/2003 $12,710 $13,320 $10,807
6/30/2003 $12,662 $13,263 $10,819
7/31/2003 $12,174 $12,799 $10,830
8/31/2003 $12,271 $12,895 $10,872
9/30/2003 $12,580 $13,274 $10,907
10/31/2003 $12,532 $13,207 $10,895
11/30/2003 $12,670 $13,345 $10,866
12/31/2003 $12,772 $13,455 $10,854
1/31/2004 $12,861 $13,532 $10,907
2/29/2004 $13,031 $13,736 $10,966
3/31/2004 $13,025 $13,688 $11,037
4/30/2004 $12,714 $13,364 $11,072
5/31/2004 $12,655 $13,315 $11,137
6/30/2004 $12,679 $13,364 $11,172
7/31/2004 $12,846 $13,540 $11,154
8/31/2004 $13,070 $13,811 $11,160
9/30/2004 $13,161 $13,884 $11,184
10/31/2004 $13,274 $14,004 $11,243
11/30/2004 $13,166 $13,888 $11,249
12/31/2004 $13,337 $14,058 $11,207
1/31/2005 $13,483 $14,189 $11,231
2/28/2005 $13,464 $14,142 $11,296
3/31/2005 $13,423 $14,053 $11,384
4/30/2005 $13,636 $14,274 $11,461
5/31/2005 $13,732 $14,375 $11,449
6/30/2005 $13,804 $14,464 $11,455
7/31/2005 $13,726 $14,399 $11,508
8/31/2005 $13,866 $14,544 $11,567
9/30/2005 $13,752 $14,446 $11,708
10/31/2005 $13,672 $14,359 $11,731
11/30/2005 $13,734 $14,428 $11,637
12/31/2005 $13,852 $14,552 $11,590
1/31/2006 $13,862 $14,591 $11,678
2/28/2006 $13,964 $14,689 $11,702
3/31/2006 $13,863 $14,588 $11,767
4/30/2006 $13,887 $14,583 $11,867
5/31/2006 $13,925 $14,648 $11,926
6/30/2006 $13,878 $14,592 $11,949
7/31/2006 $14,035 $14,766 $11,985
8/31/2006 $14,227 $14,985 $12,008
9/30/2006 $14,322 $15,089 $11,949
10/31/2006 $14,397 $15,184 $11,885
11/30/2006 $14,517 $15,311 $11,867
12/31/2006 $14,471 $15,257 $11,885
1/31/2007 $14,425 $15,217 $11,921
2/28/2007 $14,605 $15,418 $11,985
3/31/2007 $14,562 $15,380 $12,094
4/30/2007 $14,600 $15,426 $12,172
5/31/2007 $14,541 $15,357 $12,247
6/30/2007 $14,466 $15,278 $12,270
7/31/2007 $14,567 $15,396 $12,267
8/31/2007 $14,469 $15,330 $12,245
9/30/2007 $14,669 $15,557 $12,279
10/31/2007 $14,735 $15,626 $12,305
11/30/2007 $14,835 $15,726 $12,378
12/31/2007 $14,887 $15,769 $12,370
1/31/2008 $14,961 $15,968 $12,431
2/29/2008 $14,263 $15,237 $12,467
3/31/2008 $14,684 $15,672 $12,575
4/30/2008 $14,925 $15,856 $12,652
5/31/2008 $15,017 $15,952 $12,758
6/30/2008 $14,837 $15,771 $12,887
7/31/2008 $14,877 $15,831 $12,954
8/31/2008 $14,970 $16,017 $12,903
9/30/2008 $14,254 $15,265 $12,885
10/31/2008 $14,101 $15,110 $12,755
11/30/2008 $13,996 $15,158 $12,510
12/31/2008 $14,025 $15,379 $12,381
1/31/2009 $14,380 $15,942 $12,435
2/28/2009 $14,550 $16,025 $12,497
3/31/2009 $14,568 $16,028 $12,527
4/30/2009 $14,927 $16,349 $12,558
5/31/2009 $15,049 $16,522 $12,595
6/30/2009 $14,956 $16,367 $12,703
7/31/2009 $15,118 $16,641 $12,683
8/31/2009 $15,498 $16,925 $12,711
9/30/2009 $16,109 $17,532 $12,719
10/31/2009 $15,799 $17,164 $12,731
11/30/2009 $15,881 $17,306 $12,740
12/31/2009 $15,977 $17,365 $12,718
1/31/2010 $15,993 $17,455 $12,761
2/28/2010 $16,094 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.06%
5-Year +3.08%
10-Year +4.76%
(PERFORMANCE GRAPH)
CLASS C (3/1/00-2/28/10)
FRANKLIN MASSACHUSETTS TAX- BARCLAYS CAPITAL
DATE FREE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,232 $10,218 $10,082
4/30/2000 $10,153 $10,158 $10,088
5/31/2000 $10,055 $10,105 $10,100
6/30/2000 $10,347 $10,373 $10,153
7/31/2000 $10,527 $10,518 $10,177
8/31/2000 $10,662 $10,680 $10,177
9/30/2000 $10,578 $10,624 $10,230
10/31/2000 $10,715 $10,740 $10,247
11/30/2000 $10,812 $10,821 $10,253
12/31/2000 $11,158 $11,089 $10,247
1/31/2001 $11,188 $11,198 $10,312
2/28/2001 $11,235 $11,234 $10,353
3/31/2001 $11,307 $11,334 $10,377
4/30/2001 $11,144 $11,212 $10,418
5/31/2001 $11,244 $11,332 $10,465
6/30/2001 $11,341 $11,408 $10,483
7/31/2001 $11,512 $11,577 $10,453
8/31/2001 $11,692 $11,768 $10,453
9/30/2001 $11,641 $11,729 $10,501
10/31/2001 $11,763 $11,868 $10,465
11/30/2001 $11,682 $11,768 $10,448
12/31/2001 $11,545 $11,657 $10,406
1/31/2002 $11,706 $11,859 $10,430
2/28/2002 $11,814 $12,002 $10,471
3/31/2002 $11,607 $11,767 $10,530
4/30/2002 $11,770 $11,997 $10,589
5/31/2002 $11,874 $12,070 $10,589
6/30/2002 $11,955 $12,197 $10,595
7/31/2002 $12,100 $12,354 $10,607
8/31/2002 $12,234 $12,503 $10,642
9/30/2002 $12,512 $12,776 $10,660
10/31/2002 $12,275 $12,565 $10,677
11/30/2002 $12,221 $12,512 $10,677
12/31/2002 $12,471 $12,776 $10,654
1/31/2003 $12,449 $12,744 $10,701
2/28/2003 $12,601 $12,922 $10,783
3/31/2003 $12,634 $12,930 $10,848
4/30/2003 $12,738 $13,015 $10,824
5/31/2003 $13,031 $13,320 $10,807
6/30/2003 $12,985 $13,263 $10,819
7/31/2003 $12,482 $12,799 $10,830
8/31/2003 $12,575 $12,895 $10,872
9/30/2003 $12,883 $13,274 $10,907
10/31/2003 $12,828 $13,207 $10,895
11/30/2003 $12,952 $13,345 $10,866
12/31/2003 $13,060 $13,455 $10,854
1/31/2004 $13,134 $13,532 $10,907
2/29/2004 $13,312 $13,736 $10,966
3/31/2004 $13,300 $13,688 $11,037
4/30/2004 $12,979 $13,364 $11,072
5/31/2004 $12,912 $13,315 $11,137
6/30/2004 $12,931 $13,364 $11,172
7/31/2004 $13,094 $13,540 $11,154
8/31/2004 $13,314 $13,811 $11,160
9/30/2004 $13,411 $13,884 $11,184
10/31/2004 $13,508 $14,004 $11,243
11/30/2004 $13,405 $13,888 $11,249
12/31/2004 $13,559 $14,058 $11,207
1/31/2005 $13,712 $14,189 $11,231
2/28/2005 $13,675 $14,142 $11,296
3/31/2005 $13,638 $14,053 $11,384
4/30/2005 $13,847 $14,274 $11,461
5/31/2005 $13,937 $14,375 $11,449
6/30/2005 $13,992 $14,464 $11,455
7/31/2005 $13,918 $14,399 $11,508
8/31/2005 $14,042 $14,544 $11,567
9/30/2005 $13,933 $14,446 $11,708
10/31/2005 $13,834 $14,359 $11,731
11/30/2005 $13,902 $14,428 $11,637
12/31/2005 $14,014 $14,552 $11,590
1/31/2006 $14,018 $14,591 $11,678
2/28/2006 $14,102 $14,689 $11,702
3/31/2006 $14,006 $14,588 $11,767
4/30/2006 $14,024 $14,583 $11,867
5/31/2006 $14,055 $14,648 $11,926
6/30/2006 $14,001 $14,592 $11,949
7/31/2006 $14,140 $14,766 $11,985
8/31/2006 $14,338 $14,985 $12,008
9/30/2006 $14,427 $15,089 $11,949
10/31/2006 $14,495 $15,184 $11,885
11/30/2006 $14,608 $15,311 $11,867
12/31/2006 $14,555 $15,257 $11,885
1/31/2007 $14,515 $15,217 $11,921
2/28/2007 $14,676 $15,418 $11,985
3/31/2007 $14,626 $15,380 $12,094
4/30/2007 $14,657 $15,426 $12,172
5/31/2007 $14,592 $15,357 $12,247
6/30/2007 $14,511 $15,278 $12,270
7/31/2007 $14,605 $15,396 $12,267
8/31/2007 $14,500 $15,330 $12,245
9/30/2007 $14,693 $15,557 $12,279
10/31/2007 $14,752 $15,626 $12,305
11/30/2007 $14,845 $15,726 $12,378
12/31/2007 $14,889 $15,769 $12,370
1/31/2008 $14,956 $15,968 $12,431
2/29/2008 $14,256 $15,237 $12,467
3/31/2008 $14,667 $15,672 $12,575
4/30/2008 $14,912 $15,856 $12,652
5/31/2008 $14,983 $15,952 $12,758
6/30/2008 $14,797 $15,771 $12,887
7/31/2008 $14,830 $15,831 $12,954
8/31/2008 $14,928 $16,017 $12,903
9/30/2008 $14,201 $15,265 $12,885
10/31/2008 $14,043 $15,110 $12,755
11/30/2008 $13,920 $15,158 $12,510
12/31/2008 $13,942 $15,379 $12,381
1/31/2009 $14,300 $15,942 $12,435
2/28/2009 $14,461 $16,025 $12,497
3/31/2009 $14,472 $16,028 $12,527
4/30/2009 $14,819 $16,349 $12,558
5/31/2009 $14,946 $16,522 $12,595
6/30/2009 $14,847 $16,367 $12,703
7/31/2009 $15,000 $16,641 $12,683
8/31/2009 $15,354 $16,925 $12,711
9/30/2009 $15,961 $17,532 $12,719
10/31/2009 $15,649 $17,164 $12,731
11/30/2009 $15,722 $17,306 $12,740
12/31/2009 $15,810 $17,365 $12,718
1/31/2010 $15,831 $17,455 $12,761
2/28/2010 $15,915 $17,624 $12,764
Annual Report | 23
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +10.73%
5-Year +3.65%
10-Year +5.34%
(PERFORMANCE GRAPH)
ADVISOR CLASS (3/1/00-2/28/10)(8)
FRANKLIN MASSACHUSETTS TAX-
FREE INCOME FUND - BARCLAYS CAPITAL
DATE ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,238 $10,218 $10,082
4/30/2000 $10,163 $10,158 $10,088
5/31/2000 $10,070 $10,105 $10,100
6/30/2000 $10,368 $10,373 $10,153
7/31/2000 $10,555 $10,518 $10,177
8/31/2000 $10,696 $10,680 $10,177
9/30/2000 $10,616 $10,624 $10,230
10/31/2000 $10,759 $10,740 $10,247
11/30/2000 $10,862 $10,821 $10,253
12/31/2000 $11,206 $11,089 $10,247
1/31/2001 $11,252 $11,198 $10,312
2/28/2001 $11,294 $11,234 $10,353
3/31/2001 $11,373 $11,334 $10,377
4/30/2001 $11,213 $11,212 $10,418
5/31/2001 $11,319 $11,332 $10,465
6/30/2001 $11,433 $11,408 $10,483
7/31/2001 $11,602 $11,577 $10,453
8/31/2001 $11,799 $11,768 $10,453
9/30/2001 $11,743 $11,729 $10,501
10/31/2001 $11,882 $11,868 $10,465
11/30/2001 $11,796 $11,768 $10,448
12/31/2001 $11,672 $11,657 $10,406
1/31/2002 $11,831 $11,859 $10,430
2/28/2002 $11,957 $12,002 $10,471
3/31/2002 $11,751 $11,767 $10,530
4/30/2002 $11,913 $11,997 $10,589
5/31/2002 $12,024 $12,070 $10,589
6/30/2002 $12,112 $12,197 $10,595
7/31/2002 $12,256 $12,354 $10,607
8/31/2002 $12,408 $12,503 $10,642
9/30/2002 $12,686 $12,776 $10,660
10/31/2002 $12,461 $12,565 $10,677
11/30/2002 $12,411 $12,512 $10,677
12/31/2002 $12,673 $12,776 $10,654
1/31/2003 $12,656 $12,744 $10,701
2/28/2003 $12,816 $12,922 $10,783
3/31/2003 $12,857 $12,930 $10,848
4/30/2003 $12,968 $13,015 $10,824
5/31/2003 $13,275 $13,320 $10,807
6/30/2003 $13,224 $13,263 $10,819
7/31/2003 $12,715 $12,799 $10,830
8/31/2003 $12,815 $12,895 $10,872
9/30/2003 $13,138 $13,274 $10,907
10/31/2003 $13,088 $13,207 $10,895
11/30/2003 $13,233 $13,345 $10,866
12/31/2003 $13,339 $13,455 $10,854
1/31/2004 $13,432 $13,532 $10,907
2/29/2004 $13,610 $13,736 $10,966
3/31/2004 $13,603 $13,688 $11,037
4/30/2004 $13,279 $13,364 $11,072
5/31/2004 $13,217 $13,315 $11,137
6/30/2004 $13,242 $13,364 $11,172
7/31/2004 $13,417 $13,540 $11,154
8/31/2004 $13,650 $13,811 $11,160
9/30/2004 $13,745 $13,884 $11,184
10/31/2004 $13,863 $14,004 $11,243
11/30/2004 $13,751 $13,888 $11,249
12/31/2004 $13,929 $14,058 $11,207
1/31/2005 $14,082 $14,189 $11,231
2/28/2005 $14,061 $14,142 $11,296
3/31/2005 $14,018 $14,053 $11,384
4/30/2005 $14,241 $14,274 $11,461
5/31/2005 $14,341 $14,375 $11,449
6/30/2005 $14,416 $14,464 $11,455
7/31/2005 $14,335 $14,399 $11,508
8/31/2005 $14,482 $14,544 $11,567
9/30/2005 $14,363 $14,446 $11,708
10/31/2005 $14,279 $14,359 $11,731
11/30/2005 $14,344 $14,428 $11,637
12/31/2005 $14,467 $14,552 $11,590
1/31/2006 $14,477 $14,591 $11,678
2/28/2006 $14,583 $14,689 $11,702
3/31/2006 $14,479 $14,588 $11,767
4/30/2006 $14,503 $14,583 $11,867
5/31/2006 $14,543 $14,648 $11,926
6/30/2006 $14,494 $14,592 $11,949
7/31/2006 $14,658 $14,766 $11,985
8/31/2006 $14,859 $14,985 $12,008
9/30/2006 $14,958 $15,089 $11,949
10/31/2006 $15,036 $15,184 $11,885
11/30/2006 $15,161 $15,311 $11,867
12/31/2006 $15,113 $15,257 $11,885
1/31/2007 $15,065 $15,217 $11,921
2/28/2007 $15,253 $15,418 $11,985
3/31/2007 $15,208 $15,380 $12,094
4/30/2007 $15,248 $15,426 $12,172
5/31/2007 $15,186 $15,357 $12,247
6/30/2007 $15,108 $15,278 $12,270
7/31/2007 $15,214 $15,396 $12,267
8/31/2007 $15,111 $15,330 $12,245
9/30/2007 $15,320 $15,557 $12,279
10/31/2007 $15,389 $15,626 $12,305
11/30/2007 $15,494 $15,726 $12,378
12/31/2007 $15,548 $15,769 $12,370
1/31/2008 $15,626 $15,968 $12,431
2/29/2008 $14,896 $15,237 $12,467
3/31/2008 $15,336 $15,672 $12,575
4/30/2008 $15,588 $15,856 $12,652
5/31/2008 $15,684 $15,952 $12,758
6/30/2008 $15,495 $15,771 $12,887
7/31/2008 $15,537 $15,831 $12,954
8/31/2008 $15,634 $16,017 $12,903
9/30/2008 $14,887 $15,265 $12,885
10/31/2008 $14,727 $15,110 $12,755
11/30/2008 $14,617 $15,158 $12,510
12/31/2008 $14,647 $15,379 $12,381
1/31/2009 $15,018 $15,942 $12,435
2/28/2009 $15,195 $16,025 $12,497
3/31/2009 $15,215 $16,028 $12,527
4/30/2009 $15,589 $16,349 $12,558
5/31/2009 $15,717 $16,522 $12,595
6/30/2009 $15,620 $16,367 $12,703
7/31/2009 $15,791 $16,641 $12,683
8/31/2009 $16,174 $16,925 $12,711
9/30/2009 $16,813 $17,532 $12,719
10/31/2009 $16,505 $17,164 $12,731
11/30/2009 $16,578 $17,306 $12,740
12/31/2009 $16,694 $17,365 $12,718
1/31/2010 $16,712 $17,455 $12,761
2/28/2010 $16,823 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Massachusetts
personal income tax rate of 38.45%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +7.69%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
24 | Annual Report
Your Fund's Expenses
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 25
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,038.70 $3.34
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
CLASS C
Actual $1,000 $1.036.60 $6.11
Hypothetical (5% return before expenses) $1,000 $1,018.79 $6.06
ADVISOR CLASS
Actual $1,000 $1,040.10 $2.83
Hypothetical (5% return before expenses) $1,000 $1,022.02 $2.81
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.66%; C: 1.21% and Advisor: 0.56%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
26 | Annual Report
Franklin Michigan Tax-Free Income Fund
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 BREAKDOWN*
Franklin Michigan Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ........................... 41.9%
AA ............................ 17.4%
A ............................. 32.1%
BBB ........................... 1.4%
Below Investment Grade ........ 1.3%
Not Rated by S&P .............. 5.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 1.2% 1.6%
AA or Aa 0.7% 0.1%
A 1.9% 0.1%
Below Investment Grade 0.3% --
--- ---
Total 4.1% 1.8%
=== ===
We are pleased to bring you Franklin Michigan Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 90.
Annual Report | 27
DIVIDEND DISTRIBUTIONS*
Franklin Michigan Tax-Free Income Fund
DIVIDEND PER SHARE
-------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
March 2009 4.26 cents 3.74 cents 3.74 cents 4.35 cents
April 2009 4.26 cents 3.74 cents 3.74 cents 4.35 cents
May 2009 4.26 cents 3.74 cents 3.74 cents 4.35 cents
June 2009 4.33 cents 3.80 cents 3.79 cents 4.43 cents
July 2009 4.33 cents 3.80 cents 3.79 cents 4.43 cents
August 2009 4.33 cents 3.80 cents 3.79 cents 4.43 cents
September 2009 4.33 cents 3.79 cents 3.78 cents 4.42 cents
October 2009 4.33 cents 3.79 cents 3.78 cents 4.42 cents
November 2009 4.33 cents 3.79 cents 3.78 cents 4.42 cents
December 2009 4.33 cents 3.76 cents 3.75 cents 4.44 cents
January 2010 4.33 cents 3.76 cents 3.75 cents 4.44 cents
February 2010 4.33 cents 3.76 cents 3.75 cents 4.44 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.48 on February 28, 2009, to $11.97 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 51.73 cents per share for the same period.(2) The
Performance Summary beginning on page 31 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.16% based on an
annualization of the current 4.33 cent per share dividend and the maximum
offering price of $12.50 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Michigan personal income tax bracket of 37.83%
would need to earn a distribution rate of 6.69% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class B, C
and Advisor shares' performance, please see the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
28 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Michigan Tax-Free Income Fund
2/28/10
% OF TOTAL LONG-TERM
INVESTMENTS*
--------------------
Prerefunded 28.0%
General Obligation 22.8%
Utilities 13.5%
Hospital & Health Care 10.8%
Higher Education 9.3%
Subject to Government Appropriations 7.0%
Transportation 4.3%
Tax-Supported 3.2%
Other Revenue 1.1%
* Does not include short-term investments and other net assets.
STATE UPDATE
Michigan faced continued fiscal stress throughout the year under review as state
officials struggled to restructure its economy and shift the job base due to the
recession's impact, particularly on the auto industry. The state's employment
declines outpaced the nation as a whole, with transportation equipment
manufacturing the hardest hit. Michigan's unemployment rate was 14.1% compared
with the 9.7% national rate in February 2010.(3) As job losses accelerated,
workers began migrating out of the state, compounding its economic
vulnerability. State officials, however, worked to create growth in new
industries such as clean energy and electric cars. For example, General Motors
(GM) and Ford diversified and invested in the state. GM spent $700 million at
eight facilities to produce advanced batteries and new electric vehicles.
Similarly, Ford invested $1 billion to build electric versions of existing
models.
Along with the rest of the country, Michigan struggled to reach operating fiscal
balance as tax revenues declined significantly and economic and financial
pressures continued. In an effort to close the widening budget gap, the American
Recovery and Reinvestment Act provided some relief, as did one-time spending
cuts. Furthermore, the governor made reductions in budget aid to schools,
ordered furlough days for state employees and temporarily shut some state
offices. Officials also sought to trim the budget by eliminating lifetime health
care benefits for lawmakers who serve only six years.
The governor proactively responded to economic challenges during the fiscal
calendar through strong management practices. State officials conducted mid-year
adjustments such as a consensus revenue estimating process and a reduction in
expenditures in response to budget shortfalls. These timely budget practices
helped restrain spending growth. In addition, the state's debt burden remained
modest and per-capita debt ratios fell after years of increases. Michigan's net
tax-supported debt as a percentage of personal income was 1.9% and debt per
capita was $658, compared with the national medians of 2.1% and $739.(4)
Independent credit rating agency Moody's Investors Service rated Michigan's
general obligation bonds Aa3 with a negative outlook based on the state's lack
of economic resiliency, which is likely to increase from further budget
stress.(5)
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "U.S. Public Finance Report Card: State Debt
Review: Significant Challenges Lie Ahead," RATINGSDIRECT 12/16/09.
(5.) This does not indicate Moody's rating of the Fund.
Annual Report | 29
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Michigan Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
30 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTTMX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.49 $11.97 $11.48
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5173
CLASS B (SYMBOL: FBMIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.49 $12.03 $11.54
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4525
CLASS C (SYMBOL: FRMTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.50 $12.11 $11.61
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4515
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 2/28/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.50 $11.99 $11.49
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5290
Annual Report | 31
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +8.92% +20.72% +67.53%
Average Annual Total Return(2) +4.29% +2.94% +4.84%
Avg. Ann. Total Return (3/31/10)(3) +4.02% +3.05% +4.62%
Distribution Rate(4) 4.16%
Taxable Equivalent Distribution Rate(5) 6.69%
30-Day Standardized Yield(6) 3.18%
Taxable Equivalent Yield(5) 5.11%
Total Annual Operating expenses(7) 0.63%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +8.28% +17.46% +60.60%
Average Annual Total Return(2) +4.28% +2.93% +4.85%
Avg. Ann. Total Return (3/31/10)(3) +4.01% +3.03% +4.64%
Distribution Rate(4) 3.77%
Taxable Equivalent Distribution Rate(5) 6.06%
30-Day Standardized Yield(6) 2.78%
Taxable Equivalent Yield(5) 4.47%
Total Annual Operating expenses(7) 1.18%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +8.31% +17.51% +58.64%
Average Annual Total Return(2) +7.31% +3.28% +4.72%
Avg. Ann. Total Return (3/31/10)(3) +7.04% +3.38% +4.50%
Distribution Rate(4) 3.73%
Taxable Equivalent Distribution Rate(5) 6.00%
30-Day Standardized Yield(6) 2.78%
Taxable Equivalent Yield(5) 4.47%
Total Annual Operating Expenses(7) 1.18%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------- -------
Cumulative Total Return(1) +9.11% +21.10% +68.06%
Average Annual Total Return(2) +9.11% +3.90% +5.33%
Avg. Ann. Total Return (3/31/10)(3) +8.84% +4.01% +5.11%
Distribution Rate(4) 4.42%
Taxable Equivalent Distribution Rate(5) 7.11%
30-Day Standardized Yield(6) 3.49%
Taxable Equivalent Yield(5) 5.61%
Total Annual Operating Expenses(7) 0.53%
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.
32 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +4.29%
5-Year +2.94%
10-Year +4.84%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MICHIGAN TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- -------------------------- -------------------- --------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,776 $10,218 $10,082
4/30/2000 $ 9,727 $10,158 $10,088
5/31/2000 $ 9,678 $10,105 $10,100
6/30/2000 $ 9,925 $10,373 $10,153
7/31/2000 $10,061 $10,518 $10,177
8/31/2000 $10,208 $10,680 $10,177
9/30/2000 $10,154 $10,624 $10,230
10/31/2000 $10,251 $10,740 $10,247
11/30/2000 $10,319 $10,821 $10,253
12/31/2000 $10,581 $11,089 $10,247
1/31/2001 $10,650 $11,198 $10,312
2/28/2001 $10,699 $11,234 $10,353
3/31/2001 $10,799 $11,334 $10,377
4/30/2001 $10,702 $11,212 $10,418
5/31/2001 $10,800 $11,332 $10,465
6/30/2001 $10,869 $11,408 $10,483
7/31/2001 $11,024 $11,577 $10,453
8/31/2001 $11,177 $11,768 $10,453
9/30/2001 $11,147 $11,729 $10,501
10/31/2001 $11,274 $11,868 $10,465
11/30/2001 $11,189 $11,768 $10,448
12/31/2001 $11,089 $11,657 $10,406
1/31/2002 $11,281 $11,859 $10,430
2/28/2002 $11,388 $12,002 $10,471
3/31/2002 $11,176 $11,767 $10,530
4/30/2002 $11,372 $11,997 $10,589
5/31/2002 $11,427 $12,070 $10,589
6/30/2002 $11,527 $12,197 $10,595
7/31/2002 $11,668 $12,354 $10,607
8/31/2002 $11,789 $12,503 $10,642
9/30/2002 $12,034 $12,776 $10,660
10/31/2002 $11,881 $12,565 $10,677
11/30/2002 $11,848 $12,512 $10,677
12/31/2002 $12,087 $12,776 $10,654
1/31/2003 $12,066 $12,744 $10,701
2/28/2003 $12,204 $12,922 $10,783
3/31/2003 $12,235 $12,930 $10,848
4/30/2003 $12,330 $13,015 $10,824
5/31/2003 $12,622 $13,320 $10,807
6/30/2003 $12,577 $13,263 $10,819
7/31/2003 $12,136 $12,799 $10,830
8/31/2003 $12,210 $12,895 $10,872
9/30/2003 $12,497 $13,274 $10,907
10/31/2003 $12,463 $13,207 $10,895
11/30/2003 $12,597 $13,345 $10,866
12/31/2003 $12,686 $13,455 $10,854
1/31/2004 $12,773 $13,532 $10,907
2/29/2004 $12,948 $13,736 $10,966
3/31/2004 $12,893 $13,688 $11,037
4/30/2004 $12,597 $13,364 $11,072
5/31/2004 $12,563 $13,315 $11,137
6/30/2004 $12,568 $13,364 $11,172
7/31/2004 $12,709 $13,540 $11,154
8/31/2004 $12,915 $13,811 $11,160
9/30/2004 $12,983 $13,884 $11,184
10/31/2004 $13,105 $14,004 $11,243
11/30/2004 $12,994 $13,888 $11,249
12/31/2004 $13,171 $14,058 $11,207
1/31/2005 $13,303 $14,189 $11,231
2/28/2005 $13,288 $14,142 $11,296
3/31/2005 $13,220 $14,053 $11,384
4/30/2005 $13,385 $14,274 $11,461
5/31/2005 $13,503 $14,375 $11,449
6/30/2005 $13,564 $14,464 $11,455
7/31/2005 $13,536 $14,399 $11,508
8/31/2005 $13,641 $14,544 $11,567
9/30/2005 $13,569 $14,446 $11,708
10/31/2005 $13,518 $14,359 $11,731
11/30/2005 $13,581 $14,428 $11,637
12/31/2005 $13,676 $14,552 $11,590
1/31/2006 $13,699 $14,591 $11,678
2/28/2006 $13,789 $14,689 $11,702
3/31/2006 $13,720 $14,588 $11,767
4/30/2006 $13,736 $14,583 $11,867
5/31/2006 $13,777 $14,648 $11,926
6/30/2006 $13,712 $14,592 $11,949
7/31/2006 $13,866 $14,766 $11,985
8/31/2006 $14,031 $14,985 $12,008
9/30/2006 $14,114 $15,089 $11,949
10/31/2006 $14,189 $15,184 $11,885
11/30/2006 $14,295 $15,311 $11,867
12/31/2006 $14,254 $15,257 $11,885
1/31/2007 $14,236 $15,217 $11,921
2/28/2007 $14,389 $15,418 $11,985
3/31/2007 $14,374 $15,380 $12,094
4/30/2007 $14,402 $15,426 $12,172
5/31/2007 $14,360 $15,357 $12,247
6/30/2007 $14,325 $15,278 $12,270
7/31/2007 $14,424 $15,396 $12,267
8/31/2007 $14,403 $15,330 $12,245
9/30/2007 $14,574 $15,557 $12,279
10/31/2007 $14,628 $15,626 $12,305
11/30/2007 $14,727 $15,726 $12,378
12/31/2007 $14,779 $15,769 $12,370
1/31/2008 $14,916 $15,968 $12,431
2/29/2008 $14,380 $15,237 $12,467
3/31/2008 $14,728 $15,672 $12,575
4/30/2008 $14,902 $15,856 $12,652
5/31/2008 $14,981 $15,952 $12,758
6/30/2008 $14,847 $15,771 $12,887
7/31/2008 $14,888 $15,831 $12,954
8/31/2008 $15,017 $16,017 $12,903
9/30/2008 $14,154 $15,265 $12,885
10/31/2008 $14,173 $15,110 $12,755
11/30/2008 $14,162 $15,158 $12,510
12/31/2008 $14,345 $15,379 $12,381
1/31/2009 $14,614 $15,942 $12,435
2/28/2009 $14,729 $16,025 $12,497
3/31/2009 $14,762 $16,028 $12,527
4/30/2009 $14,994 $16,349 $12,558
5/31/2009 $15,154 $16,522 $12,595
6/30/2009 $15,119 $16,367 $12,703
7/31/2009 $15,293 $16,641 $12,683
8/31/2009 $15,545 $16,925 $12,711
9/30/2009 $16,033 $17,532 $12,719
10/31/2009 $15,777 $17,164 $12,731
11/30/2009 $15,780 $17,306 $12,740
12/31/2009 $15,890 $17,365 $12,718
1/31/2010 $15,909 $17,455 $12,761
2/28/2010 $16,047 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +4.28%
5-Year +2.93%
10-Year +4.85%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MICHIGAN TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ------------- -------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,196 $10,218 $10,082
4/30/2000 $10,140 $10,158 $10,088
5/31/2000 $10,093 $10,105 $10,100
6/30/2000 $10,345 $10,373 $10,153
7/31/2000 $10,482 $10,518 $10,177
8/31/2000 $10,629 $10,680 $10,177
9/30/2000 $10,578 $10,624 $10,230
10/31/2000 $10,673 $10,740 $10,247
11/30/2000 $10,739 $10,821 $10,253
12/31/2000 $11,006 $11,089 $10,247
1/31/2001 $11,082 $11,198 $10,312
2/28/2001 $11,128 $11,234 $10,353
3/31/2001 $11,217 $11,334 $10,377
4/30/2001 $11,120 $11,212 $10,418
5/31/2001 $11,216 $11,332 $10,465
6/30/2001 $11,282 $11,408 $10,483
7/31/2001 $11,437 $11,577 $10,453
8/31/2001 $11,590 $11,768 $10,453
9/30/2001 $11,563 $11,729 $10,501
10/31/2001 $11,680 $11,868 $10,465
11/30/2001 $11,587 $11,768 $10,448
12/31/2001 $11,477 $11,657 $10,406
1/31/2002 $11,671 $11,859 $10,430
2/28/2002 $11,775 $12,002 $10,471
3/31/2002 $11,551 $11,767 $10,530
4/30/2002 $11,747 $11,997 $10,589
5/31/2002 $11,799 $12,070 $10,589
6/30/2002 $11,896 $12,197 $10,595
7/31/2002 $12,046 $12,354 $10,607
8/31/2002 $12,164 $12,503 $10,642
9/30/2002 $12,411 $12,776 $10,660
10/31/2002 $12,237 $12,565 $10,677
11/30/2002 $12,208 $12,512 $10,677
12/31/2002 $12,448 $12,776 $10,654
1/31/2003 $12,420 $12,744 $10,701
2/28/2003 $12,557 $12,922 $10,783
3/31/2003 $12,582 $12,930 $10,848
4/30/2003 $12,673 $13,015 $10,824
5/31/2003 $12,976 $13,320 $10,807
6/30/2003 $12,925 $13,263 $10,819
7/31/2003 $12,458 $12,799 $10,830
8/31/2003 $12,528 $12,895 $10,872
9/30/2003 $12,815 $13,274 $10,907
10/31/2003 $12,774 $13,207 $10,895
11/30/2003 $12,905 $13,345 $10,866
12/31/2003 $12,990 $13,455 $10,854
1/31/2004 $13,084 $13,532 $10,907
2/29/2004 $13,246 $13,736 $10,966
3/31/2004 $13,195 $13,688 $11,037
4/30/2004 $12,888 $13,364 $11,072
5/31/2004 $12,836 $13,315 $11,137
6/30/2004 $12,845 $13,364 $11,172
7/31/2004 $12,983 $13,540 $11,154
8/31/2004 $13,186 $13,811 $11,160
9/30/2004 $13,250 $13,884 $11,184
10/31/2004 $13,357 $14,004 $11,243
11/30/2004 $13,250 $13,888 $11,249
12/31/2004 $13,412 $14,058 $11,207
1/31/2005 $13,551 $14,189 $11,231
2/28/2005 $13,519 $14,142 $11,296
3/31/2005 $13,444 $14,053 $11,384
4/30/2005 $13,616 $14,274 $11,461
5/31/2005 $13,728 $14,375 $11,449
6/30/2005 $13,783 $14,464 $11,455
7/31/2005 $13,749 $14,399 $11,508
8/31/2005 $13,849 $14,544 $11,567
9/30/2005 $13,770 $14,446 $11,708
10/31/2005 $13,712 $14,359 $11,731
11/30/2005 $13,769 $14,428 $11,637
12/31/2005 $13,847 $14,552 $11,590
1/31/2006 $13,865 $14,591 $11,678
2/28/2006 $13,961 $14,689 $11,702
3/31/2006 $13,885 $14,588 $11,767
4/30/2006 $13,883 $14,583 $11,867
5/31/2006 $13,929 $14,648 $11,926
6/30/2006 $13,858 $14,592 $11,949
7/31/2006 $13,995 $14,766 $11,985
8/31/2006 $14,166 $14,985 $12,008
9/30/2006 $14,243 $15,089 $11,949
10/31/2006 $14,312 $15,184 $11,885
11/30/2006 $14,412 $15,311 $11,867
12/31/2006 $14,364 $15,257 $11,885
1/31/2007 $14,340 $15,217 $11,921
2/28/2007 $14,486 $15,418 $11,985
3/31/2007 $14,465 $15,380 $12,094
4/30/2007 $14,485 $15,426 $12,172
5/31/2007 $14,436 $15,357 $12,247
6/30/2007 $14,396 $15,278 $12,270
7/31/2007 $14,488 $15,396 $12,267
8/31/2007 $14,460 $15,330 $12,245
9/30/2007 $14,625 $15,557 $12,279
10/31/2007 $14,672 $15,626 $12,305
11/30/2007 $14,764 $15,726 $12,378
12/31/2007 $14,809 $15,769 $12,370
1/31/2008 $14,939 $15,968 $12,431
2/29/2008 $14,399 $15,237 $12,467
3/31/2008 $14,748 $15,672 $12,575
4/30/2008 $14,922 $15,856 $12,652
5/31/2008 $15,000 $15,952 $12,758
6/30/2008 $14,867 $15,771 $12,887
7/31/2008 $14,908 $15,831 $12,954
8/31/2008 $15,035 $16,017 $12,903
9/30/2008 $14,173 $15,265 $12,885
10/31/2008 $14,191 $15,110 $12,755
11/30/2008 $14,177 $15,158 $12,510
12/31/2008 $14,364 $15,379 $12,381
1/31/2009 $14,632 $15,942 $12,435
2/28/2009 $14,747 $16,025 $12,497
3/31/2009 $14,782 $16,028 $12,527
4/30/2009 $15,015 $16,349 $12,558
5/31/2009 $15,172 $16,522 $12,595
6/30/2009 $15,141 $16,367 $12,703
7/31/2009 $15,315 $16,641 $12,683
8/31/2009 $15,567 $16,925 $12,711
9/30/2009 $16,056 $17,532 $12,719
10/31/2009 $15,798 $17,164 $12,731
11/30/2009 $15,803 $17,306 $12,740
12/31/2009 $15,913 $17,365 $12,718
1/31/2010 $15,929 $17,455 $12,761
2/28/2010 $16,060 $17,624 $12,764
Annual Report | 33
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +7.31%
5-Year +3.28%
10-Year +4.72%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MICHIGAN TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- -------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,204 $10,218 $10,082
4/30/2000 $10,139 $10,158 $10,088
5/31/2000 $10,093 $10,105 $10,100
6/30/2000 $10,343 $10,373 $10,153
7/31/2000 $10,480 $10,518 $10,177
8/31/2000 $10,627 $10,680 $10,177
9/30/2000 $10,566 $10,624 $10,230
10/31/2000 $10,661 $10,740 $10,247
11/30/2000 $10,736 $10,821 $10,253
12/31/2000 $10,992 $11,089 $10,247
1/31/2001 $11,068 $11,198 $10,312
2/28/2001 $11,114 $11,234 $10,353
3/31/2001 $11,202 $11,334 $10,377
4/30/2001 $11,106 $11,212 $10,418
5/31/2001 $11,193 $11,332 $10,465
6/30/2001 $11,267 $11,408 $10,483
7/31/2001 $11,422 $11,577 $10,453
8/31/2001 $11,574 $11,768 $10,453
9/30/2001 $11,547 $11,729 $10,501
10/31/2001 $11,663 $11,868 $10,465
11/30/2001 $11,571 $11,768 $10,448
12/31/2001 $11,462 $11,657 $10,406
1/31/2002 $11,654 $11,859 $10,430
2/28/2002 $11,758 $12,002 $10,471
3/31/2002 $11,535 $11,767 $10,530
4/30/2002 $11,730 $11,997 $10,589
5/31/2002 $11,782 $12,070 $10,589
6/30/2002 $11,878 $12,197 $10,595
7/31/2002 $12,027 $12,354 $10,607
8/31/2002 $12,145 $12,503 $10,642
9/30/2002 $12,391 $12,776 $10,660
10/31/2002 $12,228 $12,565 $10,677
11/30/2002 $12,189 $12,512 $10,677
12/31/2002 $12,429 $12,776 $10,654
1/31/2003 $12,401 $12,744 $10,701
2/28/2003 $12,538 $12,922 $10,783
3/31/2003 $12,563 $12,930 $10,848
4/30/2003 $12,654 $13,015 $10,824
5/31/2003 $12,955 $13,320 $10,807
6/30/2003 $12,904 $13,263 $10,819
7/31/2003 $12,438 $12,799 $10,830
8/31/2003 $12,507 $12,895 $10,872
9/30/2003 $12,802 $13,274 $10,907
10/31/2003 $12,751 $13,207 $10,895
11/30/2003 $12,891 $13,345 $10,866
12/31/2003 $12,975 $13,455 $10,854
1/31/2004 $13,057 $13,532 $10,907
2/29/2004 $13,230 $13,736 $10,966
3/31/2004 $13,168 $13,688 $11,037
4/30/2004 $12,863 $13,364 $11,072
5/31/2004 $12,811 $13,315 $11,137
6/30/2004 $12,821 $13,364 $11,172
7/31/2004 $12,957 $13,540 $11,154
8/31/2004 $13,159 $13,811 $11,160
9/30/2004 $13,223 $13,884 $11,184
10/31/2004 $13,340 $14,004 $11,243
11/30/2004 $13,222 $13,888 $11,249
12/31/2004 $13,394 $14,058 $11,207
1/31/2005 $13,521 $14,189 $11,231
2/28/2005 $13,500 $14,142 $11,296
3/31/2005 $13,425 $14,053 $11,384
4/30/2005 $13,585 $14,274 $11,461
5/31/2005 $13,707 $14,375 $11,449
6/30/2005 $13,763 $14,464 $11,455
7/31/2005 $13,729 $14,399 $11,508
8/31/2005 $13,828 $14,544 $11,567
9/30/2005 $13,749 $14,446 $11,708
10/31/2005 $13,680 $14,359 $11,731
11/30/2005 $13,737 $14,428 $11,637
12/31/2005 $13,826 $14,552 $11,590
1/31/2006 $13,844 $14,591 $11,678
2/28/2006 $13,939 $14,689 $11,702
3/31/2006 $13,863 $14,588 $11,767
4/30/2006 $13,862 $14,583 $11,867
5/31/2006 $13,907 $14,648 $11,926
6/30/2006 $13,836 $14,592 $11,949
7/31/2006 $13,972 $14,766 $11,985
8/31/2006 $14,142 $14,985 $12,008
9/30/2006 $14,218 $15,089 $11,949
10/31/2006 $14,287 $15,184 $11,885
11/30/2006 $14,386 $15,311 $11,867
12/31/2006 $14,350 $15,257 $11,885
1/31/2007 $14,314 $15,217 $11,921
2/28/2007 $14,460 $15,418 $11,985
3/31/2007 $14,438 $15,380 $12,094
4/30/2007 $14,459 $15,426 $12,172
5/31/2007 $14,422 $15,357 $12,247
6/30/2007 $14,369 $15,278 $12,270
7/31/2007 $14,461 $15,396 $12,267
8/31/2007 $14,434 $15,330 $12,245
9/30/2007 $14,597 $15,557 $12,279
10/31/2007 $14,644 $15,626 $12,305
11/30/2007 $14,735 $15,726 $12,378
12/31/2007 $14,780 $15,769 $12,370
1/31/2008 $14,920 $15,968 $12,431
2/29/2008 $14,371 $15,237 $12,467
3/31/2008 $14,721 $15,672 $12,575
4/30/2008 $14,886 $15,856 $12,652
5/31/2008 $14,957 $15,952 $12,758
6/30/2008 $14,805 $15,771 $12,887
7/31/2008 $14,851 $15,831 $12,954
8/31/2008 $14,972 $16,017 $12,903
9/30/2008 $14,114 $15,265 $12,885
10/31/2008 $14,113 $15,110 $12,755
11/30/2008 $14,095 $15,158 $12,510
12/31/2008 $14,282 $15,379 $12,381
1/31/2009 $14,528 $15,942 $12,435
2/28/2009 $14,648 $16,025 $12,497
3/31/2009 $14,673 $16,028 $12,527
4/30/2009 $14,896 $16,349 $12,558
5/31/2009 $15,046 $16,522 $12,595
6/30/2009 $15,005 $16,367 $12,703
7/31/2009 $15,168 $16,641 $12,683
8/31/2009 $15,409 $16,925 $12,711
9/30/2009 $15,893 $17,532 $12,719
10/31/2009 $15,622 $17,164 $12,731
11/30/2009 $15,618 $17,306 $12,740
12/31/2009 $15,731 $17,365 $12,718
1/31/2010 $15,742 $17,455 $12,761
2/28/2010 $15,864 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +9.11%
5-Year +3.90%
10-Year +5.33%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN MICHIGAN TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,210 $10,218 $10,082
4/30/2000 $10,158 $10,158 $10,088
5/31/2000 $10,108 $10,105 $10,100
6/30/2000 $10,365 $10,373 $10,153
7/31/2000 $10,508 $10,518 $10,177
8/31/2000 $10,661 $10,680 $10,177
9/30/2000 $10,605 $10,624 $10,230
10/31/2000 $10,706 $10,740 $10,247
11/30/2000 $10,777 $10,821 $10,253
12/31/2000 $11,050 $11,089 $10,247
1/31/2001 $11,123 $11,198 $10,312
2/28/2001 $11,174 $11,234 $10,353
3/31/2001 $11,279 $11,334 $10,377
4/30/2001 $11,177 $11,212 $10,418
5/31/2001 $11,280 $11,332 $10,465
6/30/2001 $11,351 $11,408 $10,483
7/31/2001 $11,513 $11,577 $10,453
8/31/2001 $11,673 $11,768 $10,453
9/30/2001 $11,641 $11,729 $10,501
10/31/2001 $11,775 $11,868 $10,465
11/30/2001 $11,686 $11,768 $10,448
12/31/2001 $11,581 $11,657 $10,406
1/31/2002 $11,782 $11,859 $10,430
2/28/2002 $11,893 $12,002 $10,471
3/31/2002 $11,672 $11,767 $10,530
4/30/2002 $11,877 $11,997 $10,589
5/31/2002 $11,935 $12,070 $10,589
6/30/2002 $12,038 $12,197 $10,595
7/31/2002 $12,186 $12,354 $10,607
8/31/2002 $12,312 $12,503 $10,642
9/30/2002 $12,568 $12,776 $10,660
10/31/2002 $12,408 $12,565 $10,677
11/30/2002 $12,373 $12,512 $10,677
12/31/2002 $12,624 $12,776 $10,654
1/31/2003 $12,601 $12,744 $10,701
2/28/2003 $12,746 $12,922 $10,783
3/31/2003 $12,778 $12,930 $10,848
4/30/2003 $12,878 $13,015 $10,824
5/31/2003 $13,182 $13,320 $10,807
6/30/2003 $13,136 $13,263 $10,819
7/31/2003 $12,675 $12,799 $10,830
8/31/2003 $12,752 $12,895 $10,872
9/30/2003 $13,051 $13,274 $10,907
10/31/2003 $13,016 $13,207 $10,895
11/30/2003 $13,156 $13,345 $10,866
12/31/2003 $13,249 $13,455 $10,854
1/31/2004 $13,340 $13,532 $10,907
2/29/2004 $13,522 $13,736 $10,966
3/31/2004 $13,465 $13,688 $11,037
4/30/2004 $13,157 $13,364 $11,072
5/31/2004 $13,121 $13,315 $11,137
6/30/2004 $13,126 $13,364 $11,172
7/31/2004 $13,273 $13,540 $11,154
8/31/2004 $13,488 $13,811 $11,160
9/30/2004 $13,560 $13,884 $11,184
10/31/2004 $13,686 $14,004 $11,243
11/30/2004 $13,571 $13,888 $11,249
12/31/2004 $13,756 $14,058 $11,207
1/31/2005 $13,894 $14,189 $11,231
2/28/2005 $13,878 $14,142 $11,296
3/31/2005 $13,807 $14,053 $11,384
4/30/2005 $13,980 $14,274 $11,461
5/31/2005 $14,102 $14,375 $11,449
6/30/2005 $14,166 $14,464 $11,455
7/31/2005 $14,137 $14,399 $11,508
8/31/2005 $14,247 $14,544 $11,567
9/30/2005 $14,171 $14,446 $11,708
10/31/2005 $14,118 $14,359 $11,731
11/30/2005 $14,183 $14,428 $11,637
12/31/2005 $14,283 $14,552 $11,590
1/31/2006 $14,307 $14,591 $11,678
2/28/2006 $14,401 $14,689 $11,702
3/31/2006 $14,329 $14,588 $11,767
4/30/2006 $14,346 $14,583 $11,867
5/31/2006 $14,389 $14,648 $11,926
6/30/2006 $14,320 $14,592 $11,949
7/31/2006 $14,481 $14,766 $11,985
8/31/2006 $14,654 $14,985 $12,008
9/30/2006 $14,740 $15,089 $11,949
10/31/2006 $14,819 $15,184 $11,885
11/30/2006 $14,930 $15,311 $11,867
12/31/2006 $14,887 $15,257 $11,885
1/31/2007 $14,868 $15,217 $11,921
2/28/2007 $15,028 $15,418 $11,985
3/31/2007 $15,012 $15,380 $12,094
4/30/2007 $15,041 $15,426 $12,172
5/31/2007 $14,997 $15,357 $12,247
6/30/2007 $14,961 $15,278 $12,270
7/31/2007 $15,064 $15,396 $12,267
8/31/2007 $15,042 $15,330 $12,245
9/30/2007 $15,221 $15,557 $12,279
10/31/2007 $15,278 $15,626 $12,305
11/30/2007 $15,381 $15,726 $12,378
12/31/2007 $15,435 $15,769 $12,370
1/31/2008 $15,578 $15,968 $12,431
2/29/2008 $15,018 $15,237 $12,467
3/31/2008 $15,382 $15,672 $12,575
4/30/2008 $15,563 $15,856 $12,652
5/31/2008 $15,646 $15,952 $12,758
6/30/2008 $15,506 $15,771 $12,887
7/31/2008 $15,563 $15,831 $12,954
8/31/2008 $15,713 $16,017 $12,903
9/30/2008 $14,812 $15,265 $12,885
10/31/2008 $14,820 $15,110 $12,755
11/30/2008 $14,809 $15,158 $12,510
12/31/2008 $15,015 $15,379 $12,381
1/31/2009 $15,284 $15,942 $12,435
2/28/2009 $15,405 $16,025 $12,497
3/31/2009 $15,441 $16,028 $12,527
4/30/2009 $15,685 $16,349 $12,558
5/31/2009 $15,854 $16,522 $12,595
6/30/2009 $15,832 $16,367 $12,703
7/31/2009 $16,015 $16,641 $12,683
8/31/2009 $16,280 $16,925 $12,711
9/30/2009 $16,791 $17,532 $12,719
10/31/2009 $16,525 $17,164 $12,731
11/30/2009 $16,529 $17,306 $12,740
12/31/2009 $16,645 $17,365 $12,718
1/31/2010 $16,667 $17,455 $12,761
2/28/2010 $16,806 $17,624 $12,764
34 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Michigan
personal income tax rate of 37.83%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/08, 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 +8.10% and 4.80%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 35
Your Fund's Expenses
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
36 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,031.90 $3.17
Hypothetical (5% return before expenses) $1,000 $1,021.67 $3.16
CLASS B
Actual $1,000 $1,028.90 $5.94
Hypothetical (5% return before expenses) $1,000 $1,018.94 $5.91
CLASS C
Actual $1,000 $1,029.50 $5.94
Hypothetical (5% return before expenses) $1,000 $1,018.94 $5.91
ADVISOR CLASS
Actual $1,000 $1,032.30 $2.67
Hypothetical (5% return before expenses) $1,000 $1,022.17 $2.66
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.63%; B: 1.18%; C: 1.18%; and Advisor:
0.53%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Annual Report | 37
Franklin Minnesota Tax-Free Income Fund
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 BREAKDOWN*
Franklin Minnesota Tax-Free Income Fund
2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 39.7%
AA 11.1%
A 10.7%
BBB 0.4%
Not Rated by S&P 38.1%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 1.3% 0.6%
AA or Aa 28.3% --
A 7.9% --
---- ---
Total 37.5% 0.6%
==== ===
We are pleased to bring you Franklin Minnesota Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 100.
38 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Minnesota Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.08 cents 3.53 cents --
April 2009 4.08 cents 3.53 cents --
May 2009 4.08 cents 3.53 cents --
June 2009 3.97 cents 3.41 cents --
July 2009 3.97 cents 3.41 cents 2.49 cents
August 2009 3.97 cents 3.41 cents 4.07 cents
September 2009 3.92 cents 3.36 cents 4.02 cents
October 2009 3.92 cents 3.36 cents 4.02 cents
November 2009 3.92 cents 3.36 cents 4.02 cents
December 2009 3.92 cents 3.35 cents 4.02 cents
January 2010 3.92 cents 3.35 cents 4.02 cents
February 2010 3.92 cents 3.35 cents 4.02 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.80 on February 28, 2009, to $12.20 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 47.59 cents per share for the same 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 3.69% based on an
annualization of the current 3.92 cent per share dividend and the maximum
offering price of $12.74 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Minnesota personal income tax bracket of 40.10%
would need to earn a distribution rate of 6.16% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C and
Advisor shares' performance, please see the Performance Summary. During the year
under review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 39
PORTFOLIO BREAKDOWN
Franklin Minnesota Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
General Obligation 41.6%
Hospital & Health Care 19.2%
Utilities 10.8%
Higher Education 5.1%
Tax-Supported 4.8%
Housing 4.5%
Prerefunded 4.5%
Transportation 3.6%
Subject to Government Appropriations 3.3%
Other Revenue 2.6%
* Does not include short-term investments and other net assets.
STATE UPDATE
During the year under review, Minnesota was deeply affected by the national
economic downturn and distressed housing market. The state's important
homebuilding supply industry struggled and plants closed, which hurt the
economy. However, Minnesota's deep and diverse economy, with its mix of
manufacturing, services and trade, supported by several regional hubs, provided
a solid economic foundation and could serve as a positive force for the longer
term. Personal income and wealth levels were above national averages, and as of
February 2010, the state's unemployment rate was a relatively low 7.3% compared
with the 9.7% national rate.(3)
Like most states, Minnesota's income, sales and other tax revenues declined.
With its long history of institutionalized best practices, the state's
government proactively adjusted the budget in an effort to better align reduced
revenues with increased costs and outlays. In addition, the governor has the
statutory authority to unilaterally implement spending cuts without legislative
approval, which proved to be instrumental in a severely depressed revenue
environment. At the end of fiscal year 2009, the state closed its substantial
biennial budget gap with one-time solutions including the use of reserves, more
federal stimulus funds than originally budgeted, and some spending reductions,
helping it to post a modest $89 million operating surplus.(4) The state depleted
its budget reserves, but left a $350 million cash flow account for the current
fiscal 2010-2011 biennium, which was projected to have a $4.6 billion gap.4 Cuts
primarily in education and health and human services, along with federal aid,
were expected to close the massive imbalance.
Thanks to long-standing internal debt control policies, Minnesota's debt levels
remained relatively low and in line with national averages. The state's net
tax-supported debt as a percentage of personal income was 2.1% and debt per
capita was $892, compared with the national medians of 2.1% and $739.(5) The
state has a long track record of strong financial management policies and
practices and a historical ability to weather fiscal challenges, in addition to
strong economic fundamentals, a diverse employment mix and high wealth levels.
Independent credit rating agency Moody's Investors Service in February 2010
affirmed Minnesota's Aa1 general obligation (GO) rating based on these and other
positive factors, but revised its outlook for GO bonds and state
(3.) Source: U.S. Bureau of Labor Statistics.
(4.) Source: Moody's Investors Service, "Rating Update: Moody's Revises State of
Minnesota's Outlook to Negative from Stable and Affirms Aa1 General
Obligation Rating," 2/9/10.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," RATINGSDIRECT, 12/16/09.
40 | Annual Report
supported debt to negative from stable.(6) The downgraded outlook reflected
continued pressure on the state's credit created by ongoing financial weakness.
As the state attempts to stabilize its fiscal health, it faces revenue
underperfor-mance made more difficult by sizable future budget deficits, tighter
liquidity, recent depletion of budget reserves, negative accounting balances and
heavy reliance on one-time measures to balance the budget.
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Minnesota Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
(6.) This does not indicate Moody's rating of the Fund.
Annual Report | 41
Performance Summary as of 2/28/10
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMINX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) $0.40 $12.20 $11.80
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4759
CLASS C (SYMBOL: FMNIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) $0.41 $12.30 $11.89
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4087
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/1/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) $0.29 $12.20 $11.91
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3168
42 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +7.54% +22.64% +69.80%
Average Annual Total Return(2) +3.00% +3.27% +4.98%
Avg. Ann. Total Return (3/31/10)(3) +2.14% +3.31% +4.70%
Distribution Rate(4) 3.69%
Taxable Equivalent Distribution Rate(5) 6.16%
30-Day Standardized Yield(6) 3.03%
Taxable Equivalent Yield(5) 5.06%
Total Annual Operating expenses(7) 0.66%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +6.97% +19.35% +60.87%
Average Annual Total Return(2) +5.97% +3.60% +4.87%
Avg. Ann. Total Return (3/31/10)(3) +4.99% +3.65% +4.58%
Distribution Rate(4) 3.26%
Taxable Equivalent Distribution Rate(5) 5.44%
30-Day Standardized Yield(6) 2.63%
Taxable Equivalent Yield(5) 4.39%
Total Annual Operating expenses(7) 1.21%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +7.61% +22.71% +69.91%
Average Annual Total Return(2) +7.61% +4.18% +5.44%
Avg. Ann. Total Return (3/31/10)(3) +6.71% +4.23% +5.16%
Distribution Rate(4) 3.95%
Taxable Equivalent Distribution Rate(5) 6.59%
30-Day Standardized Yield(6) 3.23%
Taxable Equivalent Yield(5) 5.39%
Total Annual Operating expenses(7) 0.56%
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.
Annual Report | 43
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +3.00%
5-Year +3.27%
10-Year +4.98%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MINNESOTA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,805 $10,218 $10,082
4/30/2000 $ 9,736 $10,158 $10,088
5/31/2000 $ 9,651 $10,105 $10,100
6/30/2000 $ 9,910 $10,373 $10,153
7/31/2000 $10,057 $10,518 $10,177
8/31/2000 $10,223 $10,680 $10,177
9/30/2000 $10,158 $10,624 $10,230
10/31/2000 $10,274 $10,740 $10,247
11/30/2000 $10,360 $10,821 $10,253
12/31/2000 $10,626 $11,089 $10,247
1/31/2001 $10,705 $11,198 $10,312
2/28/2001 $10,753 $11,234 $10,353
3/31/2001 $10,855 $11,334 $10,377
4/30/2001 $10,745 $11,212 $10,418
5/31/2001 $10,845 $11,332 $10,465
6/30/2001 $10,924 $11,408 $10,483
7/31/2001 $11,063 $11,577 $10,453
8/31/2001 $11,210 $11,768 $10,453
9/30/2001 $11,169 $11,729 $10,501
10/31/2001 $11,289 $11,868 $10,465
11/30/2001 $11,229 $11,768 $10,448
12/31/2001 $11,125 $11,657 $10,406
1/31/2002 $11,283 $11,859 $10,430
2/28/2002 $11,382 $12,002 $10,471
3/31/2002 $11,222 $11,767 $10,530
4/30/2002 $11,382 $11,997 $10,589
5/31/2002 $11,448 $12,070 $10,589
6/30/2002 $11,530 $12,197 $10,595
7/31/2002 $11,655 $12,354 $10,607
8/31/2002 $11,758 $12,503 $10,642
9/30/2002 $11,988 $12,776 $10,660
10/31/2002 $11,821 $12,565 $10,677
11/30/2002 $11,795 $12,512 $10,677
12/31/2002 $12,010 $12,776 $10,654
1/31/2003 $12,016 $12,744 $10,701
2/28/2003 $12,166 $12,922 $10,783
3/31/2003 $12,185 $12,930 $10,848
4/30/2003 $12,280 $13,015 $10,824
5/31/2003 $12,564 $13,320 $10,807
6/30/2003 $12,518 $13,263 $10,819
7/31/2003 $12,119 $12,799 $10,830
8/31/2003 $12,184 $12,895 $10,872
9/30/2003 $12,473 $13,274 $10,907
10/31/2003 $12,398 $13,207 $10,895
11/30/2003 $12,523 $13,345 $10,866
12/31/2003 $12,633 $13,455 $10,854
1/31/2004 $12,710 $13,532 $10,907
2/29/2004 $12,875 $13,736 $10,966
3/31/2004 $12,849 $13,688 $11,037
4/30/2004 $12,560 $13,364 $11,072
5/31/2004 $12,514 $13,315 $11,137
6/30/2004 $12,548 $13,364 $11,172
7/31/2004 $12,689 $13,540 $11,154
8/31/2004 $12,895 $13,811 $11,160
9/30/2004 $12,972 $13,884 $11,184
10/31/2004 $13,093 $14,004 $11,243
11/30/2004 $12,990 $13,888 $11,249
12/31/2004 $13,165 $14,058 $11,207
1/31/2005 $13,296 $14,189 $11,231
2/28/2005 $13,257 $14,142 $11,296
3/31/2005 $13,186 $14,053 $11,384
4/30/2005 $13,372 $14,274 $11,461
5/31/2005 $13,455 $14,375 $11,449
6/30/2005 $13,514 $14,464 $11,455
7/31/2005 $13,461 $14,399 $11,508
8/31/2005 $13,587 $14,544 $11,567
9/30/2005 $13,489 $14,446 $11,708
10/31/2005 $13,400 $14,359 $11,731
11/30/2005 $13,483 $14,428 $11,637
12/31/2005 $13,598 $14,552 $11,590
1/31/2006 $13,619 $14,591 $11,678
2/28/2006 $13,718 $14,689 $11,702
3/31/2006 $13,622 $14,588 $11,767
4/30/2006 $13,612 $14,583 $11,867
5/31/2006 $13,650 $14,648 $11,926
6/30/2006 $13,616 $14,592 $11,949
7/31/2006 $13,757 $14,766 $11,985
8/31/2006 $13,955 $14,985 $12,008
9/30/2006 $14,047 $15,089 $11,949
10/31/2006 $14,120 $15,184 $11,885
11/30/2006 $14,248 $15,311 $11,867
12/31/2006 $14,192 $15,257 $11,885
1/31/2007 $14,172 $15,217 $11,921
2/28/2007 $14,335 $15,418 $11,985
3/31/2007 $14,294 $15,380 $12,094
4/30/2007 $14,331 $15,426 $12,172
5/31/2007 $14,275 $15,357 $12,247
6/30/2007 $14,203 $15,278 $12,270
7/31/2007 $14,301 $15,396 $12,267
8/31/2007 $14,242 $15,330 $12,245
9/30/2007 $14,448 $15,557 $12,279
10/31/2007 $14,511 $15,626 $12,305
11/30/2007 $14,584 $15,726 $12,378
12/31/2007 $14,645 $15,769 $12,370
1/31/2008 $14,742 $15,968 $12,431
2/29/2008 $14,143 $15,237 $12,467
3/31/2008 $14,526 $15,672 $12,575
4/30/2008 $14,722 $15,856 $12,652
5/31/2008 $14,799 $15,952 $12,758
6/30/2008 $14,687 $15,771 $12,887
7/31/2008 $14,726 $15,831 $12,954
8/31/2008 $14,878 $16,017 $12,903
9/30/2008 $14,176 $15,265 $12,885
10/31/2008 $14,129 $15,110 $12,755
11/30/2008 $14,179 $15,158 $12,510
12/31/2008 $14,499 $15,379 $12,381
1/31/2009 $14,969 $15,942 $12,435
2/28/2009 $15,120 $16,025 $12,497
3/31/2009 $15,202 $16,028 $12,527
4/30/2009 $15,458 $16,349 $12,558
5/31/2009 $15,563 $16,522 $12,595
6/30/2009 $15,459 $16,367 $12,703
7/31/2009 $15,601 $16,641 $12,683
8/31/2009 $15,795 $16,925 $12,711
9/30/2009 $16,211 $17,532 $12,719
10/31/2009 $15,924 $17,164 $12,731
11/30/2009 $16,041 $17,306 $12,740
12/31/2009 $16,039 $17,365 $12,718
1/31/2010 $16,119 $17,455 $12,761
2/28/2010 $16,264 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +5.97%
5-Year +3.60%
10-Year +4.87%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MINNESOTA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,243 $10,218 $10,082
4/30/2000 $10,167 $10,158 $10,088
5/31/2000 $10,074 $10,105 $10,100
6/30/2000 $10,329 $10,373 $10,153
7/31/2000 $10,486 $10,518 $10,177
8/31/2000 $10,653 $10,680 $10,177
9/30/2000 $10,582 $10,624 $10,230
10/31/2000 $10,696 $10,740 $10,247
11/30/2000 $10,772 $10,821 $10,253
12/31/2000 $11,051 $11,089 $10,247
1/31/2001 $11,128 $11,198 $10,312
2/28/2001 $11,174 $11,234 $10,353
3/31/2001 $11,273 $11,334 $10,377
4/30/2001 $11,154 $11,212 $10,418
5/31/2001 $11,251 $11,332 $10,465
6/30/2001 $11,328 $11,408 $10,483
7/31/2001 $11,476 $11,577 $10,453
8/31/2001 $11,612 $11,768 $10,453
9/30/2001 $11,565 $11,729 $10,501
10/31/2001 $11,683 $11,868 $10,465
11/30/2001 $11,616 $11,768 $10,448
12/31/2001 $11,504 $11,657 $10,406
1/31/2002 $11,671 $11,859 $10,430
2/28/2002 $11,757 $12,002 $10,471
3/31/2002 $11,596 $11,767 $10,530
4/30/2002 $11,756 $11,997 $10,589
5/31/2002 $11,808 $12,070 $10,589
6/30/2002 $11,897 $12,197 $10,595
7/31/2002 $12,019 $12,354 $10,607
8/31/2002 $12,120 $12,503 $10,642
9/30/2002 $12,351 $12,776 $10,660
10/31/2002 $12,174 $12,565 $10,677
11/30/2002 $12,144 $12,512 $10,677
12/31/2002 $12,368 $12,776 $10,654
1/31/2003 $12,359 $12,744 $10,701
2/28/2003 $12,508 $12,922 $10,783
3/31/2003 $12,521 $12,930 $10,848
4/30/2003 $12,613 $13,015 $10,824
5/31/2003 $12,898 $13,320 $10,807
6/30/2003 $12,843 $13,263 $10,819
7/31/2003 $12,429 $12,799 $10,830
8/31/2003 $12,488 $12,895 $10,872
9/30/2003 $12,777 $13,274 $10,907
10/31/2003 $12,703 $13,207 $10,895
11/30/2003 $12,824 $13,345 $10,866
12/31/2003 $12,920 $13,455 $10,854
1/31/2004 $12,993 $13,532 $10,907
2/29/2004 $13,167 $13,736 $10,966
3/31/2004 $13,124 $13,688 $11,037
4/30/2004 $12,835 $13,364 $11,072
5/31/2004 $12,782 $13,315 $11,137
6/30/2004 $12,800 $13,364 $11,172
7/31/2004 $12,947 $13,540 $11,154
8/31/2004 $13,150 $13,811 $11,160
9/30/2004 $13,222 $13,884 $11,184
10/31/2004 $13,327 $14,004 $11,243
11/30/2004 $13,227 $13,888 $11,249
12/31/2004 $13,388 $14,058 $11,207
1/31/2005 $13,525 $14,189 $11,231
2/28/2005 $13,479 $14,142 $11,296
3/31/2005 $13,402 $14,053 $11,384
4/30/2005 $13,583 $14,274 $11,461
5/31/2005 $13,660 $14,375 $11,449
6/30/2005 $13,714 $14,464 $11,455
7/31/2005 $13,666 $14,399 $11,508
8/31/2005 $13,786 $14,544 $11,567
9/30/2005 $13,670 $14,446 $11,708
10/31/2005 $13,575 $14,359 $11,731
11/30/2005 $13,651 $14,428 $11,637
12/31/2005 $13,761 $14,552 $11,590
1/31/2006 $13,776 $14,591 $11,678
2/28/2006 $13,881 $14,689 $11,702
3/31/2006 $13,766 $14,588 $11,767
4/30/2006 $13,750 $14,583 $11,867
5/31/2006 $13,782 $14,648 $11,926
6/30/2006 $13,741 $14,592 $11,949
7/31/2006 $13,876 $14,766 $11,985
8/31/2006 $14,068 $14,985 $12,008
9/30/2006 $14,166 $15,089 $11,949
10/31/2006 $14,233 $15,184 $11,885
11/30/2006 $14,342 $15,311 $11,867
12/31/2006 $14,292 $15,257 $11,885
1/31/2007 $14,253 $15,217 $11,921
2/28/2007 $14,409 $15,418 $11,985
3/31/2007 $14,373 $15,380 $12,094
4/30/2007 $14,392 $15,426 $12,172
5/31/2007 $14,329 $15,357 $12,247
6/30/2007 $14,252 $15,278 $12,270
7/31/2007 $14,355 $15,396 $12,267
8/31/2007 $14,278 $15,330 $12,245
9/30/2007 $14,476 $15,557 $12,279
10/31/2007 $14,545 $15,626 $12,305
11/30/2007 $14,610 $15,726 $12,378
12/31/2007 $14,665 $15,769 $12,370
1/31/2008 $14,755 $15,968 $12,431
2/29/2008 $14,152 $15,237 $12,467
3/31/2008 $14,526 $15,672 $12,575
4/30/2008 $14,714 $15,856 $12,652
5/31/2008 $14,783 $15,952 $12,758
6/30/2008 $14,665 $15,771 $12,887
7/31/2008 $14,697 $15,831 $12,954
8/31/2008 $14,841 $16,017 $12,903
9/30/2008 $14,139 $15,265 $12,885
10/31/2008 $14,073 $15,110 $12,755
11/30/2008 $14,129 $15,158 $12,510
12/31/2008 $14,438 $15,379 $12,381
1/31/2009 $14,897 $15,942 $12,435
2/28/2009 $15,040 $16,025 $12,497
3/31/2009 $15,126 $16,028 $12,527
4/30/2009 $15,371 $16,349 $12,558
5/31/2009 $15,468 $16,522 $12,595
6/30/2009 $15,358 $16,367 $12,703
7/31/2009 $15,478 $16,641 $12,683
8/31/2009 $15,675 $16,925 $12,711
9/30/2009 $16,077 $17,532 $12,719
10/31/2009 $15,775 $17,164 $12,731
11/30/2009 $15,895 $17,306 $12,740
12/31/2009 $15,886 $17,365 $12,718
1/31/2010 $15,957 $17,455 $12,761
2/28/2010 $16,087 $17,624 $12,764
44 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (3/1/00-2/28/10)(8)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +7.61%
5-Year +4.18%
10-Year +5.44%
(PERFORMANCE GRAPH)
FRANKLIN MINNESOTA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,240 $10,218 $10,082
4/30/2000 $10,168 $10,158 $10,088
5/31/2000 $10,079 $10,105 $10,100
6/30/2000 $10,350 $10,373 $10,153
7/31/2000 $10,504 $10,518 $10,177
8/31/2000 $10,677 $10,680 $10,177
9/30/2000 $10,609 $10,624 $10,230
10/31/2000 $10,730 $10,740 $10,247
11/30/2000 $10,820 $10,821 $10,253
12/31/2000 $11,098 $11,089 $10,247
1/31/2001 $11,180 $11,198 $10,312
2/28/2001 $11,231 $11,234 $10,353
3/31/2001 $11,337 $11,334 $10,377
4/30/2001 $11,222 $11,212 $10,418
5/31/2001 $11,326 $11,332 $10,465
6/30/2001 $11,409 $11,408 $10,483
7/31/2001 $11,554 $11,577 $10,453
8/31/2001 $11,707 $11,768 $10,453
9/30/2001 $11,664 $11,729 $10,501
10/31/2001 $11,790 $11,868 $10,465
11/30/2001 $11,727 $11,768 $10,448
12/31/2001 $11,619 $11,657 $10,406
1/31/2002 $11,784 $11,859 $10,430
2/28/2002 $11,887 $12,002 $10,471
3/31/2002 $11,720 $11,767 $10,530
4/30/2002 $11,888 $11,997 $10,589
5/31/2002 $11,956 $12,070 $10,589
6/30/2002 $12,042 $12,197 $10,595
7/31/2002 $12,172 $12,354 $10,607
8/31/2002 $12,280 $12,503 $10,642
9/30/2002 $12,520 $12,776 $10,660
10/31/2002 $12,345 $12,565 $10,677
11/30/2002 $12,319 $12,512 $10,677
12/31/2002 $12,543 $12,776 $10,654
1/31/2003 $12,550 $12,744 $10,701
2/28/2003 $12,706 $12,922 $10,783
3/31/2003 $12,726 $12,930 $10,848
4/30/2003 $12,825 $13,015 $10,824
5/31/2003 $13,122 $13,320 $10,807
6/30/2003 $13,073 $13,263 $10,819
7/31/2003 $12,657 $12,799 $10,830
8/31/2003 $12,724 $12,895 $10,872
9/30/2003 $13,027 $13,274 $10,907
10/31/2003 $12,948 $13,207 $10,895
11/30/2003 $13,079 $13,345 $10,866
12/31/2003 $13,194 $13,455 $10,854
1/31/2004 $13,274 $13,532 $10,907
2/29/2004 $13,447 $13,736 $10,966
3/31/2004 $13,420 $13,688 $11,037
4/30/2004 $13,118 $13,364 $11,072
5/31/2004 $13,069 $13,315 $11,137
6/30/2004 $13,105 $13,364 $11,172
7/31/2004 $13,252 $13,540 $11,154
8/31/2004 $13,467 $13,811 $11,160
9/30/2004 $13,548 $13,884 $11,184
10/31/2004 $13,674 $14,004 $11,243
11/30/2004 $13,566 $13,888 $11,249
12/31/2004 $13,750 $14,058 $11,207
1/31/2005 $13,886 $14,189 $11,231
2/28/2005 $13,845 $14,142 $11,296
3/31/2005 $13,772 $14,053 $11,384
4/30/2005 $13,966 $14,274 $11,461
5/31/2005 $14,052 $14,375 $11,449
6/30/2005 $14,114 $14,464 $11,455
7/31/2005 $14,059 $14,399 $11,508
8/31/2005 $14,190 $14,544 $11,567
9/30/2005 $14,087 $14,446 $11,708
10/31/2005 $13,995 $14,359 $11,731
11/30/2005 $14,082 $14,428 $11,637
12/31/2005 $14,202 $14,552 $11,590
1/31/2006 $14,224 $14,591 $11,678
2/28/2006 $14,327 $14,689 $11,702
3/31/2006 $14,227 $14,588 $11,767
4/30/2006 $14,216 $14,583 $11,867
5/31/2006 $14,256 $14,648 $11,926
6/30/2006 $14,221 $14,592 $11,949
7/31/2006 $14,368 $14,766 $11,985
8/31/2006 $14,574 $14,985 $12,008
9/30/2006 $14,671 $15,089 $11,949
10/31/2006 $14,747 $15,184 $11,885
11/30/2006 $14,880 $15,311 $11,867
12/31/2006 $14,822 $15,257 $11,885
1/31/2007 $14,801 $15,217 $11,921
2/28/2007 $14,971 $15,418 $11,985
3/31/2007 $14,928 $15,380 $12,094
4/30/2007 $14,967 $15,426 $12,172
5/31/2007 $14,908 $15,357 $12,247
6/30/2007 $14,834 $15,278 $12,270
7/31/2007 $14,936 $15,396 $12,267
8/31/2007 $14,875 $15,330 $12,245
9/30/2007 $15,089 $15,557 $12,279
10/31/2007 $15,156 $15,626 $12,305
11/30/2007 $15,231 $15,726 $12,378
12/31/2007 $15,295 $15,769 $12,370
1/31/2008 $15,397 $15,968 $12,431
2/29/2008 $14,770 $15,237 $12,467
3/31/2008 $15,171 $15,672 $12,575
4/30/2008 $15,376 $15,856 $12,652
5/31/2008 $15,456 $15,952 $12,758
6/30/2008 $15,339 $15,771 $12,887
7/31/2008 $15,380 $15,831 $12,954
8/31/2008 $15,539 $16,017 $12,903
9/30/2008 $14,805 $15,265 $12,885
10/31/2008 $14,756 $15,110 $12,755
11/30/2008 $14,809 $15,158 $12,510
12/31/2008 $15,143 $15,379 $12,381
1/31/2009 $15,634 $15,942 $12,435
2/28/2009 $15,791 $16,025 $12,497
3/31/2009 $15,877 $16,028 $12,527
4/30/2009 $16,144 $16,349 $12,558
5/31/2009 $16,254 $16,522 $12,595
6/30/2009 $16,145 $16,367 $12,703
7/31/2009 $16,295 $16,641 $12,683
8/31/2009 $16,499 $16,925 $12,711
9/30/2009 $16,934 $17,532 $12,719
10/31/2009 $16,637 $17,164 $12,731
11/30/2009 $16,759 $17,306 $12,740
12/31/2009 $16,759 $17,365 $12,718
1/31/2010 $16,844 $17,455 $12,761
2/28/2010 $16,991 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Minnesota
personal income tax rate of 40.10%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +5.14%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 45
Your Fund's Expenses
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
46 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,029.30 $3.27
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
CLASS C
Actual $1,000 $1,026.30 $6.03
Hypothetical (5% return before expenses) $1,000 $1,018.84 $6.01
ADVISOR CLASS
Actual $1,000 $1,029.80 $2.77
Hypothetical (5% return before expenses) $1,000 $1,022.07 $2.76
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.65%; C: 1.20%; and Advisor: 0.55%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 47
Franklin Ohio Tax-Free Income Fund
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 BREAKDOWN*
Franklin Ohio Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA............... 35.2%
AA................ 21.2%
A................. 13.8%
BBB............... 1.2%
Not Rated by S&P.. 28.6%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.2% 4.5%
AA or Aa 11.4% --
A 9.2% 0.1%
BBB or Baa 1.3% 1.9%
---- ---
Total 22.1% 6.5%
==== ===
We are pleased to bring you Franklin Ohio Tax-Free Income Fund's annual report
for the fiscal year ended February 28, 2010.
(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.
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 110.
48 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Ohio Tax-Free Income Fund
DIVIDEND PER SHARE
-------------------------------------------------
ADVISOR
MONTH CLASS A CLASS B CLASS C CLASS
- ----- ---------- ---------- ---------- ----------
March 2009 4.30 cents 3.75 cents 3.75 cents 4.40 cents
April 2009 4.30 cents 3.75 cents 3.75 cents 4.40 cents
May 2009 4.30 cents 3.75 cents 3.75 cents 4.40 cents
June 2009 4.30 cents 3.74 cents 3.73 cents 4.40 cents
July 2009 4.30 cents 3.74 cents 3.73 cents 4.40 cents
August 2009 4.30 cents 3.74 cents 3.73 cents 4.40 cents
September 2009 4.25 cents 3.68 cents 3.67 cents 4.35 cents
October 2009 4.25 cents 3.68 cents 3.67 cents 4.35 cents
November 2009 4.25 cents 3.68 cents 3.67 cents 4.35 cents
December 2009 4.20 cents 3.62 cents 3.60 cents 4.30 cents
January 2010 4.20 cents 3.62 cents 3.60 cents 4.30 cents
February 2010 4.20 cents 3.62 cents 3.60 cents 4.30 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$12.08 on February 28, 2009, to $12.50 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 51.09 cents per share for the same period.(2) The
Performance Summary beginning on page 52 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.86% based on an
annualization of the current 4.20 cent per share dividend and the maximum
offering price of $13.05 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Ohio personal income tax bracket of 38.85% would
need to earn a distribution rate of 6.31% from a taxable investment to match the
Fund's Class A tax-free distribution rate. For the Fund's Class B, C and Advisor
shares' performance, please see the Performance Summary. During the year under
review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 49
PORTFOLIO BREAKDOWN
Franklin Ohio Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Prerefunded 25.8%
General Obligation 24.6%
Higher Education 11.8%
Utilities 11.3%
Hospital & Health Care 10.7%
Transportation 5.4%
Tax-Supported 5.2%
Subject to Government Appropriations 3.8%
Other Revenue 0.8%
Housing 0.6%
* Does not include short-term investments and other net assets.
STATE UPDATE
The deep recession in Ohio was exacerbated more than in many other U.S. states
by diminished auto and manufacturing industry activity, in addition to weakness
caused by falling housing prices and rising unemployment. The bankruptcies and
restructurings of automakers Chrysler and General Motors, which led to plant
closures and depressed the auto parts segment, placed additional near-term
pressure on the state economy. Statewide unemployment reached a 25-year peak
rate of 10.9% in February 2010 and was well above the 9.7% national average for
most of the reporting period.(3) A more diversified employment base than in the
recent past helped cushion some of the blow from manufacturing declines. The
service sector now accounts for a greater share of total employment, while
manufacturing's presence declined substantially from levels seen in previous
years. Despite this improved industry mix, Ohio entered the recession early and
is likely to recover at a slower pace than most states.
Ohio's total tax receipts were projected to decline in the first fiscal year of
the current 2010-2011 biennium, following a large drop in fiscal year 2009.(4)
Ohio, like many states, has experienced narrowing liquidity. In an effort to
maintain sufficient cash flow for operations, state officials implemented
various actions, including allowing the state's general fund to borrow from
other funds. Ohio's budget for the fiscal 2010-2011 biennium relies on
significant nonre-curring measures to ensure balance, including $2.4 billion in
federal stimulus and more than $1 billion in transfers from other state funds,
depletion of the nearly $1 billion budget stabilization fund in fiscal year
2011, and ongoing spending reduction initiatives.(4) For the first time ever,
the state sought further budget relief by authorizing the restructuring of
outstanding debt, effectively shifting substantial debt payments for the current
biennium into future years.
State tax-supported debt was moderate; debt ratios were $849 per capita and 2.4%
of personal income, compared with national medians of $739 and 2.1%.(5) Although
Ohio has a history of taking proactive and timely steps in managing budget
shortfalls, the state's fiscal well-being weakened based on its planned
exhaustion of budget reserves, greatly diminished liquidity position, and the
ongoing use of general and other state reserves to maintain operations and
budget balance. In February 2010, independent credit rating agency Moody's
(3.) Source: U.S. Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "Research: Ohio; General Obligation,"
RATINGSDIRECT, 2/19/10.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," RATINGSDIRECT, 12/16/09.
50 | Annual Report
Investors Service affirmed its recently lowered rating of Ohio's general
obligation bonds at Aa2 with a negative outlook.(6)
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Ohio Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
(6.) This does not indicate Moody's rating of the Fund.
Annual Report | 51
Performance Summary as of 2/28/10
FRANKLIN OHIO TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTOIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.42 $12.50 $12.08
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5109
CLASS B (SYMBOL: FBOIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.42 $12.55 $12.13
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4430
CLASS C (SYMBOL: FOITX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.43 $12.62 $12.19
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4418
ADVISOR CLASS (SYMBOL: FROZX) CHANGE 2/28/10 2/28/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.42 $12.50 $12.08
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5229
52 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +7.82% +21.86% +69.01%
Average Annual Total Return(2) +3.21% +3.13% +4.93%
Avg. Ann. Total Return (3/31/10)(3) +2.53% +3.22% +4.70%
Distribution Rate(4) 3.86%
Taxable Equivalent Distribution Rate(5) 6.31%
30-Day Standardized Yield(6) 2.89%
Taxable Equivalent Yield(5) 4.73%
Total Annual Operating expenses(7) 0.64%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +7.21% +18.59% +62.23%
Average Annual Total Return(2) +3.21% +3.12% +4.96%
Avg. Ann. Total Return (3/31/10)(3) +2.59% +3.22% +4.72%
Distribution Rate(4) 3.46%
Taxable Equivalent Distribution Rate(5) 5.66%
30-Day Standardized Yield(6) 2.47%
Taxable Equivalent Yield(5) 4.04%
Total Annual Operating expenses(7) 1.19%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +7.24% +18.53% +60.14%
Average Annual Total Return(2) +6.24% +3.46% +4.82%
Avg. Ann. Total Return (3/31/10)(3) +5.54% +3.57% +4.59%
Distribution Rate(4) 3.43%
Taxable Equivalent Distribution Rate(5) 5.61%
30-Day Standardized Yield(6) 2.48%
Taxable Equivalent Yield(5) 4.06%
Total Annual Operating expenses(7) 1.19%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------- -------
Cumulative Total Return(1) +7.93% +22.05% +69.29%
Average Annual Total Return(2) +7.93% +4.07% +5.41%
Avg. Ann. Total Return (3/31/10)(3) +7.30% +4.17% +5.17%
Distribution Rate(4) 4.14%
Taxable Equivalent Distribution Rate(5) 6.79%
30-Day Standardized Yield(6) 3.12%
Taxable Equivalent Yield(5) 5.12%
Total Annual Operating expenses(7) 0.54%
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.
Annual Report | 53
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +3.21%
5-Year +3.13%
10-Year +4.93%
(PERFORMANCE GRAPH)
CLASS A (3/1/00-2/28/10)
FRANKLIN OHIO TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- ---------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,782 $10,218 $10,082
4/30/2000 $ 9,726 $10,158 $10,088
5/31/2000 $ 9,687 $10,105 $10,100
6/30/2000 $ 9,914 $10,373 $10,153
7/31/2000 $10,058 $10,518 $10,177
8/31/2000 $10,203 $10,680 $10,177
9/30/2000 $10,151 $10,624 $10,230
10/31/2000 $10,238 $10,740 $10,247
11/30/2000 $10,324 $10,821 $10,253
12/31/2000 $10,582 $11,089 $10,247
1/31/2001 $10,642 $11,198 $10,312
2/28/2001 $10,674 $11,234 $10,353
3/31/2001 $10,765 $11,334 $10,377
4/30/2001 $10,661 $11,212 $10,418
5/31/2001 $10,750 $11,332 $10,465
6/30/2001 $10,819 $11,408 $10,483
7/31/2001 $10,965 $11,577 $10,453
8/31/2001 $11,126 $11,768 $10,453
9/30/2001 $11,116 $11,729 $10,501
10/31/2001 $11,225 $11,868 $10,465
11/30/2001 $11,170 $11,768 $10,448
12/31/2001 $11,080 $11,657 $10,406
1/31/2002 $11,253 $11,859 $10,430
2/28/2002 $11,358 $12,002 $10,471
3/31/2002 $11,187 $11,767 $10,530
4/30/2002 $11,353 $11,997 $10,589
5/31/2002 $11,409 $12,070 $10,589
6/30/2002 $11,508 $12,197 $10,595
7/31/2002 $11,620 $12,354 $10,607
8/31/2002 $11,731 $12,503 $10,642
9/30/2002 $11,955 $12,776 $10,660
10/31/2002 $11,794 $12,565 $10,677
11/30/2002 $11,772 $12,512 $10,677
12/31/2002 $12,001 $12,776 $10,654
1/31/2003 $11,980 $12,744 $10,701
2/28/2003 $12,127 $12,922 $10,783
3/31/2003 $12,148 $12,930 $10,848
4/30/2003 $12,252 $13,015 $10,824
5/31/2003 $12,529 $13,320 $10,807
6/30/2003 $12,485 $13,263 $10,819
7/31/2003 $12,042 $12,799 $10,830
8/31/2003 $12,115 $12,895 $10,872
9/30/2003 $12,375 $13,274 $10,907
10/31/2003 $12,343 $13,207 $10,895
11/30/2003 $12,493 $13,345 $10,866
12/31/2003 $12,592 $13,455 $10,854
1/31/2004 $12,687 $13,532 $10,907
2/29/2004 $12,878 $13,736 $10,966
3/31/2004 $12,824 $13,688 $11,037
4/30/2004 $12,506 $13,364 $11,072
5/31/2004 $12,452 $13,315 $11,137
6/30/2004 $12,469 $13,364 $11,172
7/31/2004 $12,627 $13,540 $11,154
8/31/2004 $12,869 $13,811 $11,160
9/30/2004 $12,945 $13,884 $11,184
10/31/2004 $13,084 $14,004 $11,243
11/30/2004 $12,954 $13,888 $11,249
12/31/2004 $13,147 $14,058 $11,207
1/31/2005 $13,317 $14,189 $11,231
2/28/2005 $13,280 $14,142 $11,296
3/31/2005 $13,204 $14,053 $11,384
4/30/2005 $13,407 $14,274 $11,461
5/31/2005 $13,510 $14,375 $11,449
6/30/2005 $13,591 $14,464 $11,455
7/31/2005 $13,520 $14,399 $11,508
8/31/2005 $13,644 $14,544 $11,567
9/30/2005 $13,541 $14,446 $11,708
10/31/2005 $13,458 $14,359 $11,731
11/30/2005 $13,541 $14,428 $11,637
12/31/2005 $13,655 $14,552 $11,590
1/31/2006 $13,678 $14,591 $11,678
2/28/2006 $13,808 $14,689 $11,702
3/31/2006 $13,707 $14,588 $11,767
4/30/2006 $13,711 $14,583 $11,867
5/31/2006 $13,751 $14,648 $11,926
6/30/2006 $13,676 $14,592 $11,949
7/31/2006 $13,836 $14,766 $11,985
8/31/2006 $14,030 $14,985 $12,008
9/30/2006 $14,111 $15,089 $11,949
10/31/2006 $14,218 $15,184 $11,885
11/30/2006 $14,344 $15,311 $11,867
12/31/2006 $14,303 $15,257 $11,885
1/31/2007 $14,252 $15,217 $11,921
2/28/2007 $14,445 $15,418 $11,985
3/31/2007 $14,396 $15,380 $12,094
4/30/2007 $14,434 $15,426 $12,172
5/31/2007 $14,381 $15,357 $12,247
6/30/2007 $14,306 $15,278 $12,270
7/31/2007 $14,413 $15,396 $12,267
8/31/2007 $14,357 $15,330 $12,245
9/30/2007 $14,569 $15,557 $12,279
10/31/2007 $14,643 $15,626 $12,305
11/30/2007 $14,750 $15,726 $12,378
12/31/2007 $14,787 $15,769 $12,370
1/31/2008 $14,894 $15,968 $12,431
2/29/2008 $14,183 $15,237 $12,467
3/31/2008 $14,615 $15,672 $12,575
4/30/2008 $14,831 $15,856 $12,652
5/31/2008 $14,943 $15,952 $12,758
6/30/2008 $14,765 $15,771 $12,887
7/31/2008 $14,841 $15,831 $12,954
8/31/2008 $14,968 $16,017 $12,903
9/30/2008 $14,095 $15,265 $12,885
10/31/2008 $14,138 $15,110 $12,755
11/30/2008 $14,177 $15,158 $12,510
12/31/2008 $14,552 $15,379 $12,381
1/31/2009 $14,874 $15,942 $12,435
2/28/2009 $15,011 $16,025 $12,497
3/31/2009 $15,093 $16,028 $12,527
4/30/2009 $15,393 $16,349 $12,558
5/31/2009 $15,461 $16,522 $12,595
6/30/2009 $15,389 $16,367 $12,703
7/31/2009 $15,532 $16,641 $12,683
8/31/2009 $15,737 $16,925 $12,711
9/30/2009 $16,144 $17,532 $12,719
10/31/2009 $15,870 $17,164 $12,731
11/30/2009 $15,962 $17,306 $12,740
12/31/2009 $16,053 $17,365 $12,718
1/31/2010 $16,083 $17,455 $12,761
2/28/2010 $16,185 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +3.21%
5-Year +3.12%
10-Year +4.96%
(PERFORMANCE GRAPH)
CLASS B (3/1/00-2/28/10)
FRANKLIN OHIO TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ------------- ---------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,212 $10,218 $10,082
4/30/2000 $10,157 $10,158 $10,088
5/31/2000 $10,111 $10,105 $10,100
6/30/2000 $10,352 $10,373 $10,153
7/31/2000 $10,488 $10,518 $10,177
8/31/2000 $10,643 $10,680 $10,177
9/30/2000 $10,584 $10,624 $10,230
10/31/2000 $10,670 $10,740 $10,247
11/30/2000 $10,763 $10,821 $10,253
12/31/2000 $11,018 $11,089 $10,247
1/31/2001 $11,076 $11,198 $10,312
2/28/2001 $11,104 $11,234 $10,353
3/31/2001 $11,193 $11,334 $10,377
4/30/2001 $11,079 $11,212 $10,418
5/31/2001 $11,175 $11,332 $10,465
6/30/2001 $11,242 $11,408 $10,483
7/31/2001 $11,388 $11,577 $10,453
8/31/2001 $11,550 $11,768 $10,453
9/30/2001 $11,534 $11,729 $10,501
10/31/2001 $11,642 $11,868 $10,465
11/30/2001 $11,579 $11,768 $10,448
12/31/2001 $11,480 $11,657 $10,406
1/31/2002 $11,663 $11,859 $10,430
2/28/2002 $11,757 $12,002 $10,471
3/31/2002 $11,584 $11,767 $10,530
4/30/2002 $11,741 $11,997 $10,589
5/31/2002 $11,792 $12,070 $10,589
6/30/2002 $11,889 $12,197 $10,595
7/31/2002 $12,009 $12,354 $10,607
8/31/2002 $12,108 $12,503 $10,642
9/30/2002 $12,343 $12,776 $10,660
10/31/2002 $12,172 $12,565 $10,677
11/30/2002 $12,143 $12,512 $10,677
12/31/2002 $12,372 $12,776 $10,654
1/31/2003 $12,345 $12,744 $10,701
2/28/2003 $12,491 $12,922 $10,783
3/31/2003 $12,506 $12,930 $10,848
4/30/2003 $12,607 $13,015 $10,824
5/31/2003 $12,895 $13,320 $10,807
6/30/2003 $12,835 $13,263 $10,819
7/31/2003 $12,375 $12,799 $10,830
8/31/2003 $12,444 $12,895 $10,872
9/30/2003 $12,705 $13,274 $10,907
10/31/2003 $12,665 $13,207 $10,895
11/30/2003 $12,814 $13,345 $10,866
12/31/2003 $12,909 $13,455 $10,854
1/31/2004 $13,001 $13,532 $10,907
2/29/2004 $13,190 $13,736 $10,966
3/31/2004 $13,129 $13,688 $11,037
4/30/2004 $12,798 $13,364 $11,072
5/31/2004 $12,736 $13,315 $11,137
6/30/2004 $12,748 $13,364 $11,172
7/31/2004 $12,914 $13,540 $11,154
8/31/2004 $13,144 $13,811 $11,160
9/30/2004 $13,216 $13,884 $11,184
10/31/2004 $13,351 $14,004 $11,243
11/30/2004 $13,224 $13,888 $11,249
12/31/2004 $13,413 $14,058 $11,207
1/31/2005 $13,569 $14,189 $11,231
2/28/2005 $13,526 $14,142 $11,296
3/31/2005 $13,442 $14,053 $11,384
4/30/2005 $13,653 $14,274 $11,461
5/31/2005 $13,752 $14,375 $11,449
6/30/2005 $13,816 $14,464 $11,455
7/31/2005 $13,750 $14,399 $11,508
8/31/2005 $13,869 $14,544 $11,567
9/30/2005 $13,758 $14,446 $11,708
10/31/2005 $13,668 $14,359 $11,731
11/30/2005 $13,734 $14,428 $11,637
12/31/2005 $13,854 $14,552 $11,590
1/31/2006 $13,860 $14,591 $11,678
2/28/2006 $13,987 $14,689 $11,702
3/31/2006 $13,889 $14,588 $11,767
4/30/2006 $13,887 $14,583 $11,867
5/31/2006 $13,920 $14,648 $11,926
6/30/2006 $13,827 $14,592 $11,949
7/31/2006 $13,993 $14,766 $11,985
8/31/2006 $14,171 $14,985 $12,008
9/30/2006 $14,257 $15,089 $11,949
10/31/2006 $14,347 $15,184 $11,885
11/30/2006 $14,479 $15,311 $11,867
12/31/2006 $14,431 $15,257 $11,885
1/31/2007 $14,373 $15,217 $11,921
2/28/2007 $14,561 $15,418 $11,985
3/31/2007 $14,505 $15,380 $12,094
4/30/2007 $14,536 $15,426 $12,172
5/31/2007 $14,465 $15,357 $12,247
6/30/2007 $14,394 $15,278 $12,270
7/31/2007 $14,495 $15,396 $12,267
8/31/2007 $14,420 $15,330 $12,245
9/30/2007 $14,637 $15,557 $12,279
10/31/2007 $14,705 $15,626 $12,305
11/30/2007 $14,793 $15,726 $12,378
12/31/2007 $14,823 $15,769 $12,370
1/31/2008 $14,936 $15,968 $12,431
2/29/2008 $14,220 $15,237 $12,467
3/31/2008 $14,654 $15,672 $12,575
4/30/2008 $14,870 $15,856 $12,652
5/31/2008 $14,982 $15,952 $12,758
6/30/2008 $14,804 $15,771 $12,887
7/31/2008 $14,881 $15,831 $12,954
8/31/2008 $15,004 $16,017 $12,903
9/30/2008 $14,132 $15,265 $12,885
10/31/2008 $14,175 $15,110 $12,755
11/30/2008 $14,210 $15,158 $12,510
12/31/2008 $14,590 $15,379 $12,381
1/31/2009 $14,912 $15,942 $12,435
2/28/2009 $15,049 $16,025 $12,497
3/31/2009 $15,134 $16,028 $12,527
4/30/2009 $15,435 $16,349 $12,558
5/31/2009 $15,500 $16,522 $12,595
6/30/2009 $15,431 $16,367 $12,703
7/31/2009 $15,574 $16,641 $12,683
8/31/2009 $15,780 $16,925 $12,711
9/30/2009 $16,189 $17,532 $12,719
10/31/2009 $15,912 $17,164 $12,731
11/30/2009 $16,006 $17,306 $12,740
12/31/2009 $16,097 $17,365 $12,718
1/31/2010 $16,124 $17,455 $12,761
2/28/2010 $16,223 $17,624 $12,764
54 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +6.24%
5-Year +3.46%
10-Year +4.82%
(PERFORMANCE GRAPH)
CLASS C (3/1/00-2/28/10)
FRANKLIN OHIO TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- ---------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,211 $10,218 $10,082
4/30/2000 $10,148 $10,158 $10,088
5/31/2000 $10,102 $10,105 $10,100
6/30/2000 $10,342 $10,373 $10,153
7/31/2000 $10,486 $10,518 $10,177
8/31/2000 $10,632 $10,680 $10,177
9/30/2000 $10,573 $10,624 $10,230
10/31/2000 $10,658 $10,740 $10,247
11/30/2000 $10,742 $10,821 $10,253
12/31/2000 $11,005 $11,089 $10,247
1/31/2001 $11,062 $11,198 $10,312
2/28/2001 $11,090 $11,234 $10,353
3/31/2001 $11,179 $11,334 $10,377
4/30/2001 $11,066 $11,212 $10,418
5/31/2001 $11,162 $11,332 $10,465
6/30/2001 $11,228 $11,408 $10,483
7/31/2001 $11,373 $11,577 $10,453
8/31/2001 $11,534 $11,768 $10,453
9/30/2001 $11,518 $11,729 $10,501
10/31/2001 $11,626 $11,868 $10,465
11/30/2001 $11,563 $11,768 $10,448
12/31/2001 $11,466 $11,657 $10,406
1/31/2002 $11,638 $11,859 $10,430
2/28/2002 $11,741 $12,002 $10,471
3/31/2002 $11,559 $11,767 $10,530
4/30/2002 $11,724 $11,997 $10,589
5/31/2002 $11,776 $12,070 $10,589
6/30/2002 $11,872 $12,197 $10,595
7/31/2002 $11,992 $12,354 $10,607
8/31/2002 $12,090 $12,503 $10,642
9/30/2002 $12,323 $12,776 $10,660
10/31/2002 $12,154 $12,565 $10,677
11/30/2002 $12,126 $12,512 $10,677
12/31/2002 $12,354 $12,776 $10,654
1/31/2003 $12,328 $12,744 $10,701
2/28/2003 $12,473 $12,922 $10,783
3/31/2003 $12,479 $12,930 $10,848
4/30/2003 $12,589 $13,015 $10,824
5/31/2003 $12,866 $13,320 $10,807
6/30/2003 $12,815 $13,263 $10,819
7/31/2003 $12,347 $12,799 $10,830
8/31/2003 $12,425 $12,895 $10,872
9/30/2003 $12,684 $13,274 $10,907
10/31/2003 $12,644 $13,207 $10,895
11/30/2003 $12,791 $13,345 $10,866
12/31/2003 $12,886 $13,455 $10,854
1/31/2004 $12,977 $13,532 $10,907
2/29/2004 $13,166 $13,736 $10,966
3/31/2004 $13,105 $13,688 $11,037
4/30/2004 $12,776 $13,364 $11,072
5/31/2004 $12,715 $13,315 $11,137
6/30/2004 $12,727 $13,364 $11,172
7/31/2004 $12,881 $13,540 $11,154
8/31/2004 $13,119 $13,811 $11,160
9/30/2004 $13,201 $13,884 $11,184
10/31/2004 $13,336 $14,004 $11,243
11/30/2004 $13,199 $13,888 $11,249
12/31/2004 $13,387 $14,058 $11,207
1/31/2005 $13,553 $14,189 $11,231
2/28/2005 $13,510 $14,142 $11,296
3/31/2005 $13,416 $14,053 $11,384
4/30/2005 $13,625 $14,274 $11,461
5/31/2005 $13,734 $14,375 $11,449
6/30/2005 $13,798 $14,464 $11,455
7/31/2005 $13,721 $14,399 $11,508
8/31/2005 $13,850 $14,544 $11,567
9/30/2005 $13,729 $14,446 $11,708
10/31/2005 $13,639 $14,359 $11,731
11/30/2005 $13,716 $14,428 $11,637
12/31/2005 $13,824 $14,552 $11,590
1/31/2006 $13,841 $14,591 $11,678
2/28/2006 $13,967 $14,689 $11,702
3/31/2006 $13,869 $14,588 $11,767
4/30/2006 $13,856 $14,583 $11,867
5/31/2006 $13,888 $14,648 $11,926
6/30/2006 $13,807 $14,592 $11,949
7/31/2006 $13,961 $14,766 $11,985
8/31/2006 $14,149 $14,985 $12,008
9/30/2006 $14,235 $15,089 $11,949
10/31/2006 $14,324 $15,184 $11,885
11/30/2006 $14,455 $15,311 $11,867
12/31/2006 $14,397 $15,257 $11,885
1/31/2007 $14,350 $15,217 $11,921
2/28/2007 $14,537 $15,418 $11,985
3/31/2007 $14,480 $15,380 $12,094
4/30/2007 $14,512 $15,426 $12,172
5/31/2007 $14,440 $15,357 $12,247
6/30/2007 $14,371 $15,278 $12,270
7/31/2007 $14,471 $15,396 $12,267
8/31/2007 $14,396 $15,330 $12,245
9/30/2007 $14,612 $15,557 $12,279
10/31/2007 $14,679 $15,626 $12,305
11/30/2007 $14,779 $15,726 $12,378
12/31/2007 $14,809 $15,769 $12,370
1/31/2008 $14,908 $15,968 $12,431
2/29/2008 $14,196 $15,237 $12,467
3/31/2008 $14,617 $15,672 $12,575
4/30/2008 $14,824 $15,856 $12,652
5/31/2008 $14,928 $15,952 $12,758
6/30/2008 $14,757 $15,771 $12,887
7/31/2008 $14,814 $15,831 $12,954
8/31/2008 $14,932 $16,017 $12,903
9/30/2008 $14,062 $15,265 $12,885
10/31/2008 $14,098 $15,110 $12,755
11/30/2008 $14,118 $15,158 $12,510
12/31/2008 $14,506 $15,379 $12,381
1/31/2009 $14,818 $15,942 $12,435
2/28/2009 $14,934 $16,025 $12,497
3/31/2009 $15,008 $16,028 $12,527
4/30/2009 $15,298 $16,349 $12,558
5/31/2009 $15,357 $16,522 $12,595
6/30/2009 $15,280 $16,367 $12,703
7/31/2009 $15,425 $16,641 $12,683
8/31/2009 $15,620 $16,925 $12,711
9/30/2009 $16,026 $17,532 $12,719
10/31/2009 $15,737 $17,164 $12,731
11/30/2009 $15,819 $17,306 $12,740
12/31/2009 $15,914 $17,365 $12,718
1/31/2010 $15,936 $17,455 $12,761
2/28/2010 $16,014 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +7.93%
5-Year +4.07%
10-Year +5.41%
(PERFORMANCE GRAPH)
ADVISOR CLASS (3/1/00-2/28/10)(8)
FRANKLIN OHIO TAX-FREE
INCOME FUND - BARCLAYS CAPITAL
DATE ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- ---------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,216 $10,218 $10,082
4/30/2000 $10,158 $10,158 $10,088
5/31/2000 $10,117 $10,105 $10,100
6/30/2000 $10,354 $10,373 $10,153
7/31/2000 $10,504 $10,518 $10,177
8/31/2000 $10,656 $10,680 $10,177
9/30/2000 $10,601 $10,624 $10,230
10/31/2000 $10,693 $10,740 $10,247
11/30/2000 $10,782 $10,821 $10,253
12/31/2000 $11,052 $11,089 $10,247
1/31/2001 $11,115 $11,198 $10,312
2/28/2001 $11,147 $11,234 $10,353
3/31/2001 $11,243 $11,334 $10,377
4/30/2001 $11,134 $11,212 $10,418
5/31/2001 $11,227 $11,332 $10,465
6/30/2001 $11,299 $11,408 $10,483
7/31/2001 $11,451 $11,577 $10,453
8/31/2001 $11,620 $11,768 $10,453
9/30/2001 $11,609 $11,729 $10,501
10/31/2001 $11,724 $11,868 $10,465
11/30/2001 $11,665 $11,768 $10,448
12/31/2001 $11,572 $11,657 $10,406
1/31/2002 $11,752 $11,859 $10,430
2/28/2002 $11,862 $12,002 $10,471
3/31/2002 $11,683 $11,767 $10,530
4/30/2002 $11,857 $11,997 $10,589
5/31/2002 $11,915 $12,070 $10,589
6/30/2002 $12,019 $12,197 $10,595
7/31/2002 $12,136 $12,354 $10,607
8/31/2002 $12,251 $12,503 $10,642
9/30/2002 $12,485 $12,776 $10,660
10/31/2002 $12,318 $12,565 $10,677
11/30/2002 $12,294 $12,512 $10,677
12/31/2002 $12,533 $12,776 $10,654
1/31/2003 $12,512 $12,744 $10,701
2/28/2003 $12,665 $12,922 $10,783
3/31/2003 $12,687 $12,930 $10,848
4/30/2003 $12,796 $13,015 $10,824
5/31/2003 $13,085 $13,320 $10,807
6/30/2003 $13,039 $13,263 $10,819
7/31/2003 $12,576 $12,799 $10,830
8/31/2003 $12,652 $12,895 $10,872
9/30/2003 $12,925 $13,274 $10,907
10/31/2003 $12,890 $13,207 $10,895
11/30/2003 $13,048 $13,345 $10,866
12/31/2003 $13,151 $13,455 $10,854
1/31/2004 $13,250 $13,532 $10,907
2/29/2004 $13,450 $13,736 $10,966
3/31/2004 $13,394 $13,688 $11,037
4/30/2004 $13,061 $13,364 $11,072
5/31/2004 $13,005 $13,315 $11,137
6/30/2004 $13,022 $13,364 $11,172
7/31/2004 $13,187 $13,540 $11,154
8/31/2004 $13,440 $13,811 $11,160
9/30/2004 $13,520 $13,884 $11,184
10/31/2004 $13,664 $14,004 $11,243
11/30/2004 $13,529 $13,888 $11,249
12/31/2004 $13,730 $14,058 $11,207
1/31/2005 $13,908 $14,189 $11,231
2/28/2005 $13,870 $14,142 $11,296
3/31/2005 $13,790 $14,053 $11,384
4/30/2005 $14,002 $14,274 $11,461
5/31/2005 $14,110 $14,375 $11,449
6/30/2005 $14,194 $14,464 $11,455
7/31/2005 $14,121 $14,399 $11,508
8/31/2005 $14,250 $14,544 $11,567
9/30/2005 $14,142 $14,446 $11,708
10/31/2005 $14,055 $14,359 $11,731
11/30/2005 $14,142 $14,428 $11,637
12/31/2005 $14,261 $14,552 $11,590
1/31/2006 $14,285 $14,591 $11,678
2/28/2006 $14,421 $14,689 $11,702
3/31/2006 $14,316 $14,588 $11,767
4/30/2006 $14,320 $14,583 $11,867
5/31/2006 $14,361 $14,648 $11,926
6/30/2006 $14,283 $14,592 $11,949
7/31/2006 $14,450 $14,766 $11,985
8/31/2006 $14,653 $14,985 $12,008
9/30/2006 $14,737 $15,089 $11,949
10/31/2006 $14,849 $15,184 $11,885
11/30/2006 $14,980 $15,311 $11,867
12/31/2006 $14,938 $15,257 $11,885
1/31/2007 $14,884 $15,217 $11,921
2/28/2007 $15,087 $15,418 $11,985
3/31/2007 $15,035 $15,380 $12,094
4/30/2007 $15,075 $15,426 $12,172
5/31/2007 $15,020 $15,357 $12,247
6/30/2007 $14,941 $15,278 $12,270
7/31/2007 $15,053 $15,396 $12,267
8/31/2007 $14,994 $15,330 $12,245
9/30/2007 $15,216 $15,557 $12,279
10/31/2007 $15,293 $15,626 $12,305
11/30/2007 $15,405 $15,726 $12,378
12/31/2007 $15,443 $15,769 $12,370
1/31/2008 $15,555 $15,968 $12,431
2/29/2008 $14,812 $15,237 $12,467
3/31/2008 $15,264 $15,672 $12,575
4/30/2008 $15,489 $15,856 $12,652
5/31/2008 $15,606 $15,952 $12,758
6/30/2008 $15,420 $15,771 $12,887
7/31/2008 $15,501 $15,831 $12,954
8/31/2008 $15,635 $16,017 $12,903
9/30/2008 $14,724 $15,265 $12,885
10/31/2008 $14,758 $15,110 $12,755
11/30/2008 $14,800 $15,158 $12,510
12/31/2008 $15,205 $15,379 $12,381
1/31/2009 $15,543 $15,942 $12,435
2/28/2009 $15,687 $16,025 $12,497
3/31/2009 $15,762 $16,028 $12,527
4/30/2009 $16,077 $16,349 $12,558
5/31/2009 $16,149 $16,522 $12,595
6/30/2009 $16,075 $16,367 $12,703
7/31/2009 $16,238 $16,641 $12,683
8/31/2009 $16,454 $16,925 $12,711
9/30/2009 $16,882 $17,532 $12,719
10/31/2009 $16,597 $17,164 $12,731
11/30/2009 $16,693 $17,306 $12,740
12/31/2009 $16,791 $17,365 $12,718
1/31/2010 $16,823 $17,455 $12,761
2/28/2010 $16,929 $17,624 $12,764
Annual Report | 55
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Ohio personal
income tax rate of 38.85%, based on the federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/08, 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 +9.41% and +5.56%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
56 | Annual Report
Your Fund's Expenses
FRANKLIN OHIO TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 57
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,028.30 $3.22
Hypothetical (5% return before expenses) $1,000 $1,021.62 $3.21
CLASS B
Actual $1,000 $1,025.50 $5.98
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
CLASS C
Actual $1,000 $1,025.20 $5.98
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
ADVISOR CLASS
Actual $1,000 $1,028.80 $2.72
Hypothetical (5% return before expenses) $1,000 $1,022.12 $2.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.64%; B: 1.19%; C: 1.19%; and Advisor:
0.54%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
58 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN INSURED TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.20 $ 11.48 $ 12.32 $ 12.32 $ 12.41
---------- ---------- ---------- ---------- ----------
Income from investment operations(b):
Net investment income(c) .................... 0.52 0.52 0.52 0.53 0.54
Net realized and unrealized gains (losses) .. 0.68 (0.29) (0.84) 0.01 (0.10)
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 1.20 0.23 (0.32) 0.54 0.44
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.52) (0.51) (0.52) (0.53) (0.53)
Net realized gains .......................... -- -- (--)(d) (0.01) --
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (0.52) (0.51) (0.52) (0.54) (0.53)
---------- ---------- ---------- ---------- ----------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 11.88 $ 11.20 $ 11.48 $ 12.32 $ 12.32
========== ========== ========== ========== ==========
Total return(f) ................................ 10.93% 2.04% (2.70)% 4.51% 3.65%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.63% 0.63% 0.64% 0.63% 0.63%
Net investment income .......................... 4.46% 4.57% 4.28% 4.33% 4.37%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $2,134,949 $1,807,929 $1,909,094 $1,821,006 $1,697,516
Portfolio turnover rate ........................ 5.21% 15.12% 15.60% 6.75% 4.94%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 59
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.26 $ 11.53 $ 12.37 $ 12.37 $ 12.47
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.46 0.46 0.45 0.46 0.47
Net realized and unrealized gains (losses) .. 0.68 (0.28) (0.83) 0.01 (0.10)
------- ------- ------- ------- -------
Total from investment operations ............... 1.14 0.18 (0.38) 0.47 0.37
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.46) (0.45) (0.46) (0.46) (0.47)
Net realized gains .......................... -- -- (--)d (0.01) --
------- ------- ------- ------- -------
Total distributions ............................ (0.46) (0.45) (0.46) (0.47) (0.47)
------- ------- ------- ------- -------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 11.94 $ 11.26 $ 11.53 $ 12.37 $ 12.37
======= ======= ======= ======= =======
Total return(f) ................................ 10.27% 1.56% (3.22)% 3.93% 3.07%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.18% 1.18% 1.19% 1.18% 1.18%
Net investment income .......................... 3.91% 4.02% 3.73% 3.78% 3.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $43,086 $56,475 $69,500 $83,644 $94,569
Portfolio turnover rate ........................ 5.21% 15.12% 15.60% 6.75% 4.94%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
60 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.31 $ 11.59 $ 12.43 $ 12.42 $ 12.51
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.46 0.47 0.46 0.47 0.48
Net realized and unrealized gains (losses) .. 0.70 (0.30) (0.84) 0.01 (0.10)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.16 0.17 (0.38) 0.48 0.38
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.46) (0.45) (0.46) (0.46) (0.47)
Net realized gains .......................... -- -- (--)(d) (0.01) --
-------- -------- -------- -------- --------
Total distributions ............................ (0.46) (0.45) (0.46) (0.47) (0.47)
-------- -------- -------- -------- --------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 12.01 $ 11.31 $ 11.59 $ 12.43 $ 12.42
======== ======== ======== ======== ========
Total return(f) ................................ 10.41% 1.46% (3.21)% 3.99% 3.06%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.18% 1.18% 1.19% 1.17% 1.18%
Net investment income .......................... 3.91% 4.02% 3.73% 3.79% 3.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $339,444 $196,085 $148,054 $141,913 $147,979
Portfolio turnover rate ........................ 5.21% 15.12% 15.60% 6.75% 4.94%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 61
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
---------------
ADVISOR CLASS 2010 2009(a)
- ------------- ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $11.20 $11.86
------ ------
Income from investment operations(b):
Net investment income(c) .................... 0.53 0.36
Net realized and unrealized gains (losses) .. 0.69 (0.67)
------ ------
Total from investment operations ............... 1.22 (0.31)
------ ------
Less distributions from net investment income .. (0.54) (0.35)
------ ------
Net asset value, end of year ................... $11.88 $11.20
====== ======
Total return(d) ................................ 11.04% (2.58)%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ....................................... 0.53% 0.53%
Net investment income .......................... 4.56% 4.67%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $9,408 $1,417
Portfolio turnover rate ........................ 5.21% 15.12%
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
62 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS 97.5%
ALABAMA 4.0%
Alabama Drinking Water Finance Authority Revenue, Revolving Fund Loan, Series A, AMBAC
Insured, 5.25%, 8/15/21 ........................................................... $ 2,490,000 $ 2,581,881
Anniston Regional Medical Center Board Revenue, Series A, AMBAC Insured, 5.25%,
6/01/18 ........................................................................... 5,000,000 5,004,550
Bessemer GO, wts., XLCA Insured, 5.00%, 2/01/35 ...................................... 2,000,000 2,009,060
Birmingham Waterworks Board Water Revenue, Series A, Assured Guaranty, 5.25%,
1/01/39 ........................................................................... 5,000,000 5,229,600
Daphne Utilities Board Water Gas and Sewer Revenue, Series B, AMBAC Insured,
Pre-Refunded, 5.50%, 6/01/30 ...................................................... 1,670,000 1,707,425
East Alabama Health Care Authority Health Care Facilities Revenue, Tax Anticipation
Bond, Series A, NATL Insured, 5.25%, 9/01/28 ...................................... 7,000,000 7,000,000
Helena Utilities Board Water and Sewer Revenue, NATL Insured, Pre-Refunded, 5.25%,
4/01/27 ........................................................................... 3,260,000 3,606,897
4/01/33 ........................................................................... 4,890,000 5,410,345
Houston County Health Care Authority Revenue, Series A, AMBAC Insured, 5.125%,
10/01/24 .......................................................................... 5,855,000 5,591,349
10/01/25 .......................................................................... 6,065,000 5,737,733
Leeds Public Educational Building Authority Educational Facilities Revenue, Assured
Guaranty, 5.125%, 4/01/38 ......................................................... 10,865,000 11,216,265
Limestone County Water and Sewer Authority Water Revenue, AMBAC Insured, 5.00%,
12/01/35 .......................................................................... 9,100,000 8,656,830
Madison GO, wts., Refunding, XLCA Insured, 4.75%, 12/01/36 ........................... 10,000,000 9,894,700
Muscle Shoals GO, wts., NATL Insured, Pre-Refunded, 5.50%, 8/01/30 ................... 2,000,000 2,083,420
Orange Beach Water Sewer and Fire Protection Authority Revenue, NATL Insured, 5.00%,
5/15/35 ........................................................................... 3,665,000 3,738,667
Pell City GO, wts.,
Refunding, XLCA Insured, 5.00%, 2/01/24 ........................................... 1,020,000 1,057,964
XLCA Insured, 5.00%, 2/01/34 ...................................................... 5,195,000 4,937,640
Tuscaloosa Public Educational Building Authority Student Housing Revenue, Ridgecrest
Student Housing LLC University of Alabama Ridgecrest Residential Project,
Assured Guaranty, 6.75%, 7/01/38 ............................................... 5,000,000 5,651,400
University of Alabama at Birmingham Hospital Revenue, Refunding, Series A, AMBAC
Insured, 5.00%, 9/01/41 ........................................................... 5,000,000 4,849,550
University of Alabama University Revenues, General, Birmingham, FGIC Insured, 5.25%,
10/01/27 .......................................................................... 5,975,000 6,105,374
--------------
102,070,650
--------------
ALASKA 0.6%
Alaska Energy Authority Power Revenue, Bradley Lake Project, Refunding, NATL Insured,
6.25%, 7/01/21 .................................................................... 5,000 5,006
Alaska Energy Authority Utilities Revenue, Refunding, FSA Insured, 5.20%, 7/01/17 .... 3,000,000 3,005,190
Matanuska-Susitna Borough Lease Revenue, Goose Creek Correctional Center, Assured
Guaranty, 6.00%, 9/01/32 .......................................................... 10,000,000 11,448,000
--------------
14,458,196
--------------
ARIZONA 2.3%
Arizona State COP, Department Administration, Series A, FSA Insured,
5.25%, 10/01/26 ................................................................... 8,500,000 8,937,240
5.25%, 10/01/28 ................................................................... 10,000,000 10,365,200
5.00%, 10/01/29 ................................................................... 5,000,000 5,072,050
Annual Report | 63
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Arizona State Municipal Financing Program COP, Series 20, BIG Insured, ETM, 7.70%,
8/01/10 ........................................................................... $ 2,800,000 $ 2,883,748
Cochise County USD No. 68 GO, Sierra Vista, Refunding, NATL Insured, 7.50%, 7/01/10 .. 500,000 509,840
Downtown Phoenix Hotel Corp. Revenue,
Senior Series A, FGIC Insured, 5.00%, 7/01/36 ..................................... 15,000,000 11,879,400
sub. bond, Series B, NATL Insured, 5.00%, 7/01/36 ................................. 6,450,000 6,020,559
Maricopa County IDA Hospital Facility Revenue, Samaritan Health Services, Series A,
NATL Insured, ETM, 7.00%, 12/01/16 ................................................ 300,000 370,443
Tucson Water Revenue, Series B, FSA Insured, 5.00%, 7/01/32 .......................... 12,000,000 12,453,720
--------------
58,492,200
--------------
ARKANSAS 1.3%
Arkansas State University Student Fee Revenue, Arkansas State University-Beebe,
Series B, AMBAC Insured, 5.00%,
12/01/30 .......................................................................... 3,250,000 3,295,077
12/01/35 .......................................................................... 3,045,000 2,988,546
Benton Regional Public Water Authority Water Revenue, Refunding and Improvement, XLCA
Insured, 5.00%, 10/01/35 .......................................................... 5,230,000 5,285,647
Little Rock School District GO,
Refunding, Series B, FSA Insured, 5.50%, 2/01/33 .................................. 3,970,000 3,973,295
Series C, FSA Insured, 5.25%, 2/01/33 ............................................. 7,790,000 7,857,929
Paragould Water and Electric Revenue, AMBAC Insured, Pre-Refunded, 5.65%, 12/01/25 ... 1,000,000 1,040,130
University of Arkansas University Revenues, Various Facility, Fayetteville Campus,
AMBAC Insured, 5.00%, 11/01/36 .................................................... 3,205,000 3,350,571
FGIC Insured, 5.00%, 12/01/32 ..................................................... 4,000,000 4,108,000
--------------
31,899,195
--------------
CALIFORNIA 7.3%
California State GO,
Refunding, AMBAC Insured, 5.00%, 2/01/33 .......................................... 7,000,000 6,402,200
Refunding, NATL Insured, 5.00%, 2/01/31 ........................................... 20,000,000 18,661,600
Refunding, NATL Insured, 5.00%, 10/01/32 .......................................... 1,910,000 1,760,409
Various Purpose, 6.00%, 4/01/38 ................................................... 30,000,000 30,929,400
Various Purpose, Refunding, NATL Insured, 4.75%, 3/01/35 .......................... 20,855,000 17,845,623
California State Public Works Board Lease Revenue, Various Capital Projects,
Series G-1, 5.25%, 10/01/24 ....................................................... 5,000,000 5,269,100
California State University Revenue, Systemwide, Series A, FSA Insured,
5.00%, 11/01/39 ................................................................... 10,000,000 9,713,300
Colton Joint USD, GO, Election of 2008, Series A, Assured Guaranty, 5.375%, 8/01/34 .. 10,000,000 10,106,200
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ......... 13,100,000 13,459,202
Los Angeles USD, GO, Election of 2004, Series H, FSA Insured, 5.00%, 7/01/32 ......... 32,565,000 33,284,035
Montebello USD, GO, Election of 2004, Series A-1, Assured Guaranty, 5.25%, 8/01/34 ... 5,000,000 5,062,750
Oakland RDA Tax Allocation, Central District Redevelopment, Refunding, AMBAC Insured,
5.50%, 2/01/14 .................................................................... 165,000 168,680
Richmond Joint Powers Financing Authority Revenue, Lease, Civic Center Project,
Refunding, Assured Guaranty, 5.75%, 8/01/29 ....................................... 13,315,000 14,410,026
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Refunding,
Series A, NATL Insured, 5.25%, 1/15/30 ............................................ 4,000,000 3,430,400
San Jose RDA Tax Allocation, Merged Area, Refunding, Series D, Assured Guaranty,
5.00%, 8/01/22 .................................................................... 10,000,000 10,452,800
64 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Val Verde USD, COP, School Construction Project,
Refunding, Series B, FGIC Insured, 5.00%, 1/01/35 ................................. $ 1,680,000 $ 1,401,002
Series B, FGIC Insured, Pre-Refunded, 5.00%, 1/01/35 .............................. 820,000 950,257
--------------
183,306,984
--------------
COLORADO 4.6%
Arkansas River Power Authority Power Revenue, Improvement, XLCA Insured, 5.25%,
10/01/32 .......................................................................... 12,490,000 11,690,390
Aurora Water Improvement Revenue, first lien, Series A, AMBAC Insured, 5.00%, 8/01/39 25,000,000 25,402,250
Broomfield COP, Refunding, AMBAC Insured, 6.00%, 12/01/29 ............................ 3,000,000 3,003,870
Colorado Health Facilities Authority Revenue,
Catholic Health Initiatives, Series C-7, FSA Insured, 5.00%, 9/01/36 .............. 20,000,000 20,199,000
Hospital, Refunding, Series B, FSA Insured, 5.25%, 3/01/36 ........................ 10,000,000 10,000,000
Colorado State Board of Governors University Enterprise System Revenue, Series A, NATL
Insured, 5.00%, 3/01/37 ........................................................... 10,000,000 10,291,100
Denver City and County Airport Revenue, Series C, NATL Insured, ETM, 6.125%,
11/15/25 .......................................................................... 4,410,000 4,410,794
11/15/25 .......................................................................... 3,590,000 4,462,945
Denver Convention Center Hotel Authority Revenue, Refunding, senior bond, XLCA
Insured, 5.00%, 12/01/35 .......................................................... 15,000,000 12,580,200
University of Colorado Hospital Authority Revenue, Refunding, Series A, AMBAC Insured,
5.20%, 11/15/17 ................................................................... 5,425,000 5,436,772
5.25%, 11/15/22 ................................................................... 7,800,000 7,804,992
--------------
115,282,313
--------------
CONNECTICUT 0.2%
Connecticut State Health and Educational Facilities Authority Revenue, Child Care
Facilities Program, Series G, Assured Guaranty, 6.00%, 7/01/38 .................... 5,000,000 5,585,650
--------------
DISTRICT OF COLUMBIA 0.8%
District of Columbia HFA, RMR, Series 1, FGIC Insured, 7.75%, 9/01/16 ................ 125,000 125,494
District of Columbia Hospital Revenue, Children's Hospital Obligation, Sub Series 1,
FSA Insured, 5.45%, 7/15/35 ....................................................... 20,000,000 20,499,800
--------------
20,625,294
--------------
FLORIDA 13.8%
Alachua County School Board COP, AMBAC Insured, 5.00%, 7/01/20 ....................... 1,000,000 1,026,300
Brevard County Local Option Fuel Tax Revenue, NATL Insured, 5.00%,
8/01/32 ........................................................................... 12,440,000 12,477,693
8/01/37 ........................................................................... 13,000,000 12,789,790
Broward County HFAR,
5.65%, 11/01/22 ................................................................... 405,000 405,522
5.70%, 11/01/29 ................................................................... 225,000 225,122
Broward County School Board COP,
NATL Insured, 5.00%, 7/01/28 ...................................................... 2,000,000 2,019,380
Series A, FSA Insured, 5.00%, 7/01/22 ............................................. 2,000,000 2,044,380
Series A, FSA Insured, 5.00%, 7/01/26 ............................................. 2,850,000 2,891,040
Series A, FSA Insured, 5.00%, 7/01/30 ............................................. 2,000,000 2,020,340
Cape Coral Water and Sewer Revenue, AMBAC Insured, 5.00%, 10/01/36 ................... 2,000,000 1,874,320
Annual Report | 65
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Celebration CDD, Special Assessment, Series B, NATL Insured, 5.50%, 5/01/19 .......... $ 195,000 $ 195,088
Clearwater Water and Sewer Revenue, NATL Insured, 5.00%,
12/01/28 .......................................................................... 11,050,000 11,164,809
12/01/32 .......................................................................... 13,665,000 13,768,444
Coral Gables Health Facilities Authority Hospital Revenue, Baptist Health South
Florida Obligated Group, FSA Insured, Pre-Refunded, 5.00%, 8/15/29 ................ 1,000,000 1,159,940
Dade County HFA, MFMR, Siesta Pointe Apartments, Series A, 5.75%, 9/01/29 ............ 1,890,000 1,894,441
Daytona Beach Utility System Revenue, Refunding, Series B, NATL Insured, 5.00%,
11/15/32 .......................................................................... 1,000,000 924,570
Destin Capital Improvement Revenue, NATL Insured, 5.00%, 8/01/27 ..................... 1,315,000 1,279,179
Escambia County HFA, SFMR, Multi-County Program, Refunding, Series A, NATL Insured,
6.40%, 10/01/30 ................................................................... 45,000 45,055
Escambia County Utilities Authority Utility System Revenue,
FGIC Insured, 5.00%, 1/01/31 ...................................................... 1,775,000 1,783,449
Refunding, Series B, FGIC Insured, 5.00%, 1/01/22 ................................. 2,000,000 2,050,440
Florida Gulf Coast University Financing Corp. Capital Improvement Revenue, Housing
Project, Series A, NATL Insured, 5.00%, 2/01/37 ................................... 10,000,000 10,051,800
Florida HFAR, Spinnaker Cove Apartments, Series G, AMBAC Insured, 6.50%, 7/01/36 ..... 1,600,000 1,602,640
Florida HFC Revenue,
Housing, Logan's Pointe Apartments, Series F-1, FSA Insured, 5.90%, 12/01/19 ...... 1,195,000 1,216,008
Marina Bay Apartments, Series S, FSA Insured, 5.85%, 2/01/41 ...................... 1,070,000 1,073,980
Florida Intergovernmental Finance Commission Capital Revenue, Series A, AMBAC Insured,
5.00%, 8/01/32 .................................................................... 3,570,000 3,577,854
Florida State Board of Education Capital Outlay GO, Public Education,
Refunding, Series E, FGIC Insured, 5.00%, 6/01/24 ................................. 5,000,000 5,226,400
Series B, FGIC Insured, 5.00%, 6/01/23 ............................................ 5,395,000 5,642,900
Florida State Board of Education GO,
Series C, NATL Insured, 5.00%, 6/01/27 ............................................ 4,245,000 4,384,024
Series F, NATL Insured, 5.00%, 6/01/28 ............................................ 2,000,000 2,062,440
Florida State Board Regent Housing Revenue, University of Florida, FGIC Insured,
Pre-Refunded, 5.25%, 7/01/30 ...................................................... 2,000,000 2,053,000
Florida State Correctional Privatization Commission COP, Series B, AMBAC Insured,
5.00%, 8/01/25 .................................................................... 2,000,000 2,046,760
Florida State Department of Environmental Protection Preservation Revenue, Florida
Forever, Series A, NATL Insured, 5.00%, 7/01/21 ................................... 3,000,000 3,121,110
Greater Orlando Aviation Authority Orlando Airport Facilities Revenue, Series B, FGIC
Insured, 5.25%, 10/01/28 .......................................................... 2,500,000 2,514,450
Hernando County School Board COP, NATL Insured, 5.00%, 7/01/30 ....................... 1,150,000 1,126,920
Hillsborough County School Board COP, Master Lease Program, Refunding, Series A, NATL
Insured, 5.00%, 7/01/26 ........................................................... 1,670,000 1,722,622
Indian Trail Water Control District Improvement Revenue, NATL Insured, 5.75%, 8/01/16 1,090,000 1,091,232
Jacksonville Capital Improvement Revenue, Refunding, Series C, AMBAC Insured, 5.00%,
10/01/25 .......................................................................... 4,000,000 4,060,680
Jacksonville Guaranteed Entitlement Revenue, Refunding and Improvement, FGIC Insured,
5.00%, 10/01/32 ................................................................... 1,000,000 1,005,720
Jacksonville Sales Tax Revenue,
AMBAC Insured, 5.00%, 10/01/30 .................................................... 5,000,000 5,064,850
Better Jacksonville, NATL Insured, 5.00%, 10/01/30 ................................ 1,500,000 1,537,425
66 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Jacksonville Transportation Revenue, NATL Insured,
5.00%, 10/01/26 ................................................................... $ 2,000,000 $ 2,027,480
5.25%, 10/01/29 ................................................................... 11,000,000 11,154,000
Lake County School Board COP, Series A, AMBAC Insured, 5.00%, 6/01/30 ................ 2,080,000 2,064,150
Lee County Airport Revenue,
Refunding, FSA Insured, 5.00%, 10/01/33 ........................................... 3,530,000 3,577,831
Series B, FSA Insured, Pre-Refunded, 5.75%, 10/01/33 .............................. 4,000,000 4,168,080
Lee Memorial Health System Hospital Revenue, Series A, AMBAC Insured, 5.00%,
4/01/32 ........................................................................... 1,460,000 1,386,942
4/01/37 ........................................................................... 11,000,000 10,151,240
Leon County COP, AMBAC Insured, 5.00%, 7/01/25 ....................................... 8,935,000 9,074,743
Maitland CDA Revenue, AMBAC Insured, 5.00%, 7/01/34 .................................. 2,595,000 2,663,119
Marion County Utility System Revenue, FGIC Insured, 5.00%, 12/01/31 .................. 1,500,000 1,526,805
Miami Beach Water and Sewer Revenue, AMBAC Insured, 5.00%, 9/01/30 ................... 3,000,000 3,012,540
Miami-Dade County Aviation Revenue, Miami International Airport, Hub of the Americas,
Refunding, Series A, CIFG Insured, 5.00%, 10/01/38 ................................ 1,625,000 1,453,351
Series B, NATL Insured, 5.75%, 10/01/29 ........................................... 2,500,000 2,535,575
Series B, NATL Insured, 5.00%, 10/01/30 ........................................... 3,500,000 3,438,085
Miami-Dade County GO, Building Better Communities Program, FGIC Insured, 5.00%,
7/01/33 ........................................................................... 2,000,000 2,036,340
Miami-Dade County Public Facilities Revenue, Jackson Health System, Series A, NATL
Insured, 5.00%, 6/01/31 ........................................................... 1,650,000 1,573,060
Miami-Dade County School Board COP, Series A, FGIC Insured, 5.00%,
5/01/25 ........................................................................... 5,000,000 5,077,850
5/01/26 ........................................................................... 17,080,000 17,242,602
5/01/27 ........................................................................... 10,775,000 10,812,928
Ocala Utility System Revenue, Refunding, Series A, FGIC Insured, 5.00%, 10/01/31 ..... 2,000,000 2,042,840
Opa-Locka Capital Improvement Revenue, FGIC Insured, 6.125%, 1/01/24 ................. 1,000,000 1,000,470
Orange County Health Facilities Authority Revenue, Hospital, Orlando Regional
Healthcare, Series B, FSA Insured, 5.00%, 12/01/32 ................................ 7,000,000 6,813,940
Orange County School Board COP,
AMBAC Insured, 5.50%, 8/01/25 ..................................................... 1,000,000 1,016,560
Series A, NATL Insured, 5.00%, 8/01/27 ............................................ 10,000,000 10,124,000
Orlando-Orange County Expressway Authority Revenue,
junior lien, FGIC Insured, 6.50%, 7/01/10 ......................................... 100,000 101,803
junior lien, FGIC Insured, 6.50%, 7/01/12 ......................................... 225,000 249,977
Series B, AMBAC Insured, 5.00%, 7/01/35 ........................................... 20,000,000 19,744,000
Osceola County HFA, MFHR, Tierra Vista Apartment Project, Series A, 5.70%, 12/01/17 .. 480,000 481,186
Osceola County School Board COP, Series A, AMBAC Insured, Pre-Refunded, 5.25%,
6/01/27 ........................................................................... 13,000,000 14,353,170
Osceola County Tourist Development Tax Revenue, FGIC Insured, 5.00%, 10/01/32 ........ 3,000,000 3,017,160
Palm Beach County IDR, South Florida Fair Project, NATL Insured, 5.50%, 6/01/31 ...... 2,000,000 2,001,140
Palm Beach County School Board COP, Series A,
AMBAC Insured, Pre-Refunded, 5.125%, 8/01/24 ...................................... 2,000,000 2,152,720
FGIC Insured, Pre-Refunded, 6.00%, 8/01/22 ........................................ 3,000,000 3,101,310
Panama City Beach Utility Revenue, Refunding, AMBAC Insured, 5.00%, 6/01/32 .......... 2,000,000 2,009,940
Pasco County Guaranteed Entitlement Revenue, Refunding, FSA Insured, 5.00%,
12/01/33 .......................................................................... 2,185,000 2,258,613
Annual Report | 67
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Pembroke Pines Public Improvement Revenue,
Series A, AMBAC Insured, 5.00%, 10/01/29 .......................................... $ 2,000,000 $ 2,002,340
Series B, AMBAC Insured, 5.00%, 10/01/34 .......................................... 2,000,000 2,010,480
Pinellas County Health Facilities Authority Revenue, Baycare Health System, FSA
Insured, 5.00%, 11/15/30 .......................................................... 4,000,000 4,018,480
Pinellas County Sewer Revenue, FSA Insured, 5.00%, 10/01/32 .......................... 3,000,000 3,075,840
Polk County Public Facilities Revenue, NATL Insured, 5.00%, 12/01/33 ................. 2,000,000 1,999,840
Polk County School Board COP, Series A, FSA Insured, 5.00%,
1/01/24 ........................................................................... 5,000,000 5,001,350
1/01/26 ........................................................................... 1,000,000 1,011,070
Polk County Utility System Revenue, Series A, FGIC Insured, 5.00%,
10/01/30 .......................................................................... 1,000,000 1,007,280
10/01/34 .......................................................................... 2,000,000 2,010,480
Port Orange GO, NATL Insured, 5.00%, 4/01/33 ......................................... 1,755,000 1,802,087
Port St. Lucie Utility Revenue, NATL Insured, 5.00%, 9/01/34 ......................... 8,420,000 8,349,525
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie, Water
Management Benefit, senior lien, Refunding, Series A, NATL Insured, 5.25%, 5/01/25 ... 5,000,000 4,719,900
St. Lucie West Services District Utility Revenue, senior lien, NATL Insured, 6.125%,
10/01/32 .......................................................................... 2,240,000 2,299,158
Sumter County School District Revenue, Multi-District Loan Program, FSA Insured,
7.15%, 11/01/15 ................................................................... 245,000 301,000
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 .......... 2,000,000 2,180,400
Tampa Bay Water Utility System Revenue, FGIC Insured, Pre-Refunded, 5.75%, 10/01/29 .. 2,000,000 2,162,820
Tavares Water and Sewer Revenue, AMBAC Insured, 5.50%, 10/01/30 ...................... 1,000,000 1,010,620
University of Central Florida Athletics Assn. Inc. COP, Series A, FGIC Insured, 5.00%,
10/01/27 .......................................................................... 1,000,000 920,790
10/01/30 .......................................................................... 1,485,000 1,323,625
University of Central Florida COP, University of Central Florida Convocation Corp.,
Series A, FGIC Insured, 5.00%, 10/01/35 .............................................. 1,500,000 1,364,970
Volusia County Educational Facility Authority Revenue, Embry-Riddle Aeronautical
University, Refunding, Series B, AMBAC Insured, 5.25%, 10/15/19 ...................... 3,500,000 3,513,475
--------------
349,753,197
--------------
GEORGIA 4.4%
Athens Housing Authority Student Housing Lease Revenue, University of Georgia, East
Campus, Refunding, AMBAC Insured, 5.00%, 12/01/33 ................................. 6,000,000 5,950,080
Atlanta Water and Wastewater Revenue,
FSA Insured, 5.00%, 11/01/37 ...................................................... 15,000,000 15,267,150
Refunding, Series B, FSA Insured, 5.375%, 11/01/39 ................................ 23,000,000 23,885,040
Series A, NATL Insured, 5.00%, 11/01/29 ........................................... 4,750,000 4,778,025
Brunswick Water and Sewer Revenue, Refunding and Improvement, NATL Insured, 6.10%,
10/01/14 .......................................................................... 1,535,000 1,691,340
Bulloch County Development Authority Revenue, Assured Guaranty, 5.25%, 7/01/33 ....... 14,825,000 15,557,651
Cherokee County Water and Sewer Authority Revenue, NATL Insured, 6.90%, 8/01/18 ...... 15,000 15,011
Columbus Building Authority Lease Revenue, Series A, NATL Insured, 5.00%, 1/01/31 .... 3,500,000 3,630,305
Dahlonega Water and Wastewater Revenue, Series A, Assured Guaranty, 5.50%, 9/01/37 ... 6,450,000 6,711,741
East Point Building Authority Revenue, Water and Sewer Project, Series A, XLCA
Insured, 5.00%, 2/01/30 ........................................................... 11,360,000 9,405,058
68 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Fulton County Development Authority Revenue, Georgia Institute of Technology Athletic
Assn., Refunding, AMBAC Insured, 5.125%, 10/01/32 ................................. $ 9,000,000 $ 9,083,430
Georgia Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare Systems, NATL Insured, 5.50%, 8/01/19 ......................... 15,000,000 15,213,300
--------------
111,188,131
--------------
HAWAII 0.2%
Hawaii County GO, Refunding and Improvement, Series A, FGIC Insured, 5.60%,
5/01/12 ........................................................................... 1,000,000 1,094,470
5/01/13 ........................................................................... 1,000,000 1,129,410
Kauai County GO, Series A, FGIC Insured, Pre-Refunded, 6.125%, 8/01/23 ............... 1,755,000 1,797,260
--------------
4,021,140
--------------
ILLINOIS 4.5%
Chicago Board of Education GO, Refunding, Series C, Assured Guaranty, 5.25%, 12/01/26 12,575,000 13,685,750
Chicago GO, Project, Refunding, Series A, FSA Insured, 5.00%,
1/01/28 ........................................................................... 29,885,000 31,619,226
1/01/29 ........................................................................... 13,345,000 14,021,058
1/01/30 ........................................................................... 6,200,000 6,478,752
Illinois Finance Authority Revenue, Southern Illinois HealthCare, FSA Insured, 5.375%,
3/01/35 ........................................................................... 8,500,000 8,628,010
Illinois Health Facilities Authority Revenue,
Northwestern Medical Facility Foundation, Refunding, NATL Insured, 5.125%, 11/15/28 5,000,000 4,559,200
Series B, FSA Insured, ETM, 7.75%, 8/15/10 ........................................ 50,000 51,706
Illinois State Finance Authority Revenue, Edward Hospital, Series A, AMBAC Insured,
5.50%, 2/01/40 .................................................................... 4,000,000 3,976,520
(a) Illinois State GO, Refunding, FSA Insured, 5.00%, 1/01/23 ............................ 10,000,000 10,679,700
Metropolitan Pier and Exposition Authority Dedicated State Tax Revenue, McCormick
Place Expansion Project, Refunding, Series A, AMBAC Insured, 5.25%, 6/15/27 ....... 4,225,000 4,226,352
Regional Transportation Authority Revenue, Series A, AMBAC Insured, 7.20%, 11/01/20 .. 300,000 364,407
Saline Valley Conservancy District Waterworks Revenue, Saline Valley Conservancy
District, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/41 ...................... 7,000,000 7,008,470
St. Clair County School District No. 189 East St. Louis GO, Alternate Revenue Source,
Refunding, AMBAC Insured, 5.125%, 1/01/28 ......................................... 7,135,000 7,502,952
--------------
112,802,103
--------------
INDIANA 0.5%
Indiana Health and Educational Facilities Finance Authority Revenue, St. Francis,
Series E, FSA Insured, 5.25%, 5/15/41 ............................................. 3,750,000 3,784,425
Indianapolis Local Public Improvement Bond Bank Revenue, Waterworks Project, Series A,
Assured Guaranty, 5.50%, 1/01/38 .................................................. 8,650,000 9,339,319
--------------
13,123,744
--------------
KANSAS 0.7%
Overland Park Development Corp. Revenue, second tier, Convention, Refunding, Series B,
AMBAC Insured, 5.125%, 1/01/32 .................................................... 20,000,000 17,169,000
--------------
Annual Report | 69
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY 1.7%
Kentucky Economic Development Finance Authority Health System Revenue, Norton
Healthcare Inc.,
Refunding, Series C, NATL Insured, 6.05%, 10/01/20 ................................ $ 8,505,000 $ 9,005,434
Series C, NATL Insured, Pre-Refunded, 6.05%, 10/01/20 ............................. 4,255,000 4,999,881
Series C, NATL Insured, Pre-Refunded, 6.15%, 10/01/26 ............................. 12,195,000 14,372,417
Kentucky State Municipal Power Agency Power System Revenue, Prairie State Project,
Series A, NATL Insured, 5.00%, 9/01/37 ............................................ 10,000,000 10,037,200
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drain System
Revenue, Series A, NATL Insured, 5.50%, 5/15/34 ................................... 5,000,000 5,181,050
--------------
43,595,982
--------------
LOUISIANA 1.7%
Louisiana Local Government Environmental Facilities and CDA Revenue,
LCTCS Facilities Corp. Project, Series B, Assured Guaranty, 5.00%, 10/01/26 ....... 2,750,000 2,917,475
Parking Facilities Corp. Garage Project, Series A, AMBAC Insured, 5.375%, 10/01/31 5,480,000 5,488,330
Louisiana State Citizens Property Insurance Corp. Assessment Revenue, Series C-2,
Assured Guaranty, 6.75%, 6/01/26 .................................................. 21,000,000 24,082,380
Louisiana State Gas and Fuels Tax Revenue, Series A, AMBAC Insured, 5.00%, 6/01/27 ... 10,000,000 10,201,200
--------------
42,689,385
--------------
MAINE 1.0%
Maine Educational Loan Authority Student Loan Revenue, A, Series A-3, Assured
Guaranty, 5.875%, 12/01/39 ........................................................ 23,000,000 25,132,100
Maine State Health and Higher Educational Facilities Authority Revenue, Series C, FSA
Insured, 6.20%, 7/01/25 ........................................................... 100,000 100,016
--------------
25,232,116
--------------
MARYLAND 1.6%
Baltimore Convention Center Hotel Revenue, Senior Series A, XLCA Insured, 5.00%,
9/01/32 ........................................................................... 10,000,000 8,137,600
Baltimore Project Revenue, Water Projects, Refunding, Series A, NATL Insured, 5.125%,
7/01/42 ........................................................................... 11,000,000 11,171,490
Baltimore Revenue, Water Projects, Series A, FSA Insured, Pre-Refunded, 5.75%, 7/01/30 5,880,000 5,987,663
Maryland State Health and Higher Educational Facilities Authority Revenue,
LifeBridge Health, Refunding, Assured Guaranty, 5.00%, 7/01/34 .................... 9,000,000 9,092,880
University of Maryland Medical System, Series B, FGIC Insured, 7.00%, 7/01/22 ..... 200,000 236,284
Western Maryland Health, Series A, NATL Insured, 5.00%, 7/01/34 ................... 5,000,000 4,835,700
--------------
39,461,617
--------------
MASSACHUSETTS 3.4%
Massachusetts State Development Finance Agency Revenue, Worcester Polytechnic
Institute, NATL Insured, 5.00%, 9/01/47 ........................................... 25,050,000 25,174,248
Massachusetts State GO, Consolidated Loan, Series D, NATL Insured,
ETM, 5.00%, 8/01/27 ............................................................... 3,535,000 3,876,340
Pre-Refunded, 5.00%, 8/01/27 ...................................................... 855,000 937,559
70 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Health and Educational Facilities Authority Revenue,
CareGroup Issue, Refunding, Series A, NATL Insured, 5.00%, 7/01/25 ................ $ 3,880,000 $ 3,802,439
CareGroup Issue, Series A, NATL Insured, Pre-Refunded, 5.00%, 7/01/25 ............. 750,000 858,202
Central New England Health, Series B, AMBAC Insured, 5.20%, 8/01/28 ............... 4,415,000 4,302,506
Emmanuel College, NATL Insured, 5.00%, 7/01/37 .................................... 21,685,000 20,901,304
Harvard Pilgrim Health, Series A, FSA Insured, 5.00%, 7/01/18 ..................... 3,000,000 3,002,820
Simmons College, Series C, NATL Insured, 5.125%, 10/01/28 ......................... 4,260,000 4,232,097
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue, Refunding,
Series B, NATL Insured, 5.125%, 1/01/37 ........................................... 2,100,000 2,096,199
Massachusetts State Water Resources Authority Revenue, Refunding, Series J, FSA Insured,
5.00%, 8/01/32 .................................................................... 16,250,000 16,525,925
--------------
85,709,639
--------------
MICHIGAN 10.3%
Birmingham City School District GO, School Building and Site, FSA Insured, 5.00%,
11/01/33 .......................................................................... 8,135,000 8,383,118
Central Michigan University Revenue, Series A, AMBAC Insured, 5.05%, 10/01/32 ........ 8,650,000 8,677,680
Detroit City School District GO, School Building and Site Improvement, Series A, FSA
Insured, Pre-Refunded, 5.125%, 5/01/31 ............................................ 6,500,000 7,109,895
Detroit Public Improvements GO, Series A-1, NATL Insured, 5.00%, 4/01/21 ............. 12,390,000 10,192,138
Detroit Sewer Disposal System Revenue,
second lien, Series B, NATL Insured, 5.00%, 7/01/36 ............................... 15,000,000 14,140,950
senior lien, Refunding, Series A, FSA Insured, 5.00%, 7/01/32 ..................... 2,905,000 2,828,569
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.125%, 7/01/31 ................ 6,000,000 6,362,580
senior lien, Series B, FSA Insured, 7.50%, 7/01/33 ................................ 6,000,000 7,151,220
Detroit Water Supply System Revenue,
second lien, Series B, FSA Insured, 7.00%, 7/01/36 ................................ 5,000,000 5,733,750
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ................. 10,185,000 10,803,331
senior lien, Series A, FSA Insured, 5.00%, 7/01/34 ................................ 7,040,000 6,761,920
senior lien, Series A, NATL Insured, 5.00%, 7/01/34 ............................... 10,150,000 9,485,885
senior lien, Series A, NATL Insured, Pre-Refunded, 5.25%, 7/01/33 ................. 9,815,000 10,431,088
Grand Rapids Sanitation Sewer System Revenue, FGIC Insured, 5.00%, 1/01/34 ........... 18,285,000 18,704,641
Jackson County Hospital Finance Authority Revenue, W.A. Foote Memorial Hospital,
Series A, AMBAC Insured, 5.25%, 6/01/17 ........................................... 500,000 500,145
Michigan Municipal Bond Authority Revenue, Clean Water State Revolving Fund, NATL
Insured, 5.00%, 10/01/23 .......................................................... 5,095,000 5,346,591
Michigan State Building Authority Revenue, Refunding, Series IA,
FGIC Insured, 5.00%, 10/15/36 ..................................................... 10,000,000 9,811,800
FSA Insured, 5.00%, 10/15/36 ...................................................... 28,895,000 29,300,397
Michigan State Hospital Finance Authority Revenue,
Hospital, Botsford Obligated Group, Refunding, Series A, NATL Insured, 5.25%, 2/15/22 2,000,000 1,944,620
Hospital, Sparrow Obligated Group, Refunding, NATL Insured, 5.00%, 11/15/36 ....... 13,000,000 11,964,160
Oakwood Obligated Group, Refunding, Series A, FSA Insured, 5.00%, 8/15/31 ......... 10,000,000 10,014,000
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.00%, 5/15/13 ...... 2,085,000 2,192,482
Trinity Health Credit Group, Series A, 6.50%, 12/01/33 ............................ 25,000,000 27,516,000
Michigan State Strategic Fund Limited Obligation Revenue, Detroit Edison Co. Pollution
Control Bonds Project, Refunding, Collateralized Series BB, AMBAC Insured,
7.00%, 5/01/21 .................................................................... 250,000 303,610
Annual Report | 71
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Michigan State Strategic Fund Resources Recovery Limited Obligation Revenue, Detroit
Education Exempt Facilities, Refunding, Series D, XLCA Insured, 5.25%, 12/15/32 ... $ 10,000,000 $ 10,068,600
Michigan State Trunk Line Revenue, Series A, FSA Insured, Pre-Refunded, 5.25%,
11/01/30 .......................................................................... 15,000,000 16,161,450
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont Hospital,
Series M, NATL Insured, 5.25%, 11/15/31 ........................................... 4,000,000 3,719,520
Saginaw Valley State University Revenue, General, Refunding, AMBAC Insured, 5.30%,
7/01/28 ........................................................................... 3,400,000 3,402,006
--------------
259,012,146
--------------
MINNESOTA 1.2%
Medford ISD No. 763 GO, Series A, FSA Insured, 5.125%, 2/01/26 ....................... 2,475,000 2,578,455
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue, sub. bond,
Refunding, Series A, AMBAC Insured, 5.00%, 1/01/35 ................................ 15,000,000 15,114,000
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Refunding, Series A, NATL Insured, 5.75%, 11/15/26 ................................ 180,000 180,274
Minnesota State HFAR, Rental Housing, Refunding, Series D, NATL Insured, 6.00%,
2/01/22 ........................................................................... 175,000 175,740
Sauk Rapids ISD No. 047 GO, Series A, NATL Insured, 5.75%, 2/01/26 ................... 11,850,000 12,412,519
--------------
30,460,988
--------------
MISSISSIPPI 0.4%
Harrison County Wastewater Management District Revenue, Wastewater Treatment
Facilities, Series A, FGIC Insured, ETM, 8.50%, 2/01/13 ........................... 200,000 232,488
Mississippi Development Bank Special Obligation Revenue, Municipal Energy Agency,
Series A, XLCA Insured, 5.00%, 3/01/36 ............................................ 10,915,000 10,037,761
--------------
10,270,249
--------------
MISSOURI 0.9%
Bi-State Development Agency Missouri-Illinois Metropolitan District Mass Transit Sales
Tax Revenue, Metrolink Cross County Extension, Assured Guaranty, 5.00%, 10/01/39 .. 6,000,000 6,081,840
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
St Luke's Health System, Series B, 5.50%, 11/15/35 ................................ 15,000,000 15,448,050
--------------
21,529,890
--------------
NEBRASKA 1.1%
Lancaster County Hospital Authority Revenue, Bryan Memorial Hospital Project No. 1,
NATL Insured, ETM, 6.70%, 6/01/22 ................................................ 2,500,000 3,123,300
Lincoln Electric System Revenue, FSA Insured, 4.75%, 9/01/35 ......................... 23,500,000 24,047,315
--------------
27,170,615
--------------
NEVADA 1.4%
Clark County GO, Series A, AMBAC Insured, 6.50%, 6/01/17 ............................. 250,000 297,963
Clark County Passenger Facility Charge Revenue, Las Vegas, McCarran International
Airport, Series A, Assured Guaranty, 5.25%, 7/01/39 ............................... 20,000,000 20,029,000
FSA Insured, 5.25%, 7/01/42 ....................................................... 5,000,000 5,003,400
Clark County School District GO, Series A, NATL Insured, 7.00%, 6/01/10 .............. 4,000,000 4,063,680
(a) Reno Hospital Revenue, Washoe Medical Center, Refunding, Series C, FSA Insured,
5.375%, 6/01/39 ................................................................... 5,000,000 4,945,100
--------------
34,339,143
--------------
72 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW HAMPSHIRE 0.2%
Manchester General Airport Revenue, General, Refunding, Series A, FSA Insured, 5.125%,
1/01/30 ........................................................................... $ 6,000,000 $ 5,951,640
--------------
NEW JERSEY 2.1%
Essex County Improvement Authority Revenue, Garden State Cancer Center Project, AMBAC
Insured, 6.00%, 12/01/20 .......................................................... 2,250,000 2,251,868
Middlesex County COP, NATL Insured, 5.30%, 6/15/29 ................................... 3,575,000 3,582,829
New Brunswick Parking Authority Revenue, Guaranteed Parking, Series A, NATL Insured,
5.00%, 9/01/34 .................................................................... 1,500,000 1,504,530
New Jersey EDA Revenue,
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/29 ........... 3,450,000 3,451,104
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/34 ........... 21,250,000 20,665,412
Municipal Rehabilitation, Series A, AMBAC Insured, 5.00%, 4/01/28 ................. 4,000,000 4,064,800
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Series A, 6.00%, 12/15/38 ......................................................... 15,000,000 16,720,050
New Jersey State Turnpike Authority Turnpike Revenue,
2005, Refunding, Series C, AMBAC Insured, 6.50%, 1/01/16 .......................... 50,000 57,447
2005, Series C, AMBAC Insured, ETM, 6.50%, 1/01/16 ................................ 20,000 23,775
Series C, AMBAC Insured, Pre-Refunded, 6.50%, 1/01/16 ............................. 230,000 269,714
--------------
52,591,529
--------------
NEW YORK 2.8%
Central Square GO, Central School District, FGIC Insured, ETM, 6.50%, 6/15/10 ........ 900,000 915,840
MTA Revenue, Series B, NATL Insured, 5.00%, 11/15/28 ................................. 20,000,000 20,486,600
MTA Service Contract Revenue, Series B, NATL Insured, 5.00%, 1/01/31 ................. 7,000,000 7,048,440
New York City Transitional Finance Authority Revenue, Future Tax Secured,
Refunding, Series B, NATL Insured, 5.00%, 8/01/32 ................................. 2,230,000 2,289,630
Series A, FGIC Insured, 5.125%, 8/01/33 ........................................... 14,590,000 14,990,787
New York State Dormitory Authority Revenue, Mental Health Services Facilities
Improvement, Series B, NATL Insured, Pre-Refunded, 5.25%, 8/15/31 ................. 5,935,000 6,355,258
New York State Dormitory Authority Revenues,
State Supported Debt, Mental Health Services Facilities Improvement, Series B, NATL
Insured, 5.25%, 8/15/31 ........................................................ 5,530,000 5,581,263
State Supported Debt, Mental Health Services Facilities Improvement, Series B, NATL
Insured, Pre-Refunded, 5.25%, 8/15/31 .......................................... 3,535,000 3,785,313
Vassar Brothers Hospital, FSA Insured, 5.375%, 7/01/25 ............................ 4,000,000 4,007,200
Triborough Bridge and Tunnel Authority Revenues, Refunding, NATL Insured, 5.00%,
11/15/32 .......................................................................... 5,000,000 5,145,850
--------------
70,606,181
--------------
NORTH CAROLINA 0.6%
North Carolina Medical Care Commission Hospital Revenue, Rex Healthcare Project, AMBAC
Insured, 5.00%, 6/01/17 ........................................................... 5,000,000 5,003,650
Raleigh-Durham Airport Authority Airport Revenue, Series A, FGIC Insured, 5.00%,
11/01/25 .......................................................................... 5,000,000 5,102,250
11/01/31 .......................................................................... 4,000,000 4,040,520
--------------
14,146,420
--------------
Annual Report | 73
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH DAKOTA 1.2%
Cass County Health Facilities Revenue, Health Care, Essentia Obligation, Series D,
Assured Guaranty, 5.00%, 2/15/40 .................................................. $ 31,970,000 $ 30,862,559
--------------
OHIO 2.4%
Akron Income Tax Revenue, Community Learning Centers, Series A, NATL Insured, 5.00%,
12/01/33 .......................................................................... 5,000,000 5,052,300
Cleveland Airport System Revenue, Series A, FSA Insured, 5.00%, 1/01/31 .............. 13,780,000 13,803,426
Fairview Park City School District GO, School Improvement, NATL Insured, 5.00%,
12/01/29 .......................................................................... 1,460,000 1,499,157
12/01/33 .......................................................................... 2,000,000 2,028,380
Jefferson Area Local School District GO, School Facilities Construction and
Improvement, FGIC Insured, 5.00%, 12/01/31 ........................................ 4,085,000 4,156,283
Licking Heights Local School District GO, School Facilities Construction and
Improvement, Series A, FGIC Insured, Pre-Refunded, 5.625%, 12/01/28 ............... 3,465,000 3,603,427
Lucas County Hospital Revenue, ProMedica Healthcare Obligated Group, Refunding, AMBAC
Insured, 5.375%, 11/15/29 ......................................................... 5,000,000 5,016,850
Olentangy Local School District GO, School Facilities Construction and Improvement,
Series A, FGIC Insured, Pre-Refunded, 5.25%, 12/01/32 ............................. 11,450,000 13,316,693
Reynoldsburg City School District GO, School Facilities Construction and Improvement,
FSA Insured, 5.00%, 12/01/31 ...................................................... 4,000,000 4,106,680
Springfield City School District GO, FGIC Insured, Pre-Refunded, 5.20%, 12/01/23 ..... 3,860,000 4,239,747
Toledo City School District GO, School Facilities Improvement, Series B, FGIC Insured,
5.00%, 12/01/32 ................................................................... 4,000,000 4,065,200
--------------
60,888,143
--------------
OKLAHOMA 0.0%b
McGee Creek Authority Water Revenue, NATL Insured, 6.00%, 1/01/23 .................... 300,000 322,239
--------------
OREGON 0.3%
Ontario Catholic Health Revenue, Holy Rosary Medical Center, NATL Insured, 5.50%,
11/15/12 .......................................................................... 435,000 435,474
Oregon Health and Science University Revenue,
Refunding, Series B, NATL Insured, 5.25%, 7/01/15 ................................. 460,000 460,106
Series A, NATL Insured, 5.00%, 7/01/32 ............................................ 8,000,000 7,577,200
--------------
8,472,780
--------------
PENNSYLVANIA 2.3%
Allegheny County Hospital Development Authority Revenue, Health System, Series A, NATL
Insured, Pre-Refunded, 6.50%, 11/15/30 ............................................ 10,000,000 10,636,400
Centre County Hospital Authority Revenue, Hospital, Mount Nittany Medical Center
Project, Assured Guaranty,
5.875%, 11/15/29 .................................................................. 1,000,000 1,039,130
6.125%, 11/15/39 .................................................................. 3,000,000 3,105,270
6.25%, 11/15/44 ................................................................... 2,500,000 2,590,075
Pennsylvania Convention Center Authority Revenue, Series A, FGIC Insured, ETM, 6.00%,
9/01/19 ........................................................................... 500,000 605,480
74 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Pennsylvania State Public School Building Authority Lease Revenue, School District of
Philadelphia Project, Refunding, Series B, FSA Insured, 4.75%, 6/01/30 ............ $ 6,000,000 $ 5,961,000
Pennsylvania State Turnpike Commission Turnpike Revenue,
Refunding, Series C, Sub Series C-1, Assured Guaranty, 6.25%, 6/01/38 ............. 10,000,000 11,252,100
sub. bond, Series A, Assured Guaranty, 5.00%, 6/01/39 ............................. 10,000,000 10,080,400
Philadelphia Gas Works Revenue, 1998 General Ordinance, Fourth Series, FSA Insured,
5.00%, 8/01/32 .................................................................... 4,000,000 4,047,280
Philadelphia Water and Wastewater Revenue, Series A, FGIC Insured, Pre-Refunded,
5.25%, 11/01/24 ................................................................... 2,000,000 2,228,240
Pittsburgh and Allegheny County Public Auditorium Revenue, Regional Asset District
Sales Tax, AMBAC Insured, 5.25%, 2/01/31 .......................................... 6,000,000 5,909,880
Pittsburgh Water and Sewer Authority Revenue, FGIC Insured, ETM, 7.25%, 9/01/14 ...... 55,000 62,928
--------------
57,518,183
--------------
RHODE ISLAND 0.5%
Rhode Island Clean Water Finance Agency Revenue, Cranston Wastewater Treatment System,
NATL Insured, 5.80%, 9/01/22 ...................................................... 7,785,000 7,656,158
Rhode Island State EDC Special Facility Revenue, first lien, Rhode Island Airport
Corp. Project, CIFG Insured, 5.00%, 7/01/31 ....................................... 5,730,000 5,554,204
Rhode Island State Health and Educational Building Corp. Revenue, Hospital Financing,
Lifespan Obligated Group, Refunding, NATL Insured, 5.75%, 5/15/23 ................. 100,000 100,409
--------------
13,310,771
--------------
SOUTH CAROLINA 2.0%
Piedmont Municipal Power Agency Electric Revenue, Refunding, FGIC Insured, 6.25%,
1/01/21 ........................................................................... 200,000 235,936
Richland County Hospital Facilities Revenue, Community Provider, Pooled Loan Program,
Series A, FSA Insured, ETM, 7.125%, 7/01/17 ....................................... 2,020,000 2,351,644
Scago Educational Facilities Corp. for Pickens School District Revenue, Pickens County
Project, FSA Insured, 5.00%, 12/01/31 ............................................. 17,800,000 17,940,442
South Carolina Jobs EDA Hospital Facilities Revenue, Palmetto Health, Refunding,
Series A, FSA Insured, 5.00%, 8/01/35 ............................................. 20,000,000 19,688,000
South Carolina Jobs EDA Industrial Revenue, South Carolina Electric and Gas Co.
Project, Series A, AMBAC Insured, 5.20%, 11/01/27 ................................. 5,000,000 5,159,950
Spartanburg Waterworks Revenue, System, Assured Guaranty, 5.00%, 6/01/39 ............. 6,000,000 6,165,000
--------------
51,540,972
--------------
SOUTH DAKOTA 0.3%
Brookings COP, Refunding, AMBAC Insured, 5.10%, 12/01/18 ............................. 5,000,000 5,076,150
South Dakota Lease Revenue, Series A, FSA Insured, 6.75%, 12/15/16 ................... 2,310,000 2,683,874
--------------
7,760,024
--------------
TENNESSEE 0.4%
Johnson City Health and Educational Facilities Board Hospital Revenue,
Medical Center Hospital, Refunding and Improvement, NATL Insured, ETM, 5.25%,
7/01/28 ....................................................................... 8,500,000 8,557,205
Series A, NATL Insured, Pre-Refunded, 5.125%, 7/01/25 ............................. 2,780,000 2,798,626
--------------
11,355,831
--------------
Annual Report | 75
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
TEXAS 6.0%
Austin Water and Wastewater System Revenue,
FSA Insured, Pre-Refunded, 5.125%, 5/15/27 ........................................ $ 6,800,000 $ 7,188,416
FSA Insured, Pre-Refunded, 5.25%, 5/15/31 ......................................... 4,930,000 5,218,997
Refunding, FSA Insured, 5.125%, 5/15/27 ........................................... 4,325,000 4,420,496
Refunding, FSA Insured, 5.25%, 5/15/31 ............................................ 70,000 71,357
Bell County Health Facilities Development Corp. Revenue, Hospital, Cook Children's
Medical Center, Refunding, FSA Insured, 5.30%, 12/01/23 ........................... 5,000,000 5,050,000
Coastal Bend Health Facilities Development Corp. Revenue, Series B, AMBAC Insured,
ETM, 6.30%, 1/01/17 ............................................................... 8,325,000 9,443,797
Dallas-Fort Worth International Airport Revenue,
Joint, Series A, NATL Insured, 6.00%, 11/01/21 .................................... 2,210,000 2,214,066
Refunding and Improvement, Joint, Series A, NATL Insured, 5.625%, 11/01/21 ........ 12,000,000 12,265,080
Harris County Hospital District Revenue, senior lien, Refunding, Series A, NATL
Insured, 5.25%, 2/15/37 ........................................................... 10,250,000 10,089,895
Harris County Houston Sports Authority Revenue, senior lien, Series G, NATL Insured,
5.25%, 11/15/30 ................................................................... 21,325,000 20,017,777
Laredo ISD Public Facility Corp. Lease Revenue, Series C, AMBAC Insured, 5.00%,
8/01/29 1,000,000 1,009,720
Matagorda County Navigation District No. 1 Revenue, Houston Industries Inc. Project,
Refunding,
Series A, NATL Insured, 5.25%, 11/01/29 ........................................... 3,185,000 2,827,070
Series B, NATL Insured, 5.15%, 11/01/29 ........................................... 2,750,000 2,635,023
North Fort Bend Water Authority Water System Revenue, Assured Guaranty, 5.25%,
12/15/34 .......................................................................... 20,000,000 21,078,000
North Harris County Regional Water Authority Revenue, senior lien, FGIC Insured,
5.00%, 12/15/33 ................................................................... 10,000,000 10,002,700
Palestine ISD, GO, School Building, Assured Guaranty, 5.50%, 2/15/39 ................. 12,530,000 13,406,348
Pflugerville GO, FGIC Insured,
5.25%, 8/01/27 .................................................................... 3,320,000 3,492,408
5.20%, 8/01/32 .................................................................... 3,000,000 3,099,990
Port Neches-Groves ISD, GO, School Building, Assured Guaranty, 5.00%, 2/15/34 ........ 11,375,000 11,667,224
Tarrant County Health Facilities Development Corp. Health Systems Revenue, Harris
Methodist Health System, NATL Insured, ETM, 6.00%, 9/01/24 ........................ 3,250,000 3,992,462
United ISD, GO, 5.125%, 8/15/26 ...................................................... 3,000,000 3,115,590
--------------
152,306,416
--------------
UTAH 0.4%
Provo Electric System Revenue, Series A, AMBAC Insured, ETM, 10.375%, 9/15/15 ........ 30,000 36,470
Utah County Hospital Revenue, IHC Health Services Inc., NATL Insured, ETM, 5.25%,
8/15/21 ........................................................................... 5,000,000 5,098,800
8/15/26 ........................................................................... 5,000,000 5,007,800
--------------
10,143,070
--------------
VIRGINIA 0.4%
Front Royal and Warren County IDA Lease Revenue, School and Capital Improvement,
Series B, FSA Insured, 5.00%, 4/01/35 ............................................. 5,000,000 5,090,150
Middle River Regional Jail Authority Jail Facility Revenue, NATL Insured, 5.00%,
5/15/28 3,510,000 3,649,698
Winchester IDA Educational Facilities Revenue, first mortgage, Shenandoah University
Project, NATL Insured,
5.00%, 10/01/18 ................................................................... 1,000,000 1,005,710
5.25%, 10/01/28 ................................................................... 1,420,000 1,411,608
--------------
11,157,166
--------------
76 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
xxx
MUNICIPAL BONDS (CONTINUED)
WASHINGTON 2.4%
King County Sewer Revenue, Refunding,
Second Series, FSA Insured, 5.00%, 1/01/36 ........................................ $ 5,000,000 $ 5,160,100
Series A, FGIC Insured, 5.00%, 1/01/35 ............................................ 6,420,000 6,533,698
Snohomish County PUD No. 1 Electric Revenue, Generation System, FGIC Insured, ETM,
6.65%, 1/01/16 .................................................................... 4,250,000 5,069,782
Washington State GO, Various Purpose, Series C, FSA Insured, Pre-Refunded, 5.25%,
1/01/26 ........................................................................... 6,000,000 6,247,920
Washington State Health Care Facilities Authority Revenue,
MultiCare Health System, Series B, Assured Guaranty, 6.00%, 8/15/39 ............... 1,500,000 1,595,565
Providence Health, Refunding, Series D, FSA Insured, 5.25%, 10/01/33 .............. 18,000,000 18,438,120
Series B, NATL Insured, 5.00%, 2/15/27 ............................................ 6,105,000 5,650,300
Swedish Health Services, Refunding, AMBAC Insured, 5.50%, 11/15/28 ................ 13,000,000 13,048,490
--------------
61,743,975
--------------
WEST VIRGINIA 0.5%
Shepherd University Board of Governors Revenue, Residence Facilities Projects, NATL
Insured, 5.00%, 6/01/35 ........................................................... 7,445,000 7,481,927
West Virginia State Water Development Authority Water Development Revenue, Loan
Program II, Refunding, Series C-II, FGIC Insured, 5.00%, 11/01/36 ................. 5,000,000 5,014,350
--------------
12,496,277
--------------
WISCONSIN 2.4%
Superior Limited Obligation Revenue, Midwest Energy Resources, Refunding, Series E,
FGIC Insured, 6.90%, 8/01/21 ...................................................... 3,000,000 3,784,380
Wisconsin State General Fund Annual Appropriation Revenue, Series A, 6.00%, 5/01/36 .. 20,000,000 22,088,400
Wisconsin State Health and Educational Facilities Authority Revenue, Aurora Medical
Group Incorporate Project, FSA Insured, 5.75%, 11/15/25 ........................... 34,730,000 34,764,383
--------------
60,637,163
--------------
U.S. TERRITORIES 0.4%
PUERTO RICO 0.4%
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A, Assured
Guaranty, 5.00%, 8/01/40 .......................................................... 10,000,000 10,077,300
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $2,431,478,647) ............................................................. 2,463,138,206
--------------
SHORT TERM INVESTMENTS 1.8%
MUNICIPAL BONDS 1.8%
COLORADO 0.3%
(c) Colorado Educational and Cultural Facilities Authority Revenue, National Jewish
Federation Bond Program, Series A-10, Daily VRDN and Put, 0.16%, 9/01/37 .......... 7,000,000 7,000,000
--------------
KENTUCKY 0.1%
(c) Kentucky Economic Development Finance Authority Hospital Facilities Revenue, Baptist
Healthcare System, Refunding, Series B-2, Daily VRDN and Put, 0.12%, 8/15/38 ...... 2,150,000 2,150,000
--------------
LOUISIANA 0.2%
(c) Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc. ........
Project, First Stage, ACES, Refunding, Daily VRDN and Put, 0.13%, 9/01/17 ......... 3,960,000 3,960,000
--------------
Annual Report | 77
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN INSURED TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MARYLAND 0.1%
(c) Maryland State EDC, EDR, U.S. Pharmacopeial, Refunding, Series B, Daily VRDN and
Put, 0.16%, 7/01/38 ........................................................... $ 3,400,000 $ 3,400,000
--------------
MASSACHUSETTS 0.1%
(c) Massachusetts State Health and Educational Facilities Authority Revenue,
Stonehill College, Series K, Daily VRDN and Put, 0.14%, 7/01/37 ............... 3,000,000 3,000,000
--------------
MICHIGAN 0.1%
(c) Eastern Michigan University Revenues, General, Refunding, Series A, Daily VRDN and
Put, 0.15%, 3/01/49 ........................................................... 1,400,000 1,400,000
--------------
MISSOURI 0.5%
(c) Missouri Development Finance Board Cultural Facilities Revenue, The Nelson Gallery
Foundation, Refunding, Series A, Daily VRDN and Put, 0.14%, 12/01/37 .......... 5,000,000 5,000,000
(c) Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, St. Louis University, Refunding,
Series A-2, Daily VRDN and Put, 0.12%, 10/01/35 ............................... 1,100,000 1,100,000
Series B-1, Daily VRDN and Put, 0.12%, 10/01/35 ............................... 6,420,000 6,420,000
(c) Missouri State Health and Educational Facilities Authority Health Facilities
Revenue, Sisters Mercy Health, Refunding, Series A, Daily VRDN and Put,
0.14%, 6/01/16 ................................................................ 1,390,000 1,390,000
--------------
13,910,000
--------------
NEW HAMPSHIRE 0.2%
(c) New Hampshire Health and Education Facilities Authority Revenue,
Dartmouth College, Refunding, Series B, Daily VRDN and Put, 0.15%, 6/01/41 .... 3,800,000 3,800,000
University System of New Hampshire, Daily VRDN and Put, 0.14%, 7/01/33 ........ 2,200,000 2,200,000
--------------
6,000,000
--------------
OHIO 0.1%
(c) Cuyahoga County Revenue, Cleveland Clinic Health System Obligated Group, Series B,
Sub Series B-1, Daily VRDN and Put, 0.12%, 1/01/39 ............................ 3,245,000 3,245,000
--------------
TEXAS 0.1%
(c) Texas Water Development Board Revenue, State Revolver, sub. lien, Refunding,
Series A, Daily VRDN and Put, 0.12%, 7/15/19 .................................. 1,800,000 1,800,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $45,865,000) ................................ . 45,865,000
--------------
TOTAL INVESTMENTS (COST $2,477,343,647) 99.3% .................................... 2,509,003,206
OTHER ASSETS, LESS LIABILITIES 0.7% .............................................. 17,883,618
--------------
NET ASSETS 100.0% ................................................................ $2,526,886,824
==============
See Abbreviations on page 144.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Rounds to less than 0.1% of net assets.
(c) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
78 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 10.94 $ 11.20 $ 11.96 $ 11.92 $ 11.98
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.49 0.49 0.49 0.49 0.50
Net realized and unrealized gains (losses) .. 0.66 (0.27) (0.76) 0.04 (0.06)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.15 0.22 (0.27) 0.53 0.44
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.49) (0.48) (0.49) (0.49) (0.50)
Net realized gains .......................... -- -- (--)(d) -- --
-------- -------- -------- -------- --------
Total distributions ............................ (0.49) (0.48) (0.49) (0.49) (0.50)
-------- -------- -------- -------- --------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.60 $ 10.94 $ 11.20 $ 11.96 $ 11.92
======== ======== ======== ======== ========
Total return(f) ................................ 10.66% 2.00% (2.34)% 4.59% 3.71%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.67% 0.66% 0.66% 0.66% 0.67%
Net investment income .......................... 4.27% 4.38% 4.16% 4.16% 4.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $494,372 $445,680 $450,957 $467,299 $450,425
Portfolio turnover rate ........................ 6.61% 7.45% 22.03% 14.41% 17.65%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 79
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.03 $ 11.29 $ 12.05 $ 12.00 $ 12.06
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.43 0.43 0.43 0.43 0.44
Net realized and unrealized gains (losses) .. 0.66 (0.27) (0.76) 0.05 (0.07)
------- ------- ------- ------- -------
Total from investment operations ............... 1.09 0.16 (0.33) 0.48 0.37
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.42) (0.42) (0.43) (0.43) (0.43)
Net realized gains .......................... -- -- (--)(d) -- --
------- ------- ------- ------- -------
Total distributions ............................ (0.42) (0.42) (0.43) (0.43) (0.43)
------- ------- ------- ------- -------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 11.70 $ 11.03 $ 11.29 $ 12.05 $ 12.00
======= ======= ======= ======= =======
Total return(f) ................................ 10.06% 1.42% (2.86)% 4.07% 3.13%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.22% 1.20% 1.22% 1.20% 1.22%
Net investment income .......................... 3.72% 3.84% 3.60% 3.62% 3.66%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $83,397 $68,027 $61,157 $59,247 $57,063
Portfolio turnover rate ........................ 6.61% 7.45% 22.03% 14.41% 17.65%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
80 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $11.08
------
Income from investment operations(b):
Net investment income(c) ...................... 0.33
Net realized and unrealized gains (losses) .... 0.52
------
Total from investment operations ................. 0.85
------
Less distributions from net investment income .... (0.33)
------
Net asset value, end of period ................... $11.60
======
Total return(d) .................................. 7.69%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ......................................... 0.57%
Net investment income ............................ 4.37%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $4,012
Portfolio turnover rate .......................... 6.61%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 81
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.6%
MASSACHUSETTS 97.9%
Auburn GO, AMBAC Insured, 5.125%, 6/01/24 ............................................ $ 1,465,000 $ 1,542,688
Boston Convention Center Act of 1997 Revenue, Special Obligation, Series A, AMBAC
Insured, 5.00%, 5/01/27 ........................................................... 3,970,000 4,015,893
Boston GO, Series A, NATL Insured, Pre-Refunded, 5.00%,
2/01/21 ........................................................................... 3,000,000 3,249,240
2/01/22 ........................................................................... 2,940,000 3,184,255
Chelsea GO, State Qualified, Refunding, AMBAC Insured, 5.125%, 6/15/16 ............... 1,750,000 1,752,643
Dudley-Charlton Regional School District GO, Series B, NATL Insured, 5.25%, 5/01/19 .. 3,140,000 3,575,267
Foxborough Stadium Infrastructure Improvement Revenue, Pre-Refunded, 5.75%, 6/01/25 .. 4,000,000 4,094,080
Greater Lawrence Sanitary District GO, NATL Insured, Pre-Refunded, 5.625%, 6/15/20 ... 1,000,000 1,025,320
Holyoke Gas and Electric Department Revenue, Series A, NATL Insured, 5.00%, 12/01/26 . 9,805,000 9,629,785
Lawrence GO, AMBAC Insured, Pre-Refunded, 5.00%, 2/01/21 ............................. 1,000,000 1,042,730
Lowell GO, State Qualified, AMBAC Insured, 5.00%,
2/01/21 ........................................................................... 1,330,000 1,389,039
2/01/22 ........................................................................... 1,405,000 1,462,310
Martha's Vineyard Land Bank Revenue, AMBAC Insured,
4.875%, 5/01/22 ................................................................... 2,000,000 2,085,180
5.00%, 5/01/32 .................................................................... 2,000,000 2,047,380
5.00%, 5/01/34 .................................................................... 7,000,000 6,999,510
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series C, FGIC Insured, 5.25%, 3/01/15 ............................................ 2,000,000 2,340,680
Massachusetts Bay Transportation Authority Sales Tax Revenue, Senior Series A, FGIC
Insured, Pre-Refunded, 5.00%, 7/01/27 ............................................. 5,000,000 5,502,850
Massachusetts Educational Financing Authority Educational Loan Revenue, Issue I,
6.00%, 1/01/28 .................................................................... 12,000,000 12,617,280
Refunding, Series A, 5.50%, 1/01/22 ............................................... 3,000,000 3,194,250
Massachusetts State College Building Authority Project Revenue,
Refunding, Series A, XLCA Insured, 5.00%, 5/01/43 ................................. 2,000,000 2,019,640
Refunding, Series B, XLCA Insured, 5.50%, 5/01/39 ................................. 5,000,000 5,700,650
Series 1, NATL Insured, ETM, 5.375%, 5/01/23 ...................................... 5,000,000 5,052,250
Series A, Assured Guaranty, 5.00%, 5/01/33 ........................................ 10,000,000 10,448,900
Series B, 5.00%, 5/01/40 .......................................................... 4,625,000 4,792,564
Massachusetts State Development Finance Agency Revenue,
Boston University, Series T-1, AMBAC Insured, 5.00%, 10/01/35 ..................... 3,600,000 3,603,312
Boston University, Series T-1, AMBAC Insured, 5.00%, 10/01/39 ..................... 24,305,000 24,118,338
Brandeis University, Series K, FGIC Insured, 4.75%, 10/01/28 ...................... 2,000,000 2,038,120
Brandeis University, Series N, 5.00%, 10/01/39 .................................... 5,000,000 5,151,000
Massachusetts College of Pharmacy and Allied Health Sciences, Series E, Assured
Guaranty, 5.00%, 7/01/31 ....................................................... 5,000,000 5,070,100
Massachusetts College of Pharmacy and Allied Health Sciences, Series E, Assured
Guaranty, 5.00%, 7/01/37 ....................................................... 5,060,000 5,014,966
Massachusetts/Saltonstall Redevelopment Building Corp., Series A, NATL Insured,
5.125%, 2/01/34 ................................................................ 22,400,000 21,990,080
NATL Insured, 5.20%, 7/01/32 ...................................................... 2,250,000 1,997,100
Series A, AMBAC Insured, Pre-Refunded, 5.375%, 1/01/42 ............................ 4,000,000 4,384,680
Series A, GNMA Secured, Pre-Refunded, 6.90%, 10/20/41 ............................. 2,090,000 2,406,405
Series P, NATL Insured, 4.75%, 7/01/42 ............................................ 11,000,000 10,945,220
82 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Development Finance Agency Revenue, (continued)
Western New England College, AMBAC Insured, Pre-Refunded, 5.25%, 7/01/20 .......... $ 1,500,000 $ 1,554,735
Western New England College, Refunding, Series A, Assured Guaranty, 5.00%,
9/01/33 ........................................................................ 12,200,000 11,806,916
WGBH Educational Foundation, Refunding, Series A, Assured Guaranty, 5.00%,
1/01/36 ........................................................................ 15,945,000 16,412,029
Worcester Polytechnic Institute, Refunding, NATL Insured, 5.00%, 9/01/37 .......... 12,850,000 12,985,953
Massachusetts State GO,
Consolidated Loan, Refunding, Series D, Assured Guaranty, 5.50%, 11/01/19 ......... 8,620,000 10,383,307
Consolidated Loan, Series A, FSA Insured, Pre-Refunded, 5.00%, 3/01/24 ............ 5,000,000 5,846,950
Consolidated Loan, Series C, AMBAC Insured, 5.00%, 8/01/37 ........................ 10,000,000 10,420,500
Consolidated Loan, Series C, FGIC Insured, Pre-Refunded, 5.25%, 11/01/30 .......... 6,205,000 6,887,054
Consolidated Loan, Series D, NATL Insured, ETM, 5.00%, 8/01/27 .................... 3,430,000 3,761,201
Consolidated Loan, Series D, NATL Insured, Pre-Refunded, 5.00%, 8/01/27 ........... 965,000 1,058,180
NATL Insured, Pre-Refunded, 5.00%, 8/01/22 ........................................ 4,100,000 4,495,896
Series C, FGIC Insured, Pre-Refunded, 5.25%, 11/01/30 ............................. 3,440,000 3,818,125
Massachusetts State Health and Educational Facilities Authority Revenue,
Boston College, Series N, NATL Insured, 5.125%, 6/01/33 ........................... 5,000,000 5,109,650
Brandeis University, Refunding, Series I, NATL Insured, 4.75%, 10/01/20 ........... 3,000,000 3,007,500
Cable Housing and Health Services, Series A, NATL Insured, 5.25%, 7/01/23 ......... 1,000,000 965,530
Cape Cod Healthcare Obligation, Assured Guaranty, 6.00%, 11/15/28 ................. 3,000,000 3,247,290
Cape Cod Healthcare Obligation, Assured Guaranty, 5.125%, 11/15/35 ................ 3,150,000 3,103,285
Children's Hospital, Series M, 5.25%, 12/01/39 .................................... 7,000,000 7,214,830
Emmanuel College, NATL Insured, 5.00%, 7/01/37 .................................... 10,000,000 9,638,600
Harvard University, Series FF, 5.125%, 7/15/37 .................................... 1,650,000 1,688,445
Lesley University, Series A, Assured Guaranty, 5.25%, 7/01/39 ..................... 9,350,000 9,748,497
New England Medical Center Hospital, Series H, FGIC Insured, Pre-Refunded,
5.00%, 5/15/22 ................................................................. 390,000 425,736
Northeastern University, Series I, NATL Insured, 5.00%, 10/01/29 .................. 1,250,000 1,252,575
Southcoast Health System Obligated Group, Series D, 5.00%, 7/01/39 ................ 5,500,000 5,264,050
Springfield College, AMBAC Insured, 5.00%, 10/15/27 ............................... 2,500,000 2,503,950
Tufts University, Series I, 5.25%, 2/15/30 ........................................ 2,950,000 2,988,379
University of Massachusetts, Series C, FGIC Insured, 5.125%, 10/01/34 ............. 3,000,000 3,046,500
University of Massachusetts, Worcester Campus, Series B, FGIC Insured,
Pre-Refunded, 5.25%, 10/01/31 .................................................. 3,500,000 3,743,110
University of Massachusetts Project, Series A, FGIC Insured, Pre-Refunded,
5.875%, 10/01/29 ............................................................... 4,000,000 4,169,760
University of Massachusetts Project, Series C, NATL Insured, Pre-Refunded,
5.25%, 10/01/31 ................................................................ 1,500,000 1,651,725
Wheelock College, Series B, NATL Insured, Pre-Refunded, 5.625%, 10/01/30 .......... 1,770,000 1,897,528
Massachusetts State HFA, MFHR, Section 8 Assisted, Series A, ETM, 7.00%, 4/01/21 ..... 430,000 568,765
Massachusetts State HFA Housing Revenue,
Rental, Mortgage, Series A, AMBAC Insured, 5.95%, 7/01/30 ......................... 2,000,000 2,012,000
Series C, 5.125%, 12/01/39 ........................................................ 1,700,000 1,714,433
Series C, 5.35%, 12/01/49 ......................................................... 4,500,000 4,601,700
Series D, 5.05%, 6/01/40 .......................................................... 5,000,000 5,051,150
Massachusetts State Industrial Finance Agency Revenue,
St. Mark's School Issue, NATL Insured, 5.375%, 1/01/21 ............................ 2,665,000 2,669,371
Trustees of Deerfield Academy, 5.25%, 10/01/27 .................................... 2,800,000 2,800,336
Annual Report | 83
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
Massachusetts State Port Authority Revenue,
Series A, AMBAC Insured, 5.00%, 7/01/35 ........................................... $ 14,915,000 $ 15,221,354
Series A, FSA Insured, 4.50%, 7/01/32 ............................................. 5,590,000 5,512,187
Series A, FSA Insured, 4.50%, 7/01/37 ............................................. 7,935,000 7,644,420
US Airways Project, NATL Insured, 6.00%, 9/01/21 .................................. 4,700,000 3,943,629
US Airways Project, Series A, NATL Insured, 5.875%, 9/01/23 ....................... 4,500,000 3,658,590
Massachusetts State School Building Authority Dedicated Sales Tax Revenue,
Series A, AMBAC Insured,
4.75%, 8/15/32 .................................................................... 15,000,000 15,263,250
4.50%, 8/15/35 .................................................................... 8,700,000 8,557,320
Massachusetts State Special Obligation Dedicated Tax Revenue,
FGIC Insured, Pre-Refunded, 5.25%, 1/01/29 ........................................ 5,000,000 5,714,900
Refunding, FGIC Insured, 5.50%, 1/01/34 ........................................... 8,400,000 9,103,416
Massachusetts State Turnpike Authority Metropolitan Highway System Revenue,
Refunding,
Series A, NATL Insured, 5.00%, 1/01/37 ............................................ 9,000,000 8,829,900
Series B, NATL Insured, 5.25%, 1/01/29 ............................................ 4,600,000 4,608,050
Series B, NATL Insured, 5.125%, 1/01/37 ........................................... 17,560,000 17,528,216
Massachusetts State Water Pollution Abatement Trust Revenue, Pool Program Bonds,
Series 6, 5.50%, 8/01/30 .......................................................... 2,620,000 2,663,859
Series 6, Pre-Refunded, 5.50%, 8/01/30 ............................................ 1,075,000 1,109,325
Series 7, 5.125%, 2/01/31 ......................................................... 4,300,000 4,377,400
Series 7, Pre-Refunded, 5.125%, 2/01/31 ........................................... 1,700,000 1,806,675
Massachusetts State Water Pollution Abatement Trust Water Pollution Abatement Revenue,
MWRA Program, Refunding, Sub Series A, 5.75%, 8/01/29 ............................. 250,000 252,933
Massachusetts State Water Resources Authority Revenue,
General, Refunding, Series B, FSA Insured, 5.25%, 8/01/31 ......................... 5,000,000 5,698,150
Refunding, Series J, FSA Insured, 5.00%, 8/01/32 .................................. 9,000,000 9,152,820
Series A, FGIC Insured, Pre-Refunded, 5.75%, 8/01/39 .............................. 9,275,000 9,578,663
Series A, FSA Insured, 4.50%, 8/01/46 ............................................. 5,325,000 5,042,402
Monson GO, AMBAC Insured, 5.25%, 11/01/23 ............................................ 1,675,000 1,808,782
New Bedford GO, Municipal Purpose Loan, FGIC Insured, 5.00%, 5/01/21 ................. 3,685,000 3,803,510
Plymouth County COP, Correctional Facility Project, Refunding, AMBAC Insured,
5.125%, 10/01/18 .................................................................. 2,000,000 2,026,460
Route 3 North Transportation Improvement Assn. Lease Revenue, NATL Insured,
Pre-Refunded, 5.375%, 6/15/33 ..................................................... 15,475,000 15,701,244
Salisbury GO, NATL Insured, Pre-Refunded, 5.30%, 3/15/27 ............................. 2,795,000 3,086,491
Shrewsbury GO, Municipal Purpose Loan, 5.00%, 8/15/20 ................................ 2,075,000 2,172,670
Springfield GO,
Municipal Purpose Loan, FGIC Insured, Pre-Refunded, 5.00%, 8/01/21 ................ 5,000,000 5,373,000
State Qualified Municipal Purpose Loan, FSA Insured, 4.50%, 8/01/26 ............... 2,000,000 2,050,080
Springfield Water and Sewer Commission Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.00%, 11/01/21 ..................................................... 2,775,000 3,008,322
University Building Authority Project Revenue, Senior Series 1, AMBAC Insured,
Pre-Refunded, 5.25%,
11/01/23 .......................................................................... 2,155,000 2,479,220
11/01/28 .......................................................................... 5,035,000 5,792,516
84 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MASSACHUSETTS TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MASSACHUSETTS (CONTINUED)
University of Massachusetts Building Authority Project Revenue, Senior Series 2004-1,
AMBAC Insured, Pre-Refunded, 5.25%, 11/01/29 ...................................... $ 3,000,000 $ 3,523,800
Whitman Hanson Regional School District GO, Refunding, FGIC Insured, 5.00%, 6/15/21 .. 1,960,000 2,022,230
Winthrop GO, AMBAC Insured, 5.00%, 11/01/20 .......................................... 1,230,000 1,273,911
Worcester GO, Assured Guaranty, 5.00%, 11/01/37 ...................................... 5,130,000 5,287,645
--------------
569,676,586
--------------
U.S. TERRITORIES 0.7%
PUERTO RICO 0.7%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
Assured Guaranty, 5.00%, 7/01/28 .................................................. 4,000,000 4,120,560
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $560,134,943) .............. 573,797,146
--------------
SHORT TERM INVESTMENTS 0.4%
MUNICIPAL BONDS 0.4%
MASSACHUSETTS 0.4%
(a) Massachusetts State Health and Educational Facilities Authority Revenue,
Harvard University, Refunding, Series R, Daily VRDN and Put, 0.09%, 11/01/49 ...... 500,000 500,000
Museum of Fine Arts, Series A-1, Daily VRDN and Put, 0.14%, 12/01/37 .............. 100,000 100,000
Tufts University, Series G, Daily VRDN and Put, 0.09%, 2/15/26 .................... 1,800,000 1,800,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $2,400,000) ....................................... 2,400,000
--------------
TOTAL INVESTMENTS (COST $562,534,943) 99.0% .......................................... 576,197,146
OTHER ASSETS, LESS LIABILITIES 1.0% .................................................. 5,584,050
--------------
NET ASSETS 100.0% .................................................................... $ 581,781,196
==============
See Abbreviations on page 144.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 85
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.48 $ 11.71 $ 12.24 $ 12.27 $ 12.35
---------- ---------- ---------- ---------- ----------
Income from investment operations(b):
Net investment income(c) .................... 0.52 0.51 0.51 0.53 0.54
Net realized and unrealized gains (losses) .. 0.49 (0.23) (0.51) (0.01) (0.08)
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 1.01 0.28 -- 0.52 0.46
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.52) (0.51) (0.52) (0.53) (0.54)
Net realized gains .......................... -- -- (0.01) (0.02) --
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (0.52) (0.51) (0.53) (0.55) (0.54)
---------- ---------- ---------- ---------- ----------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 11.97 $ 11.48 $ 11.71 $ 12.24 $ 12.27
========== ========== ========== ========== ==========
Total return(f) ................................ 8.92% 2.41% (0.06)% 4.35% 3.77%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.63% 0.63% 0.64% 0.64% 0.64%
Net investment income .......................... 4.40% 4.40% 4.25% 4.34% 4.38%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $1,345,427 $1,318,955 $1,294,052 $1,260,755 $1,230,439
Portfolio turnover rate ........................ 5.47% 16.08% 13.00% 7.97% 6.55%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
86 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.54 $ 11.77 $ 12.30 $ 12.33 $ 12.40
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.46 0.45 0.45 0.46 0.47
Net realized and unrealized gains (losses) .. 0.48 (0.24) (0.52) (0.01) (0.07)
------- ------- ------- ------- -------
Total from investment operations ............... 0.94 0.21 (0.07) 0.45 0.40
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.45) (0.44) (0.45) (0.46) (0.47)
Net realized gains .......................... -- -- (0.01) (0.02) --
------- ------- ------- ------- -------
Total distributions ............................ (0.45) (0.44) (0.46) (0.48) (0.47)
------- ------- ------- ------- -------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 12.03 $ 11.54 $ 11.77 $ 12.30 $ 12.33
======= ======= ======= ======= =======
Total return(f) ................................ 8.28% 1.84% (0.61)% 3.77% 3.27%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.18% 1.18% 1.19% 1.19% 1.19%
Net investment income .......................... 3.85% 3.85% 3.70% 3.79% 3.83%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $17,892 $30,625 $39,466 $45,664 $51,285
Portfolio turnover rate ........................ 5.47% 16.08% 13.00% 7.97% 6.55%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 87
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------
2010 2009 2008(a) 2007 2006
-------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.61 $ 11.83 $ 12.36 $ 12.39 $ 12.46
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ................. 0.46 0.45 0.45 0.47 0.48
Net realized and unrealized gains (losses) 0.49 (0.23) (0.52) (0.02) (0.08)
-------- -------- -------- -------- --------
Total from investment operations ............ 0.95 0.22 (0.07) 0.45 0.40
-------- -------- -------- -------- --------
Less distributions from:
Net investment income .................... (0.45) (0.44) (0.45) (0.46) (0.47)
Net realized gains ....................... -- -- (0.01) (0.02) --
-------- -------- -------- -------- --------
Total distributions ......................... (0.45) (0.44) (0.46) (0.48) (0.47)
-------- -------- -------- -------- --------
Redemption fees(d) .......................... -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ................ $ 12.11 $ 11.61 $ 11.83 $ 12.36 $ 12.39
======== ======== ======== ======== ========
Total return(f) ............................. 8.31% 1.91% (0.61)% 3.74% 3.25%
RATIOS TO AVERAGE NET ASSETS
Expenses .................................... 1.18% 1.18% 1.19% 1.19% 1.19%
Net investment income ....................... 3.85% 3.85% 3.70% 3.79% 3.83%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $195,638 $173,295 $131,079 $126,535 $123,024
Portfolio turnover rate ..................... 5.47% 16.08% 13.00% 7.97% 6.55%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
88 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
----------------
2010 2009(a)
------ -------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $11.49 $11.95
------ ------
Income from investment operations(b):
Net investment income(c) ................. 0.53 0.35
Net realized and unrealized gains (losses) 0.50 (0.47)
------ ------
Total from investment operations ............ 1.03 (0.12)
------ ------
Less distributions from net investment income (0.53) (0.34)
------ ------
Net asset value, end of year ................ $11.99 $11.49
====== ======
Total return(d) ............................. 9.11% (0.92)%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses .................................... 0.53% 0.53%
Net investment income ....................... 4.50% 4.50%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $3,486 $ 769
Portfolio turnover rate ..................... 5.47% 16.08%
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 89
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.2%
MICHIGAN 90.9%
Adrian City School District GO, FSA Insured, Pre-Refunded, 5.00%,
5/01/26 ........................................................................... $ 1,960,000 $ 2,262,252
5/01/29 ........................................................................... 2,125,000 2,452,696
5/01/34 ........................................................................... 6,690,000 7,721,665
Allen Park Brownfield RDA, GO, Limited Redevelopment, Tax Increment, AMBAC Insured,
5.00%, 5/01/32 .................................................................... 7,300,000 7,552,507
Allendale Public School District GO, School Building and Site,
FGIC Insured, Pre-Refunded, 5.125%, 5/01/27 ....................................... 6,450,000 7,062,492
FGIC Insured, Pre-Refunded, 5.125%, 5/01/32 ....................................... 5,490,000 6,011,330
Series A, FSA Insured, 5.00%, 5/01/37 ............................................. 11,810,000 12,174,693
Anchor Bay School District GO, School Building and Site, Series II, FGIC Insured,
Pre-Refunded,
5.70%, 5/01/25 .................................................................... 5,000,000 5,044,200
5.75%, 5/01/30 .................................................................... 3,750,000 3,783,450
Avondale School District GO, School Building and Site, FSA Insured, Pre-Refunded,
5.00%, 5/01/29 .................................................................... 9,000,000 10,150,380
Battle Creek School District GO, School Building and Site, FSA Insured, 5.00%,
5/01/31 ........................................................................... 4,000,000 4,091,520
5/01/34 ........................................................................... 10,165,000 10,323,269
Battle Creek School District Paying Agent and Registrar, School Building and Site,
FSA Insured, 5.00%, 5/01/37 ....................................................... 8,760,000 8,875,106
Bay City School District GO, School Building and Site, FSA Insured, 5.00%, 5/01/31 ... 6,000,000 6,146,520
Brown City Community School District GO, Building and Site, FGIC Insured,
Pre-Refunded,
5.00%, 5/01/31 .................................................................... 3,200,000 3,434,560
Caledonia Community Schools GO, NATL Insured, 5.00%, 5/01/26 ......................... 3,665,000 3,895,748
Carman-Ainsworth Community School District GO,
FGIC Insured, Pre-Refunded, 5.00%, 5/01/27 ........................................ 1,550,000 1,687,780
NATL Insured, 5.00%, 5/01/27 ...................................................... 1,400,000 1,420,804
Central Michigan University Revenue,
General, AMBAC Insured, 5.00%, 10/01/34 ........................................... 8,905,000 8,854,776
Series A, AMBAC Insured, 5.05%, 10/01/32 .......................................... 10,000,000 10,032,000
Charles Stewart Mott Community College GO, FGIC Insured, Pre-Refunded, 5.50%,
5/01/21 ........................................................................... 3,550,000 3,580,211
Chippewa Valley Schools GO, School Building and Site, FSA Insured, 5.00%, 5/01/34 .... 4,500,000 4,569,210
Detroit City School District GO, School Building and Site Improvement,
Series A, FGIC Insured, Pre-Refunded, 5.00%, 5/01/23 .............................. 2,650,000 2,979,872
Series A, FSA Insured, 6.00%, 5/01/29 ............................................. 10,000,000 10,924,600
Series A, FSA Insured, Pre-Refunded, 5.125%, 5/01/31 .............................. 38,330,000 41,926,504
Series B, FGIC Insured, 5.00%, 5/01/25 ............................................ 2,000,000 1,981,000
Detroit GO, Series A, Assured Guaranty, 5.00%, 4/01/28 ............................... 5,000,000 4,970,400
Detroit Public Improvements GO, Series A-1, NATL Insured, 5.00%, 4/01/20 ............. 10,610,000 8,916,326
Detroit Sewer Disposal System Revenue,
second lien, Series A, NATL Insured, 5.125%, 7/01/33 .............................. 18,790,000 18,351,253
senior lien, Refunding, Series A, FSA Insured, 5.00%, 7/01/32 ..................... 5,960,000 5,803,192
senior lien, Series B, FSA Insured, 7.50%, 7/01/33 ................................ 6,000,000 7,151,220
Detroit Water Supply System Revenue,
FGIC Insured, ETM, 6.25%, 7/01/12 ................................................. 905,000 963,192
second lien, Refunding, Series C, FSA Insured, 5.00%, 7/01/33 ..................... 20,000,000 19,862,400
90 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Detroit Water Supply System Revenue, (continued)
second lien, Series B, FGIC Insured, Pre-Refunded, 5.50%, 7/01/33 ................. $ 20,000,000 $ 21,492,400
second lien, Series B, NATL Insured, 5.00%, 7/01/34 ............................... 8,875,000 8,524,437
senior lien, Refunding, Series B, BHAC Insured, 5.25%, 7/01/35 .................... 17,500,000 17,425,800
senior lien, Series A, FGIC Insured, Pre-Refunded, 5.25%, 7/01/33 ................. 4,880,000 5,176,265
senior lien, Series A, FSA Insured, 5.00%, 7/01/34 ................................ 38,740,000 37,209,770
senior lien, Series A, NATL Insured, 5.00%, 7/01/27 ............................... 4,930,000 4,930,444
senior lien, Series A, NATL Insured, 5.00%, 7/01/30 ............................... 11,400,000 11,045,574
senior lien, Series A, NATL Insured, Pre-Refunded, 5.25%, 7/01/33 ................. 4,745,000 5,042,844
Series B, NATL Insured, Pre-Refunded, 5.00%, 7/01/34 .............................. 5,270,000 5,960,054
Detroit/Wayne County Stadium Authority Revenue, NATL Insured, 5.25%, 2/01/27 ......... 5,500,000 5,500,990
Eastern Michigan University Revenues, Series A, FGIC Insured, Pre-Refunded, 5.00%,
6/01/28 ........................................................................... 6,730,000 7,600,997
6/01/33 ........................................................................... 14,700,000 16,602,474
Eaton Rapids Public Schools GO, School Building and Site, FSA Insured,
5.00%, 5/01/26 .................................................................... 2,700,000 2,825,604
5.00%, 5/01/29 .................................................................... 820,000 849,512
Pre-Refunded, 5.00%, 5/01/29 ...................................................... 1,930,000 2,227,625
Farmington Hills EDC Revenue, Botsford Continuing Care, Series A, NATL Insured, 5.75%,
2/15/25 ........................................................................... 100,000 100,054
Fennville Public Schools GO, School Building and Site, FGIC Insured,
5.00%, 5/01/30 .................................................................... 2,085,000 2,160,039
Pre-Refunded, 5.00%, 5/01/30 ...................................................... 1,115,000 1,284,491
Pre-Refunded, 5.00%, 5/01/34 ...................................................... 3,250,000 3,744,033
Ferris State University Revenue, FGIC Insured, 5.25%,
10/01/26 .......................................................................... 1,500,000 1,521,285
10/01/31 .......................................................................... 3,255,000 3,283,677
Fowlerville Community School District GO, FGIC Insured, 5.00%,
5/01/30 ........................................................................... 1,990,000 2,050,098
5/01/34 ........................................................................... 8,145,000 8,288,189
Genesee County GO, Water Supply System, AMBAC Insured, 5.00%, 11/01/30 ............... 4,000,000 4,042,800
Grand Blanc Community Schools GO, School Building and Site, FSA Insured, 5.00%,
5/01/28 ........................................................................... 4,250,000 4,432,707
Grand Rapids Building Authority GO, AMBAC Insured, Pre-Refunded, 5.50%, 8/01/20 ...... 2,000,000 2,043,440
Grand Rapids Building Authority Revenue, AMBAC Insured, Series A,
5.00%, 10/01/28 ................................................................... 3,590,000 3,677,883
Pre-Refunded, 5.00%, 10/01/28 ..................................................... 2,410,000 2,667,725
Grand Rapids Sanitation Sewer System Revenue, NATL Insured, 5.00%,
1/01/30 ........................................................................... 4,900,000 5,101,733
1/01/34 ........................................................................... 2,420,000 2,498,602
Grand Rapids Water Supply Revenue,
Assured Guaranty, 5.10%, 1/01/39 .................................................. 3,000,000 3,107,640
FGIC Insured, 5.00%, 1/01/35 ...................................................... 3,500,000 3,599,470
Grand Valley State University Revenue, General,
5.75%, 12/01/34 ................................................................... 1,500,000 1,589,130
Refunding, Series A, FSA Insured, 5.00%, 12/01/28 ................................. 17,165,000 18,260,127
Refunding, Series A, FSA Insured, 5.00%, 12/01/33 ................................. 8,570,000 8,891,718
Hartland Consolidated School District GO, FGIC Insured, Pre-Refunded, 6.00%,
5/01/29 ........................................................................... 30,000,000 30,279,600
Annual Report | 91
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Hazel Park Building Authority Revenue, Ice Arena, AMBAC Insured, 4.70%, 4/01/24 ...... $ 700,000 $ 602,266
Hazel Park School District GO, FSA Insured, 5.00%,
5/01/27 ........................................................................... 9,000,000 9,238,500
5/01/32 ........................................................................... 12,475,000 12,709,405
HealthSource Saginaw Inc. Saginaw County GO, NATL Insured, 5.00%, 5/01/29 ............ 4,145,000 4,266,200
Huron School District GO, FSA Insured, Pre-Refunded,
5.25%, 5/01/21 .................................................................... 1,500,000 1,585,080
5.375%, 5/01/26 ................................................................... 2,500,000 2,645,425
Jackson Brownfield RDAR, FGIC Insured,
5.125%, 6/01/22 ................................................................... 2,290,000 2,365,524
5.125%, 6/01/24 ................................................................... 1,215,000 1,250,308
Pre-Refunded, 5.25%, 6/01/26 ...................................................... 2,820,000 3,099,208
Pre-Refunded, 5.375%, 6/01/30 ..................................................... 5,830,000 6,423,436
Jackson Public Schools GO, School Building and Site, Refunding, FSA Insured, 5.00%,
5/01/34 ........................................................................... 6,620,000 6,809,729
Kalamazoo City School District GO, School Building and Site, FSA Insured,
Pre-Refunded,
5.00%, 5/01/21 .................................................................... 4,000,000 4,215,320
Kalamazoo Hospital Finance Authority Hospital Facility Revenue,
Borgess Medical Center, Series A, AMBAC Insured, ETM, 5.625%, 6/01/14 ............. 3,570,000 3,915,362
Bronson Methodist Hospital, Refunding, NATL Insured, 5.25%, 5/15/18 ............... 135,000 135,097
Bronson Methodist Hospital, Refunding, Series B, FSA Insured, 5.00%, 5/15/26 ...... 7,000,000 6,817,510
L'Anse Creuse Public Schools GO, School Building and Site, FSA Insured, 5.00%,
5/01/35 ........................................................................... 10,000,000 10,076,200
Lake St. Clair Shores Drain District GO, Series A, NATL Insured, 5.125%, 10/01/29 .... 1,000,000 1,008,960
Lake Superior State University Revenue, Refunding, AMBAC Insured, 5.25%, 11/15/31 .... 3,320,000 3,199,019
Lapeer Community Schools GO, School Building and Site, FSA Insured, 5.00%,
5/01/33 ........................................................................... 4,400,000 4,485,360
5/01/37 ........................................................................... 4,325,000 4,385,463
Lenawee County Hospital Finance Authority Hospital Revenue, Lenawee Health Alliance,
Refunding, Series A, AMBAC Insured, 5.20%, 7/01/19 ................................ 2,115,000 2,130,355
Livonia Municipal Building Authority GO, FGIC Insured, Pre-Refunded, 5.25%, 5/01/30 .. 3,950,000 3,982,034
Lowell Area Schools GO, FGIC Insured, Pre-Refunded, 5.625%,
5/01/25 ........................................................................... 3,125,000 3,152,219
5/01/30 ........................................................................... 3,250,000 3,278,308
Marysville Public School District GO, School Building and Site, Refunding, FSA
Insured,
5.00%, 5/01/35 .................................................................... 5,000,000 5,077,850
Michigan Higher Education Student Loan Authority Revenue, Series XVII-E, AMBAC
Insured,
5.40%, 6/01/19 .................................................................... 5,000,000 5,023,100
5.50%, 6/01/25 .................................................................... 5,000,000 5,003,850
Michigan Municipal Bond Authority Revenue,
Clean Water State Revolving Fund, 5.00%, 10/01/24 ................................. 11,355,000 12,129,638
Local Government Loan Program, Series C, NATL Insured, 6.00%, 11/01/10 ............ 725,000 725,189
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series I, 6.25%, 10/15/38 .......................... 15,000,000 16,642,050
Facilities Program, Refunding, Series I, AMBAC Insured, 5.00%, 10/15/33 ........... 4,450,000 4,437,540
Facilities Program, Refunding, Series I, FSA Insured, 5.00%, 10/15/24 ............. 5,000,000 5,127,800
Refunding, AMBAC Insured, 5.00%, 10/15/33 ......................................... 21,000,000 20,941,200
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/32 ............................... 17,160,000 17,187,799
92 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Michigan State Building Authority Revenue, (continued)
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/36 ............................... $ 5,000,000 $ 4,905,900
Refunding, Series IA, FSA Insured, 5.00%, 10/15/31 ................................ 15,530,000 15,572,552
Refunding, Series IA, FSA Insured, 5.00%, 10/15/32 ................................ 10,000,000 10,016,200
Refunding, Series IA, FSA Insured, 5.00%, 10/15/36 ................................ 1,000,000 1,014,030
Michigan State Comprehensive Transportation Revenue, Refunding, FSA Insured, 5.00%,
5/15/26 ........................................................................... 4,740,000 5,016,389
5/15/31 ........................................................................... 8,000,000 8,270,640
Michigan State COP, AMBAC Insured, Pre-Refunded, 5.50%, 6/01/27 ...................... 12,000,000 12,152,040
Michigan State HDA Rental Housing Revenue, Refunding, Series A, AMBAC Insured, 6.00%,
4/01/16 ........................................................................... 65,000 65,050
Michigan State Hospital Finance Authority Revenue,
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.50%,
8/15/24 ........................................................................ 15,000,000 12,231,000
Detroit Medical Center Obligation Group, Refunding, Series A, AMBAC Insured, 5.25%,
8/15/27 ........................................................................ 10,000,000 7,653,200
Hospital, Sparrow Obligated Group, Refunding, 5.00%, 11/15/31 ..................... 10,000,000 9,319,200
Hospital, Sparrow Obligated Group, Refunding, NATL Insured, 5.00%, 11/15/31 ....... 8,500,000 8,156,770
Hospital, Sparrow Obligated Group, Refunding, NATL Insured, 5.00%, 11/15/36 ....... 12,465,000 11,471,789
Hospital, Sparrow Obligated Group, Refunding, NATL Insured, 5.00%, 11/15/36 ....... 6,165,000 5,657,374
Mercy Health Services, Series Q, AMBAC Insured, ETM, 5.375%, 8/15/26 .............. 6,000,000 6,097,440
Mercy Health Services, Series R, AMBAC Insured, ETM, 5.375%, 8/15/26 .............. 1,750,000 1,778,420
Mercy Health Services, Series U, ETM, 5.75%, 8/15/26 .............................. 300,000 304,773
Mercy Health Services, Series W, FSA Insured, ETM, 5.25%, 8/15/27 ................. 8,605,000 8,758,427
Mid-Michigan Health, AMBAC Insured, 5.00%, 4/15/24 ................................ 7,065,000 7,080,048
Mid-Michigan Health, AMBAC Insured, 5.00%, 4/15/32 ................................ 1,000,000 973,870
Mid-Michigan Obligation Group, Refunding, Series A, FSA Insured, 5.375%, 6/01/27 .. 7,500,000 7,507,650
Mid-Michigan Obligation Group, Series A, 6.125%, 6/01/39 .......................... 5,000,000 5,320,450
Oakwood Obligated Group, Refunding, Series A, FSA Insured, 5.125%, 8/15/25 ........ 7,500,000 7,540,950
St. John's Health System, Refunding, Series A, AMBAC Insured, ETM, 5.125%,
5/15/17 ........................................................................ 14,500,000 14,571,920
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.00%, 5/15/13 ...... 2,830,000 2,975,887
St. John's Hospital, Refunding, Series A, AMBAC Insured, ETM, 6.25%, 5/15/14 ...... 9,545,000 10,660,142
Trinity Health Credit Group, Series A, 6.50%, 12/01/33 ............................ 25,000,000 27,516,000
Michigan State Revenue, Grant Antic Bonds, FSA Insured, 5.25%, 9/15/27 ............... 10,000,000 10,526,800
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co. Exempt Facilities Project, Refunding, Series ET-2, 5.50%,
8/01/29 ........................................................................ 10,000,000 10,683,100
Detroit Edison Co. Pollution Control Bonds Project, Refunding, Collateralized
Series AA, FGIC Insured, 6.95%, 5/01/11 ........................................ 5,000,000 5,276,550
Detroit Edison Co. Pollution Control Bonds Project, Refunding, Collateralized
Series BB, AMBAC Insured, 7.00%, 5/01/21 ....................................... 3,000,000 3,643,320
Michigan State Strategic Fund Resources Recovery Limited Obligation Revenue, Detroit
Education Exempt Facilities, Refunding, Series D, XLCA Insured, 5.25%, 12/15/32 ... 12,350,000 12,434,721
Michigan State Trunk Line Revenue, Series A, FSA Insured, Pre-Refunded, 5.25%,
11/01/30 .......................................................................... 19,680,000 21,203,822
Michigan Technological University Revenue, General, Series A, NATL Insured, 5.00%,
10/01/34 .......................................................................... 3,675,000 3,734,976
Milan Area Schools GO, Series A, FGIC Insured, Pre-Refunded, 5.75%, 5/01/24 .......... 3,500,000 3,531,220
Annual Report | 93
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
North Kent Sewer Authority Revenue, Sanitary Sewer, NATL Insured, 5.00%, 11/01/31 .... $ 5,960,000 $ 6,122,589
Otsego Public Schools District GO, School Building and Site, FSA Insured,
Pre-Refunded,
5.00%, 5/01/34 .................................................................... 9,835,000 11,330,018
Oxford Area Community School District GO, FSA Insured, Pre-Refunded, 5.00%,
5/01/26 ........................................................................... 5,425,000 5,827,372
5/01/31 ........................................................................... 4,865,000 5,225,837
Pennfield School District GO, School Building and Site, FGIC Insured, Pre-Refunded,
5.00%,
5/01/29 ........................................................................... 1,150,000 1,324,812
5/01/34 ........................................................................... 2,500,000 2,880,025
Pinckney Community Schools GO, Refunding, FSA Insured, 5.00%, 5/01/26 ................ 2,955,000 3,068,236
Pontiac General Building Authority GO, FGIC Insured, Pre-Refunded, 5.375%,
6/01/23 ........................................................................... 1,620,000 1,784,900
6/01/27 ........................................................................... 2,635,000 2,903,217
Port Huron GO, Limited Tax, AMBAC Insured, 5.00%, 10/01/22 ........................... 1,600,000 1,650,160
River Rouge School District GO, Refunding, FGIC Insured, 5.00%, 5/01/22 .............. 6,575,000 6,848,717
Rockford Public Schools GO, School Building and Site, FSA Insured, 5.00%, 5/01/33 .... 8,220,000 8,514,687
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont Hospital,
Refunding, 8.25%, 9/01/39 ......................................................... 10,000,000 11,876,200
Series M, NATL Insured, 5.25%, 11/15/31 ........................................... 12,750,000 11,855,970
Series M, NATL Insured, 5.25%, 11/15/35 ........................................... 17,600,000 16,047,856
Saginaw City School District GO, School Building and Site, FSA Insured, 5.00%,
5/01/38 ........................................................................... 10,555,000 10,977,306
Saginaw Hospital Finance Authority Revenue, Covenant Medical Center, Refunding,
Series E, NATL Insured,
5.375%, 7/01/19 ................................................................... 4,850,000 4,854,025
5.50%, 7/01/24 .................................................................... 1,750,000 1,746,763
Saginaw Valley State University Revenue,
General, FSA Insured, 5.00%, 7/01/37 .............................................. 4,000,000 4,125,960
General, Refunding, AMBAC Insured, 5.25%, 7/01/19 ................................. 345,000 347,501
General, Refunding, FSA Insured, 5.00%, 7/01/28 ................................... 7,050,000 7,508,814
Series A, NATL Insured, 5.125%, 7/01/30 ........................................... 4,315,000 4,327,384
South Macomb Disposal Authority Revenue, AMBAC Insured, Pre-Refunded, 5.25%,
9/01/20 ........................................................................... 2,000,000 2,049,280
South Redford School District GO, School Building and Site, NATL Insured, 5.00%,
5/01/30 ........................................................................... 3,500,000 3,617,040
Southfield Library Building Authority GO, Refunding, NATL Insured, 5.00%, 5/01/30 .... 6,535,000 6,821,168
Southfield Public Schools GO, Refunding, NATL Insured, 4.75%, 5/01/29 ................ 9,040,000 9,193,138
Sparta Area Schools GO, School Building and Site, FGIC Insured, Pre-Refunded, 5.00%,
5/01/30 ........................................................................... 2,730,000 3,144,987
Sturgis Public School District GO, Refunding, FGIC Insured, 5.00%, 5/01/30 ........... 4,715,000 4,863,853
Taylor Brownfield RDA, GO, Tax Increment, Series A, NATL Insured, 5.00%,
5/01/29 ........................................................................... 2,900,000 2,926,042
5/01/34 ........................................................................... 3,945,000 3,895,687
Taylor Tax Increment Finance Authority Revenue, FSA Insured, 5.00%, 5/01/21 .......... 2,595,000 2,646,225
Tecumseh Public Schools GO, FGIC Insured, Pre-Refunded, 5.50%,
5/01/25 ........................................................................... 5,925,000 5,975,422
5/01/30 ........................................................................... 4,500,000 4,538,295
94 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Thornapple Kellogg School GO, School Building and Site,
FSA Insured, Pre-Refunded, 5.00%, 5/01/23 ......................................... $ 965,000 $ 1,072,848
FSA Insured, Pre-Refunded, 5.00%, 5/01/28 ......................................... 6,250,000 6,948,500
Refunding, FSA Insured, 5.00%, 5/01/23 ............................................ 3,035,000 3,158,191
Trenton Public Schools School District GO, School Building and Site, FSA Insured,
5.00%,
5/01/31 ........................................................................... 4,575,000 4,754,889
5/01/38 ........................................................................... 8,150,000 8,363,693
Van Dyke Public Schools GO, School Building and Site, FSA Insured, 5.00%, 5/01/34 .... 5,000,000 5,069,900
Warren Consolidated School District GO, FSA Insured, 4.875%, 5/01/22 ................. 8,910,000 9,107,089
Warren Water and Sewer Revenue, FSA Insured, Pre-Refunded, 5.125%, 11/01/23 .......... 2,450,000 2,636,764
Wayne Charter County Airport Revenue, Detroit Metropolitan Wayne County Airport,
Series A, NATL Insured, 5.25%, 12/01/18 ........................................... 5,500,000 5,510,670
Wayne Charter County GO,
Airport Hotel, Detroit Metropolitan Wayne County Airport, Series A, NATL Insured,
5.25%, 12/01/25 ................................................................ 17,000,000 16,890,690
Airport Hotel, Detroit Metropolitan Wayne County Airport, Series A, NATL Insured,
5.00%, 12/01/30 ................................................................ 10,750,000 9,734,447
Building Improvement, Series A, 6.75%, 11/01/39 ................................... 5,000,000 5,201,950
Capital Improvement, Series A, FSA Insured, 5.00%, 2/01/34 ........................ 7,640,000 7,840,397
Capital Improvement, Series A, FSA Insured, 5.00%, 2/01/38 ........................ 12,135,000 12,404,882
Wayne County Airport Authority Revenue, Detroit Metropolitan Airport, Refunding,
FGIC Insured, 5.00%,
12/01/27 .......................................................................... 9,910,000 9,715,070
12/01/28 .......................................................................... 10,170,000 9,856,459
Wayne State University Revenues, General,
AMBAC Insured, 5.00%, 11/15/30 .................................................... 2,925,000 2,973,058
AMBAC Insured, 5.00%, 11/15/36 .................................................... 5,000,000 4,985,000
Refunding, FSA Insured, 5.00%, 11/15/28 ........................................... 23,550,000 24,457,146
Refunding, FSA Insured, 5.00%, 11/15/35 ........................................... 22,435,000 22,606,628
West Bloomfield School District GO, FGIC Insured, Pre-Refunded, 6.00%,
5/01/19 ........................................................................... 2,100,000 2,119,572
5/01/20 ........................................................................... 2,000,000 2,018,640
West Ottawa Public School District GO, School Building Site, Refunding, NATL Insured,
5.00%, 5/01/32 .................................................................... 6,025,000 6,143,331
Western Michigan University Revenues, General, FSA Insured, 5.00%,
11/15/28 .......................................................................... 5,500,000 5,806,130
11/15/32 .......................................................................... 6,410,000 6,663,003
Western Townships Utilities Authority GO, Sewer Disposal System, FGIC Insured, 4.75%,
1/01/23 ........................................................................... 8,500,000 8,672,975
Whitmore Lake Public School District GO, FGIC Insured, 5.00%, 5/01/32 ................ 9,375,000 9,522,187
Willow Run Community Schools GO, FSA Insured, 5.00%, 5/01/31 ......................... 12,550,000 12,650,525
Wyoming Sewer Disposal System Revenue, Refunding, NATL Insured, 5.00%, 6/01/27 ....... 5,700,000 5,917,740
Ypsilanti Community Utilities GO, Sanitation Sewer System No. 3, FGIC Insured, 5.00%,
5/01/32 ........................................................................... 6,065,000 6,137,659
Zeeland Public Schools GO, Refunding, FGIC Insured, 5.00%, 5/01/25 ................... 3,350,000 3,466,714
--------------
1,420,917,516
--------------
Annual Report | 95
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MICHIGAN TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 7.3%
PUERTO RICO 7.3%
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series D, FSA Insured, 5.00%, 7/01/32 .................................. $ 11,945,000 $ 11,983,224
Series B, NATL Insured, Pre-Refunded, 5.875%, 7/01/35 ............................. 16,430,000 16,897,762
Series B, NATL Insured, Pre-Refunded, 5.875%, 7/01/35 ............................. 8,570,000 8,806,703
Series D, FSA Insured, Pre-Refunded, 5.00%, 7/01/32 ............................... 8,055,000 8,874,999
Puerto Rico Electric Power Authority Power Revenue, Series RR, FGIC Insured,
Pre-Refunded, 5.00%, 7/01/35 ...................................................... 14,000,000 16,484,020
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........... 5,505,000 5,517,992
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub.,
Series A, 5.375%, 8/01/39 ......................................................... 9,000,000 9,002,970
Series A, 6.00%, 8/01/42 .......................................................... 25,000,000 26,150,250
Series B, 6.375%, 8/01/39 ......................................................... 10,000,000 10,772,600
--------------
114,490,520
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,495,978,745) ............................................................. 1,535,408,036
--------------
SHORT TERM INVESTMENTS 0.6%
MUNICIPAL BONDS 0.6%
MICHIGAN 0.6%
(a) Eastern Michigan University Revenues, General, Refunding, Series A, Daily VRDN and
Put, 0.15%, 3/01/49 ............................................................... 7,300,000 7,300,000
(a) Michigan Higher Education Facilities Authority Revenue, Limited Obligation,
University of Detroit, Refunding, Daily VRDN and Put, 0.17%, 11/01/36 ............. 1,420,000 1,420,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $8,720,000) ....................................... 8,720,000
--------------
TOTAL INVESTMENTS (COST $1,504,698,745) 98.8% ........................................ 1,544,128,036
OTHER ASSETS, LESS LIABILITIES 1.2% .................................................. 18,315,230
--------------
NET ASSETS 100.0% .................................................................... $1,562,443,266
==============
See Abbreviations on page 144.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
96 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.80 $ 11.51 $ 12.16 $ 12.13 $ 12.23
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ..................... 0.48 0.48 0.50 0.50 0.51
Net realized and unrealized gains (losses) ... 0.40 0.30 (0.65) 0.03 (0.10)
-------- -------- -------- -------- --------
Total from investment operations ................ 0.88 0.78 (0.15) 0.53 0.41
-------- -------- -------- -------- --------
Less distributions from net investment income ... (0.48) (0.49) (0.50) (0.50) (0.51)
-------- -------- -------- -------- --------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 12.20 $ 11.80 $ 11.51 $ 12.16 $ 12.13
======== ======== ======== ======== ========
Total return(f) ................................. 7.54% 6.90% (1.34)% 4.50% 3.48%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.65% 0.66% 0.67% 0.66% 0.67%
Net investment income ........................... 3.96% 4.17% 4.14% 4.15% 4.17%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $768,806 $653,812 $545,977 $539,643 $528,660
Portfolio turnover rate ......................... 10.24% 21.67% 9.99% 14.24% 13.03%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 97
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.89 $ 11.60 $ 12.24 $ 12.22 $ 12.31
-------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ..................... 0.41 0.42 0.43 0.44 0.44
Net realized and unrealized gains (losses) ... 0.41 0.29 (0.64) 0.01 (0.09)
-------- -------- ------- ------- -------
Total from investment operations ................ 0.82 0.71 (0.21) 0.45 0.35
-------- -------- ------- ------- -------
Less distributions from net investment income ... (0.41) (0.42) (0.43) (0.43) (0.44)
-------- -------- ------- ------- -------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- -------- ------- ------- -------
Net asset value, end of year .................... $ 12.30 $ 11.89 $ 11.60 $ 12.24 $ 12.22
======== ======== ======= ======= =======
Total return(f) ................................. 6.97% 6.26% (1.78)% 3.81% 2.98%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.20% 1.21% 1.22% 1.21% 1.22%
Net investment income ........................... 3.41% 3.62% 3.59% 3.60% 3.62%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $170,676 $102,212 $70,318 $64,873 $64,900
Portfolio turnover rate ......................... 10.24% 21.67% 9.99% 14.24% 13.03%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
98 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $11.91
------
Income from investment operations(b):
Net investment income(c) ..................... 0.33
Net realized and unrealized gains (losses) ... 0.28
------
Total from investment operations ................ 0.61
------
Less distributions from net investment income ... (0.32)
------
Net asset value, end of period .................. $12.20
======
Total return(d) ................................. 5.14%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ........................................ 0.55%
Net investment income ........................... 4.06%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $4,451
Portfolio turnover rate ......................... 10.24%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 99
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS 99.0%
MINNESOTA 95.1%
Anoka County Housing and RDA, GO, Housing Development, Refunding, AMBAC Insured,
4.875%, 2/01/24 ................................................................... $ 2,195,000 $ 2,313,420
Anoka County Regional Railroad Authority GO, Limited Tax, Series A, XLCA Insured,
4.50%, 2/01/32 .................................................................... 11,125,000 11,243,147
Anoka-Hennepin ISD No. 11 GO,
School Building, Refunding, Series A, Assured Guaranty, 5.00%, 2/01/20 ............ 5,870,000 6,837,083
School District Credit Enhancement Program, Series A, FSA Insured, 5.00%,
2/01/20 ........................................................................ 6,130,000 6,379,246
Bloomington ISD No. 271 GO, School Building, Refunding, Series C, FSA Insured, 4.50%,
2/01/23 ........................................................................... 2,500,000 2,677,875
Blue Earth County EDA Public Project Lease Revenue, Series A, NATL Insured, 4.50%,
12/01/24 .......................................................................... 1,055,000 1,125,242
(a) Brainerd ISD No. 181 GO, School Building, Refunding, Series A, 4.00%,
2/01/19 ........................................................................... 5,025,000 5,476,848
2/01/20 ........................................................................... 5,025,000 5,443,884
2/01/21 ........................................................................... 4,035,000 4,338,553
Brooklyn Center ISD No. 286 GO, FGIC Insured, 5.00%, 2/01/22 ......................... 1,000,000 1,068,430
Byron ISD No. 531 GO, School Building, Series A, NATL Insured, 5.00%, 2/01/24 ........ 2,015,000 2,158,770
Cambridge ISD No. 911 GO, Series A, NATL Insured, 4.25%, 2/01/24 ..................... 1,235,000 1,276,434
Cass Lake ISD No. 115 GO, Refunding, NATL Insured, 5.00%, 2/01/22 .................... 3,805,000 3,985,205
Centennial ISD No. 012 GO, Series A, FSA Insured, 5.00%, 2/01/21 ..................... 1,000,000 1,068,430
Chaska ISD No. 112 GO,
Refunding, Series A, 4.00%, 2/01/16 ............................................... 4,985,000 5,503,041
School Building, Series A, NATL Insured, 4.50%, 2/01/28 ........................... 15,000,000 15,595,500
Chisago County GO, Capital Improvement, Series A, NATL Insured, 4.75%, 2/01/26 ....... 2,415,000 2,565,575
Dakota County CDA Governmental Housing Development GO, Senior Housing Facilities,
Series A, 5.125%, 1/01/35 ......................................................... 2,625,000 2,741,261
Dakota County Housing and RDA, SFMR, GNMA Secured,
5.75%, 4/01/18 .................................................................... 92,000 92,034
5.85%, 10/01/30 ................................................................... 155,000 155,070
Duluth ISD No. 709 COP, Full Term Certificates, Series B,
4.75%, 2/01/25 .................................................................... 8,445,000 8,902,635
FSA Insured, 5.00%, 2/01/28 ....................................................... 18,890,000 20,381,743
Eagan GO, Recreational Facilities, Series A, NATL Insured, 5.00%, 2/01/21 ............ 3,075,000 3,285,422
Elk River ISD No. 728 GO, School Building, Refunding, Series A, FSA Insured, 4.25%,
2/01/23 ........................................................................... 5,000,000 5,225,200
2/01/24 ........................................................................... 6,265,000 6,508,145
Farmington ISD No. 192 GO,
NATL Insured, 5.25%, 2/01/24 ...................................................... 5,915,000 6,168,931
School Building, Refunding, Series A, FSA Insured, 4.50%, 2/01/24 ................. 5,015,000 5,302,510
School Building, Series B, FSA Insured, 5.00%, 2/01/23 ............................ 3,000,000 3,259,170
School Building, Series B, FSA Insured, 4.75%, 2/01/27 ............................ 16,075,000 16,945,783
Fergus Falls ISD No. 544 GO, School Building, Series A, FSA Insured, 5.00%, 1/01/25 .. 1,655,000 1,823,611
Fridley ISD No. 014 GO, Alternative Facilities, Series A, FSA Insured, 4.375%,
2/01/27 ........................................................................... 2,040,000 2,104,382
Hastings ISD No. 200 GO, Refunding, Series A, FSA Insured, 4.50%, 2/01/22 ............ 2,700,000 2,835,702
(a) Hennepin County Regional Railroad Authority GO, Limited Tax, Refunding, Series A,
4.00%,
12/01/27 .......................................................................... 2,475,000 2,527,025
12/01/28 .......................................................................... 2,590,000 2,619,086
Hennepin County Sales Tax Revenue,
Hennepin County Sales Tax, 4.75%, 12/15/37 ........................................ 25,000,000 25,652,750
Second Lien, Ballpark Project, Series B, 5.00%, 12/15/21 .......................... 5,000,000 5,589,950
100 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Hibbing Health Care Facilities Revenue, The Duluth Clinic Ltd., FSA Insured,
Pre-Refunded, 5.00%, 11/01/25 ..................................................... $ 8,000,000 $ 9,147,440
Hopkins ISD No. 270 GO, FGIC Insured, 5.125%, 2/01/22 ................................ 3,880,000 4,154,626
Hubbard County Housing and RDA, GO, Heritage Center Project, NATL Insured, 5.50%,
8/01/27 ........................................................................... 1,085,000 1,107,926
Lake Superior ISD No. 381 GO, Series A, FSA Insured, 5.00%, 4/01/23 .................. 4,195,000 4,624,274
Lakeview ISD No. 2167 GO, NATL Insured, 5.25%, 2/01/26 ............................... 3,705,000 3,864,056
Lakeville ISD No. 194 GO,
School Building, Refunding, Series B, Assured Guaranty, 5.00%, 2/01/16 ............ 5,405,000 6,255,693
School Building, Refunding, Series B, Assured Guaranty, 5.00%, 2/01/17 ............ 5,750,000 6,664,998
Series A, FGIC Insured, 5.00%, 2/01/23 ............................................ 10,180,000 11,166,646
Medford ISD No. 763 GO, Series A, FSA Insured, 5.125%, 2/01/29 ....................... 2,700,000 2,812,860
Metropolitan Council Minneapolis-St. Paul Metropolitan Area GO, Wastewater, Series B,
4.50%, 12/01/26 ................................................................... 5,000,000 5,231,400
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue,
senior bond, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/20 ................... 5,400,000 5,905,062
senior bond, Refunding, Series A, BHAC Insured, 5.00%, 1/01/23 .................... 14,800,000 15,960,024
senior bond, Refunding, Series A, BHAC Insured, 5.00%, 1/01/26 .................... 10,000,000 10,585,700
Series A, FGIC Insured, Pre-Refunded, 5.25%, 1/01/32 .............................. 7,000,000 7,286,230
Series C, FGIC Insured, Pre-Refunded, 5.25%, 1/01/26 .............................. 2,000,000 2,081,780
Series C, FGIC Insured, Pre-Refunded, 5.25%, 1/01/32 .............................. 9,000,000 9,368,010
Minneapolis CDA and St. Paul Housing and RDAR, Health Care Facilities, Carondelet,
Series B, BIG Insured, Pre-Refunded, 8.875%, 11/01/15 ............................. 480,000 518,117
Minneapolis GO, Various Purpose,
Pre-Refunded, 5.125%, 12/01/28 .................................................... 3,000,000 3,240,120
Refunding, 4.00%, 12/01/25 ........................................................ 4,500,000 4,636,665
Minneapolis Health Care System Revenue, Fairview Health Services, Series D, AMBAC
Insured, 5.00%, 11/15/34 .......................................................... 12,645,000 12,192,309
Minneapolis MFR, Riverside Plaza, Refunding, GNMA Secured, 5.20%, 12/20/30 ........... 5,000,000 5,024,950
Minneapolis Health Care System Revenue, Fairview Health Services, Series B, Assured
Guaranty, 6.50%, 11/15/38 ......................................................... 35,000,000 39,082,400
Minneapolis Special School District No. 001 COP,
Refunding, Series A, NATL Insured, 4.50%, 2/01/21 ................................. 2,715,000 2,843,718
Series A, FSA Insured, 5.00%, 2/01/21 ............................................. 1,950,000 2,021,858
Minnesota Agricultural and Economic Development Board Revenue,
Evangelical Lutheran Good Samaritan, Society Project, AMBAC Insured, 5.15%,
12/01/22 ....................................................................... 4,870,000 4,871,802
Health Care Facility, Essentia, Series C1, Assured Guaranty, 5.00%, 2/15/30 ....... 15,100,000 15,276,670
Health Care System, Refunding, Series A, NATL Insured, 5.75%, 11/15/26 ............ 365,000 365,555
Series E, Assured Guaranty, 5.00%, 2/15/37 ........................................ 20,600,000 20,448,590
Minnesota Public Facilities Authority Clean Water Revenue, Series A, 5.00%, 3/01/24 .. 6,900,000 7,811,352
Minnesota State 911 Revenue, Public Safety Radio Communication System, Assured
Guaranty,
4.50%, 6/01/22 .................................................................... 3,000,000 3,259,770
4.50%, 6/01/23 .................................................................... 3,410,000 3,677,174
4.50%, 6/01/24 .................................................................... 3,745,000 4,016,999
5.00%, 6/01/24 .................................................................... 5,000,000 5,517,750
4.50%, 6/01/25 .................................................................... 2,745,000 2,924,331
Annual Report | 101
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Minnesota State Colleges and University Revenue, Fund, Series A,
4.50%, 10/01/26 ................................................................... $ 5,770,000 $ 6,002,185
4.625%, 10/01/29 .................................................................. 6,615,000 6,876,954
NATL Insured, 5.00%, 10/01/22 ..................................................... 1,745,000 1,896,815
NATL Insured, 5.00%, 10/01/23 ..................................................... 1,825,000 1,972,168
NATL Insured, 5.00%, 10/01/24 ..................................................... 1,900,000 2,047,212
NATL Insured, 5.00%, 10/01/25 ..................................................... 1,155,000 1,237,224
NATL Insured, 5.00%, 10/01/26 ..................................................... 1,715,000 1,828,173
NATL Insured, 5.00%, 10/01/32 ..................................................... 5,540,000 5,763,761
Minnesota State GO,
Highway and Various Purpose, 5.00%, 8/01/23 ....................................... 3,000,000 3,374,760
Highway and Various Purpose, FSA Insured, 5.00%, 8/01/22 .......................... 1,000,000 1,126,330
Highway and Various Purpose, FSA Insured, 5.00%, 8/01/25 .......................... 10,000,000 11,081,600
NATL Insured, 5.00%, 6/01/26 ...................................................... 10,000,000 10,945,800
Various Purpose, Refunding, Series H, 5.00%, 11/01/27 ............................. 5,000,000 5,579,650
Various Purposes, Series A, 4.25%, 12/01/27 ....................................... 5,000,000 5,185,700
Various Purposes, Series A, 4.50%, 12/01/28 ....................................... 15,540,000 16,431,219
Minnesota State HFAR,
Non Profit Housing State Appropriation, 4.00%, 8/01/29 ............................ 3,675,000 3,601,904
Rental Housing, Refunding, Series D, NATL Insured, 5.90%, 8/01/15 ................. 690,000 692,691
Rental Housing, Refunding, Series D, NATL Insured, 5.95%, 2/01/18 ................. 200,000 200,582
Rental Housing, Refunding, Series D, NATL Insured, 6.00%, 2/01/22 ................. 220,000 220,931
Residential Housing Finance, Series E, 4.90%, 7/01/29 ............................. 12,035,000 12,100,470
Residential Housing Finance, Series E, 5.10%, 1/01/40 ............................. 11,485,000 11,560,456
SFM, Series G, AMBAC Insured, 6.25%, 7/01/26 ...................................... 150,000 150,560
Minnesota State Higher Education Facilities Authority Revenue,
St. John's University, Series 5-I, NATL Insured, Pre-Refunded, 5.25%, 10/01/21 .... 1,750,000 1,872,990
St. John's University, Series 5-I, NATL Insured, Pre-Refunded, 5.25%, 10/01/26 .... 1,500,000 1,605,420
University of St.Thomas, Series 7-A, 5.00%, 10/01/29 .............................. 5,420,000 5,607,478
University of St.Thomas, Series 7-A, 5.00%, 10/01/39 .............................. 4,485,000 4,464,234
University of St.Thomas, Series Six-X, 5.00%, 4/01/29 ............................. 2,250,000 2,303,753
University of St.Thomas, Series Six-X, 5.25%, 4/01/39 ............................. 5,000,000 5,079,500
Minnesota State Public Facilities Authority Clean Water Revenue, Series B, 4.75%,
3/01/27 ........................................................................... 5,000,000 5,465,850
Minnetonka ISD No. 276 GO, Alternative Facilities, Series F,
4.00%, 7/01/24 .................................................................... 2,305,000 2,384,799
4.10%, 7/01/25 .................................................................... 2,145,000 2,212,074
Minnetonka MFHR, Cedar Hills Project, Refunding, Series A, GNMA Secured,
5.90%, 10/20/19 ................................................................... 1,750,000 1,765,120
5.95%, 10/20/29 ................................................................... 5,955,000 6,048,613
Moorhead ISD No. 152 GO, School Building, Refunding, 4.25%, 4/01/22 .................. 4,690,000 4,864,046
Mounds View ISD No. 621 GO, School Building, Refunding, Series A, 4.00%, 2/01/20 ..... 1,000,000 1,067,180
New Brighton GO, Tax Increment, Series A, NATL Insured, 5.00%, 2/01/32 ............... 5,110,000 5,362,230
North Branch Water System Revenue,
FSA Insured, 4.75%, 8/01/27 ....................................................... 1,500,000 1,595,235
Series A, FSA Insured, 5.00%, 8/01/33 ............................................. 1,325,000 1,373,429
Northern Municipal Power Agency Electric System Revenue,
Refunding, FSA Insured, 5.00%, 1/01/12 ............................................ 540,000 540,886
Refunding, Series A, Assured Guaranty, 5.00%, 1/01/21 ............................. 1,505,000 1,618,823
Series A, AMBAC Insured, 5.00%, 1/01/26 ........................................... 2,000,000 2,042,740
102 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Northfield ISD No. 659 GO, School Building, Refunding, Series A, 4.00%,
2/01/19 ........................................................................... $ 2,515,000 $ 2,764,010
2/01/20 ........................................................................... 3,420,000 3,696,746
2/01/21 ........................................................................... 3,575,000 3,829,540
Osseo ISD No. 279 GO, Series A, FSA Insured, 5.00%, 2/01/20 .......................... 3,000,000 3,115,650
Pine City Health Care and Housing Revenue, North Branch, Series A, GNMA Secured,
5.00%, 10/20/38 ................................................................... 4,280,000 4,290,828
Pipestone-Jasper ISD No. 2689 GO, Refunding, Series A, FSA Insured, 5.00%, 3/01/20 ... 1,595,000 1,705,549
Plymouth Health Facilities Revenue, Westhealth Project, Series A, FSA Insured,
6.25%, 6/01/16 .................................................................... 1,600,000 1,601,968
6.125%, 6/01/24 ................................................................... 1,815,000 1,815,054
Prior Lake ISD No. 719 GO, Series C, NATL Insured, 5.00%,
2/01/21 ........................................................................... 2,000,000 2,086,160
2/01/23 ........................................................................... 6,025,000 6,263,168
Robbinsdale ISD No. 281 GO, Refunding, Series A, NATL Insured, 4.50%, 2/01/22 ........ 3,000,000 3,092,340
Rochester Electric Utility Revenue, AMBAC Insured, Pre-Refunding, 5.25%, 12/01/24 .... 3,000,000 3,111,480
Rush City ISD No. 139 GO, School Building, NATL Insured,
5.00%, 2/01/21 .................................................................... 1,680,000 1,822,464
5.125%, 2/01/26 ................................................................... 4,245,000 4,619,621
Sauk Rapids ISD No. 047 GO,
School Building, Refunding, Series A, FSA Insured, 5.00%, 2/01/22 ................. 2,200,000 2,401,762
School Building, Refunding, Series A, FSA Insured, 4.50%, 2/01/25 ................. 2,175,000 2,275,964
Series A, NATL Insured, 5.75%, 2/01/23 ............................................ 2,740,000 2,870,068
Series A, NATL Insured, 5.75%, 2/01/26 ............................................ 5,000,000 5,237,350
Scott County GO, Capital Improvement, Series A, AMBAC Insured, 5.00%, 12/01/27 ....... 5,590,000 6,094,777
South Washington County ISD No. 833 GO, Series B, FSA Insured, 5.00%, 2/01/23 ........ 4,000,000 4,130,840
Southern Minnesota Municipal Power Agency Power Supply System Revenue,
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/19 ....... 5,875,000 4,199,391
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/20 ....... 14,035,000 9,509,835
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/23 ....... 4,000,000 2,323,480
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/26 ....... 5,000,000 2,445,500
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 1/01/27 ....... 6,600,000 3,035,076
Capital Appreciation, Refunding, Series C, AMBAC Insured, zero cpn., 1/01/18 ...... 15,935,000 12,014,990
Refunding, Series A, 5.00%, 1/01/21 ............................................... 1,000,000 1,086,890
Refunding, Series A, 5.00%, 1/01/22 ............................................... 2,060,000 2,222,967
Refunding, Series A, 5.50%, 1/01/24 ............................................... 1,000,000 1,103,540
Refunding, Series A, 5.25%, 1/01/30 ............................................... 2,000,000 2,087,420
Series A, NATL Insured, Pre-Refunded, 5.75%, 1/01/18 .............................. 1,000,000 1,092,230
Spring Lake Park ISD No. 16 GO, School Building, Series A, FSA Insured, 5.00%,
2/01/29 ........................................................................... 4,025,000 4,278,414
St. Cloud Health Care Revenue,
Centracare Health System Project, Assured Guaranty, 5.375%, 5/01/31 ............... 1,000,000 1,043,660
Centracare Health System Project, Assured Guaranty, 5.50%, 5/01/39 ................ 27,200,000 28,107,120
St. Cloud Hospital Obligation, Group A, FSA Insured, 5.875%, 5/01/30 .............. 17,785,000 18,124,871
St. Cloud Hospital Facilities Revenue, St. Cloud Hospital, Refunding, Series A,
AMBAC Insured, 5.00%, 7/01/15 ..................................................... 1,165,000 1,167,947
St. Michael ISD No. 885 GO,
FSA Insured, 5.00%, 2/01/23 ....................................................... 3,300,000 3,525,819
School Building, Refunding, FSA Insured, 5.00%, 2/01/24 ........................... 2,735,000 2,957,985
School Building, Series A, FSA Insured, 4.75%, 2/01/29 ............................ 5,000,000 5,227,650
Annual Report | 103
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
St. Paul Housing and RDA Health Care Revenue, Allina Health System,
Refunding, Series A-1, 5.25%, 11/15/29 ............................................ $ 5,000,000 $ 5,018,450
Series A, NATL Insured, 5.00%, 11/15/22 ........................................... 5,000,000 5,131,350
St. Paul ISD No. 625 GO, School Building, Series A, FSA Insured, 5.00%,
2/01/24 ........................................................................... 1,615,000 1,776,048
2/01/25 ........................................................................... 1,675,000 1,831,227
2/01/26 ........................................................................... 1,745,000 1,896,588
St. Paul Sales Tax Revenue, Sub Series A, XLCA Insured, 5.00%, 11/01/30 .............. 7,360,000 7,610,240
St. Peter GO, Hospital, Series A, NATL Insured, 5.00%, 9/01/32 ....................... 5,000,000 5,018,600
State Cloud Health Care Revenue, Centracare Health System, Series A, 5.125%,
5/01/30 ........................................................................... 19,000,000 18,915,830
University of Minnesota Revenue, Series A,
5.25%, 4/01/29 .................................................................... 1,000,000 1,100,740
5.125%, 4/01/34 ................................................................... 1,000,000 1,065,300
Upsala ISD No. 487 GO, School Building, FGIC Insured, 5.00%,
2/01/22 ........................................................................... 1,140,000 1,250,489
2/01/28 ........................................................................... 2,400,000 2,632,608
Waconia ISD No. 110 GO, School Building, Refunding, Series B, 4.125%, 2/01/22 ........ 5,340,000 5,677,274
Washington County Housing and RDAR, Government Housing, Landfall Terrace Project,
Refunding,
5.35%, 2/01/22 .................................................................... 1,000,000 1,001,600
5.40%, 8/01/27 .................................................................... 2,015,000 2,018,244
Watertown ISD No. 111 GO, Series A, FSA Insured, 5.00%, 2/01/24 ...................... 2,725,000 2,947,169
West St. Paul ISD No. 197 GO, School Building, Series B, 5.00%,
2/01/21 ........................................................................... 3,340,000 3,600,052
2/01/22 ........................................................................... 3,500,000 3,756,410
Western Minnesota Municipal Power Agency Revenue,
NATL Insured, 5.00%, 1/01/26 ...................................................... 8,565,000 8,740,839
Refunding, Series A, AMBAC Insured, 5.50%, 1/01/12 ................................ 2,745,000 2,754,059
Refunding, Series A, AMBAC Insured, 5.50%, 1/01/13 ................................ 4,500,000 4,514,850
Series A, FSA Insured, 5.00%, 1/01/36 ............................................. 6,000,000 6,167,220
Series A, NATL Insured, 5.00%, 1/01/30 ............................................ 7,200,000 7,278,912
Willmar GO, Rice Memorial Hospital Project, FSA Insured, 5.00%,
2/01/22 ........................................................................... 2,550,000 2,649,170
2/01/25 ........................................................................... 3,000,000 3,101,580
2/01/32 ........................................................................... 5,415,000 5,527,903
--------------
897,638,369
--------------
U.S. TERRITORIES 3.9%
PUERTO RICO 3.6%
Puerto Rico Commonwealth GO, Public Improvement,
FSA Insured, Pre-Refunded, 5.125%, 7/01/30 ........................................ 580,000 617,056
Refunding, FSA Insured, 5.00%, 7/01/23 ............................................ 955,000 963,356
Refunding, FSA Insured, 5.125%, 7/01/30 ........................................... 420,000 422,083
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, FSA Insured, 6.25%, 7/01/21 ............................................. 10,000,000 11,452,800
Puerto Rico Electric Power Authority Power Revenue, Refunding,
Series SS, NATL Insured, 5.00%, 7/01/25 ........................................... 5,000,000 5,076,700
Series V, FGIC Insured, 5.25%, 7/01/30 ............................................ 5,000,000 5,100,200
104 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MINNESOTA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.75%, 8/01/12 ....... $ 5,000,000 $ 5,058,750
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/30 .. 1,000,000 1,017,490
Puerto Rico PBA Guaranteed Revenue, Government Facilities, Refunding, Series F,
XLCA Insured, 5.25%, 7/01/25 ...................................................... 2,500,000 2,473,875
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 7.00%, 7/01/14 ........... 800,000 801,888
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
AMBAC Insured, ETM, 5.50%,
8/01/27 ........................................................................... 375,000 444,525
8/01/27 ........................................................................... 625,000 749,625
--------------
34,178,348
--------------
U.S. VIRGIN ISLANDS 0.3%
Virgin Islands PFAR, Gross Receipts Taxes Loan Note, FSA Insured, 5.25%,
10/01/20 .......................................................................... 1,160,000 1,203,361
10/01/21 .......................................................................... 1,000,000 1,033,600
--------------
2,236,961
--------------
TOTAL U.S. TERRITORIES ............................................................... 36,415,309
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $895,074,148) ............................................................... 934,053,678
--------------
SHORT TERM INVESTMENTS 2.2%
MUNICIPAL BONDS 2.2%
MINNESOTA 1.9%
(b) Minneapolis and St. Paul Housing and RDA Health Care System Revenue, Allina Health
System, Refunding, Series B-2, Daily VRDN and Put, 0.14%, 11/15/35 ................ 8,000,000 8,000,000
(b) Minnesota Agricultural and Economic Development Board Revenue, Health Care Facility,
Essentia, Refunding, Series C-3, Assured Guaranty, Daily VRDN and Put, 0.15%,
2/15/32 ........................................................................ 8,800,000 8,800,000
(b) Roseville Health Care Facilities Revenue, Presbyterian Homes Project, Refunding, Daily
VRDN and Put, 0.14%, 10/01/29 ..................................................... 1,360,000 1,360,000
--------------
18,160,000
--------------
U.S. TERRITORIES 0.3%
PUERTO RICO (COST $3,000,000) 0.3%
(b) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... 3,000,000 3,000,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $21,160,000) ...................................... 21,160,000
--------------
TOTAL INVESTMENTS (COST $916,234,148) 101.2% ......................................... 955,213,678
OTHER ASSETS, LESS LIABILITIES (1.2)% ................................................ (11,279,984)
--------------
NET ASSETS 100.0% .................................................................... $ 943,933,694
==============
See Abbreviations on page 144.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 105
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN OHIO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.08 $ 11.91 $ 12.64 $ 12.60 $ 12.64
---------- ---------- ---------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.51 0.51 0.51 0.52 0.53
Net realized and unrealized gains (losses) .. 0.42 0.17 (0.73) 0.04 (0.04)
---------- ---------- ---------- -------- --------
Total from investment operations ............... 0.93 0.68 (0.22) 0.56 0.49
---------- ---------- ---------- -------- --------
Less distributions from:
Net investment income ....................... (0.51) (0.51) (0.51) (0.52) (0.53)
Net realized gains .......................... -- -- (--)(d) (--)(d) --
---------- ---------- ---------- -------- --------
Total distributions ............................ (0.51) (0.51) (0.51) (0.52) (0.53)
---------- ---------- ---------- -------- --------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- -------- --------
Net asset value, end of year ................... $ 12.50 $ 12.08 $ 11.91 $ 12.64 $ 12.60
========== ========== ========== ======== ========
Total return(f) ................................ 7.82% 5.83% (1.82)% 4.61% 3.98%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.64% 0.64% 0.65% 0.65% 0.65%
Net investment income .......................... 4.10% 4.26% 4.11% 4.17% 4.20%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $1,314,090 $1,144,463 $1,010,704 $980,493 $901,614
Portfolio turnover rate ........................ 4.17% 11.12% 16.47% 10.55% 16.44%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
106 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.13 $ 11.96 $ 12.69 $ 12.64 $ 12.68
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.44 0.45 0.44 0.45 0.46
Net realized and unrealized gains (losses) .. 0.42 0.16 (0.73) 0.06 (0.04)
------- ------- ------- ------- -------
Total from investment operations ............... 0.86 0.61 (0.29) 0.51 0.42
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.44) (0.44) (0.44) (0.46) (0.46)
Net realized gains .......................... -- -- (--)(d) (--)(d) --
------- ------- ------- ------- -------
Total distributions ............................ (0.44) (0.44) (0.44) (0.46) (0.46)
------- ------- ------- ------- -------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year .................. $ 12.55 $ 12.13 $ 11.96 $ 12.69 $ 12.64
======= ======= ======= ======= =======
Total return(f) ................................ 7.21% 5.22% (2.35)% 4.11% 3.41%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.19% 1.19% 1.20% 1.20% 1.20%
Net investment income .......................... 3.55% 3.71% 3.56% 3.62% 3.65%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $27,577 $36,629 $42,638 $51,897 $56,478
Portfolio turnover rate ........................ 4.17% 11.12% 16.47% 10.55% 16.44%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 107
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.19 $ 12.02 $ 12.75 $ 12.70 $ 12.74
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.44 0.45 0.45 0.46 0.46
Net realized and unrealized gains (losses) .. 0.43 0.16 (0.74) 0.04 (0.04)
-------- -------- -------- -------- --------
Total from investment operations 0.87 0.61 (0.29) 0.50 0.42
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.44) (0.44) (0.44) (0.45) (0.46)
Net realized gains .......................... -- -- (--)(d) (--)(d) --
-------- -------- -------- -------- --------
Total distributions ............................ (0.44) (0.44) (0.44) (0.45) (0.46)
-------- -------- -------- -------- --------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 12.62 $ 12.19 $ 12.02 $ 12.75 $ 12.70
======== ======== ======== ======== ========
Total return(f) ................................ 7.24% 5.19% (2.34)% 4.08% 3.38%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.19% 1.19% 1.20% 1.20% 1.20%
Net investment income .......................... 3.55% 3.71% 3.56% 3.62% 3.65%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $287,586 $201,779 $158,124 $143,804 $130,540
Portfolio turnover rate ........................ 4.17% 11.12% 16.47% 10.55% 16.44%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
108 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
-----------------
ADVISOR CLASS 2010 2009(a)
- ------------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 12.08 $12.27
------- ------
Income from investment operations(b):
Net investment income(c) .................... 0.52 0.35
Net realized and unrealized gains (losses) .. 0.42 (0.19)
------- ------
Total from investment operations ............... 0.94 0.16
------- ------
Less distributions from net investment income .. (0.52) (0.35)
------- ------
Net asset value, end of year ................... $ 12.50 $12.08
======= ======
Total return(d) ................................ 7.93% 1.37%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ....................................... 0.54% 0.54%
Net investment income .......................... 4.20% 4.36%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $13,367 $ 352
Portfolio turnover rate ........................ 4.17% 11.12%
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.1%
OHIO 95.1%
Akron Bath Copley Joint Township Hospital District Revenue, Hospital Improvement
Children's Hospital Center, FSA Insured, 5.00%, 11/15/22 .......................... $ 5,000,000 $ 5,105,900
Akron GO, Improvement, NATL Insured, 5.00%,
12/01/20 .......................................................................... 2,150,000 2,262,144
12/01/21 .......................................................................... 2,255,000 2,370,997
12/01/22 .......................................................................... 1,185,000 1,242,141
Akron Income Tax Revenue, Community Learning Centers, Series A, NATL Insured, 5.00%,
12/01/22 .......................................................................... 2,460,000 2,561,992
12/01/24 .......................................................................... 3,200,000 3,312,320
12/01/33 .......................................................................... 8,005,000 8,088,732
Akron Waterworks Revenue, Refunding and Improvement, System Mortgage, Assured
Guaranty,
5.00%, 3/01/34 .................................................................... 1,000,000 1,024,750
American Municipal Power-Ohio Inc. Revenue, Prairie State Energy Campus Project,
Refunding, Series A,
Assured Guaranty, 5.25%, 2/15/33 .................................................. 30,000,000 30,842,700
BHAC Insured, 5.00%, 2/15/38 ...................................................... 22,000,000 22,491,700
Anthony Wayne Local School District GO,
Refunding, FSA Insured, 5.00%, 12/01/24 ........................................... 3,200,000 3,306,080
School Facilities Construction and Improvement, FSA Insured, Pre-Refunded, 5.65%,
12/01/21 ....................................................................... 1,845,000 1,937,453
School Facilities Construction and Improvement, FSA Insured, Pre-Refunded, 5.70%,
12/01/25 ....................................................................... 2,335,000 2,452,894
School Facilities Construction and Improvement, Refunding, FSA Insured, 5.65%,
12/01/21 ....................................................................... 645,000 664,253
Athens City School District GO, School Facilities Construction and Improvement, FSA
Insured, Pre-Refunded, 6.00%, 12/01/24 ............................................ 2,345,000 2,468,628
Austintown Local School District GO, School Improvement, FSA Insured, 5.125%,
12/01/30 .......................................................................... 7,715,000 8,116,874
Avon Lake Water System Revenue, Series A, AMBAC Insured, Pre-Refunded, 5.75%,
10/01/26 .......................................................................... 2,020,000 2,081,691
Avon Local School District GO, School Improvement, NATL Insured, Pre-Refunded, 5.25%,
12/01/23 .......................................................................... 1,000,000 1,153,800
12/01/29 .......................................................................... 2,295,000 2,647,971
Bluffton Exempted Village School District GO, Library Construction Improvement, AMBAC
Insured, 5.50%, 12/01/28 .......................................................... 1,190,000 1,360,777
Bowling Green MFHR, Village Apartments, Refunding, Series A, GNMA Secured, 5.40%,
9/20/36 ........................................................................... 2,940,000 2,978,573
Brookfield Local School District GO, School Facilities Improvement, FSA Insured,
5.25%, 1/15/36 .................................................................... 1,300,000 1,389,674
Brookville Local School District GO, FSA Insured, Pre-Refunded,
5.25%, 12/01/22 ................................................................... 1,075,000 1,240,335
5.00%, 12/01/31 ................................................................... 3,000,000 3,433,950
Buckeye Local School District GO, Construction and Improvement, FGIC Insured,
Pre-Refunded, 5.50%, 12/01/25 ..................................................... 750,000 779,265
Butler County GO,
Judgment, FSA Insured, Pre-Refunded, 4.75%, 12/01/26 .............................. 4,000,000 4,472,960
Limited Tax, Various Purpose, Refunding, NATL Insured, 5.00%, 12/01/26 ............ 2,130,000 2,275,458
Butler County Transportation ID Revenue, Highway Improvement, XLCA Insured, 5.00%,
12/01/31 .......................................................................... 40,000 41,772
110 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Canal Winchester Local School District GO, Capital Appreciation, NATL Insured, zero
cpn.,
12/01/32 .......................................................................... $ 1,455,000 $ 436,907
12/01/33 .......................................................................... 2,000,000 560,460
Central Local School District GO, Classroom Facilities, FSA Insured, 5.75%,
12/01/22 .......................................................................... 1,555,000 1,601,961
Chillicothe City School District GO, Capital Appreciation, Refunding, NATL Insured,
zero cpn.,
12/01/22 .......................................................................... 1,905,000 1,061,733
12/01/23 .......................................................................... 1,905,000 1,011,403
12/01/24 .......................................................................... 1,905,000 956,177
Cincinnati City School District COP, School Improvement Project, Refunding, FSA
Insured, 5.00%,
12/15/26 .......................................................................... 7,310,000 7,753,498
12/15/27 .......................................................................... 7,000,000 7,382,060
Cincinnati City School District GO,
Classroom Facilities Construction and Improvement, FSA Insured, Pre-Refunded,
5.00%, 12/01/27 ................................................................ 2,500,000 2,861,625
Classroom Facilities Construction and Improvement, Refunding, NATL Insured, 5.25%,
12/01/24 ....................................................................... 5,000,000 5,787,800
Classroom Facilities Construction and Improvement, Refunding, NATL Insured, 5.25%,
12/01/27 ....................................................................... 14,900,000 16,963,203
Classroom Facilities Construction and Improvement, Refunding, NATL Insured, 5.25%,
12/01/28 ....................................................................... 5,000,000 5,655,200
School Improvement, FSA Insured, 5.00%, 12/01/22 .................................. 9,510,000 10,113,029
Cincinnati Technical College Revenue, AMBAC Insured,
5.25%, 10/01/23 ................................................................... 2,510,000 2,518,810
5.00%, 10/01/28 ................................................................... 2,715,000 2,610,038
Circleville GO, Capital Facilities Improvement, AMBAC Insured, 5.625%, 12/01/20 ...... 2,035,000 2,112,188
Cleveland Airport System Revenue,
Series A, FSA Insured, 5.00%, 1/01/31 ............................................. 20,215,000 20,249,365
Series C, Assured Guaranty, 5.00%, 1/01/27 ........................................ 15,000,000 15,299,400
Series C, FSA Insured, 5.00%, 1/01/26 ............................................. 9,500,000 9,725,530
Series C, FSA Insured, 5.00%, 1/01/31 ............................................. 9,750,000 9,788,512
Cleveland Municipal School District GO, FSA Insured, 5.00%, 12/01/27 ................. 4,000,000 4,165,600
Cleveland Public Power System Revenue,
Capital Appreciation, Series B-1, NATL Insured, zero cpn., 11/15/38 ............... 10,000,000 1,890,000
Series B, NATL Insured, 5.00%, 11/15/28 ........................................... 2,000,000 2,049,880
Series B, NATL Insured, 5.00%, 11/15/38 ........................................... 10,000,000 9,864,200
Cleveland State University General Receipt Revenue, NATL Insured, 5.25%, 6/01/24 ..... 1,000,000 1,046,700
Cleveland Waterworks Revenue, Series K, FGIC Insured, Pre-Refunded, 5.00%,
1/01/22 ........................................................................... 2,075,000 2,239,900
1/01/23 ........................................................................... 4,285,000 4,625,529
1/01/25 ........................................................................... 8,150,000 8,797,680
Cleveland-Cuyahoga County Port Authority Revenue, Student Housing, Euclid Avenue
Housing Corp., Fenn Project, AMBAC Insured, 5.00%,
8/01/25 ........................................................................... 2,440,000 2,304,507
8/01/28 ........................................................................... 2,145,000 1,972,778
Clyde-Green Springs Exempted Village School District GO, School Facilities
Construction, Refunding and Improvement, NATL Insured, 5.125%, 12/01/32 ........... 1,000,000 1,019,520
Columbus City School District GO, Linden Elementary Construction, FSA Insured,
Pre-Refunded, 5.00%, 12/01/28 ..................................................... 900,000 970,083
Annual Report | 111
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Crawford County GO, AMBAC Insured, Pre-Refunded, 5.25%, 12/01/31 ..................... $ 1,330,000 $ 1,503,339
Cuyahoga Community College District General Receipts Revenue, Series A, AMBAC
Insured, 5.00%,
12/01/22 .......................................................................... 1,000,000 1,050,380
12/01/32 .......................................................................... 3,000,000 3,058,200
Cuyahoga County MFHR, Rockefeller Park Project, Series A, GNMA Secured, Pre-Refunded,
5.75%, 1/20/29 .................................................................... 1,000,000 1,038,660
Cuyahoga County Utility System Revenue, Medical Center Co. Project,
Improvement, AMBAC Insured, 5.125%, 2/15/28 ....................................... 1,000,000 955,320
Refunding and Improvement, Series B, NATL Insured, 6.10%, 8/15/15 ................. 2,945,000 2,946,207
Darke County GO, Real Estate Acquisition and Improvement, NATL Insured, 5.125%,
12/01/27 .......................................................................... 1,020,000 1,001,844
Dayton City School District GO, School Facilities Construction and Improvement,
Series A, NATL Insured,
4.75%, 12/01/25 ................................................................... 9,400,000 9,571,832
5.00%, 12/01/29 ................................................................... 8,275,000 8,405,497
Deerfield Township Tax Increment Revenue, Refunding, Series B, NATL Insured, 5.00%,
12/01/25 .......................................................................... 1,000,000 1,019,690
Delaware General Income Tax Special Obligation, 4.75%, 12/01/37 ...................... 4,000,000 4,009,000
Dublin City School District GO, Capital Appreciation, NATL Insured, zero cpn.,
12/01/16 .......................................................................... 4,635,000 3,564,964
Eastlake GO, Capital Facilities, NATL Insured, 5.00%, 12/01/27 ....................... 1,950,000 1,996,527
Eaton City School District GO, FGIC Insured, Pre-Refunded, 5.00%, 12/01/25 ........... 1,250,000 1,404,450
Edgewood City School District GO, School Improvement, Refunding, FSA Insured, 5.00%,
12/01/24 .......................................................................... 2,220,000 2,376,310
Fairborn City School District GO, School Improvement, Refunding, FSA Insured, 5.00%,
12/01/23 .......................................................................... 1,205,000 1,295,737
12/01/24 .......................................................................... 1,265,000 1,357,332
12/01/25 .......................................................................... 1,330,000 1,420,187
Fairfield County GO, FGIC Insured, 5.00%, 12/01/20 ................................... 1,600,000 1,690,032
Fairless Local School District GO, Capital Appreciation, Various Purpose School
Facilities, FSA Insured, 5.00%, 12/01/28 .......................................... 2,085,000 2,175,989
Field Local School District GO, School Facilities Construction and Improvement, AMBAC
Insured, 5.00%, 12/01/27 .......................................................... 1,290,000 1,252,964
Finneytown Local School District GO, FGIC Insured, 5.80%, 12/01/24 ................... 1,980,000 1,982,475
Franklin County Convention Facilities Authority Revenue, Tax and Lease Revenue
Anticipation Bonds, Refunding, AMBAC Insured, 5.00%, 12/01/24 ..................... 7,255,000 7,887,346
Franklin County Hospital Revenue,
Improvement, Nationwide Children's Hospital, 5.25%, 11/01/40 ...................... 8,500,000 8,634,640
OhioHealth Corp., Refunding, Series C, NATL Insured, 5.00%, 5/15/33 ............... 5,250,000 5,268,060
The Children's Hospital Project, AMBAC Insured, Pre-Refunded, 5.50%, 5/01/21 ...... 3,365,000 3,595,031
The Children's Hospital Project, AMBAC Insured, Pre-Refunded, 5.50%, 5/01/28 ...... 4,265,000 4,556,555
The Children's Hospital Project, Series C, FGIC Insured, 5.00%, 5/01/35 ........... 10,000,000 10,162,900
Franklin GO, NATL Insured, 5.25%, 12/01/27 ........................................... 1,500,000 1,550,940
Garfield Heights GO, Various Purpose, Refunding and Improvement, FGIC Insured, 5.00%,
12/01/27 .......................................................................... 2,655,000 2,630,149
Georgetown Exempted Village School District GO, Classroom Facilities, FSA Insured,
5.125%, 12/01/31 .................................................................. 1,000,000 1,051,650
Graham Local School District GO, School Improvement, Refunding, NATL Insured, 5.00%,
12/01/33 .......................................................................... 6,055,000 6,160,357
112 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Grand Valley Local School District GO, Classroom Facilities Improvement, FGIC Insured,
5.00%, 12/01/24 ................................................................... $ 1,300,000 $ 1,328,977
Greater Cleveland Regional Transit Authority GO, Capital Improvement, Series A, NATL
Insured, Pre-Refunded, 5.125%, 12/01/21 ........................................... 1,750,000 1,888,478
Green Community Learning Centers Income Tax Revenue, NATL Insured, 5.00%,
12/01/27 .......................................................................... 1,205,000 1,257,755
12/01/28 .......................................................................... 1,265,000 1,314,854
12/01/32 .......................................................................... 2,675,000 2,747,814
Greene County GO, AMBAC Insured, Pre-Refunded, 5.00%,
12/01/22 .......................................................................... 1,475,000 1,642,811
12/01/28 .......................................................................... 2,620,000 2,918,077
Greene County Hospital Facility Revenue, Kettering Health Network, 5.50%, 4/01/39 .... 12,930,000 12,947,068
Greene County Sewer System Revenue, Governmental Enterprise, AMBAC Insured,
Pre-Refunded, 5.625%, 12/01/25 .................................................... 1,890,000 1,984,368
Greene County Water System Revenue, Governmental Enterprise, NATL Insured,
Pre-Refunded, 5.25%, 12/01/21 ..................................................... 5,400,000 5,892,480
Guernsey County GO, Refunding, FGIC Insured, 5.00%, 12/01/23 ......................... 2,690,000 2,705,306
Hamilton County Convention Facilities Authority Revenue,
FGIC Insured, 5.00%, 12/01/28 ..................................................... 5,400,000 5,475,816
second lien, FGIC Insured, Pre-Refunded, 5.00%, 12/01/33 .......................... 7,235,000 8,356,280
Hamilton County Hospital Facilities Revenue, Cincinnati Children's Hospital, Series
J, FGIC Insured, 5.25%, 5/15/34 ................................................... 5,000,000 4,999,600
Hamilton County Sales Tax Revenue,
Refunding, Series A, Assured Guaranty, 5.00%, 12/01/32 ............................ 10,000,000 10,246,500
Refunding, Series B, AMBAC Insured, 5.25%, 12/01/32 ............................... 3,965,000 3,981,931
Refunding, Series B, AMBAC Insured, 5.60%, 12/01/32 ............................... 245,000 247,021
Series B, AMBAC Insured, Pre-Refunded, 5.25%, 12/01/32 ............................ 15,755,000 16,334,469
Series B, AMBAC Insured, Pre-Refunded, 5.60%, 12/01/32 ............................ 955,000 992,608
sub. bond, Refunding, Series A, FSA Insured, 5.00%, 12/01/32 ...................... 35,080,000 35,944,722
Hamilton County Sewer System Revenue,
Improvement, Series A, NATL Insured, Pre-Refunded, 5.25%, 12/01/21 ................ 1,000,000 1,080,380
Metropolitan Sewer District Improvement, Series B, NATL Insured, 5.00%, 12/01/30 .. 4,000,000 4,167,800
Hamilton GO, One Renaissance Center, Series A, AMBAC Insured, 5.25%,
11/01/18 .......................................................................... 1,010,000 1,052,440
11/01/19 .......................................................................... 1,015,000 1,055,468
11/01/20 .......................................................................... 1,120,000 1,162,806
11/01/21 .......................................................................... 1,180,000 1,221,796
Heath City School District GO, School Improvement, Series A, FGIC Insured,
Pre-Refunded,
5.60%, 12/01/21 ................................................................... 1,000,000 1,039,380
5.50%, 12/01/27 ................................................................... 1,170,000 1,215,197
Highland Local School District GO, School Improvement, FSA Insured, Pre-Refunded,
5.00%,
12/01/23 .......................................................................... 3,680,000 3,963,213
12/01/26 .......................................................................... 3,675,000 3,957,828
Hilliard School District GO,
Capital Appreciation, School Construction, Refunding, NATL Insured, zero cpn.,
12/01/19 ....................................................................... 2,190,000 1,495,923
Capital Appreciation, School Construction, Refunding, NATL Insured, zero cpn.,
12/01/20 ....................................................................... 4,525,000 2,935,005
School Improvement, FGIC Insured, Pre-Refunded, 5.75%, 12/01/28 ................... 4,000,000 4,203,440
School Improvement, Series A, FGIC Insured, 5.25%, 12/01/28 ....................... 3,010,000 3,111,527
Annual Report | 113
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Huber Heights City School District GO, School Improvement, Refunding, 5.00%,
12/01/33 .......................................................................... $ 4,500,000 $ 4,690,035
12/01/36 .......................................................................... 5,000,000 5,163,250
Huber Heights Water System Revenue, Refunding and Improvement, NATL Insured, 5.00%,
12/01/27 .......................................................................... 3,205,000 3,372,878
12/01/30 .......................................................................... 2,250,000 2,326,950
Hudson City School District COP, NATL Insured, 5.00%, 6/01/34 ........................ 6,720,000 6,829,872
Independence Local School District GO, FGIC Insured, 5.25%, 12/01/21 ................. 1,390,000 1,473,122
Ironton City School District GO, Refunding, NATL Insured, 5.00%, 12/01/34 ............ 5,130,000 5,283,438
Jackson Center Local School District Shelby County GO, Facilities Construction and
Improvement, NATL Insured, 5.00%, 12/01/28 ........................................ 1,175,000 1,207,101
Jackson City School District GO, School Improvement, NATL Insured, Pre-Refunded,
5.25%, 12/01/27 ................................................................... 3,000,000 3,180,420
Jackson Local School District GO, Stark and Summit Counties Local School District, FSA
Insured, Pre-Refunded,
5.50%, 12/01/20 ................................................................... 4,000,000 4,156,080
5.625%, 12/01/25 .................................................................. 3,500,000 3,639,825
Jonathan Alder Local School District GO, School Facilities Construction and
Improvement, NATL Insured, Pre-Refunded,
4.75%, 12/01/22 ................................................................... 1,105,000 1,224,826
5.00%, 12/01/27 ................................................................... 6,195,000 6,908,788
5.00%, 12/01/30 ................................................................... 3,320,000 3,702,530
Kenston Local School District GO, School Improvement, NATL Insured, 5.00%,
12/01/24 .......................................................................... 2,380,000 2,482,530
12/01/25 .......................................................................... 2,500,000 2,600,700
Kent State University Revenues, General Receipts, Series B, Assured Guaranty,
5.00%, 5/01/30 .................................................................... 1,650,000 1,723,887
4.25%, 5/01/31 .................................................................... 3,395,000 3,311,449
Kettering City School District GO, School Improvement, FSA Insured, Pre-Refunded,
5.00%,
12/01/28 .......................................................................... 2,970,000 3,430,291
12/01/31 .......................................................................... 2,595,000 2,997,173
Keystone Local School District Lorain County GO, School Improvement, FSA Insured,
5.00%,
12/01/30 .......................................................................... 6,170,000 6,391,256
Kings Local School District GO, School Improvement, NATL Insured, 5.00%, 12/01/33 .... 10,000,000 10,336,400
Lake Local School District Wood County GO, NATL Insured, Pre-Refunded,
5.30%, 12/01/21 ................................................................... 1,575,000 1,721,459
5.375%, 12/01/25 .................................................................. 1,900,000 2,079,151
Lakewood City School District GO,
FGIC Insured, 5.00%, 12/01/30 ..................................................... 9,170,000 9,637,762
FGIC Insured, 4.50%, 12/01/34 ..................................................... 6,000,000 5,990,760
School Improvement, FSA Insured, Pre-Refunded, 5.125%, 12/01/31 ................... 21,900,000 25,719,579
School Improvement, Refunding, FSA Insured, 4.50%, 12/01/31 ....................... 2,220,000 2,241,556
Lakota Local School District GO,
FSA Insured, 5.00%, 12/01/29 ...................................................... 5,000,000 5,240,950
Refunding, Series A, FGIC Insured, 5.25%, 12/01/26 ................................ 2,000,000 2,324,220
Lancaster Wastewater System Improvement Revenue, Assured Guaranty, 4.75%, 12/01/33 ... 4,000,000 4,062,680
Lebanon City School District GO, FSA Insured, Pre-Refunded, 5.00%, 12/01/29 .......... 6,250,000 6,731,000
114 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Licking County Joint Vocational School District GO, School Facilities Construction and
Improvement, NATL Insured,
5.00%, 12/01/21 ................................................................... $ 2,200,000 $ 2,326,302
4.75%, 12/01/23 ................................................................... 2,230,000 2,322,411
Licking Heights Local School District GO, School Facilities Construction and
Improvement,
Refunding, Series A, NATL Insured, 5.00%, 12/01/24 ................................ 2,085,000 2,198,778
Refunding, Series A, NATL Insured, 5.00%, 12/01/25 ................................ 2,215,000 2,325,130
Refunding, Series A, NATL Insured, 5.00%, 12/01/26 ................................ 2,345,000 2,451,416
Series A, FGIC Insured, Pre-Refunded, 5.625%, 12/01/28 ............................ 4,000,000 4,159,800
Little Miami Local School District GO,
Refunding, FSA Insured, 4.50%, 12/01/34 ........................................... 20,255,000 19,722,699
School Improvement, FSA Insured, Pre-Refunded, 5.00%, 12/01/34 .................... 4,000,000 4,734,080
Logan Hocking Local School District GO, Construction and Improvement, NATL Insured,
Pre-Refunded, 5.00%,
12/01/22 .......................................................................... 1,200,000 1,293,444
12/01/29 .......................................................................... 1,000,000 1,077,870
London City School District GO, School Facilities Construction and Improvement, FGIC
Insured, Pre-Refunded, 5.00%,
12/01/22 .......................................................................... 700,000 752,598
12/01/29 .......................................................................... 1,500,000 1,612,710
Lorain County GO, Sewer System Improvement, NATL Insured, 5.00%, 12/01/19 ............ 1,640,000 1,705,420
Lorain County Health Facilities Revenue, Catholic Healthcare Partners, Series A, AMBAC
Insured, 5.50%, 9/01/29 ........................................................... 6,250,000 6,296,250
Lorain County Hospital Revenue, Catholic Healthcare Partners, Refunding,
Series B, NATL Insured, 5.50%, 9/01/27 ............................................ 5,000,000 5,014,450
Series C-1, FSA Insured, 5.00%, 4/01/33 ........................................... 19,410,000 18,967,452
Series C-2, FSA Insured, 5.00%, 4/01/33 ........................................... 8,000,000 7,817,600
Lorain GO, Urban Renewal, NATL Insured, Pre-Refunded, 5.70%, 12/01/28 ................ 1,050,000 1,092,126
Louisville City School District GO, FGIC Insured, 5.00%, 12/01/24 .................... 3,500,000 3,550,540
Lucas County GO, 8.00%, 12/01/10 ..................................................... 220,000 232,261
Lucas County Hospital Revenue, ProMedica Healthcare Obligated Group,
NATL Insured, ETM, 5.75%, 11/15/14 ................................................ 4,460,000 4,464,059
Refunding, AMBAC Insured, 5.375%, 11/15/29 ........................................ 750,000 752,528
Refunding, NATL Insured, 5.75%, 11/15/14 .......................................... 300,000 300,105
Mad River Local School District GO, Classroom Facilities, FGIC Insured, Pre-Refunded,
5.125%, 12/01/24 .................................................................. 4,180,000 4,615,556
Madison Local School District Butler County GO, School Improvement, FGIC Insured,
Pre-Refunded, 5.60%, 12/01/26 ..................................................... 1,120,000 1,171,811
Mahoning County Career and Technical Center Board Education COP, Series B, 4.75%,
12/01/36 .......................................................................... 3,500,000 3,406,690
Mahoning County Hospital Facilities Revenue, Western Reserve Care, NATL Insured, ETM,
5.50%, 10/15/25 ................................................................... 4,750,000 5,551,800
Mahoning County Sewer System Revenue, AMBAC Insured, 5.375%, 12/01/18 ................ 1,905,000 1,952,739
Maple Heights City School District GO, School Facilities Improvement, 5.00%,
1/15/37 ........................................................................... 10,000,000 10,238,600
Marion County City School District GO, School Facilities Construction and Improvement
Project, FSA Insured, Pre-Refunded,
5.55%, 12/01/20 ................................................................... 1,000,000 1,049,370
5.625%, 12/01/22 .................................................................. 1,100,000 1,154,923
Annual Report | 115
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Marion County GO, AMBAC Insured, Pre-Refunded, 5.05%, 12/01/31 ....................... $ 1,500,000 $ 1,630,215
Martins Ferry City School District GO, School Facilities Construction and Improvement,
FSA Insured, 5.00%, 12/01/32 ...................................................... 3,610,000 3,754,797
Marysville Exempted Village School District COP, School Facilities Project, NATL
Insured, Pre-Refunded, 5.25%,
12/01/28 .......................................................................... 2,120,000 2,505,374
12/01/30 .......................................................................... 2,650,000 3,131,717
Marysville Exempted Village School District GO,
Capital Appreciation, Refunding, NATL Insured, zero cpn., 12/01/20 ................ 1,000,000 625,830
Capital Appreciation, Refunding, NATL Insured, zero cpn., 12/01/21 ................ 1,000,000 592,950
FSA Insured, Pre-Refunded, 5.30%, 12/01/21 ........................................ 2,000,000 2,095,020
FSA Insured, Pre-Refunded, 5.35%, 12/01/25 ........................................ 2,010,000 2,106,239
FSA Insured, Pre-Refunded, 5.375%, 12/01/29 ....................................... 2,465,000 2,583,493
Refunding, NATL Insured, 5.00%, 12/01/29 .......................................... 1,000,000 1,018,910
School Improvement, AMBAC Insured, Pre-Refunded, 6.00%, 12/01/29 .................. 2,890,000 3,041,234
School Improvement, Refunding, FSA Insured, 5.00%, 12/01/29 ....................... 5,500,000 5,733,585
Marysville Wastewater Treatment System Revenue,
Assured Guaranty, 4.25%, 12/01/27 ................................................. 1,170,000 1,176,072
Assured Guaranty, 4.75%, 12/01/47 ................................................. 4,000,000 3,978,840
first mortgage, NATL Insured, Pre-Refunded, 5.00%, 12/01/35 ....................... 4,780,000 5,639,683
Refunding, Assured Guaranty, 4.75%, 12/01/46 ...................................... 14,205,000 14,179,431
Marysville Water System Mortgage Revenue, AMBAC Insured,
5.00%, 12/01/32 ................................................................... 1,250,000 1,278,913
4.50%, 12/01/38 ................................................................... 2,500,000 2,361,225
Mason City School District GO, School Improvement, FSA Insured, Pre-Refunded, 5.00%,
12/01/31 .......................................................................... 5,000,000 5,774,900
Maumee City School District GO, School Facilities Construction and Improvement, FSA
Insured, 5.00%, 12/01/27 .......................................................... 3,610,000 3,789,236
Medina GO, 5.00%, 12/01/22 ........................................................... 1,100,000 1,173,370
Medina School District COP, School Facilities Project, Assured Guaranty, 5.25%,
12/01/31 .......................................................................... 5,725,000 6,144,013
Miami University General Receipts Revenue, Refunding, AMBAC Insured,
5.00%, 12/01/22 ................................................................... 1,675,000 1,752,787
Middletown City School District GO, FGIC Insured, Pre-Refunded, 5.00%, 12/01/31 ...... 14,975,000 17,022,681
Milford Exempted Village School District GO, School Improvement, FSA Insured,
Pre-Refunded,
5.00%, 12/01/22 ................................................................... 2,000,000 2,153,920
5.125%, 12/01/30 .................................................................. 7,325,000 7,904,627
Minerva Local School District GO, Classroom Facilities, NATL Insured, Pre-Refunded,
5.30%, 12/01/29 ................................................................... 1,300,000 1,456,585
Minster School District School Facilities and Construction GO, FSA Insured,
Pre-Refunded,
5.70%, 12/01/23 ................................................................... 3,190,000 3,351,063
5.75%, 12/01/27 ................................................................... 3,260,000 3,425,804
Monroe Local School District GO,
AMBAC Insured, Pre-Refunded, 5.00%, 12/01/23 ...................................... 1,000,000 1,113,770
School Improvement, Refunding, AMBAC Insured, 4.50%, 12/01/29 ..................... 5,115,000 5,156,125
Montgomery County Revenue, Catholic Health Initiatives,
Refunding, Series A, 5.50%, 5/01/34 ............................................... 12,500,000 12,991,250
Refunding, Series A, 5.00%, 5/01/39 ............................................... 10,000,000 10,072,200
Series C-1, FSA Insured, 5.00%, 10/01/41 .......................................... 10,000,000 9,691,000
Morley Library District GO, Lake County District Library, Library Improvement, AMBAC
Insured, 4.75%, 12/01/21 .......................................................... 1,000,000 1,025,270
116 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Mount Healthy City School District GO, School Improvement, FSA Insured, 5.00%,
12/01/31 .......................................................................... $ 1,880,000 $ 1,974,414
12/01/35 .......................................................................... 2,500,000 2,595,600
New Albany Community Authority Community Facilities Revenue, Refunding, Series B,
AMBAC Insured,
5.125%, 10/01/21 .................................................................. 3,000,000 3,079,200
5.20%, 10/01/24 ................................................................... 5,000,000 5,101,300
New Lexington HDC Mortgage Revenue, Lincoln Park, Refunding, Series A, NATL Insured,
5.85%, 1/01/21 .................................................................... 700,000 703,570
Newark City School District GO, School Improvement, Series A, FGIC Insured, 5.00%,
12/01/33 .......................................................................... 5,000,000 5,079,400
Nordonia Hills Local School District GO, School Improvement, AMBAC Insured,
Pre-Refunded, 5.45%, 12/01/25 ..................................................... 3,035,000 3,182,592
Ohio Capital Corp. HMR, Refunding, Series G, NATL Insured, 6.35%, 7/01/22 ............ 485,000 486,683
Ohio Center Local Government Capital Asset Financing Program Fractionalized
Interests GO, FSA Insured,
4.875%, 12/01/18 .................................................................. 1,255,000 1,334,492
5.25%, 12/01/23 ................................................................... 1,410,000 1,507,050
Ohio HFA, MFHR, Wind River Apartment Project, Series A, GNMA Secured, 5.65%,
5/01/32 ........................................................................... 170,000 170,122
Ohio HFA Capital Fund Revenue, Series A, FSA Insured, 5.00%, 4/01/27 ................. 5,545,000 5,947,290
Ohio State Air Quality Development Authority Revenue,
JMG Funding LP Project, AMBAC Insured, 5.625%, 10/01/22 ........................... 6,875,000 6,129,475
Ohio Power Co., Refunding, Series C, AMBAC Insured, 5.15%, 5/01/26 ................ 9,075,000 9,105,764
Pollution Control, Dayton Power and Light Co., Refunding, Series B, BHAC Insured,
4.80%, 1/01/34 ................................................................. 38,845,000 39,740,377
Ohio State Building Authority Revenue, State Facilities,
Administration Building Fund Project, Refunding, Series A, FSA Insured, 5.00%,
4/01/22 ........................................................................ 3,100,000 3,207,446
Adult Correction, Series A, FSA Insured, 5.00%, 4/01/24 ........................... 5,390,000 5,726,929
Ohio State Department of Transportation COP, Panhandle Rail Line Project, FSA
Insured, 6.50%, 4/15/12 ........................................................... 495,000 496,183
Ohio State GO, Common Schools, Series B, 4.625%, 9/15/22 ............................. 5,000,000 5,121,300
Ohio State Higher Educational Facility Commission Revenue,
FGIC Insured, Pre-Refunded, 5.00%, 5/01/23 ........................................ 8,460,000 9,401,175
Higher Educational Facility, Xavier University Project, CIFG Insured, Pre-Refunded,
5.00%, 5/01/23 ................................................................. 3,385,000 3,892,445
Higher Educational Facility, Xavier University Project, CIFG Insured, Pre-Refunded,
5.00%, 5/01/24 ................................................................. 2,000,000 2,299,820
Kenyon College Project, Refunding, 5.25%, 7/01/44 ................................. 25,000,000 25,316,250
University Hospital, BHAC Insured, 4.75%, 1/15/36 ................................. 10,000,000 9,999,500
University Hospital, BHAC Insured, 4.75%, 1/15/46 ................................. 15,000,000 14,473,650
University Hospital, BHAC Insured, 5.25%, 1/15/46 ................................. 13,500,000 13,763,925
University of Dayton Project, XLCA Insured, 5.00%, 12/01/34 ....................... 8,500,000 8,542,075
Xavier University, 5.00%, 5/01/40 ................................................. 12,525,000 12,389,354
Ohio State Higher Educational Facility Revenue,
Case Western Reserve University Project, Refunding, NATL Insured, 5.00%,
12/01/44 ....................................................................... 10,000,000 9,982,800
Case Western Reserve University Project, Series A, AMBAC Insured, 5.00%,
12/01/34 ....................................................................... 4,935,000 4,979,859
Otterbein College Project, CIFG Insured, 5.00%, 12/01/25 .......................... 2,205,000 2,263,477
Otterbein College Project, CIFG Insured, 5.00%, 12/01/35 .......................... 3,225,000 3,229,547
Annual Report | 117
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Ohio State Turnpike Commission Turnpike Revenue, AMBAC Insured, 5.25%, 2/15/31 ....... $ 16,425,000 $ 16,589,743
Ohio State University General Receipts Athens Revenue, NATL Insured, 5.00%,
12/01/24 .......................................................................... 2,155,000 2,220,404
Ohio State University General Receipts Revenue,
Series A, 5.125%, 12/01/31 ........................................................ 2,500,000 2,582,125
State University of Ohio, Series B, NATL Insured, 5.00%, 6/01/33 .................. 5,255,000 5,395,361
Ohio State Water Development Authority Revenue, Drinking Water Fund, Leverage,
Pre-Refunded, 5.00%, 6/01/23 ...................................................... 2,255,000 2,514,821
Olentangy Local School District GO,
FSA Insured, 5.00%, 12/01/25 ...................................................... 45,000 46,403
FSA Insured, 4.50%, 12/01/33 ...................................................... 10,000,000 9,841,600
FSA Insured, Pre-Refunded, 5.00%, 12/01/25 ........................................ 1,790,000 1,961,518
FSA Insured, Pre-Refunded, 5.00%, 12/01/30 ........................................ 3,910,000 4,284,656
FSA Insured, Pre-Refunded, 5.00%, 12/01/30 ........................................ 1,745,000 2,048,578
NATL Insured, 7.75%, 12/01/10 ..................................................... 375,000 395,726
Refunding, FSA Insured, 5.00%, 12/01/30 ........................................... 90,000 92,083
Refunding, Series A, FSA Insured, 4.50%, 12/01/32 ................................. 11,300,000 11,203,950
School Facilities Construction and Improvement, FSA Insured, Pre-Refunded, 5.625%,
12/01/27 ....................................................................... 4,500,000 4,679,775
School Facilities Construction and Improvement, Refunding, Assured Guaranty, 5.00%,
12/01/36 ....................................................................... 7,505,000 7,724,071
School Facilities Construction and Improvement, Series A, FGIC Insured,
Pre-Refunded, 5.25%, 12/01/32 .................................................. 11,200,000 13,025,936
Ottawa and Glandorf Local School District GO, School Facilities Construction and
Improvement, NATL Insured, Pre-Refunded, 5.25%, 12/01/23 .......................... 2,175,000 2,437,196
Pickerington Local School District GO, School Facilities Construction and Improvement,
FGIC Insured, Pre-Refunded, 5.00%, 12/01/28 ....................................... 3,000,000 3,230,880
Plain Local School District GO, FGIC Insured,
6.00%, 12/01/25 ................................................................... 800,000 826,872
Pre-Refunded, 6.00%, 12/01/25 ..................................................... 3,700,000 3,956,928
Plainesville City School District GO, School Improvement, FGIC Insured, 5.00%,
12/01/28 .......................................................................... 2,515,000 2,585,319
Princeton City School District GO, NATL Insured, Pre-Refunded, 5.00%,
12/01/25 .......................................................................... 1,700,000 1,949,271
12/01/26 .......................................................................... 2,725,000 3,124,567
12/01/30 .......................................................................... 2,260,000 2,591,384
Ravenna City School District GO, School Improvement, FSA Insured, 5.00%, 1/15/31 ..... 1,710,000 1,789,532
Reynoldsburg City School District GO, School Facilities Construction, FSA Insured,
5.00%, 12/01/32 ................................................................... 3,000,000 3,157,050
Ridgewood Local School District GO, School Facilities Improvement, FSA Insured,
Pre-Refunded, 6.00%, 12/01/24 ..................................................... 1,730,000 1,821,206
Rittman Exempted Village School District GO, School Improvement, FSA Insured,
Pre-Refunded, 5.125%, 12/01/31 .................................................... 1,000,000 1,098,590
Riverside Local School District GO, School Facilities Construction and Improvement,
NATL Insured, Pre-Refunded, 5.75%, 12/01/22 ....................................... 1,000,000 1,050,860
Ross County Hospital Revenue, Facilities, Adena Health System, Refunding, Assured
Guaranty, 5.25%, 12/01/38 ......................................................... 15,000,000 14,866,800
Shaker Heights GO, Urban Renewal, Refunding, AMBAC Insured,
5.00%, 12/01/21 ................................................................... 1,225,000 1,297,728
5.25%, 12/01/26 ................................................................... 725,000 763,918
Shawnee State University Revenue, NATL Insured, 5.00%, 6/01/28 ....................... 5,780,000 5,545,563
118 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Sidney City School District GO, School Improvement,
FGIC Insured, Pre-Refunded, 5.125%, 12/01/28 ...................................... $ 1,425,000 $ 1,591,953
Series B, FGIC Insured, Pre-Refunded, 5.25%, 12/01/23 ............................. 1,780,000 1,943,974
Series B, FGIC Insured, Pre-Refunded, 5.25%, 12/01/28 ............................. 1,000,000 1,092,120
Springboro Sewer System Revenue, Mortgage, NATL Insured, 5.00%, 6/01/27 .............. 1,095,000 1,116,287
St. Henry Local Consolidated School District GO, NATL Insured, Pre-Refunded, 5.75%,
12/01/22 .......................................................................... 1,515,000 1,592,644
St. Mary's City School District GO, School Facilities Construction and Improvement,
FSA Insured, 5.00%, 12/01/35 ...................................................... 3,500,000 3,518,515
Steubenville City School District GO, School Facilities Construction and
Improvement, Capital Appreciation, NATL Insured, 5.60%, 12/01/22 .................. 1,500,000 1,545,345
Streetsboro City School District GO, School Improvement, NATL Insured, Pre-Refunded,
5.00%, 12/01/25 ................................................................... 2,500,000 2,690,125
Strongsville City School District COP, CIFG Insured, 5.00%, 12/01/34 ................. 2,355,000 2,424,826
Struthers City School District GO, Refunding, AMBAC Insured, 5.50%, 12/01/22 ......... 1,950,000 1,974,044
Summit County GO, Sanitary Sewer System Improvement, FGIC Insured, Pre-Refunded,
5.25%, 12/01/21 ................................................................... 4,505,000 4,915,856
Swanton Local School District GO, School Improvement, FGIC Insured, Pre-Refunded,
5.25%, 12/01/25 ................................................................... 1,895,000 2,064,337
Sycamore Community City School District COP, Blue Ash Elementary School Project,
AMBAC Insured, 5.125%, 12/01/25 ................................................... 1,000,000 1,027,730
Sylvania City School District GO,
Refunding, FGIC Insured, 5.00%, 12/01/22 .......................................... 1,550,000 1,603,522
School Improvement, Assured Guaranty, 5.25%, 12/01/36 ............................. 7,660,000 7,972,834
Various Purpose, FGIC Insured, Pre-Refunded, 5.30%, 12/01/20 ...................... 2,225,000 2,429,834
Toledo City School District GO, School Facilities Improvement,
5.375%, 12/01/35 .................................................................. 4,565,000 4,827,122
FSA Insured, 5.00%, 12/01/23 ...................................................... 1,500,000 1,569,120
Series B, FGIC Insured, 5.00%, 12/01/27 ........................................... 1,925,000 1,989,853
Toledo GO, Capital Improvement, Refunding, Assured Guaranty, 5.00%, 12/01/29 ......... 2,500,000 2,573,700
Toledo Sewer System Revenue, AMBAC Insured, 5.00%,
11/15/22 .......................................................................... 1,000,000 1,046,630
11/15/23 .......................................................................... 1,000,000 1,043,110
Toledo Special Obligation, Industrial Development, Vehicle Storage Project, AMBAC
Insured, 5.25%, 12/01/26 .......................................................... 1,500,000 1,608,870
Toledo Waterworks Revenue, NATL Insured, 5.00%, 11/15/30 ............................. 6,425,000 6,587,745
Trenton Water System Revenue, Improvement, FSA Insured, 5.125%, 12/01/34 ............. 2,750,000 2,875,070
Tri-Valley Local School District GO, FGIC Insured, Pre-Refunded, 5.25%, 12/01/29 ..... 8,530,000 9,374,555
Trotwood-Madison City School District GO, School Improvement, FGIC Insured,
Pre-Refunded, 5.375%, 12/01/22 .................................................... 1,685,000 1,893,822
Trumbull County GO, Refunding, NATL Insured, 5.20%, 12/01/20 ......................... 1,475,000 1,546,567
Twinsburg GO,
Golf Course, Refunding, FGIC Insured, 5.00%, 12/01/21 ............................. 1,000,000 1,024,260
Park Land and Conservation, FGIC Insured, 5.00%, 12/01/21 ......................... 1,000,000 1,024,260
Union County GO, NATL Insured, Pre-Refunded, 5.00%, 12/01/33 ......................... 2,895,000 3,319,494
University of Akron General Receipts Revenue,
FGIC Insured, 4.75%, 1/01/25 ...................................................... 1,080,000 1,095,401
FGIC Insured, 5.00%, 1/01/28 ...................................................... 1,475,000 1,496,432
FGIC Insured, 5.00%, 1/01/35 ...................................................... 5,250,000 5,253,255
Annual Report | 119
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
University of Akron General Receipts Revenue, (continued)
Series A, FSA Insured, 5.00%, 1/01/33 ............................................. $ 6,030,000 $ 6,186,659
Series B, FSA Insured, 5.00%, 1/01/38 ............................................. 21,760,000 22,196,288
University of Cincinnati COP, Jefferson Avenue Residence Hall, NATL Insured, 5.125%,
6/01/28 ........................................................................... 7,400,000 7,422,200
University of Cincinnati General Receipts Revenue,
AMBAC Insured, 5.00%, 6/01/31 ..................................................... 1,350,000 1,364,378
Refunding, Series G, NATL Insured, 5.00%, 6/01/28 ................................. 8,575,000 8,835,165
Series A, AMBAC Insured, 5.00%, 6/01/23 ........................................... 1,845,000 1,916,992
Series A, AMBAC Insured, 5.00%, 6/01/24 ........................................... 1,940,000 2,004,214
Series A, AMBAC Insured, 5.00%, 6/01/25 ........................................... 2,005,000 2,059,576
Series C, Assured Guaranty, 5.00%, 6/01/30 ........................................ 5,440,000 5,700,413
Series C, FSA Insured, 5.00%, 6/01/31 ............................................. 10,000,000 10,396,400
Series G, NATL Insured, 5.00%, 6/01/29 ............................................ 3,410,000 3,493,306
University of Toledo General Receipts Revenue, Refunding, Series A, AMBAC Insured,
4.50%, 6/01/30 .................................................................... 10,000,000 9,973,000
Upper Scioto Valley Local School District GO, School Facilities Construction and
Improvement, FGIC Insured, 5.25%, 12/01/25 ........................................ 1,160,000 1,164,037
Van Wert City School District GO, School Improvement, FGIC Insured, Pre-Refunded,
5.00%,
12/01/27 .......................................................................... 4,805,000 5,337,778
12/01/30 .......................................................................... 2,500,000 2,777,200
Wadsworth City School District GO, FGIC Insured, Pre-Refunded, 5.75%, 12/01/22 ....... 1,200,000 1,228,380
Warren City School District GO, School Improvement, FGIC Insured, 5.00%, 12/01/28 .... 3,000,000 3,101,670
Warrensville Heights City School District GO, School Improvement, FGIC Insured,
Pre-Refunded,
5.625%, 12/01/20 .................................................................. 3,500,000 3,662,540
5.75%, 12/01/24 ................................................................... 2,750,000 2,880,268
Waterville GO, Refunding, NATL Insured, 5.05%, 12/01/26 .............................. 1,085,000 1,127,716
West Chester Township GO, AMBAC Insured, 5.00%, 12/01/25 ............................. 1,500,000 1,542,300
West Muskingum Local School District School Facilities GO, FGIC Insured, 5.00%,
12/01/24 .......................................................................... 2,750,000 2,764,713
Westerville City School District GO, Refunding, XLCA Insured, 5.00%, 12/01/27 ........ 3,820,000 4,209,449
Westfall Local School District GO, School Facilities Construction and Improvement,
FGIC Insured, Pre-Refunded, 6.00%, 12/01/22 ....................................... 2,850,000 2,887,078
Wheelersburg Local School District GO, School Improvement, FSA Insured, 5.00%,
12/01/32 .......................................................................... 1,400,000 1,456,154
Youngstown State University General Receipts Revenue, Assured Guaranty,
5.25%, 12/15/29 ................................................................... 4,000,000 4,256,560
5.50%, 12/15/33 ................................................................... 4,225,000 4,502,794
Zanesville City School District GO, School Improvement, NATL Insured,
4.75%, 12/01/22 ................................................................... 5,500,000 5,707,625
4.75%, 12/01/26 ................................................................... 3,250,000 3,340,025
5.05%, 12/01/29 ................................................................... 3,500,000 3,606,435
--------------
1,561,548,330
--------------
120 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OHIO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 3.0%
PUERTO RICO 3.0%
Puerto Rico Commonwealth GO, Public Improvement, Series A, FGIC Insured, Pre-Refunded,
5.00%, 7/01/32 .................................................................... $ 10,000,000 $ 11,018,000
Puerto Rico Commonwealth Government Development Bank Revenue, Refunding, NATL
Insured, 4.75%, 12/01/15 .......................................................... 6,500,000 6,685,835
Puerto Rico Electric Power Authority Power Revenue, Refunding, Series V, FGIC Insured,
5.25%, 7/01/30 .................................................................... 5,000,000 5,100,200
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.75%, 8/01/12 ....... 3,500,000 3,541,125
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ........... 11,000,000 10,786,710
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E, ETM,
6.00%, 8/01/26 .................................................................... 9,140,000 11,565,390
--------------
48,697,260
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,548,484,337) ............................................................. 1,610,245,590
--------------
SHORT TERM INVESTMENTS 0.6%
MUNICIPAL BONDS 0.6%
OHIO 0.6%
(a) Cleveland-Cuyahoga County Port Authority Educational Facility Revenue, Laurel
School Project, Daily VRDN and Put, 0.15%, 4/01/38 ................................ 3,150,000 3,150,000
(a) Cuyahoga County Revenue, Cleveland Clinic Health System Obligated Group, Series B,
Sub Series B-1, Daily VRDN and Put, 0.12%, 1/01/39 ................................ 3,500,000 3,500,000
Sub Series B-3, Daily VRDN and Put, 0.12%, 1/01/39 ................................ 1,400,000 1,400,000
(a) Ohio State Higher Educational Facility Revenue, Case Western Reserve University
Project, Refunding,
Series B-1, Daily VRDN and Put, 0.13%, 12/01/44 ................................... 1,900,000 1,900,000
Series B-2, Daily VRDN and Put, 0.16%, 12/01/44 ................................... 700,000 700,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $10,650,000) ...................................... 10,650,000
--------------
TOTAL INVESTMENTS (COST $1,559,134,337) 98.7% ........................................ 1,620,895,590
OTHER ASSETS, LESS LIABILITIES 1.3% .................................................. 21,723,835
--------------
NET ASSETS 100.0% .................................................................... $1,642,619,425
==============
See Abbreviations on page 144.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 121
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 28, 2010
FRANKLIN FRANKLIN
FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ------------- --------------
Assets:
Investments in securities:
Cost ...................................... $2,477,343,647 $562,534,943 $1,504,698,745
-------------- ------------ --------------
Value ..................................... $2,509,003,206 $576,197,146 $1,544,128,036
Cash ......................................... 168,280 25,580 28,363
Receivables:
Capital shares sold ....................... 8,235,162 545,875 2,327,696
Interest .................................. 31,373,156 6,641,271 21,194,007
Other assets ................................. 6,924 1,587 4,302
-------------- ------------ --------------
Total assets ........................... 2,548,786,728 583,411,459 1,567,682,404
-------------- ------------ --------------
Liabilities:
Payables:
Investment securities purchased ........... 15,517,200 -- --
Capital shares redeemed ................... 2,540,195 728,139 2,808,656
Affiliates ................................ 1,368,451 329,313 859,911
Distributions to shareholders ............. 2,227,096 497,985 1,386,388
Accrued expenses and other liabilities ....... 246,962 74,826 184,183
-------------- ------------ --------------
Total liabilities ...................... 21,899,904 1,630,263 5,239,138
-------------- ------------ --------------
Net assets, at value ................ $2,526,886,824 $581,781,196 $1,562,443,266
============== ============ ==============
Net assets consist of:
Paid-in capital .............................. $2,501,897,422 $570,035,918 $1,523,045,795
Undistributed net investment income
(distributions in excess of net
investment income) ........................ (330,771) 41,941 (77,088)
Net unrealized appreciation (depreciation) ... 31,659,559 13,662,203 39,429,291
Accumulated net realized gain (loss) ......... (6,339,386) (1,958,866) 45,268
-------------- ------------ --------------
Net assets, at value ................ $2,526,886,824 $581,781,196 $1,562,443,266
============== ============ ==============
The accompanying notes are an integral part of these financial statements.
122 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN
FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ------------- --------------
CLASS A:
Net assets, at value ...................................... $2,134,949,303 $494,372,033 $1,345,426,647
-------------- ------------ --------------
Shares outstanding ........................................ 179,695,314 42,615,569 112,384,913
-------------- ------------ --------------
Net asset value per share(a) .............................. $ 11.88 $ 11.60 $ 11.97
-------------- ------------ --------------
Maximum offering price per share (net asset value
per share / 95.75%) .................................... $ 12.41 $ 12.11 $ 12.50
-------------- ------------ --------------
CLASS B:
Net assets, at value ...................................... $ 43,086,110 -- $ 17,892,456
-------------- ------------ --------------
Shares outstanding ........................................ 3,607,994 -- 1,486,739
-------------- ------------ --------------
Net asset value and maximum offering price per share(a) ... $ 11.94 -- $ 12.03
-------------- ------------ --------------
CLASS C:
Net assets, at value ...................................... $ 339,443,592 $ 83,397,455 $ 195,638,200
-------------- ------------ --------------
Shares outstanding ........................................ 28,254,454 7,126,642 16,154,339
-------------- ------------ --------------
Net asset value and maximum offering price per share(a) ... $ 12.01 $ 11.70 $ 12.11
-------------- ------------ --------------
ADVISOR CLASS:
Net assets, at value ...................................... $ 9,407,819 $ 4,011,708 $ 3,485,963
-------------- ------------ --------------
Shares outstanding ........................................ 792,160 345,942 290,705
-------------- ------------ --------------
Net asset value and maximum offering price per share ...... $ 11.88 $ 11.60 $ 11.99
-------------- ------------ --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 123
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ --------------
Assets:
Investments in securities:
Cost ............................................ $916,234,148 $1,559,134,337
------------ --------------
Value ........................................... $955,213,678 $1,620,895,590
Cash ............................................... 430,728 1,169,896
Receivables:
Capital shares sold ............................. 2,304,198 5,993,351
Interest ........................................ 8,104,257 18,304,902
Other assets ....................................... 2,463 4,417
------------ --------------
Total assets ................................. 966,055,324 1,646,368,156
------------ --------------
Liabilities:
Payables:
Investment securities purchased ................. 20,260,283 --
Capital shares redeemed ......................... 480,784 1,294,852
Affiliates ...................................... 534,470 930,443
Distributions to shareholders ................... 733,975 1,332,240
Accrued expenses and other liabilities ............. 112,118 191,196
------------ --------------
Total liabilities ............................ 22,121,630 3,748,731
------------ --------------
Net assets, at value ...................... $943,933,694 $1,642,619,425
============ ==============
Net assets consist of:
Paid-in capital .................................... $909,046,351 $1,591,581,094
Distributions in excess of net investment income ... (245,707) (48,665)
Net unrealized appreciation (depreciation) ......... 38,979,530 61,761,253
Accumulated net realized gain (loss) ............... (3,846,480) (10,674,257)
------------ --------------
Net assets, at value ...................... $943,933,694 $1,642,619,425
============ ==============
The accompanying notes are an integral part of these financial statements.
124 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-------------- --------------
CLASS A:
Net assets, at value ................................................... $ 768,806,354 $1,314,090,310
-------------- --------------
Shares outstanding ..................................................... 63,016,145 105,130,131
-------------- --------------
Net asset value per share(a) ........................................... $ 12.20 $ 12.50
-------------- --------------
Maximum offering price per share (net asset value per share / 95.75%) .. $ 12.74 $ 13.05
-------------- --------------
CLASS B:
Net assets, at value ................................................... -- $ 27,576,664
-------------- --------------
Shares outstanding ..................................................... -- 2,197,370
-------------- --------------
Net asset value and maximum offering price per share(a) ................ -- $ 12.55
-------------- --------------
CLASS C:
Net assets, at value ................................................... $ 170,676,237 $ 287,585,506
-------------- --------------
Shares outstanding ..................................................... 13,873,797 22,782,497
-------------- --------------
Net asset value and maximum offering price per share(a) ................ $ 12.30 $ 12.62
-------------- --------------
ADVISOR CLASS:
Net assets, at value ................................................... $ 4,451,103 $ 13,366,945
-------------- --------------
Shares outstanding ..................................................... 364,749 1,069,433
-------------- --------------
Net asset value and maximum offering price per share ................... $ 12.20 $ 12.50
-------------- --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 125
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended February 28, 2010
FRANKLIN FRANKLIN
FRANKLIN MASSACHUSETTS MICHIGAN
INSURED TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ------------- ------------
Investment income:
Interest ............................................................. $117,143,895 $27,092,904 $ 77,895,830
------------ ----------- ------------
Expenses:
Management fees (Note 3a) ............................................ 10,700,500 2,733,354 7,228,467
Distribution fees: (Note 3c)
Class A ........................................................... 1,988,292 468,702 1,335,940
Class B ........................................................... 331,684 -- 158,686
Class C ........................................................... 1,717,058 490,465 1,205,596
Transfer agent fees (Note 3e) ........................................ 845,687 204,976 674,223
Custodian fees ....................................................... 32,075 7,647 21,624
Reports to shareholders .............................................. 115,446 28,754 87,663
Registration and filing fees ......................................... 171,461 45,733 54,185
Professional fees .................................................... 61,855 34,482 70,634
Trustees' fees and expenses .......................................... 18,156 4,398 12,642
Other ................................................................ 147,525 43,157 99,425
------------ ----------- ------------
Total expenses ................................................. 16,129,739 4,061,668 10,949,085
------------ ----------- ------------
Net investment income ....................................... 101,014,156 23,031,236 66,946,745
------------ ----------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............................ (1,552,121) (698,207) 987,385
Net change in unrealized appreciation (depreciation) on investments .. 132,762,115 32,321,961 63,316,102
------------ ----------- ------------
Net realized and unrealized gain (loss) ................................. 131,209,994 31,623,754 64,303,487
------------ ----------- ------------
Net increase (decrease) in net assets resulting from operations ......... $232,224,150 $54,654,990 $131,250,232
============ =========== ============
The accompanying notes are an integral part of these financial statements.
126 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 28, 2010
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ ------------
Investment income:
Interest ............................................................. $ 39,144,383 $ 71,629,777
------------ ------------
Expenses:
Management fees (Note 3a) ............................................ 4,109,344 7,103,364
Distribution fees: (Note 3c)
Class A ........................................................... 713,273 1,230,084
Class B ........................................................... -- 210,036
Class C ........................................................... 865,579 1,564,564
Transfer agent fees (Note 3e) ........................................ 346,555 637,701
Custodian fees ....................................................... 12,020 21,393
Reports to shareholders .............................................. 48,201 87,432
Registration and filing fees ......................................... 50,007 56,975
Professional fees .................................................... 41,395 59,283
Trustees' fees and expenses .......................................... 6,668 12,002
Other ................................................................ 66,323 127,807
------------ ------------
Total expenses ................................................. 6,259,365 11,110,641
------------ ------------
Net investment income ....................................... 32,885,018 60,519,136
------------ ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............................ 397,336 785,265
Net change in unrealized appreciation (depreciation) on investments .. 26,917,175 49,023,694
------------ ------------
Net realized and unrealized gain (loss) ................................. 27,314,511 49,808,959
------------ ------------
Net increase (decrease) in net assets resulting from operations ......... $ 60,199,529 $110,328,095
============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 127
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN INSURED FRANKLIN MASSACHUSETTS
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
------------------------------- ---------------------------
2010 2009 2010 2009
-------------- -------------- ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 101,014,156 $ 97,564,065 $ 23,031,236 $ 22,922,016
Net realized gain (loss) from investments .... (1,552,121) (4,393,757) (698,207) (1,245,152)
Net change in unrealized appreciation
(depreciation) on investments ............. 132,762,115 (60,332,613) 32,321,961 (14,037,757)
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ........... 232,224,150 32,837,695 54,654,990 7,639,107
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (88,913,999) (86,060,828) (20,212,258) (20,022,854)
Class B ................................... (2,028,352) (2,521,430) -- --
Class C ................................... (10,200,313) (6,824,256) (2,790,789) (2,517,773)
Advisor Class ............................. (345,196) (39,345) (76,262) --
-------------- -------------- ------------ ------------
Total distributions to shareholders ............. (101,487,860) (95,445,859) (23,079,309) (22,540,627)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A ................................... 214,014,398 (45,201,620) 21,442,773 7,636,448
Class B ................................... (16,558,298) (11,489,518) -- --
Class C ................................... 129,337,661 53,067,028 11,119,208 8,857,913
Advisor Class ............................. 7,450,151 1,490,283 3,936,799 --
-------------- -------------- ------------ ------------
Total capital share transactions ................ 334,243,912 (2,133,827) 36,498,780 16,494,361
-------------- -------------- ------------ ------------
Redemption fees ................................. -- 81 -- 334
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets .. 464,980,202 (64,741,910) 68,074,461 1,593,175
Net assets:
Beginning of year ............................... 2,061,906,622 2,126,648,532 513,706,735 512,113,560
-------------- -------------- ------------ ------------
End of year ..................................... $2,526,886,824 $2,061,906,622 $581,781,196 $513,706,735
============== ============== ============ ============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of year .................................. $ (330,771) $ 164,711 $ 41,941 $ 93,230
============== ============== ============ ============
The accompanying notes are an integral part of these financial statements.
128 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN MICHIGAN FRANKLIN MINNESOTA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
------------------------------- ---------------------------
2010 2009 2010 2009
-------------- -------------- ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 66,946,745 $ 66,980,702 $ 32,885,018 $ 27,869,245
Net realized gain (loss) from investments .... 987,385 (816,329) 397,336 (2,737,401)
Net change in unrealized appreciation
(depreciation) on investments ............. 63,316,102 (37,100,944) 26,917,175 19,252,804
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ........... 131,250,232 29,063,429 60,199,529 44,384,648
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (58,640,678) (58,712,814) (28,107,979) (24,869,215)
Class B ................................... (943,183) (1,373,574) -- --
Class C ................................... (7,016,292) (6,169,869) (4,433,588) (3,099,312)
Advisor Class ............................. (101,994) (17,725) (100,107) --
-------------- -------------- ------------ ------------
Total distributions to shareholders ............. (66,702,147) (66,273,982) (32,641,674) (27,968,527)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A ................................... (29,191,851) 56,375,532 91,670,785 93,405,889
Class B ................................... (13,843,494) (8,124,493) -- --
Class C ................................... 14,669,706 47,214,803 64,299,400 29,905,202
Advisor Class ............................. 2,616,284 792,485 4,381,568 --
-------------- -------------- ------------ ------------
Total capital share transactions ................ (25,749,355) 96,258,327 160,351,753 123,311,091
-------------- -------------- ------------ ------------
Redemption fees ................................. -- 37 -- 1,981
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets .. 38,798,730 59,047,811 187,909,608 139,729,193
Net assets:
Beginning of year ............................... 1,523,644,536 1,464,596,725 756,024,086 616,294,893
-------------- -------------- ------------ ------------
End of year ..................................... $1,562,443,266 $1,523,644,536 $943,933,694 $756,024,086
============== ============== ============ ============
Distributions in excess of net investment
income included in net assets:
End of year .................................. $ (77,088) $ (312,504) $ (245,707) $ (476,567)
============== ============== ============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 129
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN OHIO
TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------
2010 2009
-------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................. $ 60,519,136 $ 55,732,009
Net realized gain (loss) from investments .............................. 785,265 (10,025,945)
Net change in unrealized appreciation (depreciation) on investments .... 49,023,694 22,764,647
-------------- --------------
Net increase (decrease) in net assets resulting from operations .. 110,328,095 68,470,711
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................................. (50,726,485) (47,067,244)
Class B ............................................................. (1,163,652) (1,469,022)
Class C ............................................................. (8,457,941) (6,852,940)
Advisor Class ....................................................... (305,454) (7,023)
-------------- --------------
Total distributions to shareholders ....................................... (60,653,532) (55,396,229)
-------------- --------------
Capital share transactions: (Note 2)
Class A ............................................................. 129,036,411 122,742,776
Class B ............................................................. (10,240,350) (6,589,061)
Class C ............................................................. 78,124,241 42,179,875
Advisor Class ....................................................... 12,800,876 349,077
-------------- --------------
Total capital share transactions .......................................... 209,721,178 158,682,667
-------------- --------------
Redemption fees ........................................................... -- 1,147
-------------- --------------
Net increase (decrease) in net assets ............................ 259,395,741 171,758,296
Net assets:
Beginning of year ......................................................... 1,383,223,684 1,211,465,388
-------------- --------------
End of year ............................................................... $1,642,619,425 $1,383,223,684
============== ==============
Undistributed net investment income (distributions in excess of net
investment income) included in net assets:
End of year ............................................................ $ (48,665) $ 112,707
============== ==============
The accompanying notes are an integral part of these financial statements.
130 | Annual Report
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, as amended, (1940 Act) as an open-end investment company, consisting of
twenty-four separate funds, five of which are included in this report (Funds).
The financial statements of the remaining funds in the Trust are presented
separately. The classes of shares offered within each of the Funds are indicated
below. Effective July 1, 2009, the Franklin Massachusetts Tax-Free Income Fund
and the Franklin Minnesota Tax-Free Income Fund began offering a new class of
shares, Advisor Class. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
CLASS A, CLASS C & ADVISOR CLASS
Franklin Massachusetts Tax-Free Income Fund
Franklin Minnesota Tax-Free Income Fund
CLASS A, CLASS B, CLASS C & ADVISOR CLASS
Franklin Insured Tax-Free Income Fund
Franklin Michigan Tax-Free Income Fund
Franklin Ohio Tax-Free Income Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Funds' pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Funds' Board of
Trustees.
Annual Report | 131
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
The Funds may purchase securities on a when-issued 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.
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its income and net
realized gains.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2010, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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 are reinvested and paid monthly to shareholders. 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 accounting principles generally accepted in the
United States of America. 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.
132 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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,
there is a risk that in the event of an issuer default, the insurer may not be
able to fulfill its obligations under the terms of the policy.
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.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the Funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
H. 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.
Annual Report | 133
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2010, there were an unlimited number of shares authorized
(without par value). Transactions in the Funds' shares were as follows:
FRANKLIN INSURED FRANKLIN MASSACHUSETTS
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold ....................... 37,711,031 $ 439,557,977 5,589,847 $ 63,681,155
Shares issued in reinvestment of
distributions .................. 4,815,932 56,252,801 1,050,740 11,958,727
Shares redeemed ................... (24,242,807) (281,796,380) (4,772,512) (54,197,109)
----------- ------------- ---------- ------------
Net increase (decrease) ........... 18,284,156 $ 214,014,398 1,868,075 $ 21,442,773
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold ....................... 36,202,614 $ 412,603,041 7,219,049 $ 81,575,484
Shares issued on reorganization
(Note 7) ....................... 11,431,481 138,549,550 -- --
Shares issued in reinvestment of
distributions .................. 4,714,948 54,017,557 1,000,143 11,166,730
Shares redeemed ................... (57,261,732) (650,371,768) (7,730,726) (85,105,766)
----------- ------------- ---------- ------------
Net increase (decrease) ........... (4,912,689) $ (45,201,620) 488,466 $ 7,636,448
=========== ============= ========== ============
CLASS B SHARES:
Year ended February 28, 2010
Shares sold ....................... 232,330 $ 2,716,768
Shares issued in reinvestment of
distributions .................. 111,107 1,301,241
Shares redeemed ................... (1,752,344) (20,576,307)
----------- -------------
Net increase (decrease) ........... (1,408,907) $ (16,558,298)
=========== =============
Year ended February 28, 2009
Shares sold ....................... 261,627 $ 2,969,937
Shares issued in reinvestment of
distributions .................. 137,752 1,585,936
Shares redeemed ................... (1,408,274) (16,045,391)
----------- -------------
Net increase (decrease) ........... (1,008,895) $ (11,489,518)
=========== =============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold ....................... 13,766,749 $ 162,844,477 1,820,204 $ 20,948,250
Shares issued in reinvestment of
distributions .................. 573,630 6,784,479 173,740 1,994,839
Shares redeemed ................... (3,416,036) (40,291,295) (1,034,991) (11,823,881)
----------- ------------- ---------- ------------
Net increase (decrease) ........... 10,924,343 $ 129,337,661 958,953 $ 11,119,208
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold ....................... 8,171,227 $ 94,165,836 1,797,453 $ 20,433,521
Shares issued in reinvestment of
distributions .................. 379,771 4,373,837 154,469 1,736,426
Shares redeemed ................... (3,998,878) (45,472,645) (1,201,028) (13,312,034)
----------- ------------- ---------- ------------
Net increase (decrease) ........... 4,552,120 $ 53,067,028 750,894 $ 8,857,913
=========== ============= ========== ============
134 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN INSURED FRANKLIN MASSACHUSETTS
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- -----------
ADVISOR CLASS SHARES:
Year ended February 28, 2010(a)
Shares sold ....................... 1,327,740 $15,276,985 392,659 $4,478,842
Shares issued in reinvestment of
distributions .................. 6,463 75,797 21 243
Shares redeemed ................... (668,642) (7,902,631) (46,738) (542,286)
--------- ----------- ------- ----------
Net increase (decrease) ........... 665,561 $ 7,450,151 345,942 $3,936,799
========= =========== ======= ==========
Period ended February 28, 2009(b)
Shares sold ....................... 124,946 $ 1,471,522
Shares issued in reinvestment of
distributions .................. 2,076 23,126
Shares redeemed ................... (423) (4,365)
--------- -----------
Net increase (decrease) ........... 126,599 $ 1,490,283
========= ===========
(a) For the period July 1, 2009 (effective date) to February 28, 2010 for the
Franklin Massachusetts Tax-Free Income Fund.
(b) For the period July 1, 2008 (effective date) to February 28, 2009.
FRANKLIN MICHIGAN FRANKLIN MINNESOTA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold ....................... 11,886,273 $ 140,284,064 13,441,424 $162,227,348
Shares issued in reinvestment of
distributions .................. 3,214,545 37,989,621 1,587,293 19,173,994
Shares redeemed ................... (17,609,236) (207,465,536) (7,435,457) (89,730,557)
----------- ------------- ---------- ------------
Net increase (decrease) ........... (2,508,418) $ (29,191,851) 7,593,260 $ 91,670,785
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold ....................... 18,559,197 $ 218,215,013 13,826,368 $160,107,842
Shares issued in reinvestment of
distributions .................. 3,146,032 36,592,804 1,368,844 15,911,356
Shares redeemed ................... (17,312,598) (198,432,285) (7,203,039) (82,613,309)
----------- ------------- ---------- ------------
Net increase (decrease) ........... 4,392,631 $ 56,375,532 7,992,173 $ 93,405,889
=========== ============= ========== ============
CLASS B SHARES:
Year ended February 28, 2010
Shares sold ....................... 9,498 $ 111,105
Shares issued in reinvestment of
distributions .................. 55,387 656,266
Shares redeemed ................... (1,232,200) (14,610,865)
----------- -------------
Net increase (decrease) ........... (1,167,315) $ (13,843,494)
=========== =============
Year ended February 28, 2009
Shares sold ....................... 21,401 $ 255,650
Shares issued in reinvestment of
distributions .................. 82,415 965,252
Shares redeemed ................... (803,088) (9,345,395)
----------- -------------
Net increase (decrease) ........... (699,272) $ (8,124,493)
=========== =============
Annual Report | 135
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN MICHIGAN FRANKLIN MINNESOTA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS C SHARES:
Year ended February 28, 2010
Shares sold ....................... 4,084,189 $ 48,807,096 6,126,237 $ 74,645,880
Shares issued in reinvestment of
distributions .................. 417,054 4,985,346 253,689 3,091,524
Shares redeemed ................... (3,277,517) (39,122,736) (1,102,981) (13,438,004)
---------- ------------ ---------- ------------
Net increase (decrease) ........... 1,223,726 $ 14,669,706 5,276,945 $ 64,299,400
========== ============ ========== ============
Year ended February 28, 2009
Shares sold ....................... 6,578,089 $ 78,665,502 3,511,015 $ 41,174,133
Shares issued in reinvestment of
distributions .................. 372,014 4,367,130 171,220 2,003,340
Shares redeemed ................... (3,096,660) (35,817,829) (1,149,121) (13,272,271)
---------- ------------ ---------- ------------
Net increase (decrease) ........... 3,853,443 $ 47,214,803 2,533,114 $ 29,905,202
========== ============ ========== ============
ADVISOR CLASS SHARES:
Year ended February 28, 2010(a)
Shares sold ....................... 301,110 $ 3,538,457 451,329 $ 5,435,791
Shares issued in reinvestment of
distributions .................. 500 5,958 58 707
Shares redeemed ................... (77,806) (928,131) (86,638) (1,054,930)
---------- ------------ ---------- ------------
Net increase (decrease) ........... 223,804 $ 2,616,284 364,749 $ 4,381,568
========== ============ ========== ============
Period ended February 28, 2009(b)
Shares sold ....................... 69,375 $ 820,540
Shares issued in reinvestment of
distributions .................. 122 1,390
Shares redeemed ................... (2,596) (29,445)
---------- ------------
Net increase (decrease) ........... 66,901 $ 792,485
========== ============
(a) For the period July 1, 2009 (effective date) to February 28, 2010 for the
Franklin Minnesota Tax-Free Income Fund.
(b) For the period July 1, 2008 (effective date) to February 28, 2009.
FRANKLIN OHIO
TAX-FREE
INCOME FUND
---------------------------
SHARES AMOUNT
----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold ..................................... 20,139,038 $ 249,409,233
Shares issued in reinvestment of distributions .. 2,882,344 35,726,254
Shares redeemed ................................. (12,620,955) (156,099,076)
----------- -------------
Net increase (decrease) ......................... 10,400,427 $ 129,036,411
=========== =============
Year ended February 28, 2009
Shares sold ..................................... 21,090,258 $ 255,535,352
Shares issued in reinvestment of distributions .. 2,565,398 30,822,919
Shares redeemed ................................. (13,777,887) (163,615,495)
----------- -------------
Net increase (decrease) ......................... 9,877,769 $ 122,742,776
=========== =============
136 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN OHIO
TAX-FREE
INCOME FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS B SHARES:
Year ended February 28, 2010
Shares sold ..................................... 20,976 $ 258,053
Shares issued in reinvestment of distributions .. 67,842 843,195
Shares redeemed ................................. (911,329) (11,341,598)
---------- ------------
Net increase (decrease) ......................... (822,511) $(10,240,350)
========== ============
Year ended February 28, 2009
Shares sold ..................................... 43,489 $ 524,360
Shares issued in reinvestment of distributions .. 84,398 1,019,519
Shares redeemed ................................. (673,655) (8,132,940)
---------- ------------
Net increase (decrease) ......................... (545,768) $ (6,589,061)
========== ============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold ..................................... 7,938,848 $ 99,369,344
Shares issued in reinvestment of distributions .. 496,115 6,210,680
Shares redeemed ................................. (2,199,150) (27,455,783)
---------- ------------
Net increase (decrease) ......................... 6,235,813 $ 78,124,241
========== ============
Year ended February 28, 2009
Shares sold ..................................... 5,749,303 $ 70,510,862
Shares issued in reinvestment of distributions .. 391,834 4,747,155
Shares redeemed ................................. (2,752,071) (33,078,142)
---------- ------------
Net increase (decrease) ......................... 3,389,066 $ 42,179,875
========== ============
ADVISOR CLASS SHARES:
Year ended February 28, 2010
Shares sold ..................................... 1,194,735 $ 14,728,066
Shares issued in reinvestment of distributions .. 1,630 20,233
Shares redeemed ................................. (156,086) (1,947,423)
---------- ------------
Net increase (decrease) ......................... 1,040,279 $ 12,800,876
========== ============
Period ended February 28, 2009(a)
Shares sold ..................................... 29,058 $ 347,943
Shares issued in reinvestment of distributions .. 559 6,553
Shares redeemed ................................. (463) (5,419)
---------- ------------
Net increase (decrease) ......................... 29,154 $ 349,077
========== ============
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
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 Funds 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
Annual Report | 137
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Funds pay an investment management fee to Advisers based on the month-end
net assets of each of the Funds as follows:
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
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Funds' Board of Trustees 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 the Funds' shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
In addition, under the Funds' Class B and 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 for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN FRANKLIN FRANKLIN
INSURED MASSACHUSETTS MICHIGAN
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ------------- -----------
Reimbursement Plans:
Class A ......... 0.10% 0.10% 0.10%
Compensation Plans:
Class B ......... 0.65% -- 0.65%
Class C ......... 0.65% 0.65% 0.65%
138 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------- -----------
Reimbursement Plans:
Class A ......... 0.10% 0.10%
Compensation Plans:
Class B ......... -- 0.65%
Class C ......... 0.65% 0.65%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
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
INSURED MASSACHUSETTS MICHIGAN
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ------------- -----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................. $1,054,886 $131,037 $395,202
Contingent deferred sales charges retained ...... $ 92,083 $ 6,716 $ 80,382
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------- -----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .................. $362,071 $676,212
Contingent deferred sales charges retained ...... $ 25,451 $ 58,061
E. TRANSFER AGENT FEES
For the year ended February 28, 2010, 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
INSURED MASSACHUSETTS MICHIGAN
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ------------- -----------
Transfer agent fees ..... $548,324 $120,894 $428,442
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
----------- -----------
Transfer agent fees ..... $201,598 $371,076
Annual Report | 139
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At February 28, 2010, the capital loss carryforwards were as
follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
INSURED MASSACHUSETTS MINNESOTA OHIO
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ------------- ----------- -----------
Capital loss carryforwards
expiring in:
2015 .................. $ -- $ -- $1,475,000 $ --
2016 .................. 22,960 -- -- --
2017 .................. 798,241 33,682 1,004,796 3,103,689
2018 .................. 5,518,185 1,913,536 286,131 --
---------- ---------- ---------- ----------
$6,339,386 $1,947,218 $2,765,927 $3,103,689
========== ========== ========== ==========
During the year ended February 28, 2010, the Franklin Michigan Tax-Free Income
Fund and the Franklin Ohio Tax-Free Income Fund utilized $472,758 and $812,241,
respectively, of capital loss carryforwards.
On February 28, 2010, the Franklin Minnesota Tax-Free Income Fund had expired
capital loss carryforwards of $788,761, which were reclassified to paid-in
capital.
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At February 28, 2010, the Franklin Massachusetts Tax-Free Income
Fund deferred realized capital losses of $11,648.
The tax character of distributions paid during the years ended February 28, 2010
and 2009, was as follows:
FRANKLIN INSURED FRANKLIN MASSACHUSETTS
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- --------------------------
2010 2009 2010 2009
------------ ----------- ----------- -----------
Distributions paid from -
tax exempt income ..... $101,487,860 $95,445,859 $23,079,309 $22,540,627
============ =========== =========== ===========
FRANKLIN MICHIGAN FRANKLIN MINNESOTA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- --------------------------
2010 2009 2010 2009
------------ ----------- ----------- -----------
Distributions paid from -
tax exempt income ..... $66,702,147 $66,273,982 $32,641,674 $27,968,527
=========== =========== =========== ===========
FRANKLIN OHIO
TAX-FREE INCOME FUND
---------------------------
2010 2009
------------ -----------
Distributions paid from -
tax exempt income ..... $60,653,532 $55,396,229
=========== ===========
140 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At February 28, 2010, the cost of investments, net unrealized appreciation
(depreciation), undistributed tax exempt income and undistributed long term
capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
INSURED MASSACHUSETTS MICHIGAN
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------- ------------- --------------
Cost of investments ............................ $2,477,177,705 $562,421,294 $1,504,531,563
============== ============ ==============
Unrealized appreciation ........................ $ 74,590,570 $ 19,018,459 $ 59,301,886
Unrealized depreciation ........................ (42,765,069) (5,242,607) (19,705,413)
-------------- ------------ --------------
Net unrealized appreciation (depreciation) ..... $ 31,825,501 $ 13,775,852 $ 39,596,473
============== ============ ==============
Undistributed tax exempt income ................ $ 1,730,386 $ 426,278 $ 1,056,952
Undistributed long term capital gains .......... -- -- 130,436
-------------- ------------ --------------
Distributable earnings ......................... $ 1,730,386 $ 426,278 $ 1,187,388
============== ============ ==============
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-------------- --------------
Cost of investments ............................ $917,175,245 $1,566,443,974
============ ==============
Unrealized appreciation ........................ $ 39,911,657 $ 63,484,371
Unrealized depreciation ........................ (1,873,224) (9,032,755)
------------ --------------
Net unrealized appreciation (depreciation) ..... $ 38,038,433 $ 54,451,616
============ ==============
Distributable earnings -
undistributed tax exempt income ............. $ 348,811 $ 1,022,645
============ ==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended February 28, 2010, were as follows:
FRANKLIN FRANKLIN FRANKLIN
INSURED MASSACHUSETTS MICHIGAN
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ ------------- ------------
Purchases ...................................... $487,592,350 $70,260,254 $ 83,200,560
Sales .......................................... $116,376,862 $35,723,893 $111,821,171
Annual Report | 141
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS (CONTINUED)
FRANKLIN FRANKLIN
MINNESOTA OHIO
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ ------------
Purchases ...................................... $247,777,377 $267,412,451
Sales .......................................... $ 85,005,526 $ 61,966,970
6. CONCENTRATION OF RISK
Each of the funds invests a large percentage of its total assets in obligations
of issuers within its respective state and U.S. territories, except for the
Franklin Insured Tax-Free Income Fund. 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. 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. REORGANIZATION
On May 21, 2008, the Franklin Insured Tax-Free Income Fund acquired the net
assets of Franklin Florida Insured Tax-Free Income Fund pursuant to a plan of
reorganization approved by Franklin Florida Insured Tax-Free Income Fund's
shareholders. The reorganization was accomplished by a tax-free exchange of
11,431,481 shares of the Franklin Insured Tax-Free Income Fund (valued at
$12.12) for the net assets of the Franklin Florida Insured Tax-Free Income Fund
which aggregated $138,549,550, including $4,016,955 of unrealized appreciation
(depreciation). The combined net assets of the Franklin Insured Tax-Free Income
Fund immediately after the reorganization were $2,438,796,882.
8. 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 364-day joint syndicated senior unsecured credit facility
totaling $750 million (Global Credit Facility) to provide a source of funds to
the Borrowers for temporary and emergency purposes, including the ability to
meet future unanticipated or unusually large redemption requests. On January 22,
2010, the Funds renewed the Global Credit Facility for a total of $750 million,
maturing January 21, 2011.
142 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CREDIT FACILITY (CONTINUED)
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 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statements of
Operations. During the year ended February 28, 2010, the Funds did not utilize
the Global Credit Facility.
9. 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' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securi- ties, interest rates, prepayment speed, credit
risk, etc.)
- Level 3 - significant unobservable inputs (including the Funds' own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At February 28, 2010, all of the Funds' investments in securities carried at
fair value were in Level 2 inputs.
10. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC
820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS, which enhances and
clarifies existing fair value measurement disclosure requirements and is
effective for interim and annual periods beginning after December 15, 2009. The
Funds are currently evaluating the impact, if any, of applying this provision.
11. 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.
Annual Report | 143
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ABBREVIATIONS
SELECTED PORTFOLIO
ACES - Adjustable Convertible Exempt Security
AMBAC - American Municipal Bond Assurance Corp.
BHAC - Berkshire Hathaway Assurance Corp.
BIG - Bond Investors Guaranty Insurance Co. (acquired by MBIA in 1989 and
no longer does business under this name; on February 18, 2009, most
MBIA Insured were replaced with NATL Insured through a spin-off.)
CDA - Community Development Authority/Agency
CDD - Community Development District
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDR - Industrial Development Revenue
ISD - Independent School District
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
NATL - National Public Financial Guarantee Corp.
PBA - Public Building Authority
PFAR - Public Financing Authority Revenue
PUD - Public Utility District
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
RMR - Residential Mortgage Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
USD - Unified/Union School District
XLCA - XL Capital Assurance
144 | Annual Report
Franklin Tax-Free Trust
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 the Franklin Insured Tax-Free
Income Fund, Franklin Massachusetts Tax-Free Income Fund, Franklin Michigan
Tax-Free Income Fund, Franklin Minnesota Tax-Free Income Fund and Franklin Ohio
Tax-Free Income Fund (separate portfolios of Franklin Tax-Free Trust, hereafter
referred to as the "Funds") at February 28, 2010, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented, in conformity with accounting principles
generally accepted in the United States 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 at February 28, 2010 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 16, 2010
Annual Report | 145
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds designate
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended February 28, 2010. A portion of the Fund's
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2011, shareholders will be notified of amounts for use in preparing
their 2010 income tax returns.
146 | Annual Report
Franklin Tax-Free Trust
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 the past five years and number of 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 FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1984 133 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING 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).
SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications
One Franklin Parkway (Holdings) Limited (satellite company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and
Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone
holding company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING 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).
FRANK W.T. LAHAYE (1929) Trustee Since 1984 109 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
Annual Report | 147
NUMBER
OF PORTFOLIOS
IN FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
J. MICHAEL LUTTIG (1954) Trustee Since 141 Boeing Capital Corporation
One Franklin Parkway December 2009 (aircraft financing).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals
Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
FRANK A. OLSON (1932) Trustee Since 2005 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive
Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 141 Cbeyond (business communications
One Franklin Parkway provider).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow
of The Brookings Institution (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 110 None
One Franklin Parkway Independent 2007 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
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. (office supplies) (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 FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1984 133 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 41 of the investment companies in Franklin Templeton Investments.
148 | Annual Report
NUMBER
OF PORTFOLIOS
IN FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin
Templeton Investments.
SHEILA AMOROSO (1959) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
RAFAEL R. COSTAS, JR. (1965) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources,
Inc. (1994-2001).
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 PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin
Templeton Services, LLC (1997-2003).
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 PAST 5 YEARS:
Director Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton
Investments.
Annual Report | 149
NUMBER
OF PORTFOLIOS
IN FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
ALIYA S. GORDON (1973) Vice President Since 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate Counsel at Steefel, Levitt & Weiss, LLP (2000-2004).
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the
other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable
One Franklin Parkway 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and President since Not Applicable Not Applicable
One Franklin Parkway Chief 1993 and Chief
San Mateo, CA 94403-1906 Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, 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 43 of the investment companies in Franklin
Templeton Investments.
ROBERT C. ROSSELOT (1960) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. August 2009
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President
and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of
the South; and officer of 45 of the investment companies in Franklin Templeton Investments.
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 PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
150 | Annual Report
NUMBER
OF PORTFOLIOS
IN FUND COMPLEX
NAME, YEAR OF BIRTH LENGTH OF OVERSEEN BY
AND ADDRESS POSITION TIME SERVED BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ----------------- --------------- ---------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
THOMAS WALSH (1961) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight 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.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Trust's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Trust under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, 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.
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/(800) 342-5236 TO REQUEST THE SAI.
Annual Report | 151
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate tax-exempt funds within
the Trust (Fund(s)). In reaching this decision, the Board took into account
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the annual renewal review
process. Information furnished and discussed throughout the year included
investment performance reports and related financial information for each Fund,
as well as periodic reports on shareholder services, legal, compliance, pricing
and other services provided by the Investment Manager (Manager) and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates to U.S. mutual funds and other accounts, including
management's explanation of differences where relevant and a three-year expense
analysis with an explanation for any increase in expense ratios. Additional
material accompanying such report was a memorandum prepared by management
describing project initiatives and capital investments relating to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale and a comparative analysis
concerning transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other
152 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management personnel with the code of ethics adopted throughout the Franklin
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted that such systems and procedures had functioned smoothly during
the Florida hurricanes and blackouts experienced in recent years. Consideration
was also given to the experience of each Fund's portfolio management team, the
number of accounts managed and general method of compensation. In this latter
respect, the Board noted that a primary factor in management's determination of
a portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders. The
Board also took into account the quality of transfer agent and shareholder
services provided Fund shareholders by an affiliate of the Manager, noting
continuing expenditures by management to increase and improve the scope of such
services, periodic favorable reports on such service conducted by third parties,
and the continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to management's conservative
approach and diligent risk management procedures, including continuous
monitoring of counterparty credit risk and attention given to derivatives and
other complex instruments. The Board also took into account, among other things,
management's efforts in establishing a global credit facility for the benefit of
the Funds and other accounts managed by Franklin Templeton Investments to
provide a source of cash for temporary and emergency purposes or to meet unusual
redemption requests as well as the strong financial position of the Manager's
parent company and its commitment to the mutual fund business as evidenced by
its subsidization of money market funds. The Board also noted management's
efforts to minimize any negative impact on the nature and quality of services
provided the Funds arising from Franklin Templeton Investments' implementation
of a hiring freeze and employee reductions in response to market conditions
during the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
its investment performance or that of its Class A shares for a Fund having
multiple share classes, in comparison to a performance universe selected by
Lipper. Comparative performance for each Fund was shown
Annual Report | 153
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
for the one-year period ended December 31, 2009, and for additional periods
ended that date up to 10 years depending on when a particular Fund commenced
operations. Investment performance was shown on an income return basis, as well
as a total return basis for each Fund. The Lipper reports showed that the income
return for each Fund was in the upper half of its Lipper performance universe
during 2009, with most being in the highest or second-highest quintile of such
universe during such year and for the previous three-, five- and 10-year periods
as well. The Lipper reports showed the total return for many of such Funds was
below the median of their performance universe during 2009, but that the total
return of all such Funds was good on a long-term basis with each having total
returns above the median of its respective performance universe during the
previous five- and 10-year periods on an annualized basis. Management explained
that the one-year relative total return performance of the Funds reflected
management's conservative strategy of not utilizing leverage or derivatives or
using high yield debt in investment-grade funds, which types of instruments had
performed well in the 2009 market recovery. The Board expressed satisfaction
with such performance, noting management's explanation and the fact that the
investment objective of each of the Funds is to obtain a high level of
tax-exempt income.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund in comparison with those of a group of funds
selected by Lipper as its appropriate Lipper expense group. Lipper 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 generally
increase as assets decline and decrease as assets grow, the Board believed the
independent analysis conducted by Lipper to be an appropriate measure of
comparative expenses. In reviewing comparative costs, Lipper provides
information on each Fund's contractual investment management fee in comparison
with the contractual investment management fee that would have been charged by
other funds within its Lipper expense group assuming they were similar in size
to the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper contractual investment management
fee analysis includes an administrative charge as being part of the investment
management fee, and total expenses, for comparative consistency, are shown by
Lipper for Fund Class A shares for Funds having multiple share classes. The
Lipper reports showed that the contractual investment management fee rates for
each Fund were at or below the median of its respective Lipper expense group.
The Lipper reports further showed that the actual total expense rates for all
Funds were below the median of their respective Lipper expense groups. Based on
the above, the Board was satisfied with the investment management fee and total
expenses of each Fund in comparison to its Lipper expense group as shown in the
Lipper reports.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services
154 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
to each of the individual funds during the 12-month period ended September 30,
2009, being the most recent fiscal year-end for Franklin Resources, Inc., the
Manager's parent. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that while being continuously refined and reflecting
changes in the Manager's own cost accounting, such allocation methodology was
consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to review the reasonableness of
the allocation methodologies solely for use by the Funds' Board in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its 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 took into
account management's expenditures in improving shareholder services provided the
Funds, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis as
compared to other publicly held managers broken down to show profitability from
management operations exclusive of distribution expenses, as well as
profitability including distribution expenses. The Board also considered the
extent to which the Manager and its affiliates might derive ancillary benefits
from fund operations, including its interest in a joint venture entity that
financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005, when the offering of such shares was
discontinued. Based upon its consideration of all these factors, the Board
determined 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.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing any precise
determination is inherently subjective, the Board noted that based upon the Fund
profitability analysis, it appears that as some Funds get larger, at some point
economies of scale do result in the Manager realizing a larger profit margin on
management services provided such Fund. The Board also noted that any economies
of scale are shared with each of these Funds and their shareholders through
management fee breakpoints existing in each of the Fund's investment management
agreements, so that as a Fund grows in size, its effective management fee rate
declines. The fee structure under the investment management agreement with each
Fund provides an initial fee of 0.625% on the first $100 million of assets;
0.50% on the next $150 million of assets; 0.45% on assets in excess of $250
million; with additional breakpoints beginning at 0.44% on assets in excess of
$7.5 billion and continuing thereafter. In
Annual Report | 155
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
reviewing such structure, management stated its belief that this fee structure
reaches a relatively low rate quickly as a Fund grows and that such low rate, in
effect, reflects anticipated economies of scale as a Fund's assets increase. In
support of such position, management pointed out the favorable effective
management fee and total expense comparisons for each Fund within its Lipper
expense group as previously discussed under "Comparative Expenses." The Board
believed that to the extent economies of scale may be realized by the Manager
and its affiliates, the schedule of fees under the investment management
agreement for each Fund provides a sharing of benefits with the Fund and its
shareholders.
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, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, 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.
156 | Annual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund(5)
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(6)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government
Securities Fund(6)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(6)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(7)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(9)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(10)
Michigan(10)
Minnesota(10)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(10)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(11)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) Effective 12/18/09, this fund is closed to new investors, pending a
proposal to merge the fund into Templeton World Fund. Existing shareholders
may continue to make additional investments until shortly before the
completion of the transaction, expected in April 2010.
(6.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(7.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(8.) The fund invests primarily in insured municipal securities.
(9.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(10.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(11.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS (R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
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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(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
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.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
TF1 A 04/10
FEBRUARY 28, 2010
ANNUAL REPORT
AND SHAREHOLDER LETTER
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
SIGN UP FOR ELECTRONIC DELIVERY
on franklintempleton.com
(GRAPHIC)
TAX-FREE INCOME
FRANKLIN TAX-FREE TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service that
has helped us become one of the most trusted names
in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Municipal Bond Market Overview ........................................... 4
Investment Strategy and Manager's Discussion ............................. 6
Franklin Alabama Tax-Free Income Fund .................................... 7
Franklin Florida Tax-Free Income Fund .................................... 16
Franklin Georgia Tax-Free Income Fund .................................... 26
Franklin Kentucky Tax-Free Income Fund ................................... 35
Franklin Louisiana Tax-Free Income Fund .................................. 42
Franklin Maryland Tax-Free Income Fund ................................... 51
Franklin Missouri Tax-Free Income Fund ................................... 61
Franklin North Carolina Tax-Free Income Fund ............................. 71
Franklin Virginia Tax-Free Income Fund ................................... 80
Financial Highlights and Statements of Investments ....................... 90
Financial Statements ..................................................... 158
Notes to Financial Statements ............................................ 169
Report of Independent Registered Public Accounting Firm .................. 186
Tax Designation .......................................................... 187
Board Members and Officers ............................................... 188
Shareholder Information .................................................. 193
Shareholder Letter
Dear Shareholder:
In the third and fourth quarters of 2009, U.S. economic activity improved
compared with the second quarter. Although many observers considered the global
recession over, most economists warned that growth would be sluggish as
consumers and the financial system continued to climb out of debt.
The federal funds target rate remained unchanged over the period at a
historically low range of 0% to 0.25%; however, the Federal Reserve Board (Fed)
was very active and employed other strategies to help stem the crisis, resulting
in a substantial increase in its balance sheet. The Fed established various
lending and liquidity facilities and through quantitative easing purchased
mortgage securities and Treasuries, all in an effort to encourage long-term
interest rates to move lower. In testimony to Congress in February, Chairman
Bernanke once again stated that short-term rates are likely to remain
exceptionally low for an extended period until the Fed feels a dependable
economic recovery has taken hold.
Most major financial markets showed signs of recovery, and equity markets staged
a strong rally since March 2009. As financial markets moved off their lows,
commodity prices rebounded. Overall inflation, however, remained tame. Chairman
Bernanke began to prepare markets for the unwinding of the Fed's accommodative
policy and the exit strategy for its lending and liquidity facilities. On
February 18, the Fed raised the largely symbolic discount rate to 0.75%. This
first tightening move was designed to encourage banks to borrow short-term funds
from money markets rather than the central bank.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
The municipal bond market experienced a healthy rebound in the 12-month period
ended February 28, 2010; the Barclays Capital (BC) Municipal Bond Index returned
+9.98% and securities with maturities 22 years and longer, which make up a
substantial portion of our portfolios, returned +16.61%.1
Although it looked as if the banking and financial crisis may have turned the
corner and economic recovery was under way, we think a note of caution is
warranted. We believe such areas of the economy as employment, housing, state
and local government budgets, and the finance and banking sector will continue
to face challenges and show signs of pressure for an indefinite period.
We believe it is especially important during uncertain times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. We firmly believe that most people benefit from
professional advice, and that advice is invaluable as investors navigate
changing market conditions.
Franklin Tax-Free Trust's annual report goes into greater detail about municipal
bond market conditions during the period. In addition, you will find performance
data, financial information and discussions from the portfolio managers. Please
remember that all securities markets fluctuate, as do mutual fund share prices.
Municipal bonds can provide tax-free income and diversification from equities.
Despite periods of volatility, municipal bonds have a solid long-term record of
performance, driven mostly by their income component.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch. The BC Municipal Long Bond
Index is the long (22+ years) component of the BC Municipal Bond Index.
2 | Not part of the annual report
Please check our website at franklintempleton.com for special portfolio manager
commentary. Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the Funds, keeping in mind
the trust you have placed in us. We appreciate your confidence and encourage you
to contact us when you have questions about your Franklin Templeton tax-free
investment.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2010. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
Not part of the annual report | 3
Annual Report
Municipal Bond Market Overview
During the 12-month period ended February 28, 2010, the municipal bond market
delivered a strong +9.98% total return as measured by the Barclays Capital (BC)
Municipal Bond Index.(1) The municipal bond market rebounded after suffering one
of its worst performance years in 2008. In contrast, the U.S. Treasury market
trailed the tax-exempt market during this reporting period with a +1.83% total
return as measured by the BC U.S. Treasury Index.(2)
Different factors helped revive consumer and investor confidence during this
reporting period including federal fiscal stimulus measures. The initial influx
of capital infused the market with promise. Encouraged by these measures,
investors cautiously began to move assets from money market instruments toward
long-term investments seeking to maximize income opportunities. The tax-exempt
market fared well as investors focused on the municipal bond market's attractive
after-tax yields. Despite budgetary pressures at state and local levels and
concerns regarding some issuers' abilities to repay debt, municipal bond mutual
funds received record net inflows in 2009. In addition, because nearly all
municipal bond insurers were downgraded, many municipalities brought new issues
to market based on their own financial strength and credit ratings. As a result,
yield spreads between higher quality and lower grade credits widened, as opposed
to previous reporting periods when AAA-rated insured bonds dominated new
issuance. A recent Moody's Investors Service report bolstered the case for
municipal issuers. The study showed a less than 1.00% default rate for all
municipal bonds issued from 1970 through 2009 and higher recovery on average
than for corporate issuers, which helped remind investors of the asset class's
underlying credit strength. Investor interest also increased for lower
investment-grade and speculative-grade issues during the reporting period, which
drove the BC Baa Municipal Bond Index up 19.56%, compared with the BC Aaa
Municipal Bond Index's +6.98% total return.(3)
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch.
(2.) Source: (C) 2010 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government Index and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.
(3.) Source: (C) 2010 Morningstar. The BC Baa Municipal Bond Index is the Baa
credit quality component of the BC Municipal Bond Index. The BC Aaa
Municipal Bond Index is the Aaa credit quality component of the BC
Municipal Bond Index.
4 | Annual Report
Further aiding positive municipal bond performance during the reporting period
was the prospect of rising taxes, lower new tax-exempt issuance and fewer tax
shelters. In February 2009, the American Recovery and Reinvestment Act was
signed into law, which allowed municipalities to issue taxable bonds and receive
a 35% federal government subsidy for all coupon payments distributed to
investors for the life of the bond. This rebate allowed municipalities to borrow
significantly below their after-tax cost in the traditional tax-exempt municipal
bond market. The success of this "Build America Bonds" program exceeded
expectations as it enticed taxable bond investors to these municipal products.
The Obama administration recently proposed continuing the program beyond 2010
but reducing the subsidy to 28% and expanding permissible uses. Historically, a
large supply of issuance can be detrimental to municipal bond market
performance; however, this was not the case during this reporting period.
Although 2009's $409 billion in total issuance surpassed the previous year's,
the popularity of Build America Bonds helped drive the municipal bond market's
strong total returns.(4) The taxable bonds accounted for approximately 20% of
long-term issuance, which reduced the supply of available municipal bonds for
traditional, tax-exempt investors.(5) Solid demand for tax-exempt bonds drove
municipal bond prices higher. We think these new, subsidized, taxable municipal
bonds are likely to restrain future supply of tax-exempt municipal bonds as long
as the government permits their use.
Given the various ratings changes, the relatively steep yield curve, and the
reduced tax-exempt supply during the reporting period, we looked for
opportunities to keep the portfolios fully invested in longer term bonds, which
helped support the Funds' dividend distributions. At period-end, we continued to
be active in the market and felt that municipal bonds at current yields
represented an attractive long-term opportunity.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28,
2010. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
(4.) Source: Thomson Reuters, THE BOND BUYER, 2/9/10.
(5.) Source: Municipal Securities Rulemaking Board, "Build America Bond Issuance
and Trade Activity, 2009," February 2010.
Annual Report | 5
Investment Strategy and Manager's Discussion
We use a consistent, disciplined strategy in an effort to maximize tax-exempt
income for our shareholders by seeking to maintain exposure to higher coupon
securities. We generally employ a buy-and-hold approach and invest in securities
we believe should provide the most relative value in the market. As we invest
during different interest rate environments, each Fund's portfolio becomes
progressively more diversified with a broad range of securities. This broad
diversification may help mitigate interest rate risk. We do not use leverage or
exotic derivatives, nor do we use hedging techniques that could add volatility
and contribute to underperformance in adverse markets. We generally stay fully
invested to help maximize income distribution.
The mixture of our value-oriented philosophy of investing primarily for income
and a positive sloping municipal yield curve favored the use of longer term
bonds. Consequently, we sought to purchase bonds from 15 to 30 years in maturity
with good call features. We intend to maintain our conservative, buy-and-hold
investment strategy as we attempt to provide shareholders with high, current,
tax-free income.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your continued 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, 2010, 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,
COUNTRY, 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.
6 | Annual Report
Franklin Alabama Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Alabama Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Alabama
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 BREAKDOWN*
Franklin Alabama Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
RATINGS INVESTMENTS**
- ------- -------------
AAA 25.0%
AA 20.0%
A 22.3%
BBB 6.8%
Below Investment Grade 0.9%
Not Rated by S&P 25.0%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 1.5%
AA or Aa 2.9% 0.6%
A 6.4% 2.5%
BBB or Baa 1.6% 8.7%
Below Investment Grade 0.3% 0.5%
---- ----
Total 11.2% 13.8%
==== ====
We are pleased to bring you Franklin Alabama Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 92.
Annual Report | 7
DIVIDEND DISTRIBUTIONS*
Franklin Alabama Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------
MONTH CLASS A CLASS C
- ----- ---------- ----------
March 2009 4.00 cents 3.52 cents
April 2009 4.00 cents 3.52 cents
May 2009 4.00 cents 3.52 cents
June 2009 4.00 cents 3.51 cents
July 2009 4.00 cents 3.51 cents
August 2009 4.00 cents 3.51 cents
September 2009 4.00 cents 3.49 cents
October 2009 4.00 cents 3.49 cents
November 2009 4.00 cents 3.49 cents
December 2009 3.90 cents 3.37 cents
January 2010 3.90 cents 3.37 cents
February 2010 3.90 cents 3.37 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.59 on February 28, 2009, to $11.17 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 47.62 cents per share for the same period.2 The
Performance Summary beginning on page 11 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.01% based on an
annualization of the current 3.90 cent per share dividend and the maximum
offering price of $11.67 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Alabama personal income tax bracket of 38.25%
would need to earn a distribution rate of 6.49% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C
shares' performance, please see the Performance Summary. During the year under
review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
8 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Alabama Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities 22.2%
Hospital & Health Care 16.0%
Prerefunded 13.8%
General Obligation 11.1%
Higher Education 10.8%
Subject to Government Appropriations 9.0%
Tax-Supported 8.0%
Transportation 3.7%
Other Revenue 2.3%
Housing 2.0%
Corporate-Backed 1.1%
* Does not include short-term investments and other net assets.
STATE UPDATE
During the reporting period, Alabama's manufacturing-reliant economy continued
to suffer from the effects of the national recession. The state's share of
manufacturing employment significantly exceeded the rest of the nation's, and
the automotive industry was an important source of jobs. A decrease in car and
truck sales at the beginning of the period forced local automotive manufacturers
and their parts suppliers to scale back production. In the summer, however,
federal stimulus measures increased demand, and some plants returned to five-day
work weeks. Production output did not return to capacity levels, and this slump
contributed to a period-end unemployment rate of 11.1%, its highest level in 26
years.(3)
Alabama's economy weakened, and general fund revenues continued to decline. In
past years, the state's two major operating funds, the budgetary general fund
and the education trust fund, relied on support from nonrecurring revenues. The
state addressed income and sales tax revenue declines of fiscal year 2009
through several measures and made extensive use of revenue bonds issued through
state agencies and departments. Alabama's fiscal year 2010 budget relied on
spending cuts, reserve depletion and other nonrecurring measures. Additionally,
the state was scheduled to receive $3.1 billion in federal stimulus funds.(4)
Alabama's net tax-supported debt was $722 per capita and 2.1% of personal
income, compared with the $739 and 2.1% national medians.(5) Independent credit
rating agency Standard & Poor's assigned Alabama's general obligation debt a
rating of AA with a stable outlook.(6) The rating and outlook reflected the
state's constitutional restrictions on expenditures, dedicated revenue streams
for capital projects and debt service, and low general obligation debt burden.
Somewhat offsetting these strengths were declining income tax revenues and
restrictions that limit the state's revenue raising flexibility.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "State Review: Alabama," RATINGSDIRECT, 11/9/09.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate Standard & Poor's rating of the Fund.
Annual Report | 9
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Alabama Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
10 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN ALABAMA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRALX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.58 $11.17 $10.59
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4762
CLASS C (SYMBOL: FALEX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.59 $11.28 $10.69
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4159
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +10.14% +19.15% +65.66%
Average Annual Total Return(2) +5.46% +2.66% +4.72%
Avg. Ann. Total Return (3/31/10)(3) +5.70% +2.82% +4.50%
Distribution Rate(4) 4.01%
Taxable Equivalent Distribution
Rate(5) 6.49%
30-Day Standardized Yield(6) 3.37%
Taxable Equivalent Yield(5) 5.46%
Total Annual Operating Expenses(7) 0.71%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) +9.54% +15.96% +56.94%
Average Annual Total Return(2) +8.54% +3.01% +4.61%
Avg. Ann. Total Return (3/31/10)(3) +8.81% +3.15% +4.39%
Distribution Rate(4) 3.57%
Taxable Equivalent Distribution
Rate(5) 5.78%
30-Day Standardized Yield(6) 3.00%
Taxable Equivalent Yield(5) 4.86%
Total Annual Operating Expenses(7) 1.26%
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.
Annual Report | 11
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +5.46%
5-Year +2.66%
10-Year +4.72%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
BARCLAYS
FRANKLIN ALABAMA CAPITAL
TAX-FREE INCOME MUNICIPAL
DATE FUND - CLASS A BOND INDEX CPI
- ------------- ---------------- ---------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,799 $10,218 $10,082
4/30/2000 $ 9,747 $10,158 $10,088
5/31/2000 $ 9,704 $10,105 $10,100
6/30/2000 $ 9,932 $10,373 $10,153
7/31/2000 $10,045 $10,518 $10,177
8/31/2000 $10,194 $10,680 $10,177
9/30/2000 $10,118 $10,624 $10,230
10/31/2000 $10,218 $10,740 $10,247
11/30/2000 $10,299 $10,821 $10,253
12/31/2000 $10,484 $11,089 $10,247
1/31/2001 $10,499 $11,198 $10,312
2/28/2001 $10,542 $11,234 $10,353
3/31/2001 $10,610 $11,334 $10,377
4/30/2001 $10,502 $11,212 $10,418
5/31/2001 $10,605 $11,332 $10,465
6/30/2001 $10,708 $11,408 $10,483
7/31/2001 $10,872 $11,577 $10,453
8/31/2001 $11,064 $11,768 $10,453
9/30/2001 $11,022 $11,729 $10,501
10/31/2001 $11,158 $11,868 $10,465
11/30/2001 $11,094 $11,768 $10,448
12/31/2001 $10,980 $11,657 $10,406
1/31/2002 $11,103 $11,859 $10,430
2/28/2002 $11,226 $12,002 $10,471
3/31/2002 $11,056 $11,767 $10,530
4/30/2002 $11,192 $11,997 $10,589
5/31/2002 $11,279 $12,070 $10,589
6/30/2002 $11,375 $12,197 $10,595
7/31/2002 $11,515 $12,354 $10,607
8/31/2002 $11,622 $12,503 $10,642
9/30/2002 $11,882 $12,776 $10,660
10/31/2002 $11,735 $12,565 $10,677
11/30/2002 $11,709 $12,512 $10,677
12/31/2002 $11,932 $12,776 $10,654
1/31/2003 $11,936 $12,744 $10,701
2/28/2003 $12,074 $12,922 $10,783
3/31/2003 $12,113 $12,930 $10,848
4/30/2003 $12,221 $13,015 $10,824
5/31/2003 $12,481 $13,320 $10,807
6/30/2003 $12,451 $13,263 $10,819
7/31/2003 $11,997 $12,799 $10,830
8/31/2003 $12,129 $12,895 $10,872
9/30/2003 $12,474 $13,274 $10,907
10/31/2003 $12,395 $13,207 $10,895
11/30/2003 $12,526 $13,345 $10,866
12/31/2003 $12,636 $13,455 $10,854
1/31/2004 $12,727 $13,532 $10,907
2/29/2004 $12,912 $13,736 $10,966
3/31/2004 $12,893 $13,688 $11,037
4/30/2004 $12,576 $13,364 $11,072
5/31/2004 $12,546 $13,315 $11,137
6/30/2004 $12,602 $13,364 $11,172
7/31/2004 $12,761 $13,540 $11,154
8/31/2004 $12,976 $13,811 $11,160
9/30/2004 $13,056 $13,884 $11,184
10/31/2004 $13,171 $14,004 $11,243
11/30/2004 $13,058 $13,888 $11,249
12/31/2004 $13,220 $14,058 $11,207
1/31/2005 $13,356 $14,189 $11,231
2/28/2005 $13,311 $14,142 $11,296
3/31/2005 $13,249 $14,053 $11,384
4/30/2005 $13,422 $14,274 $11,461
5/31/2005 $13,506 $14,375 $11,449
6/30/2005 $13,570 $14,464 $11,455
7/31/2005 $13,526 $14,399 $11,508
8/31/2005 $13,632 $14,544 $11,567
9/30/2005 $13,553 $14,446 $11,708
10/31/2005 $13,471 $14,359 $11,731
11/30/2005 $13,531 $14,428 $11,637
12/31/2005 $13,641 $14,552 $11,590
1/31/2006 $13,665 $14,591 $11,678
2/28/2006 $13,756 $14,689 $11,702
3/31/2006 $13,701 $14,588 $11,767
4/30/2006 $13,700 $14,583 $11,867
5/31/2006 $13,738 $14,648 $11,926
6/30/2006 $13,691 $14,592 $11,949
7/31/2006 $13,825 $14,766 $11,985
8/31/2006 $13,996 $14,985 $12,008
9/30/2006 $14,081 $15,089 $11,949
10/31/2006 $14,157 $15,184 $11,885
11/30/2006 $14,278 $15,311 $11,867
12/31/2006 $14,228 $15,257 $11,885
1/31/2007 $14,204 $15,217 $11,921
2/28/2007 $14,375 $15,418 $11,985
3/31/2007 $14,328 $15,380 $12,094
4/30/2007 $14,375 $15,426 $12,172
5/31/2007 $14,324 $15,357 $12,247
6/30/2007 $14,259 $15,278 $12,270
7/31/2007 $14,359 $15,396 $12,267
8/31/2007 $14,281 $15,330 $12,245
9/30/2007 $14,494 $15,557 $12,279
10/31/2007 $14,557 $15,626 $12,305
11/30/2007 $14,647 $15,726 $12,378
12/31/2007 $14,684 $15,769 $12,370
1/31/2008 $14,785 $15,968 $12,431
2/29/2008 $14,094 $15,237 $12,467
3/31/2008 $14,522 $15,672 $12,575
4/30/2008 $14,719 $15,856 $12,652
5/31/2008 $14,838 $15,952 $12,758
6/30/2008 $14,676 $15,771 $12,887
7/31/2008 $14,705 $15,831 $12,954
8/31/2008 $14,758 $16,017 $12,903
9/30/2008 $13,971 $15,265 $12,885
10/31/2008 $13,803 $15,110 $12,755
11/30/2008 $13,773 $15,158 $12,510
12/31/2008 $13,922 $15,379 $12,381
1/31/2009 $14,206 $15,942 $12,435
2/28/2009 $14,403 $16,025 $12,497
3/31/2009 $14,398 $16,028 $12,527
4/30/2009 $14,764 $16,349 $12,558
5/31/2009 $14,901 $16,522 $12,595
6/30/2009 $14,830 $16,367 $12,703
7/31/2009 $14,984 $16,641 $12,683
8/31/2009 $15,289 $16,925 $12,711
9/30/2009 $15,899 $17,532 $12,719
10/31/2009 $15,623 $17,164 $12,731
11/30/2009 $15,635 $17,306 $12,740
12/31/2009 $15,746 $17,365 $12,718
1/31/2010 $15,787 $17,455 $12,761
2/28/2010 $15,864 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +8.54%
5-Year +3.01%
10-Year +4.61%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
Barclays
Franklin Alabama Capital
Tax-Free Income Municipal
Date Fund - Class C Bond Index CPI
- ------------- ---------------- ---------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,228 $10,218 $10,082
4/30/2000 $10,170 $10,158 $10,088
5/31/2000 $10,120 $10,105 $10,100
6/30/2000 $10,352 $10,373 $10,153
7/31/2000 $10,474 $10,518 $10,177
8/31/2000 $10,613 $10,680 $10,177
9/30/2000 $10,531 $10,624 $10,230
10/31/2000 $10,629 $10,740 $10,247
11/30/2000 $10,708 $10,821 $10,253
12/31/2000 $10,905 $11,089 $10,247
1/31/2001 $10,906 $11,198 $10,312
2/28/2001 $10,945 $11,234 $10,353
3/31/2001 $11,010 $11,334 $10,377
4/30/2001 $10,893 $11,212 $10,418
5/31/2001 $11,004 $11,332 $10,465
6/30/2001 $11,096 $11,408 $10,483
7/31/2001 $11,270 $11,577 $10,453
8/31/2001 $11,462 $11,768 $10,453
9/30/2001 $11,414 $11,729 $10,501
10/31/2001 $11,548 $11,868 $10,465
11/30/2001 $11,477 $11,768 $10,448
12/31/2001 $11,344 $11,657 $10,406
1/31/2002 $11,475 $11,859 $10,430
2/28/2002 $11,597 $12,002 $10,471
3/31/2002 $11,416 $11,767 $10,530
4/30/2002 $11,551 $11,997 $10,589
5/31/2002 $11,634 $12,070 $10,589
6/30/2002 $11,728 $12,197 $10,595
7/31/2002 $11,876 $12,354 $10,607
8/31/2002 $11,970 $12,503 $10,642
9/30/2002 $12,242 $12,776 $10,660
10/31/2002 $12,075 $12,565 $10,677
11/30/2002 $12,043 $12,512 $10,677
12/31/2002 $12,276 $12,776 $10,654
1/31/2003 $12,264 $12,744 $10,701
2/28/2003 $12,410 $12,922 $10,783
3/31/2003 $12,433 $12,930 $10,848
4/30/2003 $12,539 $13,015 $10,824
5/31/2003 $12,808 $13,320 $10,807
6/30/2003 $12,772 $13,263 $10,819
7/31/2003 $12,302 $12,799 $10,830
8/31/2003 $12,430 $12,895 $10,872
9/30/2003 $12,787 $13,274 $10,907
10/31/2003 $12,689 $13,207 $10,895
11/30/2003 $12,816 $13,345 $10,866
12/31/2003 $12,921 $13,455 $10,854
1/31/2004 $13,007 $13,532 $10,907
2/29/2004 $13,189 $13,736 $10,966
3/31/2004 $13,164 $13,688 $11,037
4/30/2004 $12,838 $13,364 $11,072
5/31/2004 $12,801 $13,315 $11,137
6/30/2004 $12,853 $13,364 $11,172
7/31/2004 $13,009 $13,540 $11,154
8/31/2004 $13,231 $13,811 $11,160
9/30/2004 $13,306 $13,884 $11,184
10/31/2004 $13,405 $14,004 $11,243
11/30/2004 $13,296 $13,888 $11,249
12/31/2004 $13,454 $14,058 $11,207
1/31/2005 $13,585 $14,189 $11,231
2/28/2005 $13,533 $14,142 $11,296
3/31/2005 $13,464 $14,053 $11,384
4/30/2005 $13,632 $14,274 $11,461
5/31/2005 $13,710 $14,375 $11,449
6/30/2005 $13,768 $14,464 $11,455
7/31/2005 $13,718 $14,399 $11,508
8/31/2005 $13,818 $14,544 $11,567
9/30/2005 $13,732 $14,446 $11,708
10/31/2005 $13,644 $14,359 $11,731
11/30/2005 $13,698 $14,428 $11,637
12/31/2005 $13,802 $14,552 $11,590
1/31/2006 $13,820 $14,591 $11,678
2/28/2006 $13,906 $14,689 $11,702
3/31/2006 $13,844 $14,588 $11,767
4/30/2006 $13,837 $14,583 $11,867
5/31/2006 $13,868 $14,648 $11,926
6/30/2006 $13,814 $14,592 $11,949
7/31/2006 $13,942 $14,766 $11,985
8/31/2006 $14,106 $14,985 $12,008
9/30/2006 $14,198 $15,089 $11,949
10/31/2006 $14,267 $15,184 $11,885
11/30/2006 $14,382 $15,311 $11,867
12/31/2006 $14,326 $15,257 $11,885
1/31/2007 $14,282 $15,217 $11,921
2/28/2007 $14,447 $15,418 $11,985
3/31/2007 $14,405 $15,380 $12,094
4/30/2007 $14,433 $15,426 $12,172
5/31/2007 $14,375 $15,357 $12,247
6/30/2007 $14,317 $15,278 $12,270
7/31/2007 $14,398 $15,396 $12,267
8/31/2007 $14,313 $15,330 $12,245
9/30/2007 $14,519 $15,557 $12,279
10/31/2007 $14,588 $15,626 $12,305
11/30/2007 $14,670 $15,726 $12,378
12/31/2007 $14,700 $15,769 $12,370
1/31/2008 $14,793 $15,968 $12,431
2/29/2008 $14,102 $15,237 $12,467
3/31/2008 $14,519 $15,672 $12,575
4/30/2008 $14,707 $15,856 $12,652
5/31/2008 $14,817 $15,952 $12,758
6/30/2008 $14,651 $15,771 $12,887
7/31/2008 $14,672 $15,831 $12,954
8/31/2008 $14,718 $16,017 $12,903
9/30/2008 $13,934 $15,265 $12,885
10/31/2008 $13,760 $15,110 $12,755
11/30/2008 $13,711 $15,158 $12,510
12/31/2008 $13,852 $15,379 $12,381
1/31/2009 $14,126 $15,942 $12,435
2/28/2009 $14,328 $16,025 $12,497
3/31/2009 $14,315 $16,028 $12,527
4/30/2009 $14,669 $16,349 $12,558
5/31/2009 $14,798 $16,522 $12,595
6/30/2009 $14,722 $16,367 $12,703
7/31/2009 $14,867 $16,641 $12,683
8/31/2009 $15,160 $16,925 $12,711
9/30/2009 $15,766 $17,532 $12,719
10/31/2009 $15,474 $17,164 $12,731
11/30/2009 $15,479 $17,306 $12,740
12/31/2009 $15,594 $17,365 $12,718
1/31/2010 $15,627 $17,455 $12,761
2/28/2010 $15,694 $17,624 $12,764
12 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Class C)
per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Alabama
personal income tax rate of 38.25%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 13
Your Fund's Expenses
FRANKLIN ALABAMA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
14 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
EXPENSES PAID
BEGINNING ACCOUNT ENDING ACCOUNT DURING PERIOD*
VALUE 9/1/09 VALUE 2/28/10 9/1/09-2/28/10
----------------- -------------- --------------
CLASS A
Actual $1,000 $1,037.50 $3.59
Hypothetical (5% return before expenses) $1,000 $1,021.27 $3.56
CLASS C
Actual $1,000 $1,035.20 $6.41
Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.36
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.71% and C: 1.27%), multiplied by the
average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
Annual Report | 15
Franklin Florida Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Florida Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal 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 BREAKDOWN*
Franklin Florida Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA .................. 22.0%
AA ................... 15.3%
A .................... 27.4%
BBB .................. 7.4%
Not Rated by S&P ..... 27.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.3% 8.6%
AA or Aa 2.5% --
A 8.5% 3.0%
BBB or Baa 3.3% 1.7%
---- ----
Total 14.6% 13.3%
==== ====
We are pleased to bring you Franklin Florida Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 98.
16 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Florida Tax-Free Income Fund
DIVIDEND PER SHARE
------------------------------------
MONTH CLASS A CLASS B CLASS C
- ----- ---------- ---------- ----------
March 2009 4.37 cents 3.86 cents 3.87 cents
April 2009 4.37 cents 3.86 cents 3.87 cents
May 2009 4.37 cents 3.86 cents 3.87 cents
June 2009 4.37 cents 3.87 cents 3.87 cents
July 2009 4.37 cents 3.87 cents 3.87 cents
August 2009 4.37 cents 3.87 cents 3.87 cents
September 2009 4.47 cents 3.95 cents 3.94 cents
October 2009 4.47 cents 3.95 cents 3.94 cents
November 2009 4.47 cents 3.95 cents 3.94 cents
December 2009 4.47 cents 3.92 cents 3.92 cents
January 2010 4.47 cents 3.92 cents 3.92 cents
February 2010 4.47 cents 3.92 cents 3.92 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.90 on February 28, 2009, to $11.45 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 52.98 cents per share for the same period.(2) The
Performance Summary beginning on page 20 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.48% based on an
annualization of the current 4.47 cent per share dividend and the maximum
offering price of $11.96 on February 28, 2010. An investor in the 2010 maximum
federal income tax bracket of 35.00% would need to earn a distribution rate of
6.89% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class B and C shares' performance, please see
the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 17
PORTFOLIO BREAKDOWN
Franklin Florida Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Prerefunded 18.1%
Utilities 17.1%
Transportation 13.3%
Hospital & Health Care 11.7%
Subject to Government Appropriations 10.9%
General Obligation 9.3%
Tax-Supported 8.6%
Other Revenue 5.6%
Housing 4.1%
Higher Education 1.3%
* Does not include short-term investments and other net assets.
STATE UPDATE
After several years of solid growth, Florida's diverse, service-based economy
weakened along with the overall U.S. economy. During the reporting period, the
state experienced a declining housing market, reduced access to credit and
rising unemployment. Florida's housing market continued to slump, resulting in
declining home values and a foreclosure rate of 12.7%, nearly three times the
national average.(3) Another key factor contributing to the economic downturn
was a 3.2% drop in employment during the third quarter of 2009.(3) The state's
unemployment rate increased to 12.2% in February, well above the 9.7% national
average.(4) Florida experienced a decline in all areas of its economy with the
exception of education and health services. Additionally, the state's primary
growth driver, population growth, was predicted to remain flat in 2010 as the
state's in-migration pattern slows.
State officials closed Florida's fiscal year 2009 budget gap through the use of
budget stabilization funds, trust fund transfers, tobacco settlement funds and
federal stimulus funds. The state's projected tax revenues for fiscal year 2010
were revised downward. Government officials responded quickly to this economic
environment by reducing expenditures, maintaining significant reserves and
adopting statewide tax and fee increases. These sound financial management
practices provided some cushion against revenue shortfalls.
Net tax-supported debt was $1,109 per capita and 2.8% of personal income
compared with the national medians of $739 and 2.1%.(5) Independent credit
rating agency Standard & Poor's (S&P) assigned Florida's general obligation
bonds its highest rating of AAA with a negative outlook.(6) The rating reflected
the state's swift response to declining revenues and strong reserve and income
levels. The negative outlook reflected Florida's continued economic and
financial pressure. In S&P's view, the state has been responsive to the recent
weak environment, and its economy could begin to stabilize in 2010.
(3.) Source: Standard & Poor's, "Summary: Florida; General Obligation,"
RATINGSDIRECT, 1/20/10.
(4.) Source: Bureau of Labor Statistics.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate S&P's rating of the Fund.
18 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Florida Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
Annual Report | 19
Performance Summary as of 2/28/10
FRANKLIN FLORIDA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRFLX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.55 $11.45 $10.90
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5298
CLASS B (SYMBOL: FRFBX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.56 $11.55 $10.99
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4675
CLASS C (SYMBOL: FRFIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.57 $11.63 $11.06
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4674
20 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.09% +20.47% +69.73%
Average Annual Total Return(2) +5.44% +2.90% +4.98%
Avg. Ann. Total Return (3/31/10)(3) +5.42% +3.00% +4.77%
Distribution Rate(4) 4.48%
Taxable Equivalent Distribution Rate(5) 6.89%
30-Day Standardized Yield(6) 3.60%
Taxable Equivalent Yield(5) 5.54%
Total Annual Operating Expenses(7) 0.62%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +9.50% +17.27% +63.06%
Average Annual Total Return(2) +5.50% +2.90% +5.01%
Avg. Ann. Total Return (3/31/10)(3) +5.49% +2.99% +4.80%
Distribution Rate(4) 4.09%
Taxable Equivalent Distribution Rate(5) 6.29%
30-Day Standardized Yield(6) 3.20%
Taxable Equivalent Yield(5) 4.92%
Total Annual Operating Expenses(7) 1.17%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +9.53% +17.34% +60.99%
Average Annual Total Return(2) +8.53% +3.25% +4.88%
Avg. Ann. Total Return (3/31/10)(3) +8.42% +3.34% +4.65%
Distribution Rate(4) 4.04%
Taxable Equivalent Distribution Rate(5) 6.22%
30-Day Standardized Yield(6) 3.21%
Taxable Equivalent Yield(5) 4.94%
Total Annual Operating Expenses(7) 1.17%
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.
Annual Report | 21
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +5.44%
5-Year +2.90%
10-Year +4.98%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN FLORIDA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,785 $10,218 $10,082
4/30/2000 $ 9,734 $10,158 $10,088
5/31/2000 $ 9,674 $10,105 $10,100
6/30/2000 $ 9,913 $10,373 $10,153
7/31/2000 $10,058 $10,518 $10,177
8/31/2000 $10,194 $10,680 $10,177
9/30/2000 $10,147 $10,624 $10,230
10/31/2000 $10,248 $10,740 $10,247
11/30/2000 $10,329 $10,821 $10,253
12/31/2000 $10,585 $11,089 $10,247
1/31/2001 $10,648 $11,198 $10,312
2/28/2001 $10,702 $11,234 $10,353
3/31/2001 $10,799 $11,334 $10,377
4/30/2001 $10,696 $11,212 $10,418
5/31/2001 $10,800 $11,332 $10,465
6/30/2001 $10,874 $11,408 $10,483
7/31/2001 $11,056 $11,577 $10,453
8/31/2001 $11,236 $11,768 $10,453
9/30/2001 $11,206 $11,729 $10,501
10/31/2001 $11,351 $11,868 $10,465
11/30/2001 $11,253 $11,768 $10,448
12/31/2001 $11,146 $11,657 $10,406
1/31/2002 $11,318 $11,859 $10,430
2/28/2002 $11,432 $12,002 $10,471
3/31/2002 $11,239 $11,767 $10,530
4/30/2002 $11,414 $11,997 $10,589
5/31/2002 $11,481 $12,070 $10,589
6/30/2002 $11,588 $12,197 $10,595
7/31/2002 $11,726 $12,354 $10,607
8/31/2002 $11,873 $12,503 $10,642
9/30/2002 $12,160 $12,776 $10,660
10/31/2002 $11,918 $12,565 $10,677
11/30/2002 $11,865 $12,512 $10,677
12/31/2002 $12,115 $12,776 $10,654
1/31/2003 $12,111 $12,744 $10,701
2/28/2003 $12,269 $12,922 $10,783
3/31/2003 $12,299 $12,930 $10,848
4/30/2003 $12,397 $13,015 $10,824
5/31/2003 $12,694 $13,320 $10,807
6/30/2003 $12,658 $13,263 $10,819
7/31/2003 $12,186 $12,799 $10,830
8/31/2003 $12,265 $12,895 $10,872
9/30/2003 $12,584 $13,274 $10,907
10/31/2003 $12,521 $13,207 $10,895
11/30/2003 $12,674 $13,345 $10,866
12/31/2003 $12,776 $13,455 $10,854
1/31/2004 $12,880 $13,532 $10,907
2/29/2004 $13,065 $13,736 $10,966
3/31/2004 $13,030 $13,688 $11,037
4/30/2004 $12,714 $13,364 $11,072
5/31/2004 $12,657 $13,315 $11,137
6/30/2004 $12,683 $13,364 $11,172
7/31/2004 $12,866 $13,540 $11,154
8/31/2004 $13,103 $13,811 $11,160
9/30/2004 $13,196 $13,884 $11,184
10/31/2004 $13,313 $14,004 $11,243
11/30/2004 $13,218 $13,888 $11,249
12/31/2004 $13,381 $14,058 $11,207
1/31/2005 $13,529 $14,189 $11,231
2/28/2005 $13,490 $14,142 $11,296
3/31/2005 $13,445 $14,053 $11,384
4/30/2005 $13,630 $14,274 $11,461
5/31/2005 $13,740 $14,375 $11,449
6/30/2005 $13,807 $14,464 $11,455
7/31/2005 $13,746 $14,399 $11,508
8/31/2005 $13,877 $14,544 $11,567
9/30/2005 $13,793 $14,446 $11,708
10/31/2005 $13,740 $14,359 $11,731
11/30/2005 $13,792 $14,428 $11,637
12/31/2005 $13,905 $14,552 $11,590
1/31/2006 $13,933 $14,591 $11,678
2/28/2006 $14,038 $14,689 $11,702
3/31/2006 $13,955 $14,588 $11,767
4/30/2006 $13,971 $14,583 $11,867
5/31/2006 $14,014 $14,648 $11,926
6/30/2006 $13,984 $14,592 $11,949
7/31/2006 $14,121 $14,766 $11,985
8/31/2006 $14,295 $14,985 $12,008
9/30/2006 $14,396 $15,089 $11,949
10/31/2006 $14,476 $15,184 $11,885
11/30/2006 $14,600 $15,311 $11,867
12/31/2006 $14,557 $15,257 $11,885
1/31/2007 $14,527 $15,217 $11,921
2/28/2007 $14,689 $15,418 $11,985
3/31/2007 $14,663 $15,380 $12,094
4/30/2007 $14,692 $15,426 $12,172
5/31/2007 $14,648 $15,357 $12,247
6/30/2007 $14,591 $15,278 $12,270
7/31/2007 $14,697 $15,396 $12,267
8/31/2007 $14,626 $15,330 $12,245
9/30/2007 $14,806 $15,557 $12,279
10/31/2007 $14,862 $15,626 $12,305
11/30/2007 $14,919 $15,726 $12,378
12/31/2007 $14,945 $15,769 $12,370
1/31/2008 $15,075 $15,968 $12,431
2/29/2008 $14,421 $15,237 $12,467
3/31/2008 $14,825 $15,672 $12,575
4/30/2008 $15,039 $15,856 $12,652
5/31/2008 $15,149 $15,952 $12,758
6/30/2008 $14,997 $15,771 $12,887
7/31/2008 $15,018 $15,831 $12,954
8/31/2008 $15,142 $16,017 $12,903
9/30/2008 $14,390 $15,265 $12,885
10/31/2008 $14,121 $15,110 $12,755
11/30/2008 $14,123 $15,158 $12,510
12/31/2008 $14,210 $15,379 $12,381
1/31/2009 $14,658 $15,942 $12,435
2/28/2009 $14,764 $16,025 $12,497
3/31/2009 $14,792 $16,028 $12,527
4/30/2009 $15,065 $16,349 $12,558
5/31/2009 $15,289 $16,522 $12,595
6/30/2009 $15,210 $16,367 $12,703
7/31/2009 $15,397 $16,641 $12,683
8/31/2009 $15,637 $16,925 $12,711
9/30/2009 $16,168 $17,532 $12,719
10/31/2009 $15,955 $17,164 $12,731
11/30/2009 $16,003 $17,306 $12,740
12/31/2009 $16,079 $17,365 $12,718
1/31/2010 $16,156 $17,455 $12,761
2/28/2010 $16,256 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +5.50%
5-Year +2.90%
10-Year +5.01%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN FLORIDA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,224 $10,218 $10,082
4/30/2000 $10,166 $10,158 $10,088
5/31/2000 $10,097 $10,105 $10,100
6/30/2000 $10,352 $10,373 $10,153
7/31/2000 $10,498 $10,518 $10,177
8/31/2000 $10,634 $10,680 $10,177
9/30/2000 $10,581 $10,624 $10,230
10/31/2000 $10,681 $10,740 $10,247
11/30/2000 $10,769 $10,821 $10,253
12/31/2000 $11,021 $11,089 $10,247
1/31/2001 $11,092 $11,198 $10,312
2/28/2001 $11,142 $11,234 $10,353
3/31/2001 $11,237 $11,334 $10,377
4/30/2001 $11,135 $11,212 $10,418
5/31/2001 $11,226 $11,332 $10,465
6/30/2001 $11,299 $11,408 $10,483
7/31/2001 $11,491 $11,577 $10,453
8/31/2001 $11,673 $11,768 $10,453
9/30/2001 $11,637 $11,729 $10,501
10/31/2001 $11,772 $11,868 $10,465
11/30/2001 $11,684 $11,768 $10,448
12/31/2001 $11,568 $11,657 $10,406
1/31/2002 $11,740 $11,859 $10,430
2/28/2002 $11,853 $12,002 $10,471
3/31/2002 $11,637 $11,767 $10,530
4/30/2002 $11,811 $11,997 $10,589
5/31/2002 $11,885 $12,070 $10,589
6/30/2002 $11,990 $12,197 $10,595
7/31/2002 $12,127 $12,354 $10,607
8/31/2002 $12,273 $12,503 $10,642
9/30/2002 $12,573 $12,776 $10,660
10/31/2002 $12,307 $12,565 $10,677
11/30/2002 $12,247 $12,512 $10,677
12/31/2002 $12,509 $12,776 $10,654
1/31/2003 $12,489 $12,744 $10,701
2/28/2003 $12,656 $12,922 $10,783
3/31/2003 $12,680 $12,930 $10,848
4/30/2003 $12,775 $13,015 $10,824
5/31/2003 $13,074 $13,320 $10,807
6/30/2003 $13,031 $13,263 $10,819
7/31/2003 $12,531 $12,799 $10,830
8/31/2003 $12,617 $12,895 $10,872
9/30/2003 $12,938 $13,274 $10,907
10/31/2003 $12,866 $13,207 $10,895
11/30/2003 $13,016 $13,345 $10,866
12/31/2003 $13,115 $13,455 $10,854
1/31/2004 $13,216 $13,532 $10,907
2/29/2004 $13,411 $13,736 $10,966
3/31/2004 $13,369 $13,688 $11,037
4/30/2004 $13,030 $13,364 $11,072
5/31/2004 $12,964 $13,315 $11,137
6/30/2004 $12,984 $13,364 $11,172
7/31/2004 $13,164 $13,540 $11,154
8/31/2004 $13,409 $13,811 $11,160
9/30/2004 $13,497 $13,884 $11,184
10/31/2004 $13,610 $14,004 $11,243
11/30/2004 $13,496 $13,888 $11,249
12/31/2004 $13,678 $14,058 $11,207
1/31/2005 $13,811 $14,189 $11,231
2/28/2005 $13,765 $14,142 $11,296
3/31/2005 $13,713 $14,053 $11,384
4/30/2005 $13,905 $14,274 $11,461
5/31/2005 $13,999 $14,375 $11,449
6/30/2005 $14,071 $14,464 $11,455
7/31/2005 $13,992 $14,399 $11,508
8/31/2005 $14,118 $14,544 $11,567
9/30/2005 $14,026 $14,446 $11,708
10/31/2005 $13,967 $14,359 $11,731
11/30/2005 $14,013 $14,428 $11,637
12/31/2005 $14,133 $14,552 $11,590
1/31/2006 $14,143 $14,591 $11,678
2/28/2006 $14,244 $14,689 $11,702
3/31/2006 $14,153 $14,588 $11,767
4/30/2006 $14,163 $14,583 $11,867
5/31/2006 $14,199 $14,648 $11,926
6/30/2006 $14,163 $14,592 $11,949
7/31/2006 $14,294 $14,766 $11,985
8/31/2006 $14,474 $14,985 $12,008
9/30/2006 $14,569 $15,089 $11,949
10/31/2006 $14,643 $15,184 $11,885
11/30/2006 $14,749 $15,311 $11,867
12/31/2006 $14,711 $15,257 $11,885
1/31/2007 $14,674 $15,217 $11,921
2/28/2007 $14,831 $15,418 $11,985
3/31/2007 $14,797 $15,380 $12,094
4/30/2007 $14,819 $15,426 $12,172
5/31/2007 $14,756 $15,357 $12,247
6/30/2007 $14,705 $15,278 $12,270
7/31/2007 $14,791 $15,396 $12,267
8/31/2007 $14,713 $15,330 $12,245
9/30/2007 $14,899 $15,557 $12,279
10/31/2007 $14,949 $15,626 $12,305
11/30/2007 $14,998 $15,726 $12,378
12/31/2007 $15,017 $15,769 $12,370
1/31/2008 $15,141 $15,968 $12,431
2/29/2008 $14,471 $15,237 $12,467
3/31/2008 $14,877 $15,672 $12,575
4/30/2008 $15,092 $15,856 $12,652
5/31/2008 $15,200 $15,952 $12,758
6/30/2008 $15,049 $15,771 $12,887
7/31/2008 $15,071 $15,831 $12,954
8/31/2008 $15,191 $16,017 $12,903
9/30/2008 $14,440 $15,265 $12,885
10/31/2008 $14,170 $15,110 $12,755
11/30/2008 $14,168 $15,158 $12,510
12/31/2008 $14,259 $15,379 $12,381
1/31/2009 $14,707 $15,942 $12,435
2/28/2009 $14,813 $16,025 $12,497
3/31/2009 $14,843 $16,028 $12,527
4/30/2009 $15,118 $16,349 $12,558
5/31/2009 $15,339 $16,522 $12,595
6/30/2009 $15,264 $16,367 $12,703
7/31/2009 $15,451 $16,641 $12,683
8/31/2009 $15,692 $16,925 $12,711
9/30/2009 $16,226 $17,532 $12,719
10/31/2009 $16,010 $17,164 $12,731
11/30/2009 $16,060 $17,306 $12,740
12/31/2009 $16,136 $17,365 $12,718
1/31/2010 $16,210 $17,455 $12,761
2/28/2010 $16,306 $17,624 $12,764
22 | Annual Report
Performance Summary (CONTINUED)
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN FLORIDA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- ------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,222 $10,218 $10,082
4/30/2000 $10,156 $10,158 $10,088
5/31/2000 $10,089 $10,105 $10,100
6/30/2000 $10,341 $10,373 $10,153
7/31/2000 $10,487 $10,518 $10,177
8/31/2000 $10,622 $10,680 $10,177
9/30/2000 $10,569 $10,624 $10,230
10/31/2000 $10,668 $10,740 $10,247
11/30/2000 $10,756 $10,821 $10,253
12/31/2000 $11,006 $11,089 $10,247
1/31/2001 $11,076 $11,198 $10,312
2/28/2001 $11,126 $11,234 $10,353
3/31/2001 $11,220 $11,334 $10,377
4/30/2001 $11,110 $11,212 $10,418
5/31/2001 $11,201 $11,332 $10,465
6/30/2001 $11,282 $11,408 $10,483
7/31/2001 $11,463 $11,577 $10,453
8/31/2001 $11,643 $11,768 $10,453
9/30/2001 $11,608 $11,729 $10,501
10/31/2001 $11,751 $11,868 $10,465
11/30/2001 $11,655 $11,768 $10,448
12/31/2001 $11,530 $11,657 $10,406
1/31/2002 $11,711 $11,859 $10,430
2/28/2002 $11,823 $12,002 $10,471
3/31/2002 $11,609 $11,767 $10,530
4/30/2002 $11,782 $11,997 $10,589
5/31/2002 $11,846 $12,070 $10,589
6/30/2002 $11,950 $12,197 $10,595
7/31/2002 $12,096 $12,354 $10,607
8/31/2002 $12,240 $12,503 $10,642
9/30/2002 $12,538 $12,776 $10,660
10/31/2002 $12,275 $12,565 $10,677
11/30/2002 $12,215 $12,512 $10,677
12/31/2002 $12,475 $12,776 $10,654
1/31/2003 $12,455 $12,744 $10,701
2/28/2003 $12,611 $12,922 $10,783
3/31/2003 $12,636 $12,930 $10,848
4/30/2003 $12,741 $13,015 $10,824
5/31/2003 $13,027 $13,320 $10,807
6/30/2003 $12,994 $13,263 $10,819
7/31/2003 $12,497 $12,799 $10,830
8/31/2003 $12,571 $12,895 $10,872
9/30/2003 $12,899 $13,274 $10,907
10/31/2003 $12,828 $13,207 $10,895
11/30/2003 $12,976 $13,345 $10,866
12/31/2003 $13,074 $13,455 $10,854
1/31/2004 $13,175 $13,532 $10,907
2/29/2004 $13,357 $13,736 $10,966
3/31/2004 $13,316 $13,688 $11,037
4/30/2004 $12,992 $13,364 $11,072
5/31/2004 $12,928 $13,315 $11,137
6/30/2004 $12,948 $13,364 $11,172
7/31/2004 $13,125 $13,540 $11,154
8/31/2004 $13,357 $13,811 $11,160
9/30/2004 $13,444 $13,884 $11,184
10/31/2004 $13,566 $14,004 $11,243
11/30/2004 $13,453 $13,888 $11,249
12/31/2004 $13,622 $14,058 $11,207
1/31/2005 $13,765 $14,189 $11,231
2/28/2005 $13,720 $14,142 $11,296
3/31/2005 $13,668 $14,053 $11,384
4/30/2005 $13,858 $14,274 $11,461
5/31/2005 $13,963 $14,375 $11,449
6/30/2005 $14,023 $14,464 $11,455
7/31/2005 $13,956 $14,399 $11,508
8/31/2005 $14,081 $14,544 $11,567
9/30/2005 $13,990 $14,446 $11,708
10/31/2005 $13,919 $14,359 $11,731
11/30/2005 $13,976 $14,428 $11,637
12/31/2005 $14,083 $14,552 $11,590
1/31/2006 $14,105 $14,591 $11,678
2/28/2006 $14,193 $14,689 $11,702
3/31/2006 $14,103 $14,588 $11,767
4/30/2006 $14,125 $14,583 $11,867
5/31/2006 $14,160 $14,648 $11,926
6/30/2006 $14,112 $14,592 $11,949
7/31/2006 $14,254 $14,766 $11,985
8/31/2006 $14,421 $14,985 $12,008
9/30/2006 $14,515 $15,089 $11,949
10/31/2006 $14,588 $15,184 $11,885
11/30/2006 $14,706 $15,311 $11,867
12/31/2006 $14,668 $15,257 $11,885
1/31/2007 $14,619 $15,217 $11,921
2/28/2007 $14,786 $15,418 $11,985
3/31/2007 $14,753 $15,380 $12,094
4/30/2007 $14,775 $15,426 $12,172
5/31/2007 $14,712 $15,357 $12,247
6/30/2007 $14,661 $15,278 $12,270
7/31/2007 $14,747 $15,396 $12,267
8/31/2007 $14,670 $15,330 $12,245
9/30/2007 $14,842 $15,557 $12,279
10/31/2007 $14,904 $15,626 $12,305
11/30/2007 $14,954 $15,726 $12,378
12/31/2007 $14,973 $15,769 $12,370
1/31/2008 $15,095 $15,968 $12,431
2/29/2008 $14,429 $15,237 $12,467
3/31/2008 $14,834 $15,672 $12,575
4/30/2008 $15,037 $15,856 $12,652
5/31/2008 $15,139 $15,952 $12,758
6/30/2008 $14,982 $15,771 $12,887
7/31/2008 $14,996 $15,831 $12,954
8/31/2008 $15,111 $16,017 $12,903
9/30/2008 $14,352 $15,265 $12,885
10/31/2008 $14,080 $15,110 $12,755
11/30/2008 $14,075 $15,158 $12,510
12/31/2008 $14,154 $15,379 $12,381
1/31/2009 $14,601 $15,942 $12,435
2/28/2009 $14,700 $16,025 $12,497
3/31/2009 $14,719 $16,028 $12,527
4/30/2009 $14,981 $16,349 $12,558
5/31/2009 $15,194 $16,522 $12,595
6/30/2009 $15,110 $16,367 $12,703
7/31/2009 $15,299 $16,641 $12,683
8/31/2009 $15,527 $16,925 $12,711
9/30/2009 $16,040 $17,532 $12,719
10/31/2009 $15,824 $17,164 $12,731
11/30/2009 $15,863 $17,306 $12,740
12/31/2009 $15,930 $17,365 $12,718
1/31/2010 $15,998 $17,455 $12,761
2/28/2010 $16,099 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +8.53%
5-Year +3.25%
10-Year +4.88%
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B
and C) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 23
Your Fund's Expenses
FRANKLIN FLORIDA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
24 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
- ------- ----------------- -------------- ----------------------
Actual $1,000 $1,039.30 $3.19
Hypothetical (5% return before expenses) $1,000 $1,021.67 $3.16
CLASS B
Actual $1,000 $1,037.10 $5.91
Hypothetical (5% return before expenses) $1,000 $1,018.99 $5.86
CLASS C
Actual $1,000 $1,036.80 $5.91
Hypothetical (5% return before expenses) $1,000 $1,018.99 $5.86
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.63%; B: 1.17%; and C: 1.17%), multiplied by
the average account value over the period, multiplied by 181/365 to reflect
the one-half year period.
Annual Report | 25
Franklin Georgia Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Georgia Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Georgia
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 BREAKDOWN*
Franklin Georgia Tax-Free Income Fund 2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 26.5%
AA 28.7%
A 25.5%
BBB 1.4%
Below Investment Grade 0.8%
Not Rated by S&P 17.1%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 1.9%
AA or Aa 2.7% --
A 6.8% 2.0%
BBB or Baa 2.8% 0.9%
---- ---
Total 12.3% 4.8%
==== ===
We are pleased to bring you Franklin Georgia Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 107.
26 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Georgia Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------
MONTH CLASS A CLASS C
- ----- ---------- ----------
March 2009 4.20 cents 3.69 cents
April 2009 4.20 cents 3.69 cents
May 2009 4.20 cents 3.69 cents
June 2009 4.15 cents 3.63 cents
July 2009 4.15 cents 3.63 cents
August 2009 4.15 cents 3.63 cents
September 2009 4.15 cents 3.60 cents
October 2009 4.15 cents 3.60 cents
November 2009 4.15 cents 3.60 cents
December 2009 4.15 cents 3.58 cents
January 2010 4.15 cents 3.58 cents
February 2010 4.15 cents 3.58 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.24 on February 28, 2009, to $11.92 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 49.89 cents per share for the same period.(2) The
Performance Summary beginning on page 30 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.97% based on an
annualization of the current 4.12 cent per share dividend and the maximum
offering price of $12.45 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Georgia personal income tax bracket of 38.90%
would need to earn a distribution rate of 6.50% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C
shares' performance, please see the Performance Summary. During the year under
review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 27
STATE UPDATE
During the reporting period, Georgia's well-diversified economy continued to
feel the effects of the national recession, particularly in employment and real
estate. In 2009, Georgia's once robust job market suffered among the largest
number of job losses in the nation. At period-end, the local unemployment rate
reached 10.5%, the highest level in decades, compared with the 9.7% national
rate.(3) Most sectors shed jobs, and construction and manufacturing were hard
hit. The only gains were in the education and health services sector and leisure
and hospitality sector. Georgia's once prosperous real estate market weakened
further, but the decline in home sales moderated from 2008 levels largely due to
lower inventory levels and the federal government's first-time home buyer's
incentive.
The state's finances during the reporting period clearly reflected the
recession. The governor revised downward his fiscal year 2009 revenue forecast
in response to a decline in general fund revenues compared with 2008. The state
used federal stimulus funds to address budgetary pressures and implemented
across-the-board departmental reductions, eliminated fiscal year 2009 pay raises
and cut contributions to the state health benefit plan. The budget for fiscal
year 2010 was originally adopted in May 2009 and assumed a slight decline in
revenues compared with fiscal year 2009. Government officials were forced to
revise the budget several times, however, due to continued weak revenue
collections. In February 2010, the state senate approved an amended fiscal year
2010 budget after agreeing to slash $1.2 billion in spending and issue
additional furlough days to teachers and state employees.(4)
Georgia's net tax-supported debt was manageable at $866 per capita and 2.5% of
personal income, compared with the $739 and 2.1% national medians.(5)
Independent credit rating agency Standard & Poor's (S&P) assigned Georgia's
general obligation debt its highest rating of AAA with a stable outlook.(6) The
rating and outlook reflected S&P's assessment that the state was well positioned
to recover in the medium term, and that it would continue to closely monitor
revenue and expenditure trends and take necessary action to ensure long-term
structural balance.
(3.) Source: Bureau of Labor Statistics.
(4) Source: THE ATLANTA JOURNAL-CONSTITUTION, "Senate Approves Mid-Year
Budget," 2/18/10.
(5) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate S&P's rating of the Fund.
28 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Georgia Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
PORTFOLIO BREAKDOWN
Franklin Georgia Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Utilities** 30.6%
Subject to Government Appropriations 15.2%
Hospital & Health Care 13.7%
General Obligation 12.8%
Higher Education 8.3%
Prerefunded 7.3%
Tax-Supported 4.6%
Transportation 4.3%
Housing 2.6%
Other Revenue 0.3%
Corporate-Backed 0.3%
* Does not include short-term investments and other net assets.
** The Fund may invest more than 25% in municipal securities that finance
similar types of projects such as utilities. A change that affects one
project may affect all similar projects, thereby increasing market risk.
Annual Report | 29
Performance Summary as of 2/28/10
FRANKLIN GEORGIA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTGAX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.68 $11.92 $11.24
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4989
CLASS C (SYMBOL: FGAIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $12.05 $11.35
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4343
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.66% +20.87% +68.87%
Average Annual Total Return(2) +5.95% +2.97% +4.92%
Avg. Ann. Total Return (3/31/10)(3) +6.02% +3.11% +4.70%
Distribution Rate(4) 3.97%
Taxable Equivalent Distribution Rate(5) 6.50%
30-Day Standardized Yield(6) 3.51%
Taxable Equivalent Yield(5) 5.74%
Total Annual Operating Expenses(7) 0.69%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.14% +17.66% +59.99%
Average Annual Total Return(2) +9.14% +3.31% +4.81%
Avg. Ann. Total Return (3/31/10)(3) +9.11% +3.46% +4.59%
Distribution Rate(4) 3.53%
Taxable Equivalent Distribution Rate(5) 5.78%
30-Day Standardized Yield(6) 3.14%
Taxable Equivalent Yield(5) 5.14%
Total Annual Operating Expenses(7) 1.24%
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.
30 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN GEORGIA
TAX-FREE INCOME BARCLAYS CAPITAL
DATE FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ---------- ---------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,799 $10,218 $10,082
4/30/2000 $ 9,757 $10,158 $10,088
5/31/2000 $ 9,698 $10,105 $10,100
6/30/2000 $ 9,952 $10,373 $10,153
7/31/2000 $10,066 $10,518 $10,177
8/31/2000 $10,225 $10,680 $10,177
9/30/2000 $10,151 $10,624 $10,230
10/31/2000 $10,277 $10,740 $10,247
11/30/2000 $10,365 $10,821 $10,253
12/31/2000 $10,615 $11,089 $10,247
1/31/2001 $10,677 $11,198 $10,312
2/28/2001 $10,717 $11,234 $10,353
3/31/2001 $10,820 $11,334 $10,377
4/30/2001 $10,709 $11,212 $10,418
5/31/2001 $10,800 $11,332 $10,465
6/30/2001 $10,888 $11,408 $10,483
7/31/2001 $11,048 $11,577 $10,453
8/31/2001 $11,224 $11,768 $10,453
9/30/2001 $11,145 $11,729 $10,501
10/31/2001 $11,304 $11,868 $10,465
11/30/2001 $11,215 $11,768 $10,448
12/31/2001 $11,109 $11,657 $10,406
1/31/2002 $11,249 $11,859 $10,430
2/28/2002 $11,377 $12,002 $10,471
3/31/2002 $11,185 $11,767 $10,530
4/30/2002 $11,328 $11,997 $10,589
5/31/2002 $11,384 $12,070 $10,589
6/30/2002 $11,476 $12,197 $10,595
7/31/2002 $11,610 $12,354 $10,607
8/31/2002 $11,714 $12,503 $10,642
9/30/2002 $11,966 $12,776 $10,660
10/31/2002 $11,718 $12,565 $10,677
11/30/2002 $11,694 $12,512 $10,677
12/31/2002 $11,931 $12,776 $10,654
1/31/2003 $11,909 $12,744 $10,701
2/28/2003 $12,062 $12,922 $10,783
3/31/2003 $12,073 $12,930 $10,848
4/30/2003 $12,200 $13,015 $10,824
5/31/2003 $12,489 $13,320 $10,807
6/30/2003 $12,514 $13,263 $10,819
7/31/2003 $11,999 $12,799 $10,830
8/31/2003 $12,105 $12,895 $10,872
9/30/2003 $12,461 $13,274 $10,907
10/31/2003 $12,365 $13,207 $10,895
11/30/2003 $12,501 $13,345 $10,866
12/31/2003 $12,623 $13,455 $10,854
1/31/2004 $12,721 $13,532 $10,907
2/29/2004 $12,909 $13,736 $10,966
3/31/2004 $12,873 $13,688 $11,037
4/30/2004 $12,549 $13,364 $11,072
5/31/2004 $12,502 $13,315 $11,137
6/30/2004 $12,548 $13,364 $11,172
7/31/2004 $12,712 $13,540 $11,154
8/31/2004 $12,953 $13,811 $11,160
9/30/2004 $13,043 $13,884 $11,184
10/31/2004 $13,176 $14,004 $11,243
11/30/2004 $13,040 $13,888 $11,249
12/31/2004 $13,240 $14,058 $11,207
1/31/2005 $13,428 $14,189 $11,231
2/28/2005 $13,377 $14,142 $11,296
3/31/2005 $13,306 $14,053 $11,384
4/30/2005 $13,516 $14,274 $11,461
5/31/2005 $13,622 $14,375 $11,449
6/30/2005 $13,672 $14,464 $11,455
7/31/2005 $13,619 $14,399 $11,508
8/31/2005 $13,769 $14,544 $11,567
9/30/2005 $13,659 $14,446 $11,708
10/31/2005 $13,570 $14,359 $11,731
11/30/2005 $13,630 $14,428 $11,637
12/31/2005 $13,769 $14,552 $11,590
1/31/2006 $13,789 $14,591 $11,678
2/28/2006 $13,900 $14,689 $11,702
3/31/2006 $13,803 $14,588 $11,767
4/30/2006 $13,805 $14,583 $11,867
5/31/2006 $13,843 $14,648 $11,926
6/30/2006 $13,784 $14,592 $11,949
7/31/2006 $13,915 $14,766 $11,985
8/31/2006 $14,126 $14,985 $12,008
9/30/2006 $14,231 $15,089 $11,949
10/31/2006 $14,316 $15,184 $11,885
11/30/2006 $14,468 $15,311 $11,867
12/31/2006 $14,411 $15,257 $11,885
1/31/2007 $14,378 $15,217 $11,921
2/28/2007 $14,566 $15,418 $11,985
3/31/2007 $14,500 $15,380 $12,094
4/30/2007 $14,536 $15,426 $12,172
5/31/2007 $14,467 $15,357 $12,247
6/30/2007 $14,394 $15,278 $12,270
7/31/2007 $14,504 $15,396 $12,267
8/31/2007 $14,408 $15,330 $12,245
9/30/2007 $14,616 $15,557 $12,279
10/31/2007 $14,680 $15,626 $12,305
11/30/2007 $14,741 $15,726 $12,378
12/31/2007 $14,791 $15,769 $12,370
1/31/2008 $14,889 $15,968 $12,431
2/29/2008 $14,133 $15,237 $12,467
3/31/2008 $14,608 $15,672 $12,575
4/30/2008 $14,844 $15,856 $12,652
5/31/2008 $14,961 $15,952 $12,758
6/30/2008 $14,824 $15,771 $12,887
7/31/2008 $14,827 $15,831 $12,954
8/31/2008 $14,945 $16,017 $12,903
9/30/2008 $14,069 $15,265 $12,885
10/31/2008 $13,948 $15,110 $12,755
11/30/2008 $13,769 $15,158 $12,510
12/31/2008 $14,005 $15,379 $12,381
1/31/2009 $14,419 $15,942 $12,435
2/28/2009 $14,612 $16,025 $12,497
3/31/2009 $14,633 $16,028 $12,527
4/30/2009 $14,972 $16,349 $12,558
5/31/2009 $15,185 $16,522 $12,595
6/30/2009 $15,094 $16,367 $12,703
7/31/2009 $15,255 $16,641 $12,683
8/31/2009 $15,521 $16,925 $12,711
9/30/2009 $16,159 $17,532 $12,719
10/31/2009 $15,818 $17,164 $12,731
11/30/2009 $15,872 $17,306 $12,740
12/31/2009 $15,994 $17,365 $12,718
1/31/2010 $16,051 $17,455 $12,761
2/28/2010 $16,168 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +5.95%
5-Year +2.97%
10-Year +4.92%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN GEORGIA
TAX-FREE INCOME BARCLAYS CAPITAL
DATE FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ---------- ---------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,228 $10,218 $10,082
4/30/2000 $10,180 $10,158 $10,088
5/31/2000 $10,114 $10,105 $10,100
6/30/2000 $10,373 $10,373 $10,153
7/31/2000 $10,496 $10,518 $10,177
8/31/2000 $10,647 $10,680 $10,177
9/30/2000 $10,566 $10,624 $10,230
10/31/2000 $10,692 $10,740 $10,247
11/30/2000 $10,778 $10,821 $10,253
12/31/2000 $11,041 $11,089 $10,247
1/31/2001 $11,099 $11,198 $10,312
2/28/2001 $11,136 $11,234 $10,353
3/31/2001 $11,236 $11,334 $10,377
4/30/2001 $11,107 $11,212 $10,418
5/31/2001 $11,205 $11,332 $10,465
6/30/2001 $11,291 $11,408 $10,483
7/31/2001 $11,450 $11,577 $10,453
8/31/2001 $11,626 $11,768 $10,453
9/30/2001 $11,540 $11,729 $10,501
10/31/2001 $11,698 $11,868 $10,465
11/30/2001 $11,601 $11,768 $10,448
12/31/2001 $11,487 $11,657 $10,406
1/31/2002 $11,625 $11,859 $10,430
2/28/2002 $11,751 $12,002 $10,471
3/31/2002 $11,549 $11,767 $10,530
4/30/2002 $11,699 $11,997 $10,589
5/31/2002 $11,741 $12,070 $10,589
6/30/2002 $11,841 $12,197 $10,595
7/31/2002 $11,973 $12,354 $10,607
8/31/2002 $12,074 $12,503 $10,642
9/30/2002 $12,337 $12,776 $10,660
10/31/2002 $12,068 $12,565 $10,677
11/30/2002 $12,027 $12,512 $10,677
12/31/2002 $12,274 $12,776 $10,654
1/31/2003 $12,246 $12,744 $10,701
2/28/2003 $12,397 $12,922 $10,783
3/31/2003 $12,402 $12,930 $10,848
4/30/2003 $12,527 $13,015 $10,824
5/31/2003 $12,826 $13,320 $10,807
6/30/2003 $12,835 $13,263 $10,819
7/31/2003 $12,304 $12,799 $10,830
8/31/2003 $12,406 $12,895 $10,872
9/30/2003 $12,772 $13,274 $10,907
10/31/2003 $12,657 $13,207 $10,895
11/30/2003 $12,800 $13,345 $10,866
12/31/2003 $12,918 $13,455 $10,854
1/31/2004 $13,001 $13,532 $10,907
2/29/2004 $13,198 $13,736 $10,966
3/31/2004 $13,155 $13,688 $11,037
4/30/2004 $12,821 $13,364 $11,072
5/31/2004 $12,767 $13,315 $11,137
6/30/2004 $12,797 $13,364 $11,172
7/31/2004 $12,968 $13,540 $11,154
8/31/2004 $13,206 $13,811 $11,160
9/30/2004 $13,291 $13,884 $11,184
10/31/2004 $13,419 $14,004 $11,243
11/30/2004 $13,276 $13,888 $11,249
12/31/2004 $13,471 $14,058 $11,207
1/31/2005 $13,666 $14,189 $11,231
2/28/2005 $13,597 $14,142 $11,296
3/31/2005 $13,519 $14,053 $11,384
4/30/2005 $13,736 $14,274 $11,461
5/31/2005 $13,837 $14,375 $11,449
6/30/2005 $13,880 $14,464 $11,455
7/31/2005 $13,821 $14,399 $11,508
8/31/2005 $13,965 $14,544 $11,567
9/30/2005 $13,848 $14,446 $11,708
10/31/2005 $13,741 $14,359 $11,731
11/30/2005 $13,806 $14,428 $11,637
12/31/2005 $13,939 $14,552 $11,590
1/31/2006 $13,942 $14,591 $11,678
2/28/2006 $14,059 $14,689 $11,702
3/31/2006 $13,943 $14,588 $11,767
4/30/2006 $13,937 $14,583 $11,867
5/31/2006 $13,980 $14,648 $11,926
6/30/2006 $13,904 $14,592 $11,949
7/31/2006 $14,040 $14,766 $11,985
8/31/2006 $14,245 $14,985 $12,008
9/30/2006 $14,343 $15,089 $11,949
10/31/2006 $14,421 $15,184 $11,885
11/30/2006 $14,578 $15,311 $11,867
12/31/2006 $14,515 $15,257 $11,885
1/31/2007 $14,475 $15,217 $11,921
2/28/2007 $14,644 $15,418 $11,985
3/31/2007 $14,583 $15,380 $12,094
4/30/2007 $14,601 $15,426 $12,172
5/31/2007 $14,525 $15,357 $12,247
6/30/2007 $14,446 $15,278 $12,270
7/31/2007 $14,549 $15,396 $12,267
8/31/2007 $14,446 $15,330 $12,245
9/30/2007 $14,658 $15,557 $12,279
10/31/2007 $14,703 $15,626 $12,305
11/30/2007 $14,769 $15,726 $12,378
12/31/2007 $14,799 $15,769 $12,370
1/31/2008 $14,903 $15,968 $12,431
2/29/2008 $14,134 $15,237 $12,467
3/31/2008 $14,610 $15,672 $12,575
4/30/2008 $14,837 $15,856 $12,652
5/31/2008 $14,945 $15,952 $12,758
6/30/2008 $14,803 $15,771 $12,887
7/31/2008 $14,799 $15,831 $12,954
8/31/2008 $14,896 $16,017 $12,903
9/30/2008 $14,038 $15,265 $12,885
10/31/2008 $13,898 $15,110 $12,755
11/30/2008 $13,702 $15,158 $12,510
12/31/2008 $13,942 $15,379 $12,381
1/31/2009 $14,356 $15,942 $12,435
2/28/2009 $14,528 $16,025 $12,497
3/31/2009 $14,553 $16,028 $12,527
4/30/2009 $14,881 $16,349 $12,558
5/31/2009 $15,084 $16,522 $12,595
6/30/2009 $14,988 $16,367 $12,703
7/31/2009 $15,139 $16,641 $12,683
8/31/2009 $15,394 $16,925 $12,711
9/30/2009 $16,026 $17,532 $12,719
10/31/2009 $15,670 $17,164 $12,731
11/30/2009 $15,716 $17,306 $12,740
12/31/2009 $15,829 $17,365 $12,718
1/31/2010 $15,890 $17,455 $12,761
2/28/2010 $15,999 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.14%
5-Year +3.31%
10-Year +4.81%
Annual Report | 31
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Class C)
per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Georgia
personal income tax rate of 38.90%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
32 | Annual Report
Your Fund's Expenses
FRANKLIN GEORGIA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 33
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
- ------- ----------------- -------------- ----------------------
Actual $1,000 $1,041.80 $3.49
Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.46
CLASS C
Actual $1,000 $1,039.30 $6.27
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.69% and C: 1.24%), multiplied by the
average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
34 | Annual Report
Franklin Kentucky Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Kentucky Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Kentucky
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 BREAKDOWN*
Franklin Kentucky Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ...................... 14.2%
AA ....................... 27.2%
A ........................ 17.5%
BBB ...................... 13.9%
Below Investment Grade ... 1.0%
Not Rated by S&P ......... 26.2%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AA or Aa 12.9% 2.6%
A 5.4% 0.8%
BBB or Baa 3.9% 0.6%
---- ---
Total 22.2% 4.0%
==== ===
We are pleased to bring you Franklin Kentucky Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.50 on February 28, 2009, to $11.15 on February 28, 2010. The Fund's
(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.
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.
Annual Report | 35
DIVIDEND DISTRIBUTIONS*
Franklin Kentucky Tax-Free Income Fund Class A
MONTH DIVIDEND PER SHARE
- ----- ------------------
March 2009 3.95 cents
April 2009 3.95 cents
May 2009 3.95 cents
June 2009 3.95 cents
July 2009 3.95 cents
August 2009 3.95 cents
September 2009 3.90 cents
October 2009 3.90 cents
November 2009 3.90 cents
December 2009 3.90 cents
January 2010 3.90 cents
February 2010 3.90 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
Class A shares paid dividends totaling 47.01 cents per share for the same
period.(2) The Performance Summary beginning on page 38 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 3.92%. An
investor in the 2010 maximum combined effective federal and Kentucky personal
income tax bracket of 38.90% would need to earn a distribution rate of 6.42%
from a taxable investment to match the Fund's Class A tax-free distribution
rate. During the year under review, renewed investor interest in municipal bonds
and limited new-issue supply tended to reduce the Fund's income, which caused
dividends to decline slightly.
COMMONWEALTH UPDATE
During the reporting period, Kentucky's economy, which historically lags the
nation in total employment, population and personal income growth, continued to
feel the effects of the national recession. Ford and Toyota are major employers
in the commonwealth, which rendered the local manufacturing-based economy
vulnerable to automobile industry slowdowns. As consumer demand for cars and
trucks waned, the local unemployment rate rose until it reached a 27-year high
of 10.9% at period-end, which was higher than the 9.7% national rate.(3) In
early 2010, Toyota issued a massive product recall due to safety concerns about
accelerator pedals on several models. The recall forced Toyota to issue worker
furloughs at its plant in Georgetown. The state's construction, manufacturing
and mining and logging sectors suffered the greatest job losses. The government
sector, professional and business services sector, and education and health
services sector, however, slightly expanded.
Although the first half of fiscal year 2009 showed revenue growth, revenue
collections lagged in the second half, and legislators responded by issuing
midyear cost adjustments and a tax increase. Revenue collections continued to
weaken, and state officials announced a $108 million dollar budget gap for
fiscal year 2010.(4) Near period-end, the governor proposed addressing the
shortfall by cutting spending, transferring funds from state programs with
unallocated funds and using federal stimulus funds.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: LEXINGTON HERALD-LEADER, "Beshear Plugs Budget Shortfall," 1/5/10.
36 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Kentucky Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities** 30.4%
Subject to Government Appropriations 22.3%
Prerefunded 10.2%
Transportation 9.1%
General Obligation 8.7%
Hospital & Health Care 8.6%
Higher Education 6.7%
Other Revenue 2.8%
Housing 1.2%
* Does not include short-term investments and other net assets.
** The Fund may invest more than 25% in municipal securities that finance
similar types of projects such as utilities. A change that affects one
project may affect all similar projects, thereby increasing market risk.
Kentucky's net tax-supported debt was $1,210 per capita and 3.8% of personal
income, compared with the $739 and 2.1% national medians.(5) Independent credit
rating agency Standard & Poor's assigned the commonwealth's general obligation
debt a rating of AA- and revised its outlook to stable from positive.(6) The
rating reflected Kentucky's stable, yet weakening, economic base, good fiscal
management practices and adequate financial position. The outlook revision
reflected the recession's effects on the commonwealth's budget and reserve
levels.
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Kentucky Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate Standard & Poor's rating of the Fund.
Annual Report | 37
Performance Summary as of 2/28/10
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRKYX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.65 $11.15 $10.50
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4701
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE THE MAXIMUM SALES CHARGE. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.85% +20.33% +66.97%
Average Annual Total Return(2) +6.10% +2.87% +4.81%
Avg. Ann. Total Return (3/31/10)(3) +5.38% +2.97% +4.55%
Distribution Rate(4) 3.92%
Taxable Equivalent Distribution Rate(5) 6.42%
30-Day Standardized Yield(6) 3.20%
Taxable Equivalent Yield(5) 5.24%
Total Annual Operating Expenses(7) 0.76%
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.
38 | Annual Report
Performance Summary (CONTINUED)
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 the current maximum sales charge, Fund expenses, account fees
and reinvested distributions. The unmanaged index includes reinvestment of any
income or distributions. It differs from the Fund in composition and does not
pay management fees or expenses. One cannot invest directly in an index.
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN KENTUCKY BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ------------- ----------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,811 $10,218 $10,082
4/30/2000 $ 9,709 $10,158 $10,088
5/31/2000 $ 9,598 $10,105 $10,100
6/30/2000 $ 9,865 $10,373 $10,153
7/31/2000 $10,034 $10,518 $10,177
8/31/2000 $10,201 $10,680 $10,177
9/30/2000 $10,122 $10,624 $10,230
10/31/2000 $10,244 $10,740 $10,247
11/30/2000 $10,336 $10,821 $10,253
12/31/2000 $10,621 $11,089 $10,247
1/31/2001 $10,666 $11,198 $10,312
2/28/2001 $10,690 $11,234 $10,353
3/31/2001 $10,798 $11,334 $10,377
4/30/2001 $10,659 $11,212 $10,418
5/31/2001 $10,774 $11,332 $10,465
6/30/2001 $10,879 $11,408 $10,483
7/31/2001 $11,046 $11,577 $10,453
8/31/2001 $11,211 $11,768 $10,453
9/30/2001 $11,089 $11,729 $10,501
10/31/2001 $11,247 $11,868 $10,465
11/30/2001 $11,160 $11,768 $10,448
12/31/2001 $11,043 $11,657 $10,406
1/31/2002 $11,206 $11,859 $10,430
2/28/2002 $11,341 $12,002 $10,471
3/31/2002 $11,165 $11,767 $10,530
4/30/2002 $11,343 $11,997 $10,589
5/31/2002 $11,409 $12,070 $10,589
6/30/2002 $11,536 $12,197 $10,595
7/31/2002 $11,666 $12,354 $10,607
8/31/2002 $11,773 $12,503 $10,642
9/30/2002 $11,984 $12,776 $10,660
10/31/2002 $11,739 $12,565 $10,677
11/30/2002 $11,700 $12,512 $10,677
12/31/2002 $11,956 $12,776 $10,654
1/31/2003 $11,905 $12,744 $10,701
2/28/2003 $12,064 $12,922 $10,783
3/31/2003 $12,058 $12,930 $10,848
4/30/2003 $12,124 $13,015 $10,824
5/31/2003 $12,418 $13,320 $10,807
6/30/2003 $12,375 $13,263 $10,819
7/31/2003 $11,878 $12,799 $10,830
8/31/2003 $11,988 $12,895 $10,872
9/30/2003 $12,392 $13,274 $10,907
10/31/2003 $12,320 $13,207 $10,895
11/30/2003 $12,452 $13,345 $10,866
12/31/2003 $12,575 $13,455 $10,854
1/31/2004 $12,645 $13,532 $10,907
2/29/2004 $12,843 $13,736 $10,966
3/31/2004 $12,834 $13,688 $11,037
4/30/2004 $12,512 $13,364 $11,072
5/31/2004 $12,425 $13,315 $11,137
6/30/2004 $12,480 $13,364 $11,172
7/31/2004 $12,663 $13,540 $11,154
8/31/2004 $12,879 $13,811 $11,160
9/30/2004 $12,946 $13,884 $11,184
10/31/2004 $13,083 $14,004 $11,243
11/30/2004 $12,989 $13,888 $11,249
12/31/2004 $13,163 $14,058 $11,207
1/31/2005 $13,322 $14,189 $11,231
2/28/2005 $13,286 $14,142 $11,296
3/31/2005 $13,219 $14,053 $11,384
4/30/2005 $13,438 $14,274 $11,461
5/31/2005 $13,521 $14,375 $11,449
6/30/2005 $13,582 $14,464 $11,455
7/31/2005 $13,535 $14,399 $11,508
8/31/2005 $13,663 $14,544 $11,567
9/30/2005 $13,580 $14,446 $11,708
10/31/2005 $13,494 $14,359 $11,731
11/30/2005 $13,551 $14,428 $11,637
12/31/2005 $13,684 $14,552 $11,590
1/31/2006 $13,705 $14,591 $11,678
2/28/2006 $13,819 $14,689 $11,702
3/31/2006 $13,724 $14,588 $11,767
4/30/2006 $13,709 $14,583 $11,867
5/31/2006 $13,757 $14,648 $11,926
6/30/2006 $13,730 $14,592 $11,949
7/31/2006 $13,863 $14,766 $11,985
8/31/2006 $14,046 $14,985 $12,008
9/30/2006 $14,142 $15,089 $11,949
10/31/2006 $14,228 $15,184 $11,885
11/30/2006 $14,360 $15,311 $11,867
12/31/2006 $14,307 $15,257 $11,885
1/31/2007 $14,279 $15,217 $11,921
2/28/2007 $14,451 $15,418 $11,985
3/31/2007 $14,401 $15,380 $12,094
4/30/2007 $14,435 $15,426 $12,172
5/31/2007 $14,368 $15,357 $12,247
6/30/2007 $14,289 $15,278 $12,270
7/31/2007 $14,376 $15,396 $12,267
8/31/2007 $14,256 $15,330 $12,245
9/30/2007 $14,471 $15,557 $12,279
10/31/2007 $14,546 $15,626 $12,305
11/30/2007 $14,582 $15,726 $12,378
12/31/2007 $14,592 $15,769 $12,370
1/31/2008 $14,666 $15,968 $12,431
2/29/2008 $13,900 $15,237 $12,467
3/31/2008 $14,357 $15,672 $12,575
4/30/2008 $14,605 $15,856 $12,652
5/31/2008 $14,723 $15,952 $12,758
6/30/2008 $14,612 $15,771 $12,887
7/31/2008 $14,586 $15,831 $12,954
8/31/2008 $14,705 $16,017 $12,903
9/30/2008 $13,950 $15,265 $12,885
10/31/2008 $13,739 $15,110 $12,755
11/30/2008 $13,681 $15,158 $12,510
12/31/2008 $13,790 $15,379 $12,381
1/31/2009 $14,199 $15,942 $12,435
2/28/2009 $14,425 $16,025 $12,497
3/31/2009 $14,515 $16,028 $12,527
4/30/2009 $14,870 $16,349 $12,558
5/31/2009 $15,021 $16,522 $12,595
6/30/2009 $14,936 $16,367 $12,703
7/31/2009 $15,077 $16,641 $12,683
8/31/2009 $15,341 $16,925 $12,711
9/30/2009 $15,886 $17,532 $12,719
10/31/2009 $15,676 $17,164 $12,731
11/30/2009 $15,702 $17,306 $12,740
12/31/2009 $15,785 $17,365 $12,718
1/31/2010 $15,869 $17,455 $12,761
2/28/2010 $15,991 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.10%
5-Year +2.87%
10-Year +4.81%
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the 3.80 cent per share
current monthly dividend and the maximum offering price of $11.64 per share
on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Kentucky
personal income tax rate of 38.90%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 39
Your Fund's Expenses
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
40 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
- ------- ----------------- -------------- ----------------------
Actual $1,000 $1,042.10 $3.85
Hypothetical (5% return before expenses) $1,000 $1,021.03 $3.81
* Expenses are calculated using the most recent six-month annualized expense
ratio of 0.76%, multiplied by the average account value over the period,
multiplied by 181/365 to reflect the one-half year period.
Annual Report | 41
Franklin Louisiana Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Louisiana Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Louisiana
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 BREAKDOWN*
Franklin Louisiana Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM
RATINGS INVESTMENTS**
- ------- -------------
AAA 21.3%
AA 10.1%
A 37.7%
BBB 12.2%
Below Investment Grade 0.8%
Not Rated by S&P 17.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 3.4% 0.9%
A 3.4% 2.9%
BBB or Baa 3.6% 3.7%
---- ---
Total 10.4% 7.5%
==== ===
We are pleased to bring you Franklin Louisiana Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.43 on February 28, 2009, to $11.28 on February 28, 2010. The Fund's
(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.
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 119.
42 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Louisiana Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------
MONTH CLASS A CLASS C
- ----- ---------- ----------
March 2009 3.99 cents 3.55 cents
April 2009 3.99 cents 3.55 cents
May 2009 3.99 cents 3.55 cents
June 2009 3.99 cents 3.49 cents
July 2009 3.99 cents 3.49 cents
August 2009 3.99 cents 3.49 cents
September 2009 4.12 cents 3.59 cents
October 2009 4.12 cents 3.59 cents
November 2009 4.12 cents 3.59 cents
December 2009 4.02 cents 3.48 cents
January 2010 4.02 cents 3.48 cents
February 2010 4.02 cents 3.48 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
Class A shares paid dividends totaling 48.29 cents per share for the same
period.(2) The Performance Summary beginning on page 46 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.05%
based on an annualization of the current 3.98 cent per share dividend and the
maximum offering price of $11.78 on February 28, 2010. An investor in the 2010
maximum combined effective federal and Louisiana personal income tax bracket of
38.90% would need to earn a distribution rate of 6.63% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class C
shares' performance, please see the Performance Summary.
STATE UPDATE
Although Louisiana's economy faced challenges during the reporting period, it
enjoyed a strong financial position relative to many other states. The high
energy prices and post-hurricane rebuilding funds that formerly buttressed the
local economy continued to wane and caused the state's unemployment rate to
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 43
PORTFOLIO BREAKDOWN
Franklin Louisiana Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Tax-Supported 18.8%
Utilities 17.9%
General Obligation 10.0%
Subject to Government Appropriations 9.4%
Transportation 9.0%
Other Revenue 8.8%
Hospital & Health Care 8.0%
Higher Education 6.4%
Prerefunded 5.5%
Housing 4.1%
Corporate-Backed 2.1%
* Does not include short-term investments and other net assets.
reach 7.3% at period-end.(3) This rate, although low compared to the 9.7%
national rate, was among the highest since 1994, excluding the period affected
by Hurricane Katrina.(3) Most of Louisiana's job losses came from the mining and
logging, manufacturing, and construction sectors. The education and health
services sector and leisure and hospitality sector, however, expanded slightly.
The state's real estate market also fared better than most of the nation's.
Louisiana did not experience the housing price boom observed in the rest of the
country in recent years. As a result, local home prices did not decline as
severely as in other states, although housing construction levels fell.
Fueled by strong revenue collections, Louisiana was one of the few states that
had a budget surplus in fiscal year 2009. The state's rainy day fund balance
reached its statutory cap at the end of that fiscal year. Revenue collections,
however, dropped off in fiscal year 2010 due to decreases in oil prices and
hurricane-recovery effort spending as well as the effects of the recession. The
budget for fiscal year 2010 was balanced but reflected these revenue declines in
the form of a 14.7% decrease in general fund spending.(4) Louisiana also laid
off state workers, mostly from the health and corrections fields, to reduce
spending. The state plans to receive $3.6 billion in federal stimulus funds,
which it will use to fund general fund expenditures.(4)
Louisiana's net tax-supported debt was $635 per capita and 1.8% of personal
income, which was lower than the $739 and 2.1% national medians.(5) Independent
credit rating agency Standard & Poor's assigned the state's general obligation
bonds a rating of AA- with a stable outlook.(6) The rating and outlook reflected
Louisiana's economic activity and employment levels, which performed better than
the nation's, strong reserve levels and constitutional and statutory provisions
that have restrained the state's ability to incur debt.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "State Review: Louisiana," RATINGSDIRECT,
1/4/10.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate Standard & Poor's rating of the Fund.
44 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Louisiana Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
Annual Report | 45
Performance Summary as of 2/28/10
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKLAX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.85 $11.28 $10.43
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4829
CLASS C (SYMBOL: FLAIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.87 $11.41 $10.54
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4225
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +12.99% +19.78% +68.76%
Average Annual Total Return(2) +8.22% +2.78% +4.91%
Avg. Ann. Total Return (3/31/10)(3) +8.18% +2.93% +4.68%
Distribution Rate(4) 4.05%
Taxable Equivalent Distribution Rate(5) 6.63%
30-Day Standardized Yield(6) 3.66%
Taxable Equivalent Yield(5) 5.99%
Total Annual Operating Expenses(7) 0.71%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +12.44% +16.54% +59.84%
Average Annual Total Return(2) +11.44% +3.11% +4.80%
Avg. Ann. Total Return (3/31/10)(3) +11.29% +3.25% +4.57%
Distribution Rate(4) 3.61%
Taxable Equivalent Distribution Rate(5) 5.91%
30-Day Standardized Yield(6) 3.28%
Taxable Equivalent Yield(5) 5.37%
Total Annual Operating Expenses(7) 1.26%
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.
46 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN LOUISIANA TAX-FREE BARCLAYS CAPITAL MUNICIPAL
DATE INCOME FUND - CLASS A BOND INDEX CPI
- ---------- --------------------------- -------------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,809 $10,218 $10,082
4/30/2000 $ 9,746 $10,158 $10,088
5/31/2000 $ 9,682 $10,105 $10,100
6/30/2000 $ 9,929 $10,373 $10,153
7/31/2000 $10,059 $10,518 $10,177
8/31/2000 $10,215 $10,680 $10,177
9/30/2000 $10,166 $10,624 $10,230
10/31/2000 $10,286 $10,740 $10,247
11/30/2000 $10,396 $10,821 $10,253
12/31/2000 $10,650 $11,089 $10,247
1/31/2001 $10,694 $11,198 $10,312
2/28/2001 $10,728 $11,234 $10,353
3/31/2001 $10,816 $11,334 $10,377
4/30/2001 $10,708 $11,212 $10,418
5/31/2001 $10,822 $11,332 $10,465
6/30/2001 $10,886 $11,408 $10,483
7/31/2001 $11,070 $11,577 $10,453
8/31/2001 $11,233 $11,768 $10,453
9/30/2001 $11,191 $11,729 $10,501
10/31/2001 $11,367 $11,868 $10,465
11/30/2001 $11,292 $11,768 $10,448
12/31/2001 $11,170 $11,657 $10,406
1/31/2002 $11,325 $11,859 $10,430
2/28/2002 $11,450 $12,002 $10,471
3/31/2002 $11,269 $11,767 $10,530
4/30/2002 $11,456 $11,997 $10,589
5/31/2002 $11,503 $12,070 $10,589
6/30/2002 $11,621 $12,197 $10,595
7/31/2002 $11,751 $12,354 $10,607
8/31/2002 $11,849 $12,503 $10,642
9/30/2002 $12,090 $12,776 $10,660
10/31/2002 $11,901 $12,565 $10,677
11/30/2002 $11,866 $12,512 $10,677
12/31/2002 $12,092 $12,776 $10,654
1/31/2003 $12,066 $12,744 $10,701
2/28/2003 $12,196 $12,922 $10,783
3/31/2003 $12,215 $12,930 $10,848
4/30/2003 $12,304 $13,015 $10,824
5/31/2003 $12,588 $13,320 $10,807
6/30/2003 $12,539 $13,263 $10,819
7/31/2003 $12,082 $12,799 $10,830
8/31/2003 $12,215 $12,895 $10,872
9/30/2003 $12,574 $13,274 $10,907
10/31/2003 $12,484 $13,207 $10,895
11/30/2003 $12,605 $13,345 $10,866
12/31/2003 $12,718 $13,455 $10,854
1/31/2004 $12,889 $13,532 $10,907
2/29/2004 $13,054 $13,736 $10,966
3/31/2004 $13,036 $13,688 $11,037
4/30/2004 $12,730 $13,364 $11,072
5/31/2004 $12,712 $13,315 $11,137
6/30/2004 $12,747 $13,364 $11,172
7/31/2004 $12,909 $13,540 $11,154
8/31/2004 $13,137 $13,811 $11,160
9/30/2004 $13,206 $13,884 $11,184
10/31/2004 $13,346 $14,004 $11,243
11/30/2004 $13,221 $13,888 $11,249
12/31/2004 $13,396 $14,058 $11,207
1/31/2005 $13,545 $14,189 $11,231
2/28/2005 $13,489 $14,142 $11,296
3/31/2005 $13,428 $14,053 $11,384
4/30/2005 $13,625 $14,274 $11,461
5/31/2005 $13,711 $14,375 $11,449
6/30/2005 $13,775 $14,464 $11,455
7/31/2005 $13,720 $14,399 $11,508
8/31/2005 $13,827 $14,544 $11,567
9/30/2005 $13,665 $14,446 $11,708
10/31/2005 $13,570 $14,359 $11,731
11/30/2005 $13,642 $14,428 $11,637
12/31/2005 $13,765 $14,552 $11,590
1/31/2006 $13,789 $14,591 $11,678
2/28/2006 $13,893 $14,689 $11,702
3/31/2006 $13,814 $14,588 $11,767
4/30/2006 $13,814 $14,583 $11,867
5/31/2006 $13,865 $14,648 $11,926
6/30/2006 $13,878 $14,592 $11,949
7/31/2006 $14,001 $14,766 $11,985
8/31/2006 $14,199 $14,985 $12,008
9/30/2006 $14,297 $15,089 $11,949
10/31/2006 $14,387 $15,184 $11,885
11/30/2006 $14,509 $15,311 $11,867
12/31/2006 $14,471 $15,257 $11,885
1/31/2007 $14,446 $15,217 $11,921
2/28/2007 $14,607 $15,418 $11,985
3/31/2007 $14,561 $15,380 $12,094
4/30/2007 $14,610 $15,426 $12,172
5/31/2007 $14,560 $15,357 $12,247
6/30/2007 $14,508 $15,278 $12,270
7/31/2007 $14,597 $15,396 $12,267
8/31/2007 $14,532 $15,330 $12,245
9/30/2007 $14,710 $15,557 $12,279
10/31/2007 $14,774 $15,626 $12,305
11/30/2007 $14,839 $15,726 $12,378
12/31/2007 $14,863 $15,769 $12,370
1/31/2008 $14,899 $15,968 $12,431
2/29/2008 $14,085 $15,237 $12,467
3/31/2008 $14,569 $15,672 $12,575
4/30/2008 $14,820 $15,856 $12,652
5/31/2008 $14,913 $15,952 $12,758
6/30/2008 $14,778 $15,771 $12,887
7/31/2008 $14,767 $15,831 $12,954
8/31/2008 $14,875 $16,017 $12,903
9/30/2008 $13,961 $15,265 $12,885
10/31/2008 $13,750 $15,110 $12,755
11/30/2008 $13,490 $15,158 $12,510
12/31/2008 $13,668 $15,379 $12,381
1/31/2009 $14,049 $15,942 $12,435
2/28/2009 $14,302 $16,025 $12,497
3/31/2009 $14,338 $16,028 $12,527
4/30/2009 $14,816 $16,349 $12,558
5/31/2009 $15,037 $16,522 $12,595
6/30/2009 $14,938 $16,367 $12,703
7/31/2009 $15,094 $16,641 $12,683
8/31/2009 $15,401 $16,925 $12,711
9/30/2009 $16,060 $17,532 $12,719
10/31/2009 $15,755 $17,164 $12,731
11/30/2009 $15,826 $17,306 $12,740
12/31/2009 $15,953 $17,365 $12,718
1/31/2010 $16,025 $17,455 $12,761
2/28/2010 $16,156 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +8.22%
5-Year +2.78%
10-Year +4.91%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN LOUISIANA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ---------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,238 $10,218 $10,082
4/30/2000 $10,168 $10,158 $10,088
5/31/2000 $10,097 $10,105 $10,100
6/30/2000 $10,348 $10,373 $10,153
7/31/2000 $10,478 $10,518 $10,177
8/31/2000 $10,645 $10,680 $10,177
9/30/2000 $10,579 $10,624 $10,230
10/31/2000 $10,699 $10,740 $10,247
11/30/2000 $10,807 $10,821 $10,253
12/31/2000 $11,074 $11,089 $10,247
1/31/2001 $11,115 $11,198 $10,312
2/28/2001 $11,145 $11,234 $10,353
3/31/2001 $11,230 $11,334 $10,377
4/30/2001 $11,113 $11,212 $10,418
5/31/2001 $11,225 $11,332 $10,465
6/30/2001 $11,296 $11,408 $10,483
7/31/2001 $11,471 $11,577 $10,453
8/31/2001 $11,644 $11,768 $10,453
9/30/2001 $11,585 $11,729 $10,501
10/31/2001 $11,760 $11,868 $10,465
11/30/2001 $11,689 $11,768 $10,448
12/31/2001 $11,547 $11,657 $10,406
1/31/2002 $11,701 $11,859 $10,430
2/28/2002 $11,834 $12,002 $10,471
3/31/2002 $11,643 $11,767 $10,530
4/30/2002 $11,829 $11,997 $10,589
5/31/2002 $11,872 $12,070 $10,589
6/30/2002 $11,987 $12,197 $10,595
7/31/2002 $12,114 $12,354 $10,607
8/31/2002 $12,209 $12,503 $10,642
9/30/2002 $12,451 $12,776 $10,660
10/31/2002 $12,252 $12,565 $10,677
11/30/2002 $12,221 $12,512 $10,677
12/31/2002 $12,435 $12,776 $10,654
1/31/2003 $12,414 $12,744 $10,701
2/28/2003 $12,542 $12,922 $10,783
3/31/2003 $12,556 $12,930 $10,848
4/30/2003 $12,641 $13,015 $10,824
5/31/2003 $12,925 $13,320 $10,807
6/30/2003 $12,867 $13,263 $10,819
7/31/2003 $12,396 $12,799 $10,830
8/31/2003 $12,514 $12,895 $10,872
9/30/2003 $12,883 $13,274 $10,907
10/31/2003 $12,774 $13,207 $10,895
11/30/2003 $12,902 $13,345 $10,866
12/31/2003 $13,011 $13,455 $10,854
1/31/2004 $13,177 $13,532 $10,907
2/29/2004 $13,339 $13,736 $10,966
3/31/2004 $13,314 $13,688 $11,037
4/30/2004 $13,009 $13,364 $11,072
5/31/2004 $12,973 $13,315 $11,137
6/30/2004 $13,014 $13,364 $11,172
7/31/2004 $13,160 $13,540 $11,154
8/31/2004 $13,385 $13,811 $11,160
9/30/2004 $13,461 $13,884 $11,184
10/31/2004 $13,584 $14,004 $11,243
11/30/2004 $13,452 $13,888 $11,249
12/31/2004 $13,634 $14,058 $11,207
1/31/2005 $13,778 $14,189 $11,231
2/28/2005 $13,716 $14,142 $11,296
3/31/2005 $13,646 $14,053 $11,384
4/30/2005 $13,839 $14,274 $11,461
5/31/2005 $13,918 $14,375 $11,449
6/30/2005 $13,977 $14,464 $11,455
7/31/2005 $13,915 $14,399 $11,508
8/31/2005 $14,028 $14,544 $11,567
9/30/2005 $13,847 $14,446 $11,708
10/31/2005 $13,746 $14,359 $11,731
11/30/2005 $13,812 $14,428 $11,637
12/31/2005 $13,928 $14,552 $11,590
1/31/2006 $13,946 $14,591 $11,678
2/28/2006 $14,045 $14,689 $11,702
3/31/2006 $13,959 $14,588 $11,767
4/30/2006 $13,952 $14,583 $11,867
5/31/2006 $13,996 $14,648 $11,926
6/30/2006 $14,003 $14,592 $11,949
7/31/2006 $14,120 $14,766 $11,985
8/31/2006 $14,323 $14,985 $12,008
9/30/2006 $14,415 $15,089 $11,949
10/31/2006 $14,485 $15,184 $11,885
11/30/2006 $14,613 $15,311 $11,867
12/31/2006 $14,569 $15,257 $11,885
1/31/2007 $14,538 $15,217 $11,921
2/28/2007 $14,692 $15,418 $11,985
3/31/2007 $14,639 $15,380 $12,094
4/30/2007 $14,681 $15,426 $12,172
5/31/2007 $14,611 $15,357 $12,247
6/30/2007 $14,565 $15,278 $12,270
7/31/2007 $14,647 $15,396 $12,267
8/31/2007 $14,562 $15,330 $12,245
9/30/2007 $14,745 $15,557 $12,279
10/31/2007 $14,802 $15,626 $12,305
11/30/2007 $14,859 $15,726 $12,378
12/31/2007 $14,877 $15,769 $12,370
1/31/2008 $14,906 $15,968 $12,431
2/29/2008 $14,081 $15,237 $12,467
3/31/2008 $14,566 $15,672 $12,575
4/30/2008 $14,807 $15,856 $12,652
5/31/2008 $14,891 $15,952 $12,758
6/30/2008 $14,751 $15,771 $12,887
7/31/2008 $14,734 $15,831 $12,954
8/31/2008 $14,833 $16,017 $12,903
9/30/2008 $13,924 $15,265 $12,885
10/31/2008 $13,695 $15,110 $12,755
11/30/2008 $13,433 $15,158 $12,510
12/31/2008 $13,603 $15,379 $12,381
1/31/2009 $13,973 $15,942 $12,435
2/28/2009 $14,217 $16,025 $12,497
3/31/2009 $14,259 $16,028 $12,527
4/30/2009 $14,724 $16,349 $12,558
5/31/2009 $14,935 $16,522 $12,595
6/30/2009 $14,831 $16,367 $12,703
7/31/2009 $14,976 $16,641 $12,683
8/31/2009 $15,285 $16,925 $12,711
9/30/2009 $15,924 $17,532 $12,719
10/31/2009 $15,618 $17,164 $12,731
11/30/2009 $15,680 $17,306 $12,740
12/31/2009 $15,797 $17,365 $12,718
1/31/2010 $15,859 $17,455 $12,761
2/28/2010 $15,984 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +11.44%
5-Year +3.11%
10-Year +4.80%
Annual Report | 47
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Class C)
per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Louisiana
personal income tax rate of 38.90%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
48 | Annual Report
Your Fund's Expenses
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 49
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,049.20 $3.51
Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.46
CLASS C
Actual $1,000 $1,045.70 $6.29
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.69% and C: 1.24%), multiplied by the
average account value over the period, multiplied by 181/365 to reflect the
one-half year period.
50 | Annual Report
Franklin Maryland Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Maryland Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Maryland
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 BREAKDOWN*
Franklin Maryland Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ..................... 28.9%
AA ...................... 14.4%
A ....................... 16.5%
BBB ..................... 15.5%
Below Investment Grade .. 3.6%
Not Rated by S&P ........ 21.1%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 4.5%
AA or Aa 4.6% --
A 3.8% --
BBB or Baa 4.4% 3.8%
---- ---
Total 12.8% 8.3%
==== ===
We are pleased to bring you Franklin Maryland Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 126.
Annual Report | 51
DIVIDEND DISTRIBUTIONS*
Franklin Maryland Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.12 cents 3.66 cents --
April 2009 4.12 cents 3.66 cents --
May 2009 4.12 cents 3.66 cents --
June 2009 4.12 cents 3.63 cents --
July 2009 4.12 cents 3.63 cents 2.70 cents
August 2009 4.12 cents 3.63 cents 4.20 cents
September 2009 4.12 cents 3.61 cents 4.27 cents
October 2009 4.12 cents 3.61 cents 4.27 cents
November 2009 4.12 cents 3.61 cents 4.27 cents
December 2009 4.05 cents 3.50 cents 4.10 cents
January 2010 4.05 cents 3.50 cents 4.10 cents
February 2010 4.05 cents 3.50 cents 4.10 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.35 on February 28, 2009, to $11.30 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 49.14 cents per share for the same period.(2) The
Performance Summary beginning on page 55 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.07% based on an
annualization of the current 4.00 cent per share dividend and the maximum
offering price of $11.80 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Maryland state and local personal income tax
bracket of 41.14% would need to earn a distribution rate of 6.92% from a taxable
investment to match the Fund's Class A tax-free distribution rate. For the
Fund's Class C and Advisor shares' performance, please see the Performance
Summary. During the year under review, renewed investor interest in municipal
bonds and limited new-issue supply tended to reduce the Fund's income, which
caused dividends to decline slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
52 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Maryland Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Hospital & Health Care 19.9%
General Obligation 15.0%
Higher Education 13.1%
Prerefunded 12.0%
Utilities 11.6%
Transportation 10.0%
Housing 6.8%
Tax-Supported 4.9%
Other Revenue 4.7%
Subject to Government Appropriations 1.7%
Corporate-Backed 0.3%
* Does not include short-term investments and other net assets.
STATE UPDATE
Maryland's broad, diverse economy showed relative strength compared with the
national economy during the reporting period. The state benefited from a mature
infrastructure and steady net in-migration of well-educated workers. The
national recession, however, took a toll on employment, and Maryland recorded an
unemployment rate of 7.7% at period-end, compared with 9.7% for the nation.(3)
This local unemployment rate was a 27-year high, and the mining, logging and
construction sector and the financial activities sector were hard hit.(3) Only
the education and health services sector grew.
Maryland proactively responded to the economic challenges of fiscal year 2009
with a variety of financial and debt management policies. The governor employed
fund transfers and budget reductions in many areas to achieve a balanced budget.
The federal government's stimulus package also aided the state, helping reduce
the impact of the economic decline. In fiscal year 2010, Maryland's elevated
unemployment levels caused tax revenues to shrink and pressure the budget. State
officials made several downward revenue revisions, and in December 2009, they
estimated a revenue shortfall of $700 million for the adopted budget.(4) The
governor proposed closing this gap through fund transfers, tax increases,
spending cuts and new bond issuance. State officials also focused on maintaining
reserve funds that were drawn down during the period.
Maryland's net tax-supported debt was $1,346 per capita and 2.8% of personal
income, compared with the $739 and 2.1% national medians.(5) Independent rating
agencies Standard & Poor's and Moody's Investors Service assigned Maryland's
general obligation bonds their highest ratings of AAA and Aaa with stable
outlooks.6 The ratings and outlooks reflected the state's economic strength and
historically strong financial and debt management practices.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "Maryland; General Obligation," RATINGSDIRECT,
2/18/10.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) These do not indicate ratings of the Fund.
Annual Report | 53
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Maryland Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
54 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN MARYLAND TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FMDTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.95 $11.30 $10.35
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4914
CLASS C (SYMBOL: FMDIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.96 $11.46 $10.50
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4311
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/1/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.61 $11.30 $10.69
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3259
Annual Report | 55
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +14.17% +19.00% +67.02%
Average Annual Total Return(2) +9.31% +2.65% +4.81%
Avg. Ann. Total Return (3/31/10)(3) +9.15% +2.77% +4.59%
Distribution Rate(4) 4.07%
Taxable Equivalent Distribution Rate(5) 6.92%
30-Day Standardized Yield(6) 3.62%
Taxable Equivalent Yield(5) 6.15%
Total Annual Operating Expenses(7) 0.67%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +13.45% +15.81% +58.17%
Average Annual Total Return(2) +12.45% +2.98% +4.69%
Avg. Ann. Total Return (3/31/10)(3) +12.49% +3.10% +4.48%
Distribution Rate(4) 3.61%
Taxable Equivalent Distribution Rate(5) 6.13%
30-Day Standardized Yield(6) 3.24%
Taxable Equivalent Yield(5) 5.50%
Total Annual Operating Expenses(7) 1.22%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +14.22% +19.06% +67.10%
Average Annual Total Return(2) +14.22% +3.55% +5.27%
Avg. Ann. Total Return (3/31/10)(3) +14.07% +3.68% +5.05%
Distribution Rate(4) 4.33%
Taxable Equivalent Distribution Rate(5) 7.36%
30-Day Standardized Yield(6) 3.87%
Taxable Equivalent Yield(5) 6.58%
Total Annual Operating Expenses(7) 0.57%
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.
56 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MARYLAND TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ---------- -------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,796 $10,218 $10,082
4/30/2000 $ 9,768 $10,158 $10,088
5/31/2000 $ 9,684 $10,105 $10,100
6/30/2000 $ 9,927 $10,373 $10,153
7/31/2000 $10,082 $10,518 $10,177
8/31/2000 $10,255 $10,680 $10,177
9/30/2000 $10,223 $10,624 $10,230
10/31/2000 $10,323 $10,740 $10,247
11/30/2000 $10,412 $10,821 $10,253
12/31/2000 $10,643 $11,089 $10,247
1/31/2001 $10,705 $11,198 $10,312
2/28/2001 $10,766 $11,234 $10,353
3/31/2001 $10,843 $11,334 $10,377
4/30/2001 $10,754 $11,212 $10,418
5/31/2001 $10,846 $11,332 $10,465
6/30/2001 $10,938 $11,408 $10,483
7/31/2001 $11,090 $11,577 $10,453
8/31/2001 $11,261 $11,768 $10,453
9/30/2001 $11,228 $11,729 $10,501
10/31/2001 $11,362 $11,868 $10,465
11/30/2001 $11,287 $11,768 $10,448
12/31/2001 $11,185 $11,657 $10,406
1/31/2002 $11,336 $11,859 $10,430
2/28/2002 $11,459 $12,002 $10,471
3/31/2002 $11,269 $11,767 $10,530
4/30/2002 $11,444 $11,997 $10,589
5/31/2002 $11,560 $12,070 $10,589
6/30/2002 $11,656 $12,197 $10,595
7/31/2002 $11,794 $12,354 $10,607
8/31/2002 $11,911 $12,503 $10,642
9/30/2002 $12,139 $12,776 $10,660
10/31/2002 $11,941 $12,565 $10,677
11/30/2002 $11,916 $12,512 $10,677
12/31/2002 $12,138 $12,776 $10,654
1/31/2003 $12,142 $12,744 $10,701
2/28/2003 $12,280 $12,922 $10,783
3/31/2003 $12,299 $12,930 $10,848
4/30/2003 $12,396 $13,015 $10,824
5/31/2003 $12,655 $13,320 $10,807
6/30/2003 $12,616 $13,263 $10,819
7/31/2003 $12,175 $12,799 $10,830
8/31/2003 $12,286 $12,895 $10,872
9/30/2003 $12,565 $13,274 $10,907
10/31/2003 $12,509 $13,207 $10,895
11/30/2003 $12,640 $13,345 $10,866
12/31/2003 $12,751 $13,455 $10,854
1/31/2004 $12,822 $13,532 $10,907
2/29/2004 $13,007 $13,736 $10,966
3/31/2004 $12,978 $13,688 $11,037
4/30/2004 $12,698 $13,364 $11,072
5/31/2004 $12,658 $13,315 $11,137
6/30/2004 $12,693 $13,364 $11,172
7/31/2004 $12,842 $13,540 $11,154
8/31/2004 $13,056 $13,811 $11,160
9/30/2004 $13,136 $13,884 $11,184
10/31/2004 $13,239 $14,004 $11,243
11/30/2004 $13,139 $13,888 $11,249
12/31/2004 $13,301 $14,058 $11,207
1/31/2005 $13,459 $14,189 $11,231
2/28/2005 $13,438 $14,142 $11,296
3/31/2005 $13,388 $14,053 $11,384
4/30/2005 $13,582 $14,274 $11,461
5/31/2005 $13,677 $14,375 $11,449
6/30/2005 $13,752 $14,464 $11,455
7/31/2005 $13,709 $14,399 $11,508
8/31/2005 $13,837 $14,544 $11,567
9/30/2005 $13,748 $14,446 $11,708
10/31/2005 $13,691 $14,359 $11,731
11/30/2005 $13,739 $14,428 $11,637
12/31/2005 $13,862 $14,552 $11,590
1/31/2006 $13,887 $14,591 $11,678
2/28/2006 $13,990 $14,689 $11,702
3/31/2006 $13,901 $14,588 $11,767
4/30/2006 $13,901 $14,583 $11,867
5/31/2006 $13,940 $14,648 $11,926
6/30/2006 $13,883 $14,592 $11,949
7/31/2006 $14,042 $14,766 $11,985
8/31/2006 $14,238 $14,985 $12,008
9/30/2006 $14,336 $15,089 $11,949
10/31/2006 $14,438 $15,184 $11,885
11/30/2006 $14,571 $15,311 $11,867
12/31/2006 $14,523 $15,257 $11,885
1/31/2007 $14,487 $15,217 $11,921
2/28/2007 $14,684 $15,418 $11,985
3/31/2007 $14,615 $15,380 $12,094
4/30/2007 $14,651 $15,426 $12,172
5/31/2007 $14,602 $15,357 $12,247
6/30/2007 $14,515 $15,278 $12,270
7/31/2007 $14,604 $15,396 $12,267
8/31/2007 $14,452 $15,330 $12,245
9/30/2007 $14,691 $15,557 $12,279
10/31/2007 $14,755 $15,626 $12,305
11/30/2007 $14,769 $15,726 $12,378
12/31/2007 $14,705 $15,769 $12,370
1/31/2008 $14,780 $15,968 $12,431
2/29/2008 $13,979 $15,237 $12,467
3/31/2008 $14,470 $15,672 $12,575
4/30/2008 $14,745 $15,856 $12,652
5/31/2008 $14,851 $15,952 $12,758
6/30/2008 $14,626 $15,771 $12,887
7/31/2008 $14,617 $15,831 $12,954
8/31/2008 $14,736 $16,017 $12,903
9/30/2008 $13,902 $15,265 $12,885
10/31/2008 $13,510 $15,110 $12,755
11/30/2008 $13,269 $15,158 $12,510
12/31/2008 $13,152 $15,379 $12,381
1/31/2009 $13,811 $15,942 $12,435
2/28/2009 $14,009 $16,025 $12,497
3/31/2009 $14,060 $16,028 $12,527
4/30/2009 $14,371 $16,349 $12,558
5/31/2009 $14,700 $16,522 $12,595
6/30/2009 $14,700 $16,367 $12,703
7/31/2009 $14,911 $16,641 $12,683
8/31/2009 $15,257 $16,925 $12,711
9/30/2009 $15,991 $17,532 $12,719
10/31/2009 $15,732 $17,164 $12,731
11/30/2009 $15,704 $17,306 $12,740
12/31/2009 $15,746 $17,365 $12,718
1/31/2010 $15,831 $17,455 $12,761
2/28/2010 $15,995 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +9.31%
5-Year +2.65%
10-Year +4.81%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MARYLAND TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ---------- -------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,234 $10,218 $10,082
4/30/2000 $10,190 $10,158 $10,088
5/31/2000 $10,109 $10,105 $10,100
6/30/2000 $10,356 $10,373 $10,153
7/31/2000 $10,502 $10,518 $10,177
8/31/2000 $10,676 $10,680 $10,177
9/30/2000 $10,638 $10,624 $10,230
10/31/2000 $10,746 $10,740 $10,247
11/30/2000 $10,833 $10,821 $10,253
12/31/2000 $11,067 $11,089 $10,247
1/31/2001 $11,125 $11,198 $10,312
2/28/2001 $11,183 $11,234 $10,353
3/31/2001 $11,265 $11,334 $10,377
4/30/2001 $11,159 $11,212 $10,418
5/31/2001 $11,258 $11,332 $10,465
6/30/2001 $11,347 $11,408 $10,483
7/31/2001 $11,499 $11,577 $10,453
8/31/2001 $11,669 $11,768 $10,453
9/30/2001 $11,630 $11,729 $10,501
10/31/2001 $11,762 $11,868 $10,465
11/30/2001 $11,681 $11,768 $10,448
12/31/2001 $11,570 $11,657 $10,406
1/31/2002 $11,720 $11,859 $10,430
2/28/2002 $11,841 $12,002 $10,471
3/31/2002 $11,640 $11,767 $10,530
4/30/2002 $11,813 $11,997 $10,589
5/31/2002 $11,926 $12,070 $10,589
6/30/2002 $12,029 $12,197 $10,595
7/31/2002 $12,154 $12,354 $10,607
8/31/2002 $12,278 $12,503 $10,642
9/30/2002 $12,505 $12,776 $10,660
10/31/2002 $12,298 $12,565 $10,677
11/30/2002 $12,267 $12,512 $10,677
12/31/2002 $12,487 $12,776 $10,654
1/31/2003 $12,486 $12,744 $10,701
2/28/2003 $12,621 $12,922 $10,783
3/31/2003 $12,634 $12,930 $10,848
4/30/2003 $12,728 $13,015 $10,824
5/31/2003 $12,996 $13,320 $10,807
6/30/2003 $12,940 $13,263 $10,819
7/31/2003 $12,488 $12,799 $10,830
8/31/2003 $12,594 $12,895 $10,872
9/30/2003 $12,871 $13,274 $10,907
10/31/2003 $12,808 $13,207 $10,895
11/30/2003 $12,935 $13,345 $10,866
12/31/2003 $13,041 $13,455 $10,854
1/31/2004 $13,116 $13,532 $10,907
2/29/2004 $13,297 $13,736 $10,966
3/31/2004 $13,261 $13,688 $11,037
4/30/2004 $12,961 $13,364 $11,072
5/31/2004 $12,914 $13,315 $11,137
6/30/2004 $12,954 $13,364 $11,172
7/31/2004 $13,087 $13,540 $11,154
8/31/2004 $13,308 $13,811 $11,160
9/30/2004 $13,383 $13,884 $11,184
10/31/2004 $13,482 $14,004 $11,243
11/30/2004 $13,375 $13,888 $11,249
12/31/2004 $13,543 $14,058 $11,207
1/31/2005 $13,696 $14,189 $11,231
2/28/2005 $13,657 $14,142 $11,296
3/31/2005 $13,611 $14,053 $11,384
4/30/2005 $13,789 $14,274 $11,461
5/31/2005 $13,889 $14,375 $11,449
6/30/2005 $13,946 $14,464 $11,455
7/31/2005 $13,896 $14,399 $11,508
8/31/2005 $14,031 $14,544 $11,567
9/30/2005 $13,934 $14,446 $11,708
10/31/2005 $13,859 $14,359 $11,731
11/30/2005 $13,914 $14,428 $11,637
12/31/2005 $14,029 $14,552 $11,590
1/31/2006 $14,048 $14,591 $11,678
2/28/2006 $14,145 $14,689 $11,702
3/31/2006 $14,049 $14,588 $11,767
4/30/2006 $14,043 $14,583 $11,867
5/31/2006 $14,075 $14,648 $11,926
6/30/2006 $14,012 $14,592 $11,949
7/31/2006 $14,164 $14,766 $11,985
8/31/2006 $14,353 $14,985 $12,008
9/30/2006 $14,445 $15,089 $11,949
10/31/2006 $14,539 $15,184 $11,885
11/30/2006 $14,678 $15,311 $11,867
12/31/2006 $14,623 $15,257 $11,885
1/31/2007 $14,569 $15,217 $11,921
2/28/2007 $14,770 $15,418 $11,985
3/31/2007 $14,694 $15,380 $12,094
4/30/2007 $14,723 $15,426 $12,172
5/31/2007 $14,655 $15,357 $12,247
6/30/2007 $14,574 $15,278 $12,270
7/31/2007 $14,655 $15,396 $12,267
8/31/2007 $14,486 $15,330 $12,245
9/30/2007 $14,729 $15,557 $12,279
10/31/2007 $14,786 $15,626 $12,305
11/30/2007 $14,792 $15,726 $12,378
12/31/2007 $14,722 $15,769 $12,370
1/31/2008 $14,790 $15,968 $12,431
2/29/2008 $13,979 $15,237 $12,467
3/31/2008 $14,470 $15,672 $12,575
4/30/2008 $14,734 $15,856 $12,652
5/31/2008 $14,831 $15,952 $12,758
6/30/2008 $14,604 $15,771 $12,887
7/31/2008 $14,587 $15,831 $12,954
8/31/2008 $14,711 $16,017 $12,903
9/30/2008 $13,858 $15,265 $12,885
10/31/2008 $13,465 $15,110 $12,755
11/30/2008 $13,221 $15,158 $12,510
12/31/2008 $13,100 $15,379 $12,381
1/31/2009 $13,742 $15,942 $12,435
2/28/2009 $13,944 $16,025 $12,497
3/31/2009 $13,974 $16,028 $12,527
4/30/2009 $14,286 $16,349 $12,558
5/31/2009 $14,603 $16,522 $12,595
6/30/2009 $14,596 $16,367 $12,703
7/31/2009 $14,795 $16,641 $12,683
8/31/2009 $15,128 $16,925 $12,711
9/30/2009 $15,852 $17,532 $12,719
10/31/2009 $15,592 $17,164 $12,731
11/30/2009 $15,558 $17,306 $12,740
12/31/2009 $15,591 $17,365 $12,718
1/31/2010 $15,681 $17,455 $12,761
2/28/2010 $15,817 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +12.45%
5-Year +2.98%
10-Year +4.69%
Annual Report | 57
Performance Summary (CONTINUED)
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS (8) 2/28/10
- ----------------- -------
1-Year +14.22%
5-Year +3.55%
10-Year +5.27%
FRANKLIN MARYLAND TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ---------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,231 $10,218 $10,082
4/30/2000 $10,201 $10,158 $10,088
5/31/2000 $10,114 $10,105 $10,100
6/30/2000 $10,368 $10,373 $10,153
7/31/2000 $10,530 $10,518 $10,177
8/31/2000 $10,710 $10,680 $10,177
9/30/2000 $10,677 $10,624 $10,230
10/31/2000 $10,781 $10,740 $10,247
11/30/2000 $10,874 $10,821 $10,253
12/31/2000 $11,116 $11,089 $10,247
1/31/2001 $11,180 $11,198 $10,312
2/28/2001 $11,244 $11,234 $10,353
3/31/2001 $11,324 $11,334 $10,377
4/30/2001 $11,231 $11,212 $10,418
5/31/2001 $11,328 $11,332 $10,465
6/30/2001 $11,423 $11,408 $10,483
7/31/2001 $11,583 $11,577 $10,453
8/31/2001 $11,761 $11,768 $10,453
9/30/2001 $11,726 $11,729 $10,501
10/31/2001 $11,866 $11,868 $10,465
11/30/2001 $11,788 $11,768 $10,448
12/31/2001 $11,681 $11,657 $10,406
1/31/2002 $11,840 $11,859 $10,430
2/28/2002 $11,968 $12,002 $10,471
3/31/2002 $11,770 $11,767 $10,530
4/30/2002 $11,952 $11,997 $10,589
5/31/2002 $12,073 $12,070 $10,589
6/30/2002 $12,173 $12,197 $10,595
7/31/2002 $12,318 $12,354 $10,607
8/31/2002 $12,439 $12,503 $10,642
9/30/2002 $12,678 $12,776 $10,660
10/31/2002 $12,471 $12,565 $10,677
11/30/2002 $12,445 $12,512 $10,677
12/31/2002 $12,677 $12,776 $10,654
1/31/2003 $12,681 $12,744 $10,701
2/28/2003 $12,825 $12,922 $10,783
3/31/2003 $12,845 $12,930 $10,848
4/30/2003 $12,947 $13,015 $10,824
5/31/2003 $13,217 $13,320 $10,807
6/30/2003 $13,176 $13,263 $10,819
7/31/2003 $12,716 $12,799 $10,830
8/31/2003 $12,831 $12,895 $10,872
9/30/2003 $13,123 $13,274 $10,907
10/31/2003 $13,064 $13,207 $10,895
11/30/2003 $13,201 $13,345 $10,866
12/31/2003 $13,317 $13,455 $10,854
1/31/2004 $13,391 $13,532 $10,907
2/29/2004 $13,584 $13,736 $10,966
3/31/2004 $13,554 $13,688 $11,037
4/30/2004 $13,262 $13,364 $11,072
5/31/2004 $13,220 $13,315 $11,137
6/30/2004 $13,256 $13,364 $11,172
7/31/2004 $13,412 $13,540 $11,154
8/31/2004 $13,635 $13,811 $11,160
9/30/2004 $13,719 $13,884 $11,184
10/31/2004 $13,827 $14,004 $11,243
11/30/2004 $13,722 $13,888 $11,249
12/31/2004 $13,891 $14,058 $11,207
1/31/2005 $14,056 $14,189 $11,231
2/28/2005 $14,035 $14,142 $11,296
3/31/2005 $13,982 $14,053 $11,384
4/30/2005 $14,185 $14,274 $11,461
5/31/2005 $14,285 $14,375 $11,449
6/30/2005 $14,363 $14,464 $11,455
7/31/2005 $14,317 $14,399 $11,508
8/31/2005 $14,451 $14,544 $11,567
9/30/2005 $14,358 $14,446 $11,708
10/31/2005 $14,298 $14,359 $11,731
11/30/2005 $14,349 $14,428 $11,637
12/31/2005 $14,477 $14,552 $11,590
1/31/2006 $14,503 $14,591 $11,678
2/28/2006 $14,611 $14,689 $11,702
3/31/2006 $14,518 $14,588 $11,767
4/30/2006 $14,518 $14,583 $11,867
5/31/2006 $14,559 $14,648 $11,926
6/30/2006 $14,499 $14,592 $11,949
7/31/2006 $14,665 $14,766 $11,985
8/31/2006 $14,870 $14,985 $12,008
9/30/2006 $14,973 $15,089 $11,949
10/31/2006 $15,079 $15,184 $11,885
11/30/2006 $15,218 $15,311 $11,867
12/31/2006 $15,168 $15,257 $11,885
1/31/2007 $15,130 $15,217 $11,921
2/28/2007 $15,336 $15,418 $11,985
3/31/2007 $15,263 $15,380 $12,094
4/30/2007 $15,302 $15,426 $12,172
5/31/2007 $15,250 $15,357 $12,247
6/30/2007 $15,159 $15,278 $12,270
7/31/2007 $15,252 $15,396 $12,267
8/31/2007 $15,093 $15,330 $12,245
9/30/2007 $15,343 $15,557 $12,279
10/31/2007 $15,410 $15,626 $12,305
11/30/2007 $15,425 $15,726 $12,378
12/31/2007 $15,358 $15,769 $12,370
1/31/2008 $15,436 $15,968 $12,431
2/29/2008 $14,600 $15,237 $12,467
3/31/2008 $15,113 $15,672 $12,575
4/30/2008 $15,399 $15,856 $12,652
5/31/2008 $15,510 $15,952 $12,758
6/30/2008 $15,275 $15,771 $12,887
7/31/2008 $15,265 $15,831 $12,954
8/31/2008 $15,390 $16,017 $12,903
9/30/2008 $14,519 $15,265 $12,885
10/31/2008 $14,109 $15,110 $12,755
11/30/2008 $13,858 $15,158 $12,510
12/31/2008 $13,735 $15,379 $12,381
1/31/2009 $14,424 $15,942 $12,435
2/28/2009 $14,631 $16,025 $12,497
3/31/2009 $14,684 $16,028 $12,527
4/30/2009 $15,009 $16,349 $12,558
5/31/2009 $15,353 $16,522 $12,595
6/30/2009 $15,352 $16,367 $12,703
7/31/2009 $15,571 $16,641 $12,683
8/31/2009 $15,934 $16,925 $12,711
9/30/2009 $16,702 $17,532 $12,719
10/31/2009 $16,419 $17,164 $12,731
11/30/2009 $16,407 $17,306 $12,740
12/31/2009 $16,451 $17,365 $12,718
1/31/2010 $16,541 $17,455 $12,761
2/28/2010 $16,710 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Maryland
state and local personal income tax rate of 41.14%, based on the federal
income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +8.83%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
58 | Annual Report
Your Fund's Expenses
FRANKLIN MARYLAND TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 59
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,048.20 $3.35
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
CLASS C
Actual $1,000 $1,045.60 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.79 $6.06
ADVISOR CLASS
Actual $1,000 $1,048.70 $2.84
Hypothetical (5% return before expenses) $1,000 $1,022.02 $2.81
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.66%; C: 1.21%; and Advisor: 0.56%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
60 | Annual Report
Franklin Missouri Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Missouri Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Missouri
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 BREAKDOWN*
Franklin Missouri Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM
RATINGS INVESTMENTS**
- ------- -------------
AAA 28.2%
AA 28.5%
A 15.1%
BBB 9.7%
Below Investment Grade 0.8%
Not Rated by S&P 17.7%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 3.8% 1.4%
AA or Aa 0.8% --
A 4.9% 1.5%
BBB or Baa 1.7% 3.5%
Below Investment Grade -- 0.1%
---- ---
Total 11.2% 6.5%
==== ===
We are pleased to bring you Franklin Missouri Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.28 on February 28, 2009, to $11.98 on February 28, 2010. The Fund's
(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.
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 133.
Annual Report | 61
DIVIDEND DISTRIBUTIONS*
Franklin Missouri Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.31 cents 3.79 cents --
April 2009 4.31 cents 3.79 cents --
May 2009 4.31 cents 3.79 cents --
June 2009 4.26 cents 3.74 cents --
July 2009 4.26 cents 3.74 cents 2.80 cents
August 2008 4.26 cents 3.74 cents 4.35 cents
September 2009 4.26 cents 3.72 cents 4.40 cents
October 2009 4.26 cents 3.72 cents 4.40 cents
November 2009 4.26 cents 3.72 cents 4.40 cents
December 2009 4.26 cents 3.69 cents 4.32 cents
January 2010 4.26 cents 3.69 cents 4.32 cents
February 2010 4.26 cents 3.69 cents 4.32 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
Class A shares paid dividends totaling 51.18 cents per share for the same
period.(2) The Performance Summary beginning on page 65 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.06%
based on an annualization of the current 4.23 cent per share dividend and the
maximum offering price of $12.51 on February 28, 2010. An investor in the 2010
maximum combined effective federal and Missouri personal income tax bracket of
38.90% 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 the Fund's Class C
and Advisor shares' performance, please see the Performance Summary. During the
year under review, renewed investor interest in municipal bonds and limited
new-issue supply tended to reduce the Fund's income, which caused dividends to
decline slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
62 | Annual Report
PORTFOLIO BREAKDOWN
Franklin Missouri Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities 18.4%
Hospital & Health Care 14.0%
Higher Education 12.7%
Prerefunded 11.7%
Tax-Supported 10.3%
Subject to Government Appropriations 9.6%
Transportation 7.1%
Other Revenue 7.1%
General Obligation 6.2%
Corporate-Backed 1.8%
Housing 1.1%
* Does not include short-term investments and other net assets.
STATE UPDATE
During the reporting period, Missouri's trade- and manufacturing-based economy
reflected national trends as it weathered the recession. The state's
unemployment rate gradually rose during the first half of the reporting period
but then leveled off and held steady. At period-end, the local unemployment rate
stood at 9.4%, which was close to the 9.7% national rate.(3) Reflecting national
trends, the construction and mining and logging employment sectors shed the most
jobs. The presence of two Federal Reserve banks in the state, however, helped
stabilize the employment base, and consequently, the government sector
experienced slight growth. Also, the education and health services sector grew.
In fiscal year 2009, Missouri experienced sharp revenue declines due to lower
wages, lost income and job security fears associated with rising unemployment.
The state's general revenue reserves decreased, but officials reduced
expenditures through the use of federal assistance funds. Missouri ended that
fiscal year with a fully funded, albeit reduced, budget reserve fund. The
state's budget for fiscal year 2010 was based on projected increases in spending
and revenue collections as well as the use of federal stimulus funds. Revenues
declined however, and forced the governor to make substantial budget cuts that
included state technology programs.
Missouri's net tax-supported debt was relatively low at $664 per capita and 1.9%
of personal income, compared with the $739 and 2.1% national medians.(4)
Independent credit rating agency Standard & Poor's (S&P) assigned Missouri's
general obligation debt a rating of AAA with a stable outlook.(5) The rating and
outlook reflected S&P's assessment that the state will continue to maintain its
strong and diverse economic base, high reserve levels and strong financial
management with the power to make midyear budgetary cuts as needed.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate S&P's rating of the Fund.
Annual Report | 63
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Missouri Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
64 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN MISSOURI TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRMOX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $11.98 $11.28
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5118
CLASS C (SYMBOL: FMOIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.72 $12.07 $11.35
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4473
ADVISOR CLASS (SYMBOL: FRMZX) CHANGE 2/28/10 7/1/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.50 $11.98 $11.48
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3393
Annual Report | 65
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.93% +20.70% +71.21%
Average Annual Total Return(2) +6.22% +2.93% +5.07%
Avg. Ann. Total Return (3/31/10)(3) +6.09% +3.04% +4.81%
Distribution Rate(4) 4.06%
Taxable Equivalent Distribution Rate(5) 6.64%
30-Day Standardized Yield(6) 3.37%
Taxable Equivalent Yield(5) 5.52%
Total Annual Operating Expenses(7) 0.65%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.44% +17.49% +62.31%
Average Annual Total Return(2) +9.44% +3.28% +4.96%
Avg. Ann. Total Return (3/31/10)(3) +9.32% +3.38% +4.71%
Distribution Rate(4) 3.62%
Taxable Equivalent Distribution Rate(5) 5.92%
30-Day Standardized Yield(6) 2.97%
Taxable Equivalent Yield(5) 4.86%
Total Annual Operating Expenses(7) 1.20%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +10.98% +20.75% +71.29%
Average Annual Total Return(2) +10.98% +3.84% +5.53%
Avg. Ann. Total Return (3/31/10)(3) +10.87% +3.95% +5.27%
Distribution Rate(4) 4.32%
Taxable Equivalent Distribution Rate(5) 7.07%
30-Day Standardized Yield(6) 3.63%
Taxable Equivalent Yield(5) 5.94%
Total Annual Operating Expenses(7) 0.55%
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.
66 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MISSOURI BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ------------- ----------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,817 $10,218 $10,082
4/30/2000 $ 9,758 $10,158 $10,088
5/31/2000 $ 9,689 $10,105 $10,100
6/30/2000 $ 9,952 $10,373 $10,153
7/31/2000 $10,095 $10,518 $10,177
8/31/2000 $10,273 $10,680 $10,177
9/30/2000 $10,209 $10,624 $10,230
10/31/2000 $10,316 $10,740 $10,247
11/30/2000 $10,405 $10,821 $10,253
12/31/2000 $10,667 $11,089 $10,247
1/31/2001 $10,729 $11,198 $10,312
2/28/2001 $10,772 $11,234 $10,353
3/31/2001 $10,857 $11,334 $10,377
4/30/2001 $10,755 $11,212 $10,418
5/31/2001 $10,856 $11,332 $10,465
6/30/2001 $10,939 $11,408 $10,483
7/31/2001 $11,117 $11,577 $10,453
8/31/2001 $11,350 $11,768 $10,453
9/30/2001 $11,292 $11,729 $10,501
10/31/2001 $11,443 $11,868 $10,465
11/30/2001 $11,345 $11,768 $10,448
12/31/2001 $11,201 $11,657 $10,406
1/31/2002 $11,418 $11,859 $10,430
2/28/2002 $11,540 $12,002 $10,471
3/31/2002 $11,312 $11,767 $10,530
4/30/2002 $11,503 $11,997 $10,589
5/31/2002 $11,570 $12,070 $10,589
6/30/2002 $11,684 $12,197 $10,595
7/31/2002 $11,841 $12,354 $10,607
8/31/2002 $11,966 $12,503 $10,642
9/30/2002 $12,228 $12,776 $10,660
10/31/2002 $12,009 $12,565 $10,677
11/30/2002 $11,976 $12,512 $10,677
12/31/2002 $12,194 $12,776 $10,654
1/31/2003 $12,181 $12,744 $10,701
2/28/2003 $12,337 $12,922 $10,783
3/31/2003 $12,346 $12,930 $10,848
4/30/2003 $12,443 $13,015 $10,824
5/31/2003 $12,736 $13,320 $10,807
6/30/2003 $12,680 $13,263 $10,819
7/31/2003 $12,195 $12,799 $10,830
8/31/2003 $12,314 $12,895 $10,872
9/30/2003 $12,627 $13,274 $10,907
10/31/2003 $12,565 $13,207 $10,895
11/30/2003 $12,714 $13,345 $10,866
12/31/2003 $12,834 $13,455 $10,854
1/31/2004 $12,915 $13,532 $10,907
2/29/2004 $13,127 $13,736 $10,966
3/31/2004 $13,080 $13,688 $11,037
4/30/2004 $12,747 $13,364 $11,072
5/31/2004 $12,700 $13,315 $11,137
6/30/2004 $12,725 $13,364 $11,172
7/31/2004 $12,914 $13,540 $11,154
8/31/2004 $13,144 $13,811 $11,160
9/30/2004 $13,224 $13,884 $11,184
10/31/2004 $13,359 $14,004 $11,243
11/30/2004 $13,242 $13,888 $11,249
12/31/2004 $13,434 $14,058 $11,207
1/31/2005 $13,611 $14,189 $11,231
2/28/2005 $13,582 $14,142 $11,296
3/31/2005 $13,525 $14,053 $11,384
4/30/2005 $13,738 $14,274 $11,461
5/31/2005 $13,845 $14,375 $11,449
6/30/2005 $13,920 $14,464 $11,455
7/31/2005 $13,914 $14,399 $11,508
8/31/2005 $14,053 $14,544 $11,567
9/30/2005 $13,923 $14,446 $11,708
10/31/2005 $13,814 $14,359 $11,731
11/30/2005 $13,863 $14,428 $11,637
12/31/2005 $14,019 $14,552 $11,590
1/31/2006 $14,034 $14,591 $11,678
2/28/2006 $14,170 $14,689 $11,702
3/31/2006 $14,064 $14,588 $11,767
4/30/2006 $14,055 $14,583 $11,867
5/31/2006 $14,084 $14,648 $11,926
6/30/2006 $14,030 $14,592 $11,949
7/31/2006 $14,197 $14,766 $11,985
8/31/2006 $14,412 $14,985 $12,008
9/30/2006 $14,509 $15,089 $11,949
10/31/2006 $14,609 $15,184 $11,885
11/30/2006 $14,753 $15,311 $11,867
12/31/2006 $14,696 $15,257 $11,885
1/31/2007 $14,653 $15,217 $11,921
2/28/2007 $14,857 $15,418 $11,985
3/31/2007 $14,793 $15,380 $12,094
4/30/2007 $14,843 $15,426 $12,172
5/31/2007 $14,775 $15,357 $12,247
6/30/2007 $14,693 $15,278 $12,270
7/31/2007 $14,806 $15,396 $12,267
8/31/2007 $14,662 $15,330 $12,245
9/30/2007 $14,896 $15,557 $12,279
10/31/2007 $14,962 $15,626 $12,305
11/30/2007 $15,028 $15,726 $12,378
12/31/2007 $15,030 $15,769 $12,370
1/31/2008 $15,119 $15,968 $12,431
2/29/2008 $14,433 $15,237 $12,467
3/31/2008 $14,849 $15,672 $12,575
4/30/2008 $15,093 $15,856 $12,652
5/31/2008 $15,199 $15,952 $12,758
6/30/2008 $15,010 $15,771 $12,887
7/31/2008 $15,004 $15,831 $12,954
8/31/2008 $15,135 $16,017 $12,903
9/30/2008 $14,253 $15,265 $12,885
10/31/2008 $14,134 $15,110 $12,755
11/30/2008 $14,045 $15,158 $12,510
12/31/2008 $14,283 $15,379 $12,381
1/31/2009 $14,638 $15,942 $12,435
2/28/2009 $14,780 $16,025 $12,497
3/31/2009 $14,805 $16,028 $12,527
4/30/2009 $15,109 $16,349 $12,558
5/31/2009 $15,337 $16,522 $12,595
6/30/2009 $15,272 $16,367 $12,703
7/31/2009 $15,438 $16,641 $12,683
8/31/2009 $15,695 $16,925 $12,711
9/30/2009 $16,299 $17,532 $12,719
10/31/2009 $16,010 $17,164 $12,731
11/30/2009 $16,093 $17,306 $12,740
12/31/2009 $16,204 $17,365 $12,718
1/31/2010 $16,276 $17,455 $12,761
2/28/2010 $16,392 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.22%
5-Year +2.93%
10-Year +5.07%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN MISSOURI BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ------------- ----------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,247 $10,218 $10,082
4/30/2000 $10,181 $10,158 $10,088
5/31/2000 $10,114 $10,105 $10,100
6/30/2000 $10,373 $10,373 $10,153
7/31/2000 $10,526 $10,518 $10,177
8/31/2000 $10,697 $10,680 $10,177
9/30/2000 $10,635 $10,624 $10,230
10/31/2000 $10,742 $10,740 $10,247
11/30/2000 $10,829 $10,821 $10,253
12/31/2000 $11,095 $11,089 $10,247
1/31/2001 $11,154 $11,198 $10,312
2/28/2001 $11,194 $11,234 $10,353
3/31/2001 $11,286 $11,334 $10,377
4/30/2001 $11,166 $11,212 $10,418
5/31/2001 $11,265 $11,332 $10,465
6/30/2001 $11,345 $11,408 $10,483
7/31/2001 $11,525 $11,577 $10,453
8/31/2001 $11,760 $11,768 $10,453
9/30/2001 $11,705 $11,729 $10,501
10/31/2001 $11,855 $11,868 $10,465
11/30/2001 $11,749 $11,768 $10,448
12/31/2001 $11,595 $11,657 $10,406
1/31/2002 $11,803 $11,859 $10,430
2/28/2002 $11,933 $12,002 $10,471
3/31/2002 $11,692 $11,767 $10,530
4/30/2002 $11,883 $11,997 $10,589
5/31/2002 $11,946 $12,070 $10,589
6/30/2002 $12,059 $12,197 $10,595
7/31/2002 $12,214 $12,354 $10,607
8/31/2002 $12,337 $12,503 $10,642
9/30/2002 $12,601 $12,776 $10,660
10/31/2002 $12,371 $12,565 $10,677
11/30/2002 $12,332 $12,512 $10,677
12/31/2002 $12,549 $12,776 $10,654
1/31/2003 $12,530 $12,744 $10,701
2/28/2003 $12,685 $12,922 $10,783
3/31/2003 $12,689 $12,930 $10,848
4/30/2003 $12,782 $13,015 $10,824
5/31/2003 $13,076 $13,320 $10,807
6/30/2003 $13,024 $13,263 $10,819
7/31/2003 $12,512 $12,799 $10,830
8/31/2003 $12,627 $12,895 $10,872
9/30/2003 $12,940 $13,274 $10,907
10/31/2003 $12,879 $13,207 $10,895
11/30/2003 $13,025 $13,345 $10,866
12/31/2003 $13,131 $13,455 $10,854
1/31/2004 $13,217 $13,532 $10,907
2/29/2004 $13,417 $13,736 $10,966
3/31/2004 $13,374 $13,688 $11,037
4/30/2004 $13,029 $13,364 $11,072
5/31/2004 $12,975 $13,315 $11,137
6/30/2004 $12,995 $13,364 $11,172
7/31/2004 $13,169 $13,540 $11,154
8/31/2004 $13,408 $13,811 $11,160
9/30/2004 $13,483 $13,884 $11,184
10/31/2004 $13,614 $14,004 $11,243
11/30/2004 $13,489 $13,888 $11,249
12/31/2004 $13,677 $14,058 $11,207
1/31/2005 $13,850 $14,189 $11,231
2/28/2005 $13,814 $14,142 $11,296
3/31/2005 $13,750 $14,053 $11,384
4/30/2005 $13,959 $14,274 $11,461
5/31/2005 $14,071 $14,375 $11,449
6/30/2005 $14,129 $14,464 $11,455
7/31/2005 $14,117 $14,399 $11,508
8/31/2005 $14,250 $14,544 $11,567
9/30/2005 $14,113 $14,446 $11,708
10/31/2005 $14,008 $14,359 $11,731
11/30/2005 $14,040 $14,428 $11,637
12/31/2005 $14,190 $14,552 $11,590
1/31/2006 $14,199 $14,591 $11,678
2/28/2006 $14,342 $14,689 $11,702
3/31/2006 $14,217 $14,588 $11,767
4/30/2006 $14,202 $14,583 $11,867
5/31/2006 $14,223 $14,648 $11,926
6/30/2006 $14,163 $14,592 $11,949
7/31/2006 $14,324 $14,766 $11,985
8/31/2006 $14,533 $14,985 $12,008
9/30/2006 $14,636 $15,089 $11,949
10/31/2006 $14,729 $15,184 $11,885
11/30/2006 $14,867 $15,311 $11,867
12/31/2006 $14,792 $15,257 $11,885
1/31/2007 $14,753 $15,217 $11,921
2/28/2007 $14,952 $15,418 $11,985
3/31/2007 $14,880 $15,380 $12,094
4/30/2007 $14,911 $15,426 $12,172
5/31/2007 $14,835 $15,357 $12,247
6/30/2007 $14,759 $15,278 $12,270
7/31/2007 $14,865 $15,396 $12,267
8/31/2007 $14,714 $15,330 $12,245
9/30/2007 $14,929 $15,557 $12,279
10/31/2007 $15,000 $15,626 $12,305
11/30/2007 $15,058 $15,726 $12,378
12/31/2007 $15,054 $15,769 $12,370
1/31/2008 $15,124 $15,968 $12,431
2/29/2008 $14,435 $15,237 $12,467
3/31/2008 $14,855 $15,672 $12,575
4/30/2008 $15,077 $15,856 $12,652
5/31/2008 $15,187 $15,952 $12,758
6/30/2008 $14,993 $15,771 $12,887
7/31/2008 $14,980 $15,831 $12,954
8/31/2008 $15,103 $16,017 $12,903
9/30/2008 $14,210 $15,265 $12,885
10/31/2008 $14,084 $15,110 $12,755
11/30/2008 $14,002 $15,158 $12,510
12/31/2008 $14,219 $15,379 $12,381
1/31/2009 $14,564 $15,942 $12,435
2/28/2009 $14,698 $16,025 $12,497
3/31/2009 $14,716 $16,028 $12,527
4/30/2009 $15,022 $16,349 $12,558
5/31/2009 $15,241 $16,522 $12,595
6/30/2009 $15,170 $16,367 $12,703
7/31/2009 $15,326 $16,641 $12,683
8/31/2009 $15,573 $16,925 $12,711
9/30/2009 $16,175 $17,532 $12,719
10/31/2009 $15,882 $17,164 $12,731
11/30/2009 $15,944 $17,306 $12,740
12/31/2009 $16,059 $17,365 $12,718
1/31/2010 $16,109 $17,455 $12,761
2/28/2010 $16,231 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.44%
5-Year +3.28%
10-Year +4.96%
Annual Report | 67
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +10.98%
5-Year +3.84%
10-Year +5.53%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN MISSOURI BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - ADVISOR CLASS INDEX CPI
- ------------- -------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,253 $10,218 $10,082
4/30/2000 $10,191 $10,158 $10,088
5/31/2000 $10,119 $10,105 $10,100
6/30/2000 $10,394 $10,373 $10,153
7/31/2000 $10,543 $10,518 $10,177
8/31/2000 $10,729 $10,680 $10,177
9/30/2000 $10,662 $10,624 $10,230
10/31/2000 $10,774 $10,740 $10,247
11/30/2000 $10,867 $10,821 $10,253
12/31/2000 $11,140 $11,089 $10,247
1/31/2001 $11,205 $11,198 $10,312
2/28/2001 $11,250 $11,234 $10,353
3/31/2001 $11,339 $11,334 $10,377
4/30/2001 $11,233 $11,212 $10,418
5/31/2001 $11,338 $11,332 $10,465
6/30/2001 $11,424 $11,408 $10,483
7/31/2001 $11,611 $11,577 $10,453
8/31/2001 $11,854 $11,768 $10,453
9/30/2001 $11,793 $11,729 $10,501
10/31/2001 $11,951 $11,868 $10,465
11/30/2001 $11,849 $11,768 $10,448
12/31/2001 $11,699 $11,657 $10,406
1/31/2002 $11,925 $11,859 $10,430
2/28/2002 $12,052 $12,002 $10,471
3/31/2002 $11,814 $11,767 $10,530
4/30/2002 $12,013 $11,997 $10,589
5/31/2002 $12,083 $12,070 $10,589
6/30/2002 $12,203 $12,197 $10,595
7/31/2002 $12,366 $12,354 $10,607
8/31/2002 $12,497 $12,503 $10,642
9/30/2002 $12,770 $12,776 $10,660
10/31/2002 $12,542 $12,565 $10,677
11/30/2002 $12,508 $12,512 $10,677
12/31/2002 $12,735 $12,776 $10,654
1/31/2003 $12,721 $12,744 $10,701
2/28/2003 $12,884 $12,922 $10,783
3/31/2003 $12,894 $12,930 $10,848
4/30/2003 $12,995 $13,015 $10,824
5/31/2003 $13,302 $13,320 $10,807
6/30/2003 $13,243 $13,263 $10,819
7/31/2003 $12,736 $12,799 $10,830
8/31/2003 $12,860 $12,895 $10,872
9/30/2003 $13,188 $13,274 $10,907
10/31/2003 $13,123 $13,207 $10,895
11/30/2003 $13,279 $13,345 $10,866
12/31/2003 $13,404 $13,455 $10,854
1/31/2004 $13,488 $13,532 $10,907
2/29/2004 $13,710 $13,736 $10,966
3/31/2004 $13,660 $13,688 $11,037
4/30/2004 $13,313 $13,364 $11,072
5/31/2004 $13,263 $13,315 $11,137
6/30/2004 $13,289 $13,364 $11,172
7/31/2004 $13,487 $13,540 $11,154
8/31/2004 $13,728 $13,811 $11,160
9/30/2004 $13,811 $13,884 $11,184
10/31/2004 $13,952 $14,004 $11,243
11/30/2004 $13,830 $13,888 $11,249
12/31/2004 $14,030 $14,058 $11,207
1/31/2005 $14,215 $14,189 $11,231
2/28/2005 $14,185 $14,142 $11,296
3/31/2005 $14,126 $14,053 $11,384
4/30/2005 $14,348 $14,274 $11,461
5/31/2005 $14,459 $14,375 $11,449
6/30/2005 $14,538 $14,464 $11,455
7/31/2005 $14,532 $14,399 $11,508
8/31/2005 $14,677 $14,544 $11,567
9/30/2005 $14,542 $14,446 $11,708
10/31/2005 $14,427 $14,359 $11,731
11/30/2005 $14,479 $14,428 $11,637
12/31/2005 $14,641 $14,552 $11,590
1/31/2006 $14,656 $14,591 $11,678
2/28/2006 $14,799 $14,689 $11,702
3/31/2006 $14,688 $14,588 $11,767
4/30/2006 $14,679 $14,583 $11,867
5/31/2006 $14,709 $14,648 $11,926
6/30/2006 $14,653 $14,592 $11,949
7/31/2006 $14,827 $14,766 $11,985
8/31/2006 $15,052 $14,985 $12,008
9/30/2006 $15,153 $15,089 $11,949
10/31/2006 $15,258 $15,184 $11,885
11/30/2006 $15,407 $15,311 $11,867
12/31/2006 $15,349 $15,257 $11,885
1/31/2007 $15,303 $15,217 $11,921
2/28/2007 $15,517 $15,418 $11,985
3/31/2007 $15,450 $15,380 $12,094
4/30/2007 $15,502 $15,426 $12,172
5/31/2007 $15,430 $15,357 $12,247
6/30/2007 $15,345 $15,278 $12,270
7/31/2007 $15,463 $15,396 $12,267
8/31/2007 $15,313 $15,330 $12,245
9/30/2007 $15,558 $15,557 $12,279
10/31/2007 $15,626 $15,626 $12,305
11/30/2007 $15,695 $15,726 $12,378
12/31/2007 $15,697 $15,769 $12,370
1/31/2008 $15,790 $15,968 $12,431
2/29/2008 $15,074 $15,237 $12,467
3/31/2008 $15,508 $15,672 $12,575
4/30/2008 $15,763 $15,856 $12,652
5/31/2008 $15,873 $15,952 $12,758
6/30/2008 $15,676 $15,771 $12,887
7/31/2008 $15,670 $15,831 $12,954
8/31/2008 $15,807 $16,017 $12,903
9/30/2008 $14,886 $15,265 $12,885
10/31/2008 $14,761 $15,110 $12,755
11/30/2008 $14,668 $15,158 $12,510
12/31/2008 $14,917 $15,379 $12,381
1/31/2009 $15,288 $15,942 $12,435
2/28/2009 $15,436 $16,025 $12,497
3/31/2009 $15,462 $16,028 $12,527
4/30/2009 $15,779 $16,349 $12,558
5/31/2009 $16,018 $16,522 $12,595
6/30/2009 $15,950 $16,367 $12,703
7/31/2009 $16,122 $16,641 $12,683
8/31/2009 $16,391 $16,925 $12,711
9/30/2009 $17,024 $17,532 $12,719
10/31/2009 $16,724 $17,164 $12,731
11/30/2009 $16,813 $17,306 $12,740
12/31/2009 $16,930 $17,365 $12,718
1/31/2010 $17,006 $17,455 $12,761
2/28/2010 $17,129 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Missouri
personal income tax rate of 38.90%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +7.37%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
68 | Annual Report
Your Fund's Expenses
FRANKLIN MISSOURI TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 69
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,044.50 $3.30
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
CLASS C
Actual $1,000 $1,042.30 $6.08
Hypothetical (5% return before expenses) $1,000 $1,018.84 $6.01
ADVISOR CLASS
Actual $1,000 $1,045.00 $2.79
Hypothetical (5% return before expenses) $1,000 $1,022.07 $2.76
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.65%; C: 1.20%; and Advisor: 0.55%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
70 | Annual Report
Franklin North Carolina Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin North Carolina Tax-Free Income
Fund seeks to provide as high a level of income exempt from federal and North
Carolina 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 BREAKDOWN*
Franklin North Carolina Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ............... 29.7%
AA ................ 27.3%
A ................. 26.2%
BBB ............... 9.6%
Not Rated by S&P .. 7.2%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 0.3%
AA or Aa 4.0% 0.1%
A 1.2% 0.2%
BBB or Baa 0.7% 0.6%
Below Investment Grade 0.1% --
--- ---
Total 6.0% 1.2%
=== ===
We are pleased to bring you Franklin North Carolina Tax-Free Income Fund's
annual report for the fiscal year ended February 28, 2010.
(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.
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 142.
Annual Report | 71
DIVIDEND DISTRIBUTIONS*
Franklin North Carolina Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.19 cents 3.68 cents --
April 2009 4.19 cents 3.68 cents --
May 2009 4.19 cents 3.68 cents --
June 2009 4.22 cents 3.67 cents --
July 2009 4.22 cents 3.67 cents 2.78 cents
August 2009 4.22 cents 3.67 cents 4.31 cents
September 2009 4.22 cents 3.67 cents 4.32 cents
October 2009 4.22 cents 3.67 cents 4.32 cents
November 2009 4.22 cents 3.67 cents 4.32 cents
December 2009 4.22 cents 3.63 cents 4.32 cents
January 2010 4.22 cents 3.63 cents 4.32 cents
February 2010 4.22 cents 3.63 cents 4.32 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.37 on February 28, 2009, to $12.15 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 50.48 cents per share for the same period.(2) The
Performance Summary beginning on page 74 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.99% based on an
annualization of the current 4.22 cent per share dividend and the maximum
offering price of $12.69 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and North Carolina personal income tax bracket of
40.04% would need to earn a distribution rate of 6.65% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class C
and Advisor shares' performance, please see the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
72 | Annual Report
PORTFOLIO BREAKDOWN
Franklin North Carolina Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities 20.3%
Hospital & Health Care 19.4%
Subject to Government Appropriations 13.9%
Higher Education 11.6%
Transportation 10.4%
Prerefunded 7.6%
Tax-Supported 7.0%
General Obligation 6.2%
Housing 1.6%
Other Revenue 1.2%
Corporate-Backed 0.8%
* Does not include short-term investments and other net assets.
STATE UPDATE
During the reporting period, North Carolina's economy continued to feel the
impact of the national recession. The state's unemployment rate steadily climbed
to 11.2% at period-end, which was higher than the national 9.7% rate and its
highest level in decades.(3) Following national trends, the construction and
manufacturing employment sectors sustained heavy job losses. The government
sector and education and health services sector, however, modestly grew.
North Carolina's fiscal year 2009 revenue collections were weak as income, sales
and corporate taxes came in below budgeted levels. State officials responded by
issuing budget cuts, transferring funds and using federal recovery funds.
Revenue collections continued to deteriorate and impacted the governor's
biennial budget for fiscal years 2010 and 2011. The governor proposed closing
the budget gaps through the use of additional budget cuts, federal stimulus
funds and tax increases on alcohol and tobacco products.
North Carolina's net tax-supported debt was moderate at $730 per capita and 2.1%
of personal income, compared with the $739 and 2.1% national medians.(4)
Independent credit rating agency Standard & Poor's (S&P) assigned North
Carolina's general obligation debt a rating of AAA with a stable outlook.(5) The
rating and outlook reflected the state's history of prudent fiscal management
and moderate debt burden as well as S&P's assessment that despite the economic
slowdown, the basic underpinnings of the state's economy still remained.
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin North Carolina Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate S&P's rating of the Fund.
Annual Report | 73
Performance Summary as of 2/28/10
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FXNCX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.78 $12.15 $11.37
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5048
CLASS C (SYMBOL: FNCIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.81 $12.30 $11.49
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4388
ADVISOR CLASS (SYMBOL: FNCZX) CHANGE 2/28/10 7/1/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.51 $12.15 $11.64
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3363
74 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +11.47% +21.34% +72.40%
Average Annual Total Return(2) +6.78% +3.04% +5.14%
Avg. Ann. Total Return (3/31/10)(3) +6.84% +3.22% +4.92%
Distribution Rate(4) 3.99%
Taxable Equivalent Distribution Rate(5) 6.65%
30-Day Standardized Yield(6) 3.51%
Taxable Equivalent Yield(5) 5.85%
Total Annual Operating Expenses(7) 0.64%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +11.01% +18.20% +63.29%
Average Annual Total Return(2) +10.01% +3.40% +5.03%
Avg. Ann. Total Return (3/31/10)(3) +9.89% +3.53% +4.80%
Distribution Rate(4) 3.54%
Taxable Equivalent Distribution Rate(5) 5.90%
30-Day Standardized Yield(6) 3.12%
Taxable Equivalent Yield(5) 5.20%
Total Annual Operating Expenses(7) 1.19%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +11.53% +21.40% +72.48%
Average Annual Total Return(2) +11.53% +3.95% +5.60%
Avg. Ann. Total Return (3/31/10)(3) +11.51% +4.11% +5.38%
Distribution Rate(4) 4.27%
Taxable Equivalent Distribution Rate(5) 7.12%
30-Day Standardized Yield(6) 3.77%
Taxable Equivalent Yield(5) 6.29%
Total Annual Operating Expenses(7) 0.54%
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.
Annual Report | 75
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.78%
5-Year +3.04%
10-Year +5.14%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN NORTH
CAROLINA BARCLAYS
TAX-FREE CAPITAL
INCOME MUNICIPAL
DATE FUND - CLASS A BOND INDEX CPI
- ---------- -------------- ---------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,807 $10,218 $10,082
4/30/2000 $ 9,748 $10,158 $10,088
5/31/2000 $ 9,697 $10,105 $10,100
6/30/2000 $ 9,941 $10,373 $10,153
7/31/2000 $10,093 $10,518 $10,177
8/31/2000 $10,244 $10,680 $10,177
9/30/2000 $10,188 $10,624 $10,230
10/31/2000 $10,305 $10,740 $10,247
11/30/2000 $10,394 $10,821 $10,253
12/31/2000 $10,646 $11,089 $10,247
1/31/2001 $10,717 $11,198 $10,312
2/28/2001 $10,761 $11,234 $10,353
3/31/2001 $10,847 $11,334 $10,377
4/30/2001 $10,718 $11,212 $10,418
5/31/2001 $10,819 $11,332 $10,465
6/30/2001 $10,912 $11,408 $10,483
7/31/2001 $11,118 $11,577 $10,453
8/31/2001 $11,286 $11,768 $10,453
9/30/2001 $11,229 $11,729 $10,501
10/31/2001 $11,371 $11,868 $10,465
11/30/2001 $11,292 $11,768 $10,448
12/31/2001 $11,167 $11,657 $10,406
1/31/2002 $11,345 $11,859 $10,430
2/28/2002 $11,485 $12,002 $10,471
3/31/2002 $11,275 $11,767 $10,530
4/30/2002 $11,475 $11,997 $10,589
5/31/2002 $11,530 $12,070 $10,589
6/30/2002 $11,633 $12,197 $10,595
7/31/2002 $11,778 $12,354 $10,607
8/31/2002 $11,921 $12,503 $10,642
9/30/2002 $12,191 $12,776 $10,660
10/31/2002 $11,992 $12,565 $10,677
11/30/2002 $11,958 $12,512 $10,677
12/31/2002 $12,204 $12,776 $10,654
1/31/2003 $12,171 $12,744 $10,701
2/28/2003 $12,316 $12,922 $10,783
3/31/2003 $12,315 $12,930 $10,848
4/30/2003 $12,381 $13,015 $10,824
5/31/2003 $12,673 $13,320 $10,807
6/30/2003 $12,637 $13,263 $10,819
7/31/2003 $12,194 $12,799 $10,830
8/31/2003 $12,291 $12,895 $10,872
9/30/2003 $12,604 $13,274 $10,907
10/31/2003 $12,551 $13,207 $10,895
11/30/2003 $12,699 $13,345 $10,866
12/31/2003 $12,809 $13,455 $10,854
1/31/2004 $12,889 $13,532 $10,907
2/29/2004 $13,070 $13,736 $10,966
3/31/2004 $13,065 $13,688 $11,037
4/30/2004 $12,766 $13,364 $11,072
5/31/2004 $12,719 $13,315 $11,137
6/30/2004 $12,777 $13,364 $11,172
7/31/2004 $12,955 $13,540 $11,154
8/31/2004 $13,175 $13,811 $11,160
9/30/2004 $13,255 $13,884 $11,184
10/31/2004 $13,380 $14,004 $11,243
11/30/2004 $13,275 $13,888 $11,249
12/31/2004 $13,444 $14,058 $11,207
1/31/2005 $13,621 $14,189 $11,231
2/28/2005 $13,603 $14,142 $11,296
3/31/2005 $13,536 $14,053 $11,384
4/30/2005 $13,726 $14,274 $11,461
5/31/2005 $13,821 $14,375 $11,449
6/30/2005 $13,895 $14,464 $11,455
7/31/2005 $13,856 $14,399 $11,508
8/31/2005 $13,972 $14,544 $11,567
9/30/2005 $13,887 $14,446 $11,708
10/31/2005 $13,823 $14,359 $11,731
11/30/2005 $13,871 $14,428 $11,637
12/31/2005 $13,991 $14,552 $11,590
1/31/2006 $14,016 $14,591 $11,678
2/28/2006 $14,129 $14,689 $11,702
3/31/2006 $14,045 $14,588 $11,767
4/30/2006 $14,048 $14,583 $11,867
5/31/2006 $14,087 $14,648 $11,926
6/30/2006 $14,033 $14,592 $11,949
7/31/2006 $14,188 $14,766 $11,985
8/31/2006 $14,390 $14,985 $12,008
9/30/2006 $14,486 $15,089 $11,949
10/31/2006 $14,586 $15,184 $11,885
11/30/2006 $14,728 $15,311 $11,867
12/31/2006 $14,672 $15,257 $11,885
1/31/2007 $14,628 $15,217 $11,921
2/28/2007 $14,820 $15,418 $11,985
3/31/2007 $14,755 $15,380 $12,094
4/30/2007 $14,803 $15,426 $12,172
5/31/2007 $14,746 $15,357 $12,247
6/30/2007 $14,663 $15,278 $12,270
7/31/2007 $14,750 $15,396 $12,267
8/31/2007 $14,617 $15,330 $12,245
9/30/2007 $14,837 $15,557 $12,279
10/31/2007 $14,913 $15,626 $12,305
11/30/2007 $14,965 $15,726 $12,378
12/31/2007 $14,978 $15,769 $12,370
1/31/2008 $15,065 $15,968 $12,431
2/29/2008 $14,293 $15,237 $12,467
3/31/2008 $14,743 $15,672 $12,575
4/30/2008 $15,022 $15,856 $12,652
5/31/2008 $15,138 $15,952 $12,758
6/30/2008 $14,961 $15,771 $12,887
7/31/2008 $14,966 $15,831 $12,954
8/31/2008 $15,108 $16,017 $12,903
9/30/2008 $14,165 $15,265 $12,885
10/31/2008 $13,993 $15,110 $12,755
11/30/2008 $13,761 $15,158 $12,510
12/31/2008 $13,983 $15,379 $12,381
1/31/2009 $14,424 $15,942 $12,435
2/28/2009 $14,810 $16,025 $12,497
3/31/2009 $14,847 $16,028 $12,527
4/30/2009 $15,277 $16,349 $12,558
5/31/2009 $15,477 $16,522 $12,595
6/30/2009 $15,386 $16,367 $12,703
7/31/2009 $15,550 $16,641 $12,683
8/31/2009 $15,884 $16,925 $12,711
9/30/2009 $16,484 $17,532 $12,719
10/31/2009 $16,209 $17,164 $12,731
11/30/2009 $16,225 $17,306 $12,740
12/31/2009 $16,361 $17,365 $12,718
1/31/2010 $16,392 $17,455 $12,761
2/28/2010 $16,507 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +10.01%
5-Year +3.40%
10-Year +5.03%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN NORTH
CAROLINA BARCLAYS
TAX-FREE CAPITAL
INCOME MUNICIPAL
DATE FUND - CLASS C BOND INDEX CPI
- ---------- -------------- ---------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,237 $10,218 $10,082
4/30/2000 $10,170 $10,158 $10,088
5/31/2000 $10,103 $10,105 $10,100
6/30/2000 $10,361 $10,373 $10,153
7/31/2000 $10,513 $10,518 $10,177
8/31/2000 $10,664 $10,680 $10,177
9/30/2000 $10,602 $10,624 $10,230
10/31/2000 $10,718 $10,740 $10,247
11/30/2000 $10,805 $10,821 $10,253
12/31/2000 $11,061 $11,089 $10,247
1/31/2001 $11,138 $11,198 $10,312
2/28/2001 $11,178 $11,234 $10,353
3/31/2001 $11,261 $11,334 $10,377
4/30/2001 $11,114 $11,212 $10,418
5/31/2001 $11,222 $11,332 $10,465
6/30/2001 $11,312 $11,408 $10,483
7/31/2001 $11,519 $11,577 $10,453
8/31/2001 $11,687 $11,768 $10,453
9/30/2001 $11,622 $11,729 $10,501
10/31/2001 $11,763 $11,868 $10,465
11/30/2001 $11,677 $11,768 $10,448
12/31/2001 $11,543 $11,657 $10,406
1/31/2002 $11,730 $11,859 $10,430
2/28/2002 $11,859 $12,002 $10,471
3/31/2002 $11,637 $11,767 $10,530
4/30/2002 $11,836 $11,997 $10,589
5/31/2002 $11,898 $12,070 $10,589
6/30/2002 $11,998 $12,197 $10,595
7/31/2002 $12,139 $12,354 $10,607
8/31/2002 $12,280 $12,503 $10,642
9/30/2002 $12,561 $12,776 $10,660
10/31/2002 $12,342 $12,565 $10,677
11/30/2002 $12,302 $12,512 $10,677
12/31/2002 $12,547 $12,776 $10,654
1/31/2003 $12,508 $12,744 $10,701
2/28/2003 $12,660 $12,922 $10,783
3/31/2003 $12,643 $12,930 $10,848
4/30/2003 $12,715 $13,015 $10,824
5/31/2003 $13,006 $13,320 $10,807
6/30/2003 $12,965 $13,263 $10,819
7/31/2003 $12,497 $12,799 $10,830
8/31/2003 $12,600 $12,895 $10,872
9/30/2003 $12,901 $13,274 $10,907
10/31/2003 $12,840 $13,207 $10,895
11/30/2003 $12,994 $13,345 $10,866
12/31/2003 $13,099 $13,455 $10,854
1/31/2004 $13,174 $13,532 $10,907
2/29/2004 $13,362 $13,736 $10,966
3/31/2004 $13,340 $13,688 $11,037
4/30/2004 $13,031 $13,364 $11,072
5/31/2004 $12,978 $13,315 $11,137
6/30/2004 $13,030 $13,364 $11,172
7/31/2004 $13,204 $13,540 $11,154
8/31/2004 $13,431 $13,811 $11,160
9/30/2004 $13,495 $13,884 $11,184
10/31/2004 $13,615 $14,004 $11,243
11/30/2004 $13,514 $13,888 $11,249
12/31/2004 $13,678 $14,058 $11,207
1/31/2005 $13,839 $14,189 $11,231
2/28/2005 $13,815 $14,142 $11,296
3/31/2005 $13,751 $14,053 $11,384
4/30/2005 $13,936 $14,274 $11,461
5/31/2005 $14,024 $14,375 $11,449
6/30/2005 $14,093 $14,464 $11,455
7/31/2005 $14,047 $14,399 $11,508
8/31/2005 $14,157 $14,544 $11,567
9/30/2005 $14,066 $14,446 $11,708
10/31/2005 $13,995 $14,359 $11,731
11/30/2005 $14,037 $14,428 $11,637
12/31/2005 $14,150 $14,552 $11,590
1/31/2006 $14,169 $14,591 $11,678
2/28/2006 $14,288 $14,689 $11,702
3/31/2006 $14,186 $14,588 $11,767
4/30/2006 $14,182 $14,583 $11,867
5/31/2006 $14,214 $14,648 $11,926
6/30/2006 $14,154 $14,592 $11,949
7/31/2006 $14,313 $14,766 $11,985
8/31/2006 $14,509 $14,985 $12,008
9/30/2006 $14,587 $15,089 $11,949
10/31/2006 $14,691 $15,184 $11,885
11/30/2006 $14,815 $15,311 $11,867
12/31/2006 $14,752 $15,257 $11,885
1/31/2007 $14,713 $15,217 $11,921
2/28/2007 $14,897 $15,418 $11,985
3/31/2007 $14,825 $15,380 $12,094
4/30/2007 $14,867 $15,426 $12,172
5/31/2007 $14,791 $15,357 $12,247
6/30/2007 $14,713 $15,278 $12,270
7/31/2007 $14,793 $15,396 $12,267
8/31/2007 $14,642 $15,330 $12,245
9/30/2007 $14,866 $15,557 $12,279
10/31/2007 $14,922 $15,626 $12,305
11/30/2007 $14,979 $15,726 $12,378
12/31/2007 $14,985 $15,769 $12,370
1/31/2008 $15,064 $15,968 $12,431
2/29/2008 $14,282 $15,237 $12,467
3/31/2008 $14,720 $15,672 $12,575
4/30/2008 $15,001 $15,856 $12,652
5/31/2008 $15,108 $15,952 $12,758
6/30/2008 $14,927 $15,771 $12,887
7/31/2008 $14,924 $15,831 $12,954
8/31/2008 $15,058 $16,017 $12,903
9/30/2008 $14,109 $15,265 $12,885
10/31/2008 $13,932 $15,110 $12,755
11/30/2008 $13,697 $15,158 $12,510
12/31/2008 $13,909 $15,379 $12,381
1/31/2009 $14,350 $15,942 $12,435
2/28/2009 $14,711 $16,025 $12,497
3/31/2009 $14,752 $16,028 $12,527
4/30/2009 $15,182 $16,349 $12,558
5/31/2009 $15,371 $16,522 $12,595
6/30/2009 $15,275 $16,367 $12,703
7/31/2009 $15,429 $16,641 $12,683
8/31/2009 $15,749 $16,925 $12,711
9/30/2009 $16,330 $17,532 $12,719
10/31/2009 $16,054 $17,164 $12,731
11/30/2009 $16,061 $17,306 $12,740
12/31/2009 $16,187 $17,365 $12,718
1/31/2010 $16,209 $17,455 $12,761
2/28/2010 $16,329 $17,624 $12,764
76 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +11.53%
5-Year +3.95%
10-Year +5.60%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN NORTH
CAROLINA BARCLAYS
TAX-FREE CAPITAL
INCOME FUND - MUNICIPAL
DATE ADVISOR CLASS BOND INDEX CPI
- ---------- -------------- ---------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,243 $10,218 $10,082
4/30/2000 $10,181 $10,158 $10,088
5/31/2000 $10,127 $10,105 $10,100
6/30/2000 $10,383 $10,373 $10,153
7/31/2000 $10,541 $10,518 $10,177
8/31/2000 $10,698 $10,680 $10,177
9/30/2000 $10,641 $10,624 $10,230
10/31/2000 $10,763 $10,740 $10,247
11/30/2000 $10,855 $10,821 $10,253
12/31/2000 $11,119 $11,089 $10,247
1/31/2001 $11,193 $11,198 $10,312
2/28/2001 $11,238 $11,234 $10,353
3/31/2001 $11,328 $11,334 $10,377
4/30/2001 $11,194 $11,212 $10,418
5/31/2001 $11,300 $11,332 $10,465
6/30/2001 $11,396 $11,408 $10,483
7/31/2001 $11,612 $11,577 $10,453
8/31/2001 $11,787 $11,768 $10,453
9/30/2001 $11,727 $11,729 $10,501
10/31/2001 $11,875 $11,868 $10,465
11/30/2001 $11,793 $11,768 $10,448
12/31/2001 $11,663 $11,657 $10,406
1/31/2002 $11,848 $11,859 $10,430
2/28/2002 $11,995 $12,002 $10,471
3/31/2002 $11,776 $11,767 $10,530
4/30/2002 $11,984 $11,997 $10,589
5/31/2002 $12,042 $12,070 $10,589
6/30/2002 $12,150 $12,197 $10,595
7/31/2002 $12,301 $12,354 $10,607
8/31/2002 $12,450 $12,503 $10,642
9/30/2002 $12,732 $12,776 $10,660
10/31/2002 $12,524 $12,565 $10,677
11/30/2002 $12,489 $12,512 $10,677
12/31/2002 $12,746 $12,776 $10,654
1/31/2003 $12,711 $12,744 $10,701
2/28/2003 $12,862 $12,922 $10,783
3/31/2003 $12,861 $12,930 $10,848
4/30/2003 $12,930 $13,015 $10,824
5/31/2003 $13,235 $13,320 $10,807
6/30/2003 $13,198 $13,263 $10,819
7/31/2003 $12,735 $12,799 $10,830
8/31/2003 $12,837 $12,895 $10,872
9/30/2003 $13,163 $13,274 $10,907
10/31/2003 $13,108 $13,207 $10,895
11/30/2003 $13,263 $13,345 $10,866
12/31/2003 $13,377 $13,455 $10,854
1/31/2004 $13,461 $13,532 $10,907
2/29/2004 $13,650 $13,736 $10,966
3/31/2004 $13,645 $13,688 $11,037
4/30/2004 $13,332 $13,364 $11,072
5/31/2004 $13,284 $13,315 $11,137
6/30/2004 $13,344 $13,364 $11,172
7/31/2004 $13,530 $13,540 $11,154
8/31/2004 $13,760 $13,811 $11,160
9/30/2004 $13,844 $13,884 $11,184
10/31/2004 $13,974 $14,004 $11,243
11/30/2004 $13,864 $13,888 $11,249
12/31/2004 $14,041 $14,058 $11,207
1/31/2005 $14,226 $14,189 $11,231
2/28/2005 $14,207 $14,142 $11,296
3/31/2005 $14,136 $14,053 $11,384
4/30/2005 $14,335 $14,274 $11,461
5/31/2005 $14,434 $14,375 $11,449
6/30/2005 $14,512 $14,464 $11,455
7/31/2005 $14,471 $14,399 $11,508
8/31/2005 $14,592 $14,544 $11,567
9/30/2005 $14,504 $14,446 $11,708
10/31/2005 $14,436 $14,359 $11,731
11/30/2005 $14,487 $14,428 $11,637
12/31/2005 $14,612 $14,552 $11,590
1/31/2006 $14,638 $14,591 $11,678
2/28/2006 $14,756 $14,689 $11,702
3/31/2006 $14,669 $14,588 $11,767
4/30/2006 $14,671 $14,583 $11,867
5/31/2006 $14,712 $14,648 $11,926
6/30/2006 $14,656 $14,592 $11,949
7/31/2006 $14,818 $14,766 $11,985
8/31/2006 $15,029 $14,985 $12,008
9/30/2006 $15,129 $15,089 $11,949
10/31/2006 $15,233 $15,184 $11,885
11/30/2006 $15,382 $15,311 $11,867
12/31/2006 $15,323 $15,257 $11,885
1/31/2007 $15,277 $15,217 $11,921
2/28/2007 $15,477 $15,418 $11,985
3/31/2007 $15,410 $15,380 $12,094
4/30/2007 $15,460 $15,426 $12,172
5/31/2007 $15,400 $15,357 $12,247
6/30/2007 $15,314 $15,278 $12,270
7/31/2007 $15,405 $15,396 $12,267
8/31/2007 $15,266 $15,330 $12,245
9/30/2007 $15,496 $15,557 $12,279
10/31/2007 $15,575 $15,626 $12,305
11/30/2007 $15,629 $15,726 $12,378
12/31/2007 $15,643 $15,769 $12,370
1/31/2008 $15,733 $15,968 $12,431
2/29/2008 $14,928 $15,237 $12,467
3/31/2008 $15,398 $15,672 $12,575
4/30/2008 $15,689 $15,856 $12,652
5/31/2008 $15,810 $15,952 $12,758
6/30/2008 $15,625 $15,771 $12,887
7/31/2008 $15,630 $15,831 $12,954
8/31/2008 $15,778 $16,017 $12,903
9/30/2008 $14,793 $15,265 $12,885
10/31/2008 $14,614 $15,110 $12,755
11/30/2008 $14,371 $15,158 $12,510
12/31/2008 $14,603 $15,379 $12,381
1/31/2009 $15,065 $15,942 $12,435
2/28/2009 $15,467 $16,025 $12,497
3/31/2009 $15,506 $16,028 $12,527
4/30/2009 $15,956 $16,349 $12,558
5/31/2009 $16,164 $16,522 $12,595
6/30/2009 $16,069 $16,367 $12,703
7/31/2009 $16,239 $16,641 $12,683
8/31/2009 $16,589 $16,925 $12,711
9/30/2009 $17,217 $17,532 $12,719
10/31/2009 $16,931 $17,164 $12,731
11/30/2009 $16,935 $17,306 $12,740
12/31/2009 $17,093 $17,365 $12,718
1/31/2010 $17,126 $17,455 $12,761
2/28/2010 $17,248 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and North
Carolina personal income tax rate of 40.04%, based on the federal income
tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +7.33%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 77
Your Fund's Expenses
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
78 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,039.30 $3.24
Hypothetical (5% return before expenses) $1,000 $1,021.62 $3.21
CLASS C
Actual $1,000 $1,036.80 $6.01
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
ADVISOR CLASS
Actual $1,000 $1,039.80 $2.73
Hypothetical (5% return before expenses) $1,000 $1,022.12 $2.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.64%; C: 1.19%; and Advisor: 0.54%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 79
Franklin Virginia Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Virginia Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and Virginia
personal income taxes as is consistent with prudent investing 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 BREAKDOWN*
Franklin Virginia Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ................. 30.3%
AA .................. 28.4%
A ................... 22.3%
BBB ................. 9.6%
Not Rated by S&P .... 9.4%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 0.6%
AA or Aa 0.4% --
A 3.0% 0.1%
BBB or Baa 4.0% 0.4%
Below Investment Grade 0.9% --
--- ---
Total 8.3% 1.1%
We are pleased to bring you Franklin Virginia Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 153.
80 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Virginia Tax-Free Income Fund
DIVIDEND PER SHARE
--------------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ------------------
March 2009 4.05 cents 3.55 cents --
April 2009 4.05 cents 3.55 cents --
May 2009 4.05 cents 3.55 cents --
June 2009 4.05 cents 3.54 cents --
July 2009 4.05 cents 3.54 cents 2.67 cents
August 2009 4.05 cents 3.54 cents 4.14 cents
September 2009 4.05 cents 3.52 cents 4.18 cents
October 2009 4.05 cents 3.52 cents 4.18 cents
November 2009 4.05 cents 3.52 cents 4.18 cents
December 2009 4.05 cents 3.49 cents 4.12 cents
January 2010 4.05 cents 3.49 cents 4.12 cents
February 2010 4.05 cents 3.49 cents 4.12 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/1/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.95 on February 28, 2009, to $11.63 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 48.53 cents per share for the same period.(2) The
Performance Summary beginning on page 84 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.00% based on an
annualization of the current 4.05 cent per share dividend and the maximum
offering price of $12.15 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Virginia personal income tax bracket of 38.74%
would need to earn a distribution rate of 6.53% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C and
Advisor shares' performance, please see the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 81
PORTFOLIO BREAKDOWN
Franklin Virginia Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities 17.8%
Prerefunded 16.7%
Other Revenue 11.2%
Transportation 10.9%
General Obligation 8.8%
Hospital & Health Care 8.5%
Subject to Government Appropriations 6.9%
Housing 6.7%
Tax-Supported 5.6%
Higher Education 5.2%
Corporate-Backed 1.7%
* Does not include short-term investments and other net assets.
COMMONWEALTH UPDATE
During the reporting period, Virginia weathered the downside effects of the
recession better than many states. The commonwealth's large military presence
and proximity to the nation's capital helped stabilize the diverse local
economy's employment base. At period-end, Virginia's unemployment rate reached a
27-year high of 7.2%, which was lower than the 9.7% national rate.(3) The
construction, information and manufacturing sectors were hard hit. However, the
education and health services sector and other services sector made small gains.
Virginia's revenue collections fell during the 2008-2010 biennium, including a
9.2% drop in revenues in fiscal year 2009, the largest decrease in the
commonwealth's recent history.(4) State officials addressed the resulting budget
gap by drawing on the rainy day fund, cutting agency budgets, reducing state
jobs, eliminating state employee salary increases and using bonds for certain
capital projects formerly funded through the operating budget. Virginia also
used federal stimulus funds to offset some of the shortfall. Revenue collections
declined again in fiscal year 2010, and state officials announced a $4.2 billion
shortfall in the 2010-2012 biennium budget.(5)
The commonwealth's debt burden remained manageable at $848 per capita and 2.0%
of personal income, compared with the $739 and 2.1% national medians.(6)
Independent credit rating agency Standard & Poor's (S&P) assigned Virginia's
general obligation debt its highest rating of AAA with a stable outlook.(7) The
rating and outlook reflected S&P's assessment that the commonwealth's
conservative financial management would continue during the national recession,
and that Virginia's overall economic strength, employment diversity and good
income levels may offset the recession's near-term effects.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Moody's Investors Service, "New Issue: Moody's Assigns Aa1 Ratings
to $447 Million of Virginia Higher Education Revenue Bonds, Issued Though
the Virginia College Building Authority," 11/30/09.
(5.) Source: THE VIRGINIAN-PILOT, "Kaine: End Car Tax, Raise Virginia Income Tax
1 Percent," 12/19/09.
(6.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(7.) This does not indicate S&P's rating of the Fund.
82 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Virginia Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
Annual Report | 83
Performance Summary as of 2/28/10
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRVAX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.68 $11.63 $10.95
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4853
CLASS C (SYMBOL: FVAIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.69 $11.77 $11.08
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4223
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/1/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.48 $11.63 $11.15
DISTRIBUTIONS (7/2/09-2/28/10)
Dividend Income $0.3230
84 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.82% +20.88% +69.00%
Average Annual Total Return(2) +6.07% +2.96% +4.93%
Avg. Ann. Total Return (3/31/10)(3) +6.04% +3.06% +4.66%
Distribution Rate(4) 4.00%
Taxable Equivalent Distribution Rate(5) 6.53%
30-Day Standardized Yield(6) 3.21%
Taxable Equivalent Yield(5) 5.24%
Total Annual Operating Expenses(7) 0.66%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.18% +17.66% +60.20%
Average Annual Total Return(2) +9.18% +3.31% +4.83%
Avg. Ann. Total Return (3/31/10)(3) +9.25% +3.41% +4.55%
Distribution Rate(4) 3.56%
Taxable Equivalent Distribution Rate(5) 5.81%
30-Day Standardized Yield(6) 2.82%
Taxable Equivalent Yield(5) 4.60%
Total Annual Operating Expenses(7) 1.21%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +10.87% +20.94% +69.08%
Average Annual Total Return(2) +10.87% +3.87% +5.39%
Avg. Ann. Total Return (3/31/10)(3) +10.85% +3.98% +5.12%
Distribution Rate(4) 4.26%
Taxable Equivalent Distribution Rate(5) 6.95%
30-Day Standardized Yield(6) 3.45%
Taxable Equivalent Yield(5) 5.63%
Total Annual Operating Expenses(7) 0.56%
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.
Annual Report | 85
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.07%
5-Year +2.96%
10-Year +4.93%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN VIRGINIA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ---------- -------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,847 $10,218 $10,082
4/30/2000 $ 9,785 $10,158 $10,088
5/31/2000 $ 9,714 $10,105 $10,100
6/30/2000 $ 9,973 $10,373 $10,153
7/31/2000 $10,099 $10,518 $10,177
8/31/2000 $10,262 $10,680 $10,177
9/30/2000 $10,196 $10,624 $10,230
10/31/2000 $10,306 $10,740 $10,247
11/30/2000 $10,349 $10,821 $10,253
12/31/2000 $10,570 $11,089 $10,247
1/31/2001 $10,633 $11,198 $10,312
2/28/2001 $10,705 $11,234 $10,353
3/31/2001 $10,801 $11,334 $10,377
4/30/2001 $10,686 $11,212 $10,418
5/31/2001 $10,789 $11,332 $10,465
6/30/2001 $10,862 $11,408 $10,483
7/31/2001 $11,025 $11,577 $10,453
8/31/2001 $11,176 $11,768 $10,453
9/30/2001 $11,106 $11,729 $10,501
10/31/2001 $11,249 $11,868 $10,465
11/30/2001 $11,186 $11,768 $10,448
12/31/2001 $11,036 $11,657 $10,406
1/31/2002 $11,206 $11,859 $10,430
2/28/2002 $11,318 $12,002 $10,471
3/31/2002 $11,131 $11,767 $10,530
4/30/2002 $11,294 $11,997 $10,589
5/31/2002 $11,359 $12,070 $10,589
6/30/2002 $11,453 $12,197 $10,595
7/31/2002 $11,590 $12,354 $10,607
8/31/2002 $11,695 $12,503 $10,642
9/30/2002 $11,920 $12,776 $10,660
10/31/2002 $11,675 $12,565 $10,677
11/30/2002 $11,639 $12,512 $10,677
12/31/2002 $11,888 $12,776 $10,654
1/31/2003 $11,841 $12,744 $10,701
2/28/2003 $11,986 $12,922 $10,783
3/31/2003 $12,013 $12,930 $10,848
4/30/2003 $12,130 $13,015 $10,824
5/31/2003 $12,436 $13,320 $10,807
6/30/2003 $12,396 $13,263 $10,819
7/31/2003 $11,951 $12,799 $10,830
8/31/2003 $12,059 $12,895 $10,872
9/30/2003 $12,335 $13,274 $10,907
10/31/2003 $12,321 $13,207 $10,895
11/30/2003 $12,460 $13,345 $10,866
12/31/2003 $12,569 $13,455 $10,854
1/31/2004 $12,659 $13,532 $10,907
2/29/2004 $12,852 $13,736 $10,966
3/31/2004 $12,833 $13,688 $11,037
4/30/2004 $12,524 $13,364 $11,072
5/31/2004 $12,517 $13,315 $11,137
6/30/2004 $12,551 $13,364 $11,172
7/31/2004 $12,719 $13,540 $11,154
8/31/2004 $12,941 $13,811 $11,160
9/30/2004 $13,020 $13,884 $11,184
10/31/2004 $13,155 $14,004 $11,243
11/30/2004 $13,045 $13,888 $11,249
12/31/2004 $13,250 $14,058 $11,207
1/31/2005 $13,406 $14,189 $11,231
2/28/2005 $13,386 $14,142 $11,296
3/31/2005 $13,349 $14,053 $11,384
4/30/2005 $13,531 $14,274 $11,461
5/31/2005 $13,615 $14,375 $11,449
6/30/2005 $13,701 $14,464 $11,455
7/31/2005 $13,648 $14,399 $11,508
8/31/2005 $13,753 $14,544 $11,567
9/30/2005 $13,689 $14,446 $11,708
10/31/2005 $13,621 $14,359 $11,731
11/30/2005 $13,658 $14,428 $11,637
12/31/2005 $13,767 $14,552 $11,590
1/31/2006 $13,792 $14,591 $11,678
2/28/2006 $13,906 $14,689 $11,702
3/31/2006 $13,831 $14,588 $11,767
4/30/2006 $13,832 $14,583 $11,867
5/31/2006 $13,870 $14,648 $11,926
6/30/2006 $13,826 $14,592 $11,949
7/31/2006 $13,959 $14,766 $11,985
8/31/2006 $14,128 $14,985 $12,008
9/30/2006 $14,214 $15,089 $11,949
10/31/2006 $14,303 $15,184 $11,885
11/30/2006 $14,411 $15,311 $11,867
12/31/2006 $14,377 $15,257 $11,885
1/31/2007 $14,343 $15,217 $11,921
2/28/2007 $14,514 $15,418 $11,985
3/31/2007 $14,484 $15,380 $12,094
4/30/2007 $14,521 $15,426 $12,172
5/31/2007 $14,461 $15,357 $12,247
6/30/2007 $14,413 $15,278 $12,270
7/31/2007 $14,514 $15,396 $12,267
8/31/2007 $14,426 $15,330 $12,245
9/30/2007 $14,601 $15,557 $12,279
10/31/2007 $14,665 $15,626 $12,305
11/30/2007 $14,755 $15,726 $12,378
12/31/2007 $14,755 $15,769 $12,370
1/31/2008 $14,868 $15,968 $12,431
2/29/2008 $14,204 $15,237 $12,467
3/31/2008 $14,625 $15,672 $12,575
4/30/2008 $14,844 $15,856 $12,652
5/31/2008 $14,948 $15,952 $12,758
6/30/2008 $14,790 $15,771 $12,887
7/31/2008 $14,819 $15,831 $12,954
8/31/2008 $14,924 $16,017 $12,903
9/30/2008 $14,060 $15,265 $12,885
10/31/2008 $13,908 $15,110 $12,755
11/30/2008 $13,800 $15,158 $12,510
12/31/2008 $13,986 $15,379 $12,381
1/31/2009 $14,370 $15,942 $12,435
2/28/2009 $14,604 $16,025 $12,497
3/31/2009 $14,639 $16,028 $12,527
4/30/2009 $14,998 $16,349 $12,558
5/31/2009 $15,174 $16,522 $12,595
6/30/2009 $15,105 $16,367 $12,703
7/31/2009 $15,257 $16,641 $12,683
8/31/2009 $15,556 $16,925 $12,711
9/30/2009 $16,128 $17,532 $12,719
10/31/2009 $15,899 $17,164 $12,731
11/30/2009 $15,940 $17,306 $12,740
12/31/2009 $16,036 $17,365 $12,718
1/31/2010 $16,079 $17,455 $12,761
2/28/2010 $16,180 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.18%
5-Year +3.31%
10-Year +4.83%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN VIRGINIA TAX-FREE INCOME BARCLAYS CAPITAL
DATE FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ---------- --------------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,288 $10,218 $10,082
4/30/2000 $10,219 $10,158 $10,088
5/31/2000 $10,140 $10,105 $10,100
6/30/2000 $10,404 $10,373 $10,153
7/31/2000 $10,530 $10,518 $10,177
8/31/2000 $10,694 $10,680 $10,177
9/30/2000 $10,621 $10,624 $10,230
10/31/2000 $10,729 $10,740 $10,247
11/30/2000 $10,770 $10,821 $10,253
12/31/2000 $10,993 $11,089 $10,247
1/31/2001 $11,053 $11,198 $10,312
2/28/2001 $11,122 $11,234 $10,353
3/31/2001 $11,225 $11,334 $10,377
4/30/2001 $11,102 $11,212 $10,418
5/31/2001 $11,193 $11,332 $10,465
6/30/2001 $11,273 $11,408 $10,483
7/31/2001 $11,435 $11,577 $10,453
8/31/2001 $11,576 $11,768 $10,453
9/30/2001 $11,508 $11,729 $10,501
10/31/2001 $11,650 $11,868 $10,465
11/30/2001 $11,580 $11,768 $10,448
12/31/2001 $11,421 $11,657 $10,406
1/31/2002 $11,590 $11,859 $10,430
2/28/2002 $11,710 $12,002 $10,471
3/31/2002 $11,502 $11,767 $10,530
4/30/2002 $11,674 $11,997 $10,589
5/31/2002 $11,725 $12,070 $10,589
6/30/2002 $11,816 $12,197 $10,595
7/31/2002 $11,951 $12,354 $10,607
8/31/2002 $12,053 $12,503 $10,642
9/30/2002 $12,288 $12,776 $10,660
10/31/2002 $12,032 $12,565 $10,677
11/30/2002 $11,990 $12,512 $10,677
12/31/2002 $12,228 $12,776 $10,654
1/31/2003 $12,185 $12,744 $10,701
2/28/2003 $12,328 $12,922 $10,783
3/31/2003 $12,350 $12,930 $10,848
4/30/2003 $12,463 $13,015 $10,824
5/31/2003 $12,770 $13,320 $10,807
6/30/2003 $12,724 $13,263 $10,819
7/31/2003 $12,264 $12,799 $10,830
8/31/2003 $12,369 $12,895 $10,872
9/30/2003 $12,644 $13,274 $10,907
10/31/2003 $12,623 $13,207 $10,895
11/30/2003 $12,759 $13,345 $10,866
12/31/2003 $12,863 $13,455 $10,854
1/31/2004 $12,948 $13,532 $10,907
2/29/2004 $13,137 $13,736 $10,966
3/31/2004 $13,112 $13,688 $11,037
4/30/2004 $12,792 $13,364 $11,072
5/31/2004 $12,790 $13,315 $11,137
6/30/2004 $12,808 $13,364 $11,172
7/31/2004 $12,972 $13,540 $11,154
8/31/2004 $13,202 $13,811 $11,160
9/30/2004 $13,275 $13,884 $11,184
10/31/2004 $13,406 $14,004 $11,243
11/30/2004 $13,289 $13,888 $11,249
12/31/2004 $13,490 $14,058 $11,207
1/31/2005 $13,641 $14,189 $11,231
2/28/2005 $13,615 $14,142 $11,296
3/31/2005 $13,570 $14,053 $11,384
4/30/2005 $13,747 $14,274 $11,461
5/31/2005 $13,836 $14,375 $11,449
6/30/2005 $13,905 $14,464 $11,455
7/31/2005 $13,857 $14,399 $11,508
8/31/2005 $13,956 $14,544 $11,567
9/30/2005 $13,874 $14,446 $11,708
10/31/2005 $13,811 $14,359 $11,731
11/30/2005 $13,842 $14,428 $11,637
12/31/2005 $13,945 $14,552 $11,590
1/31/2006 $13,964 $14,591 $11,678
2/28/2006 $14,061 $14,689 $11,702
3/31/2006 $13,978 $14,588 $11,767
4/30/2006 $13,984 $14,583 $11,867
5/31/2006 $14,016 $14,648 $11,926
6/30/2006 $13,965 $14,592 $11,949
7/31/2006 $14,092 $14,766 $11,985
8/31/2006 $14,255 $14,985 $12,008
9/30/2006 $14,334 $15,089 $11,949
10/31/2006 $14,416 $15,184 $11,885
11/30/2006 $14,529 $15,311 $11,867
12/31/2006 $14,477 $15,257 $11,885
1/31/2007 $14,436 $15,217 $11,921
2/28/2007 $14,600 $15,418 $11,985
3/31/2007 $14,563 $15,380 $12,094
4/30/2007 $14,594 $15,426 $12,172
5/31/2007 $14,540 $15,357 $12,247
6/30/2007 $14,473 $15,278 $12,270
7/31/2007 $14,566 $15,396 $12,267
8/31/2007 $14,473 $15,330 $12,245
9/30/2007 $14,652 $15,557 $12,279
10/31/2007 $14,709 $15,626 $12,305
11/30/2007 $14,779 $15,726 $12,378
12/31/2007 $14,784 $15,769 $12,370
1/31/2008 $14,890 $15,968 $12,431
2/29/2008 $14,213 $15,237 $12,467
3/31/2008 $14,623 $15,672 $12,575
4/30/2008 $14,845 $15,856 $12,652
5/31/2008 $14,941 $15,952 $12,758
6/30/2008 $14,766 $15,771 $12,887
7/31/2008 $14,787 $15,831 $12,954
8/31/2008 $14,897 $16,017 $12,903
9/30/2008 $14,025 $15,265 $12,885
10/31/2008 $13,868 $15,110 $12,755
11/30/2008 $13,755 $15,158 $12,510
12/31/2008 $13,932 $15,379 $12,381
1/31/2009 $14,304 $15,942 $12,435
2/28/2009 $14,541 $16,025 $12,497
3/31/2009 $14,555 $16,028 $12,527
4/30/2009 $14,916 $16,349 $12,558
5/31/2009 $15,081 $16,522 $12,595
6/30/2009 $15,007 $16,367 $12,703
7/31/2009 $15,150 $16,641 $12,683
8/31/2009 $15,437 $16,925 $12,711
9/30/2009 $16,003 $17,532 $12,719
10/31/2009 $15,758 $17,164 $12,731
11/30/2009 $15,791 $17,306 $12,740
12/31/2009 $15,892 $17,365 $12,718
1/31/2010 $15,926 $17,455 $12,761
2/28/2010 $16,020 $17,624 $12,764
86 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (3/1/00-2/28/10)(8)
FRANKLIN VIRGINIA TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ---------- --------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,284 $10,218 $10,082
4/30/2000 $10,220 $10,158 $10,088
5/31/2000 $10,145 $10,105 $10,100
6/30/2000 $10,415 $10,373 $10,153
7/31/2000 $10,548 $10,518 $10,177
8/31/2000 $10,718 $10,680 $10,177
9/30/2000 $10,649 $10,624 $10,230
10/31/2000 $10,763 $10,740 $10,247
11/30/2000 $10,809 $10,821 $10,253
12/31/2000 $11,040 $11,089 $10,247
1/31/2001 $11,105 $11,198 $10,312
2/28/2001 $11,180 $11,234 $10,353
3/31/2001 $11,280 $11,334 $10,377
4/30/2001 $11,161 $11,212 $10,418
5/31/2001 $11,268 $11,332 $10,465
6/30/2001 $11,345 $11,408 $10,483
7/31/2001 $11,514 $11,577 $10,453
8/31/2001 $11,672 $11,768 $10,453
9/30/2001 $11,598 $11,729 $10,501
10/31/2001 $11,748 $11,868 $10,465
11/30/2001 $11,682 $11,768 $10,448
12/31/2001 $11,526 $11,657 $10,406
1/31/2002 $11,703 $11,859 $10,430
2/28/2002 $11,820 $12,002 $10,471
3/31/2002 $11,625 $11,767 $10,530
4/30/2002 $11,795 $11,997 $10,589
5/31/2002 $11,863 $12,070 $10,589
6/30/2002 $11,962 $12,197 $10,595
7/31/2002 $12,105 $12,354 $10,607
8/31/2002 $12,214 $12,503 $10,642
9/30/2002 $12,450 $12,776 $10,660
10/31/2002 $12,193 $12,565 $10,677
11/30/2002 $12,156 $12,512 $10,677
12/31/2002 $12,416 $12,776 $10,654
1/31/2003 $12,366 $12,744 $10,701
2/28/2003 $12,518 $12,922 $10,783
3/31/2003 $12,547 $12,930 $10,848
4/30/2003 $12,668 $13,015 $10,824
5/31/2003 $12,988 $13,320 $10,807
6/30/2003 $12,947 $13,263 $10,819
7/31/2003 $12,481 $12,799 $10,830
8/31/2003 $12,594 $12,895 $10,872
9/30/2003 $12,882 $13,274 $10,907
10/31/2003 $12,868 $13,207 $10,895
11/30/2003 $13,013 $13,345 $10,866
12/31/2003 $13,127 $13,455 $10,854
1/31/2004 $13,221 $13,532 $10,907
2/29/2004 $13,422 $13,736 $10,966
3/31/2004 $13,403 $13,688 $11,037
4/30/2004 $13,080 $13,364 $11,072
5/31/2004 $13,072 $13,315 $11,137
6/30/2004 $13,108 $13,364 $11,172
7/31/2004 $13,284 $13,540 $11,154
8/31/2004 $13,516 $13,811 $11,160
9/30/2004 $13,598 $13,884 $11,184
10/31/2004 $13,739 $14,004 $11,243
11/30/2004 $13,624 $13,888 $11,249
12/31/2004 $13,838 $14,058 $11,207
1/31/2005 $14,001 $14,189 $11,231
2/28/2005 $13,980 $14,142 $11,296
3/31/2005 $13,942 $14,053 $11,384
4/30/2005 $14,131 $14,274 $11,461
5/31/2005 $14,219 $14,375 $11,449
6/30/2005 $14,309 $14,464 $11,455
7/31/2005 $14,254 $14,399 $11,508
8/31/2005 $14,364 $14,544 $11,567
9/30/2005 $14,296 $14,446 $11,708
10/31/2005 $14,226 $14,359 $11,731
11/30/2005 $14,264 $14,428 $11,637
12/31/2005 $14,378 $14,552 $11,590
1/31/2006 $14,404 $14,591 $11,678
2/28/2006 $14,523 $14,689 $11,702
3/31/2006 $14,445 $14,588 $11,767
4/30/2006 $14,446 $14,583 $11,867
5/31/2006 $14,486 $14,648 $11,926
6/30/2006 $14,439 $14,592 $11,949
7/31/2006 $14,579 $14,766 $11,985
8/31/2006 $14,756 $14,985 $12,008
9/30/2006 $14,845 $15,089 $11,949
10/31/2006 $14,937 $15,184 $11,885
11/30/2006 $15,051 $15,311 $11,867
12/31/2006 $15,015 $15,257 $11,885
1/31/2007 $14,979 $15,217 $11,921
2/28/2007 $15,158 $15,418 $11,985
3/31/2007 $15,127 $15,380 $12,094
4/30/2007 $15,165 $15,426 $12,172
5/31/2007 $15,103 $15,357 $12,247
6/30/2007 $15,053 $15,278 $12,270
7/31/2007 $15,158 $15,396 $12,267
8/31/2007 $15,067 $15,330 $12,245
9/30/2007 $15,249 $15,557 $12,279
10/31/2007 $15,316 $15,626 $12,305
11/30/2007 $15,410 $15,726 $12,378
12/31/2007 $15,410 $15,769 $12,370
1/31/2008 $15,527 $15,968 $12,431
2/29/2008 $14,834 $15,237 $12,467
3/31/2008 $15,274 $15,672 $12,575
4/30/2008 $15,503 $15,856 $12,652
5/31/2008 $15,611 $15,952 $12,758
6/30/2008 $15,447 $15,771 $12,887
7/31/2008 $15,477 $15,831 $12,954
8/31/2008 $15,586 $16,017 $12,903
9/30/2008 $14,684 $15,265 $12,885
10/31/2008 $14,526 $15,110 $12,755
11/30/2008 $14,413 $15,158 $12,510
12/31/2008 $14,607 $15,379 $12,381
1/31/2009 $15,008 $15,942 $12,435
2/28/2009 $15,252 $16,025 $12,497
3/31/2009 $15,289 $16,028 $12,527
4/30/2009 $15,664 $16,349 $12,558
5/31/2009 $15,847 $16,522 $12,595
6/30/2009 $15,776 $16,367 $12,703
7/31/2009 $15,919 $16,641 $12,683
8/31/2009 $16,247 $16,925 $12,711
9/30/2009 $16,845 $17,532 $12,719
10/31/2009 $16,608 $17,164 $12,731
11/30/2009 $16,653 $17,306 $12,740
12/31/2009 $16,754 $17,365 $12,718
1/31/2010 $16,800 $17,455 $12,761
2/28/2010 $16,908 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +10.87%
5-Year +3.87%
10-Year +5.39%
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined federal and Virginia personal
income tax rate of 38.74%, based on the federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/1/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +7.26%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 87
Your Fund's Expenses
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
(1.) Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
(2.) Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
88 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,040.20 $3.34
Hypothetical (5% return before expenses) $1,000 $1,021.52 $3.31
CLASS C
Actual $1,000 $1,037.80 $6.11
Hypothetical (5% return before expenses) $1,000 $1,018.79 $6.06
ADVISOR CLASS
Actual $1,000 $1,040.70 $2.83
Hypothetical (5% return before expenses) $1,000 $1,022.02 $2.81
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.66%; C: 1.21%; and Advisor: 0.56%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 89
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ALABAMA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 10.59 $ 10.84 $ 11.51 $ 11.49 $ 11.61
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ..................... 0.48 0.48 0.47 0.48 0.50
Net realized and unrealized gains (losses) ... 0.58 (0.26) (0.67) 0.02 (0.12)
-------- -------- -------- -------- --------
Total from investment operations ................ 1.06 0.22 (0.20) 0.50 0.38
-------- -------- -------- -------- --------
Less distributions from net investment income ... (0.48) (0.47) (0.47) (0.48) (0.50)
-------- -------- -------- -------- --------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 11.17 $ 10.59 $ 10.84 $ 11.51 $ 11.49
======== ======== ======== ======== ========
Total return(f) ................................. 10.14% 2.18% (1.96)% 4.50% 3.34%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.71% 0.71% 0.71% 0.71% 0.72%
Net investment income ........................... 4.37% 4.40% 4.14% 4.23% 4.31%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $244,860 $218,937 $230,439 $244,272 $237,848
Portfolio turnover rate ......................... 7.80% 20.42% 16.92% 16.04% 12.86%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
90 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALABAMA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 10.69 $ 10.93 $ 11.60 $ 11.58 $ 11.70
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ..................... 0.42 0.42 0.41 0.42 0.44
Net realized and unrealized gains (losses) ... 0.59 (0.25) (0.68) 0.02 (0.12)
------- ------- ------- ------- -------
Total from investment operations ................ 1.01 0.17 (0.27) 0.44 0.32
------- ------- ------- ------- -------
Less distributions from net investment income ... (0.42) (0.41) (0.40) (0.42) (0.44)
------- ------- ------- ------- -------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year .................... $ 11.28 $ 10.69 $ 10.93 $ 11.60 $ 11.58
======= ======= ======= ======= =======
Total return(f) ................................. 9.54% 1.59% (2.39)% 3.89% 2.75%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.26% 1.26% 1.26% 1.26% 1.27%
Net investment income ........................... 3.82% 3.85% 3.59% 3.68% 3.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $49,828 $41,651 $38,341 $38,094 $35,638
Portfolio turnover rate ......................... 7.80% 20.42% 16.92% 16.04% 12.86%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 91
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.1%
ALABAMA 82.7%
Alabama Building Renovation Finance Authority Revenue, Refunding, AMBAC Insured,
5.625%, 9/01/24 ................................................................... $ 2,500,000 $ 2,553,700
Alabama Drinking Water Finance Authority Revenue, Revolving Fund Loan, Series A,
AMBAC Insured, 5.25%, 8/15/24 ..................................................... 1,755,000 1,813,038
Alabama Water Pollution Control Authority Revenue, Revolving Fund Loan, Series A,
AMBAC Insured, 5.00%, 8/15/23 ..................................................... 4,435,000 4,409,144
Alabaster GO, wts., AMBAC Insured, Pre-Refunded, 5.00%, 9/01/24 ...................... 3,470,000 3,621,431
Alabaster Sewer Revenue, NATL Insured, 5.00%, 4/01/29 ................................ 2,055,000 2,077,564
Athens GO, wts., XLCA Insured, 5.00%, 2/01/36 ........................................ 2,560,000 2,589,901
Auburn University General Fee Revenue, Auburn University, Series A, FSA Insured,
5.00%, 6/01/38 .................................................................... 7,000,000 7,179,060
Bessemer GO, wts., XLCA Insured, 5.00%, 2/01/35 ...................................... 1,990,000 1,999,015
Bessemer Governmental Utility Services Corp. Water Supply Revenue, Refunding, Series
A, Assured Guaranty, 5.00%, 6/01/39 ............................................... 3,825,000 3,889,795
Birmingham Southern College Private Educational Building Authority Tuition Revenue,
Refunding, 5.35%, 12/01/19 ........................................................ 1,000,000 916,480
Birmingham Special Care Facilities Financing Authority, Health Care Facility Revenue,
Children's Hospital, Assured Guaranty, 6.00%, 6/01/39 ............................. 4,000,000 4,314,360
Birmingham Waterworks Board Water Revenue, Series A, Assured Guaranty, 5.25%,
1/01/39 ........................................................................... 5,950,000 6,223,224
Butler County IDA Environmental Improvement Revenue, International Paper, Series A,
7.00%, 9/01/32 .................................................................... 1,000,000 1,028,960
Butler County Public Education Cooperative District, Series A, XLCA Insured, 5.00%,
7/01/37 ........................................................................... 9,025,000 7,938,570
Central Elmore Water and Sewer Authority Revenue, Water, NATL Insured, 5.00%,
1/01/29 ........................................................................... 4,290,000 4,398,623
Coffee County PBA, Building Revenue, NATL Insured, 5.00%, 9/01/27 .................... 2,145,000 2,233,031
Cullman and Jefferson Counties Gas District Gas Revenue, NATL Insured, 5.85%,
7/01/24 ........................................................................... 2,000,000 2,055,620
DCH Health Care Authority Health Care Facilities Revenue, 5.125%, 6/01/36 ............ 7,000,000 6,193,180
East Alabama Health Care Authority Health Care Facilities Revenue, Mandatory Put
9/01/18,
Series A, 5.25%, 9/01/36 .......................................................... 5,000,000 5,037,450
Series B, 5.50%, 9/01/33 .......................................................... 4,500,000 4,663,620
Etowah County Board of Education Special Tax, School wts., FSA Insured, 5.00%,
9/01/24 ........................................................................... 4,235,000 4,413,929
9/01/28 ........................................................................... 2,000,000 2,057,380
9/01/33 ........................................................................... 2,500,000 2,540,800
Fairfield GO, wts., Refunding, AMBAC Insured, 5.00%, 2/01/29 ......................... 1,500,000 1,543,905
Fairfield IDB Environmental Improvement Revenue, USX Corp. Project, Refunding, 5.45%,
9/01/14 ........................................................................... 2,000,000 2,017,280
Franklin County GO, wts., Series B, AMBAC Insured, 5.125%, 10/01/33 .................. 2,000,000 2,062,800
Houston County Health Care Authority Revenue, Refunding, Series A, AMBAC Insured,
5.25%, 10/01/30 ................................................................... 5,000,000 4,565,400
Huntsville Health Care Authority Revenue, Series A, NATL Insured, Pre-Refunded,
5.40%, 6/01/22 .................................................................... 4,000,000 4,446,680
5.50%, 6/01/27 .................................................................... 3,820,000 4,254,830
Huntsville PBA Lease Revenue, Municipal Justice and Public Safety Center, Refunding
and Improvement, NATL Insured, 5.00%, 10/01/33 .................................... 8,000,000 8,244,800
Jacksonville State University Revenue, Tuition and Fee, NATL Insured, 5.00%,
12/01/22 .......................................................................... 3,000,000 3,068,130
Jefferson County Limited Obligation School wts. Revenue, Series A, 5.00%, 1/01/24 .... 2,000,000 1,723,120
Jefferson County Sewer Revenue, wts., ETM, 7.50%, 9/01/13 ............................ 200,000 221,086
92 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ALABAMA (CONTINUED)
Lauderdale County and Florence Health Care Authority Revenue, Coffee Health Group,
Series A, NATL Insured,
5.625%, 7/01/21 ................................................................... $ 3,000,000 $ 2,733,180
5.375%, 7/01/29 ................................................................... 3,095,000 2,477,207
Leeds Public Educational Building Authority Educational Facilities Revenue, Assured
Guaranty, 5.125%, 4/01/33 ......................................................... 7,410,000 7,700,101
Limestone County Water and Sewer Authority Water Revenue, AMBAC Insured, 5.00%,
12/01/29 .......................................................................... 1,540,000 1,517,085
12/01/31 .......................................................................... 3,910,000 3,769,084
Madison County Board of Education Capital Outlay GO, Tax Anticipation wts., Series A,
AMBAC Insured, 5.00%, 9/01/34 ..................................................... 1,000,000 1,012,430
Madison County Board of Education Capital Outlay Revenue, Tax Anticipation wts.,
Assured Guaranty, 5.125%, 9/01/34 ................................................. 600,000 624,510
Madison GO, wts.,
AMBAC Insured, Pre-Refunded, 5.35%, 2/01/26 ....................................... 2,410,000 2,545,828
Refunding, XLCA Insured, 4.75%, 12/01/36 .......................................... 2,455,000 2,429,149
Madison Water and Wastewater Board Water and Sewer Revenue, Refunding, Series A,
XLCA Insured, 4.75%, 12/01/31 ..................................................... 7,500,000 7,555,425
Marshall County Health Care Authority GO, Refunding, AMBAC Insured, 4.75%, 2/01/33 ... 3,000,000 2,680,020
Marshall County Health Care Authority Hospital Revenue, Series A, 5.75%, 1/01/32 ..... 2,170,000 2,172,040
Mobile County Board School Commissioners GO, Capital Outlay wts., Series B, AMBAC
Insured, Pre-Refunded,
5.10%, 3/01/22 .................................................................... 2,265,000 2,371,704
5.125%, 3/01/31 ................................................................... 8,230,000 8,619,773
Mobile GO, wts., 5.50%, 2/15/30 ...................................................... 2,000,000 2,117,300
Mobile Public Educational Building Authority Revenue, Limited Obligation School,
Series A, Assured Guaranty, 5.00%, 3/01/33 ........................................ 6,500,000 6,667,895
Mobile Water and Sewer Commissioners Water and Sewer Revenue, Mobile Water, BHAC
Insured, 5.00%, 1/01/36 ........................................................... 10,000,000 10,367,300
Moulton Water Works Board Water Revenue, NATL Insured, 5.375%, 1/01/32 ............... 1,935,000 1,947,132
Muscle Shoals GO, wts., NATL Insured, Pre-Refunded, 5.50%, 8/01/30 ................... 1,550,000 1,614,650
Opelika Water Board Revenue, Assured Guaranty, 5.00%, 6/01/37 ........................ 4,610,000 4,749,545
Orange Beach Water Sewer and Fire Protection Authority Revenue, NATL Insured, 5.00%,
5/15/35 ........................................................................... 2,000,000 2,040,200
Sheffield GO, wts., AMBAC Insured, 5.125%, 5/01/33 ................................... 2,610,000 2,681,410
Sylacauga GO, wts., AMBAC Insured, Pre-Refunded, 5.50%, 6/01/25 ...................... 1,700,000 1,755,726
Tallassee GO, Water Gas and Sewer wts., AMBAC Insured,
5.25%, 5/01/31 .................................................................... 465,000 471,501
Pre-Refunded, 5.25%, 5/01/31 ...................................................... 670,000 713,865
Troy Public Educational Building Authority Dormitory Revenue, Troy University Housing
LLC Project, Series A, CIFG Insured, 5.00%, 9/01/32 ............................... 5,000,000 5,030,250
Troy State University Student Fee Revenue, NATL Insured, 5.00%, 11/01/21 ............. 2,215,000 2,278,681
Trussville GO, wts., Series A, FGIC Insured, 5.00%, 10/01/36 ......................... 4,740,000 4,841,531
Tuscaloosa Public Educational Building Authority Student Housing Revenue, Ridgecrest
Student Housing LLC University of Alabama Ridgecrest Residential Project, Assured
Guaranty, 6.75%, 7/01/38 .......................................................... 5,000,000 5,651,400
University of Alabama at Birmingham Hospital Revenue, Refunding, Series A, AMBAC
Insured, 5.00%, 9/01/41 ........................................................... 9,000,000 8,729,190
University of Montevallo Revenue, FSA Insured, Pre-Refunded, 5.30%, 5/01/22 .......... 1,940,000 2,070,484
Annual Report | 93
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ALABAMA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ALABAMA (CONTINUED)
University of North Alabama Revenue,
General Fee, Series A, FSA Insured, 5.375%, 11/01/17 .............................. $ 4,395,000 $ 4,423,743
Student Housing, FGIC Insured, 5.00%, 11/01/29 .................................... 2,995,000 3,035,762
University of South Alabama University Revenues, Facilities, Capital Improvement,
BHAC Insured, 5.00%, 8/01/38 ...................................................... 5,000,000 5,233,850
Valley Special Care Facilities Financing Authority Revenue, Lanier Memorial Hospital,
Series A, 5.65%, 11/01/22 ......................................................... 3,465,000 2,667,461
--------------
243,592,318
--------------
U.S. TERRITORIES 15.4%
PUERTO RICO 15.4%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 .................................................................... 1,000,000 1,025,570
Puerto Rico Commonwealth GO, Public Improvement,
FSA Insured, Pre-Refunded, 5.25%, 7/01/27 ......................................... 1,495,000 1,592,982
FSA Insured, Pre-Refunded, 5.125%, 7/01/30 ........................................ 1,885,000 2,005,433
Refunding, FSA Insured, 5.25%, 7/01/27 ............................................ 1,005,000 1,013,382
Refunding, FSA Insured, 5.125%, 7/01/30 ........................................... 1,115,000 1,120,530
Series A, 5.125%, 7/01/31 ......................................................... 3,550,000 3,405,266
Series A, Pre-Refunded, 5.125%, 7/01/31 ........................................... 1,450,000 1,542,641
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, Assured Guaranty, 5.25%, 7/01/36 ............................. 10,335,000 10,787,776
Puerto Rico Electric Power Authority Power Revenue,
Series TT, 5.00%, 7/01/37 ......................................................... 3,000,000 2,874,810
Series WW, 5.50%, 7/01/38 ......................................................... 3,350,000 3,380,887
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/27 ............................................... 760,000 760,433
Refunding, Series G, 5.00%, 7/01/26 ............................................... 1,000,000 980,260
Series D, Pre-Refunded, 5.25%, 7/01/27 ............................................ 2,305,000 2,530,383
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.75%, 8/01/37 .................................................................... 2,000,000 2,067,400
5.375%, 8/01/39 ................................................................... 1,500,000 1,500,495
6.00%, 8/01/42 .................................................................... 8,500,000 8,891,085
--------------
TOTAL U.S. TERRITORIES ............................................................... 45,479,333
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $286,098,207) ............................................................... 289,071,651
--------------
SHORT TERM INVESTMENTS (COST $1,200,000) 0.4%
MUNICIPAL BONDS 0.4%
U.S. TERRITORIES 0.4%
PUERTO RICO 0.4%
(a) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... 1,200,000 1,200,000
--------------
TOTAL INVESTMENTS (COST $287,298,207) 98.5% .......................................... 290,271,651
OTHER ASSETS, LESS LIABILITIES 1.5% .................................................. 4,415,969
--------------
NET ASSETS 100.0% .................................................................... $ 294,687,620
==============
See Abbreviations on page 185.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
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.
The accompanying notes are an integral part of these financial statements.
94 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FLORIDA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.90 $ 11.17 $ 11.94 $ 11.93 $ 12.00
---------- ---------- ---------- ---------- ----------
Income from investment operations(b):
Net investment income(c) ...................... 0.53 0.53 0.53 0.53 0.54
Net realized and unrealized gains (losses) .... 0.55 (0.27) (0.74) 0.02 (0.06)
---------- ---------- ---------- ---------- ----------
Total from investment operations ................. 1.08 0.26 (0.21) 0.55 0.48
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ......................... (0.53) (0.52) (0.53) (0.54) (0.55)
Net realized gains ............................ -- (0.01) (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions .............................. (0.53) (0.53) (0.56) (0.54) (0.55)
---------- ---------- ---------- ---------- ----------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ..................... $ 11.45 $ 10.90 $ 11.17 $ 11.94 $ 11.93
========== ========== ========== ========== ==========
Total return(f) .................................. 10.09% 2.37% (1.83)% 4.64% 4.07%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 0.62% 0.62% 0.61% 0.61% 0.62%
Net investment income ............................ 4.74% 4.77% 4.51% 4.51% 4.54%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $1,137,684 $1,155,202 $1,279,340 $1,476,477 $1,533,884
Portfolio turnover rate .......................... 9.22% 10.74% 6.85% 6.90% 9.37%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 95
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.99 $ 11.25 $ 12.02 $ 12.01 $ 12.08
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ...................... 0.48 0.47 0.47 0.47 0.48
Net realized and unrealized gains (losses) .... 0.55 (0.26) (0.75) 0.01 (0.07)
------- ------- ------- ------- -------
Total from investment operations ................. 1.03 0.21 (0.28) 0.48 0.41
------- ------- ------- ------- -------
Less distributions from:
Net investment income ......................... (0.47) (0.46) (0.46) (0.47) (0.48)
Net realized gains ............................ -- (0.01) (0.03) -- --
------- ------- ------- ------- -------
Total distributions .............................. (0.47) (0.47) (0.49) (0.47) (0.48)
------- ------- ------- ------- -------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year ..................... $ 11.55 $ 10.99 $ 11.25 $ 12.02 $ 12.01
======= ======= ======= ======= =======
Total return(f) .................................. 9.50% 1.89% (2.43)% 4.12% 3.48%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.17% 1.17% 1.16% 1.16% 1.17%
Net investment income ............................ 4.19% 4.22% 3.96% 3.96% 3.99%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $26,305 $36,536 $47,654 $59,481 $68,109
Portfolio turnover rate .......................... 9.22% 10.74% 6.85% 6.90% 9.37%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
96 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 11.06 $ 11.32 $ 12.09 $ 12.07 $ 12.14
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.48 0.48 0.47 0.48 0.48
Net realized and unrealized gains (losses) .... 0.56 (0.27) (0.75) 0.01 (0.07)
-------- -------- -------- -------- --------
Total from investment operations ................. 1.04 0.21 (0.28) 0.49 0.41
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ......................... (0.47) (0.46) (0.46) (0.47) (0.48)
Net realized gains ............................ -- (0.01) (0.03) -- --
-------- -------- -------- -------- --------
Total distributions .............................. (0.47) (0.47) (0.49) (0.47) (0.48)
-------- -------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 11.63 $ 11.06 $ 11.32 $ 12.09 $ 12.07
======== ======== ======== ======== ========
Total return(f) .................................. 9.53% 1.86% (2.41)% 4.18% 3.45%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.17% 1.17% 1.16% 1.15% 1.17%
Net investment income ............................ 4.19% 4.22% 3.96% 3.97% 3.99%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $119,496 $109,884 $115,863 $136,712 $140,508
Portfolio turnover rate .......................... 9.22% 10.74% 6.85% 6.90% 9.37%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 97
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS 99.1%
FLORIDA 93.2%
Alachua County Health Facilities Authority Health Facilities Revenue, Shands
Healthcare Project,
Refunding, Series D-1, 6.50%, 12/01/19 ............................................ $ 1,215,000 $ 1,348,152
Refunding, Series D-1, 6.75%, 12/01/22 ............................................ 1,000,000 1,095,190
Series D-2, 6.75%, 12/01/30 ....................................................... 5,000,000 5,421,500
Alachua County School Board COP, AMBAC Insured, 5.00%, 7/01/21 ....................... 2,000,000 2,052,600
Brevard County Health Facilities Authority Health Care Facilities Revenue, Health
First Inc. Project,
7.00%, 4/01/39 .................................................................... 2,000,000 2,194,040
NATL Insured, 5.00%, 4/01/26 ...................................................... 5,000,000 4,841,750
Brevard County School Board COP,
Refunding, Series A, AMBAC Insured, 5.40%, 7/01/11 ................................ 4,415,000 4,617,119
Series A, AMBAC Insured, 5.00%, 7/01/26 ........................................... 10,675,000 10,776,306
Broward County Educational Facilities Authority Revenue, Educational Facilities, Nova
Southeastern University, Refunding, Series B, 5.60%, 4/01/29 ...................... 3,180,000 3,150,426
Broward County Health Facilities Authority Revenue, Catholic Health Services,
Refunding,
5.50%, 8/15/20 .................................................................... 9,360,000 9,281,095
Broward County HFA,
MFHR, Bridgewater Place Apartments Project, Series A, 5.45%, 10/01/34 ............. 3,000,000 2,897,490
MFHR, Cross Keys Apartments Project, Series A, 5.80%, 10/01/33 .................... 1,980,000 1,980,673
MFHR, Cross Keys Apartments Project, Series A, 5.85%, 4/01/39 ..................... 5,730,000 5,730,344
MFHR, Stirling Apartments Phase II, Series A, 5.35%, 10/01/29 ..................... 990,000 961,894
MFHR, Stirling Apartments Phase II, Series A, 5.40%, 4/01/39 ...................... 1,980,000 1,871,892
SFMR, Refunding, Series B, FHA Insured, zero cpn., 4/01/29 ........................ 245,000 65,930
Broward County HFAR, Series D, GNMA Secured, 7.375%, 6/01/21 ......................... 65,000 65,170
Broward County School Board COP, Series A, FSA Insured, 5.00%, 7/01/26 ............... 21,500,000 21,809,600
Broward County Water and Sewer Utility Revenue, Series A, 5.25%, 10/01/34 ............ 2,200,000 2,286,108
Cape Canaveral Hospital District Revenue COP, Refunding, 5.25%, 1/01/28 .............. 3,500,000 3,347,470
Celebration CDD, Special Assessment, Series A, NATL Insured, 5.50%, 5/01/18 .......... 1,225,000 1,225,551
Citizens Property Insurance Corp. Revenue, Senior Secured, High-Risk Account, Series
A-1, 6.00%, 6/01/17 ............................................................... 5,000,000 5,481,550
Citrus County Hospital Board Revenue, Citrus Memorial Hospital, Refunding, 6.25%,
8/15/23 ........................................................................... 8,530,000 8,532,218
Clearwater MFR, Rental Housing, Drew Gardens Projects, Refunding, Series A, FHA
Insured,
6.50%, 10/01/25 ................................................................... 2,225,000 2,225,111
Clearwater Water and Sewer Revenue, Series A, 5.25%, 12/01/39 ........................ 2,000,000 2,034,940
Crossing at Fleming Island CDD, Florida Special Assessment Revenue, Refunding, Series
B, NATL Insured, 5.80%, 5/01/16 ................................................... 5,980,000 6,050,205
Dade County Aviation Revenue, Miami International Airport, Series C, FSA Insured,
5.125%, 10/01/27 .................................................................. 9,550,000 9,555,921
Daytona Beach Utility System Revenue, Refunding, Series B, NATL Insured, 5.00%,
11/15/32 .......................................................................... 3,250,000 3,004,853
Duval County School Board COP, Master Lease Program, Series A, Assured Guaranty,
5.25%, 7/01/35 .................................................................... 10,000,000 10,006,500
Enterprise CDD, Water and Sewer Revenue, NATL Insured, 5.50%, 5/01/26 ................ 3,000,000 3,020,040
Escambia County Health Facilities Authority Health Facility Revenue,
Baptist Hospital and Baptist Manor, 5.125%, 10/01/19 .............................. 8,750,000 8,793,750
Baptist Hospital Inc. Project, Series A, 6.00%, 8/15/36 ........................... 11,000,000 10,913,100
Florida Health Care Facility Loan VHA Project, AMBAC Insured, 5.95%, 7/01/20 ...... 1,025,000 1,070,746
98 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Escambia County HFA, SFMR, Multi-County Program, Refunding, Series A, NATL Insured,
6.40%, 10/01/30 ................................................................... $ 225,000 $ 225,275
Escambia County HFA Dormitory Revenue, University of West Florida Foundation Inc. ....
Project, Refunding, NATL Insured, 5.00%, 6/01/31 .................................. 6,580,000 5,830,801
Florida HFAR,
Homeowner Mortgage, Series 1, NATL Insured, 5.625%, 7/01/17 ....................... 1,290,000 1,297,005
Reserve at Kanapaha, Series G, AMBAC Insured, 5.70%, 7/01/37 ...................... 5,000,000 5,004,150
Reserve at Northshore, Series H, AMBAC Insured, 5.70%, 5/01/37 .................... 2,000,000 2,000,660
Florida HFC Revenue,
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.65%, 6/01/19 ................ 1,225,000 1,243,559
Brenwood Trace Apartments, Series E-1, FSA Insured, 5.80%, 12/01/38 ............... 4,885,000 4,916,069
Capital Appreciation, Homeowner Mortgage, Series 4, FSA Insured, zero cpn., 7/01/30 1,790,000 447,411
Deer Meadows Apartments, Series R, FNMA Insured, 6.00%, 5/01/32 ................... 3,425,000 3,479,766
Deferred Interest, Homeowner Mortgage, Series 1, NATL Insured, zero cpn., 7/01/17 . 930,000 627,173
Deferred Interest, Homeowner Mortgage, Series 2, NATL Insured, zero cpn., 1/01/29 . 9,780,000 3,323,146
Homeowner Mortgage, Series 4, FSA Insured, 6.25%, 7/01/22 ......................... 1,080,000 1,082,938
Homeowner Mortgage, Series 4, GNMA Secured, 6.375%, 7/01/38 ....................... 4,835,000 5,204,442
Housing-Waverly Apartments, Series C-1, FSA Insured, 6.50%, 7/01/40 ............... 3,000,000 3,039,720
Florida Intergovernmental Finance Commission Capital Revenue, Series C-1, AMBAC
Insured,
5.00%, 2/01/21 .................................................................... 1,355,000 1,373,875
Florida Ports Financing Commission Revenue, State Transportation Trust Fund,
Intermodal Program, FGIC Insured, 5.50%, 10/01/23 ................................. 7,000,000 7,073,500
Florida State Board of Education Capital Outlay GO, Public Education,
Refunding, Series D, 5.75%, 6/01/22 ............................................... 25,900,000 26,401,942
Refunding, Series D, 6.00%, 6/01/23 ............................................... 15,000,000 18,855,450
Refunding, Series G, FGIC Insured, 5.00%, 6/01/31 ................................. 5,000,000 5,153,500
Series C, FGIC Insured, Pre-Refunded, 5.75%, 6/01/29 .............................. 3,000,000 3,070,950
Florida State Board of Education GO,
Series A, 5.50%, 6/01/38 .......................................................... 10,000,000 10,830,100
Series F, NATL Insured, 5.00%, 6/01/28 ............................................ 14,405,000 14,854,724
Florida State Board of Education Lottery Revenue, Series A, FGIC Insured, 5.00%,
7/01/20 ........................................................................... 6,000,000 6,338,940
Florida State Board Regent Housing Revenue, University of Florida, FGIC Insured,
Pre-Refunded, 5.75%, 7/01/25 ...................................................... 3,400,000 3,495,642
Florida State Department of Environmental Protection Preservation Revenue, Florida
Forever, Series A, NATL Insured, 5.00%, 7/01/21 ................................... 4,000,000 4,161,480
Florida State Mid-Bay Bridge Authority Revenue,
Exchangeable, Refunding, Series D, 6.10%, 10/01/22 ................................ 13,455,000 12,441,704
Exchangeable, Series A, 5.95%, 10/01/13 ........................................... 3,115,000 3,128,332
Exchangeable, Series D, ETM, 6.10%, 10/01/22 ...................................... 3,545,000 4,394,843
Series A, AMBAC Insured, Pre-Refunded, zero cpn., 10/01/25 ........................ 9,845,000 5,254,080
Series A, AMBAC Insured, Pre-Refunded, zero cpn., 10/01/26 ........................ 2,500,000 1,263,750
Series A, ETM, 6.875%, 10/01/22 ................................................... 6,000,000 7,959,240
Florida State Municipal Power Agency Revenue,
All Requirements Power Supply Project, Series A, 5.00%, 10/01/31 .................. 6,000,000 6,020,520
All Requirements Power Supply Project, Series A, 6.25%, 10/01/31 .................. 2,000,000 2,258,200
Stanton II Project, Refunding, AMBAC Insured, 5.00%, 10/01/26 ..................... 5,000,000 5,068,550
Stanton Project, Refunding, 5.50%, 10/01/19 ....................................... 1,000,000 1,122,580
Annual Report | 99
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Florida State Turnpike Authority Turnpike Revenue, Department of Transportation,
Refunding, Series A, 5.00%, 7/01/35 ............................................... $ 5,000,000 $ 5,122,850
Series B, 5.00%, 7/01/30 .......................................................... 3,455,000 3,483,020
Fort Lauderdale Water and Sewer Revenue,
5.00%, 9/01/35 .................................................................... 24,090,000 24,603,117
NATL Insured, 5.00%, 9/01/31 ...................................................... 8,315,000 8,565,780
Fort Pierce Capital Improvement Revenue, Refunding, Series A, Assured Guaranty, 6.00%,
9/01/32 ........................................................................... 1,500,000 1,613,520
Fort Pierce Utilities Authority Revenue,
AMBAC Insured, 5.00%, 10/01/27 .................................................... 7,000,000 7,153,440
Capital Appreciation, Series B, AMBAC Insured, zero cpn., 10/01/20 ................ 3,090,000 1,892,316
Capital Appreciation, Series B, AMBAC Insured, zero cpn., 10/01/21 ................ 2,585,000 1,509,640
Capital Appreciation, Series B, AMBAC Insured, zero cpn., 10/01/22 ................ 3,090,000 1,718,411
Capital Appreciation, Series B, AMBAC Insured, zero cpn., 10/01/23 ................ 3,060,000 1,622,014
Capital Appreciation, Series B, AMBAC Insured, zero cpn., 10/01/24 ................ 2,560,000 1,283,968
Greater Orlando Aviation Authority Orlando Airport Facilities Revenue, Refunding,
Series C, 5.00%, 10/01/39 ......................................................... 4,250,000 4,166,190
Halifax Hospital Medical Center Hospital Revenue,
Refunding and Improvement, Series A, 5.00%, 6/01/38 ............................... 11,395,000 10,236,698
Series B-1, FSA Insured, 5.50%, 6/01/38 ........................................... 10,000,000 10,038,500
Hernando County School Board COP, NATL Insured, 5.00%, 7/01/35 ....................... 10,000,000 9,692,000
Hialeah Housing Authority Revenue, Affordable Housing Program, Refunding, GNMA
Secured, 5.30%, 12/20/18 .......................................................... 1,145,000 1,161,167
Highlands County Health Facilities Authority Revenue, Adventist Health Systems, Series
A, Pre-Refunded, 6.00%, 11/15/31 .................................................. 16,000,000 17,499,360
Hillsborough County Assessment Revenue, Capacity Assessment Special, FSA Insured,
5.125%, 3/01/20 ................................................................... 1,000,000 1,004,340
Hillsborough County Aviation Authority Revenue, Series B, Assured Guaranty, 5.00%,
10/01/33 .......................................................................... 5,465,000 5,587,197
10/01/38 .......................................................................... 6,725,000 6,808,995
Hillsborough County IDA, PCR, Tampa Electric Co. Project,
Refunding, 5.50%, 10/01/23 ........................................................ 16,000,000 16,248,480
Series A, 5.65%, 5/15/18 .......................................................... 6,500,000 7,054,840
Hillsborough County IDAR, Tampa General Hospital Project, Refunding, Series B, 5.40%,
10/01/28 .......................................................................... 7,000,000 6,999,650
Hillsborough County School Board COP, Master Lease Program, Series B, NATL Insured,
5.00%, 7/01/29 .................................................................... 10,000,000 10,192,600
Jacksonville Capital Improvement Revenue,
Refunding, Series C, AMBAC Insured, 5.00%, 10/01/25 ............................... 3,460,000 3,512,488
Series A, AMBAC Insured, 5.00%, 10/01/30 .......................................... 10,000,000 10,088,600
Jacksonville Guaranteed Entitlement Revenue, Refunding and Improvement, FGIC Insured,
5.00%, 10/01/32 ................................................................... 17,250,000 17,348,670
Jacksonville Sales Tax Revenue, AMBAC Insured, 5.00%, 10/01/23 ....................... 5,000,000 5,160,700
Jacksonville Transportation Revenue, NATL Insured,
5.25%, 10/01/29 ................................................................... 17,955,000 18,206,370
5.00%, 10/01/31 ................................................................... 25,000,000 25,297,500
Kissimmee Water and Sewer Revenue, AMBAC Insured, ETM, 6.00%, 10/01/15 ............... 5,000,000 5,064,900
100 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Lake County School Board COP, Series A, AMBAC Insured, 5.00%, 6/01/30 ................ $ 5,000,000 $ 4,961,900
Lakeland Electric and Water Revenue, Capital Appreciation, ETM, zero cpn., 10/01/14 .. 5,770,000 5,286,705
Lakeland Hospital System Revenue, Lakeland Regional Health System, Pre-Refunded,
5.75%, 11/15/27 ................................................................... 6,925,000 7,886,398
5.50%, 11/15/32 ................................................................... 12,070,000 13,665,413
Lee County Airport Revenue,
Refunding, FSA Insured, 5.00%, 10/01/33 ........................................... 5,000,000 5,067,750
Series A, FSA Insured, 6.00%, 10/01/32 ............................................ 11,405,000 11,622,037
Leesburg Hospital Revenue, Leesburg Regional Medical Center Project, 5.50%, 7/01/32 .. 4,150,000 3,852,901
Marion County Utility System Revenue,
FGIC Insured, 5.00%, 12/01/31 ..................................................... 5,000,000 5,089,350
Series A, NATL Insured, 5.00%, 12/01/28 ........................................... 5,000,000 5,128,250
Melbourne Water and Sewer Revenue,
Capital Appreciation, FGIC Insured, ETM, zero cpn., 10/01/26 ...................... 1,500,000 745,770
Capital Appreciation, Refunding, Series B, FGIC Insured, zero cpn., 10/01/22 ...... 1,785,000 926,754
Capital Appreciation, Refunding, Series B, FGIC Insured, zero cpn., 10/01/26 ...... 4,500,000 1,783,890
FGIC Insured, Pre-Refunded, 5.25%, 10/01/30 ....................................... 3,000,000 3,112,920
Miami Beach Water and Sewer Revenue, AMBAC Insured, 5.00%, 9/01/30 ................... 7,000,000 7,029,260
Miami Parking System Revenue, Refunding, Assured Guaranty, 5.00%, 10/01/39 ........... 4,000,000 3,963,240
Miami Special Obligation Revenue, 5.625%, 1/01/39 .................................... 15,000,000 15,066,000
Miami-Dade County Aviation Revenue, Miami International Airport,
Hub of the Americas, Refunding, NATL Insured, 5.375%, 10/01/27 .................... 5,000,000 5,009,900
Hub of the Americas, Refunding, NATL Insured, 5.375%, 10/01/32 .................... 5,000,000 4,856,600
Hub of the Americas, Refunding, Series A, XLCA Insured, 5.00%, 10/01/37 ........... 10,000,000 8,968,100
Refunding, Series A, 5.375%, 10/01/35 ............................................. 7,500,000 7,508,625
Refunding, Series A, 5.50%, 10/01/36 .............................................. 5,000,000 5,040,500
Miami-Dade County Educational Facilities Authority Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.75%, 4/01/29 ...................................................... 5,000,000 5,071,300
Miami-Dade County GO, Building Better Communities Program, Series B-1, 5.75%,
7/01/33 ........................................................................... 5,000,000 5,358,000
Miami-Dade County HFA, MFMR, Villa Esperanza Apartments Project,
5.25%, 10/01/19 ................................................................... 430,000 430,976
5.40%, 10/01/33 ................................................................... 1,500,000 1,380,255
Miami-Dade County Public Facilities Revenue, Jackson Health System, Series A, NATL
Insured, 5.00%, 6/01/35 ........................................................... 15,000,000 13,952,400
Miami-Dade County School Board COP, Assured Guaranty, 5.375%, 2/01/34 ................ 5,000,000 5,151,400
Miami-Dade County Special Obligation Revenue,
Juvenile Courthouse Project, Series A, AMBAC Insured, 5.00%, 4/01/35 .............. 5,000,000 4,726,750
Sub Series B, NATL Insured, zero cpn., 10/01/36 ................................... 5,635,000 876,862
Sub Series C, NATL Insured, zero cpn., 10/01/28 ................................... 8,305,000 2,443,746
sub. lien, Refunding, Series A, NATL Insured, zero cpn., 10/01/25 ................. 22,365,000 8,381,955
(a) Miami-Dade County Water and Sewer Revenue, Miami-Dade County Water and Sewer,
System, FSA Insured, 5.00%, 10/01/39 .............................................. 5,000,000 4,999,800
North Broward Hospital District Revenue, Improvement, Pre-Refunded, 6.00%, 1/15/31 ... 25,530,000 27,043,163
Okaloosa County Water and Sewer Revenue, Refunding, FSA Insured, 5.00%, 7/01/36 ...... 10,000,000 10,096,500
Orange County Health Facilities Authority Revenue,
Adventist Health System Inc., Pre-Refunded, 6.375%, 11/15/20 ...................... 3,000,000 3,156,180
Adventist Health System Inc., Pre-Refunded, 6.25%, 11/15/24 ....................... 5,500,000 6,182,385
Annual Report | 101
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Orange County Health Facilities Authority Revenue, (continued)
Adventist Health System Inc., Pre-Refunded, 6.50%, 11/15/30 ....................... $ 10,750,000 $ 11,318,997
Hospital, Adventist Health System Inc., Pre-Refunded, 5.625%, 11/15/32 ............ 15,000,000 16,758,000
Hospital, Orlando Regional Healthcare, Series B, 5.125%, 11/15/39 ................. 5,000,000 4,682,500
Hospital, Orlando Regional Healthcare, Series B, FSA Insured, 5.00%, 12/01/32 ..... 5,000,000 4,867,100
Hospital, Orlando Regional Healthcare, Series C, 5.25%, 10/01/35 .................. 4,000,000 3,850,960
Orlando Regional Healthcare System, Pre-Refunded, 6.00%, 12/01/29 ................. 6,000,000 6,836,340
Orange County HFA Homeowner Revenue, Series C-1, GNMA Secured, 5.70%, 9/01/26 ........ 265,000 267,229
Orange County School Board COP, Series A,
Assured Guaranty, 5.50%, 8/01/34 .................................................. 10,000,000 10,783,800
NATL Insured, 5.00%, 8/01/27 ...................................................... 12,000,000 12,148,800
Orange County Tourist Development Tax Revenue, Refunding, XLCA Insured, 5.00%,
10/01/31 .......................................................................... 12,970,000 13,048,858
Orlando Tourist Development Tax Revenue, Senior 6th Cent Contract Payments, Series A,
Assured Guaranty, 5.25%, 11/01/38 ................................................. 16,740,000 16,854,167
Orlando-Orange County Expressway Authority Revenue,
junior lien, FGIC Insured, 5.00%, 7/01/28 ......................................... 8,000,000 8,012,480
senior lien, AMBAC Insured, ETM, 7.625%, 7/01/18 .................................. 265,000 339,486
Series B, AMBAC Insured, 5.00%, 7/01/35 ........................................... 6,135,000 6,056,472
Osceola County IDAR, Community Provider Pooled Loan Program, Series A, FSA Insured,
7.75%, 7/01/10 .................................................................... 34,000 34,009
Osceola County Sales Tax Revenue, FSA Insured, 5.00%, 4/01/24 ........................ 10,000,000 10,011,100
Osceola County Tourist Development Tax Revenue, FGIC Insured, 5.00%, 10/01/32 ........ 10,000,000 10,057,200
Palm Beach County HFA MFR, Housing Winsor Park Apartments Project, Series A, 5.90%,
6/01/38 ........................................................................... 975,000 975,078
Palm Beach County HFAR, Acts Retirement-Life Communities, 5.125%, 11/15/29 ........... 3,650,000 3,394,865
Palm Beach County IDR, South Florida Fair Project, NATL Insured, 5.50%, 6/01/31 ...... 5,000,000 5,002,850
Palm Beach County Public Improvement Revenue, 5.00%, 5/01/33 ......................... 1,000,000 1,049,800
Palm Beach County School Board COP, Series A, FGIC Insured, Pre-Refunded, 6.00%,
8/01/22 ........................................................................... 5,000,000 5,168,850
Palm Beach County Solid Waste Authority Revenue, Improvement, Series B, 5.50%,
10/01/25 .......................................................................... 5,000,000 5,475,250
Palm Beach County Water and Sewer Revenue, 5.00%, 10/01/40 ........................... 5,000,000 5,145,550
Panama City Beach Utility Revenue,
Assured Guaranty, 5.00%, 6/01/39 .................................................. 5,000,000 4,992,000
Refunding, AMBAC Insured, 5.00%, 6/01/27 .......................................... 4,450,000 4,486,757
Refunding, AMBAC Insured, 5.00%, 6/01/32 .......................................... 2,795,000 2,808,891
Pinellas County Health Facilities Authority Revenue, Baycare Health System, FSA
Insured, 5.00%, 11/15/30 .......................................................... 11,500,000 11,553,130
Pinellas County HFA, SFHR, Multi-County, Series B-1, zero cpn., 9/01/31 .............. 205,000 48,683
Polk County Capital Improvement Revenue, FSA Insured, Pre-Refunded, 5.75%, 12/01/21 .. 2,350,000 2,469,521
Polk County School Board COP, Series A, FSA Insured, 5.00%, 1/01/26 .................. 4,000,000 4,044,280
Port Everglades Authority Port Improvement Revenue, Capital Appreciation, ETM, zero
cpn., 9/01/10 ..................................................................... 8,595,000 8,562,855
Port St. Lucie Utility Revenue, System,
Capital Appreciation, NATL Insured, Pre-Refunded, zero cpn., 9/01/29 .............. 20,000,000 6,900,800
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 9/01/32 ....... 5,000,000 1,217,800
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 9/01/33 ....... 5,000,000 1,132,800
102 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Port St. Lucie Utility Revenue, System, (continued)
Refunding, Assured Guaranty, 5.25%, 9/01/35 ....................................... $ 2,000,000 $ 2,072,060
Refunding, Series A, NATL Insured, 5.00%, 9/01/30 ................................. 11,580,000 11,727,182
Refunding, Series A, NATL Insured, 5.00%, 9/01/31 ................................. 2,305,000 2,325,330
Sarasota Special Obligation Revenue, Capital Appreciation, Refunding, AMBAC Insured,
zero cpn.,
11/01/12 .......................................................................... 1,780,000 1,667,006
11/01/15 .......................................................................... 2,180,000 1,745,046
South Broward Hospital District Revenue,
Pre-Refunded, 5.60%, 5/01/27 ...................................................... 5,000,000 5,540,500
Pre-Refunded, 5.625%, 5/01/32 ..................................................... 16,250,000 18,015,400
South Broward Hospital District Obligated Group, Refunding, 5.00%, 5/01/36 ........ 7,000,000 7,027,440
South Florida Water Management District COP, AMBAC Insured, 5.00%, 10/01/31 .......... 12,050,000 12,279,311
St. Johns County Water and Sewer Revenue, Capital Appreciation, AMBAC Insured, zero
cpn.,
6/01/22 ........................................................................... 4,000,000 2,166,360
6/01/23 ........................................................................... 4,255,000 2,167,284
6/01/24 ........................................................................... 1,500,000 716,820
6/01/25 ........................................................................... 2,130,000 954,645
St. Lucie West Services District Utility Revenue, senior lien, NATL Insured, 6.125%,
10/01/32 .......................................................................... 10,000,000 10,264,100
St. Petersburg Public Utilities Revenue, Series A, 5.00%, 10/01/36 ................... 3,180,000 3,287,484
Sunrise Utilities System Revenue, Refunding, AMBAC Insured, 5.20%, 10/01/22 .......... 2,550,000 2,780,010
Tallahassee Energy System Revenue, NATL Insured, 5.00%, 10/01/35 ..................... 1,000,000 1,015,020
Tamarac Sales Tax Revenue, FGIC Insured, 5.00%, 4/01/22 .............................. 2,490,000 2,576,801
Tamarac Utility System Revenue, Refunding, Assured Guaranty, 5.00%, 10/01/39 ......... 1,585,000 1,565,631
Tampa Bay Water Utility System Revenue,
FGIC Insured, Pre-Refunded, 5.75%, 10/01/29 ....................................... 15,000,000 16,221,150
Series B, FGIC Insured, 5.00%, 10/01/31 ........................................... 10,000,000 10,097,700
Tampa Sports Authority Revenue, Guaranteed Package, Tampa Bay Arena Project,
NATL Insured,
6.00%, 10/01/15 ................................................................... 1,000,000 1,055,740
6.05%, 10/01/20 ................................................................... 1,715,000 1,863,588
6.10%, 10/01/26 ................................................................... 2,695,000 3,037,400
Tampa Water and Sewer Revenue, sub. lien, Series A, AMBAC Insured, ETM, 7.25%,
10/01/16 .......................................................................... 1,205,000 1,418,285
Viera East CDD Special Assessment,
Refunding, 7.00%, 5/01/26 ......................................................... 6,255,000 6,212,341
Series B, ETM, 6.75%, 5/01/14 ..................................................... 3,670,000 4,007,640
Village Center CDD Recreational Revenue, Series A, NATL Insured, 5.20%, 11/01/25 ..... 10,000,000 8,787,200
Volusia County Educational Facility Authority Revenue, Educational Facilities,
Embry Riddle University, Refunding, Series B, AMBAC Insured, 5.25%, 10/15/22 ...... 2,000,000 2,006,500
Stetson University Inc. Project, AMBAC Insured, 5.25%, 6/01/29 .................... 5,000,000 5,009,950
West Lake CDD, Special Assessment Revenue, NATL Insured, 5.75%, 5/01/17 .............. 1,495,000 1,435,589
West Orange Healthcare District Revenue, Series A, 5.65%, 2/01/22 .................... 10,850,000 11,023,925
West Palm Beach CRDA Revenue, Northwood Pleasant Community Redevelopment, 5.00%,
3/01/35 ........................................................................... 1,000,000 897,290
Winter Park Water and Sewer Revenue, Improvement, Refunding, 5.00%, 12/01/34 ......... 2,000,000 2,047,900
--------------
1,197,087,393
--------------
Annual Report | 103
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FLORIDA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 5.9%
PUERTO RICO 5.2%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 .................................................................... $ 2,100,000 $ 2,152,290
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, Series B, 6.00%, 7/01/39 ............................................... 15,000,000 15,408,000
Series A, 5.00%, 7/01/29 .......................................................... 10,000,000 9,465,600
Series A, 5.00%, 7/01/33 .......................................................... 6,360,000 5,834,982
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series A, NATL Insured, 5.00%, 7/01/38 ................................. 560,000 523,035
Refunding, Series K, 5.00%, 7/01/30 ............................................... 5,000,000 4,760,550
Series B, Pre-Refunded, 6.00%, 7/01/39 ............................................ 5,000,000 5,144,400
Series G, 5.00%, 7/01/33 .......................................................... 1,680,000 1,561,879
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Revenue, Cogeneration Facility, AES Puerto Rico Project, 6.625%,
6/01/26 ........................................................................... 5,900,000 5,958,056
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 1,210,000 1,191,717
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 1,000,000 1,100,640
Series I, 5.00%, 7/01/36 .......................................................... 5,000,000 4,538,000
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A, 6.00%,
8/01/42 ........................................................................... 8,000,000 8,368,080
--------------
66,007,229
--------------
U.S. VIRGIN ISLANDS 0.7%
Virgin Islands PFAR, Gross Receipts Taxes Loan Note, Radian Insured,
5.00%, 10/01/33 ................................................................... 10,000,000 9,418,900
--------------
TOTAL U.S. TERRITORIES ............................................................... 75,426,129
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,230,298,963) ................................................................ 1,272,513,522
--------------
SHORT TERM INVESTMENTS 0.1%
MUNICIPAL BONDS 0.1%
FLORIDA 0.1%
(b) Broward County Educational Facilities Authority Revenue, Educational Facilities,
Nova Southeastern University, Refunding, Series C, Daily VRDN & Put, 0.13%,
4/01/24 ........................................................................... 300,000 300,000
(b) Jacksonville Health Facilities Authority Hospital Revenue, Series A, Daily VRDN
and Put, 0.13%, 8/15/33 ........................................................... 600,000 600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $900,000) ......................................... 900,000
--------------
TOTAL INVESTMENTS (COST $1,231,198,963) 99.2% ........................................ 1,273,413,522
OTHER ASSETS, LESS LIABILITIES 0.8% .................................................. 10,071,632
--------------
NET ASSETS 100.0% .................................................................... $1,283,485,154
==============
See Abbreviations on page 185.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
104 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN GEORGIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.24 $ 11.36 $ 12.20 $ 12.13 $ 12.17
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.50 0.49 0.49 0.50 0.51
Net realized and unrealized gains (losses) .. 0.68 (0.11) (0.84) 0.06 (0.04)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.18 0.38 (0.35) 0.56 0.47
-------- -------- -------- -------- --------
Less distributions from net investment income .. (0.50) (0.50) (0.49) (0.49) (0.51)
-------- -------- -------- -------- --------
Redemption fees(d) ............................. -- -- --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.92 $ 11.24 $ 11.36 $ 12.20 $ 12.13
======== ======== ======== ======== ========
Total return(f) ................................ 10.66% 3.38% (2.97)% 4.79% 3.91%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.68% 0.69% 0.72% 0.73% 0.74%
Net investment income .......................... 4.27% 4.33% 4.10% 4.13% 4.18%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $365,223 $308,087 $253,104 $220,989 $205,875
Portfolio turnover rate ........................ 9.61% 9.61% 8.00% 4.50% 8.54%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 105
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.35 $ 11.47 $ 12.31 $ 12.24 $ 12.27
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.44 0.43 0.43 0.44 0.44
Net realized and unrealized gains (losses) .. 0.69 (0.11) (0.84) 0.06 (0.03)
-------- ------- ------- ------- -------
Total from investment operations ............... 1.13 0.32 (0.41) 0.50 0.41
-------- ------- ------- ------- -------
Less distributions from net investment income .. (0.43) (0.44) (0.43) (0.43) (0.44)
-------- ------- ------- ------- -------
Redemption fees(d) ............................. -- -- --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of year ................... $ 12.05 $ 11.35 $ 11.47 $ 12.31 $ 12.24
======== ======= ======= ======= =======
Total return(f) ................................ 10.14% 2.78% (3.48)% 4.16% 3.39%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.23% 1.24% 1.27% 1.28% 1.29%
Net investment income .......................... 3.72% 3.78% 3.55% 3.58% 3.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $101,641 $68,721 $52,087 $50,700 $43,983
Portfolio turnover rate ........................ 9.61% 9.61% 8.00% 4.50% 8.54%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
106 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.5%
GEORGIA 93.2%
Athens-Clarke County Unified Government Water and Sewer Revenue,
5.625%, 1/01/33 ................................................................... $ 10,000,000 $ 11,002,700
5.50%, 1/01/38 .................................................................... 5,000,000 5,417,450
Atlanta Airport Passenger Facility Charge Revenue, General, sub. lien,
Refunding, Series C, FSA Insured, 5.00%, 1/01/33 .................................. 5,000,000 5,009,300
Series J, FSA Insured, 5.00%, 1/01/34 ............................................. 5,000,000 4,992,750
Atlanta Development Authority Educational Facilities Revenue, Science Park LLC
Project, 5.00%, 7/01/32 ........................................................... 3,000,000 2,988,480
Atlanta Development Authority Revenue,
Tuff Yamacraw LLC Project, Refunding, Series A, AMBAC Insured, 5.00%, 1/01/26 ..... 2,555,000 2,543,758
Yamacraw Design Center Project, Series A, NATL Insured, Pre-Refunded, 5.125%,
1/01/23 ........................................................................ 4,150,000 4,473,409
Atlanta GO, Refunding, Assured Guaranty, 5.25%, 12/01/23 ............................. 2,000,000 2,217,020
Atlanta Public Safety and Judicial Facilities Authority Revenue, Public Safety
Facility Project, FSA Insured, 5.00%, 12/01/26 .................................... 1,140,000 1,222,057
Atlanta Tax Allocation, Atlantic State Project, Refunding, Assured Guaranty, 5.00%,
12/01/23 .......................................................................... 1,000,000 1,009,510
Atlanta Urban Residential Finance Authority MFHR, Fulton Cotton Mill, GNMA Secured,
6.00%, 5/20/17 .................................................................... 790,000 790,916
6.125%, 5/20/27 ................................................................... 1,560,000 1,562,246
Atlanta Water and Wastewater Revenue,
Refunding, Series A, 6.00%, 11/01/28 .............................................. 5,055,000 5,346,876
Refunding, Series A, NATL Insured, 5.00%, 11/01/33 ................................ 8,000,000 7,857,840
Series A, FSA Insured, 5.50%, 11/01/27 ............................................ 5,000,000 5,418,000
Augusta Water and Sewer Revenue,
FSA Insured, 5.25%, 10/01/39 ...................................................... 3,000,000 3,090,780
Refunding, FSA Insured, 5.00%, 10/01/32 ........................................... 5,000,000 5,066,100
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center,
5.25%, 12/01/22 ................................................................... 2,500,000 2,211,900
5.375%, 12/01/28 .................................................................. 2,000,000 1,665,160
Bartow County Development Authority PCR, Georgia Power Co., First Series, 5.10%,
6/01/23 ........................................................................... 5,000,000 5,132,300
Bleckley-Dodge County Joint Development Authority Student Housing Facilities Revenue,
MGC Real Estate Foundation II LLC Project, 5.00%, 7/01/33 ......................... 3,500,000 3,428,950
Bulloch County Development Authority Lease Revenue, Georgia Southern University,
XLCA Insured, 5.00%, 8/01/27 ...................................................... 5,000,000 5,110,850
Burke County Development Authority PCR, Oglethorpe Power Corp., Vogtle Project,
Series B, 5.50%, 1/01/33 .......................................................... 5,000,000 5,235,750
Series E, 7.00%, 1/01/23 .......................................................... 5,000,000 5,885,200
Carroll City-County Hospital Authority Revenue Anticipation Certificates, Tanner
Medical Center Inc. Project, Assured Guaranty, 5.00%, 7/01/38 ..................... 5,000,000 4,788,000
Cherokee County GO, 5.00%, 4/01/26 ................................................... 1,000,000 1,102,680
Cherokee County Water and Sewer Authority Revenue,
FSA Insured, 5.00%, 8/01/35 ....................................................... 3,000,000 3,123,150
NATL Insured, 6.90%, 8/01/18 ...................................................... 10,000 10,008
Water and Sewer, Refunding, 5.00%, 8/01/27 ........................................ 2,320,000 2,538,660
Water and Sewer, Refunding, 5.00%, 8/01/28 ........................................ 2,030,000 2,205,006
Clayton County Development Authority Revenue, Refunding, Series A, NATL Insured,
5.00%, 8/01/23 .................................................................... 2,310,000 2,471,169
Annual Report | 107
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Clayton County MFHR, Pointe Clear Apartments Project, FSA Insured, 5.70%, 7/01/23 .... $ 930,000 $ 932,344
Cobb County Development Authority Parking Revenue, Kennesaw State University
Foundation Inc. Project, NATL Insured, 5.00%, 7/15/29 ............................. 2,000,000 2,028,840
Cobb County Development Authority University Facilities Revenue, Kennesaw State
University, Sub Series D, NATL Insured, 5.00%, 7/15/29 ............................ 5,000,000 4,726,850
College Park Business and IDAR, Civic Center Project, AMBAC Insured, Pre-Refunded,
5.75%, 9/01/26 .................................................................... 2,000,000 2,094,680
Columbia County Water and Sewer Revenue, FSA Insured, 5.00%, 6/01/24 ................. 1,130,000 1,225,485
Columbus Water and Sewer Revenue, FSA Insured, 5.00%, 5/01/29 ........................ 2,500,000 2,621,275
Dahlonega Water and Wastewater Revenue, Series A, Assured Guaranty,
5.25%, 9/01/30 .................................................................... 1,750,000 1,781,185
5.50%, 9/01/37 .................................................................... 5,000,000 5,202,900
Decatur County School Building Authority Revenue, High School Project, FSA Insured,
5.00%, 10/01/32 ................................................................... 1,500,000 1,554,480
DeKalb County Public Safety and Judicial Facilities Authority Revenue, Public Safety
and Judicial Facility Project, 5.00%, 12/01/29 .................................... 2,000,000 2,100,520
DeKalb County School District COP, Georgia School Boards Assn. Inc., AMBAC Insured,
5.00%, 12/01/27 ................................................................... 4,285,000 4,538,458
DeKalb County Water and Sewer Revenue, Refunding, Series B, FSA Insured, 5.00%,
10/01/35 .......................................................................... 7,000,000 7,619,920
DeKalb Newton and Gwinnett Counties Joint Development Authority Revenue, Georgia
Gwinnett College Student Centre LLC Project, 5.50%, 7/01/34 ....................... 3,000,000 2,909,790
DeKalb Private Hospital Authority Revenue Anticipation Certificates, Children's
Healthcare, Refunding, 5.25%, 11/15/39 ............................................ 5,000,000 5,071,700
Douglasville-Douglas County Water and Sewer Authority Revenue, NATL Insured, 5.00%,
6/01/29 ........................................................................... 3,410,000 3,565,462
6/01/32 ........................................................................... 2,225,000 2,316,715
East Point Building Authority Revenue, Water and Sewer Project, Series A, XLCA
Insured, 5.00%, 2/01/34 ........................................................... 5,480,000 4,338,516
Fayette County PFAR, Criminal Justice Center Project, Refunding, 5.00%, 6/01/26 ...... 3,000,000 3,080,310
Fayette County School District GO, FSA Insured, zero cpn. to 9/01/10,
4.75% thereafter, 3/01/21 ......................................................... 1,355,000 1,389,241
4.95% thereafter, 3/01/25 ......................................................... 1,000,000 1,018,090
Forsyth County Water and Sewerage Authority Revenue, FSA Insured, 5.00%, 4/01/32 ..... 5,000,000 5,217,650
Fulton County Development Authority Revenue,
Georgia Tech Foundation Funding, Series A, 5.00%, 11/01/31 ........................ 3,000,000 3,068,220
Georgia Tech Foundation Funding SAC II Project, Series A, 5.25%, 11/01/30 ......... 5,000,000 5,183,250
Georgia Tech Foundation Inc., Series A, 5.00%, 11/01/27 ........................... 1,060,000 1,160,202
Georgia Tech Foundation Inc., Series A, 5.00%, 11/01/28 ........................... 1,200,000 1,304,340
Molecular Science Building Project, NATL Insured, 5.00%, 5/01/25 .................. 2,240,000 2,345,078
Morehouse College Project, Refunding, AMBAC Insured, 5.00%, 12/01/27 .............. 5,000,000 5,244,950
Piedmont Healthcare, Refunding, Series A, 5.25%, 6/15/37 .......................... 5,000,000 5,061,900
Tech Facilities Project, Refunding, Series A, 5.00%, 6/01/34 ...................... 4,000,000 4,134,320
Fulton County Water and Sewer Revenue, FGIC Insured, 5.00%, 1/01/30 .................. 2,500,000 2,562,775
Gainesville and Hall County Hospital Authority Revenue, Anticipation Certificates,
Northeast Georgia Healthcare, Series A, 5.375%, 2/15/40 ........................... 5,000,000 4,815,950
Northeast Health System Inc. Project, Pre-Refunded, 5.50%, 5/15/31 ................ 2,500,000 2,643,125
108 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Georgia Municipal Assn. Inc. COP, City Court Atlanta Project, AMBAC Insured, 5.25%,
12/01/26 .......................................................................... $ 2,000,000 $ 2,012,860
Georgia Municipal Electric Authority Power Revenue, Series W,
6.60%, 1/01/18 .................................................................... 955,000 1,106,071
ETM, 6.60%, 1/01/18 ............................................................... 45,000 52,298
Georgia Municipal Gas Authority Gas Revenue, City of Toccoa Project, AMBAC Insured,
5.00%, 6/01/24 .................................................................... 1,000,000 1,002,620
Georgia Private Colleges and Universities Authority Student Housing Revenue, Mercer
Housing Corp. Project, Series A, 6.00%, 6/01/24 ................................... 2,550,000 2,400,825
Georgia School Board Assn. Inc. COP, DeKalb County Public School Project, NATL
Insured,
5.00%, 12/01/25 ................................................................... 2,600,000 2,620,462
Georgia State GO, Series B, 5.00%, 7/01/28 ........................................... 3,225,000 3,535,084
Georgia State HFAR,
MF, Lake Vista Apartments Project, Series A, FSA Insured, 5.95%, 1/01/27 .......... 1,000,000 1,004,260
SFM, Series A, 5.375%, 6/01/39 .................................................... 1,950,000 2,005,712
SFM, Series C, 5.00%, 12/01/27 .................................................... 1,000,000 1,018,830
Georgia State Higher Education Facilities Authority Revenue, USG Real Estate
Foundation I LLC Project,
6.00%, 6/15/34 .................................................................... 5,000,000 5,427,050
Assured Guaranty, 5.625%, 6/15/38 ................................................. 3,000,000 3,167,280
Glynn-Brunswick Memorial Hospital Authority Revenue, Anticipation Certificates,
Southeast Georgia Health, Series A, 5.625%, 8/01/34 ............................... 5,000,000 5,143,050
Gwinnett County Development Authority COP, Gwinnett County Public Schools Project,
NATL Insured, 5.25%, 1/01/24 ...................................................... 2,000,000 2,254,360
NATL Insured, Pre-Refunded, 5.00%, 1/01/24 ........................................ 8,500,000 9,687,620
Refunding, NATL Insured, 5.25%, 1/01/22 ........................................... 3,000,000 3,408,090
Gwinnett County Hospital Authority Revenue, Anticipation Certificates, Gwinnett
Hospital System Inc. Project,
Series B, NATL Insured, Pre-Refunded, 5.30%, 9/01/27 .............................. 3,750,000 4,159,350
Series D, FSA Insured, 5.50%, 7/01/37 ............................................. 4,000,000 4,019,960
Gwinnett County School District GO,
5.00%, 2/01/32 .................................................................... 5,000,000 5,381,700
5.00%, 2/01/36 .................................................................... 5,815,000 6,181,519
Refunding, 5.00%, 2/01/29 ......................................................... 5,000,000 5,696,450
Gwinnett County Water and Sewer Authority Revenue, Pre-Refunded, 5.25%, 8/01/25 ...... 2,795,000 3,102,785
Habersham County Hospital Authority Revenue, Anticipation Certificates, XLCA Insured,
5.00%, 12/01/27 ................................................................... 2,015,000 1,948,102
Habersham County School District GO, NATL Insured, 5.00%, 4/01/28 .................... 2,750,000 2,875,840
Henry County Hospital Authority Revenue, Henry Medical Center Inc. Project, Refunding,
AMBAC Insured, 6.00%, 7/01/29 ..................................................... 5,000,000 5,078,550
Hogansville Combined Public Utility System Revenue, Refunding, FSA Insured, 6.00%,
10/01/23 .......................................................................... 3,300,000 4,087,446
Jackson County School District GO, NATL Insured, 5.00%, 3/01/25 ...................... 3,000,000 3,186,210
LaGrange-Troup County Hospital Authority Revenue, Series A, 5.50%, 7/01/38 ........... 4,000,000 4,134,560
Lincoln County School District GO, 5.50%, 4/01/37 .................................... 2,200,000 2,381,126
Macon-Bibb Country Hospital Authority Revenue, Revenue Anticipation Certificates,
Medical Center of Georgia, 5.00%, 8/01/35 ......................................... 5,000,000 4,971,300
Annual Report | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Main Street Natural Gas Inc. Gas Project Revenue, Series A, 5.50%, 9/15/27 ........... $ 5,000,000 $ 4,895,350
Marietta GO, Park and Recreation Facilities, Series D, 5.00%, 1/01/30 ................ 1,500,000 1,601,955
Medical Center Hospital Authority Revenue, Anticipation Certificates, Columbus
Regional Healthcare System, Assured Guaranty, 6.375%, 8/01/29 ..................... 4,000,000 4,523,160
NATL Insured, 5.50%, 8/01/25 ...................................................... 6,000,000 6,036,840
Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Third Indenture,
Refunding, Series B, FSA Insured, 5.00%, 7/01/37 .................................. 10,000,000 10,308,600
Monroe County Development Authority PCR, Oglethorpe Power Co., Scherer Project,
Refunding, Series A, 6.80%, 1/01/12 ............................................... 1,500,000 1,637,340
Municipal Electric Authority Revenue,
General Resolution Projects, sub. note, Refunding, Series D, 5.50%, 1/01/26 ....... 5,000,000 5,493,050
Project 1, sub. bond, Series E, NATL Insured, 5.00%, 1/01/25 ...................... 2,315,000 2,417,022
Series B, 5.00%, 1/01/20 .......................................................... 5,000,000 5,601,250
Newton County IDAR, Georgia Perimeter College Foundation Real Estate Newton, CIFG
Insured, 5.00%, 6/01/24 ........................................................... 3,150,000 3,281,701
Paulding County GO, Courthouse, FGIC Insured, 5.00%, 2/01/32 ......................... 4,000,000 4,214,600
Paulding County School District GO, 5.00%, 2/01/33 ................................... 4,000,000 4,127,080
Peach County Development Authority Student Housing Facilities Revenue, Fort Valley
State University Foundation Property LLC, AMBAC Insured, 5.00%, 6/01/34 ........... 3,000,000 3,010,950
Private Colleges and Universities Authority Revenue,
Emory University, Refunding, 5.00%, 9/01/35 ....................................... 15,350,000 16,155,875
Emory University, Refunding, Series C, 5.25%, 9/01/39 ............................. 5,000,000 5,371,100
Mercer University Project, Refunding, Series A, 5.375%, 10/01/29 .................. 2,000,000 1,829,100
Richmond County Development Authority Educational Facilities Revenue, Augusta State
University Jaguar Student Center, Series A, XLCA Insured, 5.00%, 7/01/29 .......... 1,000,000 1,021,970
Richmond County Development Authority Solid Waste Disposal Revenue, International
Paper Co. Project, 5.80%, 12/01/20 ................................................ 1,500,000 1,500,600
Rockdale County Water and Sewer Authority Revenue, FSA Insured, 5.00%, 7/01/29 ....... 4,000,000 4,223,400
Savannah EDA Revenue, Armstrong Center LLC Project, Series A, XLCA Insured, 5.00%,
12/01/30 .......................................................................... 1,500,000 1,504,335
South Fulton Municipal Regional Water and Sewer Authority Water Revenue, NATL Insured,
Pre-Refunded, 5.00%, 1/01/33 ...................................................... 3,500,000 3,903,900
Suwanee GO, NATL Insured, Pre-Refunded, 5.25%, 1/01/32 ............................... 3,000,000 3,254,910
Upper Oconee Basin Water Authority Revenue, Refunding, NATL Insured, 5.00%, 7/01/26 .. 1,000,000 1,024,340
Valdosta and Lowndes County Hospital Authority Revenue, Certificates, South Georgia
Medical Center Project,
5.00%, 10/01/33 ................................................................... 2,000,000 1,849,060
AMBAC Insured, 5.25%, 10/01/27 .................................................... 3,000,000 3,012,480
Walton County Water and Sewer Authority Revenue,
Hard Labor Creek Project, FSA Insured, 5.00%, 2/01/33 ............................. 5,000,000 5,171,400
Oconee, Hard Creek Resources Project, FSA Insured, 5.00%, 2/01/38 ................. 3,845,000 4,002,799
Refunding and Improvement, NATL Insured, 6.00%, 2/01/21 ........................... 750,000 750,563
Ware County Hospital Authority Revenue, Anticipation Certificates, NATL Insured,
5.25%, 3/01/25 .................................................................... 3,000,000 2,915,130
--------------
435,467,726
--------------
110 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN GEORGIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 5.3%
PUERTO RICO 5.3%
Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, 6.00%,
7/01/39 ........................................................................... $ 5,000,000 $ 5,136,000
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series L, NATL Insured, 5.25%, 7/01/35 ................................. 10,000,000 9,567,600
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A, 5.375%,
8/01/39 ........................................................................... 10,000,000 10,003,300
--------------
TOTAL U.S. TERRITORIES ............................................................... 24,706,900
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $445,573,418) .............. 460,174,626
--------------
SHORT TERM INVESTMENTS (COST $2,200,000) 0.5%
MUNICIPAL BONDS 0.5%
U.S. TERRITORIES 0.5%
PUERTO RICO 0.5%
(a) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN
and Put, 0.12%, 7/01/32 ........................................................... 2,200,000 2,200,000
--------------
TOTAL INVESTMENTS (COST $447,773,418) 99.0% .......................................... 462,374,626
OTHER ASSETS, LESS LIABILITIES 1.0% .................................................. 4,489,257
--------------
NET ASSETS 100.0% .................................................................... $ 466,863,883
==============
See Abbreviations on page 185.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 111
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN KENTUCKY TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.50 $ 10.57 $ 11.44 $ 11.39 $ 11.41
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.46 0.47 0.45 0.45 0.47
Net realized and unrealized gains (losses) ...... 0.66 (0.08) (0.87) 0.06 (0.02)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.12 0.39 (0.42) 0.51 0.45
-------- -------- -------- -------- --------
Less distributions from net investment income ...... (0.47) (0.46) (0.45) (0.46) (0.47)
-------- -------- -------- -------- --------
Redemption fees(d) ................................. -- -- --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 11.15 $ 10.50 $ 10.57 $ 11.44 $ 11.39
======== ======== ======== ======== ========
Total return(f) .................................... 10.85% 3.76% (3.81)% 4.57% 4.01%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates .. 0.76% 0.76% 0.76% 0.77% 0.78%
Expenses net of waiver and payments by affiliates .. 0.76% 0.76% 0.75% 0.75% 0.75%
Net investment income .............................. 4.25% 4.40% 4.05% 4.02% 4.10%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $187,618 $162,043 $149,776 $148,224 $128,254
Portfolio turnover rate ............................ 8.41% 10.40% 9.42% 2.28% 9.43%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
112 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 97.5%
KENTUCKY 88.7%
Bellevue GO, Public Project, Harbor Greene Project, XLCA Insured, 5.00%, 2/01/34 ..... $ 1,065,000 $ 1,093,467
Boone County GO, Public Project, 5.00%,
4/01/20 ........................................................................... 1,310,000 1,375,343
4/01/21 ........................................................................... 1,000,000 1,048,430
Boone County PCR, Collateralized, Dayton Power and Light Co., Refunding,
Series A, FGIC Insured, 4.70%, 1/01/28 ............................................ 3,000,000 2,985,480
Boone Florence Water Commission Water Supply Systems Revenue, Refunding, NATL Insured,
5.00%,
12/01/22 .......................................................................... 1,200,000 1,233,408
12/01/27 .......................................................................... 2,000,000 2,037,000
Bowling Green GO, Project, Series A, 5.00%, 6/01/38 .................................. 5,000,000 5,198,200
Boyle County Revenue, Refunding and College Improvement, CIFG Insured, 5.00%,
6/01/32 ........................................................................... 1,500,000 1,556,160
Campbell and Kenton Counties Sanitation District No. 1 Sanitation District Revenue,
NATL Insured, 5.00%, 8/01/37 ...................................................... 2,500,000 2,598,700
Series A, FSA Insured, 5.00%, 8/01/19 ............................................. 1,500,000 1,551,690
Series A, FSA Insured, 5.00%, 8/01/24 ............................................. 2,000,000 2,058,820
Campbell County School District Finance Corp. School Building Revenue, FSA Insured,
5.00%, 8/01/26 .................................................................... 2,845,000 3,039,200
Christian County Hospital Revenue, Jennie Stuart Medical Center, Refunding, Assured
Guaranty, 5.50%, 2/01/36 .......................................................... 3,000,000 3,128,730
Christian County Public Courthouse Corp. Lease Revenue, District Court Facilities
Project, Pre-Refunded, 5.125%, 8/01/20 ............................................ 1,015,000 1,057,792
Fayette County School District Finance Corp. School Building Revenue, Series A,
AMBAC Insured, Pre-Refunded, 5.25%, 4/01/20 ....................................... 2,160,000 2,296,490
Florence GO, Public Project, Series A, FGIC Insured, 5.00%, 11/01/32 ................. 1,000,000 1,019,410
Greater Kentucky Housing Assistance Corp. Mortgage Revenue, Section 8 Assisted
Projects, Refunding, Series A, NATL Insured, 6.10%, 1/01/24 ....................... 290,000 291,282
Henry County Water District No. 2 Water Revenue, Refunding, NATL Insured, 4.75%,
1/01/28 ........................................................................... 2,035,000 2,051,178
Jefferson County Health Facilities Revenue, Jewish Hospital Healthcare Services Inc.,
Refunding, AMBAC Insured, 5.75%, 1/01/26 .......................................... 1,000,000 1,000,630
Jefferson County School District Finance Corp. School Building Revenue, Series A,
NATL Insured, 4.75%, 6/01/27 ...................................................... 2,440,000 2,522,936
Kentucky Area Development Districts Financing Trust Lease Acquisition Program COP,
Series L, XLCA Insured, 5.00%, 11/01/29 ........................................... 1,000,000 1,050,160
Kentucky Area Development Districts Financing Trust Lease Program Revenue, City of
Ewing,
Series A, Pre-Refunded, 6.00%, 6/01/30 ............................................ 2,000,000 2,067,240
Series C, 6.00%, 6/01/30 .......................................................... 1,285,000 1,305,033
Series E, 5.70%, 6/01/22 .......................................................... 1,000,000 1,029,950
(a) Kentucky Asset/Liability Commission Agency Fund Revenue, Project Notes, Federal
Highway Trust, First Series A, 5.00%, 9/01/22 ..................................... 5,710,000 6,446,133
Kentucky Asset/Liability Commission General Receipts Revenue, University of Kentucky,
Project Notes, FGIC Insured, 5.00%, 10/01/25 ...................................... 3,000,000 3,179,340
Kentucky Economic Development Finance Authority Health System Revenue, Norton
Healthcare Inc.,
Refunding, Series C, NATL Insured, 6.15%, 10/01/24 ................................ 160,000 168,205
Series C, NATL Insured, Pre-Refunded, 6.15%, 10/01/24 ............................. 245,000 288,745
Series C, NATL Insured, Pre-Refunded, 6.15%, 10/01/25 ............................. 935,000 1,101,944
Annual Report | 113
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY (CONTINUED)
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ...... $ 2,000,000 $ 1,769,400
Kentucky Economic Development Finance Authority Revenue, Catholic Health, Refunding,
Series A, 5.00%, 5/01/29 .......................................................... 4,000,000 4,070,360
Kentucky Economic Finance Authority Louisville Arena Project Revenue, Louisville Arena,
Sub Series A-1, Assured Guaranty, 6.00%, 12/01/33 ................................. 2,000,000 2,182,980
Kentucky Housing Corp. Housing Revenue, Series A, 4.60%, 7/01/32 ..................... 2,000,000 1,830,100
Kentucky Infrastructure Authority Revenue, Series A, 5.00%,
6/01/19 ........................................................................... 1,140,000 1,161,842
6/01/20 ........................................................................... 1,250,000 1,268,750
6/01/21 ........................................................................... 1,190,000 1,208,148
Kentucky Rural Water Finance Corp. Public Project Revenue,
Flexible Term Program, Series A, 5.00%, 2/01/26 ................................... 1,055,000 1,085,722
Multimodal, Flexible Term Program, Series I, 5.00%, 2/01/34 ....................... 1,500,000 1,533,315
Kentucky State Municipal Power Agency Power System Revenue, Prairie State Project,
Series A, NATL Insured, 5.00%,
9/01/32 ........................................................................... 5,000,000 5,078,200
9/01/37 ........................................................................... 4,250,000 4,265,810
Kentucky State Property and Buildings Commission Revenues,
Project No. 62, Refunding, Second Series, 5.25%, 10/01/18 ......................... 3,000,000 3,080,670
Project No. 69, Series A, FSA Insured, Pre-Refunded, 5.00%, 8/01/21 ............... 2,300,000 2,448,718
Project No. 77, NATL Insured, Pre-Refunded, 5.00%, 8/01/23 ........................ 1,100,000 1,249,567
Project No. 90, Refunding, 5.50%, 11/01/28 ........................................ 5,000,000 5,513,350
Kentucky State Turnpike Authority Economic Development Road Revenue, Revitalization
Projects,
Refunding, Series A, 5.00%, 7/01/27 ............................................... 1,500,000 1,612,980
Refunding, Series A, 5.00%, 7/01/28 ............................................... 1,000,000 1,068,720
Refunding, Series A, 5.00%, 7/01/29 ............................................... 1,000,000 1,068,320
Series A, AMBAC Insured, 5.00%, 7/01/25 ........................................... 1,500,000 1,591,200
Lawrenceburg Water and Sewer Revenue, NATL Insured, 5.00%, 10/01/28 .................. 1,730,000 1,740,622
Lexington-Fayette Urban County Airport Board General Airport Revenue, Refunding,
Series A,
5.00%, 7/01/27 .................................................................... 4,000,000 4,235,120
Louisville and Jefferson County Metropolitan Government College Revenue, Bellarmine
University, Refunding and Improvement, Series A, 6.00%, 5/01/38 ................... 2,500,000 2,515,775
Louisville and Jefferson County Metropolitan Government Health Facilities Revenue,
Jewish Hospital and St. Mary's HealthCare Inc. Project, Refunding, 6.125%,
2/01/37 ........................................................................... 2,000,000 2,083,100
Louisville and Jefferson County Metropolitan Government Industrial Building Revenue,
Sisters of Mercy, Cincinnati, 5.00%, 10/01/35 ..................................... 1,500,000 1,378,350
Louisville and Jefferson County Metropolitan Sewer District Sewer and Drainage System
Revenue, Series A,
AMBAC Insured, 5.00%, 5/15/36 ..................................................... 3,000,000 3,076,920
FGIC Insured, 5.00%, 5/15/30 ...................................................... 2,625,000 2,630,171
FGIC Insured, 5.00%, 5/15/38 ...................................................... 3,000,000 3,072,030
Louisville and Jefferson County Student Housing Revenue, University of Louisville,
Phase 3-A,
AMBAC Insured, 5.00%, 6/01/34 ..................................................... 3,755,000 3,852,179
Series A, AMBAC Insured, 5.00%, 6/01/25 ........................................... 1,000,000 1,051,660
114 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY (CONTINUED)
Louisville Parking Authority of River City Revenue, NATL Insured, 5.00%, 6/01/29 ..... $ 3,290,000 $ 3,356,919
Louisville Regional Airport Authority Airport System Revenue, FSA Insured, 5.50%,
7/01/38 ........................................................................... 3,000,000 2,957,370
Louisville Water Works Board Water System Revenue, Louisville Water Co., FSA Insured,
Pre-Refunded,
5.25%, 11/15/24 ................................................................... 2,500,000 2,588,250
5.50%, 11/15/25 ................................................................... 2,000,000 2,074,100
Murray Hospital Facilities Revenue, Murray, Calloway County Public Hospital, 5.125%,
8/01/37 ........................................................................... 3,000,000 2,570,220
Northern Kentucky University COP, AMBAC Insured, 5.00%, 12/01/27 ..................... 1,500,000 1,528,755
Northern Kentucky Water Service District Revenue, NATL Insured, 4.875%, 2/01/20 ...... 1,270,000 1,272,591
Oldham County School District Finance Corp. School Building Revenue, NATL Insured,
5.00%, 5/01/24 .................................................................... 5,680,000 5,986,720
Owen County Waterworks System Revenue, American Water Co. Project,
Series A, 6.25%, 6/01/39 .......................................................... 2,000,000 2,143,300
Series B, 5.625%, 9/01/39 ......................................................... 2,000,000 2,048,000
Paducah Electric Plant Board Revenue, Series A, Assured Guaranty, 5.25%, 10/01/35 .... 3,000,000 3,168,330
Princeton Electric Plant Board Revenue, Series A, Assured Guaranty, 5.00%, 11/01/37 .. 1,500,000 1,553,385
Pulaski County Public Properties Corp. First Mortgage Revenue, AOC Judicial Facility,
Refunding,
6.00%, 12/01/28 ................................................................... 1,000,000 1,151,070
Trimble County Environmental Facilities Revenue, Trimble County Environmental
Facility, AMBAC Insured, 6.00%, 3/01/37 ........................................... 5,000,000 5,025,250
Refunding, AMBAC Insured, 4.60%, 6/01/33 .......................................... 3,750,000 3,481,650
Warren County Hospital Facility Revenue, Community Hospital Corp. Project, Refunding,
Series A, 5.00%, 8/01/29 .......................................................... 1,000,000 938,480
--------------
166,349,565
--------------
U.S. TERRITORIES 8.8%
PUERTO RICO 8.8%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.375%, 5/15/33 ........................................................ 1,580,000 1,578,831
Puerto Rico Commonwealth GO, Public Improvement, Series A,
5.125%, 7/01/31 ................................................................... 3,125,000 2,997,594
Pre-Refunded, 5.125%, 7/01/31 ........................................................ 1,875,000 1,994,794
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 2,500,000 2,757,725
Series K, 5.00%, 7/01/27 .......................................................... 3,000,000 2,925,120
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/36 ............................................... 455,000 437,405
Refunding, Series N, 5.00%, 7/01/32 ............................................... 3,000,000 2,704,890
Series D, Pre-Refunded, 5.25%, 7/01/36 ............................................ 995,000 1,092,291
--------------
TOTAL U.S. TERRITORIES ............................................................... 16,488,650
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $179,031,498) .............. 182,838,215
--------------
Annual Report | 115
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN KENTUCKY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS 4.6%
MUNICIPAL BONDS 4.6%
KENTUCKY 4.6%
(b) Christian County Assn. of County Leasing Trust Lease Program Revenue, Refunding,
Series A, Daily VRDN and Put, 0.14%, 4/01/37 ...................................... $ 5,700,000 $ 5,700,000
(b) Kentucky Economic Development Finance Authority Hospital Facilities Revenue, Baptist
Healthcare System, Refunding, Series B-2, Daily VRDN and Put, 0.12%, 8/15/38 ...... 2,800,000 2,800,000
(b) Lexington-Fayette Urban County Airport Board General Airport Revenue, Refunding,
Series B, Daily VRDN and Put, 0.14%, 7/01/38 ...................................... 200,000 200,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $8,700,000) ....................................... 8,700,000
--------------
TOTAL INVESTMENTS (COST $187,731,498) 102.1% ......................................... 191,538,215
OTHER ASSETS, LESS LIABILITIES (2.1)% ................................................ (3,920,042)
--------------
NET ASSETS 100.0% .................................................................... $ 187,618,173
==============
See Abbreviations on page 185.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
116 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.43 $ 10.74 $ 11.61 $ 11.52 $ 11.68
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.48 0.48 0.47 0.48 0.50
Net realized and unrealized gains (losses) ...... 0.85 (0.32) (0.87) 0.10 (0.16)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.33 0.16 (0.40) 0.58 0.34
-------- -------- -------- -------- --------
Less distributions from net investment income ...... (0.48) (0.47) (0.47) (0.49) (0.50)
-------- -------- -------- -------- --------
Redemption fees(d) ................................. -- -- --(e) --(e) --
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 11.28 $ 10.43 $ 10.74 $ 11.61 $ 11.52
======== ======== ======== ======== ========
Total return(f) .................................... 12.99% 1.53% (3.57)% 5.14% 2.99%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.69% 0.71% 0.71% 0.73% 0.73%
Net investment income .............................. 4.40% 4.45% 4.14% 4.22% 4.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $327,368 $266,905 $234,314 $220,927 $188,333
Portfolio turnover rate ............................ 4.45% 11.73% 11.57% 5.71% 9.78%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 117
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LOUISIANA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.54 $ 10.85 $ 11.73 $ 11.63 $ 11.79
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.43 0.42 0.41 0.43 0.44
Net realized and unrealized gains (losses) ...... 0.86 (0.32) (0.88) 0.09 (0.16)
------- ------- ------- ------- -------
Total from investment operations ................... 1.29 0.10 (0.47) 0.52 0.28
------- ------- ------- ------- -------
Less distributions from net investment income ...... (0.42) (0.41) (0.41) (0.42) (0.44)
------- ------- ------- ------- -------
Redemption fees(d) ................................. -- -- --(e) --(e) --
------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 11.41 $ 10.54 $ 10.85 $ 11.73 $ 11.63
======= ======= ======= ======= =======
Total return(f) .................................... 12.44% 0.96% (4.16)% 4.61% 2.40%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.24% 1.26% 1.26% 1.28% 1.28%
Net investment income .............................. 3.85% 3.90% 3.59% 3.67% 3.75%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $64,018 $41,646 $35,085 $29,028 $23,319
Portfolio turnover rate ............................ 4.45% 11.73% 11.57% 5.71% 9.78%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
118 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.6%
LOUISIANA 87.1%
Alexandria Sales and Use Tax Revenue, 5.00%,
8/01/26 ........................................................................... $ 1,710,000 $ 1,855,913
8/01/27 ........................................................................... 1,790,000 1,926,917
8/01/28 ........................................................................... 1,875,000 2,002,012
Bossier City Utilities Revenue, BHAC Insured, 5.50%, 10/01/33 ........................ 5,000,000 5,566,750
Bossier Parish Sales and Use Tax Revenue, AMBAC Insured, 5.00%, 7/01/20 .............. 1,900,000 1,992,872
Calcasieu Parish Public Trust Authority Student Lease Revenue, McNeese Student Housing
Project, NATL Insured, 5.25%,
5/01/21 ........................................................................... 1,505,000 1,511,592
5/01/33 ........................................................................... 2,500,000 2,325,800
De Soto Parish Environmental Improvement Revenue, International Paper Co. Project,
Series A, 5.65%, 12/01/21 ......................................................... 1,000,000 990,600
De Soto Parish PCR, Cleco Utility Group Inc. Project, Refunding, AMBAC Insured,
5.875%, 9/01/29 ................................................................... 11,500,000 11,686,070
Denham Spring Livingston Housing and Mortgage Finance Authority SFHR, Series A,
FHA Insured, ETM, 7.20%, 8/01/10 .................................................. 1,380,000 1,419,316
East Baton Rouge Mortgage Finance Authority SFR, Mortgage Backed Securities Program,
Refunding, Series A-3, GNMA Secured, 5.00%, 10/01/28 .............................. 985,000 994,988
Series A-2, GNMA Secured, 5.10%, 10/01/40 ......................................... 1,000,000 1,012,280
East Baton Rouge Parish Park and Recreation District GO, FSA Insured, 5.00%,
5/01/25 ........................................................................... 3,325,000 3,515,024
East Baton Rouge Parish Sales and Use Tax Revenue, Public Improvement, Series ST,
FGIC Insured, Pre-Refunded, 5.00%, 2/01/20 ........................................ 1,000,000 1,052,700
East Baton Rouge Parish Sales Tax Revenue,
Public Improvement, Refunding, Series A, AMBAC Insured, 5.00%, 2/01/24 ............ 2,000,000 2,114,800
Road and Street Improvement, Assured Guaranty, 5.25%, 8/01/28 ..................... 1,000,000 1,074,460
Road and Street Improvement, Assured Guaranty, 5.50%, 8/01/30 ..................... 1,700,000 1,837,309
East Baton Rouge Parish Sewer Commission Revenue, Refunding, Series A, 5.25%,
2/01/34 ........................................................................... 2,500,000 2,613,875
2/01/39 ........................................................................... 6,500,000 6,771,960
England District Sub-District No. 1 Revenue, FGIC Insured, 5.00%, 8/15/19 ............ 5,000,000 5,240,050
Greater New Orleans Expressway Commission Revenue, Refunding, AMBAC Insured, 5.00%,
11/01/27 .......................................................................... 5,000,000 5,147,850
Jefferson Parish Revenue, Public Improvement, 24th Judicial District Project, NATL
Insured, 5.00%, 4/01/29 ........................................................... 3,060,000 3,120,894
Jefferson Parish West Jefferson Park and Community Center Revenue, NATL Insured,
5.00%, 10/01/29 ................................................................... 2,925,000 3,062,358
Jefferson Sales Tax District Special Sales Tax Revenue, Special Tax Bond, AMBAC
Insured, Pre-Refunded, 5.00%, 12/01/20 ............................................ 4,195,000 4,514,030
Lafayette Communications Systems Revenue, XLCA Insured, 5.25%, 11/01/27 .............. 5,000,000 5,168,400
Lafayette Public Power Authority Electric Revenue, NATL Insured, 5.00%, 11/01/32 ..... 5,000,000 5,082,400
Lafayette Public Trust Financing Authority Revenue, Ragin' Cajun Facilities Inc.
Project,
Assured Guaranty, 5.75%, 10/01/29 ................................................. 750,000 782,498
Assured Guaranty, 6.00%, 10/01/34 ................................................. 1,750,000 1,824,970
Assured Guaranty, 6.00%, 10/01/38 ................................................. 1,335,000 1,387,132
NATL Insured, 5.00%, 10/01/22 ..................................................... 1,500,000 1,578,960
Lafayette Public Trust Financing Authority SFMR, Series A, FHA Insured, ETM, 7.20%,
4/01/11 ........................................................................... 30,000 32,175
Lafayette Utilities Revenue, NATL Insured, 5.00%, 11/01/28 ........................... 5,000,000 5,129,150
Annual Report | 119
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
Lafourche Parish Home Mortgage Authority SFMR, ETM, 7.40%, 7/01/10 ................... $ 10,000 $ 10,229
Livingston Parish Waterworks Revenue, Ward Two Water District, AMBAC Insured, 5.125%,
4/01/29 ........................................................................... 2,200,000 2,275,878
Louisiana HFA, SFMR, Home Ownership Program,
GO Zone, Series B-1, GNMA Secured, 5.00%, 12/01/32 ................................ 1,780,000 1,785,233
Series A, GNMA Secured, 5.50%, 6/01/40 ............................................ 4,720,000 4,926,075
Series B, GNMA Secured, 6.125%, 12/01/33 .......................................... 840,000 906,839
Louisiana HFA Mortgage Revenue, SF, Series A-1, GNMA Secured, 5.45%, 12/01/20 ........ 360,000 366,422
Louisiana Local Government Environmental Facilities and CDA Airport Revenue, Monroe
Regional Airport Terminal, Assured Guaranty, 5.50%, 2/01/39 ....................... 2,000,000 2,086,840
Louisiana Local Government Environmental Facilities and CDA Revenue,
Ascension Parish Library Projects, AMBAC Insured, 5.25%, 4/01/29 .................. 1,000,000 1,037,350
Delgado Community College Foundation Project, NATL Insured, 6.00%, 10/01/29 ....... 1,000,000 1,021,420
Delta Campus Facilities Corp. Project, Assured Guaranty, 5.50%, 10/01/27 .......... 5,000,000 5,497,950
Denham Springs Sewer District No.1, Assured Guaranty, 5.00%, 12/01/39 ............. 3,750,000 3,743,925
Denham Springs Sewer Project, AMBAC Insured, 4.75%, 12/01/31 ...................... 3,000,000 2,912,640
East Ascension Consolidated No. 1, Refunding, AMBAC Insured, 5.00%, 12/01/37 ...... 5,370,000 5,470,849
East Ascension Consolidated No. 1, Refunding, AMBAC Insured, 5.00%, 12/01/44 ...... 8,870,000 8,933,598
Independence Stadium Project, Refunding, 5.25%, 3/01/30 ........................... 8,845,000 9,183,940
Jefferson Parish, Refunding, Series A, 5.375%, 4/01/31 ............................ 2,000,000 2,088,220
Jefferson Parking Garage Project, AMBAC Insured, 5.00%, 9/01/21 ................... 2,215,000 2,228,290
Lake Charles Public Improvements Project, AMBAC Insured, 5.00%, 5/01/27 ........... 5,000,000 5,176,050
LCTCS Facilities Corp. Project, Series B, Assured Guaranty, 5.00%, 10/01/27 ....... 5,250,000 5,527,410
Livingston Parish Road, AMBAC Insured, 5.00%, 3/01/21 ............................. 3,540,000 3,740,541
NATL Insured, 5.00%, 12/01/26 ..................................................... 3,000,000 3,052,830
Parking Facilities Corp. Garage Project, Series A, AMBAC Insured, 5.375%,
10/01/26 ....................................................................... 2,000,000 2,018,400
Parking Facilities Corp. Garage Project, Series A, AMBAC Insured, 5.375%,
10/01/31 ....................................................................... 2,000,000 2,003,040
Shreveport Airport Cargo Project, Series C, Assured Guaranty, 6.75%, 1/01/24 ...... 2,620,000 2,850,167
Shreveport Airport Cargo Project, Series C, Assured Guaranty, 7.00%, 1/01/33 ...... 2,500,000 2,670,900
Southeastern Louisiana Student Housing, Series A, NATL Insured, 5.00%, 8/01/27 .... 3,000,000 2,958,720
Louisiana Public Facilities Authority Hospital Revenue,
Franciscan Missionaries, 6.75%, 7/01/39 ........................................... 3,500,000 3,778,460
Touro Infirmary Project, Series A, 5.625%, 8/15/29 ................................ 3,500,000 3,108,035
Louisiana Public Facilities Authority Revenue,
Archdiocese of New Orleans Project, Refunding, CIFG Insured, 5.00%, 7/01/31 ....... 5,000,000 4,766,400
Centenary College Project, Refunding, 5.75%, 2/01/29 .............................. 7,300,000 5,906,065
Christus Health, Refunding, Series B, Assured Guaranty, 6.50%, 7/01/30 ............ 5,000,000 5,407,200
Dillard University Project, Series A, AMBAC Insured, Pre-Refunded, 5.30%,
8/01/26 ........................................................................ 1,540,000 1,701,638
FHA Insured Mortgage, Baton Rouge General, NATL Insured, 5.25%, 7/01/33 ........... 5,000,000 5,065,200
Grambling University Project, Black and Gold Facilities Project, Series A, CIFG
Insured, 5.00%, 7/01/30 ........................................................ 5,000,000 4,184,200
Mortgage Purchase, HFA, Refunding, Series A, GNMA Secured, 6.40%, 7/20/20 ......... 1,615,000 1,682,620
Ochsner Clinic Foundation Project, Series B, 5.25%, 5/15/27 ....................... 3,990,000 3,744,535
Ochsner Clinic Foundation Project, Series B, ETM, 5.75%, 5/15/23 .................. 2,500,000 3,154,075
Tulane University of Louisiana, Series A, AMBAC Insured, Pre-Refunded, 5.125%,
7/01/27 ........................................................................ 3,000,000 3,303,000
Louisiana State Citizens Property Insurance Corp. Assessment Revenue,
Series B, AMBAC Insured, 5.00%, 6/01/23 ........................................... 5,000,000 5,023,550
Series C-2, Assured Guaranty, 6.75%, 6/01/26 ...................................... 5,000,000 5,733,900
120 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
Louisiana State Gas and Fuels Tax Revenue, Series A,
AMBAC Insured, 5.00%, 6/01/27 ..................................................... $ 3,500,000 $ 3,570,420
FSA Insured, 5.00%, 5/01/31 ....................................................... 15,000,000 15,545,700
NATL Insured, 5.00%, 5/01/35 ...................................................... 2,300,000 2,319,619
Louisiana State GO, Match, Refunding, Series B, CIFG Insured, 5.00%,
7/15/24 ........................................................................... 3,475,000 3,761,792
7/15/25 ........................................................................... 1,765,000 1,902,317
Louisiana State Office Facilities Corp. Lease Revenue, Capital Complex Program,
AMBAC Insured, 5.00%, 5/01/21 ..................................................... 2,500,000 2,561,025
Refunding, 5.00%, 3/01/18 ......................................................... 2,000,000 2,177,080
Louisiana State Offshore Term Authority Deepwater Port Revenue, Loop LLC Project,
Refunding,
5.00%, 10/01/20 ................................................................... 5,000,000 5,034,400
Louisiana State University and Agricultural and Mechanical College Board Revenue,
AMBAC Insured, 5.00%, 7/01/22 ..................................................... 5,000,000 5,279,600
Auxiliary, FGIC Insured, 5.00%, 7/01/31 ........................................... 3,000,000 3,011,100
Auxiliary, Series B, AMBAC Insured, 5.00%, 7/01/27 ................................ 1,500,000 1,533,840
Monroe Sales Tax Increment Revenue, Economic Development Project, Garret Road,
Refunding, Assured Guaranty,
5.375%, 3/01/24 ................................................................... 1,035,000 1,100,619
5.50%, 3/01/25 .................................................................... 2,145,000 2,282,902
New Orleans Aviation Board Revenue, Restructuring GARB, Refunding, Series A-1,
Assured Guaranty, 6.00%, 1/01/23 .................................................. 2,000,000 2,245,860
New Orleans GO,
Drain Systems, AMBAC Insured, 5.00%, 12/01/18 ..................................... 1,000,000 980,510
Public Improvement, AMBAC Insured, 5.25%, 12/01/29 ................................ 1,485,000 1,477,649
Public Improvement, FGIC Insured, 5.25%, 12/01/21 ................................. 1,295,000 1,295,220
Public Improvement, FGIC Insured, 5.125%, 12/01/26 ................................ 2,000,000 2,002,320
Radian Insured, 5.125%, 12/01/30 .................................................. 10,055,000 9,748,222
Refunding, NATL Insured, 5.125%, 9/01/21 .......................................... 2,000,000 2,010,440
New Orleans Sewage Service Revenue, Refunding, Assured Guaranty, 6.25%, 6/01/29 ...... 500,000 511,920
Orleans Parish Parishwide School District GO, Refunding, Series B, FGIC Insured,
5.50%, 9/01/20 .................................................................... 1,000,000 1,001,760
Orleans Parish School Board GO, Series 95, FGIC Insured, 5.375%, 9/01/18 ............. 1,950,000 1,956,220
Ouachita Parish Hospital Service District No. 1 Revenue, Glenwood Regional Medical
Center, FSA Insured, Pre-Refunded, 5.75%, 5/15/21 ................................. 2,500,000 2,526,650
Ouachita Parish West Ouachita Parish School District Sales and Use Tax Revenue, FGIC
Insured, Pre-Refunded, 5.75%, 9/01/24 ............................................. 1,410,000 1,476,030
Port New Orleans Board of Commissioners Port Facility Revenue, Refunding, Assured
Guaranty, 5.125%, 4/01/38 ......................................................... 5,000,000 4,959,350
Rapides Parish Housing and Mortgage Finance Authority Revenue, SFM Purchase, FHA
Insured, ETM, 7.25%, 8/01/10 ...................................................... 140,000 144,077
Shreveport Certificates of Indebtedness Revenue, Refunding, Series A, AMBAC Insured,
5.00%, 10/01/16 ................................................................... 1,000,000 1,021,830
St. Bernard Home Mortgage Authority Revenue, SF, Series A, FGIC Insured, ETM, 7.50%,
9/01/10 ........................................................................... 435,000 450,443
St. Charles Parish Consolidated Waterworks and Wastewater District No. 1 Revenue,
Series A, AMBAC Insured, 5.00%, 7/01/31 ........................................... 5,000,000 5,027,050
St. John the Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ....... 2,500,000 2,511,975
St. John the Baptist Parish Revenue, Marathon Oil Corp. Project, Series A, 5.125%,
6/01/37 ........................................................................... 5,000,000 4,676,250
Annual Report | 121
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN LOUISIANA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
--------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
LOUISIANA (CONTINUED)
(a) St. Tammany Parish Utilities Revenue, Series B,
5.50%, 8/01/35 .................................................................... $ 2,650,000 $ 2,762,943
5.00%, 8/01/44 .................................................................... 3,290,000 3,236,735
St. Tammany's Public Trust Financing Authority SFMR, Series A, FHA Insured, ETM, 7.20%,
7/01/10 ........................................................................... 10,000 10,214
7/01/11 ........................................................................... 50,000 54,533
Terrebonne Parish Hospital Service District No. 1 Hospital Revenue, Terrebonne General
Medical Center Project, Refunding, AMBAC Insured, 5.50%, 4/01/33 .................. 2,155,000 2,119,680
University of Louisiana System Board of Supervisors Lease Revenue, Northwestern State
University Wellness, AMBAC Insured, 5.10%, 4/01/24 ................................ 1,000,000 1,000,270
--------------
340,657,304
--------------
U.S. TERRITORIES 11.5%
PUERTO RICO 11.5%
Puerto Rico Commonwealth GO, Public Improvement,
NATL Insured, Pre-Refunded, 5.75%, 7/01/26 ........................................ 4,400,000 4,471,808
Refunding, Series A-4, FSA Insured, 5.25%, 7/01/30 ................................ 6,945,000 7,277,804
Series A, 5.00%, 7/01/33 .......................................................... 615,000 564,232
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series L, NATL Insured, 5.25%, 7/01/35 ................................. 10,000,000 9,567,600
Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.25%, 7/01/33 ........ 6,450,000 6,415,170
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub.,
Series A, 5.50%, 8/01/42 .......................................................... 6,000,000 5,990,640
Series B, 6.375%, 8/01/39 ......................................................... 10,000,000 10,772,600
--------------
TOTAL U.S. TERRITORIES ............................................................... 45,059,854
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $379,615,326) .............. 385,717,158
--------------
SHORT TERM INVESTMENTS 2.1%
MUNICIPAL BONDS 2.1%
LOUISIANA 2.1%
(b) Louisiana Public Facilities Authority Hospital Revenue, Franciscan, Refunding,
Series D, Daily VRDN and Put, 0.17%, 7/01/28 ...................................... 4,800,000 4,800,000
(b) Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc.
Project, First Stage, ACES, Refunding, Daily VRDN and Put, 0.13%, 9/01/17 ......... 3,600,000 3,600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $8,400,000) ....................................... 8,400,000
--------------
TOTAL INVESTMENTS (COST $388,015,326) 100.7% ......................................... 394,117,158
OTHER ASSETS, LESS LIABILITIES (0.7)% ................................................ (2,730,590)
--------------
NET ASSETS 100.0% .................................................................... $ 391,386,568
==============
See Abbreviations on page 185.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
122 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MARYLAND TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.35 $ 10.81 $ 11.84 $ 11.77 $ 11.80
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.49 0.49 0.48 0.49 0.51
Net realized and unrealized gains (losses) .... 0.95 (0.47) (1.03) 0.08 (0.03)
-------- -------- -------- -------- --------
Total from investment operations ................. 1.44 0.02 (0.55) 0.57 0.48
-------- -------- -------- -------- --------
Less distributions from net investment income .... (0.49) (0.48) (0.48) (0.50) (0.51)
-------- -------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 11.30 $ 10.35 $ 10.81 $ 11.84 $ 11.77
======== ======== ======== ======== ========
Total return(f) .................................. 14.17% 0.20% (4.80)% 4.96% 4.11%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 0.66% 0.67% 0.67% 0.68% 0.69%
Net investment income ............................ 4.44% 4.56% 4.18% 4.21% 4.29%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $511,636 $426,218 $417,427 $410,890 $369,205
Portfolio turnover rate .......................... 7.33% 8.94% 10.28% 7.84% 8.00%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 123
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.50 $ 10.95 $ 11.99 $ 11.91 $ 11.93
-------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ...................... 0.43 0.44 0.43 0.43 0.45
Net realized and unrealized gains (losses) .... 0.96 (0.47) (1.05) 0.08 (0.03)
-------- -------- ------- ------- -------
Total from investment operations ................. 1.39 (0.03) (0.62) 0.51 0.42
-------- -------- ------- ------- -------
Less distributions from net investment income .... (0.43) (0.42) (0.42) (0.43) (0.44)
-------- -------- ------- ------- -------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
-------- -------- ------- ------- -------
Net asset value, end of year ..................... $ 11.46 $ 10.50 $ 10.95 $ 11.99 $ 11.91
======== ======== ======= ======= =======
Total return(f) .................................. 13.45% (0.26)% (5.35)% 4.42% 3.57%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.21% 1.22% 1.22% 1.23% 1.24%
Net investment income ............................ 3.89% 4.01% 3.63% 3.66% 3.74%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $142,575 $101,328 $82,927 $71,937 $59,915
Portfolio turnover rate .......................... 7.33% 8.94% 10.28% 7.84% 8.00%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
124 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $10.69
------
Income from investment operations(b):
Net investment income(c) ...................... 0.33
Net realized and unrealized gains (losses) .... 0.61
------
Total from investment operations ................. 0.94
------
Less distributions from net investment income .... (0.33)
------
Net asset value, end of period ................... $11.30
======
Total return(d) .................................. 8.83%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ......................................... 0.56%
Net investment income ............................ 4.54%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $3,504
Portfolio turnover rate .......................... 7.33%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 125
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.2%
MARYLAND 75.1%
Anne Arundel County GO, Refunding, 4.625%, 3/01/32 ................................... $ 2,000,000 $ 2,040,600
Anne Arundel County MFR, Glenview Gardens Apartments Project, Mandatory Put 1/01/27,
5.00%, 1/01/28 .................................................................... 2,000,000 2,017,960
Baltimore Convention Center Hotel Revenue, Senior Series A, XLCA Insured, 5.25%,
9/01/39 ........................................................................... 23,095,000 18,685,934
Baltimore County Metropolitan 68th District GO, Refunding, 5.00%, 8/01/32 ............ 1,000,000 1,039,300
Baltimore Port Facilities Revenue, Consolidated Coal Sales, Refunding, Series A,
6.50%, 10/01/11 ................................................................... 1,850,000 1,917,692
Baltimore Project Revenue,
Subordinated, Water Projects, Series A, 5.375%, 7/01/34 ........................... 750,000 785,520
Subordinated, Water Projects, Series A, 5.75%, 7/01/39 ............................ 1,250,000 1,361,900
Wastewater Projects, FSA Insured, 5.00%, 7/01/37 .................................. 5,000,000 5,217,700
Wastewater Projects, Series A, FSA Insured, 5.00%, 7/01/33 ........................ 5,355,000 5,672,444
Wastewater Projects, Series A, FSA Insured, 5.00%, 7/01/38 ........................ 5,000,000 5,253,250
Wastewater Projects, Series C, 5.125%, 7/01/34 .................................... 1,835,000 1,912,932
Wastewater Projects, Series C, 5.625%, 7/01/39 .................................... 2,965,000 3,197,871
Wastewater Projects, Series C, AMBAC Insured, 5.00%, 7/01/31 ...................... 2,855,000 2,974,168
Wastewater Projects, Series D, AMBAC Insured, 5.00%, 7/01/32 ...................... 2,120,000 2,217,732
Water Projects, Refunding, Series A, NATL Insured, 5.125%, 7/01/42 ................ 11,740,000 11,923,027
Water Projects, Series C, AMBAC Insured, 5.00%, 7/01/32 ........................... 5,000,000 5,230,500
Baltimore Revenue, Water Projects, Series A, FSA Insured, Pre-Refunded, 5.75%,
7/01/30 ........................................................................... 10,000,000 10,183,100
Carroll County Revenue, Fairhaven and Copper Ridge, Refunding, Series A, Radian
Insured,
5.375%, 1/01/16 ................................................................... 2,000,000 1,960,800
5.50%, 1/01/19 .................................................................... 1,000,000 929,600
5.625%, 1/01/25 ................................................................... 2,000,000 1,733,600
Frederick County Educational Facilities Revenue, Mount St. Mary University, Refunding,
5.625%, 9/01/38 ................................................................... 5,000,000 4,758,550
Frederick GO, Public Improvements, Series A, 5.00%, 3/01/34 .......................... 5,000,000 5,386,350
Harford County GO, Consolidated Public Improvement, 4.45%, 1/15/17 ................... 1,125,000 1,156,241
Maryland Environmental Services COP, Water and Waste Facilities, Series A, 6.70%,
6/01/11 ........................................................................... 830,000 830,257
Maryland State Community Development Administration Department of Housing and CDR,
Housing, Refunding, Series A, 6.00%, 7/01/32 ...................................... 4,000,000 4,006,760
Residential, Series B, 4.75%, 9/01/39 ............................................. 5,335,000 5,235,342
Residential, Series C, 5.375%, 9/01/39 ............................................ 10,000,000 10,284,800
Residential, Series C, 5.65%, 9/01/48 ............................................. 6,700,000 6,998,418
Residential, Series D, 5.25%, 9/01/29 ............................................. 2,680,000 2,683,082
Maryland State EDC, PCR, Potomac Electric Project, Refunding, 6.20%, 9/01/22 ......... 10,000,000 11,501,500
Maryland State EDC Student Housing Revenue,
University of Maryland Baltimore County Project, Refunding, XLCA Insured, 5.00%,
7/01/30 ........................................................................ 3,245,000 2,908,623
University of Maryland Baltimore County Project, Refunding, XLCA Insured, 5.00%,
7/01/35 ........................................................................ 3,675,000 3,165,094
University of Maryland College Park Projects, Refunding, CIFG Insured, 5.00%,
6/01/25 ........................................................................ 2,500,000 2,419,425
University of Maryland College Park Projects, Refunding, CIFG Insured, 5.00%,
6/01/28 ........................................................................ 2,000,000 1,883,320
University of Maryland College Park Projects, Refunding, CIFG Insured, 5.00%,
6/01/33 ........................................................................ 9,370,000 8,363,662
Maryland State EDC Utility Infrastructure Revenue, University College Park Project,
AMBAC Insured, 5.00%, 7/01/19 ..................................................... 1,675,000 1,715,133
126 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MARYLAND (CONTINUED)
Maryland State GO, State and Local Facilities Loan,
Refunding, First Series C, 4.00%, 3/01/22 ......................................... $ 9,000,000 $ 9,660,780
Refunding, Series C, 4.00%, 11/01/19 .............................................. 10,000,000 11,053,900
Refunding, Series C, 5.00%, 11/01/19 .............................................. 8,000,000 9,517,760
Third Series A, 5.00%, 11/01/21 ................................................... 5,000,000 5,897,450
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Health System, Series A, 6.75%, 7/01/29 .............................. 2,000,000 2,287,080
Anne Arundel Health System, Series A, 6.75%, 7/01/39 .............................. 2,000,000 2,282,240
Anne Arundel Health System, Series A, Pre-Refunded, 5.125%, 7/01/34 ............... 2,500,000 2,902,250
Anne Arundel Medical Center, FSA Insured, 5.125%, 7/01/33 ......................... 8,365,000 8,388,171
Carroll County General Hospital, 6.00%, 7/01/26 ................................... 2,000,000 2,068,180
Carroll County General Hospital, 5.80%, 7/01/32 ................................... 5,000,000 5,094,150
Carroll Hospital Center, 5.00%, 7/01/40 ........................................... 6,790,000 6,483,839
Catholic Health Initiatives, Series A, 6.00%, 12/01/20 ............................ 715,000 726,397
Catholic Health Initiatives, Series A, Pre-Refunded, 6.00%, 12/01/20 .............. 2,205,000 2,258,207
Catholic Health Initiatives, Series A, Pre-Refunded, 6.00%, 12/01/24 .............. 2,025,000 2,073,863
Edenwald, Series A, 5.40%, 1/01/31 ................................................ 1,000,000 882,590
Helix Health Issue, AMBAC Insured, ETM, 5.00%, 7/01/27 ............................ 11,000,000 12,632,510
Johns Hopkins Medical Institutions, Series A, 5.00%, 5/15/37 ...................... 9,395,000 9,366,627
LifeBridge Health, Refunding, Assured Guaranty, 5.00%, 7/01/34 .................... 10,945,000 11,057,952
LifeBridge Health, Refunding, Assured Guaranty, 4.75%, 7/01/38 .................... 10,000,000 9,846,200
Loyola College, Series A, 5.00%, 10/01/40 ......................................... 10,050,000 9,987,187
Maryland Institute College of Art, 5.00%, 6/01/35 ................................. 2,000,000 1,892,920
Maryland Institute College of Art, 5.00%, 6/01/36 ................................. 5,000,000 4,720,700
Maryland Institute College of Art, 5.00%, 6/01/40 ................................. 6,000,000 5,609,940
Maryland Institute College of Art, Pre-Refunded, 5.625%, 6/01/36 .................. 3,600,000 3,826,224
Mercy Medical Center, Refunding, 5.625%, 7/01/31 .................................. 5,500,000 5,504,730
Mercy Medical Center, Series A, 5.00%, 7/01/37 .................................... 10,000,000 9,138,600
North Arundel Hospital, Pre-Refunded, 6.50%, 7/01/26 .............................. 1,000,000 1,030,250
North Arundel Hospital, Pre-Refunded, 6.50%, 7/01/31 .............................. 1,320,000 1,359,930
Parking, Johns Hopkins Medical Institutions, AMBAC Insured, 5.00%, 7/01/27 ........ 655,000 643,780
Parking, Johns Hopkins Medical Institutions, AMBAC Insured, 5.00%, 7/01/34 ........ 5,000,000 4,566,550
Parking, Johns Hopkins Medical Institutions, Refunding, Series B, AMBAC Insured,
5 00%, 7/01/38 ................................................................. 6,200,000 6,016,790
Peninsula Regional Medical Center, 5.00%, 7/01/36 ................................. 6,625,000 6,714,438
Roland Park Place Project, Refunding, 5.625%, 7/01/18 ............................. 2,500,000 2,458,275
Roland Park Place Project, Refunding, 5.625%, 7/01/24 ............................. 2,680,000 2,482,055
The Johns Hopkins University Issue, Series A, 5.00%, 7/01/32 ...................... 29,000,000 29,559,410
The Johns Hopkins University Issue, Series A, 5.00%, 7/01/38 ...................... 5,805,000 6,000,629
Union Hospital Cecil County Issue, 5.00%, 7/01/35 ................................. 3,015,000 2,927,233
University of Maryland Medical System, Pre-Refunded, 6.75%, 7/01/30 ............... 11,000,000 11,343,640
University of Maryland Medical System, Refunding, AMBAC Insured, 5.25%, 7/01/28 ... 15,000,000 15,313,200
University of Maryland Medical System, Series A, 5.00%, 7/01/41 ................... 2,500,000 2,445,625
Washington County Hospital, 5.75%, 1/01/38 ........................................ 2,500,000 2,438,800
Western Maryland Health, Refunding, Series A, NATL Insured, 4.75%, 7/01/36 ........ 17,680,000 16,250,572
Maryland State Transportation Authority Lease Revenue, Metrorail Parking Project,
AMBAC Insured, 5.00%, 7/01/28 ..................................................... 3,975,000 4,168,344
Annual Report | 127
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MARYLAND (CONTINUED)
Maryland State Transportation Authority Parking Revenue, AMBAC Insured, 5.00%,
3/01/27 ........................................................................... $ 8,000,000 $ 8,202,560
Maryland State Transportation Authority Transportation Facility Projects Revenue,
5.00%, 7/01/23 .................................................................... 2,795,000 3,135,515
FSA Insured, 5.00%, 7/01/27 ....................................................... 5,890,000 6,256,299
FSA Insured, 5.00%, 7/01/31 ....................................................... 7,455,000 7,814,555
FSA Insured, 5.00%, 7/01/32 ....................................................... 7,165,000 7,513,506
FSA Insured, 5.00%, 7/01/34 ....................................................... 7,500,000 7,852,575
Morgan State University Maryland and Auxiliary Facilities Fees Revenue, Series A, FGIC
Insured, 5.00%, 7/01/32 ........................................................... 6,450,000 6,574,227
Prince George's County GO, Consolidated Public Improvement, 4.40%, 9/15/22 ........... 10,000,000 10,389,400
Prince George's County IDA Lease Revenue, Upper Marlboro Justice, Series B, NATL
Insured,
4.75%, 6/30/30 .................................................................... 4,000,000 4,079,840
Westminster Education Facilities Revenue, McDaniel College Inc., Pre-Refunded, 5.50%,
4/01/27 ........................................................................... 425,000 475,282
4/01/32 ........................................................................... 1,500,000 1,677,465
--------------
494,403,379
--------------
DISTRICT OF COLUMBIA 0.4%
Washington Metropolitan Area Transit Authority Gross Revenue, Transit, Series A,
5.125%, 7/01/32 ................................................................... 2,500,000 2,635,325
--------------
U.S. TERRITORIES 22.7%
PUERTO RICO 22.2%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 .................................................................... 2,100,000 2,153,697
Puerto Rico Commonwealth GO, Public Improvement,
FSA Insured, Pre-Refunded, 5.25%, 7/01/27 ......................................... 1,520,000 1,619,621
FSA Insured, Pre-Refunded, 5.125%, 7/01/30 ........................................ 4,360,000 4,638,560
Refunding, FSA Insured, 5.25%, 7/01/27 ............................................ 1,015,000 1,023,465
Refunding, FSA Insured, 5.125%, 7/01/30 ........................................... 2,870,000 2,884,235
Refunding, Series A, FGIC Insured, 5.50%, 7/01/21 ................................. 10,000,000 10,392,600
Refunding, Series A, FGIC Insured, 5.50%, 7/01/22 ................................. 5,000,000 5,162,500
Series A, 5.00%, 7/01/27 .......................................................... 6,250,000 6,024,938
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, Assured Guaranty, 5.25%, 7/01/36 ............................. 5,000,000 5,219,050
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................. 5,000,000 4,701,100
Series D, Pre-Refunded, 5.25%, 7/01/38 ............................................ 5,000,000 5,501,050
Series G, 5.00%, 7/01/33 .......................................................... 2,170,000 2,017,427
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue,
Series A,
AMBAC Insured, 5.00%, 7/01/31 ..................................................... 5,000,000 4,542,100
FGIC Insured, 5.00%, 7/01/24 ...................................................... 5,000,000 4,865,050
Puerto Rico Electric Power Authority Power Revenue,
Refunding, Series SS, FSA Insured, 5.00%, 7/01/30 ................................. 10,000,000 10,243,400
Series HH, FSA Insured, Pre-Refunded, 5.25%, 7/01/29 .............................. 10,780,000 11,064,915
Series II, Pre-Refunded, 5.25%, 7/01/31 ........................................... 3,000,000 3,348,570
Series WW, 5.50%, 7/01/38 ......................................................... 5,000,000 5,046,100
Puerto Rico HFAR, Subordinated, Capital Fund Modernization, 5.125%, 12/01/27 ......... 4,250,000 4,310,988
128 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MARYLAND TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.25%, 7/01/36 ............................................... $ 520,000 $ 499,892
Refunding, Series K, FSA Insured, 5.25%, 7/01/27 .................................. 5,300,000 5,521,805
Refunding, Series N, 5.00%, 7/01/32 ............................................... 5,000,000 4,508,150
Refunding, Series Q, 5.625%, 7/01/39 .............................................. 5,000,000 4,863,150
Series D, Pre-Refunded, 5.25%, 7/01/36 ............................................ 1,480,000 1,624,714
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.75%, 8/01/37 .................................................................... 11,425,000 11,810,022
6.00%, 8/01/42 .................................................................... 18,160,000 18,995,542
University of Puerto Rico Revenues, University System, Refunding, Series P, 5.00%,
6/01/30 ........................................................................... 4,000,000 3,670,360
--------------
146,253,001
--------------
U.S. VIRGIN ISLANDS 0.5%
Virgin Islands PFAR,
Gross Receipts Taxes Loan Note, Refunding, Series A, FSA Insured, 5.00%,
10/01/22 ....................................................................... 2,000,000 2,043,380
senior lien, Capital Projects, Series A-1, 5.00%, 10/01/29 ........................ 1,000,000 975,570
--------------
3,018,950
--------------
TOTAL U.S. TERRITORIES ............................................................... 149,271,951
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $644,362,018) .............. 646,310,655
--------------
SHORT TERM INVESTMENTS 0.5%
MUNICIPAL BONDS 0.5%
MARYLAND 0.4%
(a) Maryland State EDC, EDR, U.S. Pharmacopeial, Refunding,
Series A, Daily VRDN and Put, 0.16%, 7/01/38 ...................................... 1,900,000 1,900,000
Series B, Daily VRDN and Put, 0.16%, 7/01/38 ...................................... 800,000 800,000
--------------
2,700,000
--------------
U.S. TERRITORIES 0.1%
PUERTO RICO 0.1%
(a) Puerto Rico Commonwealth GO, Refunding, Series A-6, Daily VRDN and Put, 0.12%,
7/01/33 ........................................................................... 300,000 300,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $3,000,000) ....................................... 3,000,000
--------------
TOTAL INVESTMENTS (COST $647,362,018) 98.7% .......................................... 649,310,655
OTHER ASSETS, LESS LIABILITIES 1.3% .................................................. 8,405,141
--------------
NET ASSETS 100.0% .................................................................... $ 657,715,796
==============
See Abbreviations on page 185.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 129
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MISSOURI TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.28 $ 11.52 $ 12.37 $ 12.31 $ 12.32
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.51 0.52 0.51 0.52 0.53
Net realized and unrealized gains (losses) .. 0.70 (0.25) (0.85) 0.06 (0.01)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.21 0.27 (0.34) 0.58 0.52
-------- -------- -------- -------- --------
Less distributions from net investment income .. (0.51) (0.51) (0.51) (0.52) (0.53)
-------- -------- -------- -------- --------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.98 $ 11.28 $ 11.52 $ 12.37 $ 12.31
======== ======== ======== ======== ========
Total return(f) ................................ 10.93% 2.39% (2.86)% 4.85% 4.33%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.65% 0.65% 0.66% 0.66% 0.66%
Net investment income .......................... 4.37% 4.50% 4.24% 4.25% 4.31%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $863,925 $691,272 $622,913 $613,125 $562,235
Portfolio turnover rate ........................ 5.87% 12.44% 16.11% 19.77% 15.32%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
130 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.35 $ 11.60 $ 12.45 $ 12.39 $ 12.39
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.45 0.46 0.45 0.45 0.47
Net realized and unrealized gains (losses) .. 0.72 (0.26) (0.86) 0.06 --(d)
-------- ------- ------- ------- -------
Total from investment operations ............... 1.17 0.20 (0.41) 0.51 0.47
-------- ------- ------- ------- -------
Less distributions from net investment income .. (0.45) (0.45) (0.44) (0.45) (0.47)
-------- ------- ------- ------- -------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
-------- ------- ------- ------- -------
Net asset value, end of year ................... $ 12.07 $ 11.35 $ 11.60 $ 12.45 $ 12.39
======== ======= ======= ======= =======
Total return(f) ................................ 10.44% 1.81% (3.45)% 4.25% 3.82%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.20% 1.20% 1.21% 1.21% 1.21%
Net investment income .......................... 3.82% 3.95% 3.69% 3.70% 3.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $120,256 $84,637 $71,563 $70,148 $68,807
Portfolio turnover rate ........................ 5.87% 12.44% 16.11% 19.77% 15.32%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 131
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 11.48
-------
Income from investment operations(b):
Net investment income(c) .................... 0.35
Net realized and unrealized gains (losses) .. 0.49
-------
Total from investment operations ............... 0.84
-------
Less distributions from net investment income .. (0.34)
-------
Net asset value, end of period ................. $ 11.98
=======
Total return(d) ................................ 7.37%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ....................................... 0.55%
Net investment income .......................... 4.47%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $12,860
Portfolio turnover rate ........................ 5.87%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
132 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.2%
MISSOURI 86.7%
Bi-State Development Agency Missouri-Illinois Metropolitan District Mass Transit Sales
Tax Revenue, Metrolink Cross County Extension, Assured Guaranty, 5.00%,
10/01/35 .......................................................................... $ 5,000,000 $ 5,095,100
10/01/39 .......................................................................... 16,300,000 16,522,332
Bi-State Development Agency Missouri-Illinois Metropolitan District Revenue, Metrolink
Cross County Project, Series B, FSA Insured, 5.00%, 10/01/32 ...................... 7,300,000 7,383,075
Boone County IDA Health Care Revenue, Retirement Center Project, GNMA Secured, 5.70%,
10/20/22 .......................................................................... 1,515,000 1,550,451
Cape Girardeau County IDA Health Care Facilities Revenue,
Southeast Missouri Hospital Assn., 5.00%, 6/01/36 ................................. 7,500,000 6,567,825
St. Francis Medical Center, Series A, 5.50%, 6/01/27 .............................. 6,350,000 6,468,237
St. Francis Medical Center, Series A, 5.50%, 6/01/32 .............................. 5,000,000 5,048,250
St. Francis Medical Center, Series A, 5.75%, 6/01/39 .............................. 2,650,000 2,734,058
Cape Girardeau County IDA Solid Waste Disposal Revenue, Procter and Gamble Paper
Products,
5.30%, 5/15/28 .................................................................... 6,875,000 6,883,662
Carroll County Public Water Supply District No. 1 Water System Revenue, Refunding,
5.625%, 3/01/34 ................................................................... 1,000,000 1,059,000
6.00%, 3/01/39 .................................................................... 1,000,000 1,078,890
Columbia Special Obligation Electric Utility Improvement Revenue, Annual Appropriation
Obligation, Series A, 5.75%, 10/01/33 ............................................. 10,290,000 11,499,589
Curators of the University of Missouri System Facilities Revenue,
Series A, 5.00%, 11/01/33 ......................................................... 5,000,000 5,246,100
Series A, 5.00%, 11/01/35 ......................................................... 20,000,000 20,864,600
System Facilities, Refunding, Series A, 5.00%, 11/01/25 ........................... 5,750,000 6,149,567
System Facilities, Refunding, Series A, 5.00%, 11/01/26 ........................... 3,625,000 3,861,640
Dunklin County COP, NATL Insured, 5.00%, 12/01/24 .................................... 1,000,000 1,074,500
Florissant COP, FGIC Insured, 5.00%, 8/01/22 ......................................... 1,285,000 1,324,051
Grandview COP, FGIC Insured, 5.00%, 1/01/23 .......................................... 2,410,000 2,462,056
Gravois Bluffs Transportation Development District Transportation Sales Tax Revenue,
Refunding, 4.75%, 5/01/32 ......................................................... 4,955,000 3,894,977
Hannibal IDA Health Facilities Revenue, Refunding, 5.00%, 3/01/22 .................... 1,000,000 946,420
Hickory County School District R-1 Skyline GO, Direct Deposit Program,
6.05%, 3/01/20 .................................................................... 800,000 800,000
Refunding, 6.05%, 3/01/20 ......................................................... 300,000 300,000
Independence School District GO, Missouri Direct Deposit Program, Series A, 5.00%,
3/01/27 ........................................................................... 3,300,000 3,606,636
3/01/28 ........................................................................... 3,000,000 3,255,450
3/01/29 ........................................................................... 3,000,000 3,232,320
Jackson County Consolidated School District No. 2 GO, Missouri Direct Deposit Program,
5.20%, 3/01/20 .................................................................... 2,000,000 2,082,100
Jackson County Reorganized School District No. 4 Blue Springs GO, Refunding and
Improvement, Series A, 5.00%, 3/01/29 ............................................. 4,000,000 4,240,720
Jackson County Reorganized School District No. 7 Lee's Summit GO, Missouri Direct
Deposit Program, Refunding and Improvement, FSA Insured, 5.00%, 3/01/21 ........... 5,700,000 6,098,715
Jackson County Special Obligation Revenue,
Harry S. Truman Sports Complex, AMBAC Insured, 5.00%, 12/01/28 .................... 2,500,000 2,591,200
Harry S. Truman Sports Complex, AMBAC Insured, 5.00%, 12/01/29 .................... 26,925,000 27,494,464
NATL Insured, 5.00%, 12/01/27 ..................................................... 3,105,000 3,180,700
Annual Report | 133
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MISSOURI (CONTINUED)
Jasper County Reorganized School District No. R-7 GO, Direct Deposit Program, 6.00%,
3/01/20 ........................................................................... $ 1,025,000 $ 1,025,000
Jefferson County Conservation Public Water Supply District No. C-1 Waterworks Revenue,
AMBAC Insured, 5.00%, 12/01/26 .................................................... 4,500,000 4,539,015
Jefferson County Consolidated School District No. 006 Lease Participation COP, FSA
Insured, 5.00%, 3/01/25 ........................................................... 1,050,000 1,120,602
Joplin IDA Health Facilities Revenue, Freeman Health Systems Project,
5.50%, 2/15/29 .................................................................... 2,000,000 1,918,180
5.75%, 2/15/35 .................................................................... 2,500,000 2,438,500
Kansas City IDAR, Kansas City Missouri IDA, AMBAC Insured,
5.00%, 12/01/24 ................................................................... 4,470,000 4,755,722
4.50%, 12/01/32 ................................................................... 10,000,000 9,667,500
5.00%, 12/01/32 ................................................................... 15,000,000 15,298,050
Kansas City Sanitation Sewer System Revenue, Series A, 5.25%, 1/01/34 ................ 4,000,000 4,249,240
Kansas City Special Obligation Revenue, Arena Project, Refunding and Improvement,
Series C, 5.125%, 4/01/38 ......................................................... 10,000,000 10,055,400
Kansas City Special Obligation Tax Allocation, East Village Project, Series B, Assured
Guaranty, 5.00%, 4/15/31 .......................................................... 6,860,000 7,195,385
Kansas City Tax Increment Financing Commerce Tax Increment Revenue, Blue Parkway Town
Center Project, NATL Insured, 5.00%, 7/01/27 ...................................... 1,730,000 1,702,320
Kansas City Water Revenue, Refunding and Improvement, Series A, 5.25%, 12/01/32 ...... 11,725,000 12,493,691
Lake of the Ozarks Community Board Corp. Bridge System Revenue, Refunding, 5.25%,
12/01/14 .......................................................................... 655,000 630,470
12/01/26 .......................................................................... 800,000 604,872
Lee's Summit IDAR, John Knox Village Project, Pre-Refunded, 5.70%, 8/15/22 ........... 1,500,000 1,693,065
Lee's Summit Water and Sewer Revenue, Series A, AMBAC Insured, 5.00%, 7/01/22 ........ 1,995,000 2,060,336
Lincoln University Auxiliary System Revenue, Assured Guaranty, 5.125%, 6/01/37 ....... 1,500,000 1,565,790
Metropolitan St. Louis Sewer District Wastewater System Revenue,
Series A, 5.75%, 5/01/38 .......................................................... 2,000,000 2,184,720
Series A, NATL Insured, 5.00%, 5/01/34 ............................................ 24,730,000 25,438,762
Series C, NATL Insured, 5.00%, 5/01/36 ............................................ 22,740,000 23,710,998
Missouri Development Finance Board Cultural Facilities Revenue,
Nelson Gallery Foundation, Series A, NATL Insured, 5.00%, 12/01/30 ................ 9,500,000 9,667,580
Series B, 5.00%, 6/01/37 .......................................................... 28,435,000 29,607,091
Missouri Joint Municipal Electric Utility Commission Power Project Revenue,
Iatan 2 Project, Series A, 6.00%, 1/01/39 ......................................... 10,000,000 10,545,300
Plum Point Project, NATL Insured, 5.00%, 1/01/28 .................................. 5,235,000 5,131,766
Plum Point Project, NATL Insured, 5.00%, 1/01/34 .................................. 34,945,000 32,991,574
Series A, AMBAC Insured, 5.00%, 1/01/32 ........................................... 6,000,000 6,100,200
Missouri Southern State College Revenue, Auxiliary Enterprise System, NATL Insured,
5.50%, 4/01/23 .................................................................... 1,200,000 1,235,292
Missouri State Board of Public Buildings State Office Building, Special Obligation,
Series A, 5.125%, 5/01/26 ......................................................... 3,960,000 4,097,966
Missouri State Development Finance Board Infrastructure Facilities Revenue, Midtown
Redevelopment Project, Series A, NATL Insured, Pre-Refunded, 5.75%, 4/01/22 ....... 10,000,000 10,043,000
Missouri State Development Finance Board Recreation Facilities Revenue, YMCA Greater
St. Louis Project, Series A, 5.40%, 9/01/18 ....................................... 7,420,000 7,475,798
134 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MISSOURI (CONTINUED)
Missouri State Development Finance Board Solid Waste Disposal Revenue, Procter and
Gamble Paper Product, 5.20%, 3/15/29 .............................................. $ 3,000,000 $ 3,084,240
Missouri State Environmental Improvement and Energy Resources Authority PCR, National
Rural Assn., Electric Project, Series G-6, AMBAC Insured, 5.85%, 2/01/13 .......... 2,100,000 2,101,974
Missouri State Environmental Improvement and Energy Resources Authority Water PCR,
State Revolving Fund, Series A, 7.00%, 10/01/10 ................................... 135,000 135,328
State Revolving Fund, Series A, 6.55%, 7/01/14 .................................... 650,000 651,502
State Revolving Fund, Series A, 5.75%, 1/01/16 .................................... 120,000 120,235
State Revolving Fund, Series B, 7.125%, 12/01/10 .................................. 65,000 65,194
State Revolving Fund, Series B, 5.80%, 1/01/15 .................................... 100,000 100,196
State Revolving Fund, Series B, 7.20%, 7/01/16 .................................... 780,000 782,005
State Revolving Fund, Series B, FSA Insured, 6.05%, 7/01/16 ....................... 485,000 486,004
State Revolving Funds, Refunding, Series A, 5.00%, 1/01/22 ........................ 5,000,000 5,794,750
State Revolving Funds, Refunding, Series A, 5.00%, 1/01/23 ........................ 14,000,000 16,122,820
State Revolving Funds, Refunding, Series A, 5.00%, 1/01/24 ........................ 7,890,000 9,021,899
State Revolving Funds, Series B, 5.50%, 7/01/21 ................................... 710,000 720,359
State Revolving Funds, Series B, Pre-Refunded, 5.50%, 7/01/21 ..................... 730,000 752,331
Missouri State Environmental Improvement and Energy Resources Authority Water
Pollution Control and Drinking Water Revenue, State Revolving Funds Programs,
Series A, 5.75%, 1/01/29 .......................................................... 2,500,000 2,915,625
Missouri State GO,
State Water Pollution Control, Series A, 5.00%, 6/01/26 ........................... 3,785,000 3,901,957
Stormwater Control, Series A, 5.00%, 6/01/26 ...................................... 1,895,000 1,953,556
Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue,
Maryville University of St. Louis Project, Pre-Refunded, 6.50%, 6/15/22 ........... 1,750,000 1,778,858
Maryville University of St. Louis Project, Pre-Refunded, 6.75%, 6/15/30 ........... 4,500,000 4,577,400
Washington University, Refunding, Series B, 5.00%, 3/01/30 ........................ 14,000,000 14,209,020
Washington University, Series A, 5.00%, 11/15/37 .................................. 9,150,000 9,200,142
Webster University, NATL Insured, 5.30%, 4/01/27 .................................. 8,000,000 7,955,200
Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
CoxHealth, 5.50%, 11/15/39 ........................................................ 14,325,000 14,422,123
Freeman Health Systems Project, 5.25%, 2/15/28 .................................... 2,750,000 2,591,353
Improvement, Jefferson Memorial Hospital, Refunding, Radian Insured, 5.00%, 8/15/21 4,585,000 4,475,510
Improvement, Jefferson Memorial Hospital, Refunding, Radian Insured, 5.25%, 8/15/28 4,900,000 4,565,330
Lake of the Ozarks General Hospital, 6.25%, 2/15/11 ............................... 95,000 96,406
Lake of the Ozarks General Hospital, Refunding, 6.50%, 2/15/21 .................... 330,000 331,832
Lake Regional Health Systems Project, 5.60%, 2/15/25 .............................. 1,250,000 1,258,300
Lake Regional Health Systems Project, 5.70%, 2/15/34 .............................. 2,750,000 2,755,968
St. Luke's Episcopal, 5.00%, 12/01/34 ............................................. 7,500,000 6,903,375
St. Luke's Episcopal, Presbyterian Hospital, FSA Insured, 5.25%, 12/01/26 ......... 8,500,000 8,250,525
St. Luke's Health System, Series B, 5.50%, 11/15/35 ............................... 6,725,000 6,925,876
Missouri State Health and Educational Facilities Authority Revenue,
Children's Mercy Hospital, 5.625%, 5/15/39 ........................................ 7,500,000 7,636,725
Educational Facilities, Washington University, Series A, 5.00%, 2/15/33 ........... 15,125,000 15,520,367
Senior Living Facilities, Lutheran Senior Services, Refunding, Series B, 5.125%,
2/01/22 ........................................................................ 2,900,000 2,865,519
Senior Living Facilities, Lutheran Senior Services, Refunding, Series B, 5.125%,
2/01/27 ........................................................................ 2,700,000 2,569,347
Senior Living Facilities, Lutheran Senior Services, Series A, 5.00%, 2/01/25 ...... 1,500,000 1,431,630
Senior Living Facilities, Lutheran Senior Services, Series A, 5.375%, 2/01/35 ..... 4,655,000 4,314,999
Annual Report | 135
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MISSOURI (CONTINUED)
Missouri State Health and Educational Facilities Authority Revenue, (continued)
SSM Healthcare System, Series A, AMBAC Insured, Pre-Refunded, 5.25%, 6/01/28 ...... $ 16,385,000 $ 17,490,660
St. Luke's Health System, Series A, FSA Insured, 5.50%, 11/15/35 .................. 10,000,000 10,298,700
The Washington University, Series A, 5.00%, 1/15/37 ............................... 10,880,000 11,374,170
The Washington University, Series A, 5.375%, 3/15/39 .............................. 16,825,000 18,328,482
Missouri State Highways and Transit Commission State Road Revenue,
5.00%, 5/01/20 .................................................................... 6,875,000 7,939,181
5.00%, 5/01/21 .................................................................... 5,000,000 5,726,650
first lien, Series B, 5.00%, 5/01/24 .............................................. 11,005,000 12,136,644
Missouri State Housing Development Commission SFMR, Homeownership Loan Program,
Series A-1, GNMA Secured, 4.75%, 9/01/32 .......................................... 1,875,000 1,744,856
Series B, GNMA Secured, 6.45%, 9/01/27 ............................................ 160,000 160,606
Series C, GNMA Secured, 5.00%, 3/01/32 ............................................ 1,250,000 1,289,763
Series C-1, GNMA Secured, 5.90%, 9/01/25 .......................................... 770,000 775,005
Series C-1, GNMA Secured, 5.95%, 3/01/28 .......................................... 545,000 547,284
Series D, GNMA Secured, 4.70%, 3/01/35 ............................................ 4,000,000 3,959,360
Monarch-Chesterfield Levee District Revenue, NATL Insured, 5.75%, 3/01/19 ............ 1,920,000 1,942,349
North Kansas City Hospital Revenue, North Kansas City Hospital, Series A, FSA Insured,
5.00%, 11/15/20 ................................................................... 1,000,000 1,028,820
5.00%, 11/15/21 ................................................................... 1,000,000 1,029,160
5.00%, 11/15/22 ................................................................... 1,000,000 1,027,430
5.00%, 11/15/28 ................................................................... 1,965,000 1,987,322
5.125%, 11/15/33 .................................................................. 2,755,000 2,769,051
Pettis County School District 200 Sedalia Lease COP, Missouri State Assn. of Rural
Education, Assured Guaranty, 5.00%, 3/01/27 ....................................... 6,690,000 7,128,262
Pulaski County IDA, MFHR, St. Robert Project, Series A, GNMA Secured,
6.00%, 8/20/39 .................................................................... 1,600,000 1,617,776
Riverside IDA, IDR, Riverside Horizons Project, Series A, ACA Insured, 5.00%,
5/01/20 ........................................................................... 1,500,000 1,509,765
5/01/27 ........................................................................... 2,000,000 1,883,340
Riverside-Quindaro Bend Levee District of Platte County Levee Improvement Revenue,
L-385 Project, Refunding, Radian Insured, 5.00%, 3/01/27 .......................... 5,000,000 4,547,650
Springfield Missouri IDAR, Bethesda Living Centers, Refunding, Series A,
5.625%, 8/15/18 ................................................................... 3,000,000 2,818,260
5.70%, 8/15/28 .................................................................... 5,250,000 4,331,827
Springfield Public Building Corp. Leasehold Revenue,
Capital Improvement Program, AMBAC Insured, 5.00%, 3/01/24 ........................ 2,600,000 2,745,210
Springfield Branson Airport, Series A, AMBAC Insured, 5.00%, 7/01/36 .............. 5,000,000 5,083,700
Springfield Recreational, Series B, AMBAC Insured, Pre-Refunded, 6.125%, 6/01/21 .. 3,230,000 3,276,254
Springfield Recreational, Series B, AMBAC Insured, Pre-Refunded, 6.15%, 6/01/25 ... 3,645,000 3,697,415
Springfield Public Utility Revenue, FGIC Insured, 4.75%, 8/01/34 ..................... 3,000,000 3,052,950
Springfield School District No. R-12 GO, Missouri Direct Deposit Program,
5.85%, 3/01/20 .................................................................... 1,500,000 1,500,000
FSA Insured, 5.00%, 3/01/26 ....................................................... 5,000,000 5,430,550
St. Charles County Public Water Supply District No. 2, COP, Missouri Project,
Series A, NATL Insured, 5.25%, 12/01/28 ........................................... 1,000,000 1,007,870
St. Joseph IDA Special Obligation Revenue, Sewer System Improvements Project, 5.00%,
4/01/27 ........................................................................... 1,330,000 1,369,062
136 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MISSOURI (CONTINUED)
St. Louis Airport Revenue,
Airport Development Program, Series A, NATL Insured, Pre-Refunded,
5.25%, 7/01/31 ................................................................. $ 18,835,000 $ 20,017,273
Lambert, Refunding, Series B, FSA Insured, 5.00%, 7/01/25 ......................... 9,420,000 9,125,248
Lambert, St. Louis International Airport, Refunding, NATL Insured,
5.50%, 7/01/29 ................................................................. 8,320,000 9,181,037
Lambert, St. Louis International Airport, Series A-1, 6.125%, 7/01/24 ............. 2,000,000 2,096,020
Lambert, St. Louis International Airport, Series A-1, 6.625%, 7/01/34 ............. 5,000,000 5,275,000
St. Louis County IDA, MFHR, Lucas Hunt Village Project, GNMA Secured,
5.20%, 9/20/31 .................................................................... 1,095,000 1,099,062
St. Louis County IDA Health Facilities Revenue, Mary Queen Healthcare, GNMA Secured,
5.375%, 9/20/31 ................................................................... 3,310,000 3,363,357
St. Louis County IDAR, Bethesda Living Centers, Series B, 5.85%, 8/15/28 ............. 1,500,000 1,260,015
St. Louis Municipal Finance Corp. Leasehold Revenue,
Carnahan Courthouse, Series A, FGIC Insured, Pre-Refunded, 5.125%, 2/15/27 ........ 4,750,000 5,154,415
Convention Center Capital Improvement, Series B, Assured Guaranty,
5.375%, 7/15/38 ................................................................ 22,725,000 23,734,899
St. Louis Municipal Finance Corp. Recreation Sales Tax Leasehold Revenue, AMBAC
Insured, 5.00%,
2/15/32 ........................................................................... 8,075,000 7,672,300
2/15/37 ........................................................................... 7,800,000 7,151,664
Taney County IDA Hospital Revenue, The Skaggs Community Hospital Assn., Refunding,
5.30%, 5/15/18 .................................................................... 3,000,000 2,952,810
5.40%, 5/15/28 .................................................................... 1,500,000 1,407,315
Taney County Reorganized School District GO, No. R-V Hollister, FSA Insured,
Pre-Refunded, 5.00%, 3/01/20 ...................................................... 1,300,000 1,460,823
University of Missouri Revenues, System Facilities, Refunding, Series B, 5.00%,
11/01/27 .......................................................................... 7,865,000 8,031,659
West Plains IDA Hospital Revenue, Ozarks Medical Center, Refunding,
5.50%, 11/15/12 ................................................................... 625,000 625,075
5.60%, 11/15/17 ................................................................... 1,700,000 1,617,057
5.65%, 11/15/22 ................................................................... 1,500,000 1,348,770
--------------
864,314,833
--------------
U.S. TERRITORIES 11.5%
PUERTO RICO 11.5%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Pre-Refunded, 6.00%,
7/01/26 ........................................................................... 2,785,000 2,837,135
Puerto Rico Commonwealth GO, Public Improvement, Series A,
5.375%, 7/01/28 ................................................................... 1,975,000 1,977,212
5.125%, 7/01/31 ................................................................... 5,000,000 4,796,150
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series
Y, Pre-Refunded, 5.50%, 7/01/36 ................................................... 9,500,000 11,517,135
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................. 4,970,000 4,672,893
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 2,500,000 2,757,725
Puerto Rico Electric Power Authority Power Revenue,
Series II, Pre-Refunded, 5.25%, 7/01/31 ........................................... 10,000,000 11,161,900
Series WW, 5.50%, 7/01/38 ......................................................... 5,730,000 5,782,831
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Municipal Government,
5.625%, 7/01/22 ................................................................... 2,500,000 2,508,325
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 2,150,000 2,117,514
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 5,885,000 6,477,266
Annual Report | 137
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN MISSOURI TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico PBA Guaranteed Revenue, Government Facilities, (continued)
Series I, 5.00%, 7/01/36 .......................................................... $ 14,450,000 $ 13,114,820
Series I, Pre-Refunded, 5.375%, 7/01/34 ........................................... 10,000,000 11,599,400
Puerto Rico Sales Tax Financing Corp. Revenue, first sub., Series A, 5.25%, 8/01/27 .. 5,000,000 5,122,900
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub.,
Series A, 5.50%, 8/01/37 .......................................................... 9,000,000 9,143,820
Series A, 5.375%, 8/01/39 ......................................................... 2,000,000 2,000,660
Series A, 6.00%, 8/01/42 .......................................................... 6,330,000 6,621,243
Series B, 6.375%, 8/01/39 ......................................................... 10,000,000 10,772,600
--------------
TOTAL U.S. TERRITORIES ............................................................... 114,981,529
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $960,479,930) .............. 979,296,362
--------------
SHORT TERM INVESTMENTS 0.5%
MUNICIPAL BONDS 0.5%
MISSOURI 0.5%
(a) Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, St. Louis University,
Refunding, Series A-1, Daily VRDN and Put, 0.12%, 10/01/35 ........................ 500,000 500,000
Refunding, Series B-1, Daily VRDN and Put, 0.12%, 10/01/35 ........................ 1,100,000 1,100,000
Series A, Daily VRDN and Put, 0.12%, 10/01/16 ..................................... 700,000 700,000
(a) Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
Sisters Mercy Health, Refunding, Series A, Daily VRDN and Put, 0.14%, 6/01/16 ..... 2,590,000 2,590,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $4,890,000) ....................................... 4,890,000
--------------
TOTAL INVESTMENTS (COST $965,369,930) 98.7% .......................................... 984,186,362
OTHER ASSETS, LESS LIABILITIES 1.3% .................................................. 12,854,709
--------------
NET ASSETS 100.0% .................................................................... $ 997,041,071
==============
See Abbreviations on page 185.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
138 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.37 $ 11.46 $ 12.38 $ 12.31 $ 12.37
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ..................... 0.51 0.51 0.50 0.51 0.53
Net realized and unrealized gains (losses) ... 0.77 (0.11) (0.92) 0.08 (0.06)
-------- -------- -------- -------- --------
Total from investment operations ................ 1.28 0.40 (0.42) 0.59 0.47
-------- -------- -------- -------- --------
Less distributions from net investment income ... (0.50) (0.49) (0.50) (0.52) (0.53)
-------- -------- -------- -------- --------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 12.15 $ 11.37 $ 11.46 $ 12.38 $ 12.31
======== ======== ======== ======== ========
Total return(f) ................................. 11.47% 3.60% (3.55)% 4.89% 3.86%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.64% 0.64% 0.65% 0.66% 0.66%
Net investment income ........................... 4.25% 4.41% 4.11% 4.15% 4.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $924,905 $742,759 $673,785 $626,783 $509,309
Portfolio turnover rate ......................... 8.85% 7.09% 12.03% 9.79% 5.01%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 139
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.49 $ 11.58 $ 12.51 $ 12.44 $ 12.48
-------- -------- -------- -------- -------
Income from investment operations(b):
Net investment income(c) ..................... 0.44 0.45 0.44 0.45 0.46
Net realized and unrealized gains (losses) ... 0.81 (0.11) (0.94) 0.07 (0.04)
-------- -------- -------- -------- -------
Total from investment operations ................ 1.25 0.34 (0.50) 0.52 0.42
-------- -------- -------- -------- -------
Less distributions from net investment income ... (0.44) (0.43) (0.43) (0.45) (0.46)
-------- -------- -------- -------- -------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- -------
Net asset value, end of year .................... $ 12.30 $ 11.49 $ 11.58 $ 12.51 $ 12.44
======== ======== ======== ======== =======
Total return(f) ................................. 11.01% 2.99% (4.13)% 4.26% 3.42%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.19% 1.19% 1.20% 1.21% 1.21%
Net investment income ........................... 3.70% 3.86% 3.56% 3.60% 3.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $224,584 $151,193 $123,593 $117,566 $99,649
Portfolio turnover rate ......................... 8.85% 7.09% 12.03% 9.79% 5.01%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
140 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 11.64
-------
Income from investment operations(b):
Net investment income(c) ..................... 0.35
Net realized and unrealized gains (losses) ... 0.50
-------
Total from investment operations ................ 0.85
-------
Less distributions from net investment income ... (0.34)
-------
Net asset value, end of period .................. $ 12.15
=======
Total return(d) ................................. 7.33%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ........................................ 0.54%
Net investment income ........................... 4.35%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $14,704
Portfolio turnover rate ......................... 8.85%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 141
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS 97.0%
NORTH CAROLINA 78.9%
Albemarle Hospital Authority Health Care Facilities Revenue, Refunding, 5.25%,
10/01/38 .......................................................................... $ 7,600,000 $ 5,904,136
Appalachian State University Revenue, Refunding, NATL Insured, 5.00%, 7/15/30 ........ 2,000,000 2,044,240
Asheville Water System Revenue,
FSA Insured, Pre-Refunded, 5.00%, 8/01/25 ......................................... 1,000,000 1,065,390
NATL Insured, 5.00%, 8/01/32 ...................................................... 2,110,000 2,185,200
Broad River Water Authority Water System Revenue, NATL Insured, Pre-Refunded, 5.375%,
6/01/26 ........................................................................... 1,000,000 1,022,480
Brunswick County Enterprise System Revenue, Series A, FSA Insured, 5.00%,
4/01/27 ........................................................................... 1,500,000 1,563,330
4/01/28 ........................................................................... 1,750,000 1,817,865
Buncombe County COP, NATL Insured, 5.00%, 4/01/22 .................................... 1,000,000 1,079,180
Buncombe County Metropolitan Sewer District Sewer System Revenue, Series A, 5.00%,
7/01/34 ........................................................................... 2,620,000 2,776,073
Cape Fear Public Utility Authority Water and Sewer System Revenue, 5.00%, 8/01/35 .... 16,000,000 16,782,880
Cary Combined Enterprise System Revenue, Refunding, Series 2007, 5.00%, 12/01/33 ..... 5,405,000 5,713,625
Charlotte Airport Revenue,
Charlotte Douglas International Airport, Refunding, Series A, AMBAC Insured, 5.00%,
7/01/32 ........................................................................ 20,680,000 20,867,981
Charlotte Douglas International Airport, Refunding, Series A, AMBAC Insured, 5.00%,
7/01/36 ........................................................................ 13,085,000 13,180,128
Refunding, Series A, 5.50%, 7/01/34 ............................................... 3,765,000 3,958,559
Series A, NATL Insured, 5.00%, 7/01/29 ............................................ 5,000,000 5,079,300
Series A, NATL Insured, 5.00%, 7/01/34 ............................................ 15,130,000 15,210,794
Charlotte COP,
Convention Facility Project, Pre-Refunded, 5.625%, 12/01/25 ....................... 7,230,000 7,590,994
Governmental Facilities Projects, Series G, 5.00%, 6/01/28 ........................ 3,000,000 3,110,610
Refunding, 5.00%, 6/01/33 ......................................................... 2,500,000 2,630,875
Refunding, Series C, 5.00%, 6/01/39 ............................................... 6,000,000 6,321,900
Transit Projects, Phase II, Series E, 5.00%, 6/01/35 .............................. 6,000,000 6,217,740
Charlotte GO, Series C, 5.00%, 7/01/27 ............................................... 2,010,000 2,113,555
Charlotte Storm Water Fee Revenue,
5.00%, 6/01/35 .................................................................... 10,000,000 10,457,100
Refunding, 5.00%, 6/01/25 ......................................................... 1,000,000 1,043,070
Charlotte Water and Sewer System Revenue,
5.125%, 6/01/26 ................................................................... 6,000,000 6,225,660
5.00%, 7/01/38 .................................................................... 6,775,000 7,142,408
Pre-Refunded, 5.25%, 6/01/25 ...................................................... 3,950,000 4,038,598
Refunding, 5.00%, 7/01/34 ......................................................... 7,030,000 7,504,736
Refunding, Series B, 5.00%, 7/01/38 ............................................... 15,000,000 16,035,300
Charlotte-Mecklenburg Hospital Authority Health Care System Revenue,
Carolinas HealthCare System, Refunding, Series A, 5.00%, 1/15/31 .................. 3,865,000 3,881,156
Carolinas HealthCare System, Refunding, Series A, 5.25%, 1/15/34 .................. 4,000,000 4,113,960
Carolinas HealthCare System, Series A, FSA Insured, 5.00%, 1/15/23 ................ 7,780,000 8,138,113
Carolinas HealthCare System, Series A, Pre-Refunded, 5.00%, 1/15/31 ............... 1,135,000 1,191,943
Refunding, 5.00%, 1/15/39 ......................................................... 15,000,000 14,908,350
Chatham County COP, AMBAC Insured, 5.00%, 6/01/34 .................................... 5,000,000 5,107,150
142 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
Columbus County Industrial Facilities and PCFA, Solid Water Disposal Revenue,
International Paper Co. Project, Refunding, Series A, 5.80%, 12/01/16 ............. $ 1,450,000 $ 1,451,479
Cumberland County Finance Corp. Installment Payment Revenue, Detention Center and
Mental Health, FSA Insured, Pre-Refunded, 5.625%, 6/01/24 ......................... 5,000,000 5,327,200
Dare County COP,
AMBAC Insured, 5.125%, 6/01/21 .................................................... 650,000 677,853
AMBAC Insured, 5.00%, 6/01/23 ..................................................... 3,000,000 3,117,420
AMBAC Insured, 5.00%, 6/01/29 ..................................................... 5,295,000 5,410,272
NATL Insured, 5.00%, 6/01/23 ...................................................... 2,655,000 2,808,937
Durham County COP, Series A, 5.00%, 6/01/31 .......................................... 4,000,000 4,223,960
Durham County Enterprise System Revenue, NATL Insured, 5.00%, 6/01/23 ................ 1,670,000 1,745,067
Fayetteville Public Works Commission Revenue, Fayetteville Public Works, Series B,
5.00%,
3/01/35 ........................................................................... 1,000,000 1,054,810
Gastonia Combined Utilities System Revenue,
FSA Insured, 5.00%, 5/01/25 ....................................................... 1,000,000 1,013,800
NATL Insured, Pre-Refunded, 5.625%, 5/01/19 ....................................... 1,000,000 1,018,790
Greensboro Enterprise System Revenue, Series A, Pre-Refunded, 5.125%,
6/01/21 ........................................................................... 390,000 416,984
6/01/22 ........................................................................... 350,000 374,217
Greensboro HDC, Mortgage Revenue, Refunding, Series A, NATL Insured, 6.70%, 1/01/24 .. 1,230,000 1,231,488
Greenville Utilities Commission Combined Enterprise System Revenue, Refunding, Series
A, FSA Insured, 5.00%, 11/01/33 .................................................. 6,000,000 6,243,420
Halifax County Industrial Facilities and PCFA Revenue, Champion International Corp.
Project, 5.45%, 11/01/33 .......................................................... 4,000,000 3,474,600
Refunding, 6.45%, 11/01/29 ........................................................ 3,900,000 3,911,700
Harnett County COP,
Assured Guaranty, 5.00%, 6/01/28 .................................................. 1,000,000 1,063,860
Assured Guaranty, 5.00%, 6/01/29 .................................................. 500,000 532,325
FSA Insured, 5.125%, 12/01/23 ..................................................... 1,000,000 1,053,360
Henderson County COP, Henderson County School Project, AMBAC Insured, 5.00%,
3/01/21 ........................................................................... 1,000,000 1,027,470
High Point Combined Enterprise System Revenue, FSA Insured, 5.00%,
11/01/31 .......................................................................... 11,000,000 11,340,230
11/01/33 .......................................................................... 5,000,000 5,276,500
Iredell County COP, Iredell County School Project, FSA Insured,
5.125%, 6/01/27 ................................................................... 4,000,000 4,249,600
5.00%, 6/01/28 .................................................................... 1,000,000 1,047,390
Johnston Memorial Hospital Authority Mortgage Revenue, FSA Insured, 5.25%, 10/01/36 .. 7,000,000 7,138,110
Mecklenburg County COP, Series A, 5.00%, 2/01/28 ..................................... 350,000 373,034
Mecklenburg County GO, Public Improvement, Series B, Pre-Refunded, 4.70%, 2/01/20 .... 3,000,000 3,220,260
Monroe COP, Assured Guaranty, 5.50%,
3/01/34 ........................................................................... 2,425,000 2,553,234
3/01/39 ........................................................................... 1,085,000 1,135,105
Nash Health Care System Health Care Facilities Revenue, FSA Insured,
5.00%, 11/01/30 ................................................................... 2,250,000 2,284,627
New Hanover County COP, New Hanover County Projects, AMBAC Insured, 5.00%,
12/01/22 .......................................................................... 5,000,000 5,186,450
Annual Report | 143
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
New Hanover County Hospital Revenue, New Hanover, Regional Medical, Refunding, Series
B, FSA Insured,
5.00%, 10/01/27 ................................................................... $ 3,500,000 $ 3,574,690
5.125%, 10/01/31 .................................................................. 8,385,000 8,585,485
North Carolina Capital Facilities Finance Agency Educational Facilities Revenue,
Johnson and Wales University Project, Series A, XLCA Insured, 5.00%, 4/01/33 ...... 3,000,000 2,707,230
Meredith College, AMBAC Insured, ETM, 4.875%, 6/01/24 ............................. 1,000,000 1,009,200
Wake Forest University, 5.00%, 1/01/38 ............................................ 10,200,000 10,703,982
North Carolina Capital Facilities Finance Agency Revenue, Duke University Project,
Refunding, Series A, 5.00%, 10/01/41 .............................................. 11,080,000 11,388,689
Refunding, Series A, 5.00%, 10/01/44 .............................................. 5,000,000 5,152,300
Refunding, Series B, 5.00%, 10/01/38 .............................................. 5,000,000 5,252,900
Refunding, Series B, 4.75%, 7/01/42 ............................................... 10,000,000 10,134,900
Series A, 5.00%, 10/01/39 ......................................................... 3,615,000 3,752,225
Series A, Pre-Refunded, 5.25%, 7/01/42 ............................................ 10,000,000 11,146,700
North Carolina Eastern Municipal Power Agency Power System Revenue,
Refunding, Series A, 6.50%, 1/01/18 ............................................... 3,000,000 3,523,830
Refunding, Series A, 5.00%, 1/01/24 ............................................... 10,000,000 10,413,300
Refunding, Series A, AMBAC Insured, 5.00%, 1/01/21 ................................ 11,555,000 12,052,096
Series C, 6.75%, 1/01/24 .......................................................... 3,500,000 4,104,450
North Carolina HFAR,
Home Ownership, Refunding, Series 12-C, 5.35%, 7/01/33 ............................ 10,000,000 10,062,800
MF, Mortgage Loan Resolution, Refunding, Series H, FHA Insured, 6.05%, 7/01/28 .... 1,015,000 1,019,050
MF, Refunding, Series A, AMBAC Insured, 5.90%, 7/01/20 ............................ 1,000,000 1,000,750
MF, Refunding, Series J, FHA Insured, 5.45%, 7/01/17 .............................. 175,000 175,457
Refunding, Series F, FHA Insured, 6.70%, 1/01/27 .................................. 1,240,000 1,245,258
SF, Refunding, Series DD, FHA Insured, 6.20%, 9/01/27 ............................. 525,000 546,709
SF, Series JJ, FHA Insured, 6.45%, 9/01/27 ........................................ 1,065,000 1,071,773
SFR, Series AA, 6.25%, 3/01/17 .................................................... 210,000 210,193
SFR, Series RR, FHA Insured, 5.85%, 9/01/28 ....................................... 1,145,000 1,148,687
North Carolina Infrastructure Finance Corp. COP, Capital Improvement, Series A, FSA
Insured, 5.00%, 5/01/22 ........................................................... 6,595,000 7,313,459
North Carolina Medical Care Commission Health Care Facilities Revenue,
Duke University Health System, Series A, 5.00%, 6/01/42 ........................... 11,500,000 11,660,655
FirstHealth Carolinas Project, Series A, 6.125%, 10/01/39 ......................... 11,315,000 11,943,096
FirstHealth Carolinas Project, Series C, 5.00%, 10/01/29 .......................... 5,000,000 5,069,400
Refunding, FGIC Insured, 5.00%, 1/01/33 ........................................... 10,805,000 10,688,198
Scotland Memorial Hospital Project, Radian Insured, 5.50%, 10/01/19 ............... 630,000 632,923
Scotland Memorial Hospital Project, Radian Insured, 5.50%, 10/01/29 ............... 1,220,000 1,220,769
University Health System, Refunding, Series D, 6.25%, 12/01/33 .................... 10,000,000 11,084,900
WakeMed Project, AMBAC Insured, 5.00%, 10/01/32 ................................... 4,205,000 4,151,891
WakeMed Project, Series A, Assured Guaranty, 5.625%, 10/01/29 ..................... 1,500,000 1,572,210
WakeMed Project, Series A, Assured Guaranty, 5.625%, 10/01/38 ..................... 6,000,000 6,198,540
WakeMed Project, Series A, Assured Guaranty, 5.875%, 10/01/38 ..................... 2,515,000 2,623,774
North Carolina Medical Care Commission Health System Revenue,
Catholic Health East Project, Series C, AMBAC Insured, 5.00%, 11/15/18 ............ 2,500,000 2,512,975
Mission Health Combination, Refunding, FSA Insured, 5.00%, 10/01/36 ............... 5,000,000 5,031,150
144 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
North Carolina Medical Care Commission Hospital Revenue,
Annie Penn Memorial Hospital Project, ETM, 5.25%, 1/01/12 ......................... $ 720,000 $ 761,285
Annie Penn Memorial Hospital Project, Pre-Refunded, 5.375%, 1/01/22 ............... 1,920,000 2,184,653
Halifax Regional Medical Center Project, 5.00%, 8/15/24 ........................... 1,800,000 1,480,212
Mission-St. Joseph's Health System Project, Refunding, NATL Insured, 5.125%,
10/01/28 ....................................................................... 1,770,000 1,770,566
(a) North Carolina Baptist Hospital, Refunding, 5.00%, 6/01/34 ........................ 10,000,000 10,015,100
Northeast Medical Center, AMBAC Insured, Pre-Refunded, 5.50%, 11/01/30 ............ 1,580,000 1,648,904
Rex Healthcare Project, AMBAC Insured, 5.00%, 6/01/17 ............................. 2,780,000 2,782,029
Southeastern Regional Medical Center, 6.25%, 6/01/29 .............................. 4,000,000 4,037,600
Southeastern Regional Medical Center, 5.375%, 6/01/32 ............................. 3,500,000 3,413,235
Transylvania Community Hospital Inc. Project, Refunding, 5.75%, 10/01/19 .......... 1,090,000 1,090,120
North Carolina Medical Care Commission Revenue,
Betsy Johnson Project, FSA Insured, 5.125%, 10/01/32 .............................. 4,500,000 4,528,260
Chatham Hospital Project, NATL Insured, 5.25%, 2/01/31 ............................ 4,450,000 4,465,130
Morehead Memorial Hospital, FSA Insured, 5.00%, 11/01/26 .......................... 2,000,000 2,052,900
Novant Health Obligation Group, NATL Insured, 5.00%, 11/01/39 ..................... 9,680,000 9,684,743
Rowan Regional Medical Center, FSA Insured, 5.00%, 9/01/33 ........................ 25,970,000 25,990,516
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue,
Refunding, Series A, 5.00%, 1/01/26 ............................................... 2,500,000 2,646,100
Refunding, Series A, 5.00%, 1/01/30 ............................................... 4,670,000 4,810,800
Series A, NATL Insured, 5.25%, 1/01/19 ............................................ 5,000,000 5,410,000
Series A, NATL Insured, 5.25%, 1/01/20 ............................................ 1,500,000 1,582,020
North Carolina State Capital Improvement Limited Obligation Revenue, Series A, 5.00%,
5/01/28 ........................................................................... 5,000,000 5,450,350
North Carolina State COP, Western Carolina University Housing Project, AMBAC Insured,
5.00%, 6/01/33 .................................................................... 1,500,000 1,530,465
North Carolina State GO, Public Improvement, Series A, 4.50%, 3/01/26 ................ 4,855,000 5,175,624
(a) North Carolina State Ports Authority Port Facilities Revenue, Senior Lien,
Refunding, Series A, 5.25%, 2/01/40 ............................................... 6,000,000 6,050,460
North Carolina Turnpike Authority Triangle Expressway System Revenue, Series A,
Assured Guaranty,
5.50%, 1/01/29 .................................................................... 6,400,000 6,766,016
5.75%, 1/01/39 .................................................................... 12,120,000 12,734,969
Northern Hospital District of Surry County Health Care Facilities Revenue,
6.00%, 10/01/28 ................................................................... 1,000,000 1,011,410
6.25%, 10/01/38 ................................................................... 2,000,000 2,036,640
Oak Island Enterprise System Revenue,
Assured Guaranty, 6.00%, 6/01/34 .................................................. 1,540,000 1,644,520
Assured Guaranty, 6.00%, 6/01/36 .................................................. 1,000,000 1,061,800
Series A, NATL Insured, 5.00%, 6/01/33 ............................................ 5,000,000 4,945,400
Onslow County Hospital Authority FHA Insured Mortgage Revenue, Onslow Memorial Hospital
Project, NATL Insured, 5.00%,
4/01/31 ........................................................................... 5,955,000 5,967,982
10/01/34 .......................................................................... 6,000,000 5,966,160
Onslow Water and Sewer Authority Combined Enterprise System Revenue, Series A,
NATL Insured, 5.00%, 6/01/33 ...................................................... 7,500,000 7,771,125
Annual Report | 145
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
Pasquotank County COP, NATL Insured, 5.00%, 6/01/25 .................................. $ 1,400,000 $ 1,443,582
Pitt County COP, School Facilities Project,
Series A, FSA Insured, Pre-Refunded, 5.25%, 4/01/25 ............................... 1,670,000 1,693,230
Series B, AMBAC Insured, 5.00%, 4/01/29 ........................................... 2,500,000 2,544,150
Series B, FSA Insured, Pre-Refunded, 5.50%, 4/01/25 ............................... 1,000,000 1,014,110
Pitt County Revenue, Assured Guaranty, 5.00%, 4/01/34 ................................ 1,000,000 1,022,210
Raleigh Combined Enterprise System Revenue,
5.00%, 3/01/31 .................................................................... 10,360,000 10,793,359
Series A, 5.00%, 3/01/36 .......................................................... 6,000,000 6,255,240
Raleigh COP, Downtown Improvement Projects, Series A, 5.00%, 2/01/29 ................. 6,070,000 6,283,239
Raleigh-Durham Airport Authority Airport Revenue, Series A,
AMBAC Insured, 5.00%, 5/01/30 ..................................................... 14,060,000 14,405,735
FGIC Insured, 5.00%, 11/01/25 ..................................................... 6,480,000 6,612,516
FGIC Insured, 5.00%, 11/01/31 ..................................................... 8,000,000 8,081,040
Rockingham County COP, Assured Guaranty, 5.00%, 4/01/32 .............................. 9,380,000 9,739,442
Union County COP, AMBAC Insured, 5.00%, 6/01/30 ...................................... 5,000,000 5,195,100
University of North Carolina at Ashville Revenue, General, Refunding, Series A,
AMBAC Insured, 5.00%, 6/01/27 ..................................................... 1,200,000 1,215,144
University of North Carolina at Chapel Hill Revenue, Board of Governors of the
University of North Carolina, General,
5.00%, 12/01/28 ................................................................... 1,000,000 1,046,440
5.00%, 12/01/31 ................................................................... 9,000,000 9,556,830
Refunding, Series A, 5.00%, 12/01/34 .............................................. 11,460,000 11,940,747
Series A, 5.00%, 12/01/25 ......................................................... 4,000,000 4,081,040
University of North Carolina at Charlotte Revenue, General, Series B, FSA Insured,
5.00%, 4/01/32 .................................................................... 5,000,000 5,171,350
University of North Carolina at Greensboro Revenue,
General, Series A, Assured Guaranty, 5.00%, 4/01/34 ............................... 1,000,000 1,050,580
Housing and Dining System, Series G, NATL Insured, Pre-Refunded, 6.00%, 4/01/26 ... 2,040,000 2,069,662
Series A, FSA Insured, 5.00%, 4/01/26 ............................................. 4,940,000 5,061,969
University of North Carolina at Wilmington COP, Student Housing Project,
Assured Guaranty, 5.00%, 6/01/32 .................................................. 5,000,000 5,090,900
FGIC Insured, 5.00%, 6/01/26 ...................................................... 1,655,000 1,709,499
FGIC Insured, 5.00%, 6/01/27 ...................................................... 1,740,000 1,787,746
FGIC Insured, 5.00%, 6/01/29 ...................................................... 1,915,000 1,949,796
FGIC Insured, 5.00%, 6/01/37 ...................................................... 11,350,000 11,373,267
University of North Carolina System Pool Revenue,
AMBAC Insured, 5.00%, 4/01/29 ..................................................... 2,500,000 2,574,150
Series A, AMBAC Insured, 5.00%, 4/01/27 ........................................... 1,430,000 1,447,861
Series A, AMBAC Insured, Pre-Refunded, 5.00%, 4/01/27 ............................. 670,000 741,650
Series A, Assured Guaranty, 5.00%, 10/01/33 ....................................... 5,000,000 5,256,000
Series A, NATL Insured, 5.00%, 10/01/33 ........................................... 2,000,000 2,065,520
Wake County GO, Limited Obligation Bonds, Series 2009, 5.00%, 6/01/36 ................ 5,000,000 5,260,450
Wake County Industrial Facilities and PCFA Revenue, Carolina Power and Light Co.
Project, Refunding, 5.375%, 2/01/17 ............................................... 8,000,000 8,407,360
Wake County Revenue, 5.00%,
1/01/33 ........................................................................... 10,820,000 11,510,532
1/01/37 ........................................................................... 12,000,000 12,627,480
146 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
Western Carolina University Research and Development Corp. COP, Western Carolina
University Student Housing, Assured Guaranty, 5.00%, 6/01/39 ...................... $ 5,000,000 $ 5,142,500
Wilkes County COP,
NATL Insured, 5.00%, 6/01/31 ...................................................... 4,295,000 4,403,449
NATL Insured, 5.00%, 6/01/36 ...................................................... 6,085,000 6,179,074
Public Improvements Project, FSA Insured, 5.375%, 12/01/20 ........................ 1,000,000 1,027,990
Wilmington COP,
AMBAC Insured, 5.00%, 9/01/29 ..................................................... 1,000,000 1,040,760
Refunding, Series A, AMBAC Insured, 5.00%, 6/01/32 ................................ 5,310,000 5,487,566
Series A, 5.00%, 6/01/33 .......................................................... 6,000,000 6,233,640
Series A, 5.00%, 6/01/38 .......................................................... 7,625,000 7,845,820
Wilmington Storm Water Fee Revenue, Refunding, AMBAC Insured, 5.00%,
6/01/28 ........................................................................... 700,000 739,998
6/01/33 ........................................................................... 1,000,000 1,035,550
Wilmington Water and Sewer System Revenue, Refunding, FSA Insured, 5.00%, 6/01/34 .... 3,565,000 3,677,440
Wilson COP, Public Facilities Project, Assured Guaranty, 5.00%, 5/01/33 .............. 3,000,000 3,095,130
Winston-Salem Water and Sewer System Revenue,
5.00%, 6/01/39 .................................................................... 5,000,000 5,291,750
Pre-Refunded, 5.125%, 6/01/20 ..................................................... 2,500,000 2,672,975
Refunding, Series A, 5.00%, 6/01/32 ............................................... 7,590,000 8,023,693
--------------
919,137,880
--------------
U.S. TERRITORIES 18.1%
PUERTO RICO 17.6%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.50%, 5/15/39 ......................................................... 7,000,000 6,196,470
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 .................................................................... 2,100,000 2,153,697
Puerto Rico Commonwealth GO,
Public Improvement, FSA Insured, Pre-Refunded, 5.125%, 7/01/30 .................... 4,805,000 5,111,991
Public Improvement, Refunding, FSA Insured, 5.125%, 7/01/30 ....................... 3,445,000 3,462,087
Public Improvement, Refunding, Series A, 5.50%, 7/01/32 ........................... 5,000,000 5,002,900
Public Improvement, Refunding, Series B, 6.00%, 7/01/39 ........................... 10,000,000 10,272,000
Public Improvement, Series A, 5.375%, 7/01/28 ..................................... 4,925,000 4,930,516
Public Improvement, Series A, 5.125%, 7/01/31 ..................................... 3,265,000 3,131,886
Public Improvement, Series A, Pre-Refunded, 5.375%, 7/01/28 ....................... 2,405,000 2,566,616
Public Improvement, Series A, Pre-Refunded, 5.125%, 7/01/31 ....................... 1,000,000 1,063,890
Series A, 5.00%, 7/01/26 .......................................................... 8,050,000 7,891,093
Series A, 5.25%, 7/01/37 .......................................................... 5,000,000 4,729,450
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series A, NATL Insured, 5.00%, 7/01/38 ................................. 85,000 79,389
Refunding, Series D, FSA Insured, 5.00%, 7/01/32 .................................. 3,060,000 3,069,792
Refunding, Series H, 5.00%, 7/01/35 ............................................... 1,490,000 1,375,330
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 5,000,000 5,515,450
Series D, Pre-Refunded, 5.25%, 7/01/38 ............................................ 3,000,000 3,300,630
Series H, Pre-Refunded, 5.00%, 7/01/35 ............................................ 2,790,000 3,170,054
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/31 ..................................................... 8,000,000 7,267,360
Annual Report | 147
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Electric Power Authority Power Revenue,
Series NN, NATL Insured, Pre-Refunded, 5.00%, 7/01/32 ............................. $ 5,000,000 $ 5,681,100
Series RR, FGIC Insured, Pre-Refunded, 5.00%, 7/01/35 ............................. 3,000,000 3,532,290
Series RR, XLCA Insured, Pre-Refunded, 5.00%, 7/01/30 ............................. 1,000,000 1,177,430
Series TT, 5.00%, 7/01/32 ......................................................... 10,100,000 9,847,298
Series WW, 5.50%, 7/01/38 ......................................................... 6,700,000 6,761,774
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 1,790,000 1,762,953
Refunding, Series N, 5.00%, 7/01/32 ............................................... 10,000,000 9,016,300
Refunding, Series P, 6.75%, 7/01/36 ............................................... 5,000,000 5,382,750
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 5,210,000 5,734,334
Series I, 5.00%, 7/01/36 .......................................................... 2,405,000 2,182,778
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.375%, 8/01/39 ................................................................... 20,000,000 20,006,600
5.50%, 8/01/42 .................................................................... 5,750,000 5,741,030
6.00%, 8/01/42 .................................................................... 45,750,000 47,854,958
--------------
204,972,196
--------------
U.S. VIRGIN ISLANDS 0.5%
Virgin Islands PFAR, senior lien, Refunding, Series B, 5.00%, 10/01/25 ............... 5,500,000 5,533,055
--------------
TOTAL U.S. TERRITORIES ............................................................... 210,505,251
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,106,342,682) ................................................................ 1,129,643,131
--------------
SHORT TERM INVESTMENTS 2.9%
MUNICIPAL BONDS 2.9%
NORTH CAROLINA 2.1%
(b) Charlotte-Mecklenburg Hospital Authority Health Care System Revenue, Carolinas
HealthCare System, Refunding,
Series B, Daily VRDN and Put, 0.12%, 1/15/26 ...................................... 7,550,000 7,550,000
Series C, Daily VRDN and Put, 0.14%, 1/15/26 ...................................... 8,900,000 8,900,000
(b) North Carolina Medical Care Commission Health Care Facilities Revenue,
Cleveland County Health, Daily VRDN and Put, 0.16%, 1/01/33 ....................... 3,930,000 3,930,000
Wake Forest University, Refunding, Series D, Daily VRDN and Put, 0.14%, 7/01/34 ... 400,000 400,000
(b) North Carolina Medical Care Commission Hospital Revenue, Randolph Hospital, Refunding,
Daily VRDN and Put, 0.16%, 10/01/37 ............................................... 3,800,000 3,800,000
--------------
24,580,000
--------------
148 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NORTH CAROLINA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 0.8%
PUERTO RICO 0.8%
(b) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... $ 8,835,000 $ 8,835,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $33,415,000) ...................................... 33,415,000
--------------
TOTAL INVESTMENTS (COST $1,139,757,682) 99.9% ........................................ 1,163,058,131
OTHER ASSETS, LESS LIABILITIES 0.1% .................................................. 1,134,928
--------------
NET ASSETS 100.0% .................................................................... $1,164,193,059
==============
See Abbreviations on page 185.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 149
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.95 $ 11.12 $ 11.85 $ 11.85 $ 11.91
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.49 0.49 0.49 0.50 0.51
Net realized and unrealized gains (losses) ...... 0.68 (0.18) (0.73) --(d) (0.06)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.17 0.31 (0.24) 0.50 0.45
-------- -------- -------- -------- --------
Less distributions from net investment income ...... (0.49) (0.48) (0.49) (0.50) (0.51)
-------- -------- -------- -------- --------
Redemption fees(e) ................................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 11.63 $ 10.95 $ 11.12 $ 11.85 $ 11.85
======== ======== ======== ======== ========
Total return(f) .................................... 10.82% 2.80% (2.13)% 4.37% 3.88%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.65% 0.66% 0.66% 0.66% 0.67%
Net investment income .............................. 4.27% 4.42% 4.18% 4.25% 4.27%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $675,934 $547,261 $494,276 $493,441 $473,956
Portfolio turnover rate ............................ 6.08% 8.75% 18.28% 8.51% 5.80%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
150 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.08 $ 11.24 $ 11.97 $ 11.96 $ 12.02
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.43 0.43 0.43 0.44 0.45
Net realized and unrealized gains (losses) ...... 0.68 (0.18) (0.74) 0.01 (0.06)
-------- ------- ------- ------- -------
Total from investment operations ................... 1.11 0.25 (0.31) 0.45 0.39
-------- ------- ------- ------- -------
Less distributions from net investment income ...... (0.42) (0.41) (0.42) (0.44) (0.45)
-------- ------- ------- ------- -------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 11.77 $ 11.08 $ 11.24 $ 11.97 $ 11.96
======== ======= ======= ======= =======
Total return(f) .................................... 10.18% 2.30% (2.65)% 3.84% 3.27%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.20% 1.21% 1.21% 1.20% 1.22%
Net investment income .............................. 3.72% 3.87% 3.63% 3.71% 3.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $119,921 $73,493 $60,372 $56,793 $51,461
Portfolio turnover rate ............................ 6.08% 8.75% 18.28% 8.51% 5.80%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 151
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............... $11.15
------
Income from investment operations(b):
Net investment income(c) ........................ 0.33
Net realized and unrealized gains (losses) ...... 0.47
------
Total from investment operations ................... 0.80
------
Less distributions from net investment income ...... (0.32)
------
Net asset value, end of period ..................... $11.63
======
Total return(d) .................................... 7.26%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ........................................... 0.55%
Net investment income .............................. 4.37%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .................. $7,601
Portfolio turnover rate ............................ 6.08%
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
152 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.3%
VIRGINIA 75.0%
Abingdon IDA Hospital Facilities Revenue, Johnston Memorial Hospital, Refunding,
5.375%, 7/01/28 ................................................................... $ 5,000,000 $ 4,985,150
(a) Bedford County IDA, IDR, Nekoosa Packaging Corp. Project, Refunding,
6.30%, 12/01/25 ................................................................... 2,000,000 1,974,240
Series A, 6.55%, 12/01/25 ......................................................... 5,000,000 5,009,100
Bristol Utility System Revenue, FSA Insured, ETM, 5.00%, 7/15/21 ..................... 1,245,000 1,429,634
Capital Region Airport Commission Airport Revenue, FSA Insured, 5.00%,
7/01/31 ........................................................................... 2,000,000 2,120,000
7/01/38 ........................................................................... 5,895,000 6,151,550
Caroline County IDA Lease Revenue, AMBAC Insured, 5.125%, 6/15/34 .................... 1,000,000 986,930
Charlotte County IDA Hospital Revenue, Halifax Regional Hospital Inc., 5.00%,
9/01/37 ........................................................................... 2,500,000 2,354,200
Chesapeake Toll Road Revenue, Expressway, Series A, 5.625%,
7/15/19 ........................................................................... 2,795,000 2,814,537
7/15/32 ........................................................................... 8,000,000 7,904,160
Chesterfield County EDA, PCR, Virginia Electric and Power, Refunding, Series A, 5.00%,
5/01/23 ........................................................................... 5,000,000 5,356,300
Dinwiddie County IDA Lease Revenue, Refunding, Series B, NATL Insured, 5.00%, 2/15/30 1,410,000 1,419,997
Fairfax County EDA Revenue, National Wildlife Federation, NATL Insured, 5.375%, 9/01/29 8,000,000 8,047,440
Fairfax County IDAR, Health Care, Inova Health System Project,
Refunding, Series C, 5.00%, 5/15/25 ............................................... 3,500,000 3,651,865
Series A, 5.50%, 5/15/35 .......................................................... 10,000,000 10,553,000
Fairfax County Redevelopment and Housing Authority MFHR, Paul Spring Center, Refunding,
Series A, FHA Insured,
5.90%, 6/15/17 .................................................................... 800,000 801,600
6.00%, 12/15/28 ................................................................... 1,000,000 1,002,000
Fairfax County Water Authority Water Revenue,
Pre-Refunded, 5.00%, 4/01/27 ...................................................... 2,830,000 3,088,577
Refunding, 5.00%, 4/01/27 ......................................................... 11,420,000 11,813,419
Front Royal and Warren County IDA Lease Revenue, School and Capital Improvement,
Series B, FSA Insured, 5.00%,
4/01/29 ........................................................................... 5,115,000 5,274,435
4/01/35 ........................................................................... 6,000,000 6,108,180
Gloucester County IDA Lease Revenue, Courthouse Project, NATL Insured, Pre-Refunded,
5.50%, 11/01/30 ................................................................... 1,715,000 1,791,558
Greater Richmond Convention Center Authority Hotel Tax Revenue,
Convention Center Expansion Project, Pre-Refunded, 6.125%, 6/15/29 ................ 8,000,000 8,213,920
Convention Center Expansion Project, Pre-Refunded, 6.25%, 6/15/32 ................. 8,175,000 8,396,461
Refunding, NATL Insured, 5.00%, 6/15/30 ........................................... 17,555,000 17,675,076
Hampton Convention Center Revenue, Refunding, AMBAC Insured,
5.25%, 1/15/23 .................................................................... 3,000,000 3,102,930
5.125%, 1/15/28 ................................................................... 2,605,000 2,653,088
5.00%, 1/15/35 .................................................................... 7,600,000 7,635,796
Hampton Roads Sanitation District Wastewater Revenue, Hampton Roads,
5.00%, 4/01/33 .................................................................... 10,000,000 10,627,400
Refunding, 5.00%, 4/01/38 ......................................................... 18,000,000 18,952,020
Harrisonburg GO, FSA Insured, Pre-Refunded, 5.75%, 12/01/29 .......................... 1,000,000 1,061,230
Harrisonburg IDAR, Hospital Facilities, Rockingham Memorial Hospital, AMBAC Insured,
5.00%,
8/15/42 ........................................................................... 8,095,000 7,327,270
8/15/46 ........................................................................... 15,000,000 13,436,850
Annual Report | 153
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
VIRGINIA (CONTINUED)
Isle Wight County IDA Environmental Improvement Revenue, International Paper Co.
Project, Series A, 6.60%, 5/01/24 ................................................. $ 2,000,000 $ 2,021,720
Isle Wight County IDAR, International Paper Co. Project, Series A, 5.85%, 1/01/18 .... 4,155,000 4,220,109
King George County IDA Lease Revenue, FSA Insured, 5.00%, 3/01/32 .................... 3,595,000 3,689,117
Loudoun County IDA Hospital Revenue, Loudoun Hospital Center, Series A, Pre-Refunded,
6.10%, 6/01/32 .................................................................... 1,500,000 1,687,965
Loudoun County Sanitation Authority Water and Sewer Revenue, 5.00%, 1/01/33 .......... 15,060,000 15,627,310
Louisa IDA, PCR, Virginia Electric and Power Co. Project, Mandatory Put 12/01/11,
Series C, 5.00%, 11/01/35 ......................................................... 5,000,000 5,262,800
Manassas Park GO, Series A, CIFG Insured, 5.00%, 4/01/29 ............................. 5,545,000 5,776,060
Middle River Regional Jail Authority Jail Facility Revenue, NATL Insured, 5.00%,
5/15/28 ........................................................................... 1,000,000 1,039,800
Montgomery County IDA Lease Revenue, Series B, AMBAC Insured, Pre-Refunded, 5.50%,
1/15/22 ........................................................................... 1,000,000 1,054,040
Montgomery County IDA Public Facilities Lease Revenue, Public Projects, 5.00%,
2/01/29 ........................................................................... 6,500,000 6,705,335
Newport News EDA, EDR, Series A, 5.00%, 1/15/31 ...................................... 5,870,000 6,139,609
Newport News IDA Mortgage Revenue, Mennowood Communities Inc., Series A, GNMA Secured,
6.25%, 8/01/36 .................................................................... 2,950,000 2,965,251
Newport News Water Revenue, FSA Insured, 5.00%, 6/01/37 .............................. 1,345,000 1,401,288
Norfolk Airport Authority Revenue, Series B, FGIC Insured, 5.125%, 7/01/31 ........... 1,440,000 1,341,792
Norfolk Water Revenue, NATL Insured, 5.90%, 11/01/25 ................................. 5,000,000 5,030,350
Northwestern Regional Jail Authority Jail Facilities Revenue, NATL Insured, 5.00%,
7/01/33 ........................................................................... 2,600,000 2,601,014
Orange County IDAR, Public Facility, Orange County Project, AMBAC Insured,
Pre-Refunded,
5.00%, 2/01/34 .................................................................... 1,000,000 1,091,950
Patrick County EDA Lease Revenue, School Projects, Assured Guaranty, 5.25%, 3/01/39 .. 6,435,000 6,565,437
Peninsula Ports Authority Hospital Facilities Revenue, Whittaker Memorial Hospital
Project, Refunding, FHA Insured, 8.70%, 8/01/23 ................................... 50,000 51,117
Pittsylvania County GO, Series B, 5.75%, 2/01/30 ..................................... 5,800,000 6,412,364
Powhatan Co. EDA Lease Revenue, Virginia Capital Projects, AMBAC Insured, 5.25%,
7/15/33 ........................................................................... 1,000,000 1,023,340
Powhatan County GO, Refunding, 5.00%, 1/15/32 ........................................ 5,140,000 5,464,848
Prince William County IDA, MFHR, Remington Place Apartments Project, Series A-1,
AMBAC Insured, 6.00%, 12/01/33 .................................................... 2,080,000 2,082,808
Prince William County Service Authority Water and Sewer System Revenue, Refunding,
5.00%, 7/01/32 .................................................................... 1,750,000 1,827,998
Richmond GO, NATL Insured, Pre-Refunded, 5.00%, 7/15/19 .............................. 3,690,000 3,957,783
Richmond IDA Student Housing Revenue, University Real Estate Foundation, 5.55%,
1/01/31 ........................................................................... 4,400,000 4,473,172
Richmond Public Facilities COP, 800 Megahertz Project, Series A, AMBAC Insured, 5.00%,
8/01/22 ........................................................................... 2,000,000 2,039,780
Richmond Public Utility Revenue,
FSA Insured, 5.00%, 1/15/35 ....................................................... 3,500,000 3,615,675
FSA Insured, Pre-Refunded, 5.00%, 1/15/33 ......................................... 8,500,000 9,198,105
Refunding, 5.00%, 1/15/35 ............................................................ 11,495,000 12,134,467
Riverside Regional Jail Authority Jail Facility Revenue, NATL Insured, 5.00%,
7/01/28 ........................................................................... 7,000,000 7,246,890
7/01/32 ........................................................................... 22,000,000 22,335,500
Roanoke County EDA Lease Revenue, Public Facility Projects, Assured Guaranty, 5.125%,
10/15/37 .......................................................................... 10,000,000 10,456,400
154 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
VIRGINIA (CONTINUED)
Stafford County and Staunton IDAR, Virginia Municipal League Assn. Counties Program,
Series A, NATL Insured, 5.25%, 8/01/31 ............................................ $ 5,000,000 $ 5,272,100
Series C, NATL Insured, 5.00%, 8/01/35 ............................................ 7,735,000 7,918,629
XLCA Insured, 5.00%, 8/01/37 ...................................................... 3,985,000 4,058,802
Stafford County EDA Hospital Facilities Revenue, Medicorp Health System Obligation,
5.25%, 6/15/37 .................................................................... 5,000,000 4,949,500
University of Virginia Revenue,
General, 5.00%, 6/01/37 ........................................................... 8,935,000 9,284,805
General, Refunding, 5.00%, 6/01/40 ................................................ 16,750,000 17,626,862
Series B, 5.00%, 6/01/33 .......................................................... 14,000,000 14,429,800
Virginia Beach Development Authority Public Facility Revenue, 5.00%, 7/15/27 ......... 5,635,000 6,076,953
Virginia Beach Water and Sewer Revenue, Pre-Refunded, 5.25%, 8/01/21 ................. 1,865,000 1,903,606
Virginia College Building Authority Educational Facilities Revenue,
Hampton University Project, Pre-Refunded, 6.00%, 4/01/20 .......................... 1,500,000 1,521,750
Public Higher Education Financing Program, Series A, 5.00%, 9/01/33 ............... 4,010,000 4,257,818
Public Higher Education Financing program, Series B, 5.00%, 9/01/25 ............... 13,205,000 14,770,717
Public Higher Education Financing Program, Series B, 5.00%, 9/01/29 ............... 5,010,000 5,443,816
Regent University Project, NATL Insured, Pre-Refunded, 5.125%, 10/01/21 ........... 5,000,000 5,362,150
Regent University Project, NATL Insured, Pre-Refunded, 5.125%, 10/01/31 ........... 4,050,000 4,343,341
Virginia Commonwealth Transportation Board Transportation Revenue,
Northern Virginia Transportation Program, Refunding, Series A, 5.00%, 5/15/27 ..... 8,920,000 9,177,610
U.S. Route 58 Corridor Development Program, Series B, Pre-Refunded, 5.00%, 5/15/24 2,000,000 2,110,020
U.S. Route 58 Corridor Development Program, Series B, Pre-Refunded, 5.00%, 5/15/26 10,000,000 10,550,100
Virginia Port Authority Port Facility Revenue, NATL Insured, 4.75%, 7/01/28 .......... 1,500,000 1,492,635
Virginia Small Business Financing Authority Healthcare Facilities Revenue, Sentara
Healthcare, Refunding, 5.00%, 11/01/40 ............................................ 15,000,000 15,106,050
Virginia State HDA, Commonwealth Mortgage Revenue, Series E, 6.375%, 1/01/36 ......... 10,000,000 10,785,800
Virginia State HDA Revenue, Rental Housing,
Series B, 5.625%, 6/01/39 ......................................................... 7,240,000 7,609,385
Series E, 5.00%, 10/01/44 ......................................................... 6,540,000 6,561,974
Series F, 5.05%, 12/01/44 ......................................................... 12,125,000 12,222,121
(b)Series F, 5.00%, 4/01/45 .......................................................... 2,125,000 2,129,718
Series J, 5.80%, 2/01/19 .......................................................... 2,000,000 2,000,000
Series L, 5.75%, 2/01/15 .......................................................... 1,000,000 1,000,000
Virginia State Public School Authority GO, School Financing,
Series A, Pre-Refunded, 5.00%, 8/01/20 ............................................ 3,000,000 3,223,800
Series A, Pre-Refunded, 5.00%, 8/01/21 ............................................ 4,000,000 4,298,400
Series C, Pre-Refunded, 5.00%, 8/01/22 ............................................ 2,000,000 2,149,200
Series C, Pre-Refunded, 5.00%, 8/01/26 ............................................ 10,925,000 11,740,005
Virginia State Public School Authority Special Obligation Fluvanna County Revenue,
School Financing, 6.00%, 12/01/32 ................................................. 5,000,000 5,563,600
Virginia State Resources Authority Airports Revenue, Revolving Fund, Series A, 5.00%,
8/01/27 ........................................................................... 3,000,000 3,022,470
Virginia State Resources Authority Infrastructure Revenue,
Senior Series A, 5.00%, 11/01/31 .................................................. 5,000,000 5,301,600
Senior Series A, 5.00%, 11/01/36 .................................................. 4,915,000 5,129,540
Virginia Pooled Financing Program, Senior Series, 5.00%, 11/01/33 .................... 4,615,000 4,794,385
Virginia Pooled Financing Program, Senior Series, Pre-Refunded, 5.00%, 11/01/33 ...... 385,000 440,221
Annual Report | 155
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
VIRGINIA (CONTINUED)
Virginia State Resources Authority Infrastructure Revenue, (continued)
Virginia Pooled Financing Program, Senior Series A, 5.00%, 11/01/38 ............... $ 1,600,000 $ 1,699,216
Virginia Pooled Financing Program, Senior Series B, 5.00%, 11/01/32 ............... 2,505,000 2,680,701
Virginia State Resources Authority Water and Sewer System Revenue, Tuckahoe Service
District Project, 5.00%, 11/01/35 ................................................. 1,125,000 1,157,164
Winchester IDA Hospital Revenue, Valley Health System Obligation, Series E, 5.625%,
1/01/44 ........................................................................... 3,350,000 3,388,022
--------------
602,815,493
--------------
DISTRICT OF COLUMBIA 7.2%
Metropolitan Washington D.C. Airports Authority Airport System Revenue,
Refunding, BHAC Insured, 5.00%, 10/01/29 .......................................... 3,000,000 3,185,130
Refunding, Series A, FGIC Insured, 5.00%, 10/01/25 ................................ 1,000,000 1,008,100
Refunding, Series A, FSA Insured, 5.00%, 10/01/32 ................................. 10,000,000 9,906,100
Refunding, Series C, 5.125%, 10/01/34 ............................................. 6,450,000 6,692,197
Series B, FGIC Insured, Pre-Refunded, 5.25%, 10/01/32 ............................. 6,655,000 7,418,129
Metropolitan Washington D.C. Airports Authority Dulles Toll Road Revenue, first senior
lien, Series A,
5.00%, 10/01/39 ................................................................... 10,000,000 10,075,300
5.25%, 10/01/44 ................................................................... 12,000,000 12,308,280
Metropolitan Washington D.C. Airports Authority General Airport Revenue, Refunding,
Series A,
FGIC Insured, 5.00%, 10/01/27 ..................................................... 5,000,000 4,965,150
Washington Metropolitan Area Transit Authority Gross Revenue, Transit, Series A,
5.125%, 7/01/32 ................................................................... 2,000,000 2,108,260
--------------
57,666,646
--------------
U.S. TERRITORIES 16.1%
PUERTO RICO 16.1%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 .................................................................... 1,100,000 1,128,127
Assured Guaranty, 5.00%, 7/01/28 .................................................. 7,000,000 7,210,980
Puerto Rico Commonwealth GO, Public Improvement,
Refunding, Series B, 6.00%, 7/01/39 ............................................... 5,000,000 5,136,000
Series A, 5.125%, 7/01/28 ......................................................... 5,000,000 4,823,950
Series A, 5.00%, 7/01/29 .......................................................... 8,000,000 7,572,480
Series A, 5.125%, 7/01/31 ......................................................... 3,315,000 3,179,848
Series A, 5.00%, 7/01/33 .......................................................... 900,000 825,705
Series A, 6.00%, 7/01/38 .......................................................... 5,000,000 5,045,100
Series A, Pre-Refunded, 5.125%, 7/01/31 ........................................... 1,685,000 1,792,655
Series A, Pre-Refunded, 5.00%, 7/01/33 ............................................ 1,100,000 1,249,842
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue, Series
Y, Pre-Refunded, 5.50%, 7/01/36 ................................................... 4,500,000 5,455,485
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 5,000,000 5,515,450
Series D, Pre-Refunded, 5.25%, 7/01/38 ............................................ 3,000,000 3,300,630
Series G, 5.00%, 7/01/33 .......................................................... 1,695,000 1,575,825
Series G, Pre-Refunded, 5.00%, 7/01/33 ............................................ 3,305,000 3,755,207
156 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN VIRGINIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Electric Power Authority Power Revenue,
Series HH, FSA Insured, Pre-Refunded, 5.25%, 7/01/29 .............................. $ 5,910,000 $ 6,066,201
Series RR, FGIC Insured, Pre-Refunded, 5.00%, 7/01/35 ............................. 3,000,000 3,532,290
Series RR, XLCA Insured, Pre-Refunded, 5.00%, 7/01/30 ............................. 1,000,000 1,177,430
Series TT, 5.00%, 7/01/32 ......................................................... 10,000,000 9,749,800
Series WW, 5.50%, 7/01/38 ......................................................... 6,700,000 6,761,774
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%, 8/01/27 .. 2,580,000 2,598,679
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 1,315,000 1,295,130
Refunding, Series N, 5.00%, 7/01/32 ............................................... 5,000,000 4,508,150
Refunding, Series Q, 5.625%, 7/01/39 .............................................. 5,000,000 4,863,150
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 3,685,000 4,055,858
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.375%, 8/01/39 ................................................................... 6,000,000 6,001,980
6.00%, 8/01/42 .................................................................... 20,000,000 20,920,200
--------------
TOTAL U.S. TERRITORIES ............................................................... 129,097,926
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $769,623,470) .............. 789,580,065
--------------
SHORT TERM INVESTMENTS 0.9%
MUNICIPAL BONDS 0.9%
VIRGINIA 0.7%
(c) Montgomery County IDAR, Virginia Tech Foundation, Daily VRDN and Put, 0.15%,
6/01/35 ........................................................................... 300,000 300,000
(c) Norfolk Redevelopment and Housing Authority Revenue, Old Dominion University Project,
Refunding, Daily VRDN and Put, 0.16%,
8/01/31 ........................................................................... 900,000 900,000
8/01/33 ........................................................................... 4,810,000 4,810,000
--------------
6,010,000
--------------
U.S. TERRITORIES 0.2%
PUERTO RICO 0.2%
(c) Puerto Rico Commonwealth GO, Refunding, Series A-6, Daily VRDN and Put, 0.12%,
7/01/33 ........................................................................... 1,500,000 1,500,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $7,510,000) ....................................... 7,510,000
--------------
TOTAL INVESTMENTS (COST $777,133,470) 99.2% .......................................... 797,090,065
OTHER ASSETS, LESS LIABILITIES 0.8% .................................................. 6,365,243
--------------
NET ASSETS 100.0% .................................................................... $ 803,455,308
==============
See Abbreviations on page 185.
(a) In prior years, the Internal Revenue Service (IRS) issued a preliminary
adverse determination, ruling that the income generated by the bond was
taxable. The issuer of the bond was contesting this determination and,
until this was finalized, the Fund continued to recognize interest income
earned on the bond as tax-exempt. In March 2010, the Fund received notice
that the IRS withdrew its preliminary adverse determination.
(b) Security purchased on a when-issued basis. See Note 1(b).
(c) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 157
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 28, 2010
FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ---------------- ----------------
Assets:
Investments in securities:
Cost ....................................................... $287,298,207 $1,231,198,963 $447,773,418
------------ -------------- ------------
Value ...................................................... $290,271,651 $1,273,413,522 $462,374,626
Cash .......................................................... 34,852 418,123 277,501
Receivables:
Capital shares sold ........................................ 899,470 1,314,595 1,365,202
Interest ................................................... 4,113,464 18,821,931 5,278,611
Other assets .................................................. 807 3,563 1,251
------------ -------------- ------------
Total assets ............................................ 295,320,244 1,293,971,734 469,297,191
------------ -------------- ------------
Liabilities:
Payables:
Investment securities purchased ............................ -- 4,976,850 602,259
Capital shares redeemed .................................... 252,063 3,975,412 1,084,089
Affiliates ................................................. 179,305 682,542 280,001
Distributions to shareholders .............................. 143,003 707,944 389,028
Accrued expenses and other liabilities ........................ 58,253 143,832 77,931
------------ -------------- ------------
Total liabilities ....................................... 632,624 10,486,580 2,433,308
------------ -------------- ------------
Net assets, at value ................................. $294,687,620 $1,283,485,154 $466,863,883
============ ============== ============
Net assets consist of:
Paid-in capital ............................................... $292,578,895 $1,244,452,699 $456,512,534
Undistributed net investment income (distributions in excess of
net investment income) ..................................... 135,791 867,024 (160,812)
Net unrealized appreciation (depreciation) .................... 2,973,444 42,214,559 14,601,208
Accumulated net realized gain (loss) .......................... (1,000,510) (4,049,128) (4,089,047)
------------ -------------- ------------
Net assets, at value ................................. $294,687,620 $1,283,485,154 $466,863,883
============ ============== ============
CLASS A:
Net assets, at value .......................................... $244,859,547 $1,137,683,867 $365,222,961
============ ============== ============
Shares outstanding ............................................ 21,922,629 99,330,707 30,629,753
============ ============== ============
Net asset value per share(a) .................................. $ 11.17 $ 11.45 $ 11.92
============ ============== ============
Maximum offering price per share (net asset value per
share / 95.75%) ............................................ $ 11.67 $ 11.96 $ 12.45
============ ============== ============
CLASS B:
Net assets, at value .......................................... -- $ 26,305,440 --
============ ============== ============
Shares outstanding ............................................ -- 2,278,202 --
============ ============== ============
Net asset value and maximum offering price per share(a) ....... -- $ 11.55 --
============ ============== ============
CLASS C:
Net assets, at value .......................................... $ 49,828,073 $ 119,495,847 $101,640,922
============ ============== ============
Shares outstanding ............................................ 4,419,011 10,278,922 8,432,949
============ ============== ============
Net asset value and maximum offering price per share(a) ....... $ 11.28 $ 11.63 $ 12.05
============ ============== ============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
158 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY TAX-FREE LOUISIANA TAX-FREE MARYLAND TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------- ------------------ -----------------
Assets:
Investments in securities:
Cost ....................................................... $187,731,498 $388,015,326 $647,362,018
------------ ------------ ------------
Value ...................................................... $191,538,215 $394,117,158 $649,310,655
Cash .......................................................... 2,696 91,116 61,122
Receivables:
Capital shares sold ........................................ 522,678 513,520 2,824,704
Interest ................................................... 2,281,634 5,104,402 7,455,805
Other assets .................................................. 504 1,054 1,784
------------ ------------ ------------
Total assets ............................................ 194,345,727 399,827,250 659,654,070
============ ============ ============
Liabilities:
Payables:
Investment securities purchased ............................ 6,413,015 5,967,076 --
Capital shares redeemed .................................... 67,306 1,981,354 1,127,181
Affiliates ................................................. 105,459 228,632 389,938
Distributions to shareholders .............................. 90,976 193,455 320,849
Accrued expenses and other liabilities ........................ 50,798 70,165 100,306
------------ ------------ ------------
Total liabilities ....................................... 6,727,554 8,440,682 1,938,274
------------ ------------ ------------
Net assets, at value ................................. $187,618,173 $391,386,568 $657,715,796
============ ============ ============
Net assets consist of:
Paid-in capital ............................................... $185,955,867 $387,406,928 $657,520,541
Undistributed net investment income (distributions in excess of
net investment income) ..................................... (35,949) 85,562 25,269
Net unrealized appreciation (depreciation) .................... 3,806,717 6,101,832 1,948,637
Accumulated net realized gain (loss) .......................... (2,108,462) (2,207,754) (1,778,651)
------------ ------------ ------------
Net assets, at value ................................. $187,618,173 $391,386,568 $657,715,796
============ ============ ============
CLASS A:
Net assets, at value .......................................... $187,618,173 $327,368,216 $511,636,149
============ ============ ============
Shares outstanding ............................................ 16,830,220 29,024,188 45,292,263
============ ============ ============
Net asset value per share(a) .................................. $ 11.15 $ 11.28 $ 11.30
============ ============ ============
Maximum offering price per share (net asset value per
share / 95.75%) ............................................ $ 11.64 $ 11.78 $ 11.80
============ ============ ============
CLASS C:
Net assets, at value .......................................... -- $ 64,018,352 $142,575,404
============ ============ ============
Shares outstanding ............................................ -- 5,611,363 12,439,464
============ ============ ============
Net asset value and maximum offering price per share(a) ....... -- $ 11.41 $ 11.46
============ ============ ============
ADVISOR CLASS:
Net assets, at value .......................................... -- -- $ 3,504,243
============ ============ ============
Shares outstanding ............................................ -- -- 310,213
============ ============ ============
Net asset value and maximum offering price per share .......... -- -- $ 11.30
============ ============ ============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 159
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN
FRANKLIN NORTH CAROLINA FRANKLIN
MISSOURI TAX-FREE TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------- -------------- -----------------
Assets:
Investments in securities:
Cost ....................................................... $965,369,930 $1,139,757,682 $777,133,470
------------ -------------- ------------
Value ...................................................... $984,186,362 $1,163,058,131 $797,090,065
Cash .......................................................... 71,924 1,412,536 154,288
Receivables:
Capital shares sold ........................................ 3,154,323 4,181,756 1,896,860
Interest ................................................... 12,072,655 13,896,403 9,210,698
Other assets .................................................. 2,654 3,081 2,145
------------ -------------- ------------
Total assets ............................................ 999,487,918 1,182,551,907 808,354,056
------------ -------------- ------------
Liabilities:
Payables:
Investment securities purchased ............................ -- 15,966,060 2,125,000
Capital shares redeemed .................................... 1,290,773 1,021,548 1,829,461
Affiliates ................................................. 533,646 658,325 444,873
Distributions to shareholders .............................. 492,538 558,640 390,520
Accrued expenses and other liabilities ........................ 129,890 154,275 108,894
------------ -------------- ------------
Total liabilities ....................................... 2,446,847 18,358,848 4,898,748
------------ -------------- ------------
Net assets, at value ................................. $997,041,071 $1,164,193,059 $803,455,308
============ ============== ============
Net assets consist of:
Paid-in capital ............................................... $982,824,354 $1,140,848,191 $785,680,836
Undistributed net investment income ........................... 421,364 875,219 585,195
Net unrealized appreciation (depreciation) .................... 18,816,432 23,300,449 19,956,595
Accumulated net realized gain (loss) .......................... (5,021,079) (830,800) (2,767,318)
------------ -------------- ------------
Net assets, at value ................................. $997,041,071 $1,164,193,059 $803,455,308
============ ============== ============
CLASS A:
Net assets, at value .......................................... $863,925,009 $ 924,905,057 $675,933,540
============ ============== ============
Shares outstanding ............................................ 72,112,238 76,120,110 58,107,368
============ ============== ============
Net asset value per share(a) .................................. $ 11.98 $ 12.15 $ 11.63
============ ============== ============
Maximum offering price per share (net asset value per
share / 95.75%) ............................................ $ 12.51 $ 12.69 $ 12.15
============ ============== ============
CLASS C:
Net assets, at value .......................................... $120,256,494 $ 224,584,196 $119,920,946
============ ============== ============
Shares outstanding ............................................ 9,966,230 18,265,864 10,186,938
============ ============== ============
Net asset value and maximum offering price per share(a) ....... $ 12.07 $ 12.30 $ 11.77
============ ============== ============
ADVISOR CLASS:
Net assets, at value .......................................... $ 12,859,568 $ 14,703,806 $ 7,600,822
============ ============== ============
Shares outstanding ............................................ 1,073,258 1,210,281 653,388
============ ============== ============
Net asset value and maximum offering price per share .......... $ 11.98 $ 12.15 $ 11.63
============ ============== ============
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
160 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS for the year ended February 28, 2010
FRANKLIN FRANKLIN FRANKLIN
ALABAMA TAX-FREE FLORIDA TAX-FREE GEORGIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
---------------- ---------------- ----------------
Investment income:
Interest ...................................................... $14,316,865 $ 69,718,678 $20,993,343
----------- ------------ -----------
Expenses:
Management fees (Note 3a) ..................................... 1,523,250 6,094,544 2,176,373
Distribution fees: (Note 3c)
Class A .................................................... 235,834 1,146,147 337,846
Class B .................................................... -- 209,440 --
Class C .................................................... 296,249 738,193 552,074
Transfer agent fees (Note 3e) ................................. 108,009 428,381 159,863
Custodian fees ................................................ 3,858 17,829 5,867
Reports to shareholders ....................................... 19,385 70,616 27,977
Registration and filing fees .................................. 10,029 27,570 14,966
Professional fees ............................................. 25,694 39,727 31,223
Trustees' fees and expenses ................................... 2,249 10,687 3,329
Other ......................................................... 33,413 95,531 46,400
----------- ------------ -----------
Total expenses .......................................... 2,257,970 8,878,665 3,355,918
----------- ------------ -----------
Net investment income ................................ 12,058,895 60,840,013 17,637,425
----------- ------------ -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ..................... 534,431 157,722 862,866
Net change in unrealized appreciation (depreciation) on
investments ................................................ 14,051,632 63,652,224 23,458,112
----------- ------------ -----------
Net realized and unrealized gain (loss) .......................... 14,586,063 63,809,946 24,320,978
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations .. $26,644,958 $124,649,959 $41,958,403
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
Annual Report | 161
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 28, 2010
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY TAX-FREE LOUISIANA TAX-FREE MARYLAND TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------- ------------------ -----------------
Investment income:
Interest ...................................................... $ 8,792,577 $17,943,287 $30,620,680
----------- ----------- -----------
Expenses:
Management fees (Note 3a) ..................................... 1,008,933 1,851,797 2,974,936
Distribution fees: (Note 3c)
Class A .................................................... 175,631 298,507 474,001
Class C .................................................... -- 347,877 799,490
Transfer agent fees (Note 3e) ................................. 61,363 119,877 246,923
Custodian fees ................................................ 2,397 4,855 8,117
Reports to shareholders ....................................... 12,684 22,212 38,342
Registration and filing fees .................................. 4,426 12,357 16,325
Professional fees ............................................. 28,284 31,572 34,971
Trustees' fees and expenses ................................... 1,402 2,758 4,708
Other ......................................................... 30,998 41,627 49,707
----------- ----------- -----------
Total expenses .......................................... 1,326,118 2,733,439 4,647,520
----------- ----------- -----------
Net investment income ................................ 7,466,459 15,209,848 25,973,160
----------- ----------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ..................... 148,967 56,120 (204,895)
Net change in unrealized appreciation (depreciation) on
investments ................................................ 10,240,124 26,509,024 50,949,719
----------- ----------- -----------
Net realized and unrealized gain (loss) .......................... 10,389,091 26,565,144 50,744,824
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations .. $17,855,550 $41,774,992 $76,717,984
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
162 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 28, 2010
FRANKLIN
FRANKLIN NORTH CAROLINA FRANKLIN
MISSOURI TAX-FREE TAX-FREE VIRGINIA TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------------- -------------- -----------------
Investment income:
Interest ...................................................... $44,480,587 $ 50,195,626 $35,042,084
----------- ------------ -----------
Expenses:
Management fees (Note 3a) ..................................... 4,284,440 4,926,504 3,488,287
Distribution fees: (Note 3c)
Class A .................................................... 778,104 833,196 611,845
Class C .................................................... 664,732 1,212,505 617,684
Transfer agent fees (Note 3e) ................................. 356,906 387,985 274,979
Custodian fees ................................................ 12,399 13,937 9,737
Reports to shareholders ....................................... 59,544 64,396 45,285
Registration and filing fees .................................. 20,449 24,464 20,267
Professional fees ............................................. 45,224 48,454 38,486
Trustees' fees and expenses ................................... 6,922 8,028 5,550
Other ......................................................... 68,011 81,839 58,319
----------- ------------ -----------
Total expenses .......................................... 6,296,731 7,601,308 5,170,439
----------- ------------ -----------
Net investment income ................................ 38,183,856 42,594,318 29,871,645
----------- ------------ -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ..................... (764,227) 719,705 1,105,432
Net change in unrealized appreciation (depreciation) on
investments ................................................ 52,661,164 64,550,561 39,779,725
----------- ------------ -----------
Net realized and unrealized gain (loss) .......................... 51,896,937 65,270,266 40,885,157
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations .. $90,080,793 $107,864,584 $70,756,802
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
Annual Report | 163
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
--------------------------- -------------------------------
2010 2009 2010 2009
------------ ------------ -------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 12,058,895 $ 11,777,988 $ 60,840,013 $ 66,111,987
Net realized gain (loss) from investments .................. 534,431 299,533 157,722 (4,026,661)
Net change in unrealized appreciation
(depreciation) on investments ........................... 14,051,632 (7,801,350) 63,652,224 (32,523,051)
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations ......................... 26,644,958 4,276,171 124,649,959 29,562,275
------------ ------------ -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (10,231,642) (10,131,192) (54,376,158) (58,140,734)
Class B ................................................. -- -- (1,344,639) (1,747,446)
Class C ................................................. (1,707,559) (1,562,914) (4,678,834) (4,715,478)
Net realized gains:
Class A ................................................. -- -- -- (1,408,071)
Class B ................................................. -- -- -- (49,356)
Class C ................................................. -- -- -- (128,830)
------------ ------------ -------------- --------------
Total distributions to shareholders ........................... (11,939,201) (11,694,106) (60,399,631) (66,189,915)
------------ ------------ -------------- --------------
Capital share transactions: (Note 2)
Class A ................................................. 13,583,233 (5,232,581) (74,413,799) (91,571,048)
Class B ................................................. -- -- (11,916,510) (10,140,310)
Class C ................................................. 5,810,958 4,457,591 3,943,226 (2,898,320)
------------ ------------ -------------- --------------
Total capital share transactions .............................. 19,394,191 (774,990) (82,387,083) (104,609,678)
------------ ------------ -------------- --------------
Redemption fees ............................................... -- 19 -- 1,176
------------ ------------ -------------- --------------
Net increase (decrease) in net assets ............... 34,099,948 (8,192,906) (18,136,755) (141,236,142)
Net assets:
Beginning of year ............................................. 260,587,672 268,780,578 1,301,621,909 1,442,858,051
------------ ------------ -------------- --------------
End of year ................................................... $294,687,620 $260,587,672 $1,283,485,154 $1,301,621,909
============ ============ ============== ==============
Undistributed net investment income included in net assets:
End of year ................................................... $ 135,791 $ 26,501 $ 867,024 $ 419,331
============ ============ ============== ==============
The accompanying notes are an integral part of these financial statements.
164 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
--------------------------- ---------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 17,637,425 $ 14,718,182 $ 7,466,459 $ 7,000,649
Net realized gain (loss) from investments .................. 862,866 (2,921,597) 148,967 (488,253)
Net change in unrealized appreciation
(depreciation) on investments ........................... 23,458,112 (2,999,770) 10,240,124 (1,155,679)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 41,958,403 8,796,815 17,855,550 5,356,717
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (14,483,261) (12,579,994) (7,552,788) (6,911,504)
Class C ................................................. (3,113,797) (2,295,173) -- --
------------ ------------ ------------ ------------
Total distributions to shareholders ........................... (17,597,058) (14,875,167) (7,552,788) (6,911,504)
------------ ------------ ------------ ------------
Capital share transactions: (Note 2)
Class A ................................................. 37,588,955 60,057,104 15,272,154 13,821,854
Class C ................................................. 28,105,588 17,638,583 -- --
------------ ------------ ------------ ------------
Total capital share transactions .............................. 65,694,543 77,695,687 15,272,154 13,821,854
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ................ 90,055,888 71,617,335 25,574,916 12,267,067
Net assets:
Beginning of year ............................................. 376,807,995 305,190,660 162,043,257 149,776,190
------------ ------------ ------------ ------------
End of year ................................................... $466,863,883 $376,807,995 $187,618,173 $162,043,257
============ ============ ============ ============
Undistributed net investment income (distributions in excess of
net investment income) included in net assets:
End of year ................................................ $ (160,812) $ (204,054) $ (35,949) $ 51,607
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 165
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
--------------------------- ---------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 15,209,848 $ 12,921,511 $ 25,973,160 $ 23,517,178
Net realized gain (loss) from investments .................. 56,120 (880,447) (204,895) (1,514,070)
Net change in unrealized appreciation
(depreciation) on investments ........................... 26,509,024 (9,610,506) 50,949,719 (23,977,575)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 41,774,992 2,430,558 76,717,984 (1,974,467)
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (13,117,728) (11,272,273) (21,259,949) (19,457,945)
Class C ................................................. (2,020,800) (1,540,027) (4,736,365) (3,796,929)
Advisor Class ........................................... -- -- (75,767) --
------------ ------------ ------------ ------------
Total distributions to shareholders ........................... (15,138,528) (12,812,300) (26,072,081) (23,254,874)
------------ ------------ ------------ ------------
Capital share transactions: (Note 2)
Class A ................................................. 37,777,185 41,385,179 45,125,328 28,830,036
Class C ................................................. 18,421,753 8,148,253 31,014,569 23,590,277
Advisor Class ........................................... -- -- 3,384,838 --
------------ ------------ ------------ ------------
Total capital share transactions .............................. 56,198,938 49,533,432 79,524,735 52,420,313
------------ ------------ ------------ ------------
Redemption fees ............................................... -- -- -- 140
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ................ 82,835,402 39,151,690 130,170,638 27,191,112
Net assets:
Beginning of year ............................................. 308,551,166 269,399,476 527,545,158 500,354,046
------------ ------------ ------------ ------------
End of year ................................................... $391,386,568 $308,551,166 $657,715,796 $527,545,158
============ ============ ============ ============
Undistributed net investment income included in net assets:
End of year ................................................... $ 85,562 $ 13,691 $ 25,269 $ 123,235
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
166 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -----------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
--------------------------- -----------------------------
2010 2009 2010 2009
------------ ------------ -------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 38,183,856 $ 33,139,970 $ 42,594,318 $ 37,820,494
Net realized gain (loss) from investments .................. (764,227) 958,192 719,705 (448,003)
Net change in unrealized appreciation
(depreciation) on investments ........................... 52,661,164 (20,223,159) 64,550,561 (13,672,900)
------------ ------------ -------------- ------------
Net increase (decrease) in net assets
resulting from operations ......................... 90,080,793 13,875,003 107,864,584 23,699,591
------------ ------------ -------------- ------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (33,916,976) (29,678,906) (35,297,547) (31,640,924)
Class C ................................................. (3,852,713) (3,052,630) (6,751,344) (5,247,665)
Advisor Class ........................................... (272,471) -- (281,463) --
------------ ------------ -------------- ------------
Total distributions to shareholders ........................... (38,042,160) (32,731,536) (42,330,354) (36,888,589)
------------ ------------ -------------- ------------
Capital share transactions: (Note 2)
Class A ................................................. 126,969,229 85,168,122 128,528,042 80,134,686
Class C ................................................. 29,653,781 15,120,904 61,843,774 29,627,681
Advisor Class ........................................... 12,471,062 -- 14,335,846 --
------------ ------------ -------------- ------------
Total capital share transactions .............................. 169,094,072 100,289,026 204,707,662 109,762,367
------------ ------------ -------------- ------------
Redemption fees ............................................... -- 439 -- 644
------------ ------------ -------------- ------------
Net increase (decrease) in net assets ................ 221,132,705 81,432,932 270,241,892 96,574,013
Net assets:
Beginning of year ............................................. 775,908,366 694,475,434 893,951,167 797,377,154
------------ ------------ -------------- ------------
End of year ................................................... $997,041,071 $775,908,366 $1,164,193,059 $893,951,167
============ ============ ============== ============
Undistributed net investment income included in net assets:
End of year ................................................... $ 421,364 $ 283,444 $ 875,219 $ 634,531
============ ============ ============== ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 167
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
---------------------------
YEAR ENDED FEBRUARY 28,
---------------------------
2010 2009
------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................... $ 29,871,645 $ 25,970,097
Net realized gain (loss) from investments .................. 1,105,432 (2,145,207)
Net change in unrealized appreciation
(depreciation) on investments ........................... 39,779,725 (9,810,949)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ......................... 70,756,802 14,013,941
------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................................. (26,033,645) (22,666,320)
Class C ................................................. (3,446,197) (2,515,309)
Advisor Class ........................................... (165,671) --
------------ ------------
Total distributions to shareholders ........................... (29,645,513) (25,181,629)
------------ ------------
Capital share transactions: (Note 2)
Class A ................................................. 93,091,016 62,664,423
Class C ................................................. 41,116,780 14,608,564
Advisor Class ........................................... 7,382,336 --
------------ ------------
Total capital share transactions .............................. 141,590,132 77,272,987
------------ ------------
Redemption fees ............................................... -- 483
------------ ------------
Net increase (decrease) in net assets ................ 182,701,421 66,105,782
Net assets:
Beginning of year ............................................. 620,753,887 554,648,105
------------ ------------
End of year ................................................... $803,455,308 $620,753,887
============ ============
Undistributed net investment income included in net assets:
End of year ................................................... $ 585,195 $ 362,867
============ ============
The accompanying notes are an integral part of these financial statements.
168 | Annual Report
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, as amended, (1940 Act) as an open-end investment company, consisting of
twenty-four separate funds, nine of which are included in this report (Funds).
The financial statements of the remaining funds in the Trust are presented
separately. Effective July 1, 2009, the Franklin Maryland Tax-Free Income Fund,
Franklin Missouri Tax-Free Income Fund, Franklin North Carolina Tax-Free Income
Fund and Franklin Virginia Tax-Free Income Fund began offering a new class of
shares, Advisor Class. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
CLASS A CLASS A & CLASS C CLASS A, CLASS B & CLASS C
- ------- --------------------------------------- -------------------------------------
Franklin Kentucky Tax-Free Franklin Alabama Tax-Free Income Fund Franklin Florida Tax-Free Income Fund
Income Fund Franklin Georgia Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
CLASS A, CLASS C & ADVISOR CLASS
Franklin Maryland Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Fund's pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
Annual Report | 169
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
The Funds may purchase securities on a when-issued 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.
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its income and net
realized gains.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2010, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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 are reinvested and paid monthly to shareholders. 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 accounting principles generally accepted in the
United States of America. 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.
170 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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,
there is a risk that in the event of an issuer default, the insurer may not be
able to fulfill its obligations under the terms of the policy.
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.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
H. 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.
Annual Report | 171
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2010, there were an unlimited number of shares authorized
(without par value). Transactions in the Funds' shares were as follows:
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 3,194,314 $ 34,909,305 6,192,831 $ 69,836,195
Shares issued in reinvestment of
distributions ............... 569,097 6,257,983 2,366,292 26,683,984
Shares redeemed ................ (2,514,329) (27,584,055) (15,182,679) (170,933,978)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 1,249,082 $ 13,583,233 (6,623,556) $ (74,413,799)
========== ============ =========== =============
Year ended February 28, 2009
Shares sold .................... 3,049,727 $ 33,250,600 10,600,472 $ 118,757,513
Shares issued in reinvestment of
distributions ............... 543,176 5,840,149 2,468,269 27,399,969
Shares redeemed ................ (4,187,180) (44,323,330) (21,678,782) (237,728,530)
---------- ------------ ----------- -------------
Net increase (decrease) ........ (594,277) $ (5,232,581) (8,610,041) $ (91,571,048)
========== ============ =========== =============
CLASS B SHARES:
Year ended February 28, 2010
Shares sold .................... 44,446 $ 505,105
Shares issued in reinvestment of
distributions ............... 66,819 758,806
Shares redeemed ................ (1,158,314) (13,180,421)
----------- -------------
Net increase (decrease) ........ (1,047,049) $ (11,916,510)
=========== =============
Year ended February 28, 2009
Shares sold .................... 60,574 $ 675,962
Shares issued in reinvestment of
distributions ............... 85,294 956,449
Shares redeemed ................ (1,055,974) (11,772,721)
----------- -------------
Net increase (decrease) ........ (910,106) $ (10,140,310)
=========== =============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 893,859 $ 9,931,559 1,681,216 $ 19,228,136
Shares issued in reinvestment of
distributions ............... 81,005 899,157 251,774 2,882,570
Shares redeemed ................ (453,057) (5,019,758) (1,590,766) (18,167,480)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 521,807 $ 5,810,958 342,224 $ 3,943,226
========== ============ =========== =============
Year ended February 28, 2009
Shares sold .................... 960,305 $ 10,609,980 1,817,897 $ 20,644,547
Shares issued in reinvestment of
distributions ............... 72,730 787,579 242,305 2,725,468
Shares redeemed ................ (644,006) (6,939,968) (2,360,072) (26,268,335)
---------- ------------ ----------- -------------
Net increase (decrease) ........ 389,029 $ 4,457,591 (299,870) $ (2,898,320)
========== ============ =========== =============
172 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 7,606,763 $ 88,769,407 3,010,671 $ 32,827,102
Shares issued in reinvestment of
distributions ............... 789,605 9,232,979 482,760 5,280,562
Shares redeemed ................ (5,184,606) (60,413,431) (2,093,755) (22,835,510)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 3,211,762 $ 37,588,955 1,399,676 $ 15,272,154
========== ============ ========== ============
Year ended February 28, 2009
Shares sold .................... 8,519,500 $ 97,359,178 2,741,271 $ 29,431,566
Shares issued in reinvestment of
distributions ............... 681,315 7,733,193 446,025 4,717,263
Shares redeemed ................ (4,056,075) (45,035,267) (1,932,255) (20,326,975)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 5,144,740 $ 60,057,104 1,255,041 $ 13,821,854
========== ============ ========== ============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 3,185,370 $ 37,610,811
Shares issued in reinvestment of
distributions ............... 170,754 2,018,280
Shares redeemed ................ (976,681) (11,523,503)
---------- ------------
Net increase (decrease) ........ 2,379,443 $ 28,105,588
========== ============
Year ended February 28, 2009
Shares sold .................... 2,259,060 $ 26,073,383
Shares issued in reinvestment of
distributions ............... 128,847 1,474,913
Shares redeemed ................ (873,821) (9,909,713)
---------- ------------
Net increase (decrease) ........ 1,514,086 $ 17,638,583
========== ============
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 6,999,551 $ 77,020,523 8,370,619 $ 91,625,455
Shares issued in reinvestment of
distributions ............... 869,127 9,573,490 1,279,096 14,051,746
Shares redeemed ................ (4,437,400) (48,816,828) (5,527,263) (60,551,873)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 3,431,278 $ 37,777,185 4,122,452 $ 45,125,328
========== ============ ========== ============
Year ended February 28, 2009
Shares sold .................... 6,811,042 $ 73,406,545 8,971,597 $ 95,689,803
Shares issued in reinvestment of
distributions ............... 725,918 7,713,876 1,170,434 12,458,451
Shares redeemed ................ (3,767,887) (39,735,242) (7,579,820) (79,318,218)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 3,769,073 $ 41,385,179 2,562,211 $ 28,830,036
========== ============ ========== ============
Annual Report | 173
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 2,342,847 $25,930,481 3,915,496 $ 43,645,267
Shares issued in reinvestment of
distributions ............... 125,796 1,402,043 306,058 3,413,630
Shares redeemed ................ (807,245) (8,910,771) (1,435,208) (16,044,328)
--------- ----------- ---------- ------------
Net increase (decrease) ........ 1,661,398 $18,421,753 2,786,346 $ 31,014,569
========= =========== ========== ============
Year ended February 28, 2009
Shares sold .................... 1,549,355 $17,015,668 3,577,048 $ 39,451,384
Shares issued in reinvestment of
distributions ............... 99,172 1,064,751 244,981 2,634,949
Shares redeemed ................ (931,984) (9,932,166) (1,739,547) (18,496,056)
--------- ----------- ---------- ------------
Net increase (decrease) ........ 716,543 $ 8,148,253 2,082,482 $ 23,590,277
========= =========== ========== ============
ADVISOR CLASS SHARES:
Period ended February 28, 2010(a)
Shares sold .................... 360,297 $ 3,946,422
Shares issued in reinvestment of
distributions ............... 38 426
Shares redeemed ................ (50,122) (562,010)
---------- ------------
Net increase (decrease) ........ 310,213 $ 3,384,838
========== ============
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 16,410,008 $ 192,426,477 19,444,521 $ 231,659,150
Shares issued in reinvestment of
distributions ............... 1,884,075 22,130,531 2,068,851 24,680,150
Shares redeemed ................ (7,486,950) (87,587,779) (10,743,937) (127,811,258)
---------- ------------- ----------- -------------
Net increase (decrease) ........ 10,807,133 $ 126,969,229 10,769,435 $ 128,528,042
========== ============= =========== =============
Year ended February 28, 2009
Shares sold .................... 15,357,031 $ 176,182,581 18,537,029 $ 212,922,287
Shares issued in reinvestment of
distributions ............... 1,640,360 18,747,963 1,820,793 20,749,426
Shares redeemed ................ (9,760,719) (109,762,422) (13,806,721) (153,537,027)
---------- ------------- ----------- -------------
Net increase (decrease) ........ 7,236,672 $ 85,168,122 6,551,101 $ 80,134,686
========== ============= =========== =============
174 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 3,264,225 $ 38,543,050 6,646,075 $ 80,299,721
Shares issued in reinvestment of
distributions ............... 225,317 2,667,150 368,044 4,445,308
Shares redeemed ................ (978,472) (11,556,419) (1,901,431) (22,901,255)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 2,511,070 $ 29,653,781 5,112,688 $ 61,843,774
========== ============ ========== ============
Year ended February 28, 2009
Shares sold .................... 2,380,212 $ 27,514,674 4,243,730 $ 49,653,841
Shares issued in reinvestment of
distributions ............... 170,334 1,959,354 292,342 3,365,327
Shares redeemed ................ (1,267,186) (14,353,124) (2,053,384) (23,391,487)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 1,283,360 $ 15,120,904 2,482,688 $ 29,627,681
========== ============ ========== ============
ADVISOR CLASS SHARES:
Period ended February 28, 2010(a)
Shares sold .................... 1,163,015 $ 13,537,446 1,323,519 $ 15,709,552
Shares issued in reinvestment of
distributions ............... 121 1,453 1,624 19,704
Shares redeemed ................ (89,878) (1,067,837) (114,862) (1,393,410)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 1,073,258 $ 12,471,062 1,210,281 $ 14,335,846
========== ============ ========== ============
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 13,264,509 $151,342,336
Shares issued in reinvestment of
distributions ............... 1,536,900 17,548,808
Shares redeemed ................ (6,662,941) (75,800,128)
---------- ------------
Net increase (decrease) ........ 8,138,468 $ 93,091,016
========== ============
Year ended February 28, 2009
Shares sold .................... 12,174,383 $135,208,637
Shares issued in reinvestment of
distributions ............... 1,312,036 14,488,670
Shares redeemed ................ (7,968,618) (87,032,884)
---------- ------------
Net increase (decrease) ........ 5,517,801 $ 62,664,423
========== ============
Annual Report | 175
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 4,215,845 $ 48,767,356
Shares issued in reinvestment of
distributions ............... 226,763 2,623,623
Shares redeemed ................ (890,652) (10,274,199)
---------- ------------
Net increase (decrease) ........ 3,551,956 $ 41,116,780
========== ============
Year ended February 28, 2009
Shares sold .................... 2,294,542 $ 25,883,501
Shares issued in reinvestment of
distributions ............... 162,010 1,806,195
Shares redeemed ................ (1,192,892) (13,081,132)
---------- ------------
Net increase (decrease) ........ 1,263,660 $ 14,608,564
========== ============
ADVISOR CLASS SHARES:
Period ended February 28, 2010(a)
Shares sold .................... 716,053 $ 8,110,227
Shares issued in reinvestment of
distributions ............... 162 1,868
Shares redeemed ................ (62,827) (729,759)
---------- ------------
Net increase (decrease) ........ 653,388 $ 7,382,336
========== ============
(a) For the period July 1, 2009 (effective date) to February 28, 2010.
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 Funds 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
176 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Funds pay an investment management fee to Advisers based on the month-end
net assets of each of the Funds as follows:
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
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
C. DISTRIBUTION FEES
The Funds' Board of Trustees 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 Funds' shares up to the maximum annual plan
rate. Under the Class A reimbursement distribution plans, costs exceeding the
maximum for the current plan year cannot be reimbursed in subsequent periods.
In addition, under the Funds' Class B and 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 for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA KENTUCKY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- -----------
Reimbursement Plans:
Class A ......... 0.10% 0.10% 0.10% 0.10%
Compensation Plans:
Class B ......... -- 0.65% -- --
Class C ......... 0.65% 0.65% 0.65% --
Annual Report | 177
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
LOUISIANA MARYLAND MISSOURI NORTH CAROLINA
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- --------------
Reimbursement Plans:
Class A ......... 0.10% 0.10% 0.10% 0.10%
Compensation Plans:
Class C ......... 0.65% 0.65% 0.65% 0.65%
FRANKLIN
VIRGINIA
TAX-FREE
INCOME FUND
-----------
Reimbursement Plans:
Class A ......... 0.10%
Compensation Plans:
Class C ......... 0.65%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
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
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ........ $89,789 $166,094 $183,253
Contingent deferred sales charges retained .... $ 4,719 $ 44,671 $ 72,414
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ........ $90,016 $197,639 $221,906
Contingent deferred sales charges retained .... $ 387 $ 18,297 $ 30,488
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- -------------- -----------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ........ $536,634 $560,685 $334,093
Contingent deferred sales charges retained .... $ 20,802 $ 75,687 $ 32,681
178 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the year ended February 28, 2010, 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
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- -------------- -----------
Transfer agent fees .................................... $57,465 $249,061 $82,997
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- -------------- -----------
Transfer agent fees .................................... $30,999 $57,269 $139,665
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- -------------- -----------
Transfer agent fees .................................... $194,182 $183,823 $150,416
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At February 28, 2010, the capital loss carryforwards were as
follows:
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
Capital loss carryforwards expiring in:
2011 ................................................ $ 804,634 $ -- $ --
2012 ................................................ 195,876 -- 112,870
2013 ................................................ -- -- 416,353
2014 ................................................ -- -- 51,012
2015 ................................................ -- -- 125,659
2016 ................................................ -- -- 414,407
2017 ................................................ -- 365,411 2,923,290
2018 ................................................ -- 3,400,806 --
---------- ---------- ----------
$1,000,510 $3,766,217 $4,043,591
========== ========== ==========
Annual Report | 179
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- ----------- -----------
Capital loss carryforwards expiring in:
2012 ................................................ $1,264,854 $1,142,711 $ --
2013 ................................................ 253,770 240,220 66,378
2014 ................................................ 65,408 -- --
2016 ................................................ 107,105 -- --
2017 ................................................ 417,325 42,728 1,506,424
2018 ................................................ -- 782,096 205,848
---------- ---------- ----------
$2,108,462 $2,207,755 $1,778,650
========== ========== ==========
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
----------- -------------- -----------
Capital loss carryforwards expiring in:
2011 ................................................ $ 196,258 $ -- $ --
2012 ................................................ 1,619,914 335,790 1,236,561
2013 ................................................ 1,384,535 -- --
2016 ................................................ 776,667 -- --
2018 ................................................ 760,455 68,403 1,530,757
---------- -------- ----------
$4,737,829 $404,193 $2,767,318
========== ======== ==========
During the year ended February 28, 2010, the funds utilized capital loss
carryforwards as follows:
FRANKLIN FRANKLIN FRANKLIN
ALABAMA GEORGIA KENTUCKY
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- ----------- ----------- -----------
$544,838 $859,992 $79,670
On February 28, 2010, the following funds had expired capital loss
carryforwards, which were reclassified to paid-in capital:
FRANKLIN FRANKLIN FRANKLIN
ALABAMA KENTUCKY VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- ----------- ----------- -----------
$6,452,083 $334,121 $1,188,255
180 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended February 28, 2010
and 2009, was as follows:
FRANKLIN ALABAMA FRANKLIN FLORIDA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Distributions paid from:
Tax exempt income ....................... $11,939,201 $11,694,106 $60,399,631 $64,603,658
Long term capital gain .................. -- -- -- 1,586,257
----------- ----------- ----------- -----------
$11,939,201 $11,694,106 $60,399,631 $66,189,915
=========== =========== =========== ===========
FRANKLIN GEORGIA FRANKLIN KENTUCKY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Distributions paid from -
tax exempt income ....................... $17,597,058 $14,875,167 $ 7,552,788 $ 6,911,504
=========== =========== =========== ===========
FRANKLIN LOUISIANA FRANKLIN MARYLAND
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Distributions paid from -
tax exempt income ....................... $15,138,528 $12,812,300 $26,072,081 $23,254,874
=========== =========== =========== ===========
FRANKLIN MISSOURI FRANKLIN NORTH CAROLINA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Distributions paid from -
tax exempt income ....................... $38,042,160 $32,731,536 $42,330,354 $36,888,589
=========== =========== =========== ===========
FRANKLIN VIRGINIA
TAX-FREE INCOME FUND
-------------------------
2010 2009
----------- -----------
Distributions paid from -
tax exempt income ....................... $29,645,513 $25,181,629
=========== ===========
Annual Report | 181
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At February 28, 2010, the cost of investments, net unrealized appreciation
(depreciation) and undistributed tax exempt income for income tax purposes were
as follows:
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Cost of investments ............................. $287,257,519 $1,231,169,816 $447,776,620
============ ============== ============
Unrealized appreciation ......................... $ 9,105,960 $ 56,864,602 $ 19,071,233
Unrealized depreciation ......................... (6,091,828) (14,620,896) (4,473,227)
------------ -------------- ------------
Net unrealized appreciation (depreciation) ...... $ 3,014,132 $ 42,243,706 $ 14,598,006
============ ============== ============
Distributable earnings - undistributed tax exempt
income ....................................... $ 238,106 $ 1,262,909 $ 185,966
============ ============== ============
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Cost of investments ............................. $187,724,536 $387,987,954 $647,316,593
============ ============ ============
Unrealized appreciation ......................... $ 5,839,400 $ 11,371,078 $ 18,315,948
Unrealized depreciation ......................... (2,025,721) (5,241,874) (16,321,886)
------------ ------------ ------------
Net unrealized appreciation (depreciation) ...... $ 3,813,679 $ 6,129,204 $ 1,994,062
============ ============ ============
Distributable earnings - undistributed tax exempt
income ....................................... $ 48,063 $ 251,645 $ 300,693
============ ============ ============
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Cost of investments ............................. $965,551,529 $1,140,120,253 $777,094,996
============ ============== ============
Unrealized appreciation ......................... $ 32,137,537 $ 32,795,945 $ 26,880,970
Unrealized depreciation ......................... (13,502,704) (9,858,067) (6,885,901)
------------ -------------- ------------
Net unrealized appreciation (depreciation) ...... $ 18,634,833 $ 22,937,878 $ 19,995,069
============ ============== ============
Distributable earnings - undistributed tax exempt
income ....................................... $ 812,247 $ 1,369,825 $ 937,242
============ ============== ============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of bond discounts.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
182 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended February 28, 2010, were as follows:
FRANKLIN FRANKLIN FRANKLIN
ALABAMA FLORIDA GEORGIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Purchases ....................................... $46,408,299 $118,363,551 $118,967,737
Sales ........................................... $21,540,512 $202,597,855 $ 39,888,020
FRANKLIN FRANKLIN FRANKLIN
KENTUCKY LOUISIANA MARYLAND
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Purchases ....................................... $27,397,145 $77,026,464 $129,006,033
Sales ........................................... $14,437,810 $15,271,677 $ 42,986,097
FRANKLIN FRANKLIN FRANKLIN
MISSOURI NORTH CAROLINA VIRGINIA
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
------------ -------------- ------------
Purchases ....................................... $224,289,774 $274,004,808 $189,334,402
Sales ........................................... $ 51,130,324 $ 89,095,052 $ 42,265,694
6. CONCENTRATION OF RISK
Each of the Funds invests a large percentage of its total assets in obligations
of issuers within its respective state, U.S. territories, or the District of
Columbia. 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, or the District of
Columbia. 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 364-day joint syndicated senior unsecured credit facility
totaling $750 million (Global Credit Facility) to provide a source of funds to
the Borrowers for temporary and emergency purposes, including the ability to
meet future unanticipated or unusually large redemption requests. On January 22,
2010, the Funds renewed the Global Credit Facility for a total of $750 million,
maturing January 21, 2011.
Annual Report | 183
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT FACILITY (CONTINUED)
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 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statements of
Operations. During the year ended February 28, 2010, the Funds did not utilize
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' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Funds' own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At February 28, 2010, all of the Funds' investments in securities carried at
fair value were in Level 2 inputs.
9. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC
820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS, which enhances and
clarifies existing fair value measurement disclosure requirements and is
effective for interim and annual periods beginning after December 15, 2009. The
Funds are currently evaluating the impact, if any, of applying this provision.
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.
184 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ABBREVIATIONS
SELECTED PORTFOLIO
ACA - American Capital Access Holdings Inc.
ACES - Adjustable Convertible Exempt Security
AMBAC - American Municipal Bond Assurance Corp.
BHAC - Berkshire Hathaway Assurance Corp.
CDA - Community Development Authority/Agency
CDD - Community Development District
CDR - Community Development Revenue
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GARB - General Airport Revenue Bonds
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HDC - Housing Development Corp.
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Bond/Board
IDR - Industrial Development Revenue
MF - Multi-Family
MFHR - Multi-Family Housing Revenue
MFMR - Multi-Family Mortgage Revenue
MFR - Multi-Family Revenue
NATL - National Public Financial Guarantee Corp.
PBA - Public Building Authority
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFAR - Public Financing Authority Revenue
SF - Single Family
SFHR - Single Family Housing Revenue
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
VHA - Volunteer Hospital of America
XLCA - XL Capital Assurance
Annual Report | 185
Franklin Tax-Free Trust
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 the Franklin Alabama Tax-Free
Income Fund, Franklin Florida Tax-Free Income Fund, Franklin Georgia Tax-Free
Income Fund, Franklin Kentucky Tax-Free Income Fund, Franklin Louisiana Tax-Free
Income Fund, Franklin Maryland Tax-Free Income Fund, Franklin Missouri Tax-Free
Income Fund, Franklin North Carolina Tax-Free Income Fund, Franklin Virginia
Tax-Free Income Fund (separate portfolios of Franklin Tax-Free Trust, hereafter
referred to as the "Funds") at February 28, 2010, the results of each of their
operations for the year then ended, the changes in each of their net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented, in conformity with accounting principles
generally accepted in the United States 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 at February 28, 2010 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 16, 2010
186 | Annual Report
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds designate
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended February 28, 2010. A portion of the Fund's
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2011, shareholders will be notified of amounts for use in preparing
their 2010 income tax returns.
Annual Report | 187
Franklin Tax-Free Trust
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 the past five years and number of 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
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1984 133 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING 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).
SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications
One Franklin Parkway (Holdings) Limited (satellite
San Mateo, CA 94403-1906 company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution of
titanium), Canadian National Railway
(railroad) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING 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).
FRANK W.T. LAHAYE (1929) Trustee Since 1984 109 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
188 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
J. MICHAEL LUTTIG (1954) Trustee Since 141 Boeing Capital Corporation (aircraft
One Franklin Parkway December 2009 financing).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal Appeals Court
Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
FRANK A. OLSON (1932) Trustee Since 2005 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 141 Cbeyond (business communications
One Franklin Parkway provider).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (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 110 None
One Franklin Parkway Independent 2007 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
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. (office supplies) (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
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1984 133 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 41
of the investment companies in Franklin Templeton Investments.
Annual Report | 189
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in Franklin Templeton
Investments.
SHEILA AMOROSO (1959) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
RAFAEL R. COSTAS, JR. (1965) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
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 PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton
Services, LLC (1997- 2003).
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 PAST 5 YEARS:
Director Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton
Investments.
190 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
ALIYA S. GORDON (1973) Vice President Since 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate Counsel at Steefel, Levitt & Weiss, LLP (2000-2004).
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
STEVEN J. GRAY (1955) Vice President Since August Not Applicable Not Applicable
One Franklin Parkway 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer
of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR. (1940) President and President since Not Applicable Not Applicable
One Franklin Parkway Chief 1993 and Chief
San Mateo, CA 94403-1906 Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, 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 43 of the investment companies in Franklin
Templeton Investments.
ROBERT C. ROSSELOT (1960) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. August 2009
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the
South; and officer of 45 of the investment companies in Franklin Templeton Investments.
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 PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
Annual Report | 191
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
THOMAS WALSH (1961) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight 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.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Trust's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Trust under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, 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.
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/(800) 342-5236 TO REQUEST THE SAI.
192 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate tax-exempt funds within
the Trust (Fund(s)). In reaching this decision, the Board took into account
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the annual renewal review
process. Information furnished and discussed throughout the year included
investment performance reports and related financial information for each Fund,
as well as periodic reports on shareholder services, legal, compliance, pricing
and other services provided by the Investment Manager (Manager) and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates to U.S. mutual funds and other accounts, including
management's explanation of differences where relevant and a three-year expense
analysis with an explanation for any increase in expense ratios. Additional
material accompanying such report was a memorandum prepared by management
describing project initiatives and capital investments relating to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale and a comparative analysis
concerning transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
Annual Report | 193
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,
including the right to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund dividends into other funds
and the right to combine holdings in other funds to obtain a reduced sales
charge. Favorable consideration was given to management's continuous efforts and
expenditures in establishing back-up systems and recovery procedures to function
in the event of a natural disaster, it being noted that such systems and
procedures had functioned smoothly during the Florida hurricanes and blackouts
experienced in recent years. Consideration was also given to the experience of
each Fund's portfolio management team, the number of accounts managed and
general method of compensation. In this latter respect, the Board noted that a
primary factor in management's determination of a portfolio manager's bonus
compensation was the relative investment performance of the funds he or she
managed and that a portion of such bonus was required to be invested in a
predesignated list of funds within such person's fund management area so as to
be aligned with the interests of Fund shareholders. The Board also took into
account the quality of transfer agent and shareholder services provided Fund
shareholders by an affiliate of the Manager, noting continuing expenditures by
management to increase and improve the scope of such services, periodic
favorable reports on such service conducted by third parties, and the continuous
enhancements to and high industry ranking given the Franklin Templeton website.
Particular attention was given to management's conservative approach and
diligent risk management procedures, including continuous monitoring of
counterparty credit risk and attention given to derivatives and other complex
instruments. The Board also took into account, among other things, management's
efforts in establishing a global credit facility for the benefit of the Funds
and other accounts managed by Franklin Templeton Investments to provide a source
of cash for temporary and emergency purposes or to meet unusual redemption
requests as well as the strong financial position of the Manager's parent
company and its commitment to the mutual fund business as evidenced by its
subsidization of money market funds. The Board also noted management's efforts
to minimize any negative impact on the nature and quality of services provided
the Funds arising from Franklin Templeton Investments' implementation of a
hiring freeze and employee reductions in response to market conditions during
the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
its investment performance or that of its Class A shares for a Fund having
multiple share classes, in
194 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
comparison to a performance universe selected by Lipper. Comparative performance
for each Fund was shown for the one-year period ended December 31, 2009, and for
additional periods ended that date up to 10 years depending on when a particular
Fund commenced operations. Investment performance was shown on an income return
basis, as well as a total return basis for each Fund. The Lipper reports showed
that the income return for each Fund was in the upper half of its Lipper
performance universe during 2009, with most being in the highest or
second-highest quintile of such universe during such year and for the previous
three-, five- and 10-year periods as well. The Lipper reports showed the total
return for many of such Funds was below the median of their performance universe
during 2009, but that the total return of all such Funds was good on a long-term
basis with each having total returns above the median of its respective
performance universe during the previous five- and 10-year periods on an
annualized basis. Management explained that the one-year relative total return
performance of the Funds reflected management's conservative strategy of not
utilizing leverage or derivatives or using high yield debt in investment-grade
funds, which types of instruments had performed well in the 2009 market
recovery. The Board expressed satisfaction with such performance, noting
management's explanation and the fact that the investment objective of each of
the Funds is to obtain a high level of tax-exempt income.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund in comparison with those of a group of funds
selected by Lipper as its appropriate Lipper expense group. Lipper 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 generally
increase as assets decline and decrease as assets grow, the Board believed the
independent analysis conducted by Lipper to be an appropriate measure of
comparative expenses. In reviewing comparative costs, Lipper provides
information on each Fund's contractual investment management fee in comparison
with the contractual investment management fee that would have been charged by
other funds within its Lipper expense group assuming they were similar in size
to the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper contractual investment management
fee analysis includes an administrative charge as being part of the investment
management fee, and total expenses, for comparative consistency, are shown by
Lipper for Fund Class A shares for Funds having multiple share classes. The
Lipper reports showed that the contractual investment management fee rates for
each Fund were at or below the median of its respective Lipper expense group,
with the exception of Franklin Kentucky Tax-Free Income Fund whose fee rate was
less than five basis points above its expense group median. The Lipper reports
further showed that the actual total expense rates for all Funds were below the
median of their respective Lipper expense groups. Based on the above, the Board
was satisfied with the investment management fee and total expenses of each Fund
in comparison to its Lipper expense group as shown in the Lipper reports.
Annual Report | 195
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds during the 12-month period ended September 30,
2009, being the most recent fiscal year-end for Franklin Resources, Inc., the
Manager's parent. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that while being continuously refined and reflecting
changes in the Manager's own cost accounting, such allocation methodology was
consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to review the reasonableness of
the allocation methodologies solely for use by the Funds' Board in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its 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 took into
account management's expenditures in improving shareholder services provided the
Funds, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis as
compared to other publicly held managers broken down to show profitability from
management operations exclusive of distribution expenses, as well as
profitability including distribution expenses. The Board also considered the
extent to which the Manager and its affiliates might derive ancillary benefits
from fund operations, including its interest in a joint venture entity that
financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005, when the offering of such shares was
discontinued. Based upon its consideration of all these factors, the Board
determined 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.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing any precise
determination is inherently subjective, the Board noted that based upon the Fund
profitability analysis, it appears that as some Funds get larger, at some point
economies of scale do result in the Manager realizing a larger profit margin on
management services provided such Fund. The Board also noted that any economies
of scale are shared with each of these Funds and their shareholders through
management fee breakpoints
196 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
existing in each of the Fund's investment management agreements, so that as a
Fund grows in size, its effective management fee rate declines. The fee
structure under the investment management agreement with each Fund provides an
initial fee of 0.625% on the first $100 million of assets; 0.50% on the next
$150 million of assets; 0.45% on assets in excess of $250 million; with
additional breakpoints beginning at 0.44% on assets in excess of $7.5 billion
and continuing thereafter. In reviewing such structure, management stated its
belief that this fee structure reaches a relatively low rate quickly as a Fund
grows and that such low rate, in effect, reflects anticipated economies of scale
as a Fund's assets increase. In support of such position, management pointed out
the favorable effective management fee and total expense comparisons for each
Fund within its Lipper expense group as previously discussed under "Comparative
Expenses." The Board believed that to the extent economies of scale may be
realized by the Manager and its affiliates, the schedule of fees under the
investment management agreement for each Fund provides a sharing of benefits
with the Fund and its shareholders.
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, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, 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.
Annual Report | 197
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund(5)
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(6)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(6)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(6)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(7)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(9)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(10)
Michigan(10)
Minnesota(10)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(10)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust(11)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) Effective 12/18/09, this fund is closed to new investors, pending a
proposal to merge the fund into Templeton World Fund. Existing shareholders
may continue to make additional investments until shortly before the
completion of the transaction, expected in April 2010.
(6.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(7.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(8.) The fund invests primarily in insured municipal securities.
(9.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(10.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(11.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway San Mateo, CA 94403-1906
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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(R)
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SHAREHOLDER SERVICES
(800) 632-2301
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.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
TF2 A 04/10
FEBRUARY 28, 2010
ANNUAL REPORT AND SHAREHOLDER LETTER
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Federal Limited-Term Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com
(GRAPHIC)
TAX-FREE INCOME
FRANKLIN TAX-FREE TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Municipal Bond Market Overview ........................................... 4
Investment Strategy and Manager's Discussion ............................. 6
Franklin Arizona Tax-Free Income Fund .................................... 7
Franklin Colorado Tax-Free Income Fund ................................... 18
Franklin Connecticut Tax-Free Income Fund ................................ 28
Franklin Double Tax-Free Income Fund ..................................... 38
Franklin Federal Intermediate-Term Tax-Free Income Fund .................. 47
Franklin Federal Limited-Term Tax-Free Income Fund ....................... 56
Franklin High Yield Tax-Free Income Fund ................................. 63
Franklin New Jersey Tax-Free Income Fund ................................. 73
Franklin Oregon Tax-Free Income Fund ..................................... 83
Franklin Pennsylvania Tax-Free Income Fund ............................... 93
Financial Highlights and Statements of Investments ....................... 104
Financial Statements ..................................................... 229
Notes to Financial Statements ............................................ 243
Report of Independent Registered Public Accounting Firm .................. 264
Tax Designation .......................................................... 265
Board Members and Officers ............................................... 266
Shareholder Information .................................................. 271
Shareholder Letter
Dear Shareholder:
In the third and fourth quarters of 2009, U.S. economic activity improved
compared with the second quarter. Although many observers considered the global
recession over, most economists warned that growth would be sluggish as
consumers and the financial system continued to climb out of debt.
The federal funds target rate remained unchanged over the period at a
historically low range of 0% to 0.25%; however, the Federal Reserve Board (Fed)
was very active and employed other strategies to help stem the crisis, resulting
in a substantial increase in its balance sheet. The Fed established various
lending and liquidity facilities and through quantitative easing purchased
mortgage securities and Treasuries, all in an effort to encourage long-term
interest rates to move lower. In testimony to Congress in February, Chairman
Bernanke once again stated that short-term rates are likely to remain
exceptionally low for an extended period until the Fed feels a dependable
economic recovery has taken hold.
Most major financial markets showed signs of recovery, and equity markets staged
a strong rally since March 2009. As financial markets moved off their lows,
commodity prices rebounded. Overall inflation, however, remained tame. Chairman
Bernanke began to prepare markets for the unwinding of the Fed's accommodative
policy and the exit strategy for its lending and liquidity facilities. On
February 18, the Fed raised the largely symbolic discount rate to 0.75%. This
first tightening move was designed to encourage banks to borrow short-term funds
from money markets rather than the central bank.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
The municipal bond market experienced a healthy rebound in the 12-month period
ended February 28, 2010; the Barclays Capital (BC) Municipal Bond Index returned
+9.98% and securities with maturities 22 years and longer, which make up a
substantial portion of our portfolios, returned +16.61%.(1)
Although it looked as if the banking and financial crisis may have turned the
corner and economic recovery was under way, we think a note of caution is
warranted. We believe such areas of the economy as employment, housing, state
and local government budgets, and the finance and banking sector will continue
to face challenges and show signs of pressure for an indefinite period.
We believe it is especially important during uncertain times to keep a clear
head and long-term outlook and to consult with your financial advisor. Your
financial advisor can review your portfolio and help you reassess your needs,
goals and risk tolerance. We firmly believe that most people benefit from
professional advice, and that advice is invaluable as investors navigate
changing market conditions.
Franklin Tax-Free Trust's annual report goes into greater detail about municipal
bond market conditions during the period. In addition, you will find performance
data, financial information and discussions from the portfolio managers. Please
remember that all securities markets fluctuate, as do mutual fund share prices.
Municipal bonds can provide tax-free income and diversification from equities.
Despite periods of volatility, municipal bonds have a solid long-term record of
performance, driven mostly by their income component.
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch. The BC Municipal Long Bond
Index is the long (22+ years) component of the BC Municipal Bond Index.
2 | Not part of the annual report
Please check our website at franklintempleton.com for special portfolio manager
commentary. Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the Funds, keeping in mind
the trust you have placed in us. We appreciate your confidence and encourage you
to contact us when you have questions about your Franklin Templeton tax-free
investment.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Tax-Free Trust
/s/ Sheila Amoroso
Sheila Amoroso
/s/ Rafael R. Costas Jr.
Rafael R. Costas Jr.
Senior Vice Presidents and Co-Directors
Franklin Municipal Bond Department
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28, 2010. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE.
Not part of the annual report | 3
Annual Report
Municipal Bond Market Overview
During the 12-month period ended February 28, 2010, the municipal bond market
delivered a strong +9.98% total return as measured by the Barclays Capital (BC)
Municipal Bond Index.(1) The municipal bond market rebounded after suffering one
of its worst performance years in 2008. In contrast, the U.S. Treasury market
trailed the tax-exempt market during this reporting period with a +1.83% total
return as measured by the BC U.S. Treasury Index.(2)
Different factors helped revive consumer and investor confidence during this
reporting period including federal fiscal stimulus measures. The initial influx
of capital infused the market with promise. Encouraged by these measures,
investors cautiously began to move assets from money market instruments toward
long-term investments seeking to maximize income opportunities. The tax-exempt
market fared well as investors focused on the municipal bond market's attractive
after-tax yields. Despite budgetary pressures at state and local levels and
concerns regarding some issuers' abilities to repay debt, municipal bond mutual
funds received record net inflows in 2009. In addition, because nearly all
municipal bond insurers were downgraded, many municipalities brought new issues
to market based on their own financial strength and credit ratings. As a result,
yield spreads between higher quality and lower grade credits widened, as opposed
to previous reporting periods when AAA-rated insured bonds dominated new
issuance. A recent Moody's Investors Service report bolstered the case for
municipal issuers. The study showed a less than 1.00% default rate for all
municipal bonds issued from 1970 through 2009 and higher recovery on average
than for corporate issuers, which helped remind investors of the asset class's
underlying credit strength. Investor interest also increased for lower
investment-grade and speculative-grade issues during the reporting period, which
drove the BC Baa Municipal Bond Index up 19.56%, compared with the BC Aaa
Municipal Bond Index's +6.98% total return.(3)
(1.) Source: (C) 2010 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. The
BC 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, Standard & Poor's or Fitch.
(2.) Source: (C) 2010 Morningstar. The BC U.S. Treasury Index is the U.S.
Treasury component of the U.S. Government Index and covers public
obligations of the U.S. Treasury with a remaining maturity of one year or
more.
(3.) Source: (C) 2010 Morningstar. The BC Baa Municipal Bond Index is the Baa
credit quality component of the BC Municipal Bond Index. The BC Aaa
Municipal Bond Index is the Aaa credit quality component of the BC
Municipal Bond Index.
4 | Annual Report
Further aiding positive municipal bond performance during the reporting period
was the prospect of rising taxes, lower new tax-exempt issuance and fewer tax
shelters. In February 2009, the American Recovery and Reinvestment Act was
signed into law, which allowed municipalities to issue taxable bonds and receive
a 35% federal government subsidy for all coupon payments distributed to
investors for the life of the bond. This rebate allowed municipalities to borrow
significantly below their after-tax cost in the traditional tax-exempt municipal
bond market. The success of this "Build America Bonds" program exceeded
expectations as it enticed taxable bond investors to these municipal products.
The Obama administration recently proposed continuing the program beyond 2010
but reducing the subsidy to 28% and expanding permissible uses. Historically, a
large supply of issuance can be detrimental to municipal bond market
performance; however, this was not the case during this reporting period.
Although 2009's $409 billion in total issuance surpassed the previous year's,
the popularity of Build America Bonds helped drive the municipal bond market's
strong total returns.(4) The taxable bonds accounted for approximately 20% of
long-term issuance, which reduced the supply of available municipal bonds for
traditional, tax-exempt investors.(5) Solid demand for tax-exempt bonds drove
municipal bond prices higher. We think these new, subsidized, taxable municipal
bonds are likely to restrain future supply of tax-exempt municipal bonds as long
as the government permits their use.
Given the various ratings changes, the relatively steep yield curve, and the
reduced tax-exempt supply during the reporting period, we looked for
opportunities to keep the portfolios fully invested in longer term bonds, which
helped support the Funds' dividend distributions. At period-end, we continued to
be active in the market and felt that municipal bonds at current yields
represented an attractive long-term opportunity.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF FEBRUARY 28,
2010. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
(4.) Source: Thomson Reuters, THE BOND BUYER, 2/9/10.
(5.) Source: Municipal Securities Rulemaking Board, "Build America Bond Issuance
and Trade Activity, 2009," February 2010.
Annual Report | 5
Investment Strategy and Manager's Discussion
We use a consistent, disciplined strategy in an effort to maximize tax-exempt
income for our shareholders by seeking to maintain exposure to higher coupon
securities. We generally employ a buy-and-hold approach and invest in securities
we believe should provide the most relative value in the market. As we invest
during different interest rate environments, each Fund's portfolio becomes
progressively more diversified with a broad range of securities. This broad
diversification may help mitigate interest rate risk. We do not use leverage or
exotic derivatives, nor do we use hedging techniques that could add volatility
and contribute to underperformance in adverse markets. We generally stay fully
invested to help maximize income distribution.
The mixture of our value-oriented philosophy of investing primarily for income
and a positive sloping municipal yield curve favored the use of longer term
bonds. Consequently, we sought to purchase bonds from 15 to 30 years in maturity
with good call features for the long-term funds, 10 to 15 years for the
intermediate-term fund, and 5 years or less for the limited-term fund. We intend
to maintain our conservative, buy-and-hold investment strategy as we attempt to
provide shareholders with high, current, tax-free income.
We invite you to read your Fund report for more detailed performance and
portfolio information. Thank you for your continued 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, 2010, 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,
COUNTRY, 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.
6 | Annual Report
Franklin Arizona Tax-Free Income Fund
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 BREAKDOWN*
Franklin Arizona Tax-Free Income Fund
2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 9.0%
AA 38.4%
A 20.2%
BBB 20.2%
Below Investment Grade 0.5%
Not Rated by S&P 11.7%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.4% 3.0%
AA or Aa -- 0.2%
A 2.4% 2.1%
BBB or Baa 1.5% 1.4%
Below Investment Grade -- 0.7%
--- ---
Total 4.3% 7.4%
We are pleased to bring you Franklin Arizona Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.18 on February 28, 2009, to $10.78 on February 28, 2010. The
(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.
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 108.
Annual Report | 7
DIVIDEND DISTRIBUTIONS*
Franklin Arizona Tax-Free Income Fund
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
March 2009 4.06 cents 3.60 cents 3.60 cents 4.14 cents
April 2009 4.06 cents 3.60 cents 3.60 cents 4.14 cents
May 2009 4.06 cents 3.60 cents 3.60 cents 4.14 cents
June 2009 4.06 cents 3.57 cents 3.57 cents 4.14 cents
July 2009 4.06 cents 3.57 cents 3.57 cents 4.14 cents
August 2009 4.06 cents 3.57 cents 3.57 cents 4.14 cents
September 2009 4.06 cents 3.59 cents 3.57 cents 4.14 cents
October 2009 4.06 cents 3.59 cents 3.57 cents 4.14 cents
November 2009 4.06 cents 3.59 cents 3.57 cents 4.14 cents
December 2009 4.00 cents 3.50 cents 3.49 cents 4.10 cents
January 2010 4.00 cents 3.50 cents 3.49 cents 4.10 cents
February 2010 4.00 cents 3.50 cents 3.49 cents 4.10 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
Fund's Class A shares paid dividends totaling 48.49 cents per share for the same
period.(2) The Performance Summary beginning on page 11 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.26%
based on an annualization of the current 4.00 cent per share dividend and the
maximum offering price of $11.26 on February 28, 2010. An investor in the 2010
maximum combined effective federal and Arizona personal income tax bracket of
37.95% would need to earn a distribution rate of 6.87% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary. During
the year under review, renewed investor interest in municipal bonds and limited
new-issue supply tended to reduce the Fund's income, which caused dividends to
decline slightly.
STATE UPDATE
Arizona faced ongoing economic and financial stress during the 12 months under
review, which contributed to weak revenue performance, significant
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
8 | Annual Report
budget deficits and imbalance, and tightening liquidity. Although the state has
a history of positive ending fund balances, it depleted reserves as part of its
efforts to balance the budget. Other measures included one-time resources such
as deficit bonds. During Arizona's fiscal year 2009, individual, corporate and
sales tax revenues declined significantly, and the state was forced to address
mid-year budget gaps using some spending cuts, but largely through more federal
stimulus funds than originally anticipated, education aid payment deferrals and
fund transfers, including draining the remaining budget stabilization fund.
Despite these measures, an additional fiscal year 2009 gap emerged, which led to
expenditure reductions, more federal stimulus funds, and debt issuance for
budget relief as revenues continued to shrink.
Although considerable population growth over the past several years benefited
Arizona's economy and finances, it also pressured the budget due to educational,
health and human services, and public safety costs. Arizona's economy has slowed
significantly, and job losses outpaced the national rate, in large part due to a
weak housing sector, which hurt the state's construction sector. As of February
2010, the state's unemployment rate was 9.5%, compared to the 9.7% national
rate.(3)
Arizona does not issue general obligation bonds, but instead issues
appropriation-backed lease debt and revenue bonds, and its debt levels remained
near national state debt medians. State net tax-supported debt per capita was
$688, compared with the $739 national median, while debt as a percentage of
personal income was equal to the national median at 2.1%.4 Debt levels were
expected to increase as the state planned to issue additional bonds for budget
relief. In December, independent credit rating agency Moody's Investors Service
downgraded Arizona's issuer rating to A1 from Aa3 with a negative outlook.(5)
The rating and outlook reflected the state's struggle with a serious economic
slowdown, which, combined with tax reductions implemented in 2007 and various
spending mandates, contributed to ongoing fiscal challenges and tightening
liquidity.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate Moody's rating of the Fund.
PORTFOLIO BREAKDOWN
Franklin Arizona Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
---------------------
Utilities 19.5%
Hospital & Health Care 18.2%
Prerefunded 18.2%
Higher Education 10.5%
Subject to Government Appropriations 10.4%
Other Revenue 7.3%
Tax-Supported 6.6%
General Obligation 4.7%
Transportation 3.9%
Housing 0.7%
* Does not include short-term investments and other net assets.
Annual Report | 9
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Arizona Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
10 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN ARIZONA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FTAZX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.60 $ 10.78 $ 10.18
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4849
CLASS B (SYMBOL: FBAZX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.61 $ 10.85 $ 10.24
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4272
CLASS C (SYMBOL: FAZIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.62 $ 10.91 $ 10.29
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4263
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 2/28/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.62 $ 10.80 $ 10.18
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4951
Annual Report | 11
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.84% +19.84% +66.83%
Average Annual Total Return(2) +6.15% +2.78% +4.79%
Avg. Ann. Total Return (3/31/10)(3) +6.33% +2.89% +4.55%
Distribution Rate(4) 4.26%
Taxable Equivalent Distribution Rate(5) 6.87%
30-Day Standardized Yield(6) 3.48%
Taxable Equivalent Yield(5) 5.61%
Total Annual Operating Expenses(7) 0.62%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.28% +16.61% +60.14%
Average Annual Total Return(2) +6.28% +2.78% +4.82%
Avg. Ann. Total Return (3/31/10)(3) +6.49% +2.86% +4.58%
Distribution Rate(4) 3.86%
Taxable Equivalent Distribution Rate(5) 6.22%
30-Day Standardized Yield(6) 3.06%
Taxable Equivalent Yield(5) 4.93%
Total Annual Operating Expenses(7) 1.17%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.32% +16.59% +58.08%
Average Annual Total Return(2) +9.32% +3.12% +4.69%
Avg. Ann. Total Return (3/31/10)(3) +9.42% +3.21% +4.44%
Distribution Rate(4) 3.83%
Taxable Equivalent Distribution Rate(5) 6.17%
30-Day Standardized Yield(6) 3.09%
Taxable Equivalent Yield(5) 4.98%
Total Annual Operating Expenses(7) 1.17%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +11.15% +20.24% +67.39%
Average Annual Total Return(2) +11.15% +3.76% +5.29%
Avg. Ann. Total Return (3/31/10)(3) +11.36% +3.86% +5.04%
Distribution Rate(4) 4.54%
Taxable Equivalent Distribution Rate(5) 7.32%
30-Day Standardized Yield(6) 3.74%
Taxable Equivalent Yield(5) 6.03%
Total Annual Operating Expenses(7) 0.52%
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.
12 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.15%
5-Year +2.78%
10-Year +4.79%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN ARIZONA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---------- ---------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,804 $10,218 $10,082
4/30/2000 $ 9,748 $10,158 $10,088
5/31/2000 $ 9,692 $10,105 $10,100
6/30/2000 $ 9,924 $10,373 $10,153
7/31/2000 $10,064 $10,518 $10,177
8/31/2000 $10,224 $10,680 $10,177
9/30/2000 $10,172 $10,624 $10,230
10/31/2000 $10,277 $10,740 $10,247
11/30/2000 $10,341 $10,821 $10,253
12/31/2000 $10,531 $11,089 $10,247
1/31/2001 $10,576 $11,198 $10,312
2/28/2001 $10,609 $11,234 $10,353
3/31/2001 $10,688 $11,334 $10,377
4/30/2001 $10,588 $11,212 $10,418
5/31/2001 $10,675 $11,332 $10,465
6/30/2001 $10,779 $11,408 $10,483
7/31/2001 $10,969 $11,577 $10,453
8/31/2001 $11,106 $11,768 $10,453
9/30/2001 $11,050 $11,729 $10,501
10/31/2001 $11,098 $11,868 $10,465
11/30/2001 $10,940 $11,768 $10,448
12/31/2001 $10,846 $11,657 $10,406
1/31/2002 $10,964 $11,859 $10,430
2/28/2002 $11,100 $12,002 $10,471
3/31/2002 $10,903 $11,767 $10,530
4/30/2002 $11,065 $11,997 $10,589
5/31/2002 $11,103 $12,070 $10,589
6/30/2002 $11,200 $12,197 $10,595
7/31/2002 $11,344 $12,354 $10,607
8/31/2002 $11,475 $12,503 $10,642
9/30/2002 $11,744 $12,776 $10,660
10/31/2002 $11,517 $12,565 $10,677
11/30/2002 $11,455 $12,512 $10,677
12/31/2002 $11,675 $12,776 $10,654
1/31/2003 $11,636 $12,744 $10,701
2/28/2003 $11,797 $12,922 $10,783
3/31/2003 $11,817 $12,930 $10,848
4/30/2003 $11,896 $13,015 $10,824
5/31/2003 $12,183 $13,320 $10,807
6/30/2003 $12,176 $13,263 $10,819
7/31/2003 $11,750 $12,799 $10,830
8/31/2003 $11,842 $12,895 $10,872
9/30/2003 $12,190 $13,274 $10,907
10/31/2003 $12,152 $13,207 $10,895
11/30/2003 $12,298 $13,345 $10,866
12/31/2003 $12,416 $13,455 $10,854
1/31/2004 $12,554 $13,532 $10,907
2/29/2004 $12,745 $13,736 $10,966
3/31/2004 $12,726 $13,688 $11,037
4/30/2004 $12,386 $13,364 $11,072
5/31/2004 $12,310 $13,315 $11,137
6/30/2004 $12,368 $13,364 $11,172
7/31/2004 $12,601 $13,540 $11,154
8/31/2004 $12,858 $13,811 $11,160
9/30/2004 $12,953 $13,884 $11,184
10/31/2004 $13,081 $14,004 $11,243
11/30/2004 $12,977 $13,888 $11,249
12/31/2004 $13,165 $14,058 $11,207
1/31/2005 $13,341 $14,189 $11,231
2/28/2005 $13,329 $14,142 $11,296
3/31/2005 $13,271 $14,053 $11,384
4/30/2005 $13,495 $14,274 $11,461
5/31/2005 $13,606 $14,375 $11,449
6/30/2005 $13,679 $14,464 $11,455
7/31/2005 $13,607 $14,399 $11,508
8/31/2005 $13,620 $14,544 $11,567
9/30/2005 $13,522 $14,446 $11,708
10/31/2005 $13,423 $14,359 $11,731
11/30/2005 $13,475 $14,428 $11,637
12/31/2005 $13,611 $14,552 $11,590
1/31/2006 $13,619 $14,591 $11,678
2/28/2006 $13,762 $14,689 $11,702
3/31/2006 $13,667 $14,588 $11,767
4/30/2006 $13,653 $14,583 $11,867
5/31/2006 $13,692 $14,648 $11,926
6/30/2006 $13,664 $14,592 $11,949
7/31/2006 $13,803 $14,766 $11,985
8/31/2006 $14,005 $14,985 $12,008
9/30/2006 $14,104 $15,089 $11,949
10/31/2006 $14,207 $15,184 $11,885
11/30/2006 $14,344 $15,311 $11,867
12/31/2006 $14,306 $15,257 $11,885
1/31/2007 $14,268 $15,217 $11,921
2/28/2007 $14,457 $15,418 $11,985
3/31/2007 $14,409 $15,380 $12,094
4/30/2007 $14,447 $15,426 $12,172
5/31/2007 $14,369 $15,357 $12,247
6/30/2007 $14,301 $15,278 $12,270
7/31/2007 $14,393 $15,396 $12,267
8/31/2007 $14,273 $15,330 $12,245
9/30/2007 $14,483 $15,557 $12,279
10/31/2007 $14,551 $15,626 $12,305
11/30/2007 $14,575 $15,726 $12,378
12/31/2007 $14,640 $15,769 $12,370
1/31/2008 $14,745 $15,968 $12,431
2/29/2008 $13,934 $15,237 $12,467
3/31/2008 $14,434 $15,672 $12,575
4/30/2008 $14,634 $15,856 $12,652
5/31/2008 $14,771 $15,952 $12,758
6/30/2008 $14,563 $15,771 $12,887
7/31/2008 $14,535 $15,831 $12,954
8/31/2008 $14,672 $16,017 $12,903
9/30/2008 $13,867 $15,265 $12,885
10/31/2008 $13,620 $15,110 $12,755
11/30/2008 $13,589 $15,158 $12,510
12/31/2008 $13,688 $15,379 $12,381
1/31/2009 $14,163 $15,942 $12,435
2/28/2009 $14,413 $16,025 $12,497
3/31/2009 $14,390 $16,028 $12,527
4/30/2009 $14,786 $16,349 $12,558
5/31/2009 $15,016 $16,522 $12,595
6/30/2009 $14,917 $16,367 $12,703
7/31/2009 $15,076 $16,641 $12,683
8/31/2009 $15,365 $16,925 $12,711
9/30/2009 $16,016 $17,532 $12,719
10/31/2009 $15,700 $17,164 $12,731
11/30/2009 $15,729 $17,306 $12,740
12/31/2009 $15,816 $17,365 $12,718
1/31/2010 $15,862 $17,455 $12,761
2/28/2010 $15,970 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +6.28%
5-Year +2.78%
10-Year +4.82%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN ARIZONA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS B INDEX CPI
- ---------- ---------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,234 $10,218 $10,082
4/30/2000 $10,181 $10,158 $10,088
5/31/2000 $10,117 $10,105 $10,100
6/30/2000 $10,354 $10,373 $10,153
7/31/2000 $10,504 $10,518 $10,177
8/31/2000 $10,665 $10,680 $10,177
9/30/2000 $10,607 $10,624 $10,230
10/31/2000 $10,711 $10,740 $10,247
11/30/2000 $10,783 $10,821 $10,253
12/31/2000 $10,965 $11,089 $10,247
1/31/2001 $11,008 $11,198 $10,312
2/28/2001 $11,037 $11,234 $10,353
3/31/2001 $11,124 $11,334 $10,377
4/30/2001 $11,004 $11,212 $10,418
5/31/2001 $11,099 $11,332 $10,465
6/30/2001 $11,202 $11,408 $10,483
7/31/2001 $11,393 $11,577 $10,453
8/31/2001 $11,530 $11,768 $10,453
9/30/2001 $11,467 $11,729 $10,501
10/31/2001 $11,511 $11,868 $10,465
11/30/2001 $11,353 $11,768 $10,448
12/31/2001 $11,240 $11,657 $10,406
1/31/2002 $11,357 $11,859 $10,430
2/28/2002 $11,503 $12,002 $10,471
3/31/2002 $11,283 $11,767 $10,530
4/30/2002 $11,455 $11,997 $10,589
5/31/2002 $11,478 $12,070 $10,589
6/30/2002 $11,584 $12,197 $10,595
7/31/2002 $11,727 $12,354 $10,607
8/31/2002 $11,845 $12,503 $10,642
9/30/2002 $12,127 $12,776 $10,660
10/31/2002 $11,888 $12,565 $10,677
11/30/2002 $11,819 $12,512 $10,677
12/31/2002 $12,039 $12,776 $10,654
1/31/2003 $11,994 $12,744 $10,701
2/28/2003 $12,165 $12,922 $10,783
3/31/2003 $12,167 $12,930 $10,848
4/30/2003 $12,243 $13,015 $10,824
5/31/2003 $12,532 $13,320 $10,807
6/30/2003 $12,519 $13,263 $10,819
7/31/2003 $12,078 $12,799 $10,830
8/31/2003 $12,167 $12,895 $10,872
9/30/2003 $12,517 $13,274 $10,907
10/31/2003 $12,472 $13,207 $10,895
11/30/2003 $12,616 $13,345 $10,866
12/31/2003 $12,730 $13,455 $10,854
1/31/2004 $12,866 $13,532 $10,907
2/29/2004 $13,055 $13,736 $10,966
3/31/2004 $13,030 $13,688 $11,037
4/30/2004 $12,677 $13,364 $11,072
5/31/2004 $12,604 $13,315 $11,137
6/30/2004 $12,658 $13,364 $11,172
7/31/2004 $12,889 $13,540 $11,154
8/31/2004 $13,145 $13,811 $11,160
9/30/2004 $13,235 $13,884 $11,184
10/31/2004 $13,360 $14,004 $11,243
11/30/2004 $13,247 $13,888 $11,249
12/31/2004 $13,433 $14,058 $11,207
1/31/2005 $13,605 $14,189 $11,231
2/28/2005 $13,587 $14,142 $11,296
3/31/2005 $13,534 $14,053 $11,384
4/30/2005 $13,743 $14,274 $11,461
5/31/2005 $13,848 $14,375 $11,449
6/30/2005 $13,917 $14,464 $11,455
7/31/2005 $13,837 $14,399 $11,508
8/31/2005 $13,844 $14,544 $11,567
9/30/2005 $13,739 $14,446 $11,708
10/31/2005 $13,633 $14,359 $11,731
11/30/2005 $13,678 $14,428 $11,637
12/31/2005 $13,809 $14,552 $11,590
1/31/2006 $13,812 $14,591 $11,678
2/28/2006 $13,951 $14,689 $11,702
3/31/2006 $13,848 $14,588 $11,767
4/30/2006 $13,828 $14,583 $11,867
5/31/2006 $13,860 $14,648 $11,926
6/30/2006 $13,826 $14,592 $11,949
7/31/2006 $13,960 $14,766 $11,985
8/31/2006 $14,157 $14,985 $12,008
9/30/2006 $14,262 $15,089 $11,949
10/31/2006 $14,346 $15,184 $11,885
11/30/2006 $14,491 $15,311 $11,867
12/31/2006 $14,433 $15,257 $11,885
1/31/2007 $14,388 $15,217 $11,921
2/28/2007 $14,571 $15,418 $11,985
3/31/2007 $14,516 $15,380 $12,094
4/30/2007 $14,547 $15,426 $12,172
5/31/2007 $14,476 $15,357 $12,247
6/30/2007 $14,388 $15,278 $12,270
7/31/2007 $14,474 $15,396 $12,267
8/31/2007 $14,347 $15,330 $12,245
9/30/2007 $14,564 $15,557 $12,279
10/31/2007 $14,611 $15,626 $12,305
11/30/2007 $14,642 $15,726 $12,378
12/31/2007 $14,687 $15,769 $12,370
1/31/2008 $14,799 $15,968 $12,431
2/29/2008 $13,972 $15,237 $12,467
3/31/2008 $14,474 $15,672 $12,575
4/30/2008 $14,675 $15,856 $12,652
5/31/2008 $14,811 $15,952 $12,758
6/30/2008 $14,604 $15,771 $12,887
7/31/2008 $14,575 $15,831 $12,954
8/31/2008 $14,710 $16,017 $12,903
9/30/2008 $13,906 $15,265 $12,885
10/31/2008 $13,656 $15,110 $12,755
11/30/2008 $13,622 $15,158 $12,510
12/31/2008 $13,725 $15,379 $12,381
1/31/2009 $14,200 $15,942 $12,435
2/28/2009 $14,450 $16,025 $12,497
3/31/2009 $14,430 $16,028 $12,527
4/30/2009 $14,827 $16,349 $12,558
5/31/2009 $15,055 $16,522 $12,595
6/30/2009 $14,959 $16,367 $12,703
7/31/2009 $15,118 $16,641 $12,683
8/31/2009 $15,409 $16,925 $12,711
9/30/2009 $16,062 $17,532 $12,719
10/31/2009 $15,743 $17,164 $12,731
11/30/2009 $15,774 $17,306 $12,740
12/31/2009 $15,861 $17,365 $12,718
1/31/2010 $15,903 $17,455 $12,761
2/28/2010 $16,014 $17,624 $12,764
Annual Report | 13
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.32%
5-Year +3.12%
10-Year +4.69%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN ARIZONA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---------- ---------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,233 $10,218 $10,082
4/30/2000 $10,170 $10,158 $10,088
5/31/2000 $10,107 $10,105 $10,100
6/30/2000 $10,344 $10,373 $10,153
7/31/2000 $10,483 $10,518 $10,177
8/31/2000 $10,644 $10,680 $10,177
9/30/2000 $10,595 $10,624 $10,230
10/31/2000 $10,689 $10,740 $10,247
11/30/2000 $10,760 $10,821 $10,253
12/31/2000 $10,952 $11,089 $10,247
1/31/2001 $10,984 $11,198 $10,312
2/28/2001 $11,012 $11,234 $10,353
3/31/2001 $11,099 $11,334 $10,377
4/30/2001 $10,980 $11,212 $10,418
5/31/2001 $11,074 $11,332 $10,465
6/30/2001 $11,177 $11,408 $10,483
7/31/2001 $11,367 $11,577 $10,453
8/31/2001 $11,503 $11,768 $10,453
9/30/2001 $11,440 $11,729 $10,501
10/31/2001 $11,484 $11,868 $10,465
11/30/2001 $11,317 $11,768 $10,448
12/31/2001 $11,215 $11,657 $10,406
1/31/2002 $11,331 $11,859 $10,430
2/28/2002 $11,476 $12,002 $10,471
3/31/2002 $11,258 $11,767 $10,530
4/30/2002 $11,429 $11,997 $10,589
5/31/2002 $11,452 $12,070 $10,589
6/30/2002 $11,557 $12,197 $10,595
7/31/2002 $11,699 $12,354 $10,607
8/31/2002 $11,828 $12,503 $10,642
9/30/2002 $12,097 $12,776 $10,660
10/31/2002 $11,859 $12,565 $10,677
11/30/2002 $11,791 $12,512 $10,677
12/31/2002 $12,010 $12,776 $10,654
1/31/2003 $11,966 $12,744 $10,701
2/28/2003 $12,125 $12,922 $10,783
3/31/2003 $12,139 $12,930 $10,848
4/30/2003 $12,216 $13,015 $10,824
5/31/2003 $12,502 $13,320 $10,807
6/30/2003 $12,488 $13,263 $10,819
7/31/2003 $12,049 $12,799 $10,830
8/31/2003 $12,136 $12,895 $10,872
9/30/2003 $12,484 $13,274 $10,907
10/31/2003 $12,438 $13,207 $10,895
11/30/2003 $12,581 $13,345 $10,866
12/31/2003 $12,694 $13,455 $10,854
1/31/2004 $12,840 $13,532 $10,907
2/29/2004 $13,029 $13,736 $10,966
3/31/2004 $13,004 $13,688 $11,037
4/30/2004 $12,641 $13,364 $11,072
5/31/2004 $12,570 $13,315 $11,137
6/30/2004 $12,624 $13,364 $11,172
7/31/2004 $12,853 $13,540 $11,154
8/31/2004 $13,107 $13,811 $11,160
9/30/2004 $13,197 $13,884 $11,184
10/31/2004 $13,321 $14,004 $11,243
11/30/2004 $13,209 $13,888 $11,249
12/31/2004 $13,393 $14,058 $11,207
1/31/2005 $13,564 $14,189 $11,231
2/28/2005 $13,558 $14,142 $11,296
3/31/2005 $13,494 $14,053 $11,384
4/30/2005 $13,701 $14,274 $11,461
5/31/2005 $13,818 $14,375 $11,449
6/30/2005 $13,886 $14,464 $11,455
7/31/2005 $13,794 $14,399 $11,508
8/31/2005 $13,814 $14,544 $11,567
9/30/2005 $13,697 $14,446 $11,708
10/31/2005 $13,604 $14,359 $11,731
11/30/2005 $13,636 $14,428 $11,637
12/31/2005 $13,779 $14,552 $11,590
1/31/2006 $13,782 $14,591 $11,678
2/28/2006 $13,919 $14,689 $11,702
3/31/2006 $13,804 $14,588 $11,767
4/30/2006 $13,784 $14,583 $11,867
5/31/2006 $13,816 $14,648 $11,926
6/30/2006 $13,782 $14,592 $11,949
7/31/2006 $13,927 $14,766 $11,985
8/31/2006 $14,123 $14,985 $12,008
9/30/2006 $14,228 $15,089 $11,949
10/31/2006 $14,311 $15,184 $11,885
11/30/2006 $14,442 $15,311 $11,867
12/31/2006 $14,397 $15,257 $11,885
1/31/2007 $14,353 $15,217 $11,921
2/28/2007 $14,535 $15,418 $11,985
3/31/2007 $14,480 $15,380 $12,094
4/30/2007 $14,511 $15,426 $12,172
5/31/2007 $14,439 $15,357 $12,247
6/30/2007 $14,353 $15,278 $12,270
7/31/2007 $14,437 $15,396 $12,267
8/31/2007 $14,311 $15,330 $12,245
9/30/2007 $14,527 $15,557 $12,279
10/31/2007 $14,574 $15,626 $12,305
11/30/2007 $14,605 $15,726 $12,378
12/31/2007 $14,663 $15,769 $12,370
1/31/2008 $14,760 $15,968 $12,431
2/29/2008 $13,937 $15,237 $12,467
3/31/2008 $14,438 $15,672 $12,575
4/30/2008 $14,616 $15,856 $12,652
5/31/2008 $14,758 $15,952 $12,758
6/30/2008 $14,533 $15,771 $12,887
7/31/2008 $14,498 $15,831 $12,954
8/31/2008 $14,641 $16,017 $12,903
9/30/2008 $13,826 $15,265 $12,885
10/31/2008 $13,575 $15,110 $12,755
11/30/2008 $13,524 $15,158 $12,510
12/31/2008 $13,630 $15,379 $12,381
1/31/2009 $14,105 $15,942 $12,435
2/28/2009 $14,331 $16,025 $12,497
3/31/2009 $14,315 $16,028 $12,527
4/30/2009 $14,699 $16,349 $12,558
5/31/2009 $14,919 $16,522 $12,595
6/30/2009 $14,814 $16,367 $12,703
7/31/2009 $14,963 $16,641 $12,683
8/31/2009 $15,254 $16,925 $12,711
9/30/2009 $15,886 $17,532 $12,719
10/31/2009 $15,555 $17,164 $12,731
11/30/2009 $15,590 $17,306 $12,740
12/31/2009 $15,668 $17,365 $12,718
1/31/2010 $15,706 $17,455 $12,761
2/28/2010 $15,808 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +11.15%
5-Year +3.76%
10-Year +5.29%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN ARIZONA
TAX-FREE INCOME BARCLAYS CAPITAL
FUND - ADVISOR MUNICIPAL BOND
DATE CLASS INDEX CPI
- ---------- ---------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,239 $10,218 $10,082
4/30/2000 $10,180 $10,158 $10,088
5/31/2000 $10,122 $10,105 $10,100
6/30/2000 $10,365 $10,373 $10,153
7/31/2000 $10,511 $10,518 $10,177
8/31/2000 $10,677 $10,680 $10,177
9/30/2000 $10,623 $10,624 $10,230
10/31/2000 $10,733 $10,740 $10,247
11/30/2000 $10,800 $10,821 $10,253
12/31/2000 $10,998 $11,089 $10,247
1/31/2001 $11,046 $11,198 $10,312
2/28/2001 $11,080 $11,234 $10,353
3/31/2001 $11,163 $11,334 $10,377
4/30/2001 $11,058 $11,212 $10,418
5/31/2001 $11,149 $11,332 $10,465
6/30/2001 $11,257 $11,408 $10,483
7/31/2001 $11,456 $11,577 $10,453
8/31/2001 $11,599 $11,768 $10,453
9/30/2001 $11,540 $11,729 $10,501
10/31/2001 $11,590 $11,868 $10,465
11/30/2001 $11,425 $11,768 $10,448
12/31/2001 $11,327 $11,657 $10,406
1/31/2002 $11,451 $11,859 $10,430
2/28/2002 $11,593 $12,002 $10,471
3/31/2002 $11,387 $11,767 $10,530
4/30/2002 $11,556 $11,997 $10,589
5/31/2002 $11,596 $12,070 $10,589
6/30/2002 $11,697 $12,197 $10,595
7/31/2002 $11,847 $12,354 $10,607
8/31/2002 $11,984 $12,503 $10,642
9/30/2002 $12,265 $12,776 $10,660
10/31/2002 $12,028 $12,565 $10,677
11/30/2002 $11,963 $12,512 $10,677
12/31/2002 $12,193 $12,776 $10,654
1/31/2003 $12,153 $12,744 $10,701
2/28/2003 $12,321 $12,922 $10,783
3/31/2003 $12,341 $12,930 $10,848
4/30/2003 $12,424 $13,015 $10,824
5/31/2003 $12,724 $13,320 $10,807
6/30/2003 $12,716 $13,263 $10,819
7/31/2003 $12,272 $12,799 $10,830
8/31/2003 $12,367 $12,895 $10,872
9/30/2003 $12,731 $13,274 $10,907
10/31/2003 $12,691 $13,207 $10,895
11/30/2003 $12,844 $13,345 $10,866
12/31/2003 $12,967 $13,455 $10,854
1/31/2004 $13,111 $13,532 $10,907
2/29/2004 $13,310 $13,736 $10,966
3/31/2004 $13,291 $13,688 $11,037
4/30/2004 $12,935 $13,364 $11,072
5/31/2004 $12,856 $13,315 $11,137
6/30/2004 $12,917 $13,364 $11,172
7/31/2004 $13,160 $13,540 $11,154
8/31/2004 $13,429 $13,811 $11,160
9/30/2004 $13,527 $13,884 $11,184
10/31/2004 $13,662 $14,004 $11,243
11/30/2004 $13,553 $13,888 $11,249
12/31/2004 $13,750 $14,058 $11,207
1/31/2005 $13,933 $14,189 $11,231
2/28/2005 $13,920 $14,142 $11,296
3/31/2005 $13,860 $14,053 $11,384
4/30/2005 $14,094 $14,274 $11,461
5/31/2005 $14,210 $14,375 $11,449
6/30/2005 $14,287 $14,464 $11,455
7/31/2005 $14,211 $14,399 $11,508
8/31/2005 $14,225 $14,544 $11,567
9/30/2005 $14,123 $14,446 $11,708
10/31/2005 $14,019 $14,359 $11,731
11/30/2005 $14,073 $14,428 $11,637
12/31/2005 $14,215 $14,552 $11,590
1/31/2006 $14,224 $14,591 $11,678
2/28/2006 $14,373 $14,689 $11,702
3/31/2006 $14,273 $14,588 $11,767
4/30/2006 $14,259 $14,583 $11,867
5/31/2006 $14,299 $14,648 $11,926
6/30/2006 $14,271 $14,592 $11,949
7/31/2006 $14,416 $14,766 $11,985
8/31/2006 $14,627 $14,985 $12,008
9/30/2006 $14,730 $15,089 $11,949
10/31/2006 $14,837 $15,184 $11,885
11/30/2006 $14,981 $15,311 $11,867
12/31/2006 $14,941 $15,257 $11,885
1/31/2007 $14,901 $15,217 $11,921
2/28/2007 $15,099 $15,418 $11,985
3/31/2007 $15,048 $15,380 $12,094
4/30/2007 $15,088 $15,426 $12,172
5/31/2007 $15,007 $15,357 $12,247
6/30/2007 $14,936 $15,278 $12,270
7/31/2007 $15,032 $15,396 $12,267
8/31/2007 $14,906 $15,330 $12,245
9/30/2007 $15,126 $15,557 $12,279
10/31/2007 $15,197 $15,626 $12,305
11/30/2007 $15,222 $15,726 $12,378
12/31/2007 $15,290 $15,769 $12,370
1/31/2008 $15,400 $15,968 $12,431
2/29/2008 $14,552 $15,237 $12,467
3/31/2008 $15,075 $15,672 $12,575
4/30/2008 $15,284 $15,856 $12,652
5/31/2008 $15,426 $15,952 $12,758
6/30/2008 $15,209 $15,771 $12,887
7/31/2008 $15,166 $15,831 $12,954
8/31/2008 $15,326 $16,017 $12,903
9/30/2008 $14,486 $15,265 $12,885
10/31/2008 $14,229 $15,110 $12,755
11/30/2008 $14,198 $15,158 $12,510
12/31/2008 $14,303 $15,379 $12,381
1/31/2009 $14,800 $15,942 $12,435
2/28/2009 $15,062 $16,025 $12,497
3/31/2009 $15,039 $16,028 $12,527
4/30/2009 $15,455 $16,349 $12,558
5/31/2009 $15,697 $16,522 $12,595
6/30/2009 $15,624 $16,367 $12,703
7/31/2009 $15,791 $16,641 $12,683
8/31/2009 $16,095 $16,925 $12,711
9/30/2009 $16,776 $17,532 $12,719
10/31/2009 $16,432 $17,164 $12,731
11/30/2009 $16,479 $17,306 $12,740
12/31/2009 $16,571 $17,365 $12,718
1/31/2010 $16,621 $17,455 $12,761
2/28/2010 $16,739 $17,624 $12,764
14 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Arizona
personal income tax rate of 37.95%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/08, 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 +9.73% and +5.74%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 15
Your Fund's Expenses
FRANKLIN ARIZONA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
(1.) Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
(2.) Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
16 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE 9/1/09 VALUE 2/28/10 9/1/09-2/28/10
------------ ------------- --------------
CLASS A
Actual $1,000 $1,039.60 $3.14
Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.11
CLASS B
Actual $1,000 $1,036.60 $5.91
Hypothetical (5% return before expenses) $1,000 $1,018.99 $5.86
CLASS C
Actual $1,000 $1,036.30 $5.91
Hypothetical (5% return before expenses) $1,000 $1,018.99 $5.86
ADVISOR CLASS
Actual $1,000 $1,040.00 $2.63
Hypothetical (5% return before expenses) $1,000 $1,022.22 $2.61
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.62%; B: 1.17%; C: 1.17%; and Advisor:
0.52%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Annual Report | 17
Franklin Colorado Tax-Free Income Fund
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 BREAKDOWN*
Franklin Colorado Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA................ 15.2%
AA................. 23.7%
A.................. 32.1%
BBB................ 10.5%
Not Rated by S&P... 18.5%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.3% 6.8%
AA or Aa 4.8% --
A 6.0% --
BBB or Baa -- 0.6%
---- ---
Total 11.1% 7.4%
We are pleased to bring you Franklin Colorado Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 117.
18 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Colorado Tax-Free Income Fund
DIVIDEND PER SHARE
------------------------------------
ADVISOR
MONTH CLASS A CLASS C CLASS**
- ----- ---------- ---------- ----------
March 2009 4.32 cents 3.84 cents --
April 2009 4.32 cents 3.84 cents --
May 2009 4.32 cents 3.84 cents --
June 2009 4.32 cents 3.80 cents --
July 2009 4.32 cents 3.80 cents 0.71 cents
August 2009 4.32 cents 3.80 cents 4.41 cents
September 2009 4.32 cents 3.80 cents 4.41 cents
October 2009 4.32 cents 3.80 cents 4.41 cents
November 2009 4.32 cents 3.80 cents 4.41 cents
December 2009 4.28 cents 3.71 cents 4.37 cents
January 2010 4.28 cents 3.71 cents 4.37 cents
February 2010 4.28 cents 3.71 cents 4.37 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/15/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.79 on February 28, 2009, to $11.65 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 51.66 cents per share for the same period.(2) The
Performance Summary beginning on page 22 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.19% based on an
annualization of the current 4.25 cent per share dividend and the maximum
offering price of $12.17 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Colorado personal income tax bracket of 38.01%
would need to earn a distribution rate of 6.76% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C and
Advisor shares' performance, please see the Performance Summary. During the year
under review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 19
STATE UPDATE
Colorado was not immune to the national economic slowdown; however, the state
generally experienced less severe declines than national averages in terms of
jobs, retail sales and the housing market. The state's broad and diverse economy
provided some protection, and Colorado continued to attract net in-migration. As
of February 2010, the state's unemployment rate was 7.7%, compared with the 9.7%
national rate.(3)
Fiscal year 2009 was a challenging period for Colorado largely due to lower
revenues from individual income taxes, sales and use taxes, and corporate income
taxes. Steps taken to balance the 2009 budget included reducing general fund
appropriation growth and transferring balances from various outside funds.
Federal stimulus funds also helped bridge the gap. For fiscal year 2010,
December 2009 projections had a number of revenue revisions from the previous
quarterly forecast. Individual income tax revenues were forecast to decline
further, and corporate tax revenue growth was revised downward. On the positive
side, the decline in total excise taxes, primarily sales and use taxes, was
projected to be smaller than previously estimated. In November 2009, Colorado's
governor introduced the fiscal year 2011 budget proposal, which included steps
to avoid a significant shortfall. Among these were expenditure cuts across the
budget including education and public safety, modifications and suspensions of
tax exemptions and credits, and delaying the opening of a state prison.
Colorado's constitution prohibits the state from issuing general obligation
debt, which resulted in very low debt levels. Colorado's net tax-supported debt
per capita and as a percentage of personal income were $261 and 0.6% compared
with the $739 and 2.1% national medians.(4) Independent credit rating agency
Standard & Poor's assigned Colorado an issuer rating of AA with a stable
outlook.(5) The rating and outlook reflected the state's relatively strong
economic fundamentals, despite the challenging national economic environment.
The outlook also recognized the state's demonstrated willingness to adjust its
budget as revenues have slowed or declined.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Moody's Investors Service, "U.S. Public Finance Report Card: 2009
State Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate Standard & Poor's rating of the Fund.
20 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Colorado Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
PORTFOLIO BREAKDOWN
Franklin Colorado Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Prerefunded 18.3%
Hospital & Health Care 16.9%
Utilities 16.0%
Tax-Supported 13.1%
Higher Education 12.9%
General Obligation 9.9%
Subject to Government Appropriations 8.0%
Transportation 2.5%
Other Revenue 1.2%
Housing 1.2%
* Does not include short-term investments and other net assets.
Annual Report | 21
Performance Summary as of 2/28/10
FRANKLIN COLORADO TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRCOX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.86 $11.65 $10.79
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5166
CLASS C (SYMBOL: FCOIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- --------
Net Asset Value (NAV) +$0.88 $11.76 $10.88
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4538
ADVISOR CLASS (SYMBOL: FCOZX) CHANGE 2/28/10 7/15/09
- ----------------------------- ------ ------- --------
Net Asset Value (NAV) +$0.43 $11.65 $11.22
DISTRIBUTIONS (7/16/09-2/28/10)
Dividend Income $0.3255
22 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +12.97% +20.70% +69.57%
Average Annual Total Return(2) +8.15% +2.94% +4.97%
Avg. Ann. Total Return (3/31/10)(3) +7.93% +3.06% +4.73%
Distribution Rate(4) 4.19%
Taxable Equivalent Distribution Rate(5) 6.76%
30-Day Standardized Yield(6) 3.46%
Taxable Equivalent Yield(5) 5.58%
Total Annual Operating Expenses(7) 0.66%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +12.43% +17.46% +60.66%
Average Annual Total Return(2) +11.43% +3.27% +4.86%
Avg. Ann. Total Return (3/31/10)(3) +11.19% +3.41% +4.62%
Distribution Rate(4) 3.77%
Taxable Equivalent Distribution Rate(5) 6.08%
30-Day Standardized Yield(6) 3.07%
Taxable Equivalent Yield(5) 4.95%
Total Annual Operating Expenses(7) 1.21%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +13.03% +20.78% +69.67%
Average Annual Total Return(2) +13.03% +3.85% +5.43%
Avg. Ann. Total Return (3/31/10)(3) +12.80% +3.98% +5.19%
Distribution Rate(4) 4.48%
Taxable Equivalent Distribution Rate(5) 7.23%
30-Day Standardized Yield(6) 3.72%
Taxable Equivalent Yield(5) 6.00%
Total Annual Operating Expenses(7) 0.56%
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.
Annual Report | 23
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +8.15%
5-Year +2.94%
10-Year +4.97%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN COLORADO BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---------- ----------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,828 $10,218 $10,082
4/30/2000 $ 9,768 $10,158 $10,088
5/31/2000 $ 9,699 $10,105 $10,100
6/30/2000 $ 9,956 $10,373 $10,153
7/31/2000 $10,081 $10,518 $10,177
8/31/2000 $10,242 $10,680 $10,177
9/30/2000 $10,168 $10,624 $10,230
10/31/2000 $10,287 $10,740 $10,247
11/30/2000 $10,367 $10,821 $10,253
12/31/2000 $10,649 $11,089 $10,247
1/31/2001 $10,730 $11,198 $10,312
2/28/2001 $10,772 $11,234 $10,353
3/31/2001 $10,858 $11,334 $10,377
4/30/2001 $10,784 $11,212 $10,418
5/31/2001 $10,877 $11,332 $10,465
6/30/2001 $11,005 $11,408 $10,483
7/31/2001 $11,187 $11,577 $10,453
8/31/2001 $11,375 $11,768 $10,453
9/30/2001 $11,286 $11,729 $10,501
10/31/2001 $11,410 $11,868 $10,465
11/30/2001 $11,321 $11,768 $10,448
12/31/2001 $11,186 $11,657 $10,406
1/31/2002 $11,368 $11,859 $10,430
2/28/2002 $11,469 $12,002 $10,471
3/31/2002 $11,316 $11,767 $10,530
4/30/2002 $11,462 $11,997 $10,589
5/31/2002 $11,530 $12,070 $10,589
6/30/2002 $11,635 $12,197 $10,595
7/31/2002 $11,773 $12,354 $10,607
8/31/2002 $11,879 $12,503 $10,642
9/30/2002 $12,156 $12,776 $10,660
10/31/2002 $11,895 $12,565 $10,677
11/30/2002 $11,840 $12,512 $10,677
12/31/2002 $12,090 $12,776 $10,654
1/31/2003 $12,056 $12,744 $10,701
2/28/2003 $12,229 $12,922 $10,783
3/31/2003 $12,207 $12,930 $10,848
4/30/2003 $12,294 $13,015 $10,824
5/31/2003 $12,575 $13,320 $10,807
6/30/2003 $12,528 $13,263 $10,819
7/31/2003 $12,087 $12,799 $10,830
8/31/2003 $12,195 $12,895 $10,872
9/30/2003 $12,534 $13,274 $10,907
10/31/2003 $12,457 $13,207 $10,895
11/30/2003 $12,596 $13,345 $10,866
12/31/2003 $12,720 $13,455 $10,854
1/31/2004 $12,821 $13,532 $10,907
2/29/2004 $13,014 $13,736 $10,966
3/31/2004 $12,978 $13,688 $11,037
4/30/2004 $12,650 $13,364 $11,072
5/31/2004 $12,605 $13,315 $11,137
6/30/2004 $12,631 $13,364 $11,172
7/31/2004 $12,821 $13,540 $11,154
8/31/2004 $13,046 $13,811 $11,160
9/30/2004 $13,127 $13,884 $11,184
10/31/2004 $13,253 $14,004 $11,243
11/30/2004 $13,138 $13,888 $11,249
12/31/2004 $13,331 $14,058 $11,207
1/31/2005 $13,501 $14,189 $11,231
2/28/2005 $13,451 $14,142 $11,296
3/31/2005 $13,413 $14,053 $11,384
4/30/2005 $13,618 $14,274 $11,461
5/31/2005 $13,716 $14,375 $11,449
6/30/2005 $13,779 $14,464 $11,455
7/31/2005 $13,738 $14,399 $11,508
8/31/2005 $13,881 $14,544 $11,567
9/30/2005 $13,794 $14,446 $11,708
10/31/2005 $13,706 $14,359 $11,731
11/30/2005 $13,783 $14,428 $11,637
12/31/2005 $13,915 $14,552 $11,590
1/31/2006 $13,928 $14,591 $11,678
2/28/2006 $14,044 $14,689 $11,702
3/31/2006 $13,960 $14,588 $11,767
4/30/2006 $13,952 $14,583 $11,867
5/31/2006 $13,994 $14,648 $11,926
6/30/2006 $13,950 $14,592 $11,949
7/31/2006 $14,097 $14,766 $11,985
8/31/2006 $14,305 $14,985 $12,008
9/30/2006 $14,402 $15,089 $11,949
10/31/2006 $14,504 $15,184 $11,885
11/30/2006 $14,648 $15,311 $11,867
12/31/2006 $14,592 $15,257 $11,885
1/31/2007 $14,571 $15,217 $11,921
2/28/2007 $14,752 $15,418 $11,985
3/31/2007 $14,698 $15,380 $12,094
4/30/2007 $14,736 $15,426 $12,172
5/31/2007 $14,679 $15,357 $12,247
6/30/2007 $14,617 $15,278 $12,270
7/31/2007 $14,719 $15,396 $12,267
8/31/2007 $14,560 $15,330 $12,245
9/30/2007 $14,798 $15,557 $12,279
10/31/2007 $14,865 $15,626 $12,305
11/30/2007 $14,916 $15,726 $12,378
12/31/2007 $14,968 $15,769 $12,370
1/31/2008 $15,031 $15,968 $12,431
2/29/2008 $14,171 $15,237 $12,467
3/31/2008 $14,633 $15,672 $12,575
4/30/2008 $14,928 $15,856 $12,652
5/31/2008 $15,061 $15,952 $12,758
6/30/2008 $14,831 $15,771 $12,887
7/31/2008 $14,822 $15,831 $12,954
8/31/2008 $14,943 $16,017 $12,903
9/30/2008 $14,062 $15,265 $12,885
10/31/2008 $13,847 $15,110 $12,755
11/30/2008 $13,639 $15,158 $12,510
12/31/2008 $13,764 $15,379 $12,381
1/31/2009 $14,083 $15,942 $12,435
2/28/2009 $14,375 $16,025 $12,497
3/31/2009 $14,450 $16,028 $12,527
4/30/2009 $14,853 $16,349 $12,558
5/31/2009 $15,140 $16,522 $12,595
6/30/2009 $15,050 $16,367 $12,703
7/31/2009 $15,217 $16,641 $12,683
8/31/2009 $15,533 $16,925 $12,711
9/30/2009 $16,231 $17,532 $12,719
10/31/2009 $15,910 $17,164 $12,731
11/30/2009 $15,968 $17,306 $12,740
12/31/2009 $16,067 $17,365 $12,718
1/31/2010 $16,128 $17,455 $12,761
2/28/2010 $16,242 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +11.43%
5-Year +3.27%
10-Year +4.86%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN COLORADO BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---------- ----------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,250 $10,218 $10,082
4/30/2000 $10,182 $10,158 $10,088
5/31/2000 $10,115 $10,105 $10,100
6/30/2000 $10,377 $10,373 $10,153
7/31/2000 $10,502 $10,518 $10,177
8/31/2000 $10,664 $10,680 $10,177
9/30/2000 $10,583 $10,624 $10,230
10/31/2000 $10,701 $10,740 $10,247
11/30/2000 $10,788 $10,821 $10,253
12/31/2000 $11,075 $11,089 $10,247
1/31/2001 $11,154 $11,198 $10,312
2/28/2001 $11,183 $11,234 $10,353
3/31/2001 $11,276 $11,334 $10,377
4/30/2001 $11,184 $11,212 $10,418
5/31/2001 $11,275 $11,332 $10,465
6/30/2001 $11,412 $11,408 $10,483
7/31/2001 $11,594 $11,577 $10,453
8/31/2001 $11,783 $11,768 $10,453
9/30/2001 $11,676 $11,729 $10,501
10/31/2001 $11,808 $11,868 $10,465
11/30/2001 $11,701 $11,768 $10,448
12/31/2001 $11,568 $11,657 $10,406
1/31/2002 $11,749 $11,859 $10,430
2/28/2002 $11,848 $12,002 $10,471
3/31/2002 $11,674 $11,767 $10,530
4/30/2002 $11,828 $11,997 $10,589
5/31/2002 $11,893 $12,070 $10,589
6/30/2002 $11,995 $12,197 $10,595
7/31/2002 $12,132 $12,354 $10,607
8/31/2002 $12,235 $12,503 $10,642
9/30/2002 $12,513 $12,776 $10,660
10/31/2002 $12,240 $12,565 $10,677
11/30/2002 $12,178 $12,512 $10,677
12/31/2002 $12,439 $12,776 $10,654
1/31/2003 $12,389 $12,744 $10,701
2/28/2003 $12,571 $12,922 $10,783
3/31/2003 $12,532 $12,930 $10,848
4/30/2003 $12,615 $13,015 $10,824
5/31/2003 $12,896 $13,320 $10,807
6/30/2003 $12,852 $13,263 $10,819
7/31/2003 $12,397 $12,799 $10,830
8/31/2003 $12,500 $12,895 $10,872
9/30/2003 $12,839 $13,274 $10,907
10/31/2003 $12,754 $13,207 $10,895
11/30/2003 $12,890 $13,345 $10,866
12/31/2003 $12,999 $13,455 $10,854
1/31/2004 $13,096 $13,532 $10,907
2/29/2004 $13,297 $13,736 $10,966
3/31/2004 $13,254 $13,688 $11,037
4/30/2004 $12,916 $13,364 $11,072
5/31/2004 $12,863 $13,315 $11,137
6/30/2004 $12,885 $13,364 $11,172
7/31/2004 $13,060 $13,540 $11,154
8/31/2004 $13,292 $13,811 $11,160
9/30/2004 $13,369 $13,884 $11,184
10/31/2004 $13,490 $14,004 $11,243
11/30/2004 $13,367 $13,888 $11,249
12/31/2004 $13,568 $14,058 $11,207
1/31/2005 $13,723 $14,189 $11,231
2/28/2005 $13,677 $14,142 $11,296
3/31/2005 $13,621 $14,053 $11,384
4/30/2005 $13,821 $14,274 $11,461
5/31/2005 $13,913 $14,375 $11,449
6/30/2005 $13,982 $14,464 $11,455
7/31/2005 $13,923 $14,399 $11,508
8/31/2005 $14,061 $14,544 $11,567
9/30/2005 $13,967 $14,446 $11,708
10/31/2005 $13,883 $14,359 $11,731
11/30/2005 $13,942 $14,428 $11,637
12/31/2005 $14,069 $14,552 $11,590
1/31/2006 $14,076 $14,591 $11,678
2/28/2006 $14,198 $14,689 $11,702
3/31/2006 $14,095 $14,588 $11,767
4/30/2006 $14,081 $14,583 $11,867
5/31/2006 $14,116 $14,648 $11,926
6/30/2006 $14,077 $14,592 $11,949
7/31/2006 $14,206 $14,766 $11,985
8/31/2006 $14,407 $14,985 $12,008
9/30/2006 $14,510 $15,089 $11,949
10/31/2006 $14,593 $15,184 $11,885
11/30/2006 $14,744 $15,311 $11,867
12/31/2006 $14,680 $15,257 $11,885
1/31/2007 $14,641 $15,217 $11,921
2/28/2007 $14,827 $15,418 $11,985
3/31/2007 $14,765 $15,380 $12,094
4/30/2007 $14,797 $15,426 $12,172
5/31/2007 $14,732 $15,357 $12,247
6/30/2007 $14,665 $15,278 $12,270
7/31/2007 $14,759 $15,396 $12,267
8/31/2007 $14,594 $15,330 $12,245
9/30/2007 $14,824 $15,557 $12,279
10/31/2007 $14,884 $15,626 $12,305
11/30/2007 $14,928 $15,726 $12,378
12/31/2007 $14,972 $15,769 $12,370
1/31/2008 $15,029 $15,968 $12,431
2/29/2008 $14,156 $15,237 $12,467
3/31/2008 $14,620 $15,672 $12,575
4/30/2008 $14,905 $15,856 $12,652
5/31/2008 $15,030 $15,952 $12,758
6/30/2008 $14,796 $15,771 $12,887
7/31/2008 $14,780 $15,831 $12,954
8/31/2008 $14,893 $16,017 $12,903
9/30/2008 $14,014 $15,265 $12,885
10/31/2008 $13,782 $15,110 $12,755
11/30/2008 $13,583 $15,158 $12,510
12/31/2008 $13,687 $15,379 $12,381
1/31/2009 $14,009 $15,942 $12,435
2/28/2009 $14,291 $16,025 $12,497
3/31/2009 $14,359 $16,028 $12,527
4/30/2009 $14,749 $16,349 $12,558
5/31/2009 $15,026 $16,522 $12,595
6/30/2009 $14,943 $16,367 $12,703
7/31/2009 $15,100 $16,641 $12,683
8/31/2009 $15,404 $16,925 $12,711
9/30/2009 $16,084 $17,532 $12,719
10/31/2009 $15,761 $17,164 $12,731
11/30/2009 $15,798 $17,306 $12,740
12/31/2009 $15,901 $17,365 $12,718
1/31/2010 $15,953 $17,455 $12,761
2/28/2010 $16,066 $17,624 $12,764
24 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +13.03%
5-Year +3.85%
10-Year +5.43%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN COLORADO BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND-CLASS(c) INDEX CPI
- ---------- ------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,264 $10,218 $10,082
4/30/2000 $10,201 $10,158 $10,088
5/31/2000 $10,130 $10,105 $10,100
6/30/2000 $10,398 $10,373 $10,153
7/31/2000 $10,528 $10,518 $10,177
8/31/2000 $10,697 $10,680 $10,177
9/30/2000 $10,619 $10,624 $10,230
10/31/2000 $10,743 $10,740 $10,247
11/30/2000 $10,827 $10,821 $10,253
12/31/2000 $11,122 $11,089 $10,247
1/31/2001 $11,206 $11,198 $10,312
2/28/2001 $11,250 $11,234 $10,353
3/31/2001 $11,340 $11,334 $10,377
4/30/2001 $11,262 $11,212 $10,418
5/31/2001 $11,360 $11,332 $10,465
6/30/2001 $11,494 $11,408 $10,483
7/31/2001 $11,683 $11,577 $10,453
8/31/2001 $11,880 $11,768 $10,453
9/30/2001 $11,787 $11,729 $10,501
10/31/2001 $11,916 $11,868 $10,465
11/30/2001 $11,823 $11,768 $10,448
12/31/2001 $11,683 $11,657 $10,406
1/31/2002 $11,873 $11,859 $10,430
2/28/2002 $11,979 $12,002 $10,471
3/31/2002 $11,818 $11,767 $10,530
4/30/2002 $11,971 $11,997 $10,589
5/31/2002 $12,042 $12,070 $10,589
6/30/2002 $12,151 $12,197 $10,595
7/31/2002 $12,295 $12,354 $10,607
8/31/2002 $12,407 $12,503 $10,642
9/30/2002 $12,695 $12,776 $10,660
10/31/2002 $12,423 $12,565 $10,677
11/30/2002 $12,365 $12,512 $10,677
12/31/2002 $12,627 $12,776 $10,654
1/31/2003 $12,591 $12,744 $10,701
2/28/2003 $12,772 $12,922 $10,783
3/31/2003 $12,749 $12,930 $10,848
4/30/2003 $12,840 $13,015 $10,824
5/31/2003 $13,133 $13,320 $10,807
6/30/2003 $13,084 $13,263 $10,819
7/31/2003 $12,624 $12,799 $10,830
8/31/2003 $12,736 $12,895 $10,872
9/30/2003 $13,090 $13,274 $10,907
10/31/2003 $13,010 $13,207 $10,895
11/30/2003 $13,155 $13,345 $10,866
12/31/2003 $13,285 $13,455 $10,854
1/31/2004 $13,390 $13,532 $10,907
2/29/2004 $13,591 $13,736 $10,966
3/31/2004 $13,554 $13,688 $11,037
4/30/2004 $13,212 $13,364 $11,072
5/31/2004 $13,164 $13,315 $11,137
6/30/2004 $13,192 $13,364 $11,172
7/31/2004 $13,390 $13,540 $11,154
8/31/2004 $13,625 $13,811 $11,160
9/30/2004 $13,710 $13,884 $11,184
10/31/2004 $13,841 $14,004 $11,243
11/30/2004 $13,721 $13,888 $11,249
12/31/2004 $13,923 $14,058 $11,207
1/31/2005 $14,101 $14,189 $11,231
2/28/2005 $14,048 $14,142 $11,296
3/31/2005 $14,009 $14,053 $11,384
4/30/2005 $14,222 $14,274 $11,461
5/31/2005 $14,325 $14,375 $11,449
6/30/2005 $14,391 $14,464 $11,455
7/31/2005 $14,348 $14,399 $11,508
8/31/2005 $14,498 $14,544 $11,567
9/30/2005 $14,407 $14,446 $11,708
10/31/2005 $14,314 $14,359 $11,731
11/30/2005 $14,394 $14,428 $11,637
12/31/2005 $14,533 $14,552 $11,590
1/31/2006 $14,546 $14,591 $11,678
2/28/2006 $14,667 $14,689 $11,702
3/31/2006 $14,580 $14,588 $11,767
4/30/2006 $14,572 $14,583 $11,867
5/31/2006 $14,616 $14,648 $11,926
6/30/2006 $14,569 $14,592 $11,949
7/31/2006 $14,723 $14,766 $11,985
8/31/2006 $14,940 $14,985 $12,008
9/30/2006 $15,041 $15,089 $11,949
10/31/2006 $15,147 $15,184 $11,885
11/30/2006 $15,299 $15,311 $11,867
12/31/2006 $15,239 $15,257 $11,885
1/31/2007 $15,218 $15,217 $11,921
2/28/2007 $15,407 $15,418 $11,985
3/31/2007 $15,350 $15,380 $12,094
4/30/2007 $15,390 $15,426 $12,172
5/31/2007 $15,330 $15,357 $12,247
6/30/2007 $15,266 $15,278 $12,270
7/31/2007 $15,373 $15,396 $12,267
8/31/2007 $15,206 $15,330 $12,245
9/30/2007 $15,455 $15,557 $12,279
10/31/2007 $15,525 $15,626 $12,305
11/30/2007 $15,578 $15,726 $12,378
12/31/2007 $15,632 $15,769 $12,370
1/31/2008 $15,699 $15,968 $12,431
2/29/2008 $14,800 $15,237 $12,467
3/31/2008 $15,283 $15,672 $12,575
4/30/2008 $15,590 $15,856 $12,652
5/31/2008 $15,729 $15,952 $12,758
6/30/2008 $15,490 $15,771 $12,887
7/31/2008 $15,480 $15,831 $12,954
8/31/2008 $15,607 $16,017 $12,903
9/30/2008 $14,686 $15,265 $12,885
10/31/2008 $14,462 $15,110 $12,755
11/30/2008 $14,244 $15,158 $12,510
12/31/2008 $14,375 $15,379 $12,381
1/31/2009 $14,708 $15,942 $12,435
2/28/2009 $15,013 $16,025 $12,497
3/31/2009 $15,092 $16,028 $12,527
4/30/2009 $15,512 $16,349 $12,558
5/31/2009 $15,812 $16,522 $12,595
6/30/2009 $15,718 $16,367 $12,703
7/31/2009 $15,893 $16,641 $12,683
8/31/2009 $16,224 $16,925 $12,711
9/30/2009 $16,954 $17,532 $12,719
10/31/2009 $16,621 $17,164 $12,731
11/30/2009 $16,668 $17,306 $12,740
12/31/2009 $16,788 $17,365 $12,718
1/31/2010 $16,838 $17,455 $12,761
2/28/2010 $16,967 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Colorado
personal income tax rate of 38.01%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 7/14/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/15/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +6.79%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 25
Your Fund's Expenses
FRANKLIN COLORADO TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
(1.) Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
(2.) Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
26 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,045.30 $3.40
Hypothetical (5% return before expenses) $1,000 $1,021.47 $3.36
CLASS C
Actual $1,000 $1,043.00 $6.18
Hypothetical (5% return before expenses) $1,000 $1,018.74 $6.11
ADVISOR CLASS
Actual $1,000 $1,045.80 $2.89
Hypothetical (5% return before expenses) $1,000 $1,021.97 $2.86
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.67%; C: 1.22%; and Advisor: 0.57%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 27
Franklin Connecticut Tax-Free Income Fund
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 BREAKDOWN*
Franklin Connecticut Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA ...................... 30.1%
AA ....................... 12.8%
A ........................ 22.7%
BBB ...................... 19.6%
Not Rated by S&P ......... 14.8%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond below holdings
and generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 2.8%
AA or Aa 0.7% 0.8%
A 5.6% 0.9%
BBB or Baa 1.2% 2.0%
Below Investment Grade 0.8% --
--- ---
Total 8.3% 6.5%
We are pleased to bring you Franklin Connecticut Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.18 on February 28, 2009, to $10.88 on February 28, 2010. The Fund's
(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.
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 125.
28 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Connecticut Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 3.75 cents 3.29 cents --
April 2009 3.75 cents 3.29 cents --
May 2009 3.75 cents 3.29 cents --
June 2009 3.78 cents 3.30 cents --
July 2009 3.78 cents 3.30 cents 0.80 cents
August 2009 3.78 cents 3.30 cents 3.86 cents
September 2009 3.78 cents 3.29 cents 3.86 cents
October 2009 3.78 cents 3.29 cents 3.86 cents
November 2009 3.78 cents 3.29 cents 3.86 cents
December 2009 3.78 cents 3.25 cents 3.86 cents
January 2010 3.78 cents 3.25 cents 3.86 cents
February 2010 3.78 cents 3.25 cents 3.86 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/15/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
Class A shares paid dividends totaling 45.21 cents per share for the same
period.(2) The Performance Summary beginning on page 32 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 3.99%
based on an annualization of the current 3.78 cent per share dividend and the
maximum offering price of $11.36 on February 28, 2010. An investor in the 2010
maximum combined effective federal and Connecticut personal income tax bracket
of 39.23% would need to earn a distribution rate of 6.57% from a taxable
investment to match the Fund's Class A tax-free distribution rate. For the
Fund's Class C and Advisor shares' performance, please see the Performance
Summary.
STATE UPDATE
Connecticut's economic base remained sizable and well diversified, despite
recent significant declines. The state enjoys high wealth and income levels and
has a history of active revenue monitoring to identify shortfalls. Its economy
suffered given the national recession and the state's dependence on financial
services employment and related income tax revenues. The state experienced
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 29
PORTFOLIO BREAKDOWN
Franklin Connecticut Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Higher Education 25.5%**
Utilities 16.8%
Prerefunded 12.5%
Other Revenue 11.4%
Hospital & Health Care 9.8%
General Obligation 8.6%
Housing 7.4%
Tax-Supported 4.8%
Subject to Government Appropriations 2.5%
Transportation 0.7%
* Does not include short-term investments and other net assets.
** The Fund may invest more than 25% in municipal securities that finance
similar types of projects such as higher education. A change that affects
one project may affect all similar projects, thereby increasing market
risk.
increasing unemployment during the recession; however, its 9.1% rate in February
2010 remained below the 9.7% national rate.(3)
In fiscal year 2009, much of the negative revenue performance occurred late in
the period, and efforts to address the shortfall, including federal stimulus
funds, failed to offset the revenue decline. In light of the difficult budget
climate, Connecticut was late in adopting its current biennial budget. The state
achieved a balanced fiscal year 2010 budget through federal stimulus funds,
revenue enhancements, spending reductions and significant nonrecurring
resources. Fiscal year 2011's budget appeared to continue this pattern, with a
greater reliance on nonrecurring resources as federal stimulus funds diminish.
Significant revenue enhancements included a corporate tax surcharge, income tax
increases for high-wage earners, and a cigarette tax increase. In addition, the
state negotiated spending reductions with its employee bargaining units.
Connecticut's debt levels remained high, with tax-supported debt per capita and
as a percentage of personal income of $4,536 and 8.1%, compared with the $739
and 2.1% national medians.(4) Independent credit rating agency Standard & Poor's
(S&P) assigned the state's general obligation bonds a rating of AA with a stable
outlook.(5) The rating and outlook reflected expectations that the state will
continue to adjust its budget as necessary to restore fiscal balance amid
ongoing budget volatility. In addition, S&P noted that Connecticut has faced
high leverage and revenue volatility in the past, but has historically managed
such budget pressures.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate S&P's rating of the Fund.
30 | Annual Report
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Connecticut Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
Annual Report | 31
Performance Summary as of 2/28/10
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FXCTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $10.88 $10.18
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4521
CLASS C (SYMBOL: FCTIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $10.94 $10.24
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.3933
ADVISOR CLASS (SYMBOL: FCNZX) CHANGE 2/28/10 7/15/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.42 $10.87 $10.45
DISTRIBUTIONS (7/16/09-2/28/10)
Dividend Income $0.2837
32 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +11.50% +21.18% +69.68%
Average Annual Total Return(2) +6.78% +3.02% +4.97%
Avg. Ann. Total Return (3/31/10)(3) +6.95% +3.15% +4.73%
Distribution Rate(4) 3.99%
Taxable Equivalent Distribution Rate(5) 6.57%
30-Day Standardized Yield(6) 3.34%
Taxable Equivalent Yield(5) 5.50%
Total Annual Operating Expenses(7) 0.68%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.83% +17.89% +60.53%
Average Annual Total Return(2) +9.83% +3.35% +4.85%
Avg. Ann. Total Return (3/31/10)(3) +10.22% +3.49% +4.62%
Distribution Rate(4) 3.56%
Taxable Equivalent Distribution Rate(5) 5.86%
30-Day Standardized Yield(6) 2.94%
Taxable Equivalent Yield(5) 4.84%
Total Annual Operating Expenses(7) 1.23%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +11.46% +21.14% +69.62%
Average Annual Total Return(2) +11.46% +3.91% +5.43%
Avg. Ann. Total Return (3/31/10)(3) +11.76% +4.06% +5.20%
Distribution Rate(4) 4.27%
Taxable Equivalent Distribution Rate(5) 7.03%
30-Day Standardized Yield(6) 3.59%
Taxable Equivalent Yield(5) 5.91%
Total Annual Operating Expenses(7) 0.58%
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.
Annual Report | 33
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.78%
5-Year +3.02%
10-Year +4.97%
(PERFORMANCE GRAPH)
FRANKLIN
CONNECTICUT BARCLAYS
TAX-FREE CAPITAL
INCOME FUND - MUNICIPAL
DATE CLASS A BOND INDEX CPI
---- ------------- ---------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,827 $10,218 $10,082
4/30/2000 $ 9,758 $10,158 $10,088
5/31/2000 $ 9,689 $10,105 $10,100
6/30/2000 $ 9,935 $10,373 $10,153
7/31/2000 $10,069 $10,518 $10,177
8/31/2000 $10,232 $10,680 $10,177
9/30/2000 $10,177 $10,624 $10,230
10/31/2000 $10,282 $10,740 $10,247
11/30/2000 $10,356 $10,821 $10,253
12/31/2000 $10,561 $11,089 $10,247
1/31/2001 $10,615 $11,198 $10,312
2/28/2001 $10,669 $11,234 $10,353
3/31/2001 $10,779 $11,334 $10,377
4/30/2001 $10,663 $11,212 $10,418
5/31/2001 $10,790 $11,332 $10,465
6/30/2001 $10,875 $11,408 $10,483
7/31/2001 $11,086 $11,577 $10,453
8/31/2001 $11,286 $11,768 $10,453
9/30/2001 $11,207 $11,729 $10,501
10/31/2001 $11,378 $11,868 $10,465
11/30/2001 $11,266 $11,768 $10,448
12/31/2001 $11,154 $11,657 $10,406
1/31/2002 $11,334 $11,859 $10,430
2/28/2002 $11,473 $12,002 $10,471
3/31/2002 $11,258 $11,767 $10,530
4/30/2002 $11,452 $11,997 $10,589
5/31/2002 $11,508 $12,070 $10,589
6/30/2002 $11,618 $12,197 $10,595
7/31/2002 $11,783 $12,354 $10,607
8/31/2002 $11,914 $12,503 $10,642
9/30/2002 $12,197 $12,776 $10,660
10/31/2002 $11,930 $12,565 $10,677
11/30/2002 $11,878 $12,512 $10,677
12/31/2002 $12,132 $12,776 $10,654
1/31/2003 $12,100 $12,744 $10,701
2/28/2003 $12,265 $12,922 $10,783
3/31/2003 $12,269 $12,930 $10,848
4/30/2003 $12,347 $13,015 $10,824
5/31/2003 $12,651 $13,320 $10,807
6/30/2003 $12,595 $13,263 $10,819
7/31/2003 $12,024 $12,799 $10,830
8/31/2003 $12,082 $12,895 $10,872
9/30/2003 $12,374 $13,274 $10,907
10/31/2003 $12,322 $13,207 $10,895
11/30/2003 $12,469 $13,345 $10,866
12/31/2003 $12,572 $13,455 $10,854
1/31/2004 $12,642 $13,532 $10,907
2/29/2004 $12,846 $13,736 $10,966
3/31/2004 $12,847 $13,688 $11,037
4/30/2004 $12,500 $13,364 $11,072
5/31/2004 $12,455 $13,315 $11,137
6/30/2004 $12,535 $13,364 $11,172
7/31/2004 $12,736 $13,540 $11,154
8/31/2004 $12,960 $13,811 $11,160
9/30/2004 $13,053 $13,884 $11,184
10/31/2004 $13,184 $14,004 $11,243
11/30/2004 $13,098 $13,888 $11,249
12/31/2004 $13,267 $14,058 $11,207
1/31/2005 $13,431 $14,189 $11,231
2/28/2005 $13,407 $14,142 $11,296
3/31/2005 $13,363 $14,053 $11,384
4/30/2005 $13,566 $14,274 $11,461
5/31/2005 $13,665 $14,375 $11,449
6/30/2005 $13,730 $14,464 $11,455
7/31/2005 $13,706 $14,399 $11,508
8/31/2005 $13,840 $14,544 $11,567
9/30/2005 $13,742 $14,446 $11,708
10/31/2005 $13,679 $14,359 $11,731
11/30/2005 $13,741 $14,428 $11,637
12/31/2005 $13,868 $14,552 $11,590
1/31/2006 $13,892 $14,591 $11,678
2/28/2006 $13,987 $14,689 $11,702
3/31/2006 $13,903 $14,588 $11,767
4/30/2006 $13,926 $14,583 $11,867
5/31/2006 $13,951 $14,648 $11,926
6/30/2006 $13,912 $14,592 $11,949
7/31/2006 $14,052 $14,766 $11,985
8/31/2006 $14,243 $14,985 $12,008
9/30/2006 $14,331 $15,089 $11,949
10/31/2006 $14,409 $15,184 $11,885
11/30/2006 $14,534 $15,311 $11,867
12/31/2006 $14,493 $15,257 $11,885
1/31/2007 $14,466 $15,217 $11,921
2/28/2007 $14,632 $15,418 $11,985
3/31/2007 $14,582 $15,380 $12,094
4/30/2007 $14,630 $15,426 $12,172
5/31/2007 $14,575 $15,357 $12,247
6/30/2007 $14,520 $15,278 $12,270
7/31/2007 $14,611 $15,396 $12,267
8/31/2007 $14,488 $15,330 $12,245
9/30/2007 $14,698 $15,557 $12,279
10/31/2007 $14,764 $15,626 $12,305
11/30/2007 $14,816 $15,726 $12,378
12/31/2007 $14,826 $15,769 $12,370
1/31/2008 $14,944 $15,968 $12,431
2/29/2008 $14,242 $15,237 $12,467
3/31/2008 $14,677 $15,672 $12,575
4/30/2008 $14,896 $15,856 $12,652
5/31/2008 $15,018 $15,952 $12,758
6/30/2008 $14,887 $15,771 $12,887
7/31/2008 $14,888 $15,831 $12,954
8/31/2008 $14,982 $16,017 $12,903
9/30/2008 $14,234 $15,265 $12,885
10/31/2008 $14,024 $15,110 $12,755
11/30/2008 $13,863 $15,158 $12,510
12/31/2008 $13,832 $15,379 $12,381
1/31/2009 $14,354 $15,942 $12,435
2/28/2009 $14,572 $16,025 $12,497
3/31/2009 $14,591 $16,028 $12,527
4/30/2009 $14,958 $16,349 $12,558
5/31/2009 $15,200 $16,522 $12,595
6/30/2009 $15,094 $16,367 $12,703
7/31/2009 $15,282 $16,641 $12,683
8/31/2009 $15,614 $16,925 $12,711
9/30/2009 $16,208 $17,532 $12,719
10/31/2009 $15,958 $17,164 $12,731
11/30/2009 $15,954 $17,306 $12,740
12/31/2009 $16,068 $17,365 $12,718
1/31/2010 $16,125 $17,455 $12,761
2/28/2010 $16,241 $17,624 $12,764
CLASS C (3/1/00-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.83%
5-Year +3.35%
10-Year +4.85%
(PERFORMANCE GRAPH)
Franklin
Connecticut Barclays
Tax-Free Capital
Income Fund - Municipal
Date Class C Bond Index CPI
---- ------------- ---------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,258 $10,218 $10,082
4/30/2000 $10,182 $10,158 $10,088
5/31/2000 $10,095 $10,105 $10,100
6/30/2000 $10,347 $10,373 $10,153
7/31/2000 $10,481 $10,518 $10,177
8/31/2000 $10,644 $10,680 $10,177
9/30/2000 $10,584 $10,624 $10,230
10/31/2000 $10,688 $10,740 $10,247
11/30/2000 $10,759 $10,821 $10,253
12/31/2000 $10,966 $11,089 $10,247
1/31/2001 $11,018 $11,198 $10,312
2/28/2001 $11,069 $11,234 $10,353
3/31/2001 $11,177 $11,334 $10,377
4/30/2001 $11,052 $11,212 $10,418
5/31/2001 $11,188 $11,332 $10,465
6/30/2001 $11,271 $11,408 $10,483
7/31/2001 $11,484 $11,577 $10,453
8/31/2001 $11,684 $11,768 $10,453
9/30/2001 $11,598 $11,729 $10,501
10/31/2001 $11,769 $11,868 $10,465
11/30/2001 $11,648 $11,768 $10,448
12/31/2001 $11,528 $11,657 $10,406
1/31/2002 $11,707 $11,859 $10,430
2/28/2002 $11,845 $12,002 $10,471
3/31/2002 $11,618 $11,767 $10,530
4/30/2002 $11,811 $11,997 $10,589
5/31/2002 $11,864 $12,070 $10,589
6/30/2002 $11,971 $12,197 $10,595
7/31/2002 $12,135 $12,354 $10,607
8/31/2002 $12,265 $12,503 $10,642
9/30/2002 $12,549 $12,776 $10,660
10/31/2002 $12,282 $12,565 $10,677
11/30/2002 $12,223 $12,512 $10,677
12/31/2002 $12,466 $12,776 $10,654
1/31/2003 $12,428 $12,744 $10,701
2/28/2003 $12,602 $12,922 $10,783
3/31/2003 $12,590 $12,930 $10,848
4/30/2003 $12,664 $13,015 $10,824
5/31/2003 $12,969 $13,320 $10,807
6/30/2003 $12,916 $13,263 $10,819
7/31/2003 $12,316 $12,799 $10,830
8/31/2003 $12,368 $12,895 $10,872
9/30/2003 $12,661 $13,274 $10,907
10/31/2003 $12,601 $13,207 $10,895
11/30/2003 $12,756 $13,345 $10,866
12/31/2003 $12,855 $13,455 $10,854
1/31/2004 $12,921 $13,532 $10,907
2/29/2004 $13,124 $13,736 $10,966
3/31/2004 $13,107 $13,688 $11,037
4/30/2004 $12,760 $13,364 $11,072
5/31/2004 $12,707 $13,315 $11,137
6/30/2004 $12,783 $13,364 $11,172
7/31/2004 $12,968 $13,540 $11,154
8/31/2004 $13,201 $13,811 $11,160
9/30/2004 $13,278 $13,884 $11,184
10/31/2004 $13,416 $14,004 $11,243
11/30/2004 $13,323 $13,888 $11,249
12/31/2004 $13,488 $14,058 $11,207
1/31/2005 $13,648 $14,189 $11,231
2/28/2005 $13,617 $14,142 $11,296
3/31/2005 $13,566 $14,053 $11,384
4/30/2005 $13,765 $14,274 $11,461
5/31/2005 $13,859 $14,375 $11,449
6/30/2005 $13,929 $14,464 $11,455
7/31/2005 $13,899 $14,399 $11,508
8/31/2005 $14,016 $14,544 $11,567
9/30/2005 $13,924 $14,446 $11,708
10/31/2005 $13,842 $14,359 $11,731
11/30/2005 $13,898 $14,428 $11,637
12/31/2005 $14,020 $14,552 $11,590
1/31/2006 $14,038 $14,591 $11,678
2/28/2006 $14,127 $14,689 $11,702
3/31/2006 $14,048 $14,588 $11,767
4/30/2006 $14,052 $14,583 $11,867
5/31/2006 $14,083 $14,648 $11,926
6/30/2006 $14,038 $14,592 $11,949
7/31/2006 $14,158 $14,766 $11,985
8/31/2006 $14,344 $14,985 $12,008
9/30/2006 $14,425 $15,089 $11,949
10/31/2006 $14,510 $15,184 $11,885
11/30/2006 $14,629 $15,311 $11,867
12/31/2006 $14,581 $15,257 $11,885
1/31/2007 $14,534 $15,217 $11,921
2/28/2007 $14,707 $15,418 $11,985
3/31/2007 $14,649 $15,380 $12,094
4/30/2007 $14,691 $15,426 $12,172
5/31/2007 $14,629 $15,357 $12,247
6/30/2007 $14,567 $15,278 $12,270
7/31/2007 $14,652 $15,396 $12,267
8/31/2007 $14,522 $15,330 $12,245
9/30/2007 $14,712 $15,557 $12,279
10/31/2007 $14,771 $15,626 $12,305
11/30/2007 $14,829 $15,726 $12,378
12/31/2007 $14,833 $15,769 $12,370
1/31/2008 $14,930 $15,968 $12,431
2/29/2008 $14,225 $15,237 $12,467
3/31/2008 $14,664 $15,672 $12,575
4/30/2008 $14,874 $15,856 $12,652
5/31/2008 $14,974 $15,952 $12,758
6/30/2008 $14,852 $15,771 $12,887
7/31/2008 $14,845 $15,831 $12,954
8/31/2008 $14,932 $16,017 $12,903
9/30/2008 $14,170 $15,265 $12,885
10/31/2008 $13,969 $15,110 $12,755
11/30/2008 $13,789 $15,158 $12,510
12/31/2008 $13,752 $15,379 $12,381
1/31/2009 $14,276 $15,942 $12,435
2/28/2009 $14,487 $16,025 $12,497
3/31/2009 $14,483 $16,028 $12,527
4/30/2009 $14,854 $16,349 $12,558
5/31/2009 $15,086 $16,522 $12,595
6/30/2009 $14,974 $16,367 $12,703
7/31/2009 $15,153 $16,641 $12,683
8/31/2009 $15,473 $16,925 $12,711
9/30/2009 $16,052 $17,532 $12,719
10/31/2009 $15,799 $17,164 $12,731
11/30/2009 $15,788 $17,306 $12,740
12/31/2009 $15,892 $17,365 $12,718
1/31/2010 $15,940 $17,455 $12,761
2/28/2010 $16,053 $17,624 $12,764
34 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (3/1/00-2/28/10)(8)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +11.46%
5-Year +3.91%
10-Year +5.43%
(PERFORMANCE GRAPH)
FRANKLIN
CONNECTICUT BARCLAYS
TAX-FREE CAPITAL
INCOME FUND - MUNICIPAL
DATE ADVISOR CLASS BOND INDEX CPI
---- ------------- ---------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,263 $10,218 $10,082
4/30/2000 $10,191 $10,158 $10,088
5/31/2000 $10,119 $10,105 $10,100
6/30/2000 $10,376 $10,373 $10,153
7/31/2000 $10,516 $10,518 $10,177
8/31/2000 $10,686 $10,680 $10,177
9/30/2000 $10,629 $10,624 $10,230
10/31/2000 $10,739 $10,740 $10,247
11/30/2000 $10,816 $10,821 $10,253
12/31/2000 $11,029 $11,089 $10,247
1/31/2001 $11,086 $11,198 $10,312
2/28/2001 $11,143 $11,234 $10,353
3/31/2001 $11,257 $11,334 $10,377
4/30/2001 $11,136 $11,212 $10,418
5/31/2001 $11,269 $11,332 $10,465
6/30/2001 $11,358 $11,408 $10,483
7/31/2001 $11,578 $11,577 $10,453
8/31/2001 $11,786 $11,768 $10,453
9/30/2001 $11,704 $11,729 $10,501
10/31/2001 $11,883 $11,868 $10,465
11/30/2001 $11,766 $11,768 $10,448
12/31/2001 $11,649 $11,657 $10,406
1/31/2002 $11,837 $11,859 $10,430
2/28/2002 $11,982 $12,002 $10,471
3/31/2002 $11,758 $11,767 $10,530
4/30/2002 $11,960 $11,997 $10,589
5/31/2002 $12,019 $12,070 $10,589
6/30/2002 $12,133 $12,197 $10,595
7/31/2002 $12,306 $12,354 $10,607
8/31/2002 $12,443 $12,503 $10,642
9/30/2002 $12,738 $12,776 $10,660
10/31/2002 $12,460 $12,565 $10,677
11/30/2002 $12,405 $12,512 $10,677
12/31/2002 $12,670 $12,776 $10,654
1/31/2003 $12,637 $12,744 $10,701
2/28/2003 $12,809 $12,922 $10,783
3/31/2003 $12,814 $12,930 $10,848
4/30/2003 $12,895 $13,015 $10,824
5/31/2003 $13,213 $13,320 $10,807
6/30/2003 $13,154 $13,263 $10,819
7/31/2003 $12,558 $12,799 $10,830
8/31/2003 $12,618 $12,895 $10,872
9/30/2003 $12,924 $13,274 $10,907
10/31/2003 $12,869 $13,207 $10,895
11/30/2003 $13,023 $13,345 $10,866
12/31/2003 $13,130 $13,455 $10,854
1/31/2004 $13,203 $13,532 $10,907
2/29/2004 $13,417 $13,736 $10,966
3/31/2004 $13,417 $13,688 $11,037
4/30/2004 $13,055 $13,364 $11,072
5/31/2004 $13,007 $13,315 $11,137
6/30/2004 $13,091 $13,364 $11,172
7/31/2004 $13,302 $13,540 $11,154
8/31/2004 $13,535 $13,811 $11,160
9/30/2004 $13,633 $13,884 $11,184
10/31/2004 $13,769 $14,004 $11,243
11/30/2004 $13,679 $13,888 $11,249
12/31/2004 $13,856 $14,058 $11,207
1/31/2005 $14,027 $14,189 $11,231
2/28/2005 $14,002 $14,142 $11,296
3/31/2005 $13,956 $14,053 $11,384
4/30/2005 $14,169 $14,274 $11,461
5/31/2005 $14,272 $14,375 $11,449
6/30/2005 $14,339 $14,464 $11,455
7/31/2005 $14,314 $14,399 $11,508
8/31/2005 $14,454 $14,544 $11,567
9/30/2005 $14,352 $14,446 $11,708
10/31/2005 $14,287 $14,359 $11,731
11/30/2005 $14,351 $14,428 $11,637
12/31/2005 $14,484 $14,552 $11,590
1/31/2006 $14,509 $14,591 $11,678
2/28/2006 $14,608 $14,689 $11,702
3/31/2006 $14,520 $14,588 $11,767
4/30/2006 $14,544 $14,583 $11,867
5/31/2006 $14,570 $14,648 $11,926
6/30/2006 $14,530 $14,592 $11,949
7/31/2006 $14,676 $14,766 $11,985
8/31/2006 $14,875 $14,985 $12,008
9/30/2006 $14,967 $15,089 $11,949
10/31/2006 $15,048 $15,184 $11,885
11/30/2006 $15,179 $15,311 $11,867
12/31/2006 $15,137 $15,257 $11,885
1/31/2007 $15,108 $15,217 $11,921
2/28/2007 $15,282 $15,418 $11,985
3/31/2007 $15,229 $15,380 $12,094
4/30/2007 $15,280 $15,426 $12,172
5/31/2007 $15,222 $15,357 $12,247
6/30/2007 $15,164 $15,278 $12,270
7/31/2007 $15,260 $15,396 $12,267
8/31/2007 $15,131 $15,330 $12,245
9/30/2007 $15,351 $15,557 $12,279
10/31/2007 $15,419 $15,626 $12,305
11/30/2007 $15,474 $15,726 $12,378
12/31/2007 $15,484 $15,769 $12,370
1/31/2008 $15,608 $15,968 $12,431
2/29/2008 $14,874 $15,237 $12,467
3/31/2008 $15,329 $15,672 $12,575
4/30/2008 $15,557 $15,856 $12,652
5/31/2008 $15,685 $15,952 $12,758
6/30/2008 $15,548 $15,771 $12,887
7/31/2008 $15,548 $15,831 $12,954
8/31/2008 $15,647 $16,017 $12,903
9/30/2008 $14,866 $15,265 $12,885
10/31/2008 $14,647 $15,110 $12,755
11/30/2008 $14,478 $15,158 $12,510
12/31/2008 $14,446 $15,379 $12,381
1/31/2009 $14,991 $15,942 $12,435
2/28/2009 $15,219 $16,025 $12,497
3/31/2009 $15,239 $16,028 $12,527
4/30/2009 $15,622 $16,349 $12,558
5/31/2009 $15,875 $16,522 $12,595
6/30/2009 $15,764 $16,367 $12,703
7/31/2009 $15,946 $16,641 $12,683
8/31/2009 $16,308 $16,925 $12,711
9/30/2009 $16,915 $17,532 $12,719
10/31/2009 $16,656 $17,164 $12,731
11/30/2009 $16,653 $17,306 $12,740
12/31/2009 $16,773 $17,365 $12,718
1/31/2010 $16,834 $17,455 $12,761
2/28/2010 $16,962 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Connecticut
personal income tax rate of 39.23%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 7/14/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/15/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +6.78%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 35
Your Fund's Expenses
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
36 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING PERIOD*
VALUE 9/1/09 VALUE 2/28/10 9/1/09-2/28/10
------------ ------------- --------------
CLASS A
Actual $1,000 $1,040.60 $3.44
Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.41
CLASS C
Actual $1,000 $1,037.50 $6.21
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.16
ADVISOR CLASS
Actual $1,000 $1,040.10 $2.93
Hypothetical (5% return before expenses) $1,000 $1,021.92 $2.91
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.68%; C: 1.23%; and Advisor: 0.58%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 37
Franklin Double Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Double Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and state
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) The Fund focuses on
municipal securities issued by U.S. territories such as Puerto Rico, Guam and
the U.S. Virgin Islands.
CREDIT QUALITY BREAKDOWN*
Franklin Double Tax-Free Income Fund
2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 18.5%
AA 5.8%
A 16.9%
BBB 53.9%
Below Investment Grade 0.4%
Not Rated by S&P 4.5%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 0.1%
BBB or Baa 3.5% 0.9%
--- ---
Total 3.5% 1.0%
We are pleased to bring you Franklin Double Tax-Free Income Fund's annual report
for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.54 on February 28, 2009, to $11.56 on February 28, 2010. The Fund's
(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.
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 132.
38 | Annual Report
DIVIDEND DISTRIBUTIONS*
Franklin Double Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.22 cents 3.77 cents --
April 2009 4.22 cents 3.77 cents --
May 2009 4.22 cents 3.77 cents --
June 2009 4.22 cents 3.74 cents --
July 2009 4.22 cents 3.74 cents 0.70 cents
August 2009 4.22 cents 3.74 cents 4.31 cents
September 2009 4.22 cents 3.69 cents 4.31 cents
October 2009 4.22 cents 3.69 cents 4.31 cents
November 2009 4.22 cents 3.69 cents 4.31 cents
December 2009 4.22 cents 3.67 cents 4.31 cents
January 2010 4.22 cents 3.67 cents 4.31 cents
February 2010 4.22 cents 3.67 cents 4.31 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/15/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
Class A shares paid dividends totaling 50.62 cents per share for the same
period.(2) The Performance Summary beginning on page 41 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.26%
based on an annualization of the current 4.28 cent per share dividend and the
maximum offering price of $12.07 on February 28, 2010. An investor in the 2010
maximum federal income tax bracket of 35.00% would need to earn a distribution
rate of 6.55% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class C and Advisor shares' performance,
please see the Performance Summary.
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 discussion
on page 6 for details. Franklin Double Tax-Free Income Fund was the first mutual
fund of its kind to offer both state and federal income tax exemptions in all 50
states. We do this by investing principally in U.S. territories such
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
Annual Report | 39
PORTFOLIO BREAKDOWN
Franklin Double Tax-Free Income Fund 2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
General Obligation 19.0%
Tax-Supported 16.0%
Utilities 14.9%
Prerefunded 13.6%
Transportation 10.6%
Subject to Government Appropriations 9.2%
Other Revenue 7.0%
Housing 4.0%
Higher Education 3.3%
Hospital & Health Care 2.4%
* Does not include short-term investments and other net assets.
as Puerto Rico, the U.S. Virgin Islands and Guam. This can be particularly
appealing to residents of states such as Illinois, Iowa and Wisconsin, where
income from their own municipal securities may be fully taxable.
The Fund was well diversified with 111 different positions across 10 different
sectors as of February 28, 2010. Issuers represented in the portfolio included
Puerto Rico (82.1% of the Fund's total long-term investments), U.S. Virgin
Islands (11.3%) and Guam (6.6%).
Many municipal bond funds purchase U.S. territory paper, mainly Puerto Rico's,
as an alternative for their specialty state funds when the supply within a
particular state is running low. This strong demand for territory paper has also
helped to keep bond values high relative to other states. Puerto Rico's
municipal bond market is widely traded and is very liquid because of its dual
tax-exemption advantages.
Thank you for your continued participation in Franklin Double Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
40 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN DOUBLE TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FPRTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$1.02 $11.56 $10.54
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5062
CLASS C (SYMBOL: FPRIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$1.03 $11.61 $10.58
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4457
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/15/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.79 $11.57 $10.78
DISTRIBUTIONS (7/16/09-2/28/10)
Dividend Income $0.3197
Annual Report | 41
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +14.78% +19.63% +66.36%
Average Annual Total Return(2) +9.88% +2.76% +4.76%
Avg. Ann. Total Return (3/31/10)(3) +13.73% +2.99% +4.63%
Distribution Rate(4) 4.26%
Taxable Equivalent Distribution Rate(5) 6.55%
30-Day Standardized Yield(6) 3.89%
Taxable Equivalent Yield(5) 5.98%
Total Annual Operating Expenses(7) 0.68%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +14.21% +16.43% +57.68%
Average Annual Total Return(2) +13.21% +3.09% +4.66%
Avg. Ann. Total Return (3/31/10)(3) +17.01% +3.31% +4.51%
Distribution Rate(4) 3.86%
Taxable Equivalent Distribution Rate(5) 5.94%
30-Day Standardized Yield(6) 3.51%
Taxable Equivalent Yield(5) 5.40%
Total Annual Operating Expenses(7) 1.23%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +14.95% +19.81% +66.60%
Average Annual Total Return(2) +14.95% +3.68% +5.24%
Avg. Ann. Total Return (3/31/10)(3) +18.92% +3.92% +5.10%
Distribution Rate(4) 4.54%
Taxable Equivalent Distribution Rate(5) 6.98%
30-Day Standardized Yield(6) 4.17%
Taxable Equivalent Yield(5) 6.42%
Total Annual Operating Expenses(7) 0.58%
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.
42 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +9.88%
5-Year +2.76%
10-Year +4.76%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN DOUBLE BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---- --------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,774 $10,218 $10,082
4/30/2000 $ 9,730 $10,158 $10,088
5/31/2000 $ 9,679 $10,105 $10,100
6/30/2000 $ 9,916 $10,373 $10,153
7/31/2000 $10,057 $10,518 $10,177
8/31/2000 $10,217 $10,680 $10,177
9/30/2000 $10,170 $10,624 $10,230
10/31/2000 $10,234 $10,740 $10,247
11/30/2000 $10,314 $10,821 $10,253
12/31/2000 $10,530 $11,089 $10,247
1/31/2001 $10,593 $11,198 $10,312
2/28/2001 $10,633 $11,234 $10,353
3/31/2001 $10,709 $11,334 $10,377
4/30/2001 $10,625 $11,212 $10,418
5/31/2001 $10,745 $11,332 $10,465
6/30/2001 $10,835 $11,408 $10,483
7/31/2001 $11,024 $11,577 $10,453
8/31/2001 $11,192 $11,768 $10,453
9/30/2001 $11,055 $11,729 $10,501
10/31/2001 $11,196 $11,868 $10,465
11/30/2001 $11,097 $11,768 $10,448
12/31/2001 $10,974 $11,657 $10,406
1/31/2002 $11,144 $11,859 $10,430
2/28/2002 $11,302 $12,002 $10,471
3/31/2002 $11,099 $11,767 $10,530
4/30/2002 $11,318 $11,997 $10,589
5/31/2002 $11,363 $12,070 $10,589
6/30/2002 $11,454 $12,197 $10,595
7/31/2002 $11,588 $12,354 $10,607
8/31/2002 $11,710 $12,503 $10,642
9/30/2002 $11,982 $12,776 $10,660
10/31/2002 $11,780 $12,565 $10,677
11/30/2002 $11,752 $12,512 $10,677
12/31/2002 $11,990 $12,776 $10,654
1/31/2003 $11,915 $12,744 $10,701
2/28/2003 $12,056 $12,922 $10,783
3/31/2003 $12,055 $12,930 $10,848
4/30/2003 $12,080 $13,015 $10,824
5/31/2003 $12,390 $13,320 $10,807
6/30/2003 $12,332 $13,263 $10,819
7/31/2003 $11,865 $12,799 $10,830
8/31/2003 $11,970 $12,895 $10,872
9/30/2003 $12,296 $13,274 $10,907
10/31/2003 $12,228 $13,207 $10,895
11/30/2003 $12,396 $13,345 $10,866
12/31/2003 $12,507 $13,455 $10,854
1/31/2004 $12,563 $13,532 $10,907
2/29/2004 $12,804 $13,736 $10,966
3/31/2004 $12,798 $13,688 $11,037
4/30/2004 $12,438 $13,364 $11,072
5/31/2004 $12,325 $13,315 $11,137
6/30/2004 $12,414 $13,364 $11,172
7/31/2004 $12,622 $13,540 $11,154
8/31/2004 $12,886 $13,811 $11,160
9/30/2004 $12,954 $13,884 $11,184
10/31/2004 $13,087 $14,004 $11,243
11/30/2004 $12,991 $13,888 $11,249
12/31/2004 $13,147 $14,058 $11,207
1/31/2005 $13,324 $14,189 $11,231
2/28/2005 $13,315 $14,142 $11,296
3/31/2005 $13,263 $14,053 $11,384
4/30/2005 $13,463 $14,274 $11,461
5/31/2005 $13,568 $14,375 $11,449
6/30/2005 $13,650 $14,464 $11,455
7/31/2005 $13,596 $14,399 $11,508
8/31/2005 $13,723 $14,544 $11,567
9/30/2005 $13,622 $14,446 $11,708
10/31/2005 $13,531 $14,359 $11,731
11/30/2005 $13,535 $14,428 $11,637
12/31/2005 $13,663 $14,552 $11,590
1/31/2006 $13,718 $14,591 $11,678
2/28/2006 $13,865 $14,689 $11,702
3/31/2006 $13,755 $14,588 $11,767
4/30/2006 $13,744 $14,583 $11,867
5/31/2006 $13,760 $14,648 $11,926
6/30/2006 $13,725 $14,592 $11,949
7/31/2006 $13,880 $14,766 $11,985
8/31/2006 $14,083 $14,985 $12,008
9/30/2006 $14,201 $15,089 $11,949
10/31/2006 $14,299 $15,184 $11,885
11/30/2006 $14,429 $15,311 $11,867
12/31/2006 $14,372 $15,257 $11,885
1/31/2007 $14,351 $15,217 $11,921
2/28/2007 $14,554 $15,418 $11,985
3/31/2007 $14,511 $15,380 $12,094
4/30/2007 $14,561 $15,426 $12,172
5/31/2007 $14,515 $15,357 $12,247
6/30/2007 $14,441 $15,278 $12,270
7/31/2007 $14,540 $15,396 $12,267
8/31/2007 $14,381 $15,330 $12,245
9/30/2007 $14,590 $15,557 $12,279
10/31/2007 $14,654 $15,626 $12,305
11/30/2007 $14,641 $15,726 $12,378
12/31/2007 $14,567 $15,769 $12,370
1/31/2008 $14,691 $15,968 $12,431
2/29/2008 $13,964 $15,237 $12,467
3/31/2008 $14,356 $15,672 $12,575
4/30/2008 $14,633 $15,856 $12,652
5/31/2008 $14,788 $15,952 $12,758
6/30/2008 $14,623 $15,771 $12,887
7/31/2008 $14,587 $15,831 $12,954
8/31/2008 $14,745 $16,017 $12,903
9/30/2008 $13,820 $15,265 $12,885
10/31/2008 $13,425 $15,110 $12,755
11/30/2008 $13,179 $15,158 $12,510
12/31/2008 $12,677 $15,379 $12,381
1/31/2009 $13,683 $15,942 $12,435
2/28/2009 $13,879 $16,025 $12,497
3/31/2009 $13,518 $16,028 $12,527
4/30/2009 $14,114 $16,349 $12,558
5/31/2009 $14,529 $16,522 $12,595
6/30/2009 $14,371 $16,367 $12,703
7/31/2009 $14,615 $16,641 $12,683
8/31/2009 $14,967 $16,925 $12,711
9/30/2009 $15,817 $17,532 $12,719
10/31/2009 $15,580 $17,164 $12,731
11/30/2009 $15,555 $17,306 $12,740
12/31/2009 $15,598 $17,365 $12,718
1/31/2010 $15,726 $17,455 $12,761
2/28/2010 $15,923 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +13.21%
5-Year +3.09%
10-Year +4.66%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN DOUBLE BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---- --------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,203 $10,218 $10,082
4/30/2000 $10,144 $10,158 $10,088
5/31/2000 $10,095 $10,105 $10,100
6/30/2000 $10,337 $10,373 $10,153
7/31/2000 $10,480 $10,518 $10,177
8/31/2000 $10,641 $10,680 $10,177
9/30/2000 $10,587 $10,624 $10,230
10/31/2000 $10,649 $10,740 $10,247
11/30/2000 $10,727 $10,821 $10,253
12/31/2000 $10,946 $11,089 $10,247
1/31/2001 $11,006 $11,198 $10,312
2/28/2001 $11,054 $11,234 $10,353
3/31/2001 $11,126 $11,334 $10,377
4/30/2001 $11,034 $11,212 $10,418
5/31/2001 $11,144 $11,332 $10,465
6/30/2001 $11,232 $11,408 $10,483
7/31/2001 $11,422 $11,577 $10,453
8/31/2001 $11,600 $11,768 $10,453
9/30/2001 $11,444 $11,729 $10,501
10/31/2001 $11,594 $11,868 $10,465
11/30/2001 $11,476 $11,768 $10,448
12/31/2001 $11,354 $11,657 $10,406
1/31/2002 $11,524 $11,859 $10,430
2/28/2002 $11,672 $12,002 $10,471
3/31/2002 $11,467 $11,767 $10,530
4/30/2002 $11,687 $11,997 $10,589
5/31/2002 $11,728 $12,070 $10,589
6/30/2002 $11,806 $12,197 $10,595
7/31/2002 $11,949 $12,354 $10,607
8/31/2002 $12,070 $12,503 $10,642
9/30/2002 $12,344 $12,776 $10,660
10/31/2002 $12,130 $12,565 $10,677
11/30/2002 $12,097 $12,512 $10,677
12/31/2002 $12,345 $12,776 $10,654
1/31/2003 $12,263 $12,744 $10,701
2/28/2003 $12,393 $12,922 $10,783
3/31/2003 $12,386 $12,930 $10,848
4/30/2003 $12,406 $13,015 $10,824
5/31/2003 $12,718 $13,320 $10,807
6/30/2003 $12,652 $13,263 $10,819
7/31/2003 $12,168 $12,799 $10,830
8/31/2003 $12,280 $12,895 $10,872
9/30/2003 $12,607 $13,274 $10,907
10/31/2003 $12,520 $13,207 $10,895
11/30/2003 $12,697 $13,345 $10,866
12/31/2003 $12,793 $13,455 $10,854
1/31/2004 $12,845 $13,532 $10,907
2/29/2004 $13,097 $13,736 $10,966
3/31/2004 $13,085 $13,688 $11,037
4/30/2004 $12,701 $13,364 $11,072
5/31/2004 $12,580 $13,315 $11,137
6/30/2004 $12,665 $13,364 $11,172
7/31/2004 $12,881 $13,540 $11,154
8/31/2004 $13,144 $13,811 $11,160
9/30/2004 $13,207 $13,884 $11,184
10/31/2004 $13,336 $14,004 $11,243
11/30/2004 $13,221 $13,888 $11,249
12/31/2004 $13,385 $14,058 $11,207
1/31/2005 $13,558 $14,189 $11,231
2/28/2005 $13,543 $14,142 $11,296
3/31/2005 $13,484 $14,053 $11,384
4/30/2005 $13,680 $14,274 $11,461
5/31/2005 $13,781 $14,375 $11,449
6/30/2005 $13,846 $14,464 $11,455
7/31/2005 $13,784 $14,399 $11,508
8/31/2005 $13,918 $14,544 $11,567
9/30/2005 $13,810 $14,446 $11,708
10/31/2005 $13,712 $14,359 $11,731
11/30/2005 $13,709 $14,428 $11,637
12/31/2005 $13,832 $14,552 $11,590
1/31/2006 $13,882 $14,591 $11,678
2/28/2006 $14,013 $14,689 $11,702
3/31/2006 $13,906 $14,588 $11,767
4/30/2006 $13,889 $14,583 $11,867
5/31/2006 $13,898 $14,648 $11,926
6/30/2006 $13,857 $14,592 $11,949
7/31/2006 $14,007 $14,766 $11,985
8/31/2006 $14,204 $14,985 $12,008
9/30/2006 $14,316 $15,089 $11,949
10/31/2006 $14,408 $15,184 $11,885
11/30/2006 $14,533 $15,311 $11,867
12/31/2006 $14,469 $15,257 $11,885
1/31/2007 $14,442 $15,217 $11,921
2/28/2007 $14,650 $15,418 $11,985
3/31/2007 $14,589 $15,380 $12,094
4/30/2007 $14,644 $15,426 $12,172
5/31/2007 $14,579 $15,357 $12,247
6/30/2007 $14,499 $15,278 $12,270
7/31/2007 $14,603 $15,396 $12,267
8/31/2007 $14,425 $15,330 $12,245
9/30/2007 $14,628 $15,557 $12,279
10/31/2007 $14,685 $15,626 $12,305
11/30/2007 $14,665 $15,726 $12,378
12/31/2007 $14,584 $15,769 $12,370
1/31/2008 $14,702 $15,968 $12,431
2/29/2008 $13,970 $15,237 $12,467
3/31/2008 $14,354 $15,672 $12,575
4/30/2008 $14,623 $15,856 $12,652
5/31/2008 $14,770 $15,952 $12,758
6/30/2008 $14,600 $15,771 $12,887
7/31/2008 $14,570 $15,831 $12,954
8/31/2008 $14,707 $16,017 $12,903
9/30/2008 $13,781 $15,265 $12,885
10/31/2008 $13,382 $15,110 $12,755
11/30/2008 $13,132 $15,158 $12,510
12/31/2008 $12,627 $15,379 $12,381
1/31/2009 $13,620 $15,942 $12,435
2/28/2009 $13,808 $16,025 $12,497
3/31/2009 $13,444 $16,028 $12,527
4/30/2009 $14,028 $16,349 $12,558
5/31/2009 $14,434 $16,522 $12,595
6/30/2009 $14,271 $16,367 $12,703
7/31/2009 $14,506 $16,641 $12,683
8/31/2009 $14,847 $16,925 $12,711
9/30/2009 $15,681 $17,532 $12,719
10/31/2009 $15,453 $17,164 $12,731
11/30/2009 $15,421 $17,306 $12,740
12/31/2009 $15,456 $17,365 $12,718
1/31/2010 $15,561 $17,455 $12,761
2/28/2010 $15,768 $17,624 $12,764
Annual Report | 43
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +14.95%
5-Year +3.68%
10-Year +5.24%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN DOUBLE BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - ADVISOR CLASS INDEX CPI
- ---- -------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,207 $10,218 $10,082
4/30/2000 $10,162 $10,158 $10,088
5/31/2000 $10,108 $10,105 $10,100
6/30/2000 $10,356 $10,373 $10,153
7/31/2000 $10,504 $10,518 $10,177
8/31/2000 $10,671 $10,680 $10,177
9/30/2000 $10,621 $10,624 $10,230
10/31/2000 $10,688 $10,740 $10,247
11/30/2000 $10,771 $10,821 $10,253
12/31/2000 $10,998 $11,089 $10,247
1/31/2001 $11,063 $11,198 $10,312
2/28/2001 $11,105 $11,234 $10,353
3/31/2001 $11,184 $11,334 $10,377
4/30/2001 $11,097 $11,212 $10,418
5/31/2001 $11,222 $11,332 $10,465
6/30/2001 $11,316 $11,408 $10,483
7/31/2001 $11,513 $11,577 $10,453
8/31/2001 $11,688 $11,768 $10,453
9/30/2001 $11,546 $11,729 $10,501
10/31/2001 $11,693 $11,868 $10,465
11/30/2001 $11,589 $11,768 $10,448
12/31/2001 $11,461 $11,657 $10,406
1/31/2002 $11,639 $11,859 $10,430
2/28/2002 $11,804 $12,002 $10,471
3/31/2002 $11,592 $11,767 $10,530
4/30/2002 $11,821 $11,997 $10,589
5/31/2002 $11,867 $12,070 $10,589
6/30/2002 $11,962 $12,197 $10,595
7/31/2002 $12,102 $12,354 $10,607
8/31/2002 $12,230 $12,503 $10,642
9/30/2002 $12,514 $12,776 $10,660
10/31/2002 $12,303 $12,565 $10,677
11/30/2002 $12,274 $12,512 $10,677
12/31/2002 $12,522 $12,776 $10,654
1/31/2003 $12,443 $12,744 $10,701
2/28/2003 $12,591 $12,922 $10,783
3/31/2003 $12,590 $12,930 $10,848
4/30/2003 $12,617 $13,015 $10,824
5/31/2003 $12,940 $13,320 $10,807
6/30/2003 $12,879 $13,263 $10,819
7/31/2003 $12,391 $12,799 $10,830
8/31/2003 $12,502 $12,895 $10,872
9/30/2003 $12,842 $13,274 $10,907
10/31/2003 $12,771 $13,207 $10,895
11/30/2003 $12,946 $13,345 $10,866
12/31/2003 $13,062 $13,455 $10,854
1/31/2004 $13,120 $13,532 $10,907
2/29/2004 $13,373 $13,736 $10,966
3/31/2004 $13,366 $13,688 $11,037
4/30/2004 $12,990 $13,364 $11,072
5/31/2004 $12,872 $13,315 $11,137
6/30/2004 $12,965 $13,364 $11,172
7/31/2004 $13,182 $13,540 $11,154
8/31/2004 $13,458 $13,811 $11,160
9/30/2004 $13,529 $13,884 $11,184
10/31/2004 $13,667 $14,004 $11,243
11/30/2004 $13,567 $13,888 $11,249
12/31/2004 $13,730 $14,058 $11,207
1/31/2005 $13,915 $14,189 $11,231
2/28/2005 $13,906 $14,142 $11,296
3/31/2005 $13,851 $14,053 $11,384
4/30/2005 $14,060 $14,274 $11,461
5/31/2005 $14,170 $14,375 $11,449
6/30/2005 $14,256 $14,464 $11,455
7/31/2005 $14,199 $14,399 $11,508
8/31/2005 $14,332 $14,544 $11,567
9/30/2005 $14,226 $14,446 $11,708
10/31/2005 $14,131 $14,359 $11,731
11/30/2005 $14,135 $14,428 $11,637
12/31/2005 $14,269 $14,552 $11,590
1/31/2006 $14,327 $14,591 $11,678
2/28/2006 $14,480 $14,689 $11,702
3/31/2006 $14,365 $14,588 $11,767
4/30/2006 $14,355 $14,583 $11,867
5/31/2006 $14,371 $14,648 $11,926
6/30/2006 $14,334 $14,592 $11,949
7/31/2006 $14,497 $14,766 $11,985
8/31/2006 $14,708 $14,985 $12,008
9/30/2006 $14,831 $15,089 $11,949
10/31/2006 $14,934 $15,184 $11,885
11/30/2006 $15,070 $15,311 $11,867
12/31/2006 $15,010 $15,257 $11,885
1/31/2007 $14,988 $15,217 $11,921
2/28/2007 $15,200 $15,418 $11,985
3/31/2007 $15,156 $15,380 $12,094
4/30/2007 $15,208 $15,426 $12,172
5/31/2007 $15,160 $15,357 $12,247
6/30/2007 $15,082 $15,278 $12,270
7/31/2007 $15,186 $15,396 $12,267
8/31/2007 $15,019 $15,330 $12,245
9/30/2007 $15,238 $15,557 $12,279
10/31/2007 $15,305 $15,626 $12,305
11/30/2007 $15,291 $15,726 $12,378
12/31/2007 $15,213 $15,769 $12,370
1/31/2008 $15,343 $15,968 $12,431
2/29/2008 $14,584 $15,237 $12,467
3/31/2008 $14,993 $15,672 $12,575
4/30/2008 $15,282 $15,856 $12,652
5/31/2008 $15,444 $15,952 $12,758
6/30/2008 $15,272 $15,771 $12,887
7/31/2008 $15,235 $15,831 $12,954
8/31/2008 $15,399 $16,017 $12,903
9/30/2008 $14,433 $15,265 $12,885
10/31/2008 $14,021 $15,110 $12,755
11/30/2008 $13,764 $15,158 $12,510
12/31/2008 $13,240 $15,379 $12,381
1/31/2009 $14,291 $15,942 $12,435
2/28/2009 $14,495 $16,025 $12,497
3/31/2009 $14,118 $16,028 $12,527
4/30/2009 $14,740 $16,349 $12,558
5/31/2009 $15,174 $16,522 $12,595
6/30/2009 $15,009 $16,367 $12,703
7/31/2009 $15,265 $16,641 $12,683
8/31/2009 $15,633 $16,925 $12,711
9/30/2009 $16,537 $17,532 $12,719
10/31/2009 $16,290 $17,164 $12,731
11/30/2009 $16,265 $17,306 $12,740
12/31/2009 $16,312 $17,365 $12,718
1/31/2010 $16,447 $17,455 $12,761
2/28/2010 $16,660 $17,624 $12,764
ENDNOTES
BECAUSE MUNICIPAL BONDS ARE PARTICULARLY 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. THE FUND IS CLASSIFIED AS A NONDIVERSIFIED FUND, BECAUSE IT
MAY INVEST A GREATER PORTION OF ITS ASSETS IN THE MUNICIPAL SECURITIES OF ONE
ISSUER THAN A DIVERSIFIED FUND. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 7/14/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/15/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +10.38%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
44 | Annual Report
Your Fund's Expenses
FRANKLIN DOUBLE TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 45
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,064.30 $3.53
Hypothetical (5% return before expenses) $1,000 $1,021.37 $3.46
CLASS C
Actual $1,000 $1,062.00 $6.34
Hypothetical (5% return before expenses) $1,000 $1,018.65 $6.21
ADVISOR CLASS
Actual $1,000 $1,065.70 $3.02
Hypothetical (5% return before expenses) $1,000 $1,021.87 $2.96
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.69%; C: 1.24%; and Advisor: 0.59%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
46 | Annual Report
Franklin Federal Intermediate-Term Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Federal Intermediate-Term
Tax-Free Income Fund seeks to provide as high a level of income exempt from
federal 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) The Fund maintains a
dollar-weighted average portfolio maturity (the time in which the debt must be
repaid) of three to 10 years.
CREDIT QUALITY BREAKDOWN*
Franklin Federal Intermediate-Term Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
RATINGS INVESTMENTS**
- ------- -------------
AAA 32.2%
AA 24.0%
A 31.4%
BBB 8.1%
Below Investment Grade 0.4%
Not Rated by S&P 3.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa -- 0.2%
AA or Aa 1.2% 0.3%
A 0.6% 0.6%
BBB or Baa 0.9% 0.1%
--- ---
Total 2.7% 1.2%
We are pleased to bring you Franklin Federal Intermediate-Term Tax-Free Income
Fund's annual report for the fiscal year ended February 28, 2010.
(1.) Dividends are generally subject to state and local taxes, if any. 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.
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 139.
Annual Report | 47
DIVIDEND DISTRIBUTIONS*
Franklin Federal Intermediate-Term Tax-Free Income Fund
DIVIDEND PER SHARE
---------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS
- ----- ---------- ---------- -------------
March 2009 3.68 cents 3.17 cents 3.77 cents
April 2009 3.68 cents 3.17 cents 3.77 cents
May 2009 3.68 cents 3.17 cents 3.77 cents
June 2009 3.68 cents 3.16 cents 3.77 cents
July 2009 3.68 cents 3.16 cents 3.77 cents
August 2009 3.68 cents 3.16 cents 3.77 cents
September 2009 3.68 cents 3.16 cents 3.77 cents
October 2009 3.68 cents 3.16 cents 3.77 cents
November 2009 3.58 cents 3.06 cents 3.67 cents
December 2009 3.58 cents 3.03 cents 3.67 cents
January 2010 3.58 cents 3.03 cents 3.67 cents
February 2010 3.58 cents 3.03 cents 3.67 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.99 on February 28, 2009, to $11.59 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 43.70 cents per share for the same period.(2) The
Performance Summary beginning on page 50 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.62% based on an
annualization of the current 3.58 cent per share dividend and the maximum
offering price of $11.86 on February 28, 2010. An investor in the 2010 maximum
federal income tax bracket of 35.00% would need to earn a distribution rate of
5.57% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class C and Advisor shares' performance,
please see the Performance Summary. During the year under review, renewed
investor interest in municipal bonds and limited new-issue supply tended to
reduce the Fund's income, which caused dividends to decline slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
48 | Annual Report
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 discussion
beginning on page 6 for details.
Thank you for your continued participation in Franklin Federal Intermediate-Term
Tax-Free Income Fund. We intend to maintain our conservative, buy-and-hold
investment strategy as we attempt to provide shareholders with high, current,
tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
PORTFOLIO BREAKDOWN
Franklin Federal Intermediate-Term
Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Subject to Government Appropriations 20.9%
Utilities 18.8%
General Obligation 16.8%
Transportation 13.0%
Hospital & Health Care 11.9%
Other Revenue 7.1%
Higher Education 4.4%
Tax-Supported 4.2%
Prerefunded 2.1%
Housing 0.6%
Corporate-Backed 0.2%
* Does not include short-term investments and other net assets.
Annual Report | 49
Performance Summary as of 2/28/10
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKITX) CHANGE 2/28/10 2/28/09
- ----------------------- ------- ------- -------
Net Asset Value (NAV) +$0.60 $11.59 $10.99
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4370
CLASS C (SYMBOL: FCITX) CHANGE 2/28/10 2/28/09
- ----------------------- ------- ------- -------
Net Asset Value (NAV) +$0.60 $11.61 $11.01
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.3740
ADVISOR CLASS (SYMBOL: FITZX) CHANGE 2/28/10 2/28/09
- ----------------------- ------- ------- -------
Net Asset Value (NAV) +$0.60 $11.60 $11.00
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4478
50 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +9.61% +21.42% +63.90%
Average Annual Total Return(2) +7.17% +3.50% +4.83%
Avg. Ann. Total Return (3/31/10)(3) +6.50% +3.55% +4.61%
Distribution Rate(4) 3.62%
Taxable Equivalent Distribution Rate(5) 5.57%
30-Day Standardized Yield(6) 3.17%
Taxable Equivalent Yield(5) 4.88%
Total Annual Operating Expenses(7) 0.68%
CLASS C 1-YEAR 5-YEAR INCEPTION (7/1/03)
- ------- ------ ------ ------------------
Cumulative Total Return(1) +8.98% +18.08% +22.86%
Average Annual Total Return(2) +7.98% +3.38% +3.14%
Avg. Ann. Total Return (3/31/10)(3) +7.31% +3.44% +3.00%
Distribution Rate(4) 3.14%
Taxable Equivalent Distribution Rate(5) 4.83%
30-Day Standardized Yield(6) 2.71%
Taxable Equivalent Yield(5) 4.17%
Total Annual Operating Expenses(7) 1.23%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +9.70% +21.66% +64.22%
Average Annual Total Return(2) +9.70% +4.00% +5.09%
Avg. Ann. Total Return (3/31/10)(3) +9.03% +4.06% +4.86%
Distribution Rate(4) 3.80%
Taxable Equivalent Distribution Rate(5) 5.85%
30-Day Standardized Yield(6) 3.34%
Taxable Equivalent Yield(5) 5.14%
Total Annual Operating Expenses(7) 0.58%
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.
Annual Report | 51
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +7.17%
5-Year +3.50%
10-Year +4.83%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL BARCLAYS CAPITAL
INTERMEDIATE-TERM MUNICIPAL BOND
TAX-FREE INCOME INDEX: 10-YEAR
DATE FUND - CLASS A COMPONENT CPI
- ---------- ----------------- ---------------- -------
3/1/2000 $ 9,775 $10,000 $10,000
3/31/2000 $ 9,925 $10,195 $10,082
4/30/2000 $ 9,883 $10,143 $10,088
5/31/2000 $ 9,823 $10,083 $10,100
6/30/2000 $10,004 $10,357 $10,153
7/31/2000 $10,110 $10,500 $10,177
8/31/2000 $10,265 $10,663 $10,177
9/30/2000 $10,248 $10,614 $10,230
10/31/2000 $10,329 $10,723 $10,247
11/30/2000 $10,360 $10,781 $10,253
12/31/2000 $10,498 $11,035 $10,247
1/31/2001 $10,616 $11,177 $10,312
2/28/2001 $10,664 $11,196 $10,353
3/31/2001 $10,748 $11,291 $10,377
4/30/2001 $10,703 $11,152 $10,418
5/31/2001 $10,815 $11,273 $10,465
6/30/2001 $10,884 $11,340 $10,483
7/31/2001 $11,029 $11,496 $10,453
8/31/2001 $11,202 $11,692 $10,453
9/30/2001 $11,193 $11,675 $10,501
10/31/2001 $11,297 $11,820 $10,465
11/30/2001 $11,197 $11,668 $10,448
12/31/2001 $11,079 $11,544 $10,406
1/31/2002 $11,232 $11,762 $10,430
2/28/2002 $11,372 $11,930 $10,471
3/31/2002 $11,182 $11,684 $10,530
4/30/2002 $11,408 $11,955 $10,589
5/31/2002 $11,470 $12,012 $10,589
6/30/2002 $11,623 $12,161 $10,595
7/31/2002 $11,748 $12,323 $10,607
8/31/2002 $11,862 $12,484 $10,642
9/30/2002 $12,101 $12,781 $10,660
10/31/2002 $11,893 $12,549 $10,677
11/30/2002 $11,816 $12,446 $10,677
12/31/2002 $12,069 $12,719 $10,654
1/31/2003 $12,014 $12,651 $10,701
2/28/2003 $12,220 $12,869 $10,783
3/31/2003 $12,232 $12,875 $10,848
4/30/2003 $12,326 $12,972 $10,824
5/31/2003 $12,665 $13,343 $10,807
6/30/2003 $12,585 $13,279 $10,819
7/31/2003 $12,053 $12,722 $10,830
8/31/2003 $12,167 $12,831 $10,872
9/30/2003 $12,564 $13,263 $10,907
10/31/2003 $12,463 $13,161 $10,895
11/30/2003 $12,586 $13,303 $10,866
12/31/2003 $12,715 $13,443 $10,854
1/31/2004 $12,775 $13,500 $10,907
2/29/2004 $12,997 $13,737 $10,966
3/31/2004 $12,904 $13,659 $11,037
4/30/2004 $12,554 $13,282 $11,072
5/31/2004 $12,550 $13,290 $11,137
6/30/2004 $12,589 $13,334 $11,172
7/31/2004 $12,762 $13,517 $11,154
8/31/2004 $13,026 $13,813 $11,160
9/30/2004 $13,088 $13,886 $11,184
10/31/2004 $13,195 $13,997 $11,243
11/30/2004 $13,032 $13,838 $11,249
12/31/2004 $13,185 $14,001 $11,207
1/31/2005 $13,280 $14,120 $11,231
2/28/2005 $13,194 $14,031 $11,296
3/31/2005 $13,075 $13,908 $11,384
4/30/2005 $13,319 $14,177 $11,461
5/31/2005 $13,407 $14,273 $11,449
6/30/2005 $13,471 $14,355 $11,455
7/31/2005 $13,360 $14,233 $11,508
8/31/2005 $13,506 $14,406 $11,567
9/30/2005 $13,394 $14,275 $11,708
10/31/2005 $13,292 $14,167 $11,731
11/30/2005 $13,358 $14,254 $11,637
12/31/2005 $13,470 $14,385 $11,590
1/31/2006 $13,496 $14,432 $11,678
2/28/2006 $13,568 $14,517 $11,702
3/31/2006 $13,446 $14,368 $11,767
4/30/2006 $13,428 $14,343 $11,867
5/31/2006 $13,495 $14,441 $11,926
6/30/2006 $13,440 $14,376 $11,949
7/31/2006 $13,603 $14,568 $11,985
8/31/2006 $13,815 $14,817 $12,008
9/30/2006 $13,916 $14,925 $11,949
10/31/2006 $13,985 $15,015 $11,885
11/30/2006 $14,086 $15,134 $11,867
12/31/2006 $14,020 $15,063 $11,885
1/31/2007 $13,966 $14,995 $11,921
2/28/2007 $14,141 $15,206 $11,985
3/31/2007 $14,114 $15,175 $12,094
4/30/2007 $14,145 $15,223 $12,172
5/31/2007 $14,065 $15,144 $12,247
6/30/2007 $13,995 $15,063 $12,270
7/31/2007 $14,100 $15,199 $12,267
8/31/2007 $14,119 $15,236 $12,245
9/30/2007 $14,301 $15,440 $12,279
10/31/2007 $14,347 $15,494 $12,305
11/30/2007 $14,454 $15,665 $12,378
12/31/2007 $14,472 $15,709 $12,370
1/31/2008 $14,706 $16,028 $12,431
2/29/2008 $14,125 $15,363 $12,467
3/31/2008 $14,504 $15,758 $12,575
4/30/2008 $14,612 $15,852 $12,652
5/31/2008 $14,684 $15,930 $12,758
6/30/2008 $14,547 $15,765 $12,887
7/31/2008 $14,606 $15,886 $12,954
8/31/2008 $14,771 $16,109 $12,903
9/30/2008 $14,100 $15,524 $12,885
10/31/2008 $13,967 $15,396 $12,755
11/30/2008 $13,947 $15,599 $12,510
12/31/2008 $14,130 $15,947 $12,381
1/31/2009 $14,652 $16,696 $12,435
2/28/2009 $14,618 $16,569 $12,497
3/31/2009 $14,618 $16,491 $12,527
4/30/2009 $14,865 $16,793 $12,558
5/31/2009 $15,009 $16,883 $12,595
6/30/2009 $14,844 $16,646 $12,703
7/31/2009 $15,149 $17,006 $12,683
8/31/2009 $15,347 $17,199 $12,711
9/30/2009 $15,925 $17,744 $12,719
10/31/2009 $15,542 $17,308 $12,731
11/30/2009 $15,726 $17,576 $12,740
12/31/2009 $15,706 $17,519 $12,718
1/31/2010 $15,826 $17,653 $12,761
2/28/2010 $16,024 $17,894 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +7.98%
5-Year +3.38%
Since Inception (7/1/03) +3.14%
CLASS C (7/1/03-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL BARCLAYS CAPITAL
INTERMEDIATE-TERM MUNICIPAL BOND
TAX-FREE INCOME INDEX: 10-YEAR
DATE FUND - CLASS C COMPONENT CPI
- ---------- ----------------- ---------------- -------
7/1/2003 $10,000 $10,000 $10,000
7/31/2003 $ 9,581 $ 9,580 $10,011
8/31/2003 $ 9,676 $ 9,662 $10,049
9/30/2003 $ 9,978 $ 9,988 $10,082
10/31/2003 $ 9,901 $ 9,911 $10,071
11/30/2003 $ 9,986 $10,018 $10,044
12/31/2003 $10,083 $10,124 $10,033
1/31/2004 $10,126 $10,167 $10,082
2/29/2004 $10,298 $10,345 $10,136
3/31/2004 $10,219 $10,286 $10,201
4/30/2004 $ 9,938 $10,002 $10,234
5/31/2004 $ 9,930 $10,008 $10,294
6/30/2004 $ 9,955 $10,042 $10,327
7/31/2004 $10,096 $10,179 $10,310
8/31/2004 $10,301 $10,402 $10,316
9/30/2004 $10,345 $10,457 $10,338
10/31/2004 $10,425 $10,541 $10,392
11/30/2004 $10,282 $10,421 $10,397
12/31/2004 $10,407 $10,544 $10,359
1/31/2005 $10,477 $10,633 $10,381
2/28/2005 $10,404 $10,566 $10,441
3/31/2005 $10,305 $10,474 $10,523
4/30/2005 $10,493 $10,676 $10,593
5/31/2005 $10,548 $10,748 $10,582
6/30/2005 $10,603 $10,810 $10,588
7/31/2005 $10,510 $10,718 $10,637
8/31/2005 $10,620 $10,848 $10,691
9/30/2005 $10,527 $10,750 $10,822
10/31/2005 $10,443 $10,668 $10,844
11/30/2005 $10,490 $10,735 $10,757
12/31/2005 $10,573 $10,833 $10,713
1/31/2006 $10,588 $10,868 $10,795
2/28/2006 $10,640 $10,933 $10,817
3/31/2006 $10,540 $10,820 $10,876
4/30/2006 $10,520 $10,801 $10,969
5/31/2006 $10,567 $10,875 $11,023
6/30/2006 $10,520 $10,826 $11,045
7/31/2006 $10,642 $10,971 $11,078
8/31/2006 $10,803 $11,158 $11,100
9/30/2006 $10,868 $11,240 $11,045
10/31/2006 $10,926 $11,307 $10,985
11/30/2006 $11,001 $11,397 $10,969
12/31/2006 $10,944 $11,343 $10,985
1/31/2007 $10,887 $11,292 $11,019
2/28/2007 $11,028 $11,451 $11,078
3/31/2007 $10,992 $11,428 $11,179
4/30/2007 $11,021 $11,464 $11,251
5/31/2007 $10,953 $11,405 $11,320
6/30/2007 $10,893 $11,343 $11,342
7/31/2007 $10,970 $11,446 $11,339
8/31/2007 $10,980 $11,474 $11,318
9/30/2007 $11,116 $11,627 $11,349
10/31/2007 $11,147 $11,668 $11,374
11/30/2007 $11,225 $11,797 $11,441
12/31/2007 $11,234 $11,830 $11,434
1/31/2008 $11,411 $12,070 $11,490
2/29/2008 $10,956 $11,569 $11,524
3/31/2008 $11,243 $11,867 $11,624
4/30/2008 $11,321 $11,937 $11,694
5/31/2008 $11,372 $11,997 $11,793
6/30/2008 $11,261 $11,872 $11,912
7/31/2008 $11,301 $11,964 $11,974
8/31/2008 $11,422 $12,131 $11,926
9/30/2008 $10,900 $11,691 $11,910
10/31/2008 $10,791 $11,594 $11,789
11/30/2008 $10,772 $11,747 $11,564
12/31/2008 $10,907 $12,009 $11,444
1/31/2009 $11,305 $12,574 $11,494
2/28/2009 $11,274 $12,478 $11,551
3/31/2009 $11,269 $12,419 $11,579
4/30/2009 $11,454 $12,646 $11,608
5/31/2009 $11,569 $12,714 $11,642
6/30/2009 $11,437 $12,535 $11,742
7/31/2009 $11,656 $12,807 $11,723
8/31/2009 $11,802 $12,952 $11,749
9/30/2009 $12,240 $13,363 $11,757
10/31/2009 $11,951 $13,034 $11,768
11/30/2009 $12,077 $13,236 $11,776
12/31/2009 $12,056 $13,193 $11,756
1/31/2010 $12,152 $13,294 $11,796
2/28/2010 $12,286 $13,475 $11,799
52 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +9.70%
5-Year +4.00%
10-Year +5.09%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL BARCLAYS CAPITAL
INTERMEDIATE-TERM MUNICIPAL BOND
TAX-FREE INCOME INDEX: 10-YEAR
DATE FUND - ADVISOR CLASS COMPONENT CPI
- ---------- -------------------- ---------------- --------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,154 $10,195 $10,082
4/30/2000 $10,111 $10,143 $10,088
5/31/2000 $10,049 $10,083 $10,100
6/30/2000 $10,234 $10,357 $10,153
7/31/2000 $10,343 $10,500 $10,177
8/31/2000 $10,501 $10,663 $10,177
9/30/2000 $10,484 $10,614 $10,230
10/31/2000 $10,567 $10,723 $10,247
11/30/2000 $10,599 $10,781 $10,253
12/31/2000 $10,739 $11,035 $10,247
1/31/2001 $10,861 $11,177 $10,312
2/28/2001 $10,910 $11,196 $10,353
3/31/2001 $10,996 $11,291 $10,377
4/30/2001 $10,949 $11,152 $10,418
5/31/2001 $11,064 $11,273 $10,465
6/30/2001 $11,135 $11,340 $10,483
7/31/2001 $11,283 $11,496 $10,453
8/31/2001 $11,459 $11,692 $10,453
9/30/2001 $11,450 $11,675 $10,501
10/31/2001 $11,557 $11,820 $10,465
11/30/2001 $11,455 $11,668 $10,448
12/31/2001 $11,334 $11,544 $10,406
1/31/2002 $11,491 $11,762 $10,430
2/28/2002 $11,634 $11,930 $10,471
3/31/2002 $11,439 $11,684 $10,530
4/30/2002 $11,670 $11,955 $10,589
5/31/2002 $11,734 $12,012 $10,589
6/30/2002 $11,891 $12,161 $10,595
7/31/2002 $12,019 $12,323 $10,607
8/31/2002 $12,135 $12,484 $10,642
9/30/2002 $12,379 $12,781 $10,660
10/31/2002 $12,167 $12,549 $10,677
11/30/2002 $12,088 $12,446 $10,677
12/31/2002 $12,347 $12,719 $10,654
1/31/2003 $12,291 $12,651 $10,701
2/28/2003 $12,502 $12,869 $10,783
3/31/2003 $12,514 $12,875 $10,848
4/30/2003 $12,609 $12,972 $10,824
5/31/2003 $12,956 $13,343 $10,807
6/30/2003 $12,875 $13,279 $10,819
7/31/2003 $12,331 $12,722 $10,830
8/31/2003 $12,447 $12,831 $10,872
9/30/2003 $12,853 $13,263 $10,907
10/31/2003 $12,750 $13,161 $10,895
11/30/2003 $12,876 $13,303 $10,866
12/31/2003 $13,007 $13,443 $10,854
1/31/2004 $13,069 $13,500 $10,907
2/29/2004 $13,296 $13,737 $10,966
3/31/2004 $13,201 $13,659 $11,037
4/30/2004 $12,843 $13,282 $11,072
5/31/2004 $12,839 $13,290 $11,137
6/30/2004 $12,878 $13,334 $11,172
7/31/2004 $13,055 $13,517 $11,154
8/31/2004 $13,326 $13,813 $11,160
9/30/2004 $13,390 $13,886 $11,184
10/31/2004 $13,499 $13,997 $11,243
11/30/2004 $13,332 $13,838 $11,249
12/31/2004 $13,489 $14,001 $11,207
1/31/2005 $13,586 $14,120 $11,231
2/28/2005 $13,498 $14,031 $11,296
3/31/2005 $13,376 $13,908 $11,384
4/30/2005 $13,625 $14,177 $11,461
5/31/2005 $13,716 $14,273 $11,449
6/30/2005 $13,781 $14,355 $11,455
7/31/2005 $13,668 $14,233 $11,508
8/31/2005 $13,817 $14,406 $11,567
9/30/2005 $13,702 $14,275 $11,708
10/31/2005 $13,598 $14,167 $11,731
11/30/2005 $13,666 $14,254 $11,637
12/31/2005 $13,780 $14,385 $11,590
1/31/2006 $13,807 $14,432 $11,678
2/28/2006 $13,880 $14,517 $11,702
3/31/2006 $13,756 $14,368 $11,767
4/30/2006 $13,737 $14,343 $11,867
5/31/2006 $13,805 $14,441 $11,926
6/30/2006 $13,749 $14,376 $11,949
7/31/2006 $13,916 $14,568 $11,985
8/31/2006 $14,133 $14,817 $12,008
9/30/2006 $14,236 $14,925 $11,949
10/31/2006 $14,306 $15,015 $11,885
11/30/2006 $14,410 $15,134 $11,867
12/31/2006 $14,343 $15,063 $11,885
1/31/2007 $14,288 $14,995 $11,921
2/28/2007 $14,467 $15,206 $11,985
3/31/2007 $14,439 $15,175 $12,094
4/30/2007 $14,471 $15,223 $12,172
5/31/2007 $14,389 $15,144 $12,247
6/30/2007 $14,317 $15,063 $12,270
7/31/2007 $14,425 $15,199 $12,267
8/31/2007 $14,444 $15,236 $12,245
9/30/2007 $14,630 $15,440 $12,279
10/31/2007 $14,677 $15,494 $12,305
11/30/2007 $14,786 $15,665 $12,378
12/31/2007 $14,805 $15,709 $12,370
1/31/2008 $15,045 $16,028 $12,431
2/29/2008 $14,451 $15,363 $12,467
3/31/2008 $14,838 $15,758 $12,575
4/30/2008 $14,948 $15,852 $12,652
5/31/2008 $15,022 $15,930 $12,758
6/30/2008 $14,882 $15,765 $12,887
7/31/2008 $14,942 $15,886 $12,954
8/31/2008 $15,111 $16,109 $12,903
9/30/2008 $14,425 $15,524 $12,885
10/31/2008 $14,288 $15,396 $12,755
11/30/2008 $14,269 $15,599 $12,510
12/31/2008 $14,456 $15,947 $12,381
1/31/2009 $15,005 $16,696 $12,435
2/28/2009 $14,972 $16,569 $12,497
3/31/2009 $14,973 $16,491 $12,527
4/30/2009 $15,227 $16,793 $12,558
5/31/2009 $15,389 $16,883 $12,595
6/30/2009 $15,221 $16,646 $12,703
7/31/2009 $15,521 $17,006 $12,683
8/31/2009 $15,725 $17,199 $12,711
9/30/2009 $16,317 $17,744 $12,719
10/31/2009 $15,941 $17,308 $12,731
11/30/2009 $16,116 $17,576 $12,740
12/31/2009 $16,097 $17,519 $12,718
1/31/2010 $16,235 $17,653 $12,761
2/28/2010 $16,422 $17,894 $12,764
ENDNOTES
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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Effective 12/1/08, 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 12/1/08, 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 11/30/08, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 12/1/08
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +15.19% and +12.04%.
(9.) Source: (C) 2010 Morningstar. The BC Municipal Bond Index: 10-Year
Component is the 10-year (8-12) component of the Municipal Bond Index,
which 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, Standard & Poor's or Fitch. The Consumer Price Index (CPI),
calculated by the U.S. Bureau of Labor Statistics, is a commonly used
measure of the inflation rate.
Annual Report | 53
Your Fund's Expenses
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
54 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGE. Therefore,
the second line for each class is useful in comparing ongoing costs only, and
will not help you compare total costs of owning different funds. In addition, if
transaction costs were included, your total costs would have been higher. Please
refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,043.90 $3.45
Hypothetical (5% return before expenses) $1,000 $1,021.42 $3.41
CLASS C
Actual $1,000 $1,041.00 $6.22
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.16
ADVISOR CLASS
Actual $1,000 $1,044.30 $2.94
Hypothetical (5% return before expenses) $1,000 $1,021.92 $2.91
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.68%; C: 1.23%; and Advisor: 0.58%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
Annual Report | 55
Franklin Federal Limited-Term Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Federal Limited-Term Tax-Free
Income Fund seeks to provide as high a level of income exempt from federal
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) The Fund maintains a
dollar-weighted average portfolio maturity (the time in which the debt must be
repaid) of five years or less.
PORTFOLIO BREAKDOWN
Franklin Federal Limited-Term
Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS+
----------------------
General Obligation 25.0%
Utilities 16.0%
Subject to Government Appropriations 11.5%
Hospital & Health Care 10.9%
Other Revenue 10.6%
Tax-Supported 10.3%
Higher Education 6.8%
Transportation 4.0%
Corporate-Backed 3.7%
Housing 1.2%
+ Does not include short-term investments and other net assets.
CREDIT QUALITY BREAKDOWN*
Franklin Federal Limited-Term Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
AAA.................. 37.3%
AA................... 22.1%
A.................... 22.4%
BBB.................. 5.5%
Not Rated by S&P..... 12.7%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.2% --
AA or Aa 3.7% --
A 0.2% 7.7%
BBB or Baa 0.4% 0.5%
--- ---
Total 4.5% 8.2%
We are pleased to bring you Franklin Limited-Term Tax-Free Income Fund's AAA
annual report for the fiscal year ended February 28, 2010.
(1.) Dividends are generally subject to state and local taxes, if any. 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.
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 153.
56 | Annual Report
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$10.11 on February 28, 2009, to $10.35 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 24.53 cents per share for the same period.(2) The
Performance Summary beginning on page 58 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 2.15%. An investor in
the 2010 maximum federal income tax bracket of 35.00% would need to earn a
distribution rate of 3.31% from a taxable investment to match the Fund's Class A
tax-free distribution rate. During the year under review, renewed investor
interest in municipal bonds and limited new-issue supply tended to reduce the
Fund's income, which caused dividends to decline slightly.
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 discussion
on page 6 for details.
Consistent with our investment strategy, we invested in bonds we believed could
provide the most relative value from an income perspective. Seeking a
dollar-weighted average portfolio maturity of five years or less, we
concentrated in the one- to five-year range in an effort to take advantage of
rising yields. As a result of our strategy, we believe the Fund was positioned
to capture changes in short-term interest rates, preserve capital and produce
tax-free income.
Thank you for your continued participation in Franklin Federal Limited-Term
Tax-Free Income Fund. We intend to maintain our conservative, buy-and-hold
investment strategy as we attempt to provide shareholders with high, current,
tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
DIVIDEND DISTRIBUTIONS*
Franklin Federal Limited-Term
Tax-Free Income Fund - Class A
MONTH DIVIDEND PER SHARE
- ----- ------------------
March 2009 1.90 cents
April 2009 1.90 cents
May 2009 2.25 cents
June 2009 2.25 cents
July 2009 2.25 cents
August 2009 2.25 cents
September 200 2.25 cents
October 2009 1.90 cents
November 2009 1.90 cents
December 2009 1.90 cents
January 2010 1.90 cents
February 2010 1.90 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
Annual Report | 57
Performance Summary as of 2/28/10
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FFTFX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $10.35 $10.11
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.2453
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE THE MAXIMUM SALES CHARGE. CLASS A: 2.25% MAXIMUM INITIAL SALES CHARGE.
CLASS A 1-YEAR 5-YEAR INCEPTION (9/2/03)
- ------- ------ ------ ------------------
Cumulative Total Return(2) +4.86% +18.45% +20.68%
Average Annual Total Return(3) +2.52% +2.97% +2.58%
Avg. Ann. Total Return (3/31/10)(4) +1.63% +2.91% +2.45%
Distribution Rate(5) 2.15%
Taxable Equivalent Distribution Rate(6) 3.31%
30-Day Standardized Yield(7) 1.56%
Taxable Equivalent Yield(6) 2.40%
Total Annual Operating Expenses(8)
Without Waiver 1.03%
With Waiver 0.53%
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.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
LIMIT THEIR RESPECTIVE FEES AND TO ASSUME AS THEIR OWN EXPENSE CERTAIN EXPENSES
OTHERWISE PAYABLE BY THE FUND SO THAT COMMON EXPENSES (I.E., A COMBINATION OF
INVESTMENT MANAGEMENT FEES, FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT
EXCLUDING RULE 12B-1 FEES) DO NOT EXCEED 0.35% (OTHER THAN CERTAIN NONROUTINE
EXPENSES OR COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION,
REORGANIZATIONS AND LIQUIDATIONS) UNTIL 6/30/10.
58 | Annual Report
Performance Summary (CONTINUED)
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 the current maximum sales charge, Fund expenses, account fees
and reinvested distributions. The unmanaged index includes reinvestment of any
income or distributions. It differs from the Fund in composition and does not
pay management fees or expenses. One cannot invest directly in an index.
CLASS A (9/2/03-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +2.52%
5-Year +2.97%
Since Inception (9/2/03) +2.58%
(PERFORMANCE GRAPH)
FRANKLIN FEDERAL LIMITED-TERM BARCLAYS CAPITAL MUNICIPAL BOND
DATE TAX-FREE INCOME FUND - CLASS A INDEX 5-YEAR COMPONENT CPI
- ---------- ------------------------------ ------------------------------- -------
9/2/2003 $ 9,775 $10,000 $10,000
9/30/2003 $ 9,857 $10,253 $10,033
10/31/2003 $ 9,838 $10,186 $10,022
11/30/2003 $ 9,857 $10,227 $ 9,995
12/31/2003 $ 9,867 $10,267 $ 9,984
1/31/2004 $ 9,887 $10,316 $10,033
2/29/2004 $ 9,945 $10,442 $10,087
3/31/2004 $ 9,928 $10,398 $10,152
4/30/2004 $ 9,841 $10,190 $10,184
5/31/2004 $ 9,803 $10,137 $10,244
6/30/2004 $ 9,814 $10,175 $10,276
7/31/2004 $ 9,875 $10,269 $10,260
8/31/2004 $ 9,966 $10,449 $10,265
9/30/2004 $ 9,977 $10,463 $10,287
10/31/2004 $ 9,999 $10,521 $10,341
11/30/2004 $ 9,961 $10,452 $10,347
12/31/2004 $ 9,993 $10,547 $10,309
1/31/2005 $ 9,986 $10,544 $10,330
2/28/2005 $ 9,959 $10,492 $10,390
3/31/2005 $ 9,934 $10,425 $10,471
4/30/2005 $ 9,978 $10,546 $10,542
5/31/2005 $ 9,995 $10,576 $10,531
6/30/2005 $10,031 $10,625 $10,536
7/31/2005 $10,008 $10,567 $10,585
8/31/2005 $10,035 $10,633 $10,639
9/30/2005 $10,032 $10,615 $10,769
10/31/2005 $10,019 $10,570 $10,791
11/30/2005 $10,028 $10,595 $10,704
12/31/2005 $10,057 $10,647 $10,661
1/31/2006 $10,075 $10,671 $10,742
2/28/2006 $10,082 $10,691 $10,764
3/31/2006 $10,073 $10,649 $10,823
4/30/2006 $10,095 $10,672 $10,915
5/31/2006 $10,121 $10,709 $10,970
6/30/2006 $10,125 $10,659 $10,991
7/31/2006 $10,171 $10,759 $11,024
8/31/2006 $10,238 $10,875 $11,046
9/30/2006 $10,283 $10,935 $10,991
10/31/2006 $10,309 $10,980 $10,932
11/30/2006 $10,344 $11,025 $10,915
12/31/2006 $10,351 $11,003 $10,932
1/31/2007 $10,348 $10,979 $10,965
2/28/2007 $10,404 $11,079 $11,024
3/31/2007 $10,434 $11,105 $11,124
4/30/2007 $10,450 $11,122 $11,196
5/31/2007 $10,468 $11,089 $11,265
6/30/2007 $10,486 $11,069 $11,287
7/31/2007 $10,537 $11,165 $11,284
8/31/2007 $10,576 $11,251 $11,263
9/30/2007 $10,638 $11,353 $11,294
10/31/2007 $10,669 $11,396 $11,318
11/30/2007 $10,719 $11,518 $11,386
12/31/2007 $10,760 $11,570 $11,378
1/31/2008 $10,885 $11,857 $11,434
2/29/2008 $10,783 $11,566 $11,468
3/31/2008 $10,906 $11,793 $11,567
4/30/2008 $10,920 $11,782 $11,637
5/31/2008 $10,947 $11,818 $11,735
6/30/2008 $10,919 $11,698 $11,853
7/31/2008 $11,001 $11,862 $11,916
8/31/2008 $11,064 $12,023 $11,868
9/30/2008 $10,960 $11,775 $11,852
10/31/2008 $10,941 $11,776 $11,732
11/30/2008 $11,020 $12,028 $11,507
12/31/2008 $11,055 $12,238 $11,388
1/31/2009 $11,286 $12,611 $11,438
2/28/2009 $11,250 $12,450 $11,495
3/31/2009 $11,284 $12,505 $11,523
4/30/2009 $11,362 $12,638 $11,551
5/31/2009 $11,399 $12,629 $11,585
6/30/2009 $11,368 $12,600 $11,684
7/31/2009 $11,483 $12,836 $11,666
8/31/2009 $11,519 $12,859 $11,692
9/30/2009 $11,644 $13,072 $11,699
10/31/2009 $11,565 $12,918 $11,711
11/30/2009 $11,665 $13,149 $11,719
12/31/2009 $11,652 $13,144 $11,698
1/31/2010 $11,743 $13,224 $11,738
2/28/2010 $11,796 $13,354 $11,741
Annual Report | 59
Performance Summary (CONTINUED)
ENDNOTES
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. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS A: Prior to 2/1/06, these shares were offered without an initial sales
charge; thus actual total returns would have differed.
(1.) If the manager and administrator had not waived fees, the Fund's
distribution rate and total return would have been lower and yield for the
period would have been 1.13%.
(2.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(3.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(4.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5.) Distribution rate is based on an annualization of the 1.90 cent per share
current monthly dividend and the maximum offering price of $10.59 on
2/28/10.
(6.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(7.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(8.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(9.) Source: (C) 2010 Morningstar. The BC Municipal Bond Index: 5-Year Component
is the 5-year (4-6) component of the Municipal Bond Index, which 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, Standard &
Poor's or Fitch. The Consumer Price Index (CPI), calculated by the U.S.
Bureau of Labor Statistics, is a commonly used measure of the inflation
rate.
60 | Annual Report
Your Fund's Expenses
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 61
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
- ------- ----------------- -------------- ----------------------
Actual $1,000 $1,024.10 $2.51
Hypothetical (5% return before expenses) $1,000 $1,022.32 $2.51
* Expenses are calculated using the most recent six-month annualized expense
ratio, net of expense waivers, of 0.50%, multiplied by the average account
value over the period, multiplied by 181/365 to reflect the one-half year
period.
62 | Annual Report
Franklin High Yield Tax-Free Income Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin High Yield Tax-Free Income Fund
seeks to provide high current yield exempt from federal income taxes by
investing at least 80% of its net assets in securities that pay interest free
from such taxes.(1) Its secondary goal is capital appreciation to the extent
possible and consistent with the Fund's principal investment goal.
CREDIT QUALITY BREAKDOWN*
Franklin High Yield Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA...................... 11.4%
AA....................... 7.9%
A........................ 21.3%
BBB...................... 21.7%
Below Investment Grade... 14.5%
Not Rated by S&P......... 23.2%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings
and generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.8% 2.5%
AA or Aa 0.2% 0.4%
A 1.9% 1.0%
BBB or Baa 2.5% 1.4%
Below Investment Grade 3.4% 9.1%
--- ----
Total 8.8% 14.4%
We are pleased to bring you Franklin High Yield Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(1.) Dividends are generally subject to state and local taxes, if any. 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.
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 165.
Annual Report | 63
DIVIDEND DISTRIBUTIONS*
Franklin High Yield Tax-Free Income Fund
DIVIDEND PER SHARE
----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- -------------
March 2009 4.68 cents 4.32 cents 4.29 cents 4.74 cents
April 2009 4.68 cents 4.32 cents 4.29 cents 4.74 cents
May 2009 4.68 cents 4.32 cents 4.29 cents 4.74 cents
June 2009 4.68 cents 4.27 cents 4.27 cents 4.75 cents
July 2009 4.68 cents 4.27 cents 4.27 cents 4.75 cents
August 2009 4.68 cents 4.27 cents 4.27 cents 4.75 cents
September 2009 4.68 cents 4.24 cents 4.25 cents 4.75 cents
October 2009 4.68 cents 4.24 cents 4.25 cents 4.75 cents
November 2009 4.41 cents 3.97 cents 3.98 cents 4.48 cents
December 2009 4.41 cents 3.92 cents 3.91 cents 4.50 cents
January 2010 4.41 cents 3.92 cents 3.91 cents 4.50 cents
February 2010 4.41 cents 3.92 cents 3.91 cents 4.50 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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 OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$8.75 on February 28, 2009, to $9.99 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 54.95 cents per share for the same period.(2) The
Performance Summary beginning on page 66 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.96% based on an
annualization of the current 4.31 cent per share dividend and the maximum
offering price of $10.43 on February 28, 2010. An investor in the 2010 maximum
federal income tax bracket of 35.00% would need to earn a distribution rate of
7.63% from a taxable investment to match the Fund's Class A tax-free
distribution rate. For the Fund's Class B, C and Advisor shares' performance,
please see the Performance Summary. During the year under review, renewed
investor interest in municipal bonds and limited new-issue supply tended to
reduce the Fund's income, which caused dividends to decline slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
64 | Annual Report
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 discussion
on page 6 for details.
During the reporting period, the Fund continued to generate high, current,
tax-free income for its shareholders. Consistent with our strategy, the Fund did
not use leverage or credit derivatives to boost short-term returns, and we were
careful to not overexpose the portfolio to any one credit sector. At period-end,
we believed the Fund was well positioned for any changes in yield spreads or
interest rates.
Thank you for your continued participation in Franklin High Yield Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
PORTFOLIO BREAKDOWN
Franklin High Yield Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
------------
Utilities 23.8%
Hospital & Health Care 17.6%
Transportation 12.6%
Prerefunded 11.5%
Tax-Supported 9.4%
Corporate-Backed 6.8%
Subject to Government Appropriations 5.6%
General Obligation 5.2%
Other Revenue 5.1%
Higher Education 1.4%
Housing 1.0%
* Does not include short-term investments and other net assets.
Annual Report | 65
Performance Summary as of 2/28/10
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRHIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$1.24 $9.99 $8.75
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5495
CLASS B (SYMBOL: FYIBX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$1.25 $10.06 $8.81
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4983
CLASS C (SYMBOL: FHYIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$1.26 $10.12 $8.86
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4975
ADVISOR CLASS (SYMBOL: FHYVX) CHANGE 2/28/10 2/28/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$1.25 $10.02 $8.77
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5582
66 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +20.96% +20.41% +65.91%
Average Annual Total Return(2) +15.80% +2.89% +4.74%
Avg. Ann. Total Return (3/31/10)(3) +16.17% +3.00% +4.57%
Distribution Rate(4) 4.96%
Taxable Equivalent Distribution Rate(5) 7.63%
30-Day Standardized Yield(6) 4.55%
Taxable Equivalent Yield(5) 7.00%
Total Annual Operating Expenses(7) 0.63%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +20.29% +17.12% +58.86%
Average Annual Total Return(2) +16.29% +2.88% +4.74%
Avg. Ann. Total Return (3/31/10)(3) +16.81% +3.00% +4.57%
Distribution Rate(4) 4.56%
Taxable Equivalent Distribution Rate(5) 7.02%
30-Day Standardized Yield(6) 4.21%
Taxable Equivalent Yield(5) 6.48%
Total Annual Operating Expenses(7) 1.18%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +20.28% +17.23% +57.13%
Average Annual Total Return(2) +19.28% +3.23% +4.62%
Avg. Ann. Total Return (3/31/10)(3) +19.93% +3.35% +4.46%
Distribution Rate(4) 4.52%
Taxable Equivalent Distribution Rate(5) 6.95%
30-Day Standardized Yield(6) 4.22%
Taxable Equivalent Yield(5) 6.49%
Total Annual Operating Expenses(7) 1.18%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +21.14% +20.92% +66.61%
Average Annual Total Return(2) +21.14% +3.87% +5.24%
Avg. Ann. Total Return (3/31/10)(3) +21.55% +3.99% +5.07%
Distribution Rate(4) 5.26%
Taxable Equivalent Distribution Rate(5) 8.09%
30-Day Standardized Yield(6) 4.87%
Taxable Equivalent Yield(5) 7.49%
Total Annual Operating Expenses(7) 0.53%
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.
Annual Report | 67
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (3/1/00-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +15.80%
5-Year +2.89%
10-Year +4.74%
(PERFORMANCE GRAPH)
FRANKLIN HIGH YIELD TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS A MUNICIPAL BOND INDEX CPI
- ------------- ---------------------------- -------------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,770 $10,218 $10,082
4/30/2000 $ 9,730 $10,158 $10,088
5/31/2000 $ 9,670 $10,105 $10,100
6/30/2000 $ 9,757 $10,373 $10,153
7/31/2000 $ 9,875 $10,518 $10,177
8/31/2000 $10,010 $10,680 $10,177
9/30/2000 $ 9,972 $10,624 $10,230
10/31/2000 $10,041 $10,740 $10,247
11/30/2000 $10,040 $10,821 $10,253
12/31/2000 $10,125 $11,089 $10,247
1/31/2001 $10,190 $11,198 $10,312
2/28/2001 $10,244 $11,234 $10,353
3/31/2001 $10,344 $11,334 $10,377
4/30/2001 $10,293 $11,212 $10,418
5/31/2001 $10,400 $11,332 $10,465
6/30/2001 $10,487 $11,408 $10,483
7/31/2001 $10,657 $11,577 $10,453
8/31/2001 $10,825 $11,768 $10,453
9/30/2001 $10,734 $11,729 $10,501
10/31/2001 $10,816 $11,868 $10,465
11/30/2001 $10,793 $11,768 $10,448
12/31/2001 $10,722 $11,657 $10,406
1/31/2002 $10,863 $11,859 $10,430
2/28/2002 $10,913 $12,002 $10,471
3/31/2002 $10,824 $11,767 $10,530
4/30/2002 $10,948 $11,997 $10,589
5/31/2002 $10,990 $12,070 $10,589
6/30/2002 $11,073 $12,197 $10,595
7/31/2002 $11,127 $12,354 $10,607
8/31/2002 $11,189 $12,503 $10,642
9/30/2002 $11,261 $12,776 $10,660
10/31/2002 $10,995 $12,565 $10,677
11/30/2002 $11,080 $12,512 $10,677
12/31/2002 $11,274 $12,776 $10,654
1/31/2003 $11,283 $12,744 $10,701
2/28/2003 $11,346 $12,922 $10,783
3/31/2003 $11,272 $12,930 $10,848
4/30/2003 $11,402 $13,015 $10,824
5/31/2003 $11,668 $13,320 $10,807
6/30/2003 $11,699 $13,263 $10,819
7/31/2003 $11,487 $12,799 $10,830
8/31/2003 $11,520 $12,895 $10,872
9/30/2003 $11,831 $13,274 $10,907
10/31/2003 $11,891 $13,207 $10,895
11/30/2003 $12,036 $13,345 $10,866
12/31/2003 $12,172 $13,455 $10,854
1/31/2004 $12,311 $13,532 $10,907
2/29/2004 $12,456 $13,736 $10,966
3/31/2004 $12,433 $13,688 $11,037
4/30/2004 $12,248 $13,364 $11,072
5/31/2004 $12,202 $13,315 $11,137
6/30/2004 $12,257 $13,364 $11,172
7/31/2004 $12,400 $13,540 $11,154
8/31/2004 $12,599 $13,811 $11,160
9/30/2004 $12,680 $13,884 $11,184
10/31/2004 $12,810 $14,004 $11,243
11/30/2004 $12,841 $13,888 $11,249
12/31/2004 $13,009 $14,058 $11,207
1/31/2005 $13,159 $14,189 $11,231
2/28/2005 $13,192 $14,142 $11,296
3/31/2005 $13,171 $14,053 $11,384
4/30/2005 $13,386 $14,274 $11,461
5/31/2005 $13,508 $14,375 $11,449
6/30/2005 $13,621 $14,464 $11,455
7/31/2005 $13,668 $14,399 $11,508
8/31/2005 $13,763 $14,544 $11,567
9/30/2005 $13,585 $14,446 $11,708
10/31/2005 $13,503 $14,359 $11,731
11/30/2005 $13,545 $14,428 $11,637
12/31/2005 $13,718 $14,552 $11,590
1/31/2006 $13,759 $14,591 $11,678
2/28/2006 $13,911 $14,689 $11,702
3/31/2006 $13,883 $14,588 $11,767
4/30/2006 $13,899 $14,583 $11,867
5/31/2006 $13,944 $14,648 $11,926
6/30/2006 $13,976 $14,592 $11,949
7/31/2006 $14,125 $14,766 $11,985
8/31/2006 $14,326 $14,985 $12,008
9/30/2006 $14,449 $15,089 $11,949
10/31/2006 $14,575 $15,184 $11,885
11/30/2006 $14,737 $15,311 $11,867
12/31/2006 $14,742 $15,257 $11,885
1/31/2007 $14,734 $15,217 $11,921
2/28/2007 $14,884 $15,418 $11,985
3/31/2007 $14,841 $15,380 $12,094
4/30/2007 $14,898 $15,426 $12,172
5/31/2007 $14,823 $15,357 $12,247
6/30/2007 $14,746 $15,278 $12,270
7/31/2007 $14,807 $15,396 $12,267
8/31/2007 $14,564 $15,330 $12,245
9/30/2007 $14,802 $15,557 $12,279
10/31/2007 $14,850 $15,626 $12,305
11/30/2007 $14,800 $15,726 $12,378
12/31/2007 $14,721 $15,769 $12,370
1/31/2008 $14,837 $15,968 $12,431
2/29/2008 $14,135 $15,237 $12,467
3/31/2008 $14,438 $15,672 $12,575
4/30/2008 $14,602 $15,856 $12,652
5/31/2008 $14,725 $15,952 $12,758
6/30/2008 $14,542 $15,771 $12,887
7/31/2008 $14,482 $15,831 $12,954
8/31/2008 $14,606 $16,017 $12,903
9/30/2008 $13,681 $15,265 $12,885
10/31/2008 $12,818 $15,110 $12,755
11/30/2008 $12,530 $15,158 $12,510
12/31/2008 $12,186 $15,379 $12,381
1/31/2009 $12,864 $15,942 $12,435
2/28/2009 $13,135 $16,025 $12,497
3/31/2009 $13,140 $16,028 $12,527
4/30/2009 $13,495 $16,349 $12,558
5/31/2009 $14,112 $16,522 $12,595
6/30/2009 $14,028 $16,367 $12,703
7/31/2009 $14,196 $16,641 $12,683
8/31/2009 $14,637 $16,925 $12,711
9/30/2009 $15,729 $17,532 $12,719
10/31/2009 $15,415 $17,164 $12,731
11/30/2009 $15,405 $17,306 $12,740
12/31/2009 $15,567 $17,365 $12,718
1/31/2010 $15,716 $17,455 $12,761
2/28/2010 $15,888 $17,624 $12,764
CLASS B (3/1/00-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +16.29%
5-Year +2.88%
10-Year +4.74%
(PERFORMANCE GRAPH)
FRANKLIN HIGH YIELD TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS B MUNICIPAL BOND INDEX CPI
- ------------- ---------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,199 $10,218 $10,082
4/30/2000 $10,162 $10,158 $10,088
5/31/2000 $10,085 $10,105 $10,100
6/30/2000 $10,171 $10,373 $10,153
7/31/2000 $10,298 $10,518 $10,177
8/31/2000 $10,424 $10,680 $10,177
9/30/2000 $10,380 $10,624 $10,230
10/31/2000 $10,447 $10,740 $10,247
11/30/2000 $10,451 $10,821 $10,253
12/31/2000 $10,534 $11,089 $10,247
1/31/2001 $10,597 $11,198 $10,312
2/28/2001 $10,638 $11,234 $10,353
3/31/2001 $10,746 $11,334 $10,377
4/30/2001 $10,688 $11,212 $10,418
5/31/2001 $10,793 $11,332 $10,465
6/30/2001 $10,878 $11,408 $10,483
7/31/2001 $11,048 $11,577 $10,453
8/31/2001 $11,217 $11,768 $10,453
9/30/2001 $11,118 $11,729 $10,501
10/31/2001 $11,197 $11,868 $10,465
11/30/2001 $11,169 $11,768 $10,448
12/31/2001 $11,090 $11,657 $10,406
1/31/2002 $11,230 $11,859 $10,430
2/28/2002 $11,286 $12,002 $10,471
3/31/2002 $11,179 $11,767 $10,530
4/30/2002 $11,301 $11,997 $10,589
5/31/2002 $11,349 $12,070 $10,589
6/30/2002 $11,418 $12,197 $10,595
7/31/2002 $11,469 $12,354 $10,607
8/31/2002 $11,538 $12,503 $10,642
9/30/2002 $11,607 $12,776 $10,660
10/31/2002 $11,318 $12,565 $10,677
11/30/2002 $11,400 $12,512 $10,677
12/31/2002 $11,604 $12,776 $10,654
1/31/2003 $11,597 $12,744 $10,701
2/28/2003 $11,667 $12,922 $10,783
3/31/2003 $11,574 $12,930 $10,848
4/30/2003 $11,701 $13,015 $10,824
5/31/2003 $11,979 $13,320 $10,807
6/30/2003 $12,005 $13,263 $10,819
7/31/2003 $11,784 $12,799 $10,830
8/31/2003 $11,812 $12,895 $10,872
9/30/2003 $12,124 $13,274 $10,907
10/31/2003 $12,179 $13,207 $10,895
11/30/2003 $12,321 $13,345 $10,866
12/31/2003 $12,454 $13,455 $10,854
1/31/2004 $12,589 $13,532 $10,907
2/29/2004 $12,732 $13,736 $10,966
3/31/2004 $12,703 $13,688 $11,037
4/30/2004 $12,508 $13,364 $11,072
5/31/2004 $12,455 $13,315 $11,137
6/30/2004 $12,517 $13,364 $11,172
7/31/2004 $12,656 $13,540 $11,154
8/31/2004 $12,840 $13,811 $11,160
9/30/2004 $12,928 $13,884 $11,184
10/31/2004 $13,042 $14,004 $11,243
11/30/2004 $13,068 $13,888 $11,249
12/31/2004 $13,244 $14,058 $11,207
1/31/2005 $13,378 $14,189 $11,231
2/28/2005 $13,406 $14,142 $11,296
3/31/2005 $13,389 $14,053 $11,384
4/30/2005 $13,600 $14,274 $11,461
5/31/2005 $13,717 $14,375 $11,449
6/30/2005 $13,824 $14,464 $11,455
7/31/2005 $13,865 $14,399 $11,508
8/31/2005 $13,955 $14,544 $11,567
9/30/2005 $13,769 $14,446 $11,708
10/31/2005 $13,681 $14,359 $11,731
11/30/2005 $13,717 $14,428 $11,637
12/31/2005 $13,884 $14,552 $11,590
1/31/2006 $13,919 $14,591 $11,678
2/28/2006 $14,067 $14,689 $11,702
3/31/2006 $14,019 $14,588 $11,767
4/30/2006 $14,041 $14,583 $11,867
5/31/2006 $14,080 $14,648 $11,926
6/30/2006 $14,105 $14,592 $11,949
7/31/2006 $14,248 $14,766 $11,985
8/31/2006 $14,443 $14,985 $12,008
9/30/2006 $14,560 $15,089 $11,949
10/31/2006 $14,679 $15,184 $11,885
11/30/2006 $14,835 $15,311 $11,867
12/31/2006 $14,833 $15,257 $11,885
1/31/2007 $14,818 $15,217 $11,921
2/28/2007 $14,962 $15,418 $11,985
3/31/2007 $14,911 $15,380 $12,094
4/30/2007 $14,975 $15,426 $12,172
5/31/2007 $14,879 $15,357 $12,247
6/30/2007 $14,809 $15,278 $12,270
7/31/2007 $14,863 $15,396 $12,267
8/31/2007 $14,600 $15,330 $12,245
9/30/2007 $14,831 $15,557 $12,279
10/31/2007 $14,872 $15,626 $12,305
11/30/2007 $14,830 $15,726 $12,378
12/31/2007 $14,730 $15,769 $12,370
1/31/2008 $14,839 $15,968 $12,431
2/29/2008 $14,136 $15,237 $12,467
3/31/2008 $14,439 $15,672 $12,575
4/30/2008 $14,604 $15,856 $12,652
5/31/2008 $14,725 $15,952 $12,758
6/30/2008 $14,544 $15,771 $12,887
7/31/2008 $14,483 $15,831 $12,954
8/31/2008 $14,604 $16,017 $12,903
9/30/2008 $13,682 $15,265 $12,885
10/31/2008 $12,818 $15,110 $12,755
11/30/2008 $12,525 $15,158 $12,510
12/31/2008 $12,186 $15,379 $12,381
1/31/2009 $12,862 $15,942 $12,435
2/28/2009 $13,132 $16,025 $12,497
3/31/2009 $13,141 $16,028 $12,527
4/30/2009 $13,496 $16,349 $12,558
5/31/2009 $14,109 $16,522 $12,595
6/30/2009 $14,030 $16,367 $12,703
7/31/2009 $14,198 $16,641 $12,683
8/31/2009 $14,640 $16,925 $12,711
9/30/2009 $15,733 $17,532 $12,719
10/31/2009 $15,417 $17,164 $12,731
11/30/2009 $15,408 $17,306 $12,740
12/31/2009 $15,571 $17,365 $12,718
1/31/2010 $15,716 $17,455 $12,761
2/28/2010 $15,886 $17,624 $12,764
68 | Annual Report
Performance Summary (CONTINUED)
CLASS C (3/1/00-2/28/10)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +19.28%
5-Year +3.23%
10-Year +4.62%
(PERFORMANCE GRAPH)
FRANKLIN HIGH YIELD TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - CLASS C MUNICIPAL BOND INDEX CPI
- ------------- ---------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,198 $10,218 $10,082
4/30/2000 $10,161 $10,158 $10,088
5/31/2000 $10,085 $10,105 $10,100
6/30/2000 $10,179 $10,373 $10,153
7/31/2000 $10,297 $10,518 $10,177
8/31/2000 $10,432 $10,680 $10,177
9/30/2000 $10,388 $10,624 $10,230
10/31/2000 $10,455 $10,740 $10,247
11/30/2000 $10,449 $10,821 $10,253
12/31/2000 $10,532 $11,089 $10,247
1/31/2001 $10,594 $11,198 $10,312
2/28/2001 $10,645 $11,234 $10,353
3/31/2001 $10,743 $11,334 $10,377
4/30/2001 $10,685 $11,212 $10,418
5/31/2001 $10,790 $11,332 $10,465
6/30/2001 $10,885 $11,408 $10,483
7/31/2001 $11,055 $11,577 $10,453
8/31/2001 $11,223 $11,768 $10,453
9/30/2001 $11,114 $11,729 $10,501
10/31/2001 $11,203 $11,868 $10,465
11/30/2001 $11,164 $11,768 $10,448
12/31/2001 $11,085 $11,657 $10,406
1/31/2002 $11,236 $11,859 $10,430
2/28/2002 $11,281 $12,002 $10,471
3/31/2002 $11,185 $11,767 $10,530
4/30/2002 $11,307 $11,997 $10,589
5/31/2002 $11,344 $12,070 $10,589
6/30/2002 $11,424 $12,197 $10,595
7/31/2002 $11,475 $12,354 $10,607
8/31/2002 $11,533 $12,503 $10,642
9/30/2002 $11,602 $12,776 $10,660
10/31/2002 $11,314 $12,565 $10,677
11/30/2002 $11,406 $12,512 $10,677
12/31/2002 $11,598 $12,776 $10,654
1/31/2003 $11,603 $12,744 $10,701
2/28/2003 $11,661 $12,922 $10,783
3/31/2003 $11,581 $12,930 $10,848
4/30/2003 $11,707 $13,015 $10,824
5/31/2003 $11,984 $13,320 $10,807
6/30/2003 $11,999 $13,263 $10,819
7/31/2003 $11,777 $12,799 $10,830
8/31/2003 $11,805 $12,895 $10,872
9/30/2003 $12,128 $13,274 $10,907
10/31/2003 $12,182 $13,207 $10,895
11/30/2003 $12,323 $13,345 $10,866
12/31/2003 $12,444 $13,455 $10,854
1/31/2004 $12,580 $13,532 $10,907
2/29/2004 $12,733 $13,736 $10,966
3/31/2004 $12,704 $13,688 $11,037
4/30/2004 $12,510 $13,364 $11,072
5/31/2004 $12,457 $13,315 $11,137
6/30/2004 $12,507 $13,364 $11,172
7/31/2004 $12,645 $13,540 $11,154
8/31/2004 $12,841 $13,811 $11,160
9/30/2004 $12,916 $13,884 $11,184
10/31/2004 $13,042 $14,004 $11,243
11/30/2004 $13,068 $13,888 $11,249
12/31/2004 $13,243 $14,058 $11,207
1/31/2005 $13,376 $14,189 $11,231
2/28/2005 $13,403 $14,142 $11,296
3/31/2005 $13,387 $14,053 $11,384
4/30/2005 $13,597 $14,274 $11,461
5/31/2005 $13,713 $14,375 $11,449
6/30/2005 $13,820 $14,464 $11,455
7/31/2005 $13,861 $14,399 $11,508
8/31/2005 $13,951 $14,544 $11,567
9/30/2005 $13,766 $14,446 $11,708
10/31/2005 $13,677 $14,359 $11,731
11/30/2005 $13,713 $14,428 $11,637
12/31/2005 $13,879 $14,552 $11,590
1/31/2006 $13,915 $14,591 $11,678
2/28/2006 $14,074 $14,689 $11,702
3/31/2006 $14,026 $14,588 $11,767
4/30/2006 $14,048 $14,583 $11,867
5/31/2006 $14,073 $14,648 $11,926
6/30/2006 $14,098 $14,592 $11,949
7/31/2006 $14,254 $14,766 $11,985
8/31/2006 $14,435 $14,985 $12,008
9/30/2006 $14,565 $15,089 $11,949
10/31/2006 $14,684 $15,184 $11,885
11/30/2006 $14,839 $15,311 $11,867
12/31/2006 $14,837 $15,257 $11,885
1/31/2007 $14,822 $15,217 $11,921
2/28/2007 $14,966 $15,418 $11,985
3/31/2007 $14,915 $15,380 $12,094
4/30/2007 $14,965 $15,426 $12,172
5/31/2007 $14,883 $15,357 $12,247
6/30/2007 $14,800 $15,278 $12,270
7/31/2007 $14,853 $15,396 $12,267
8/31/2007 $14,605 $15,330 $12,245
9/30/2007 $14,834 $15,557 $12,279
10/31/2007 $14,875 $15,626 $12,305
11/30/2007 $14,833 $15,726 $12,378
12/31/2007 $14,734 $15,769 $12,370
1/31/2008 $14,842 $15,968 $12,431
2/29/2008 $14,141 $15,237 $12,467
3/31/2008 $14,420 $15,672 $12,575
4/30/2008 $14,590 $15,856 $12,652
5/31/2008 $14,704 $15,952 $12,758
6/30/2008 $14,517 $15,771 $12,887
7/31/2008 $14,436 $15,831 $12,954
8/31/2008 $14,566 $16,017 $12,903
9/30/2008 $13,634 $15,265 $12,885
10/31/2008 $12,763 $15,110 $12,755
11/30/2008 $12,473 $15,158 $12,510
12/31/2008 $12,129 $15,379 $12,381
1/31/2009 $12,804 $15,942 $12,435
2/28/2009 $13,066 $16,025 $12,497
3/31/2009 $13,050 $16,028 $12,527
4/30/2009 $13,407 $16,349 $12,558
5/31/2009 $14,022 $16,522 $12,595
6/30/2009 $13,934 $16,367 $12,703
7/31/2009 $14,091 $16,641 $12,683
8/31/2009 $14,518 $16,925 $12,711
9/30/2009 $15,596 $17,532 $12,719
10/31/2009 $15,282 $17,164 $12,731
11/30/2009 $15,265 $17,306 $12,740
12/31/2009 $15,401 $17,365 $12,718
1/31/2010 $15,554 $17,455 $12,761
2/28/2010 $15,713 $17,624 $12,764
ADVISOR CLASS (3/1/00-2/28/10)(8)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +21.14%
5-Year +3.87%
10-Year +5.24%
(PERFORMANCE GRAPH)
FRANKLIN HIGH YIELD TAX-FREE BARCLAYS CAPITAL
DATE INCOME FUND - ADVISOR CLASS MUNICIPAL BOND INDEX CPI
- ------------- ---------------------------- -------------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,204 $10,218 $10,082
4/30/2000 $10,162 $10,158 $10,088
5/31/2000 $10,099 $10,105 $10,100
6/30/2000 $10,190 $10,373 $10,153
7/31/2000 $10,313 $10,518 $10,177
8/31/2000 $10,455 $10,680 $10,177
9/30/2000 $10,415 $10,624 $10,230
10/31/2000 $10,487 $10,740 $10,247
11/30/2000 $10,486 $10,821 $10,253
12/31/2000 $10,575 $11,089 $10,247
1/31/2001 $10,642 $11,198 $10,312
2/28/2001 $10,699 $11,234 $10,353
3/31/2001 $10,803 $11,334 $10,377
4/30/2001 $10,750 $11,212 $10,418
5/31/2001 $10,862 $11,332 $10,465
6/30/2001 $10,953 $11,408 $10,483
7/31/2001 $11,130 $11,577 $10,453
8/31/2001 $11,306 $11,768 $10,453
9/30/2001 $11,211 $11,729 $10,501
10/31/2001 $11,296 $11,868 $10,465
11/30/2001 $11,272 $11,768 $10,448
12/31/2001 $11,198 $11,657 $10,406
1/31/2002 $11,345 $11,859 $10,430
2/28/2002 $11,397 $12,002 $10,471
3/31/2002 $11,304 $11,767 $10,530
4/30/2002 $11,434 $11,997 $10,589
5/31/2002 $11,477 $12,070 $10,589
6/30/2002 $11,564 $12,197 $10,595
7/31/2002 $11,621 $12,354 $10,607
8/31/2002 $11,686 $12,503 $10,642
9/30/2002 $11,761 $12,776 $10,660
10/31/2002 $11,483 $12,565 $10,677
11/30/2002 $11,572 $12,512 $10,677
12/31/2002 $11,774 $12,776 $10,654
1/31/2003 $11,784 $12,744 $10,701
2/28/2003 $11,849 $12,922 $10,783
3/31/2003 $11,772 $12,930 $10,848
4/30/2003 $11,908 $13,015 $10,824
5/31/2003 $12,186 $13,320 $10,807
6/30/2003 $12,218 $13,263 $10,819
7/31/2003 $11,997 $12,799 $10,830
8/31/2003 $12,031 $12,895 $10,872
9/30/2003 $12,357 $13,274 $10,907
10/31/2003 $12,419 $13,207 $10,895
11/30/2003 $12,570 $13,345 $10,866
12/31/2003 $12,712 $13,455 $10,854
1/31/2004 $12,857 $13,532 $10,907
2/29/2004 $13,009 $13,736 $10,966
3/31/2004 $12,985 $13,688 $11,037
4/30/2004 $12,792 $13,364 $11,072
5/31/2004 $12,744 $13,315 $11,137
6/30/2004 $12,801 $13,364 $11,172
7/31/2004 $12,950 $13,540 $11,154
8/31/2004 $13,158 $13,811 $11,160
9/30/2004 $13,243 $13,884 $11,184
10/31/2004 $13,378 $14,004 $11,243
11/30/2004 $13,411 $13,888 $11,249
12/31/2004 $13,586 $14,058 $11,207
1/31/2005 $13,743 $14,189 $11,231
2/28/2005 $13,778 $14,142 $11,296
3/31/2005 $13,755 $14,053 $11,384
4/30/2005 $13,980 $14,274 $11,461
5/31/2005 $14,108 $14,375 $11,449
6/30/2005 $14,225 $14,464 $11,455
7/31/2005 $14,275 $14,399 $11,508
8/31/2005 $14,374 $14,544 $11,567
9/30/2005 $14,188 $14,446 $11,708
10/31/2005 $14,103 $14,359 $11,731
11/30/2005 $14,146 $14,428 $11,637
12/31/2005 $14,327 $14,552 $11,590
1/31/2006 $14,365 $14,591 $11,678
2/28/2006 $14,525 $14,689 $11,702
3/31/2006 $14,496 $14,588 $11,767
4/30/2006 $14,528 $14,583 $11,867
5/31/2006 $14,562 $14,648 $11,926
6/30/2006 $14,569 $14,592 $11,949
7/31/2006 $14,753 $14,766 $11,985
8/31/2006 $14,950 $14,985 $12,008
9/30/2006 $15,093 $15,089 $11,949
10/31/2006 $15,226 $15,184 $11,885
11/30/2006 $15,396 $15,311 $11,867
12/31/2006 $15,402 $15,257 $11,885
1/31/2007 $15,395 $15,217 $11,921
2/28/2007 $15,553 $15,418 $11,985
3/31/2007 $15,509 $15,380 $12,094
4/30/2007 $15,571 $15,426 $12,172
5/31/2007 $15,493 $15,357 $12,247
6/30/2007 $15,414 $15,278 $12,270
7/31/2007 $15,479 $15,396 $12,267
8/31/2007 $15,226 $15,330 $12,245
9/30/2007 $15,476 $15,557 $12,279
10/31/2007 $15,527 $15,626 $12,305
11/30/2007 $15,491 $15,726 $12,378
12/31/2007 $15,396 $15,769 $12,370
1/31/2008 $15,517 $15,968 $12,431
2/29/2008 $14,786 $15,237 $12,467
3/31/2008 $15,103 $15,672 $12,575
4/30/2008 $15,291 $15,856 $12,652
5/31/2008 $15,405 $15,952 $12,758
6/30/2008 $15,216 $15,771 $12,887
7/31/2008 $15,154 $15,831 $12,954
8/31/2008 $15,285 $16,017 $12,903
9/30/2008 $14,320 $15,265 $12,885
10/31/2008 $13,420 $15,110 $12,755
11/30/2008 $13,121 $15,158 $12,510
12/31/2008 $12,763 $15,379 $12,381
1/31/2009 $13,471 $15,942 $12,435
2/28/2009 $13,755 $16,025 $12,497
3/31/2009 $13,762 $16,028 $12,527
4/30/2009 $14,133 $16,349 $12,558
5/31/2009 $14,795 $16,522 $12,595
6/30/2009 $14,709 $16,367 $12,703
7/31/2009 $14,869 $16,641 $12,683
8/31/2009 $15,332 $16,925 $12,711
9/30/2009 $16,490 $17,532 $12,719
10/31/2009 $16,163 $17,164 $12,731
11/30/2009 $16,154 $17,306 $12,740
12/31/2009 $16,309 $17,365 $12,718
1/31/2010 $16,466 $17,455 $12,761
2/28/2010 $16,661 $17,624 $12,764
Annual Report | 69
Performance Summary (CONTINUED)
ENDNOTES
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. IN GENERAL, AN INVESTOR IS PAID A HIGHER YIELD TO ASSUME A GREATER
DEGREE OF CREDIT RISK. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE
MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the 2010 maximum
federal income tax rate of 35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) Effective 1/3/06, 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 1/3/06, 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 1/2/06, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 1/3/06
(commencement of sales), the cumulative and average annual total returns of
Advisor Class shares were +16.24% and +3.69%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
70 | Annual Report
Your Fund's Expenses
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 71
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,085.30 $3.31
Hypothetical (5% return before expenses) $1,000 $1,021.62 $3.21
CLASS B
Actual $1,000 $1,081.80 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
CLASS C
Actual $1,000 $1,082.40 $6.14
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
ADVISOR CLASS
Actual $1,000 $1,086.70 $2.79
Hypothetical (5% return before expenses) $1,000 $1,022.12 $2.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.64%; B: 1.19%; C: 1.19%; and Advisor:
0.54%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
72 | Annual Report
Franklin New Jersey Tax-Free Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin New Jersey Tax-Free Income Fund
seeks to provide as high a level of income exempt from federal and New Jersey
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 BREAKDOWN*
Franklin New Jersey Tax-Free Income Fund
2/28/10
% OF TOTAL
RATINGS LONG-TERM INVESTMENTS**
- ------- -----------------------
AAA 20.9%
AA 24.4%
A 23.7%
BBB 12.1%
Below Investment Grade 0.9%
Not Rated by S&P 18.0%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.2% 2.0%
AA or Aa 1.9% 0.3%
A 9.0% --
BBB or Baa 3.7% 0.3%
Below Investment Grade 0.6% --
---- ---
Total 15.4% 2.6%
We are pleased to bring you Franklin New Jersey Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.29 on February 28, 2009, to $11.99 on February 28, 2010. The Fund's
(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.
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 198.
Annual Report | 73
DIVIDEND DISTRIBUTIONS*
Franklin New Jersey Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
- ----- ---------- ---------- ---------- --------------
March 2009 4.15 cents 3.65 cents 3.64 cents 4.24 cents
April 2009 4.15 cents 3.65 cents 3.64 cents 4.24 cents
May 2009 4.15 cents 3.65 cents 3.64 cents 4.24 cents
June 2009 4.20 cents 3.67 cents 3.65 cents 4.30 cents
July 2009 4.20 cents 3.67 cents 3.65 cents 4.30 cents
August 2009 4.20 cents 3.67 cents 3.65 cents 4.30 cents
September 2009 4.30 cents 3.76 cents 3.76 cents 4.39 cents
October 2009 4.30 cents 3.76 cents 3.76 cents 4.39 cents
November 2009 4.30 cents 3.76 cents 3.76 cents 4.39 cents
December 2009 4.30 cents 3.72 cents 3.72 cents 4.40 cents
January 2010 4.30 cents 3.72 cents 3.72 cents 4.40 cents
February 2010 4.30 cents 3.72 cents 3.72 cents 4.40 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
Class A shares paid dividends totaling 50.80 cents per share for the same
period.(2) The Performance Summary beginning on page 76 shows that at the end of
this reporting period the Fund's Class A shares' distribution rate was 4.12%
based on an annualization of the current 4.30 cent per share dividend and the
maximum offering price of $12.52 on February 28, 2010. An investor in the 2010
maximum combined effective federal and New Jersey personal income tax bracket of
40.83% would need to earn a distribution rate of 6.96% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary.
STATE UPDATE
In the 12 months under review, New Jersey's economy struggled with the lingering
effects of a severe national recession. Although the country's gross domestic
product returned to growth, New Jersey's economic conditions remained
lack-luster for most of the reporting period despite high wealth and income
levels.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
74 | Annual Report
The number of unemployment insurance claims has been on the decline since May
2009, and job losses slowed toward period-end, but the state's unemployment rate
rose from 8.2% in February 2009 to 9.8% in February 2010.3
Similar to that of most states, New Jersey's fiscal management was put to the
test with a drastic fall in tax revenues and higher expenditure pressures. For
the state's 2010 budget, collections in sales tax, income tax and corporate
business taxes so far all came in below estimates. Significant cuts to education
and health services, reduced pension funding and the introduction of Powerball
lottery bridged an incremental gap. However, the budget remained structurally
imbalanced since most of the measures, including the federal fiscal stimulus,
were nonrecurring and temporary. Furthermore, New Jersey employed the full use
of its reserves during the 2009 fiscal year, which did not leave much for the
2010 budget.
New Jersey's net tax-supported debt as a percentage of personal income was 6.7%
and debt per capita was $3,418 compared with the 2.1% and $739 national
medians.(4) The state's debt burden is among the highest in the country and its
pension funding level among the lowest. Given these factors, independent credit
rating agency Moody's Investors Service assigned New Jersey's general obligation
bonds a rating of Aa3 with a negative outlook.(5)
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin New Jersey Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate Moody's rating of the Fund.
PORTFOLIO BREAKDOWN
Franklin New Jersey Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
Prerefunded 21.1%
Hospital & Health Care 17.0%
Transportation 16.1%
Subject to Government Appropriations 12.9%
Higher Education 9.9%
Utilities 7.0%
Other Revenue 5.1%
Tax-Supported 4.9%
General Obligation 4.4%
Housing 1.5%
Corporate-Backed 0.1%
* Does not include short-term investments and other net assets.
Annual Report | 75
Performance Summary as of 2/28/10
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRNJX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $11.99 $11.29
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5080
CLASS B (SYMBOL: FNJBX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.71 $12.07 $11.36
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4435
CLASS C (SYMBOL: FNIIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.72 $12.11 $11.39
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4426
ADVISOR CLASS (SYMBOL: FNJZX) CHANGE 2/28/10 2/28/09
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.70 $11.99 $11.29
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.5194
76 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +10.87% +21.94% +71.29%
Average Annual Total Return(2) +6.17% +3.15% +5.07%
Avg. Ann. Total Return (3/31/10)(3) +6.24% +3.28% +4.86%
Distribution Rate(4) 4.12%
Taxable Equivalent Distribution Rate(5) 6.96%
30-Day Standardized Yield(6) 3.39%
Taxable Equivalent Yield(5) 5.73%
Total Annual Operating Expenses(7) 0.63%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +10.30% +18.71% +64.49%
Average Annual Total Return(2) +6.30% +3.14% +5.10%
Avg. Ann. Total Return (3/31/10)(3) +6.48% +3.26% +4.89%
Distribution Rate(4) 3.72%
Taxable Equivalent Distribution Rate(5) 6.29%
30-Day Standardized Yield(6) 2.99%
Taxable Equivalent Yield(5) 5.05%
Total Annual Operating Expenses(7) 1.18%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +10.35% +18.73% +62.35%
Average Annual Total Return(2) +9.35% +3.49% +4.97%
Avg. Ann. Total Return (3/31/10)(3) +9.43% +3.63% +4.75%
Distribution Rate(4) 3.69%
Taxable Equivalent Distribution Rate(5) 6.24%
30-Day Standardized Yield(6) 3.00%
Taxable Equivalent Yield(5) 5.07%
Total Annual Operating Expenses(7) 1.18%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- -------
Cumulative Total Return(1) +10.98% +22.13% +71.56%
Average Annual Total Return(2) +10.98% +4.08% +5.55%
Avg. Ann. Total Return (3/31/10)(3) +11.07% +4.22% +5.34%
Distribution Rate(4) 4.41%
Taxable Equivalent Distribution Rate(5) 7.45%
30-Day Standardized Yield(6) 3.65%
Taxable Equivalent Yield(5) 6.17%
Total Annual Operating Expenses(7) 0.53%
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.
Annual Report | 77
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.17%
5-Year +3.15%
10-Year +5.07%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN NEW
JERSEY TAX-FREE BARCLAYS CAPITAL
INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,791 $10,218 $10,082
4/30/2000 $ 9,732 $10,158 $10,088
5/31/2000 $ 9,663 $10,105 $10,100
6/30/2000 $ 9,918 $10,373 $10,153
7/31/2000 $10,053 $10,518 $10,177
8/31/2000 $10,213 $10,680 $10,177
9/30/2000 $10,149 $10,624 $10,230
10/31/2000 $10,275 $10,740 $10,247
11/30/2000 $10,354 $10,821 $10,253
12/31/2000 $10,608 $11,089 $10,247
1/31/2001 $10,660 $11,198 $10,312
2/28/2001 $10,739 $11,234 $10,353
3/31/2001 $10,825 $11,334 $10,377
4/30/2001 $10,713 $11,212 $10,418
5/31/2001 $10,832 $11,332 $10,465
6/30/2001 $10,922 $11,408 $10,483
7/31/2001 $11,090 $11,577 $10,453
8/31/2001 $11,238 $11,768 $10,453
9/30/2001 $11,169 $11,729 $10,501
10/31/2001 $11,300 $11,868 $10,465
11/30/2001 $11,210 $11,768 $10,448
12/31/2001 $11,103 $11,657 $10,406
1/31/2002 $11,281 $11,859 $10,430
2/28/2002 $11,421 $12,002 $10,471
3/31/2002 $11,210 $11,767 $10,530
4/30/2002 $11,410 $11,997 $10,589
5/31/2002 $11,476 $12,070 $10,589
6/30/2002 $11,580 $12,197 $10,595
7/31/2002 $11,706 $12,354 $10,607
8/31/2002 $11,840 $12,503 $10,642
9/30/2002 $12,101 $12,776 $10,660
10/31/2002 $11,851 $12,565 $10,677
11/30/2002 $11,807 $12,512 $10,677
12/31/2002 $12,063 $12,776 $10,654
1/31/2003 $12,009 $12,744 $10,701
2/28/2003 $12,154 $12,922 $10,783
3/31/2003 $12,173 $12,930 $10,848
4/30/2003 $12,259 $13,015 $10,824
5/31/2003 $12,542 $13,320 $10,807
6/30/2003 $12,494 $13,263 $10,819
7/31/2003 $12,017 $12,799 $10,830
8/31/2003 $12,114 $12,895 $10,872
9/30/2003 $12,416 $13,274 $10,907
10/31/2003 $12,372 $13,207 $10,895
11/30/2003 $12,520 $13,345 $10,866
12/31/2003 $12,639 $13,455 $10,854
1/31/2004 $12,729 $13,532 $10,907
2/29/2004 $12,919 $13,736 $10,966
3/31/2004 $12,904 $13,688 $11,037
4/30/2004 $12,581 $13,364 $11,072
5/31/2004 $12,544 $13,315 $11,137
6/30/2004 $12,601 $13,364 $11,172
7/31/2004 $12,779 $13,540 $11,154
8/31/2004 $13,010 $13,811 $11,160
9/30/2004 $13,112 $13,884 $11,184
10/31/2004 $13,226 $14,004 $11,243
11/30/2004 $13,120 $13,888 $11,249
12/31/2004 $13,290 $14,058 $11,207
1/31/2005 $13,479 $14,189 $11,231
2/28/2005 $13,450 $14,142 $11,296
3/31/2005 $13,393 $14,053 $11,384
4/30/2005 $13,595 $14,274 $11,461
5/31/2005 $13,713 $14,375 $11,449
6/30/2005 $13,788 $14,464 $11,455
7/31/2005 $13,748 $14,399 $11,508
8/31/2005 $13,875 $14,544 $11,567
9/30/2005 $13,779 $14,446 $11,708
10/31/2005 $13,703 $14,359 $11,731
11/30/2005 $13,763 $14,428 $11,637
12/31/2005 $13,883 $14,552 $11,590
1/31/2006 $13,897 $14,591 $11,678
2/28/2006 $14,011 $14,689 $11,702
3/31/2006 $13,915 $14,588 $11,767
4/30/2006 $13,929 $14,583 $11,867
5/31/2006 $13,956 $14,648 $11,926
6/30/2006 $13,914 $14,592 $11,949
7/31/2006 $14,069 $14,766 $11,985
8/31/2006 $14,249 $14,985 $12,008
9/30/2006 $14,358 $15,089 $11,949
10/31/2006 $14,446 $15,184 $11,885
11/30/2006 $14,590 $15,311 $11,867
12/31/2006 $14,545 $15,257 $11,885
1/31/2007 $14,513 $15,217 $11,921
2/28/2007 $14,706 $15,418 $11,985
3/31/2007 $14,653 $15,380 $12,094
4/30/2007 $14,702 $15,426 $12,172
5/31/2007 $14,645 $15,357 $12,247
6/30/2007 $14,574 $15,278 $12,270
7/31/2007 $14,675 $15,396 $12,267
8/31/2007 $14,579 $15,330 $12,245
9/30/2007 $14,813 $15,557 $12,279
10/31/2007 $14,866 $15,626 $12,305
11/30/2007 $14,931 $15,726 $12,378
12/31/2007 $14,933 $15,769 $12,370
1/31/2008 $15,070 $15,968 $12,431
2/29/2008 $14,370 $15,237 $12,467
3/31/2008 $14,811 $15,672 $12,575
4/30/2008 $15,016 $15,856 $12,652
5/31/2008 $15,121 $15,952 $12,758
6/30/2008 $14,955 $15,771 $12,887
7/31/2008 $14,985 $15,831 $12,954
8/31/2008 $15,140 $16,017 $12,903
9/30/2008 $14,370 $15,265 $12,885
10/31/2008 $14,106 $15,110 $12,755
11/30/2008 $14,001 $15,158 $12,510
12/31/2008 $14,094 $15,379 $12,381
1/31/2009 $14,616 $15,942 $12,435
2/28/2009 $14,794 $16,025 $12,497
3/31/2009 $14,817 $16,028 $12,527
4/30/2009 $15,172 $16,349 $12,558
5/31/2009 $15,359 $16,522 $12,595
6/30/2009 $15,254 $16,367 $12,703
7/31/2009 $15,472 $16,641 $12,683
8/31/2009 $15,794 $16,925 $12,711
9/30/2009 $16,426 $17,532 $12,719
10/31/2009 $16,151 $17,164 $12,731
11/30/2009 $16,141 $17,306 $12,740
12/31/2009 $16,239 $17,365 $12,718
1/31/2010 $16,297 $17,455 $12,761
2/28/2010 $16,398 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +6.30%
5-Year +3.14%
10-Year +5.10%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN NEW
JERSEY TAX-FREE BARCLAYS CAPITAL
INCOME MUNICIPAL BOND
DATE FUND - CLASS B INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,221 $10,218 $10,082
4/30/2000 $10,155 $10,158 $10,088
5/31/2000 $10,077 $10,105 $10,100
6/30/2000 $10,348 $10,373 $10,153
7/31/2000 $10,492 $10,518 $10,177
8/31/2000 $10,654 $10,680 $10,177
9/30/2000 $10,582 $10,624 $10,230
10/31/2000 $10,708 $10,740 $10,247
11/30/2000 $10,786 $10,821 $10,253
12/31/2000 $11,044 $11,089 $10,247
1/31/2001 $11,094 $11,198 $10,312
2/28/2001 $11,181 $11,234 $10,353
3/31/2001 $11,263 $11,334 $10,377
4/30/2001 $11,142 $11,212 $10,418
5/31/2001 $11,260 $11,332 $10,465
6/30/2001 $11,348 $11,408 $10,483
7/31/2001 $11,517 $11,577 $10,453
8/31/2001 $11,665 $11,768 $10,453
9/30/2001 $11,598 $11,729 $10,501
10/31/2001 $11,728 $11,868 $10,465
11/30/2001 $11,620 $11,768 $10,448
12/31/2001 $11,513 $11,657 $10,406
1/31/2002 $11,692 $11,859 $10,430
2/28/2002 $11,831 $12,002 $10,471
3/31/2002 $11,607 $11,767 $10,530
4/30/2002 $11,808 $11,997 $10,589
5/31/2002 $11,880 $12,070 $10,589
6/30/2002 $11,972 $12,197 $10,595
7/31/2002 $12,106 $12,354 $10,607
8/31/2002 $12,228 $12,503 $10,642
9/30/2002 $12,492 $12,776 $10,660
10/31/2002 $12,238 $12,565 $10,677
11/30/2002 $12,188 $12,512 $10,677
12/31/2002 $12,445 $12,776 $10,654
1/31/2003 $12,383 $12,744 $10,701
2/28/2003 $12,527 $12,922 $10,783
3/31/2003 $12,540 $12,930 $10,848
4/30/2003 $12,623 $13,015 $10,824
5/31/2003 $12,907 $13,320 $10,807
6/30/2003 $12,853 $13,263 $10,819
7/31/2003 $12,359 $12,799 $10,830
8/31/2003 $12,452 $12,895 $10,872
9/30/2003 $12,755 $13,274 $10,907
10/31/2003 $12,703 $13,207 $10,895
11/30/2003 $12,859 $13,345 $10,866
12/31/2003 $12,964 $13,455 $10,854
1/31/2004 $13,051 $13,532 $10,907
2/29/2004 $13,240 $13,736 $10,966
3/31/2004 $13,229 $13,688 $11,037
4/30/2004 $12,883 $13,364 $11,072
5/31/2004 $12,839 $13,315 $11,137
6/30/2004 $12,902 $13,364 $11,172
7/31/2004 $13,066 $13,540 $11,154
8/31/2004 $13,295 $13,811 $11,160
9/30/2004 $13,393 $13,884 $11,184
10/31/2004 $13,503 $14,004 $11,243
11/30/2004 $13,390 $13,888 $11,249
12/31/2004 $13,568 $14,058 $11,207
1/31/2005 $13,742 $14,189 $11,231
2/28/2005 $13,707 $14,142 $11,296
3/31/2005 $13,654 $14,053 $11,384
4/30/2005 $13,841 $14,274 $11,461
5/31/2005 $13,954 $14,375 $11,449
6/30/2005 $14,034 $14,464 $11,455
7/31/2005 $13,976 $14,399 $11,508
8/31/2005 $14,098 $14,544 $11,567
9/30/2005 $14,006 $14,446 $11,708
10/31/2005 $13,923 $14,359 $11,731
11/30/2005 $13,978 $14,428 $11,637
12/31/2005 $14,081 $14,552 $11,590
1/31/2006 $14,089 $14,591 $11,678
2/28/2006 $14,209 $14,689 $11,702
3/31/2006 $14,106 $14,588 $11,767
4/30/2006 $14,102 $14,583 $11,867
5/31/2006 $14,135 $14,648 $11,926
6/30/2006 $14,085 $14,592 $11,949
7/31/2006 $14,235 $14,766 $11,985
8/31/2006 $14,409 $14,985 $12,008
9/30/2006 $14,501 $15,089 $11,949
10/31/2006 $14,594 $15,184 $11,885
11/30/2006 $14,732 $15,311 $11,867
12/31/2006 $14,681 $15,257 $11,885
1/31/2007 $14,642 $15,217 $11,921
2/28/2007 $14,817 $15,418 $11,985
3/31/2007 $14,768 $15,380 $12,094
4/30/2007 $14,811 $15,426 $12,172
5/31/2007 $14,746 $15,357 $12,247
6/30/2007 $14,669 $15,278 $12,270
7/31/2007 $14,763 $15,396 $12,267
8/31/2007 $14,660 $15,330 $12,245
9/30/2007 $14,875 $15,557 $12,279
10/31/2007 $14,934 $15,626 $12,305
11/30/2007 $14,992 $15,726 $12,378
12/31/2007 $14,986 $15,769 $12,370
1/31/2008 $15,117 $15,968 $12,431
2/29/2008 $14,413 $15,237 $12,467
3/31/2008 $14,856 $15,672 $12,575
4/30/2008 $15,062 $15,856 $12,652
5/31/2008 $15,165 $15,952 $12,758
6/30/2008 $15,001 $15,771 $12,887
7/31/2008 $15,031 $15,831 $12,954
8/31/2008 $15,183 $16,017 $12,903
9/30/2008 $14,413 $15,265 $12,885
10/31/2008 $14,147 $15,110 $12,755
11/30/2008 $14,039 $15,158 $12,510
12/31/2008 $14,136 $15,379 $12,381
1/31/2009 $14,658 $15,942 $12,435
2/28/2009 $14,837 $16,025 $12,497
3/31/2009 $14,862 $16,028 $12,527
4/30/2009 $15,218 $16,349 $12,558
5/31/2009 $15,403 $16,522 $12,595
6/30/2009 $15,301 $16,367 $12,703
7/31/2009 $15,519 $16,641 $12,683
8/31/2009 $15,844 $16,925 $12,711
9/30/2009 $16,477 $17,532 $12,719
10/31/2009 $16,200 $17,164 $12,731
11/30/2009 $16,191 $17,306 $12,740
12/31/2009 $16,289 $17,365 $12,718
1/31/2010 $16,345 $17,455 $12,761
2/28/2010 $16,449 $17,624 $12,764
78 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.35%
5-Year +3.49%
10-Year +4.97%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN NEW
JERSEY TAX-FREE BARCLAYS CAPITAL
INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,229 $10,218 $10,082
4/30/2000 $10,154 $10,158 $10,088
5/31/2000 $10,078 $10,105 $10,100
6/30/2000 $10,338 $10,373 $10,153
7/31/2000 $10,481 $10,518 $10,177
8/31/2000 $10,634 $10,680 $10,177
9/30/2000 $10,572 $10,624 $10,230
10/31/2000 $10,688 $10,740 $10,247
11/30/2000 $10,766 $10,821 $10,253
12/31/2000 $11,022 $11,089 $10,247
1/31/2001 $11,072 $11,198 $10,312
2/28/2001 $11,159 $11,234 $10,353
3/31/2001 $11,231 $11,334 $10,377
4/30/2001 $11,120 $11,212 $10,418
5/31/2001 $11,238 $11,332 $10,465
6/30/2001 $11,326 $11,408 $10,483
7/31/2001 $11,494 $11,577 $10,453
8/31/2001 $11,642 $11,768 $10,453
9/30/2001 $11,575 $11,729 $10,501
10/31/2001 $11,695 $11,868 $10,465
11/30/2001 $11,597 $11,768 $10,448
12/31/2001 $11,481 $11,657 $10,406
1/31/2002 $11,668 $11,859 $10,430
2/28/2002 $11,807 $12,002 $10,471
3/31/2002 $11,585 $11,767 $10,530
4/30/2002 $11,775 $11,997 $10,589
5/31/2002 $11,847 $12,070 $10,589
6/30/2002 $11,948 $12,197 $10,595
7/31/2002 $12,072 $12,354 $10,607
8/31/2002 $12,204 $12,503 $10,642
9/30/2002 $12,466 $12,776 $10,660
10/31/2002 $12,204 $12,565 $10,677
11/30/2002 $12,154 $12,512 $10,677
12/31/2002 $12,411 $12,776 $10,654
1/31/2003 $12,350 $12,744 $10,701
2/28/2003 $12,493 $12,922 $10,783
3/31/2003 $12,506 $12,930 $10,848
4/30/2003 $12,588 $13,015 $10,824
5/31/2003 $12,881 $13,320 $10,807
6/30/2003 $12,816 $13,263 $10,819
7/31/2003 $12,323 $12,799 $10,830
8/31/2003 $12,415 $12,895 $10,872
9/30/2003 $12,717 $13,274 $10,907
10/31/2003 $12,676 $13,207 $10,895
11/30/2003 $12,821 $13,345 $10,866
12/31/2003 $12,925 $13,455 $10,854
1/31/2004 $13,022 $13,532 $10,907
2/29/2004 $13,210 $13,736 $10,966
3/31/2004 $13,188 $13,688 $11,037
4/30/2004 $12,855 $13,364 $11,072
5/31/2004 $12,800 $13,315 $11,137
6/30/2004 $12,863 $13,364 $11,172
7/31/2004 $13,038 $13,540 $11,154
8/31/2004 $13,265 $13,811 $11,160
9/30/2004 $13,351 $13,884 $11,184
10/31/2004 $13,472 $14,004 $11,243
11/30/2004 $13,359 $13,888 $11,249
12/31/2004 $13,525 $14,058 $11,207
1/31/2005 $13,709 $14,189 $11,231
2/28/2005 $13,674 $14,142 $11,296
3/31/2005 $13,610 $14,053 $11,384
4/30/2005 $13,807 $14,274 $11,461
5/31/2005 $13,919 $14,375 $11,449
6/30/2005 $13,999 $14,464 $11,455
7/31/2005 $13,941 $14,399 $11,508
8/31/2005 $14,063 $14,544 $11,567
9/30/2005 $13,960 $14,446 $11,708
10/31/2005 $13,889 $14,359 $11,731
11/30/2005 $13,931 $14,428 $11,637
12/31/2005 $14,046 $14,552 $11,590
1/31/2006 $14,054 $14,591 $11,678
2/28/2006 $14,162 $14,689 $11,702
3/31/2006 $14,070 $14,588 $11,767
4/30/2006 $14,066 $14,583 $11,867
5/31/2006 $14,099 $14,648 $11,926
6/30/2006 $14,049 $14,592 $11,949
7/31/2006 $14,187 $14,766 $11,985
8/31/2006 $14,372 $14,985 $12,008
9/30/2006 $14,463 $15,089 $11,949
10/31/2006 $14,556 $15,184 $11,885
11/30/2006 $14,693 $15,311 $11,867
12/31/2006 $14,642 $15,257 $11,885
1/31/2007 $14,603 $15,217 $11,921
2/28/2007 $14,777 $15,418 $11,985
3/31/2007 $14,729 $15,380 $12,094
4/30/2007 $14,771 $15,426 $12,172
5/31/2007 $14,707 $15,357 $12,247
6/30/2007 $14,630 $15,278 $12,270
7/31/2007 $14,724 $15,396 $12,267
8/31/2007 $14,621 $15,330 $12,245
9/30/2007 $14,848 $15,557 $12,279
10/31/2007 $14,893 $15,626 $12,305
11/30/2007 $14,964 $15,726 $12,378
12/31/2007 $14,946 $15,769 $12,370
1/31/2008 $15,076 $15,968 $12,431
2/29/2008 $14,375 $15,237 $12,467
3/31/2008 $14,805 $15,672 $12,575
4/30/2008 $15,001 $15,856 $12,652
5/31/2008 $15,098 $15,952 $12,758
6/30/2008 $14,927 $15,771 $12,887
7/31/2008 $14,962 $15,831 $12,954
8/31/2008 $15,096 $16,017 $12,903
9/30/2008 $14,315 $15,265 $12,885
10/31/2008 $14,047 $15,110 $12,755
11/30/2008 $13,950 $15,158 $12,510
12/31/2008 $14,035 $15,379 $12,381
1/31/2009 $14,544 $15,942 $12,435
2/28/2009 $14,714 $16,025 $12,497
3/31/2009 $14,729 $16,028 $12,527
4/30/2009 $15,072 $16,349 $12,558
5/31/2009 $15,249 $16,522 $12,595
6/30/2009 $15,139 $16,367 $12,703
7/31/2009 $15,359 $16,641 $12,683
8/31/2009 $15,669 $16,925 $12,711
9/30/2009 $16,283 $17,532 $12,719
10/31/2009 $16,019 $17,164 $12,731
11/30/2009 $15,988 $17,306 $12,740
12/31/2009 $16,077 $17,365 $12,718
1/31/2010 $16,127 $17,455 $12,761
2/28/2010 $16,235 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +10.98%
5-Year +4.08%
10-Year +5.55%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN NEW
JERSEY TAX-FREE BARCLAYS CAPITAL
INCOME FUND - MUNICIPAL BOND
DATE ADVISOR CLASS INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,226 $10,218 $10,082
4/30/2000 $10,164 $10,158 $10,088
5/31/2000 $10,092 $10,105 $10,100
6/30/2000 $10,358 $10,373 $10,153
7/31/2000 $10,499 $10,518 $10,177
8/31/2000 $10,666 $10,680 $10,177
9/30/2000 $10,599 $10,624 $10,230
10/31/2000 $10,731 $10,740 $10,247
11/30/2000 $10,814 $10,821 $10,253
12/31/2000 $11,078 $11,089 $10,247
1/31/2001 $11,133 $11,198 $10,312
2/28/2001 $11,216 $11,234 $10,353
3/31/2001 $11,305 $11,334 $10,377
4/30/2001 $11,188 $11,212 $10,418
5/31/2001 $11,312 $11,332 $10,465
6/30/2001 $11,407 $11,408 $10,483
7/31/2001 $11,583 $11,577 $10,453
8/31/2001 $11,737 $11,768 $10,453
9/30/2001 $11,665 $11,729 $10,501
10/31/2001 $11,802 $11,868 $10,465
11/30/2001 $11,708 $11,768 $10,448
12/31/2001 $11,596 $11,657 $10,406
1/31/2002 $11,782 $11,859 $10,430
2/28/2002 $11,928 $12,002 $10,471
3/31/2002 $11,708 $11,767 $10,530
4/30/2002 $11,917 $11,997 $10,589
5/31/2002 $11,985 $12,070 $10,589
6/30/2002 $12,094 $12,197 $10,595
7/31/2002 $12,225 $12,354 $10,607
8/31/2002 $12,365 $12,503 $10,642
9/30/2002 $12,638 $12,776 $10,660
10/31/2002 $12,377 $12,565 $10,677
11/30/2002 $12,331 $12,512 $10,677
12/31/2002 $12,599 $12,776 $10,654
1/31/2003 $12,542 $12,744 $10,701
2/28/2003 $12,693 $12,922 $10,783
3/31/2003 $12,713 $12,930 $10,848
4/30/2003 $12,803 $13,015 $10,824
5/31/2003 $13,098 $13,320 $10,807
6/30/2003 $13,049 $13,263 $10,819
7/31/2003 $12,550 $12,799 $10,830
8/31/2003 $12,651 $12,895 $10,872
9/30/2003 $12,967 $13,274 $10,907
10/31/2003 $12,921 $13,207 $10,895
11/30/2003 $13,075 $13,345 $10,866
12/31/2003 $13,200 $13,455 $10,854
1/31/2004 $13,293 $13,532 $10,907
2/29/2004 $13,493 $13,736 $10,966
3/31/2004 $13,476 $13,688 $11,037
4/30/2004 $13,139 $13,364 $11,072
5/31/2004 $13,101 $13,315 $11,137
6/30/2004 $13,160 $13,364 $11,172
7/31/2004 $13,346 $13,540 $11,154
8/31/2004 $13,588 $13,811 $11,160
9/30/2004 $13,694 $13,884 $11,184
10/31/2004 $13,813 $14,004 $11,243
11/30/2004 $13,702 $13,888 $11,249
12/31/2004 $13,880 $14,058 $11,207
1/31/2005 $14,077 $14,189 $11,231
2/28/2005 $14,047 $14,142 $11,296
3/31/2005 $13,988 $14,053 $11,384
4/30/2005 $14,199 $14,274 $11,461
5/31/2005 $14,322 $14,375 $11,449
6/30/2005 $14,400 $14,464 $11,455
7/31/2005 $14,358 $14,399 $11,508
8/31/2005 $14,491 $14,544 $11,567
9/30/2005 $14,391 $14,446 $11,708
10/31/2005 $14,311 $14,359 $11,731
11/30/2005 $14,374 $14,428 $11,637
12/31/2005 $14,499 $14,552 $11,590
1/31/2006 $14,514 $14,591 $11,678
2/28/2006 $14,633 $14,689 $11,702
3/31/2006 $14,533 $14,588 $11,767
4/30/2006 $14,547 $14,583 $11,867
5/31/2006 $14,576 $14,648 $11,926
6/30/2006 $14,531 $14,592 $11,949
7/31/2006 $14,694 $14,766 $11,985
8/31/2006 $14,882 $14,985 $12,008
9/30/2006 $14,995 $15,089 $11,949
10/31/2006 $15,088 $15,184 $11,885
11/30/2006 $15,237 $15,311 $11,867
12/31/2006 $15,191 $15,257 $11,885
1/31/2007 $15,158 $15,217 $11,921
2/28/2007 $15,359 $15,418 $11,985
3/31/2007 $15,304 $15,380 $12,094
4/30/2007 $15,355 $15,426 $12,172
5/31/2007 $15,295 $15,357 $12,247
6/30/2007 $15,221 $15,278 $12,270
7/31/2007 $15,326 $15,396 $12,267
8/31/2007 $15,226 $15,330 $12,245
9/30/2007 $15,471 $15,557 $12,279
10/31/2007 $15,526 $15,626 $12,305
11/30/2007 $15,594 $15,726 $12,378
12/31/2007 $15,595 $15,769 $12,370
1/31/2008 $15,739 $15,968 $12,431
2/29/2008 $15,008 $15,237 $12,467
3/31/2008 $15,468 $15,672 $12,575
4/30/2008 $15,683 $15,856 $12,652
5/31/2008 $15,792 $15,952 $12,758
6/30/2008 $15,619 $15,771 $12,887
7/31/2008 $15,651 $15,831 $12,954
8/31/2008 $15,814 $16,017 $12,903
9/30/2008 $15,011 $15,265 $12,885
10/31/2008 $14,736 $15,110 $12,755
11/30/2008 $14,628 $15,158 $12,510
12/31/2008 $14,727 $15,379 $12,381
1/31/2009 $15,273 $15,942 $12,435
2/28/2009 $15,461 $16,025 $12,497
3/31/2009 $15,486 $16,028 $12,527
4/30/2009 $15,858 $16,349 $12,558
5/31/2009 $16,054 $16,522 $12,595
6/30/2009 $15,946 $16,367 $12,703
7/31/2009 $16,175 $16,641 $12,683
8/31/2009 $16,514 $16,925 $12,711
9/30/2009 $17,176 $17,532 $12,719
10/31/2009 $16,904 $17,164 $12,731
11/30/2009 $16,880 $17,306 $12,740
12/31/2009 $16,984 $17,365 $12,718
1/31/2010 $17,047 $17,455 $12,761
2/28/2010 $17,156 $17,624 $12,764
Annual Report | 79
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and New Jersey
personal income tax rate of 40.83%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 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 6/30/08, 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 +9.55% and +5.64%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
80 | Annual Report
Your Fund's Expenses
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 81
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,038.40 $3.23
Hypothetical (5% return before expenses) $1,000 $1,021.62 $3.21
CLASS B
Actual $1,000 $1,036.20 $5.96
Hypothetical (5% return before expenses) $1,000 $1,018.94 $5.91
CLASS C
Actual $1,000 $1,036.10 $6.01
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
ADVISOR CLASS
Actual $1,000 $1,038.90 $2.73
Hypothetical (5% return before expenses) $1,000 $1,022.12 $2.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.64%; B: 1.18%; C: 1.19%; and Advisor:
0.54%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
82 | Annual Report
Franklin Oregon Tax-Free Income Fund
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 BREAKDOWN*
Franklin Oregon Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA .................................... 27.2%
AA ..................................... 23.8%
A ...................................... 14.7%
BBB .................................... 14.1%
Below Investment Grade ................. 1.3%
Not Rated by S&P ....................... 18.9%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings and
generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 0.4% 1.1%
AA or Aa 9.4% --
A 6.0% 0.2%
BBB or Baa 0.9% 0.7%
Below Investment Grade -- 0.2%
---- ---
Total 16.7% 2.2%
We are pleased to bring you Franklin Oregon Tax-Free Income Fund's annual report
for the fiscal year ended February 28, 2010.
(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.
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 209.
Annual Report | 83
DIVIDEND DISTRIBUTIONS*
Franklin Oregon Tax-Free Income Fund
DIVIDEND PER SHARE
-----------------------------------------
MONTH CLASS A CLASS C ADVISOR CLASS**
- ----- ---------- ---------- ---------------
March 2009 4.18 cents 3.67 cents --
April 2009 4.18 cents 3.67 cents --
May 2009 4.18 cents 3.67 cents --
June 2009 4.18 cents 3.66 cents --
July 2009 4.18 cents 3.66 cents 0.88 cents
August 2009 4.18 cents 3.66 cents 4.27 cents
September 2009 4.11 cents 3.57 cents 4.20 cents
October 2009 4.11 cents 3.57 cents 4.20 cents
November 2009 4.11 cents 3.57 cents 4.20 cents
December 2009 4.01 cents 3.44 cents 4.10 cents
January 2010 4.01 cents 3.44 cents 4.10 cents
February 2010 4.01 cents 3.44 cents 4.10 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/15/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$11.21 on February 28, 2009, to $11.87 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 49.34 cents per share for the same period.(2) The
Performance Summary beginning on page 87 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 3.88% based on an
annualization of the current 4.01 cent per share dividend and the maximum
offering price of $12.40 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Oregon personal income tax bracket of 42.15%
would need to earn a distribution rate of 6.71% from a taxable investment to
match the Fund's Class A tax-free distribution rate. For the Fund's Class C and
Advisor shares' performance, please see the Performance Summary. During the year
under review, renewed investor interest in municipal bonds and limited new-issue
supply tended to reduce the Fund's income, which caused dividends to decline
slightly.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
84 | Annual Report
STATE UPDATE
During the reporting period, Oregon's economy struggled with the lingering
effects of a severe national recession. However, as the country's gross domestic
product returned to growth, Oregon's economic conditions began to improve in the
latter half of the review period. According to the Oregon Index of Leading
Indicators, the state economy was looking up based on positive trends coming out
of housing permits, the purchasing managers' index, initial unemployment claims,
industrial production, the semiconductor book-to-bill ratio and new
incorporations. The state's exporters benefited from renewed demand for high
technology products, especially from China, as Oregon became the fifth largest
state in terms of total exports to China in 2009.(3) Although job losses slowed,
the state's unemployment rate rose to 10.5% in February 2010.(4) Major job cuts
were in the areas of construction, wood products, transportation equipment,
nondurable goods and educational services. A few sectors gained jobs, including
health services and state government.
Like that of many other states, Oregon's fiscal management was put to the test
with a drastic fall in tax revenues and higher demand for social services.
During the state's 2009-11 fiscal biennium, personal income tax receipts came in
significantly below estimates. Oregon relied heavily on one-time federal aid and
utilized the majority of its two reserve funds (the Oregon Rainy Day Fund and
the Education Stability Fund) to bridge its budget shortfalls. State officials
also implemented significant spending cuts and controversial tax increases and
fund transfers. However, so far the 2010 tax revenue projections for corporate
income taxes were more optimistic compared with 2009's as economic conditions
improved.
Oregon's net tax-supported debt as a percentage of personal income was 4.5% and
debt per capita was $1,607 compared with the 2.1% and $739 national medians.(5)
Independent credit rating agency Standard & Poor's assigned Oregon's general
obligation bonds a rating of AA with a stable outlook.(6)
* Does not include short-term investments and other net assets.
(3.) Source: Office of Economic Analysis (Oregon), "Oregon Economic and Revenue
Forecast," March 2010.
(4.) Source: Bureau of Labor Statistics.
(5.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(6.) This does not indicate Standard & Poor's rating of the Fund.
PORTFOLIO BREAKDOWN
Franklin Oregon Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM INVESTMENTS*
----------------------
General Obligation 23.1%
Hospital & Health Care 19.0%
Prerefunded 16.2%
Transportation 9.8%
Tax-Supported 7.3%
Utilities 6.8%
Subject to Government Appropriations 5.6%
Other Revenue 4.5%
Higher Education 4.2%
Housing 2.7%
Corporate-Backed 0.8%
Annual Report | 85
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Oregon Tax-Free Income
Fund. We intend to maintain our conservative, buy-and-hold investment strategy
as we attempt to provide shareholders with high, current, tax-free income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
86 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN OREGON TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRORX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.66 $11.87 $11.21
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4934
CLASS C (SYMBOL: FORIX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.67 $12.00 $11.33
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4292
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/15/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.43 $11.87 $11.44
DISTRIBUTIONS (7/16/09-2/28/10)
Dividend Income $0.3064
Annual Report | 87
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN FIRST YEAR ONLY; ADVISOR CLASS:
NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.47% +23.08% +71.67%
Average Annual Total Return(2) +5.75% +3.34% +5.10%
Avg. Ann. Total Return (3/31/10)(3) +6.07% +3.47% +4.86%
Distribution Rate(4) 3.88%
Taxable Equivalent Distribution Rate(5) 6.71%
30-Day Standardized Yield(6) 3.24%
Taxable Equivalent Yield(5) 5.60%
Total Annual Operating Expenses(7) 0.64%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +9.85% +19.68% +62.58%
Average Annual Total Return(2) +8.85% +3.66% +4.98%
Avg. Ann. Total Return (3/31/10)(3) +9.11% +3.78% +4.74%
Distribution Rate(4) 3.44%
Taxable Equivalent Distribution Rate(5) 5.95%
30-Day Standardized Yield(6) 2.84%
Taxable Equivalent Yield(5) 4.91%
Total Annual Operating Expenses(7) 1.19%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +10.53% +23.15% +71.77%
Average Annual Total Return(2) +10.53% +4.25% +5.56%
Avg. Ann. Total Return (3/31/10)(3) +10.81% +4.38% +5.33%
Distribution Rate(4) 4.16%
Taxable Equivalent Distribution Rate(5) 7.19%
30-Day Standardized Yield(6) 3.50%
Taxable Equivalent Yield(5) 6.05%
Total Annual Operating Expenses(7) 0.54%
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.
88 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +5.75%
5-Year +3.34%
10-Year +5.10%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN OREGON BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,794 $10,218 $10,082
4/30/2000 $ 9,732 $10,158 $10,088
5/31/2000 $ 9,669 $10,105 $10,100
6/30/2000 $ 9,927 $10,373 $10,153
7/31/2000 $10,063 $10,518 $10,177
8/31/2000 $10,224 $10,680 $10,177
9/30/2000 $10,158 $10,624 $10,230
10/31/2000 $10,257 $10,740 $10,247
11/30/2000 $10,319 $10,821 $10,253
12/31/2000 $10,557 $11,089 $10,247
1/31/2001 $10,609 $11,198 $10,312
2/28/2001 $10,652 $11,234 $10,353
3/31/2001 $10,738 $11,334 $10,377
4/30/2001 $10,623 $11,212 $10,418
5/31/2001 $10,725 $11,332 $10,465
6/30/2001 $10,807 $11,408 $10,483
7/31/2001 $10,978 $11,577 $10,453
8/31/2001 $11,147 $11,768 $10,453
9/30/2001 $11,076 $11,729 $10,501
10/31/2001 $11,209 $11,868 $10,465
11/30/2001 $11,116 $11,768 $10,448
12/31/2001 $10,996 $11,657 $10,406
1/31/2002 $11,155 $11,859 $10,430
2/28/2002 $11,285 $12,002 $10,471
3/31/2002 $11,098 $11,767 $10,530
4/30/2002 $11,290 $11,997 $10,589
5/31/2002 $11,344 $12,070 $10,589
6/30/2002 $11,448 $12,197 $10,595
7/31/2002 $11,573 $12,354 $10,607
8/31/2002 $11,687 $12,503 $10,642
9/30/2002 $11,932 $12,776 $10,660
10/31/2002 $11,686 $12,565 $10,677
11/30/2002 $11,651 $12,512 $10,677
12/31/2002 $11,889 $12,776 $10,654
1/31/2003 $11,843 $12,744 $10,701
2/28/2003 $11,999 $12,922 $10,783
3/31/2003 $11,997 $12,930 $10,848
4/30/2003 $12,082 $13,015 $10,824
5/31/2003 $12,399 $13,320 $10,807
6/30/2003 $12,370 $13,263 $10,819
7/31/2003 $11,936 $12,799 $10,830
8/31/2003 $12,023 $12,895 $10,872
9/30/2003 $12,329 $13,274 $10,907
10/31/2003 $12,283 $13,207 $10,895
11/30/2003 $12,433 $13,345 $10,866
12/31/2003 $12,542 $13,455 $10,854
1/31/2004 $12,622 $13,532 $10,907
2/29/2004 $12,826 $13,736 $10,966
3/31/2004 $12,821 $13,688 $11,037
4/30/2004 $12,525 $13,364 $11,072
5/31/2004 $12,498 $13,315 $11,137
6/30/2004 $12,533 $13,364 $11,172
7/31/2004 $12,703 $13,540 $11,154
8/31/2004 $12,927 $13,811 $11,160
9/30/2004 $12,996 $13,884 $11,184
10/31/2004 $13,133 $14,004 $11,243
11/30/2004 $13,024 $13,888 $11,249
12/31/2004 $13,207 $14,058 $11,207
1/31/2005 $13,375 $14,189 $11,231
2/28/2005 $13,355 $14,142 $11,296
3/31/2005 $13,285 $14,053 $11,384
4/30/2005 $13,511 $14,274 $11,461
5/31/2005 $13,617 $14,375 $11,449
6/30/2005 $13,692 $14,464 $11,455
7/31/2005 $13,639 $14,399 $11,508
8/31/2005 $13,789 $14,544 $11,567
9/30/2005 $13,690 $14,446 $11,708
10/31/2005 $13,599 $14,359 $11,731
11/30/2005 $13,658 $14,428 $11,637
12/31/2005 $13,778 $14,552 $11,590
1/31/2006 $13,802 $14,591 $11,678
2/28/2006 $13,926 $14,689 $11,702
3/31/2006 $13,814 $14,588 $11,767
4/30/2006 $13,825 $14,583 $11,867
5/31/2006 $13,861 $14,648 $11,926
6/30/2006 $13,791 $14,592 $11,949
7/31/2006 $13,958 $14,766 $11,985
8/31/2006 $14,148 $14,985 $12,008
9/30/2006 $14,244 $15,089 $11,949
10/31/2006 $14,330 $15,184 $11,885
11/30/2006 $14,460 $15,311 $11,867
12/31/2006 $14,400 $15,257 $11,885
1/31/2007 $14,364 $15,217 $11,921
2/28/2007 $14,557 $15,418 $11,985
3/31/2007 $14,501 $15,380 $12,094
4/30/2007 $14,549 $15,426 $12,172
5/31/2007 $14,488 $15,357 $12,247
6/30/2007 $14,427 $15,278 $12,270
7/31/2007 $14,514 $15,396 $12,267
8/31/2007 $14,464 $15,330 $12,245
9/30/2007 $14,675 $15,557 $12,279
10/31/2007 $14,726 $15,626 $12,305
11/30/2007 $14,815 $15,726 $12,378
12/31/2007 $14,827 $15,769 $12,370
1/31/2008 $14,965 $15,968 $12,431
2/29/2008 $14,304 $15,237 $12,467
3/31/2008 $14,698 $15,672 $12,575
4/30/2008 $14,917 $15,856 $12,652
5/31/2008 $15,009 $15,952 $12,758
6/30/2008 $14,891 $15,771 $12,887
7/31/2008 $14,934 $15,831 $12,954
8/31/2008 $15,078 $16,017 $12,903
9/30/2008 $14,271 $15,265 $12,885
10/31/2008 $14,146 $15,110 $12,755
11/30/2008 $14,092 $15,158 $12,510
12/31/2008 $14,225 $15,379 $12,381
1/31/2009 $14,701 $15,942 $12,435
2/28/2009 $14,882 $16,025 $12,497
3/31/2009 $14,852 $16,028 $12,527
4/30/2009 $15,198 $16,349 $12,558
5/31/2009 $15,388 $16,522 $12,595
6/30/2009 $15,321 $16,367 $12,703
7/31/2009 $15,502 $16,641 $12,683
8/31/2009 $15,774 $16,925 $12,711
9/30/2009 $16,371 $17,532 $12,719
10/31/2009 $16,089 $17,164 $12,731
11/30/2009 $16,171 $17,306 $12,740
12/31/2009 $16,253 $17,365 $12,718
1/31/2010 $16,295 $17,455 $12,761
2/28/2010 $16,438 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +8.85%
5-Year +3.66%
10-Year +4.98%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN OREGON BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---------- --------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,232 $10,218 $10,082
4/30/2000 $10,163 $10,158 $10,088
5/31/2000 $10,093 $10,105 $10,100
6/30/2000 $10,347 $10,373 $10,153
7/31/2000 $10,491 $10,518 $10,177
8/31/2000 $10,654 $10,680 $10,177
9/30/2000 $10,580 $10,624 $10,230
10/31/2000 $10,678 $10,740 $10,247
11/30/2000 $10,737 $10,821 $10,253
12/31/2000 $10,978 $11,089 $10,247
1/31/2001 $11,028 $11,198 $10,312
2/28/2001 $11,057 $11,234 $10,353
3/31/2001 $11,159 $11,334 $10,377
4/30/2001 $11,035 $11,212 $10,418
5/31/2001 $11,135 $11,332 $10,465
6/30/2001 $11,205 $11,408 $10,483
7/31/2001 $11,386 $11,577 $10,453
8/31/2001 $11,554 $11,768 $10,453
9/30/2001 $11,467 $11,729 $10,501
10/31/2001 $11,598 $11,868 $10,465
11/30/2001 $11,498 $11,768 $10,448
12/31/2001 $11,368 $11,657 $10,406
1/31/2002 $11,526 $11,859 $10,430
2/28/2002 $11,665 $12,002 $10,471
3/31/2002 $11,467 $11,767 $10,530
4/30/2002 $11,658 $11,997 $10,589
5/31/2002 $11,709 $12,070 $10,589
6/30/2002 $11,810 $12,197 $10,595
7/31/2002 $11,943 $12,354 $10,607
8/31/2002 $12,044 $12,503 $10,642
9/30/2002 $12,289 $12,776 $10,660
10/31/2002 $12,032 $12,565 $10,677
11/30/2002 $11,990 $12,512 $10,677
12/31/2002 $12,239 $12,776 $10,654
1/31/2003 $12,186 $12,744 $10,701
2/28/2003 $12,340 $12,922 $10,783
3/31/2003 $12,321 $12,930 $10,848
4/30/2003 $12,414 $13,015 $10,824
5/31/2003 $12,731 $13,320 $10,807
6/30/2003 $12,695 $13,263 $10,819
7/31/2003 $12,247 $12,799 $10,830
8/31/2003 $12,319 $12,895 $10,872
9/30/2003 $12,624 $13,274 $10,907
10/31/2003 $12,582 $13,207 $10,895
11/30/2003 $12,728 $13,345 $10,866
12/31/2003 $12,844 $13,455 $10,854
1/31/2004 $12,909 $13,532 $10,907
2/29/2004 $13,121 $13,736 $10,966
3/31/2004 $13,110 $13,688 $11,037
4/30/2004 $12,793 $13,364 $11,072
5/31/2004 $12,759 $13,315 $11,137
6/30/2004 $12,801 $13,364 $11,172
7/31/2004 $12,955 $13,540 $11,154
8/31/2004 $13,175 $13,811 $11,160
9/30/2004 $13,251 $13,884 $11,184
10/31/2004 $13,383 $14,004 $11,243
11/30/2004 $13,257 $13,888 $11,249
12/31/2004 $13,446 $14,058 $11,207
1/31/2005 $13,609 $14,189 $11,231
2/28/2005 $13,584 $14,142 $11,296
3/31/2005 $13,505 $14,053 $11,384
4/30/2005 $13,715 $14,274 $11,461
5/31/2005 $13,827 $14,375 $11,449
6/30/2005 $13,896 $14,464 $11,455
7/31/2005 $13,836 $14,399 $11,508
8/31/2005 $13,981 $14,544 $11,567
9/30/2005 $13,875 $14,446 $11,708
10/31/2005 $13,777 $14,359 $11,731
11/30/2005 $13,830 $14,428 $11,637
12/31/2005 $13,944 $14,552 $11,590
1/31/2006 $13,962 $14,591 $11,678
2/28/2006 $14,081 $14,689 $11,702
3/31/2006 $13,962 $14,588 $11,767
4/30/2006 $13,966 $14,583 $11,867
5/31/2006 $13,996 $14,648 $11,926
6/30/2006 $13,919 $14,592 $11,949
7/31/2006 $14,079 $14,766 $11,985
8/31/2006 $14,263 $14,985 $12,008
9/30/2006 $14,352 $15,089 $11,949
10/31/2006 $14,443 $15,184 $11,885
11/30/2006 $14,554 $15,311 $11,867
12/31/2006 $14,500 $15,257 $11,885
1/31/2007 $14,457 $15,217 $11,921
2/28/2007 $14,643 $15,418 $11,985
3/31/2007 $14,580 $15,380 $12,094
4/30/2007 $14,621 $15,426 $12,172
5/31/2007 $14,553 $15,357 $12,247
6/30/2007 $14,474 $15,278 $12,270
7/31/2007 $14,566 $15,396 $12,267
8/31/2007 $14,510 $15,330 $12,245
9/30/2007 $14,700 $15,557 $12,279
10/31/2007 $14,757 $15,626 $12,305
11/30/2007 $14,838 $15,726 $12,378
12/31/2007 $14,844 $15,769 $12,370
1/31/2008 $14,973 $15,968 $12,431
2/29/2008 $14,300 $15,237 $12,467
3/31/2008 $14,696 $15,672 $12,575
4/30/2008 $14,905 $15,856 $12,652
5/31/2008 $15,001 $15,952 $12,758
6/30/2008 $14,866 $15,771 $12,887
7/31/2008 $14,901 $15,831 $12,954
8/31/2008 $15,036 $16,017 $12,903
9/30/2008 $14,220 $15,265 $12,885
10/31/2008 $14,089 $15,110 $12,755
11/30/2008 $14,043 $15,158 $12,510
12/31/2008 $14,155 $15,379 $12,381
1/31/2009 $14,630 $15,942 $12,435
2/28/2009 $14,802 $16,025 $12,497
3/31/2009 $14,765 $16,028 $12,527
4/30/2009 $15,099 $16,349 $12,558
5/31/2009 $15,279 $16,522 $12,595
6/30/2009 $15,207 $16,367 $12,703
7/31/2009 $15,377 $16,641 $12,683
8/31/2009 $15,650 $16,925 $12,711
9/30/2009 $16,242 $17,532 $12,719
10/31/2009 $15,946 $17,164 $12,731
11/30/2009 $16,019 $17,306 $12,740
12/31/2009 $16,091 $17,365 $12,718
1/31/2010 $16,124 $17,455 $12,761
2/28/2010 $16,258 $17,624 $12,764
Annual Report | 89
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +10.53%
5-Year +4.25%
10-Year +5.56%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN OREGON BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - ADVISOR CLASS INDEX CPI
- ---------- -------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,228 $10,218 $10,082
4/30/2000 $10,164 $10,158 $10,088
5/31/2000 $10,098 $10,105 $10,100
6/30/2000 $10,368 $10,373 $10,153
7/31/2000 $10,509 $10,518 $10,177
8/31/2000 $10,678 $10,680 $10,177
9/30/2000 $10,609 $10,624 $10,230
10/31/2000 $10,713 $10,740 $10,247
11/30/2000 $10,777 $10,821 $10,253
12/31/2000 $11,025 $11,089 $10,247
1/31/2001 $11,080 $11,198 $10,312
2/28/2001 $11,125 $11,234 $10,353
3/31/2001 $11,214 $11,334 $10,377
4/30/2001 $11,095 $11,212 $10,418
5/31/2001 $11,201 $11,332 $10,465
6/30/2001 $11,287 $11,408 $10,483
7/31/2001 $11,465 $11,577 $10,453
8/31/2001 $11,642 $11,768 $10,453
9/30/2001 $11,568 $11,729 $10,501
10/31/2001 $11,706 $11,868 $10,465
11/30/2001 $11,610 $11,768 $10,448
12/31/2001 $11,484 $11,657 $10,406
1/31/2002 $11,650 $11,859 $10,430
2/28/2002 $11,786 $12,002 $10,471
3/31/2002 $11,591 $11,767 $10,530
4/30/2002 $11,791 $11,997 $10,589
5/31/2002 $11,848 $12,070 $10,589
6/30/2002 $11,956 $12,197 $10,595
7/31/2002 $12,087 $12,354 $10,607
8/31/2002 $12,206 $12,503 $10,642
9/30/2002 $12,461 $12,776 $10,660
10/31/2002 $12,205 $12,565 $10,677
11/30/2002 $12,168 $12,512 $10,677
12/31/2002 $12,417 $12,776 $10,654
1/31/2003 $12,369 $12,744 $10,701
2/28/2003 $12,532 $12,922 $10,783
3/31/2003 $12,529 $12,930 $10,848
4/30/2003 $12,619 $13,015 $10,824
5/31/2003 $12,949 $13,320 $10,807
6/30/2003 $12,919 $13,263 $10,819
7/31/2003 $12,465 $12,799 $10,830
8/31/2003 $12,556 $12,895 $10,872
9/30/2003 $12,876 $13,274 $10,907
10/31/2003 $12,829 $13,207 $10,895
11/30/2003 $12,985 $13,345 $10,866
12/31/2003 $13,099 $13,455 $10,854
1/31/2004 $13,183 $13,532 $10,907
2/29/2004 $13,396 $13,736 $10,966
3/31/2004 $13,390 $13,688 $11,037
4/30/2004 $13,081 $13,364 $11,072
5/31/2004 $13,052 $13,315 $11,137
6/30/2004 $13,090 $13,364 $11,172
7/31/2004 $13,267 $13,540 $11,154
8/31/2004 $13,500 $13,811 $11,160
9/30/2004 $13,573 $13,884 $11,184
10/31/2004 $13,716 $14,004 $11,243
11/30/2004 $13,602 $13,888 $11,249
12/31/2004 $13,793 $14,058 $11,207
1/31/2005 $13,968 $14,189 $11,231
2/28/2005 $13,948 $14,142 $11,296
3/31/2005 $13,874 $14,053 $11,384
4/30/2005 $14,110 $14,274 $11,461
5/31/2005 $14,222 $14,375 $11,449
6/30/2005 $14,300 $14,464 $11,455
7/31/2005 $14,244 $14,399 $11,508
8/31/2005 $14,401 $14,544 $11,567
9/30/2005 $14,297 $14,446 $11,708
10/31/2005 $14,202 $14,359 $11,731
11/30/2005 $14,264 $14,428 $11,637
12/31/2005 $14,389 $14,552 $11,590
1/31/2006 $14,415 $14,591 $11,678
2/28/2006 $14,545 $14,689 $11,702
3/31/2006 $14,427 $14,588 $11,767
4/30/2006 $14,438 $14,583 $11,867
5/31/2006 $14,476 $14,648 $11,926
6/30/2006 $14,403 $14,592 $11,949
7/31/2006 $14,577 $14,766 $11,985
8/31/2006 $14,776 $14,985 $12,008
9/30/2006 $14,876 $15,089 $11,949
10/31/2006 $14,966 $15,184 $11,885
11/30/2006 $15,102 $15,311 $11,867
12/31/2006 $15,039 $15,257 $11,885
1/31/2007 $15,002 $15,217 $11,921
2/28/2007 $15,203 $15,418 $11,985
3/31/2007 $15,145 $15,380 $12,094
4/30/2007 $15,194 $15,426 $12,172
5/31/2007 $15,131 $15,357 $12,247
6/30/2007 $15,067 $15,278 $12,270
7/31/2007 $15,158 $15,396 $12,267
8/31/2007 $15,106 $15,330 $12,245
9/30/2007 $15,326 $15,557 $12,279
10/31/2007 $15,379 $15,626 $12,305
11/30/2007 $15,472 $15,726 $12,378
12/31/2007 $15,485 $15,769 $12,370
1/31/2008 $15,629 $15,968 $12,431
2/29/2008 $14,939 $15,237 $12,467
3/31/2008 $15,351 $15,672 $12,575
4/30/2008 $15,580 $15,856 $12,652
5/31/2008 $15,675 $15,952 $12,758
6/30/2008 $15,552 $15,771 $12,887
7/31/2008 $15,597 $15,831 $12,954
8/31/2008 $15,747 $16,017 $12,903
9/30/2008 $14,904 $15,265 $12,885
10/31/2008 $14,774 $15,110 $12,755
11/30/2008 $14,717 $15,158 $12,510
12/31/2008 $14,857 $15,379 $12,381
1/31/2009 $15,353 $15,942 $12,435
2/28/2009 $15,542 $16,025 $12,497
3/31/2009 $15,512 $16,028 $12,527
4/30/2009 $15,873 $16,349 $12,558
5/31/2009 $16,071 $16,522 $12,595
6/30/2009 $16,002 $16,367 $12,703
7/31/2009 $16,190 $16,641 $12,683
8/31/2009 $16,476 $16,925 $12,711
9/30/2009 $17,115 $17,532 $12,719
10/31/2009 $16,808 $17,164 $12,731
11/30/2009 $16,895 $17,306 $12,740
12/31/2009 $16,981 $17,365 $12,718
1/31/2010 $17,026 $17,455 $12,761
2/28/2010 $17,177 $17,624 $12,764
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes C
and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Oregon
personal income tax rate of 42.15%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 7/14/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/15/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +6.49%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
90 | Annual Report
Your Fund's Expenses
FRANKLIN OREGON TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 91
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,042.10 $3.24
Hypothetical (5% return before expenses) $1,000 $1,021.62 $3.21
CLASS C
Actual $1,000 $1,038.80 $6.02
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
ADVISOR CLASS
Actual $1,000 $1,042.60 $2.73
Hypothetical (5% return before expenses) $1,000 $1,022.12 $2.71
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.64%; C: 1.19%; and Advisor: 0.54%),
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.
92 | Annual Report
Franklin Pennsylvania Tax-Free Income Fund
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 BREAKDOWN*
Franklin Pennsylvania Tax-Free Income Fund
Based on Total Long-Term Investments as of 2/28/10**
(PIE CHART)
AAA.................. 22.2%
AA................... 15.6%
A.................... 34.5%
BBB.................. 15.0%
Not Rated by S&P..... 12.7%
* Standard & Poor's (S&P) is the primary independent rating agency; Moody's
is the secondary rating agency. Securities not rated by an independent
rating agency are assigned comparable internal ratings. Ratings for
securities not rated by S&P are in the table below. The letter ratings are
provided to indicate the creditworthiness of the Fund's bond holdings
and generally can range from AAA or Aaa (highest) to Below Investment Grade
(lowest).
** Does not include short-term investments and other net assets.
RATINGS MOODY'S INTERNAL
- ------- ------- --------
AAA or Aaa 1.5% 0.9%
AA or Aa 4.6% 0.3%
A 3.0% --
BBB or Baa 1.8% 0.6%
---- ---
Total 10.9% 1.8%
---- ---
We are pleased to bring you Franklin Pennsylvania Tax-Free Income Fund's annual
report for the fiscal year ended February 28, 2010.
(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.
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 221.
Annual Report | 93
DIVIDEND DISTRIBUTIONS*
Franklin Pennsylvania Tax-Free Income Fund
DIVIDEND PER SHARE
-------------------------------------------------
ADVISOR
MONTH CLASS A CLASS B CLASS C CLASS**
- ----- ---------- ---------- ---------- ----------
March 2009 3.68 cents 3.26 cents 3.25 cents --
April 2009 3.68 cents 3.26 cents 3.25 cents --
May 2009 3.68 cents 3.26 cents 3.25 cents --
June 2009 3.72 cents 3.26 cents 3.25 cents --
July 2009 3.72 cents 3.26 cents 3.25 cents 0.61 cents
August 2009 3.72 cents 3.26 cents 3.25 cents 3.80 cents
September 2009 3.72 cents 3.26 cents 3.24 cents 3.80 cents
October 2009 3.72 cents 3.26 cents 3.24 cents 3.80 cents
November 2009 3.72 cents 3.26 cents 3.24 cents 3.80 cents
December 2009 3.72 cents 3.22 cents 3.23 cents 3.80 cents
January 2010 3.72 cents 3.22 cents 3.23 cents 3.80 cents
February 2010 3.72 cents 3.22 cents 3.23 cents 3.80 cents
* Assumes shares were purchased and held for the entire accrual period, which
differs from the calendar month. 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.
** Effective 7/15/09, the Fund began offering Advisor Class shares. See the
prospectus for details.
PERFORMANCE OVERVIEW
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. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
The Fund's Class A share price, as measured by net asset value, increased from
$9.65 on February 28, 2009, to $10.27 on February 28, 2010. The Fund's Class A
shares paid dividends totaling 44.50 cents per share for the same period.(2) The
Performance Summary beginning on page 97 shows that at the end of this reporting
period the Fund's Class A shares' distribution rate was 4.16% based on an
annualization of the current 3.72 cent per share dividend and the maximum
offering price of $10.73 on February 28, 2010. An investor in the 2010 maximum
combined effective federal and Pennsylvania personal income tax bracket of
37.00% would need to earn a distribution rate of 6.60% from a taxable investment
to match the Fund's Class A tax-free distribution rate. For the Fund's Class B,
C and Advisor shares' performance, please see the Performance Summary.
(2.) All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
94 | Annual Report
COMMONWEALTH UPDATE
In the past 12 months, Pennsylvania's diverse economy struggled with the
lingering effects of a severe national recession. However, as the country's
gross domestic product returned to growth, Pennsylvania's economic conditions
began to improve in the latter half of the review period. Manufacturers,
representing a key sector in the commonwealth's economy, reported a notable
pickup in January's new orders, which suggested recovery in demand for
manufactured goods. Retailers experienced modestly greater sales during the
holiday season compared with the year before. Pennsylvania's jobless rate rose
from 7.5% in February 2009 to 8.9% in February 2010, but labor market conditions
appeared to stabilize toward period-end, as more companies reported hiring
increases.(3)
Similar to that of most states, Pennsylvania's fiscal management was put to the
test with a drastic fall in tax revenues and higher demand for social services.
During the state's 2009 fiscal year, corporate and personal income tax receipts
came in significantly below estimates, as did sales tax receipts. Consequently,
the commonwealth relied heavily on one-time revenue sources (including federal
aid and the depletion of its reserves) and spending reductions (such as
government job cuts) to complete the fiscal year 2010 budget. The 2010 tax
revenue projections were so far more optimistic compared with last year's as
economic conditions improved.
Pennsylvania's net tax-supported debt as a percentage of personal income was
1.9% and debt per capita was $747 compared with the 2.1% and $739 national
medians.(4) Independent credit rating agency Standard & Poor's assigned
Pennsylvania's general obligation bonds a rating of AA with a stable outlook.(5)
The rating reflected the commonwealth's favorable debt profile and history of
solid fiscal management. Concerns were the challenges of rebuilding the
commonwealth's budget stabilization fund and the need for more timely actions in
bridging revenue shortfalls.
(3.) Source: Bureau of Labor Statistics.
(4.) Source: Standard & Poor's, "U.S. Public Finance Report Card: 2009 State
Debt Review: Significant Challenges Lie Ahead," 12/16/09.
(5.) This does not indicate Standard & Poor's rating of the Fund.
PORTFOLIO BREAKDOWN
Franklin Pennsylvania Tax-Free Income Fund
2/28/10
% OF TOTAL
LONG-TERM
INVESTMENTS*
-----------
General Obligation 20.8%
Higher Education 19.6%
Prerefunded 15.8%
Hospital & Health Care 12.4%
Transportation 8.1%
Utilities 7.2%
Tax-Supported 5.4%
Housing 4.6%
Other Revenue 3.3%
Subject to Government Appropriations 1.9%
Corporate-Backed 0.9%
* Does not include short-term investments and other net assets.
Annual Report | 95
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 discussion
on page 6 for details.
Thank you for your continued participation in Franklin Pennsylvania Tax-Free
Income Fund. We intend to maintain our conservative, buy-and-hold investment
strategy as we attempt to provide shareholders with high, current, tax-free
income.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF FEBRUARY 28, 2010, 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.
96 | Annual Report
Performance Summary as of 2/28/10
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
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. The performance table 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.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FRPAX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.62 $10.27 $9.65
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.4450
CLASS B (SYMBOL: FBPTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.62 $10.30 $9.68
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.3896
CLASS C (SYMBOL: FRPTX) CHANGE 2/28/10 2/28/09
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.63 $10.36 $9.73
DISTRIBUTIONS (3/1/09-2/28/10)
Dividend Income $0.3887
ADVISOR CLASS (SYMBOL: N/A) CHANGE 2/28/10 7/15/09
- --------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.35 $10.27 $9.92
DISTRIBUTIONS (7/16/09-2/28/10)
Dividend Income $0.2816
Annual Report | 97
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS
INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY;
ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +11.22% +21.82% +70.28%
Average Annual Total Return(2) +6.48% +3.12% +5.01%
Avg. Ann. Total Return (3/31/10)(3) +6.36% +3.25% +4.78%
Distribution Rate(4) 4.16%
Taxable Equivalent Distribution Rate(5) 6.60%
30-Day Standardized Yield(6) 3.48%
Taxable Equivalent Yield(5) 5.52%
Total Annual Operating Expenses(7) 0.65%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.58% +18.46% +63.49%
Average Annual Total Return(2) +6.58% +3.10% +5.04%
Avg. Ann. Total Return (3/31/10)(3) +6.46% +3.22% +4.80%
Distribution Rate(4) 3.77%
Taxable Equivalent Distribution Rate(5) 5.98%
30-Day Standardized Yield(6) 3.07%
Taxable Equivalent Yield(5) 4.87%
Total Annual Operating Expenses(7) 1.20%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +10.62% +18.44% +61.23%
Average Annual Total Return(2) +9.62% +3.44% +4.89%
Avg. Ann. Total Return (3/31/10)(3) +9.50% +3.58% +4.66%
Distribution Rate(4) 3.74%
Taxable Equivalent Distribution Rate(5) 5.94%
30-Day Standardized Yield(6) 3.09%
Taxable Equivalent Yield(5) 4.90%
Total Annual Operating Expenses(7) 1.20%
ADVISOR CLASS(8) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------ ------ -------
Cumulative Total Return(1) +11.29% +21.89% +70.38%
Average Annual Total Return(2) +11.29% +4.04% +5.47%
Avg. Ann. Total Return (3/31/10)(3) +11.18% +4.16% +5.24%
Distribution Rate(4) 4.44%
Taxable Equivalent Distribution Rate(5) 7.05%
30-Day Standardized Yield(6) 3.71%
Taxable Equivalent Yield(5) 5.89%
Total Annual Operating Expenses(7) 0.55%
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.
98 | Annual Report
Performance Summary (CONTINUED)
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 current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 2/28/10
- ------- -------
1-Year +6.48%
5-Year +3.12%
10-Year +5.01%
CLASS A (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN PENNSYLVANIA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS A INDEX CPI
- ---- --------------------- ---------------- -------
3/1/2000 $ 9,575 $10,000 $10,000
3/31/2000 $ 9,808 $10,218 $10,082
4/30/2000 $ 9,754 $10,158 $10,088
5/31/2000 $ 9,710 $10,105 $10,100
6/30/2000 $ 9,957 $10,373 $10,153
7/31/2000 $10,094 $10,518 $10,177
8/31/2000 $10,262 $10,680 $10,177
9/30/2000 $10,223 $10,624 $10,230
10/31/2000 $10,312 $10,740 $10,247
11/30/2000 $10,357 $10,821 $10,253
12/31/2000 $10,569 $11,089 $10,247
1/31/2001 $10,656 $11,198 $10,312
2/28/2001 $10,698 $11,234 $10,353
3/31/2001 $10,811 $11,334 $10,377
4/30/2001 $10,689 $11,212 $10,418
5/31/2001 $10,801 $11,332 $10,465
6/30/2001 $10,877 $11,408 $10,483
7/31/2001 $11,057 $11,577 $10,453
8/31/2001 $11,235 $11,768 $10,453
9/30/2001 $11,203 $11,729 $10,501
10/31/2001 $11,328 $11,868 $10,465
11/30/2001 $11,264 $11,768 $10,448
12/31/2001 $11,136 $11,657 $10,406
1/31/2002 $11,327 $11,859 $10,430
2/28/2002 $11,447 $12,002 $10,471
3/31/2002 $11,232 $11,767 $10,530
4/30/2002 $11,414 $11,997 $10,589
5/31/2002 $11,485 $12,070 $10,589
6/30/2002 $11,609 $12,197 $10,595
7/31/2002 $11,749 $12,354 $10,607
8/31/2002 $11,876 $12,503 $10,642
9/30/2002 $12,117 $12,776 $10,660
10/31/2002 $11,938 $12,565 $10,677
11/30/2002 $11,903 $12,512 $10,677
12/31/2002 $12,138 $12,776 $10,654
1/31/2003 $12,128 $12,744 $10,701
2/28/2003 $12,276 $12,922 $10,783
3/31/2003 $12,281 $12,930 $10,848
4/30/2003 $12,388 $13,015 $10,824
5/31/2003 $12,658 $13,320 $10,807
6/30/2003 $12,620 $13,263 $10,819
7/31/2003 $12,169 $12,799 $10,830
8/31/2003 $12,262 $12,895 $10,872
9/30/2003 $12,547 $13,274 $10,907
10/31/2003 $12,500 $13,207 $10,895
11/30/2003 $12,628 $13,345 $10,866
12/31/2003 $12,714 $13,455 $10,854
1/31/2004 $12,797 $13,532 $10,907
2/29/2004 $12,973 $13,736 $10,966
3/31/2004 $12,924 $13,688 $11,037
4/30/2004 $12,639 $13,364 $11,072
5/31/2004 $12,602 $13,315 $11,137
6/30/2004 $12,612 $13,364 $11,172
7/31/2004 $12,783 $13,540 $11,154
8/31/2004 $12,993 $13,811 $11,160
9/30/2004 $13,066 $13,884 $11,184
10/31/2004 $13,189 $14,004 $11,243
11/30/2004 $13,087 $13,888 $11,249
12/31/2004 $13,250 $14,058 $11,207
1/31/2005 $13,411 $14,189 $11,231
2/28/2005 $13,384 $14,142 $11,296
3/31/2005 $13,333 $14,053 $11,384
4/30/2005 $13,520 $14,274 $11,461
5/31/2005 $13,612 $14,375 $11,449
6/30/2005 $13,689 $14,464 $11,455
7/31/2005 $13,635 $14,399 $11,508
8/31/2005 $13,777 $14,544 $11,567
9/30/2005 $13,683 $14,446 $11,708
10/31/2005 $13,614 $14,359 $11,731
11/30/2005 $13,667 $14,428 $11,637
12/31/2005 $13,784 $14,552 $11,590
1/31/2006 $13,805 $14,591 $11,678
2/28/2006 $13,930 $14,689 $11,702
3/31/2006 $13,852 $14,588 $11,767
4/30/2006 $13,850 $14,583 $11,867
5/31/2006 $13,889 $14,648 $11,926
6/30/2006 $13,829 $14,592 $11,949
7/31/2006 $13,975 $14,766 $11,985
8/31/2006 $14,162 $14,985 $12,008
9/30/2006 $14,251 $15,089 $11,949
10/31/2006 $14,344 $15,184 $11,885
11/30/2006 $14,475 $15,311 $11,867
12/31/2006 $14,444 $15,257 $11,885
1/31/2007 $14,414 $15,217 $11,921
2/28/2007 $14,586 $15,418 $11,985
3/31/2007 $14,544 $15,380 $12,094
4/30/2007 $14,596 $15,426 $12,172
5/31/2007 $14,550 $15,357 $12,247
6/30/2007 $14,486 $15,278 $12,270
7/31/2007 $14,580 $15,396 $12,267
8/31/2007 $14,489 $15,330 $12,245
9/30/2007 $14,682 $15,557 $12,279
10/31/2007 $14,750 $15,626 $12,305
11/30/2007 $14,843 $15,726 $12,378
12/31/2007 $14,865 $15,769 $12,370
1/31/2008 $15,002 $15,968 $12,431
2/29/2008 $14,271 $15,237 $12,467
3/31/2008 $14,644 $15,672 $12,575
4/30/2008 $14,884 $15,856 $12,652
5/31/2008 $14,998 $15,952 $12,758
6/30/2008 $14,829 $15,771 $12,887
7/31/2008 $14,838 $15,831 $12,954
8/31/2008 $14,982 $16,017 $12,903
9/30/2008 $14,024 $15,265 $12,885
10/31/2008 $13,842 $15,110 $12,755
11/30/2008 $13,790 $15,158 $12,510
12/31/2008 $13,907 $15,379 $12,381
1/31/2009 $14,337 $15,942 $12,435
2/28/2009 $14,661 $16,025 $12,497
3/31/2009 $14,706 $16,028 $12,527
4/30/2009 $15,080 $16,349 $12,558
5/31/2009 $15,275 $16,522 $12,595
6/30/2009 $15,178 $16,367 $12,703
7/31/2009 $15,344 $16,641 $12,683
8/31/2009 $15,633 $16,925 $12,711
9/30/2009 $16,233 $17,532 $12,719
10/31/2009 $15,951 $17,164 $12,731
11/30/2009 $15,992 $17,306 $12,740
12/31/2009 $16,113 $17,365 $12,718
1/31/2010 $16,173 $17,455 $12,761
2/28/2010 $16,311 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
CLASS B 2/28/10
- ------- -------
1-Year +6.58%
5-Year +3.10%
10-Year +5.04%
CLASS B (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN PENNSYLVANIA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS B INDEX CPI
- ---- --------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,239 $10,218 $10,082
4/30/2000 $10,188 $10,158 $10,088
5/31/2000 $10,126 $10,105 $10,100
6/30/2000 $10,380 $10,373 $10,153
7/31/2000 $10,528 $10,518 $10,177
8/31/2000 $10,699 $10,680 $10,177
9/30/2000 $10,654 $10,624 $10,230
10/31/2000 $10,740 $10,740 $10,247
11/30/2000 $10,782 $10,821 $10,253
12/31/2000 $10,997 $11,089 $10,247
1/31/2001 $11,083 $11,198 $10,312
2/28/2001 $11,123 $11,234 $10,353
3/31/2001 $11,235 $11,334 $10,377
4/30/2001 $11,102 $11,212 $10,418
5/31/2001 $11,213 $11,332 $10,465
6/30/2001 $11,299 $11,408 $10,483
7/31/2001 $11,480 $11,577 $10,453
8/31/2001 $11,658 $11,768 $10,453
9/30/2001 $11,621 $11,729 $10,501
10/31/2001 $11,744 $11,868 $10,465
11/30/2001 $11,673 $11,768 $10,448
12/31/2001 $11,535 $11,657 $10,406
1/31/2002 $11,726 $11,859 $10,430
2/28/2002 $11,846 $12,002 $10,471
3/31/2002 $11,617 $11,767 $10,530
4/30/2002 $11,799 $11,997 $10,589
5/31/2002 $11,867 $12,070 $10,589
6/30/2002 $11,990 $12,197 $10,595
7/31/2002 $12,129 $12,354 $10,607
8/31/2002 $12,254 $12,503 $10,642
9/30/2002 $12,498 $12,776 $10,660
10/31/2002 $12,319 $12,565 $10,677
11/30/2002 $12,278 $12,512 $10,677
12/31/2002 $12,514 $12,776 $10,654
1/31/2003 $12,486 $12,744 $10,701
2/28/2003 $12,645 $12,922 $10,783
3/31/2003 $12,644 $12,930 $10,848
4/30/2003 $12,736 $13,015 $10,824
5/31/2003 $13,019 $13,320 $10,807
6/30/2003 $12,975 $13,263 $10,819
7/31/2003 $12,507 $12,799 $10,830
8/31/2003 $12,596 $12,895 $10,872
9/30/2003 $12,882 $13,274 $10,907
10/31/2003 $12,827 $13,207 $10,895
11/30/2003 $12,952 $13,345 $10,866
12/31/2003 $13,034 $13,455 $10,854
1/31/2004 $13,114 $13,532 $10,907
2/29/2004 $13,289 $13,736 $10,966
3/31/2004 $13,245 $13,688 $11,037
4/30/2004 $12,935 $13,364 $11,072
5/31/2004 $12,891 $13,315 $11,137
6/30/2004 $12,894 $13,364 $11,172
7/31/2004 $13,076 $13,540 $11,154
8/31/2004 $13,272 $13,811 $11,160
9/30/2004 $13,340 $13,884 $11,184
10/31/2004 $13,459 $14,004 $11,243
11/30/2004 $13,349 $13,888 $11,249
12/31/2004 $13,509 $14,058 $11,207
1/31/2005 $13,667 $14,189 $11,231
2/28/2005 $13,633 $14,142 $11,296
3/31/2005 $13,574 $14,053 $11,384
4/30/2005 $13,759 $14,274 $11,461
5/31/2005 $13,858 $14,375 $11,449
6/30/2005 $13,930 $14,464 $11,455
7/31/2005 $13,869 $14,399 $11,508
8/31/2005 $13,994 $14,544 $11,567
9/30/2005 $13,906 $14,446 $11,708
10/31/2005 $13,830 $14,359 $11,731
11/30/2005 $13,863 $14,428 $11,637
12/31/2005 $13,975 $14,552 $11,590
1/31/2006 $13,990 $14,591 $11,678
2/28/2006 $14,111 $14,689 $11,702
3/31/2006 $14,026 $14,588 $11,767
4/30/2006 $14,016 $14,583 $11,867
5/31/2006 $14,050 $14,648 $11,926
6/30/2006 $13,983 $14,592 $11,949
7/31/2006 $14,138 $14,766 $11,985
8/31/2006 $14,320 $14,985 $12,008
9/30/2006 $14,403 $15,089 $11,949
10/31/2006 $14,490 $15,184 $11,885
11/30/2006 $14,615 $15,311 $11,867
12/31/2006 $14,577 $15,257 $11,885
1/31/2007 $14,540 $15,217 $11,921
2/28/2007 $14,706 $15,418 $11,985
3/31/2007 $14,658 $15,380 $12,094
4/30/2007 $14,688 $15,426 $12,172
5/31/2007 $14,636 $15,357 $12,247
6/30/2007 $14,566 $15,278 $12,270
7/31/2007 $14,667 $15,396 $12,267
8/31/2007 $14,555 $15,330 $12,245
9/30/2007 $14,756 $15,557 $12,279
10/31/2007 $14,817 $15,626 $12,305
11/30/2007 $14,903 $15,726 $12,378
12/31/2007 $14,904 $15,769 $12,370
1/31/2008 $15,035 $15,968 $12,431
2/29/2008 $14,313 $15,237 $12,467
3/31/2008 $14,688 $15,672 $12,575
4/30/2008 $14,929 $15,856 $12,652
5/31/2008 $15,041 $15,952 $12,758
6/30/2008 $14,873 $15,771 $12,887
7/31/2008 $14,882 $15,831 $12,954
8/31/2008 $15,023 $16,017 $12,903
9/30/2008 $14,066 $15,265 $12,885
10/31/2008 $13,882 $15,110 $12,755
11/30/2008 $13,826 $15,158 $12,510
12/31/2008 $13,947 $15,379 $12,381
1/31/2009 $14,377 $15,942 $12,435
2/28/2009 $14,702 $16,025 $12,497
3/31/2009 $14,750 $16,028 $12,527
4/30/2009 $15,125 $16,349 $12,558
5/31/2009 $15,318 $16,522 $12,595
6/30/2009 $15,224 $16,367 $12,703
7/31/2009 $15,390 $16,641 $12,683
8/31/2009 $15,681 $16,925 $12,711
9/30/2009 $16,283 $17,532 $12,719
10/31/2009 $15,998 $17,164 $12,731
11/30/2009 $16,041 $17,306 $12,740
12/31/2009 $16,162 $17,365 $12,718
1/31/2010 $16,219 $17,455 $12,761
2/28/2010 $16,349 $17,624 $12,764
Annual Report | 99
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 2/28/10
- ------- -------
1-Year +9.62%
5-Year +3.44%
10-Year +4.89%
CLASS C (3/1/00-2/28/10)
(PERFORMANCE GRAPH)
FRANKLIN PENNSYLVANIA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - CLASS C INDEX CPI
- ---- --------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,238 $10,218 $10,082
4/30/2000 $10,177 $10,158 $10,088
5/31/2000 $10,126 $10,105 $10,100
6/30/2000 $10,378 $10,373 $10,153
7/31/2000 $10,515 $10,518 $10,177
8/31/2000 $10,685 $10,680 $10,177
9/30/2000 $10,640 $10,624 $10,230
10/31/2000 $10,726 $10,740 $10,247
11/30/2000 $10,768 $10,821 $10,253
12/31/2000 $10,982 $11,089 $10,247
1/31/2001 $11,067 $11,198 $10,312
2/28/2001 $11,117 $11,234 $10,353
3/31/2001 $11,218 $11,334 $10,377
4/30/2001 $11,086 $11,212 $10,418
5/31/2001 $11,207 $11,332 $10,465
6/30/2001 $11,282 $11,408 $10,483
7/31/2001 $11,462 $11,577 $10,453
8/31/2001 $11,639 $11,768 $10,453
9/30/2001 $11,602 $11,729 $10,501
10/31/2001 $11,725 $11,868 $10,465
11/30/2001 $11,653 $11,768 $10,448
12/31/2001 $11,517 $11,657 $10,406
1/31/2002 $11,707 $11,859 $10,430
2/28/2002 $11,826 $12,002 $10,471
3/31/2002 $11,598 $11,767 $10,530
4/30/2002 $11,780 $11,997 $10,589
5/31/2002 $11,847 $12,070 $10,589
6/30/2002 $11,970 $12,197 $10,595
7/31/2002 $12,108 $12,354 $10,607
8/31/2002 $12,232 $12,503 $10,642
9/30/2002 $12,474 $12,776 $10,660
10/31/2002 $12,297 $12,565 $10,677
11/30/2002 $12,256 $12,512 $10,677
12/31/2002 $12,489 $12,776 $10,654
1/31/2003 $12,474 $12,744 $10,701
2/28/2003 $12,619 $12,922 $10,783
3/31/2003 $12,620 $12,930 $10,848
4/30/2003 $12,711 $13,015 $10,824
5/31/2003 $12,993 $13,320 $10,807
6/30/2003 $12,949 $13,263 $10,819
7/31/2003 $12,482 $12,799 $10,830
8/31/2003 $12,558 $12,895 $10,872
9/30/2003 $12,842 $13,274 $10,907
10/31/2003 $12,799 $13,207 $10,895
11/30/2003 $12,923 $13,345 $10,866
12/31/2003 $13,005 $13,455 $10,854
1/31/2004 $13,084 $13,532 $10,907
2/29/2004 $13,258 $13,736 $10,966
3/31/2004 $13,201 $13,688 $11,037
4/30/2004 $12,906 $13,364 $11,072
5/31/2004 $12,863 $13,315 $11,137
6/30/2004 $12,866 $13,364 $11,172
7/31/2004 $13,034 $13,540 $11,154
8/31/2004 $13,241 $13,811 $11,160
9/30/2004 $13,309 $13,884 $11,184
10/31/2004 $13,427 $14,004 $11,243
11/30/2004 $13,318 $13,888 $11,249
12/31/2004 $13,476 $14,058 $11,207
1/31/2005 $13,633 $14,189 $11,231
2/28/2005 $13,612 $14,142 $11,296
3/31/2005 $13,541 $14,053 $11,384
4/30/2005 $13,724 $14,274 $11,461
5/31/2005 $13,823 $14,375 $11,449
6/30/2005 $13,895 $14,464 $11,455
7/31/2005 $13,834 $14,399 $11,508
8/31/2005 $13,972 $14,544 $11,567
9/30/2005 $13,871 $14,446 $11,708
10/31/2005 $13,795 $14,359 $11,731
11/30/2005 $13,842 $14,428 $11,637
12/31/2005 $13,953 $14,552 $11,590
1/31/2006 $13,968 $14,591 $11,678
2/28/2006 $14,074 $14,689 $11,702
3/31/2006 $13,989 $14,588 $11,767
4/30/2006 $13,993 $14,583 $11,867
5/31/2006 $14,012 $14,648 $11,926
6/30/2006 $13,959 $14,592 $11,949
7/31/2006 $14,099 $14,766 $11,985
8/31/2006 $14,279 $14,985 $12,008
9/30/2006 $14,362 $15,089 $11,949
10/31/2006 $14,449 $15,184 $11,885
11/30/2006 $14,573 $15,311 $11,867
12/31/2006 $14,549 $15,257 $11,885
1/31/2007 $14,512 $15,217 $11,921
2/28/2007 $14,664 $15,418 $11,985
3/31/2007 $14,629 $15,380 $12,094
4/30/2007 $14,659 $15,426 $12,172
5/31/2007 $14,607 $15,357 $12,247
6/30/2007 $14,537 $15,278 $12,270
7/31/2007 $14,638 $15,396 $12,267
8/31/2007 $14,526 $15,330 $12,245
9/30/2007 $14,726 $15,557 $12,279
10/31/2007 $14,773 $15,626 $12,305
11/30/2007 $14,859 $15,726 $12,378
12/31/2007 $14,874 $15,769 $12,370
1/31/2008 $15,003 $15,968 $12,431
2/29/2008 $14,271 $15,237 $12,467
3/31/2008 $14,634 $15,672 $12,575
4/30/2008 $14,865 $15,856 $12,652
5/31/2008 $14,985 $15,952 $12,758
6/30/2008 $14,796 $15,771 $12,887
7/31/2008 $14,813 $15,831 $12,954
8/31/2008 $14,933 $16,017 $12,903
9/30/2008 $13,980 $15,265 $12,885
10/31/2008 $13,793 $15,110 $12,755
11/30/2008 $13,735 $15,158 $12,510
12/31/2008 $13,844 $15,379 $12,381
1/31/2009 $14,262 $15,942 $12,435
2/28/2009 $14,576 $16,025 $12,497
3/31/2009 $14,614 $16,028 $12,527
4/30/2009 $14,991 $16,349 $12,558
5/31/2009 $15,176 $16,522 $12,595
6/30/2009 $15,074 $16,367 $12,703
7/31/2009 $15,230 $16,641 $12,683
8/31/2009 $15,492 $16,925 $12,711
9/30/2009 $16,090 $17,532 $12,719
10/31/2009 $15,820 $17,164 $12,731
11/30/2009 $15,854 $17,306 $12,740
12/31/2009 $15,949 $17,365 $12,718
1/31/2010 $16,000 $17,455 $12,761
2/28/2010 $16,123 $17,624 $12,764
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(8) 2/28/10
- ---------------- -------
1-Year +11.29%
5-Year +4.04%
10-Year +5.47%
ADVISOR CLASS (3/1/00-2/28/10)(8)
(PERFORMANCE GRAPH)
FRANKLIN PENNSYLVANIA BARCLAYS CAPITAL
TAX-FREE INCOME MUNICIPAL BOND
DATE FUND - ADVISOR CLASS INDEX CPI
- ---- --------------------- ---------------- -------
3/1/2000 $10,000 $10,000 $10,000
3/31/2000 $10,244 $10,218 $10,082
4/30/2000 $10,187 $10,158 $10,088
5/31/2000 $10,141 $10,105 $10,100
6/30/2000 $10,399 $10,373 $10,153
7/31/2000 $10,542 $10,518 $10,177
8/31/2000 $10,718 $10,680 $10,177
9/30/2000 $10,677 $10,624 $10,230
10/31/2000 $10,770 $10,740 $10,247
11/30/2000 $10,816 $10,821 $10,253
12/31/2000 $11,038 $11,089 $10,247
1/31/2001 $11,129 $11,198 $10,312
2/28/2001 $11,173 $11,234 $10,353
3/31/2001 $11,291 $11,334 $10,377
4/30/2001 $11,164 $11,212 $10,418
5/31/2001 $11,280 $11,332 $10,465
6/30/2001 $11,360 $11,408 $10,483
7/31/2001 $11,548 $11,577 $10,453
8/31/2001 $11,733 $11,768 $10,453
9/30/2001 $11,701 $11,729 $10,501
10/31/2001 $11,831 $11,868 $10,465
11/30/2001 $11,764 $11,768 $10,448
12/31/2001 $11,631 $11,657 $10,406
1/31/2002 $11,829 $11,859 $10,430
2/28/2002 $11,956 $12,002 $10,471
3/31/2002 $11,730 $11,767 $10,530
4/30/2002 $11,921 $11,997 $10,589
5/31/2002 $11,995 $12,070 $10,589
6/30/2002 $12,125 $12,197 $10,595
7/31/2002 $12,271 $12,354 $10,607
8/31/2002 $12,403 $12,503 $10,642
9/30/2002 $12,655 $12,776 $10,660
10/31/2002 $12,468 $12,565 $10,677
11/30/2002 $12,432 $12,512 $10,677
12/31/2002 $12,676 $12,776 $10,654
1/31/2003 $12,666 $12,744 $10,701
2/28/2003 $12,820 $12,922 $10,783
3/31/2003 $12,826 $12,930 $10,848
4/30/2003 $12,938 $13,015 $10,824
5/31/2003 $13,219 $13,320 $10,807
6/30/2003 $13,181 $13,263 $10,819
7/31/2003 $12,709 $12,799 $10,830
8/31/2003 $12,806 $12,895 $10,872
9/30/2003 $13,104 $13,274 $10,907
10/31/2003 $13,055 $13,207 $10,895
11/30/2003 $13,188 $13,345 $10,866
12/31/2003 $13,278 $13,455 $10,854
1/31/2004 $13,365 $13,532 $10,907
2/29/2004 $13,549 $13,736 $10,966
3/31/2004 $13,497 $13,688 $11,037
4/30/2004 $13,200 $13,364 $11,072
5/31/2004 $13,161 $13,315 $11,137
6/30/2004 $13,171 $13,364 $11,172
7/31/2004 $13,350 $13,540 $11,154
8/31/2004 $13,570 $13,811 $11,160
9/30/2004 $13,646 $13,884 $11,184
10/31/2004 $13,774 $14,004 $11,243
11/30/2004 $13,668 $13,888 $11,249
12/31/2004 $13,838 $14,058 $11,207
1/31/2005 $14,006 $14,189 $11,231
2/28/2005 $13,978 $14,142 $11,296
3/31/2005 $13,924 $14,053 $11,384
4/30/2005 $14,120 $14,274 $11,461
5/31/2005 $14,216 $14,375 $11,449
6/30/2005 $14,296 $14,464 $11,455
7/31/2005 $14,240 $14,399 $11,508
8/31/2005 $14,389 $14,544 $11,567
9/30/2005 $14,291 $14,446 $11,708
10/31/2005 $14,219 $14,359 $11,731
11/30/2005 $14,274 $14,428 $11,637
12/31/2005 $14,396 $14,552 $11,590
1/31/2006 $14,417 $14,591 $11,678
2/28/2006 $14,548 $14,689 $11,702
3/31/2006 $14,467 $14,588 $11,767
4/30/2006 $14,464 $14,583 $11,867
5/31/2006 $14,506 $14,648 $11,926
6/30/2006 $14,443 $14,592 $11,949
7/31/2006 $14,596 $14,766 $11,985
8/31/2006 $14,791 $14,985 $12,008
9/30/2006 $14,884 $15,089 $11,949
10/31/2006 $14,981 $15,184 $11,885
11/30/2006 $15,117 $15,311 $11,867
12/31/2006 $15,085 $15,257 $11,885
1/31/2007 $15,054 $15,217 $11,921
2/28/2007 $15,233 $15,418 $11,985
3/31/2007 $15,190 $15,380 $12,094
4/30/2007 $15,243 $15,426 $12,172
5/31/2007 $15,196 $15,357 $12,247
6/30/2007 $15,129 $15,278 $12,270
7/31/2007 $15,227 $15,396 $12,267
8/31/2007 $15,132 $15,330 $12,245
9/30/2007 $15,334 $15,557 $12,279
10/31/2007 $15,405 $15,626 $12,305
11/30/2007 $15,502 $15,726 $12,378
12/31/2007 $15,525 $15,769 $12,370
1/31/2008 $15,668 $15,968 $12,431
2/29/2008 $14,905 $15,237 $12,467
3/31/2008 $15,295 $15,672 $12,575
4/30/2008 $15,545 $15,856 $12,652
5/31/2008 $15,663 $15,952 $12,758
6/30/2008 $15,487 $15,771 $12,887
7/31/2008 $15,497 $15,831 $12,954
8/31/2008 $15,647 $16,017 $12,903
9/30/2008 $14,647 $15,265 $12,885
10/31/2008 $14,457 $15,110 $12,755
11/30/2008 $14,402 $15,158 $12,510
12/31/2008 $14,524 $15,379 $12,381
1/31/2009 $14,973 $15,942 $12,435
2/28/2009 $15,311 $16,025 $12,497
3/31/2009 $15,359 $16,028 $12,527
4/30/2009 $15,749 $16,349 $12,558
5/31/2009 $15,953 $16,522 $12,595
6/30/2009 $15,852 $16,367 $12,703
7/31/2009 $16,025 $16,641 $12,683
8/31/2009 $16,329 $16,925 $12,711
9/30/2009 $16,956 $17,532 $12,719
10/31/2009 $16,680 $17,164 $12,731
11/30/2009 $16,724 $17,306 $12,740
12/31/2009 $16,835 $17,365 $12,718
1/31/2010 $16,899 $17,455 $12,761
2/28/2010 $17,038 $17,624 $12,764
100 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
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. SINCE THE FUND CONCENTRATES ITS INVESTMENTS 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'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(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.
(3.) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(4.) Distribution rate is based on an annualization of the respective class's
current monthly dividend and the maximum offering price (NAV for Classes B,
C and Advisor) per share on 2/28/10.
(5.) Taxable equivalent distribution rate and yield assume the published rates
as of 12/24/09 for the maximum combined effective federal and Pennsylvania
personal income tax rate of 37.00%, based on the federal income tax rate of
35.00%.
(6.) The 30-day standardized yield for the month ended 2/28/10 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(7.) Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(8.) 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 7/14/09, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 7/15/09
(commencement of sales), the cumulative total return of Advisor Class
shares was +6.42%.
(9.) Source: (C) 2010 Morningstar. The BC 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, Standard & Poor's or
Fitch. The Consumer Price Index (CPI), calculated by the U.S. Bureau of
Labor Statistics, is a commonly used measure of the inflation rate.
Annual Report | 101
Your Fund's Expenses
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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 following table 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 first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
102 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
Therefore, the second line for each class is useful in comparing ongoing costs
only, and will not help you compare total costs of owning different funds. In
addition, if transaction costs were included, your total costs would have been
higher. Please refer to the Fund prospectus for additional information on
operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 9/1/09 VALUE 2/28/10 PERIOD* 9/1/09-2/28/10
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,043.00 $3.29
Hypothetical (5% return before expenses) $1,000 $1,021.57 $3.26
CLASS B
Actual $1,000 $1,040.00 $6.02
Hypothetical (5% return before expenses) $1,000 $1,018.89 $5.96
CLASS C
Actual $1,000 $1,040.70 $6.07
Hypothetical (5% return before expenses) $1,000 $1,018.84 $6.01
ADVISOR CLASS
Actual $1,000 $1,043.40 $2.79
Hypothetical (5% return before expenses) $1,000 $1,022.07 $2.76
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.65%; B: 1.19%; C: 1.20%; and Advisor:
0.55%), multiplied by the average account value over the period, multiplied
by 181/365 to reflect the one-half year period.
Annual Report | 103
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ARIZONA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.18 $ 10.30 $ 11.16 $ 11.09 $ 11.21
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.48 0.47 0.47 0.48 0.48
Net realized and unrealized gains (losses) ...... 0.60 (0.12) (0.86) 0.06 (0.12)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.08 0.35 (0.39) 0.54 0.36
-------- -------- -------- -------- --------
Less distributions from net investment income ...... (0.48) (0.47) (0.47) (0.47) (0.48)
-------- -------- -------- -------- --------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 10.78 $ 10.18 $ 10.30 $ 11.16 $ 11.09
======== ======== ======== ======== ========
Total return(f) .................................... 10.84% 3.42% (3.62)% 5.05% 3.25%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.63% 0.62% 0.63% 0.63% 0.63%
Net investment income .............................. 4.55% 4.61% 4.29% 4.32% 4.34%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $982,080 $920,248 $914,411 $928,840 $885,864
Portfolio turnover rate ............................ 8.37% 21.01% 16.53% 6.56% 33.22%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
104 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------ ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $10.24 $ 10.36 $ 11.22 $ 11.15 $ 11.27
------ ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.43 0.42 0.41 0.42 0.43
Net realized and unrealized gains (losses) ...... 0.61 (0.13) (0.86) 0.06 (0.13)
------ ------- ------- ------- -------
Total from investment operations ................... 1.04 0.29 (0.45) 0.48 0.30
------ ------- ------- ------- -------
Less distributions from net investment income ...... (0.43) (0.41) (0.41) (0.41) (0.42)
------ ------- ------- ------- -------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
------ ------- ------- ------- -------
Net asset value, end of year ....................... $10.85 $ 10.24 $ 10.36 $ 11.22 $ 11.15
====== ======= ======= ======= =======
Total return(f) .................................... 10.28% 2.84% (4.12)% 4.45% 2.68%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.17% 1.17% 1.18% 1.17% 1.18%
Net investment income .............................. 4.01% 4.06% 3.74% 3.78% 3.79%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $8,833 $14,276 $17,854 $21,061 $22,315
Portfolio turnover rate ............................ 8.37% 21.01% 16.53% 6.56% 33.22%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 105
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.29 $ 10.41 $ 11.27 $ 11.20 $ 11.32
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.43 0.42 0.41 0.42 0.43
Net realized and unrealized gains (losses) ...... 0.62 (0.13) (0.86) 0.06 (0.13)
-------- ------- ------- ------- -------
Total from investment operations ................... 1.05 0.29 (0.45) 0.48 0.30
-------- ------- ------- ------- -------
Less distributions from net investment income ...... (0.43) (0.41) (0.41) (0.41) (0.42)
-------- ------- ------- ------- -------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 10.91 $ 10.29 $ 10.41 $ 11.27 $ 11.20
======== ======= ======= ======= =======
Total return(f) .................................... 10.32% 2.82% (4.11)% 4.42% 2.66%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.18% 1.17% 1.18% 1.18% 1.18%
Net investment income .............................. 4.00% 4.06% 3.74% 3.77% 3.79%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $109,679 $78,805 $64,441 $58,386 $51,071
Portfolio turnover rate ............................ 8.37% 21.01% 16.53% 6.56% 33.22%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
106 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
---------------
ADVISOR CLASS 2010 2009(a)
- ------------- ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $10.18 $10.64
------ ------
Income from investment operations(b):
Net investment income(c) ........................ 0.50 0.33
Net realized and unrealized gains (losses) ...... 0.62 (0.47)
------ ------
Total from investment operations ................... 1.12 (0.14)
------ ------
Less distributions from net investment income ...... (0.50) (0.32)
------ ------
Redemption fees(d) ................................. -- --(e)
------ ------
Net asset value, end of year ....................... $10.80 $10.18
====== ======
Total return(f) .................................... 11.15% (1.28)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses ........................................... 0.53% 0.52%
Net investment income .............................. 4.65% 4.71%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $4,530 $ 5
Portfolio turnover rate ............................ 8.37% 21.01%
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 107
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS 99.0%
ARIZONA 85.6%
Arizona Health Facilities Authority Healthcare Education Facilities Revenue,
Kirksville College, 5.125%, 1/01/30 ............................................... $ 2,250,000 $ 2,204,573
Arizona Health Facilities Authority Hospital System Revenue,
John C. Lincoln Health Network, Pre-Refunded, 5.75%, 12/01/32 ..................... 3,280,000 3,730,672
Phoenix Baptist Hospital, NATL Insured, ETM, 6.25%, 9/01/11 ....................... 495,000 511,657
Arizona Health Facilities Authority Revenue,
Banner Health, Refunding, Series D, BHAC Insured, 5.50%, 1/01/38 .................. 15,000,000 15,747,300
Banner Health, Series A, 5.00%, 1/01/35 ........................................... 10,000,000 9,790,400
Banner Health, Series D, 5.50%, 1/01/38 ........................................... 17,500,000 17,844,750
Catholic Healthcare West, Series A, 6.625%, 7/01/20 ............................... 6,390,000 6,588,090
Arizona School Facilities Board COP, 5.50%, 9/01/23 .................................. 10,000,000 10,861,200
Arizona State Board of Regents COP, University of Arizona Main Campus, Series A-1,
AMBAC Insured, Pre-Refunded, 5.125%, 6/01/25 ...................................... 2,000,000 2,118,480
Arizona State Board of Regents University System Revenue, Series C, 6.00%,
7/01/26 ........................................................................... 2,500,000 2,893,200
7/01/27 ........................................................................... 3,000,000 3,448,710
7/01/28 ........................................................................... 3,350,000 3,828,012
Arizona State COP, Department Administration, Series A, FSA Insured,
5.25%, 10/01/26 ................................................................... 8,500,000 8,937,240
5.00%, 10/01/29 ................................................................... 5,855,000 5,939,371
Arizona State Municipal Financing Program COP, Refunding, Series 14, AMBAC Insured,
5.00%, 8/01/33 .................................................................... 1,000,000 1,012,860
Arizona State University COP,
Arizona State University Project, NATL Insured, Pre-Refunded, 5.10%, 7/01/24 ...... 1,875,000 2,061,000
Arizona State University Project, NATL Insured, Pre-Refunded, 5.10%, 7/01/25 ...... 2,640,000 2,901,888
Downtown Campus/Mercado Project, Series A, NATL Insured, 5.80%, 7/01/24 ........... 1,350,000 1,352,646
Research Infrastructure Projects, AMBAC Insured, 5.00%, 9/01/30 ................... 17,250,000 17,374,027
Arizona State University Revenues,
NATL Insured, 5.00%, 7/01/23 ...................................................... 2,890,000 2,990,543
NATL Insured, 5.00%, 7/01/25 ...................................................... 2,250,000 2,318,108
System, Refunding, AMBAC Insured, 5.00%, 7/01/27 .................................. 1,895,000 1,901,026
Arizona Student Loan Acquisition Authority Student Loan Revenue, junior sub.,
Refunding, Series B-1, 6.15%, 5/01/29 ............................................. 1,000,000 1,023,210
Arizona Tourism and Sports Authority Tax Revenue, Multipurpose Stadium Facility,
Series A, NATL Insured, 5.00%, 7/01/28 ............................................ 7,000,000 7,027,160
Downtown Phoenix Hotel Corp. Revenue,
Senior Series A, FGIC Insured, 5.00%, 7/01/40 ..................................... 26,485,000 20,587,850
sub. bond, Series B, NATL Insured, 5.00%, 7/01/36 ................................. 18,995,000 17,730,313
sub. bond, Series B, NATL Insured, 5.00%, 7/01/40 ................................. 12,845,000 11,772,442
Gila County Revenue Obligations, Assured Guaranty, 5.00%, 7/01/29 .................... 2,690,000 2,772,744
Gilbert Public Facilities Municipal Property Corp. Revenue, 5.50%, 7/01/28 ........... 10,000,000 10,857,400
Gilbert Water Resource Municipal Property Corp. Water System Development Fee Water
Revenue, sub. lien, NATL Insured, 5.00%, 10/01/29 ................................. 25,000,000 25,745,750
Glendale IDA Hospital Revenue, John C. Lincoln Health, Refunding,
5.00%, 12/01/32 ................................................................... 4,025,000 3,616,020
5.00%, 12/01/42 ................................................................... 12,870,000 11,198,058
Series B, 5.00%, 12/01/37 ......................................................... 3,000,000 2,651,850
108 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Glendale IDAR, Midwestern University, Refunding, 5.00%, 5/15/31 ...................... $ 7,080,000 $ 6,750,214
Glendale Municipal Property Corp. Excise Tax Revenue, Series A, AMBAC Insured, 5.00%,
7/01/33 ........................................................................... 1,000,000 1,018,640
Glendale Water and Sewer Revenue, sub. lien, AMBAC Insured, 5.00%, 7/01/23 ........... 2,000,000 2,106,880
Glendale Western Loop 101 Public Facilities Corp. Excise Tax Revenue, third lien,
Series A, 6.25%, 7/01/38 .......................................................... 10,000,000 10,561,500
Goodyear Community Facilities Utilities District No. 1 GO, AMBAC Insured, 5.00%,
7/15/32 ........................................................................... 8,945,000 9,059,943
Greater Arizona Development Authority Infrastructure Revenue,
Series A, NATL Insured, 5.00%, 8/01/26 ............................................ 4,425,000 4,566,467
Series B, NATL Insured, 5.00%, 8/01/35 ............................................ 9,090,000 9,102,362
Marana Municipal Property Corp. Municipal Facilities Revenue,
Refunding, NATL Insured, 5.25%, 7/01/22 ........................................... 1,100,000 1,106,919
Series A, 5.00%, 7/01/28 .......................................................... 3,000,000 3,119,940
Maricopa County Hospital Revenue, Sun Health Corp., Pre-Refunded, 5.00%, 4/01/35 ..... 12,090,000 14,033,347
Maricopa County IDA, MFHR,
Senior National Health Facilities II, Project A, FSA Insured, ETM, 5.50%, 1/01/18 . 2,000,000 2,303,520
Western Groves Apartments, Series A-1, AMBAC Insured, 5.30%, 12/01/22 ............. 1,650,000 1,608,107
Maricopa County IDA Health Facility Revenue,
Catholic Healthcare West, Refunding, Series A, 5.375%, 7/01/23 .................... 7,000,000 7,407,120
Catholic Healthcare West, Refunding, Series A, 5.50%, 7/01/26 ..................... 13,950,000 14,293,728
Catholic Healthcare West, Refunding, Series A, 6.00%, 7/01/39 ..................... 4,860,000 5,118,358
Catholic Healthcare West Project, Refunding, Series A, 5.00%, 7/01/16 ............. 2,705,000 2,714,170
Catholic Healthcare West Project, Refunding, Series A, ACA Insured, 5.00%, 7/01/16 1,370,000 1,374,644
Catholic Healthcare West Project, Refunding, Series A, ACA Insured, 5.00%, 7/01/21 9,600,000 9,609,312
Mayo Clinic, 5.00%, 11/15/36 ...................................................... 25,750,000 26,007,757
Maricopa County IDA Hospital Facility Revenue,
Mayo Clinic Hospital, 5.25%, 11/15/37 ............................................. 16,000,000 16,022,240
Mayo Clinic Hospital, AMBAC Insured, 5.25%, 11/15/37 .............................. 3,000,000 3,003,540
Samaritan Health Services, Series A, NATL Insured, ETM, 7.00%, 12/01/16 ........... 1,890,000 2,333,791
Maricopa County IDA Senior Living Healthcare Revenue, Immanuel Care, Refunding,
Series A, GNMA Secured, 5.00%, 8/20/35 ............................................ 1,725,000 1,741,784
Maricopa County PCC, PCR,
El Paso Electric Co. Project, Series A, 7.25%, 2/01/40 ............................ 10,000,000 11,347,300
Public Service Co. Palo Verde Project, Series A, AMBAC Insured, 5.05%, 5/01/29 .... 11,500,000 10,825,985
Various, Public Service Co., Palo Verde, Refunding, Series A, 6.25%, 1/01/38 ...... 5,000,000 5,162,300
Maricopa County USD No. 89 Dysart GO, School Improvement, Project 06, Series B,
FSA Insured, 5.00%, 7/01/27 ....................................................... 5,015,000 5,320,714
McAllister Academic Village LLC Revenue, Arizona State University Hassayampa,
Refunding,
5.25%, 7/01/33 .................................................................... 5,000,000 5,087,350
5.00%, 7/01/38 .................................................................... 5,000,000 4,903,100
Assured Guaranty, 5.25%, 7/01/33 .................................................. 2,525,000 2,574,288
Assured Guaranty, 5.00%, 7/01/38 .................................................. 3,825,000 3,827,333
Mesa Utility System Revenue, NATL Insured, Pre-Refunded, 5.00%, 7/01/26 .............. 10,000,000 11,602,300
Navajo County Pollution Control Corp. Revenue, Mandatory Put 6/01/16, Series E, 5.75%,
6/01/34 ........................................................................... 6,000,000 6,261,180
Navajo County School District GO, School Improvement, Project 2008, Assured Guaranty,
5.50%, 7/01/28 .................................................................... 1,045,000 1,115,611
Annual Report | 109
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Nogales Municipal Development Authority Inc. GO, NATL Insured, 5.00%, 6/01/36 ........ $ 6,075,000 $ 5,607,711
Northern Arizona University COP, Northern Arizona University Research Projects,
AMBAC Insured, 5.00%,
9/01/27 ........................................................................... 2,355,000 2,408,294
9/01/30 ........................................................................... 6,360,000 6,362,480
Northern Arizona University System Revenues, 5.00%, 6/01/38 .......................... 5,000,000 5,043,350
Peoria Water and Sewer Revenue, FGIC Insured, 5.00%, 7/01/19 ......................... 1,300,000 1,306,539
Phoenix Civic Improvement Corp. Airport Revenue, senior lien,
Series A, 5.00%, 7/01/38 .......................................................... 10,000,000 10,012,800
Series B, FGIC Insured, 5.25%, 7/01/22 ............................................ 3,000,000 3,048,330
Series B, FGIC Insured, 5.25%, 7/01/23 ............................................ 5,000,000 5,077,250
Series B, FGIC Insured, 5.25%, 7/01/27 ............................................ 15,250,000 15,388,317
Phoenix Civic Improvement Corp. Distribution Revenue, Capital Appreciation, Civic
Plaza, Series B, FGIC Insured, zero cpn. to 7/01/13, 5.50% thereafter,
7/01/27 ........................................................................... 3,945,000 3,640,643
7/01/28 ........................................................................... 2,000,000 1,829,780
7/01/29 ........................................................................... 2,000,000 1,812,260
7/01/36 ........................................................................... 5,000,000 4,312,100
7/01/37 ........................................................................... 7,000,000 6,020,280
Phoenix Civic Improvement Corp. Excise Tax Revenue, Subordinated, Civic Plaza
Expansion Project, Series A,
FGIC Insured, 5.00%, 7/01/41 ...................................................... 5,000,000 5,032,150
NATL Insured, 5.00%, 7/01/35 ...................................................... 5,550,000 5,596,065
Phoenix Civic Improvement Corp. Wastewater System Revenue,
junior lien, FGIC Insured, Pre-Refunded, 6.00%, 7/01/24 ........................... 24,715,000 25,430,499
junior lien, NATL Insured, 5.00%, 7/01/28 ......................................... 2,000,000 2,073,020
junior lien, NATL Insured, 5.00%, 7/01/29 ......................................... 3,405,000 3,517,025
junior lien, Refunding, FGIC Insured, 5.00%, 7/01/20 .............................. 9,710,000 9,950,322
junior lien, Refunding, FGIC Insured, 5.125%, 7/01/21 ............................. 10,000,000 10,257,000
junior lien, Refunding, FGIC Insured, 5.00%, 7/01/24 .............................. 7,050,000 7,192,128
junior lien, Refunding, FSA Insured, 5.00%, 7/01/37 ............................... 13,515,000 13,872,607
senior lien, Refunding, 5.50%, 7/01/24 ............................................ 2,500,000 2,814,125
Phoenix Civic Improvement Corp. Water System Revenue, junior lien, Refunding, FGIC
Insured,
5.00%, 7/01/26 .................................................................... 3,250,000 3,333,753
Phoenix GO, Various Purpose, Series B, 5.00%, 7/01/27 ................................ 8,360,000 8,798,398
Phoenix HFC Mortgage Revenue, Section 8 Assisted Projects, Refunding, Series A,
NATL Insured, 6.90%, 1/01/23 ...................................................... 1,020,000 1,025,590
Phoenix IDA Government Office Lease Revenue,
Capitol Mall LLC Project, Refunding, AMBAC Insured, 5.00%, 9/15/26 ................ 3,445,000 3,481,483
Capitol Mall LLC Project, Refunding, AMBAC Insured, 5.00%, 9/15/27 ................ 4,615,000 4,643,751
Capitol Mall LLC II Project, AMBAC Insured, 5.00%, 9/15/21 ........................ 4,300,000 4,372,197
Capitol Mall LLC II Project, AMBAC Insured, 5.00%, 9/15/28 ........................ 4,000,000 4,029,120
Phoenix IDA Student Housing Revenue, Downtown Phoenix Student Housing LLC,
Series A, AMBAC Insured, 5.00%, 7/01/37 ........................................... 18,400,000 14,235,344
Series C, AMBAC Insured, 5.00%, 7/01/37 ........................................... 10,000,000 7,255,600
Pima County IDA Lease Revenue,
Metro Police Facility, Nevada Project, Series A, 5.375%, 7/01/39 .................. 2,000,000 2,019,560
Metro Police Facility, Nevada Project, Series A, 5.50%, 7/01/39 ................... 7,500,000 7,641,825
110 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Pima County IDA Lease Revenue, (continued)
Pima County Arizona, 5.125%, 9/01/27 .............................................. $ 8,655,000 $ 8,997,132
Pima County Arizona, 5.00%, 9/01/39 ............................................... 15,000,000 14,682,900
Pinal County Electric District No. 4 Electric System Revenue, 6.00%,
12/01/23 .......................................................................... 525,000 551,528
12/01/28 .......................................................................... 740,000 755,044
12/01/38 .......................................................................... 1,150,000 1,155,302
Rio Nuevo Multipurpose Facilities District Excise Tax Revenue, sub. lien, Assured
Guaranty,
6.50%, 7/15/24 .................................................................... 4,220,000 4,898,534
Salt River Project Agricultural Improvement and Power District Electric System
Revenue, Salt River Project,
Refunding, Series A, 5.00%, 1/01/23 ............................................... 6,000,000 6,398,220
Series A, 5.00%, 1/01/37 .......................................................... 16,000,000 16,471,200
Series A, 5.00%, 1/01/38 .......................................................... 25,000,000 25,932,500
Series A, 5.00%, 1/01/39 .......................................................... 25,000,000 26,011,750
Salt Verde Financial Corp. Senior Gas Revenue, 5.00%,
12/01/32 .......................................................................... 10,000,000 8,788,800
12/01/37 .......................................................................... 10,000,000 8,559,500
San Luis Civic Improvement Corp. Municipal Facilities Excise Tax Revenue, XLCA
Insured,
5.00%, 7/01/38 .................................................................... 8,650,000 8,482,363
Scottsdale GO, Refunding, 5.00%, 7/01/22 ............................................. 3,000,000 3,146,880
Scottsdale IDA Hospital Revenue, Scottsdale Healthcare,
Pre-Refunded, 5.70%, 12/01/21 ..................................................... 2,000,000 2,188,760
Pre-Refunded, 5.80%, 12/01/31 ..................................................... 14,865,000 16,293,675
Refunding, Series A, 5.25%, 9/01/30 ............................................... 5,000,000 4,835,550
Scottsdale Municipal Property Corp. Excise Tax Revenue, Pre-Refunded, 5.00%, 7/01/24.. 5,000,000 5,801,150
Show Low IDA Hospital Revenue, Navapache Regional Medical Center, Radian Insured,
5.00%,
12/01/25 .......................................................................... 1,420,000 1,352,919
12/01/30 .......................................................................... 5,160,000 4,770,575
12/01/35 .......................................................................... 2,000,000 1,812,000
Southern Arizona Capital Facilities Finance Corp. Student Housing Revenue, University
of Arizona Project, NATL Insured, Pre-Refunded, 5.10%, 9/01/33 .................... 3,000,000 3,330,570
Tempe Arizona IDA Lease Revenue, State University Foundation, AMBAC Insured, 5.00%,
7/01/28 ........................................................................... 4,275,000 4,291,587
7/01/34 ........................................................................... 11,510,000 11,070,548
Tolleson IDA, MFR, Copper Cove Project, Series A, GNMA Secured,
5.40%, 11/20/22 ................................................................... 1,090,000 1,116,683
5.45%, 11/20/32 ................................................................... 1,285,000 1,299,816
Tucson Airport Authority Inc. Revenue, sub. lien, AMBAC Insured, 5.35%, 6/01/31 ...... 10,000,000 9,476,800
Tucson IDA Lease Revenue, University of Arizona/Marshall Foundation, Series A,
AMBAC Insured, 5.00%, 7/15/32 ..................................................... 1,000,000 974,970
Tucson Water Revenue, System, Refunding, 5.00%,
7/01/28 ........................................................................... 1,230,000 1,317,982
7/01/29 ........................................................................... 1,765,000 1,878,560
University Medical Center Corp. Hospital Revenue,
5.00%, 7/01/35 .................................................................... 7,000,000 6,468,420
6.50%, 7/01/39 .................................................................... 4,750,000 5,085,350
Annual Report | 111
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
University of Arizona COP, University of Arizona Projects, Series B, AMBAC Insured,
5.00%, 6/01/26 .................................................................... $ 7,070,000 $ 7,276,161
5.00%, 6/01/28 .................................................................... 7,000,000 7,142,170
5.00%, 6/01/31 .................................................................... 5,565,000 5,610,967
Pre-Refunded, 5.125%, 6/01/22 ..................................................... 2,250,000 2,461,253
Yavapai County IDA Hospital Facility Revenue, Yavapai Regional Medical Center,
Series A, 6.00%, 8/01/33 .......................................................... 2,000,000 2,015,160
Series B, 5.625%, 8/01/33 ......................................................... 2,315,000 2,277,891
Series B, 5.625%, 8/01/37 ......................................................... 12,435,000 12,154,093
Yuma IDA Hospital Revenue, Yuma Regional Medical Center, FSA Insured, Pre-Refunded,
5.50%, 8/01/21 .................................................................... 2,015,000 2,173,500
Yuma Municipal Property Corp. Revenue, Municipal Facilities, AMBAC Insured, 5.00%,
7/01/25 ........................................................................... 3,100,000 3,111,904
--------------
945,192,657
--------------
U.S. TERRITORIES 13.4%
PUERTO RICO 13.4%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.50%, 5/15/39 ......................................................... 5,000,000 4,426,050
Puerto Rico Commonwealth GO,
Public Improvement, Series A, 5.375%, 7/01/28 ..................................... 3,355,000 3,358,758
Series A, 5.25%, 7/01/37 .......................................................... 10,000,000 9,458,900
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Series B, Pre-Refunded, 6.00%, 7/01/39 ............................................ 9,250,000 9,517,140
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 5,000,000 5,515,450
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Hospital Revenue,
Dr. Pila Hospital Project, Refunding, FHA Insured, 5.875%, 8/01/12 ................ 965,000 972,672
Hospital Auxilio Mutuo Obligation Group Project, Series A, NATL Insured, 6.25%,
7/01/24 ........................................................................ 2,790,000 2,790,446
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 8,190,000 8,066,249
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 21,810,000 24,004,958
Series I, 5.00%, 7/01/36 .......................................................... 7,000,000 6,353,200
Series I, Pre-Refunded, 5.375%, 7/01/34 ........................................... 40,000,000 46,397,600
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
Pre-Refunded, 5.50%, 8/01/29 ...................................................... 15,000,000 16,298,400
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A, 5.50%,
8/01/37 ........................................................................... 11,000,000 11,175,780
--------------
TOTAL U.S. TERRITORIES ............................................................... 148,335,603
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,081,460,895) ............................................................. 1,093,528,260
--------------
112 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN ARIZONA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (COST $1,600,000) 0.1%
MUNICIPAL BONDS 0.1%
U.S. TERRITORIES 0.1%
PUERTO RICO 0.1%
(a) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... $ 1,600,000 $ 1,600,000
--------------
TOTAL INVESTMENTS (COST $1,083,060,895) 99.1% ........................................ 1,095,128,260
OTHER ASSETS, LESS LIABILITIES 0.9% .................................................. 9,993,260
--------------
NET ASSETS 100.0% .................................................................... $1,105,121,520
==============
See Abbreviations on page 263.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 113
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN COLORADO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.79 $ 11.14 $ 12.10 $ 12.03 $ 12.04
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.51 0.51 0.51 0.51 0.53
Net realized and unrealized gains (losses) .... 0.87 (0.35) (0.97) 0.08 (0.01)
-------- -------- -------- -------- --------
Total from investment operations ................. 1.38 0.16 (0.46) 0.59 0.52
-------- -------- -------- -------- --------
Less distributions from net investment income .... (0.52) (0.51) (0.50) (0.52) (0.53)
-------- -------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 11.65 $ 10.79 $ 11.14 $ 12.10 $ 12.03
======== ======== ======== ======== ========
Total return(f) .................................. 12.97% 1.43% (3.94)% 5.04% 4.41%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 0.66% 0.66% 0.67% 0.68% 0.69%
Net investment income ............................ 4.49% 4.62% 4.27% 4.31% 4.40%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $565,222 $465,136 $444,475 $426,482 $382,608
Portfolio turnover rate .......................... 9.78% 11.01% 22.57% 15.20% 23.19%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
114 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.88 $ 11.22 $ 12.19 $ 12.12 $ 12.13
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ...................... 0.45 0.46 0.44 0.45 0.47
Net realized and unrealized gains (losses) .... 0.88 (0.35) (0.97) 0.07 (0.01)
-------- ------- ------- ------- -------
Total from investment operations ................. 1.33 0.11 (0.53) 0.52 0.46
-------- ------- ------- ------- -------
Less distributions from net investment income .... (0.45) (0.45) (0.44) (0.45) (0.47)
-------- ------- ------- ------- -------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of year ..................... $ 11.76 $ 10.88 $ 11.22 $ 12.19 $ 12.12
======== ======= ======= ======= =======
Total return(f) .................................. 12.43% 0.94% (4.52)% 4.43% 3.81%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.21% 1.21% 1.22% 1.23% 1.24%
Net investment income ............................ 3.94% 4.07% 3.72% 3.76% 3.85%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $118,648 $69,302 $56,146 $50,938 $43,676
Portfolio turnover rate .......................... 9.78% 11.01% 22.57% 15.20% 23.19%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 115
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 11.22
-------
Income from investment operations(b):
Net investment income(c) ...................... 0.33
Net realized and unrealized gains (losses) .... 0.43
-------
Total from investment operations ................. 0.76
-------
Less distributions from net investment income .... (0.33)
-------
Net asset value, end of period ................... $ 11.65
=======
Total return(d) .................................. 6.79%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ......................................... 0.56%
Net investment income ............................ 4.59%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $11,066
Portfolio turnover rate .......................... 9.78%
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
116 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS 97.2%
COLORADO 90.1%
Adams County Revenue, Platte Valley Medical Center, Refunding, NATL Insured, 5.00%,
2/01/31 ........................................................................... $ 10,000,000 $ 9,758,800
Adams State College Auxiliary Facilities Revenue, Improvement, Series A, 5.50%,
5/15/34 ........................................................................... 2,000,000 2,139,840
5/15/39 ........................................................................... 2,150,000 2,288,674
Arapahoe County Water and Wastewater GO, Refunding, Series A, NATL Insured, 5.125%,
12/01/32 .......................................................................... 15,000,000 15,027,300
Arkansas River Power Authority Power Revenue, Improvement, XLCA Insured,
5.25%, 10/01/32 ................................................................... 1,000,000 935,980
5.25%, 10/01/40 ................................................................... 8,200,000 7,395,498
5.00%, 10/01/43 ................................................................... 10,000,000 8,613,000
Aurora COP,
AMBAC Insured, Pre-Refunded, 5.50%, 12/01/30 ...................................... 4,935,000 5,129,439
Refunding, Series A, 5.00%, 12/01/29 .............................................. 6,655,000 6,762,345
Refunding, Series A, 5.00%, 12/01/30 .............................................. 5,680,000 5,753,954
Aurora Water Improvement Revenue, first lien, Series A, AMBAC Insured, 5.00%,
8/01/36 ........................................................................... 5,880,000 5,985,664
8/01/39 ........................................................................... 14,000,000 14,225,260
Boulder County Development Revenue, University Corp. of Atmospheric Research, NATL
Insured,
5.00%, 9/01/33 .................................................................... 1,500,000 1,501,380
Boulder Larimer and Weld Counties Vrain Valley School District RE-1J GO, 5.00%,
12/15/33 .......................................................................... 5,200,000 5,424,952
Boulder Valley School District No. RE-2 Boulder GO, 5.00%, 12/01/34 .................. 10,775,000 11,454,579
Bowles Metropolitan District GO, Refunding, FSA Insured, 5.00%, 12/01/33 ............. 2,500,000 2,543,325
Brighton Water Activity Enterprise Revenue, Water System Project, Series A, Assured
Guaranty, 5.25%, 12/01/34 ......................................................... 5,380,000 5,690,749
Broadlands Metropolitan District No. 2 GO, Refunding, NATL Insured, 5.25%, 12/01/34 .. 8,655,000 9,034,089
Broomfield COP,
Master Facilities Lease Purchase, AMBAC Insured, 5.625%, 12/01/22 ................. 1,535,000 1,543,182
Refunding, AMBAC Insured, 6.00%, 12/01/29 ......................................... 2,000,000 2,002,580
Broomfield Sales and Use Tax Revenue, Refunding and Improvement, Series A, AMBAC
Insured,
5.00%, 12/01/27 ................................................................... 10,000,000 10,147,700
Broomfield Sewer Activity Enterprise Sewer and Wastewater Revenue, AMBAC Insured,
5.00%, 12/01/31 ................................................................... 7,500,000 7,568,325
Colorado Department of Transportation COP, NATL Insured, 5.00%, 6/15/34 .............. 6,915,000 7,018,241
Colorado Educational and Cultural Facilities Authority Revenue,
James Irwin Charter School, Refunding and Improvement, CIFG Insured, 5.00%, 8/01/37 6,060,000 5,900,986
Student Housing, Campus Village Apartments, Refunding, 5.50%, 6/01/38 ............. 9,000,000 9,077,850
Student Housing, University of Colorado Foundation Project, AMBAC Insured,
Pre-Refunded,
5.00%, 7/01/27 ................................................................. 6,545,000 7,123,643
Student Housing, University of Colorado Foundation Project, AMBAC Insured,
Pre-Refunded,
5.00%, 7/01/32 ................................................................. 10,005,000 10,889,542
Colorado Health Facilities Authority Revenue,
Catholic Health Initiatives, Refunding, Series A, 5.00%, 7/01/39 .................. 5,000,000 5,052,900
Catholic Health Initiatives, Series D, 6.125%, 10/01/28 ........................... 2,500,000 2,756,425
Catholic Health Initiatives, Series D, 6.25%, 10/01/33 ............................ 2,000,000 2,197,440
Evangelical Lutheran Good Samaritan Society Project, Refunding, Series A, 6.125%,
6/01/38 ........................................................................ 4,500,000 4,516,965
Evangelical Lutheran Project, 5.25%, 6/01/31 ...................................... 4,000,000 3,664,440
Evangelical Lutheran Project, Series A, 5.25%, 6/01/34 ............................ 3,500,000 3,174,815
Annual Report | 117
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
Colorado Health Facilities Authority Revenue, (continued)
Hospital, Longmont United Hospital Project, Refunding, Series B, Radian Insured,
5.00%, 12/01/25 ................................................................ $ 3,050,000 $ 2,805,969
Hospital, Longmont United Hospital Project, Refunding, Series B, Radian Insured,
5.00%, 12/01/26 ................................................................ 3,205,000 2,932,351
Hospital, Longmont United Hospital Project, Refunding, Series B, Radian Insured,
5.00%, 12/01/27 ................................................................ 3,365,000 3,058,415
Hospital, Longmont United Hospital Project, Refunding, Series B, Radian Insured,
5.00%, 12/01/30 ................................................................ 3,000,000 2,617,470
Hospital, NCMC Inc. Project, Series A, FSA Insured, 5.50%, 5/15/30 ................ 7,900,000 8,318,779
Hospital, Refunding, Series C, FSA Insured, 5.25%, 3/01/40 ........................ 5,000,000 5,000,000
Portercare Adventist Health, Pre-Refunded, 6.625%, 11/15/26 ....................... 2,500,000 2,774,100
Portercare Adventist Health, Pre-Refunded, 6.50%, 11/15/31 ........................ 5,500,000 6,091,415
Poudre Valley Health Care Inc. and Medical Center of the Rockies, Refunding,
Series A,
FSA Insured, 5.20%, 3/01/31 .................................................... 10,000,000 10,104,800
Valley View Hospital Assn., Refunding, 5.75%, 5/15/36 ............................. 2,000,000 1,936,740
Yampa Valley Medical Center Project, Refunding, 5.125%, 9/15/29 ................... 4,000,000 3,617,440
Colorado HFAR,
MF, Project II, Series A-2, 5.30%, 10/01/23 ....................................... 1,645,000 1,664,444
MF, Project II, Series A-2, 5.375%, 10/01/32 ...................................... 3,605,000 3,628,360
MFH Insured Mortgage, Series A-2, FHA Insured, 6.00%, 10/01/28 .................... 235,000 235,139
MFH Insured Mortgage, Series C-3, 6.05%, 10/01/32 ................................. 475,000 475,342
Colorado School of Mines Enterprises Revenue, Refunding and Improvement, Series A,
5.25%, 12/01/37 ................................................................... 2,000,000 2,092,580
Colorado Springs Hospital Revenue,
6.375%, 12/15/30 .................................................................. 3,785,000 3,862,025
FSA Insured, 5.00%, 12/15/32 ...................................................... 3,800,000 3,823,864
Pre-Refunded, 6.375%, 12/15/30 .................................................... 3,715,000 3,919,362
Refunding, 6.25%, 12/15/33 ........................................................ 5,000,000 5,311,400
Colorado Springs Public Facilities Authority COP, U.S. Olympic Committee Project,
Assured Guaranty, 5.00%, 11/01/39 ................................................. 11,305,000 11,486,219
Colorado Springs Utilities Revenue,
Refunding, Series A, 5.00%, 11/15/27 .............................................. 1,000,000 1,098,250
sub. lien, System Improvement, Series B, 5.00%, 11/15/33 .......................... 3,000,000 3,103,110
Colorado State Board of Governors University Enterprise System Revenue, Series A,
5.00%, 3/01/34 .................................................................... 2,250,000 2,345,985
5.00%, 3/01/39 .................................................................... 10,550,000 10,912,920
NATL Insured, 5.00%, 3/01/37 ...................................................... 13,000,000 13,378,430
Colorado State COP, University of Colorado Denver Health Sciences Center Fitzsimons
Academic Facility Project, Series B, NATL Insured, 5.00%, 11/01/30 ................ 5,000,000 5,061,100
Colorado State Health Facilities Authority Revenue, Parkview Medical Center Inc.
Project, Series A, 5.00%, 9/01/37 ................................................. 8,000,000 7,231,920
Colorado State Higher Education Capital Construction Lease Purchase Financing Program
COP, 5.50%, 11/01/27 .............................................................. 5,245,000 5,687,888
Pre-Refunded, 5.50%, 11/01/27 ..................................................... 2,030,000 2,483,847
118 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
Colorado Water Resources and Power Development Authority Clean Water Revenue,
Series A,
6.15%, 9/01/11 .................................................................... $ 75,000 $ 75,007
6.30%, 9/01/14 .................................................................... 25,000 25,002
Colorado Water Resources and Power Development Authority Small Water Resource Revenue,
Series A, FGIC Insured, Pre-Refunded, 5.80%, 11/01/20 ............................. 1,200,000 1,243,140
Colorado Water Resources and Power Development Authority Water Resources Revenue,
Arapahoe County Water Improvement, Series E, NATL Insured, 5.00%, 12/01/35 ........ 10,000,000 9,899,200
East Cherry Creek Valley Water Sanitary District, NATL Insured, 5.00%, 11/15/30 ... 1,590,000 1,609,541
Parker Water and Sanitary District, NATL Insured, 5.00%, 9/01/30 .................. 5,000,000 4,943,150
Commerce City COP, AMBAC Insured, 5.00%, 12/15/37 .................................... 13,975,000 13,788,014
Denver City and County Airport Revenue,
Refunding, Series A, AMBAC Insured, 5.625%, 11/15/23 .............................. 4,500,000 4,557,780
Series B, Pre-Refunded, 5.50%, 11/15/33 ........................................... 5,000,000 5,805,300
Series D, 7.75%, 11/15/13 ......................................................... 615,000 681,285
Denver City and County COP, Series B, AMBAC Insured, Pre-Refunded, 5.50%, 12/01/25 ... 7,000,000 7,345,730
Denver City and County School District No. 1 GO, Series A, 5.00%, 12/01/29 ........... 4,500,000 4,837,410
Denver Convention Center Hotel Authority Revenue, Refunding, senior bond, XLCA
Insured,
5.00%, 12/01/30 ................................................................... 14,500,000 12,665,605
Denver Health and Hospital Authority Healthcare Revenue,
Refunding, Series A, 5.25%, 12/01/31 .............................................. 9,250,000 8,339,985
Series A, Pre-Refunded, 6.00%, 12/01/23 ........................................... 1,000,000 1,090,620
Series A, Pre-Refunded, 6.00%, 12/01/31 ........................................... 5,400,000 5,889,348
Series A, Pre-Refunded, 6.25%, 12/01/33 ........................................... 3,250,000 3,957,102
Dove Valley Metropolitan District Arapahoe County GO, Refunding, FSA Insured, 5.00%,
11/01/35 .......................................................................... 4,375,000 4,511,675
E-470 Public Highway Authority Revenue,
Capital Appreciation, Series A, NATL Insured, zero cpn., 9/01/33 .................. 3,000,000 595,800
Capital Appreciation, Series B, NATL Insured, zero cpn., 9/01/32 .................. 7,800,000 1,670,214
Capital Appreciation, Series B, NATL Insured, zero cpn., 9/01/34 .................. 14,075,000 2,597,119
Senior Series A, NATL Insured, Pre-Refunded, 5.75%, 9/01/29 ....................... 4,575,000 4,783,803
Senior Series A, NATL Insured, Pre-Refunded, 5.75%, 9/01/35 ....................... 10,825,000 11,319,053
El Paso County Mortgage Revenue, Stetson Meadows, Series A, GNMA Secured, 5.25%,
12/20/32 .......................................................................... 1,890,000 1,895,198
El Paso County School District No. 38 GO, Pre-Refunded, 6.00%, 12/01/24 .............. 1,500,000 1,564,095
Erie Wastewater Enterprise Revenue, Series A, Assured Guaranty, 5.00%,
12/01/33 .......................................................................... 2,860,000 2,939,765
12/01/37 .......................................................................... 5,120,000 5,210,573
Erie Water Enterprise Revenue, Series A, FSA Insured, 5.00%, 12/01/32 ................ 10,000,000 10,349,700
Fort Lewis College Board Trustees Enterprise Revenue, Series B-1, FGIC Insured, 5.00%,
10/01/37 .......................................................................... 12,830,000 12,753,405
Gunnison Watershed School District No. RE-1J GO, 5.25%, 12/01/33 ..................... 1,240,000 1,335,319
La Junta Hospital Revenue, Ark Valley Regional Medical Center Project,
5.75%, 4/01/14 .................................................................... 2,090,000 2,090,773
6.00%, 4/01/19 .................................................................... 1,000,000 999,910
6.10%, 4/01/24 .................................................................... 1,000,000 977,800
Annual Report | 119
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
Mesa State College Auxiliary Facilities Enterprise Revenue,
Pre-Refunded, 6.00%, 5/15/38 ...................................................... $ 7,000,000 $ 8,767,360
Refunding, Series A, 5.00%, 5/15/33 ............................................... 3,455,000 3,610,233
Mesa State College Enterprise Revenue, BHAC Insured, 5.125%, 5/15/37 ................. 5,765,000 6,030,997
Northwest Parkway Public Highway Authority Revenue, Series A, AMBAC Insured,
Pre-Refunded, 5.125%,
6/15/26 ........................................................................... 6,550,000 7,036,141
6/15/31 ........................................................................... 4,465,000 4,796,392
Park Creek Metropolitan District Revenue, Senior Property Tax Support, Refunding and
Improvement, Assured Guaranty, 6.375%, 12/01/37 ................................... 7,000,000 7,616,280
Public Authority for Colorado Energy Natural Gas Purchase Revenue, 6.50%, 11/15/38 ... 9,900,000 10,936,431
Pueblo Board Waterworks Water Revenue, Series A, FSA Insured, Pre-Refunded, 6.00%,
11/01/21 .......................................................................... 4,300,000 4,464,690
Regional Transportation District Sales Tax Revenue, Fastracks Project,
Refunding, Series A, FSA Insured, 4.50%, 11/01/35 ................................. 3,500,000 3,463,005
Series A, AMBAC Insured, 5.00%, 11/01/31 .......................................... 14,150,000 14,659,541
Thornton Development Authority Tax Increment Revenue, North Washington Street Urban
Renewal, NATL Insured, 5.00%, 12/01/29 ............................................ 6,100,000 6,302,276
Thornton Water Enterprise Revenue, NATL Insured, 5.00%, 12/01/29 ..................... 7,010,000 7,303,649
Triview Metropolitan District GO, Refunding, 5.00%, 11/01/34 ......................... 10,855,000 10,878,990
University of Colorado COP, Series A, AMBAC Insured, Pre-Refunded, 5.00%, 6/01/33 .... 3,570,000 4,001,577
University of Colorado Enterprise System Revenue,
Series A, 5.375%, 6/01/38 ......................................................... 3,000,000 3,212,910
University of Colorado Regents, NATL Insured, 5.00%, 6/01/32 ...................... 5,000,000 5,202,950
University of Colorado Hospital Authority Revenue,
Refunding, 6.00%, 11/15/29 ........................................................ 5,000,000 5,250,700
Series A, 5.00%, 11/15/37 ......................................................... 2,000,000 1,930,100
Series A, 5.25%, 11/15/39 ......................................................... 3,000,000 2,995,260
Series A, Pre-Refunded, 5.60%, 11/15/25 ........................................... 1,900,000 2,049,948
University of Northern Colorado Revenue, Auxiliary Facilities Systems, Refunding and
Improvement, AMBAC Insured, 5.00%, 6/01/31 ........................................ 3,000,000 3,011,610
Ute Water Conservancy District Water Revenue, NATL Insured, Pre-Refunded, 5.75%,
6/15/20 ........................................................................... 5,000,000 5,128,350
Western State College Revenues, 5.00%,
5/15/34 ........................................................................... 2,000,000 2,021,900
5/15/39 ........................................................................... 2,000,000 2,018,960
Westminster Building Authority COP, NATL Insured, 5.25%, 12/01/22 .................... 1,555,000 1,613,157
--------------
626,010,354
--------------
U.S. TERRITORIES 7.1%
GUAM 0.3%
Guam Government Limited Obligation Revenue, Section 30, Series A, 5.375%, 12/01/24 ... 2,000,000 2,069,620
--------------
PUERTO RICO 6.8%
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue, Series
B, 5.00%, 7/01/41 ................................................................. 5,000,000 4,477,800
Puerto Rico Industrial Tourist Educational Medical and Environmental Control Facilities
Financing Authority Industrial Revenue, Guaynabo Municipal Government, 5.625%,
7/01/22 ........................................................................... 1,335,000 1,339,446
120 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN COLORADO TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. $ 2,120,000 $ 2,087,967
Series I, Pre-Refunded, 5.375%, 7/01/34 ........................................... 5,000,000 5,799,700
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub.,
Series A, 5.00%, 8/01/24 .......................................................... 6,500,000 6,661,590
Series A, 5.25%, 8/01/27 .......................................................... 7,950,000 8,145,411
Series A, 5.50%, 8/01/37 .......................................................... 5,000,000 5,079,900
Series A, 5.50%, 8/01/42 .......................................................... 3,000,000 2,995,320
Series B, 6.375%, 8/01/39 ......................................................... 10,000,000 10,772,600
--------------
47,359,734
--------------
TOTAL U.S. TERRITORIES ............................................................... 49,429,354
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $662,124,877) .............. 675,439,708
--------------
SHORT TERM INVESTMENTS 1.4%
MUNICIPAL BONDS 1.4%
COLORADO 1.4%
(a) Colorado Educational and Cultural Facilities Authority Revenue, National Jewish
Federation Bond Program,
Daily VRDN and Put, 0.17%, 2/01/35 ................................................ 1,400,000 1,400,000
Refunding, Series A-8, Daily VRDN and Put, 0.17%, 9/01/35 ......................... 1,155,000 1,155,000
Series A-4, Daily VRDN and Put, 0.17%, 2/01/34 .................................... 1,870,000 1,870,000
Series A-7, Daily VRDN and Put, 0.17%, 7/01/29 .................................... 1,745,000 1,745,000
Series A-10, Daily VRDN and Put, 0.16%, 9/01/37 ................................... 2,200,000 2,200,000
Series A-11, Daily VRDN and Put, 0.17%, 8/01/27 ................................... 1,000,000 1,000,000
(a) Pitkin County IDR, Aspen Skiing Co. Project, Refunding, Series A, Daily VRDN and
Put, 0.17%, 4/01/16 ............................................................... 500,000 500,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $9,870,000) ....................................... 9,870,000
--------------
TOTAL INVESTMENTS (COST $671,994,877) 98.6% .......................................... 685,309,708
OTHER ASSETS, LESS LIABILITIES 1.4% .................................................. 9,627,015
--------------
NET ASSETS 100.0% .................................................................... $ 694,936,723
==============
See Abbreviations on page 263.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 121
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.18 $ 10.39 $ 11.13 $ 11.10 $ 11.11
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.46 0.46 0.45 0.46 0.48
Net realized and unrealized gains (losses) .... 0.69 (0.22) (0.73) 0.04 (0.01)
-------- -------- -------- -------- --------
Total from investment operations ................. 1.15 0.24 (0.28) 0.50 0.47
-------- -------- -------- -------- --------
Less distributions from net investment income .... (0.45) (0.45) (0.46) (0.47) (0.48)
-------- -------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --
-------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 10.88 $ 10.18 $ 10.39 $ 11.13 $ 11.10
======== ======== ======== ======== ========
Total return(f) .................................. 11.50% 2.31% (2.66)% 4.61% 4.33%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 0.68% 0.68% 0.69% 0.70% 0.71%
Net investment income ............................ 4.29% 4.39% 4.16% 4.21% 4.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $405,070 $338,345 $315,908 $305,258 $274,407
Portfolio turnover rate .......................... 3.67% 9.72% 13.47% 11.18% 7.73%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
122 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 10.24 $ 10.44 $ 11.19 $ 11.15 $ 11.16
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ...................... 0.40 0.40 0.40 0.41 0.42
Net realized and unrealized gains (losses) .... 0.69 (0.21) (0.75) 0.04 (0.01)
------- ------- ------- ------- -------
Total from investment operations ................. 1.09 0.19 (0.35) 0.45 0.41
------- ------- ------- ------- -------
Less distributions from net investment income .... (0.39) (0.39) (0.40) (0.41) (0.42)
------- ------- ------- ------- -------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --
------- ------- ------- ------- -------
Net asset value, end of year ..................... $ 10.94 $ 10.24 $ 10.44 $ 11.19 $ 11.15
======= ======= ======= ======= =======
Total return(f) .................................. 10.83% 1.83% (3.28)% 4.10% 3.75%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.23% 1.23% 1.24% 1.25% 1.26%
Net investment income ............................ 3.74% 3.84% 3.61% 3.66% 3.75%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $94,058 $70,541 $55,126 $52,623 $45,564
Portfolio turnover rate .......................... 3.67% 9.72% 13.47% 11.18% 7.73%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 123
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 10.45
-------
Income from investment operations(b):
Net investment income(c) ...................... 0.29
Net realized and unrealized gains (losses) .... 0.41
-------
Total from investment operations ................. 0.70
-------
Less distributions from net investment income .... (0.28)
-------
Net asset value, end of period ................... $ 10.87
=======
Total return(d) .................................. 6.78%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ......................................... 0.58%
Net investment income ............................ 4.39%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $11,030
Portfolio turnover rate .......................... 3.67%
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
124 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- --------------
MUNICIPAL BONDS 99.1%
CONNECTICUT 75.6%
Bridgeport GO, Series A, FGIC Insured, Pre-Refunded, 5.875%, 7/15/19 ................. $ 1,000,000 $ 1,030,740
Connecticut State Airport Revenue, Bradley International Airport, Series A, NATL
Insured, 5.125%, 10/01/26 ......................................................... 3,000,000 2,948,910
Connecticut State Development Authority First Mortgage Gross Revenue, Health Care
Project, Church Homes Inc. Project, Refunding, 5.80%, 4/01/21 ..................... 4,000,000 3,748,080
Connecticut Baptist Homes Inc. Project, Refunding, Radian Insured, 5.625%,
9/01/22 ........................................................................ 2,000,000 1,916,080
The Elim Park Baptist Home Inc. Project, 5.75%, 12/01/23 .......................... 750,000 730,485
The Elim Park Baptist Home Inc. Project, Refunding, Series A, 5.375%, 12/01/18 .... 1,100,000 1,080,739
Connecticut State Development Authority PCR,
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 .................. 5,500,000 5,530,085
United Illuminating Co. Project, Mandatory Put 2/01/12, 5.75%, 6/01/26 ............ 1,000,000 1,067,230
Connecticut State Development Authority Revenue, Life Care Facilities, Seabury
Project, Refunding, Radian Insured, 5.00%, 9/01/21 ................................ 2,000,000 1,727,560
Connecticut State Development Authority Solid Waste Disposal Facilities Revenue, PSEG
Power LLC Project, Series A, 5.75%, 11/01/37 ...................................... 5,000,000 4,938,150
Connecticut State Development Authority Water Facility Revenue, Bridgeport Hydraulic
Co. Project, 6.15%, 4/01/35 ....................................................... 1,000,000 1,001,480
Connecticut State GO,
Series A, 5.00%, 4/15/20 .......................................................... 5,155,000 5,884,690
Series A, 5.00%, 2/15/29 .......................................................... 10,000,000 10,839,900
Series B, Pre-Refunded, 5.00%, 6/15/20 ............................................ 10,000,000 10,588,200
Series B, Pre-Refunded, 5.00%, 6/15/22 ............................................ 2,000,000 2,194,920
Series C, FSA Insured, 5.00%, 6/01/26 ............................................. 5,000,000 5,423,000
Connecticut State Health and Educational Facilities Authority Revenue,
Brunswick School, Series A, NATL Insured, 5.00%, 7/01/29 .......................... 5,000,000 5,005,000
Canterbury School, Series B, Radian Insured, 5.00%, 7/01/36 ....................... 1,000,000 908,870
Catholic Health East, Series F, NATL Insured, 5.75%, 11/15/29 ..................... 3,250,000 3,267,420
Child Care Facilities Program, Series C, AMBAC Insured, 5.625%, 7/01/29 ........... 1,215,000 1,225,631
Child Care Facilities Program, Series E, AMBAC Insured, 5.00%, 7/01/31 ............ 1,000,000 1,005,820
Child Care Facilities Program, Series G, Assured Guaranty, 6.00%, 7/01/28 ......... 2,250,000 2,559,083
Connecticut College, Series D-1, NATL Insured, Pre-Refunded, 5.75%, 7/01/30 ....... 1,000,000 1,028,130
Danbury Hospital Issue, Refunding, Series G, AMBAC Insured, 5.75%, 7/01/29 ........ 3,500,000 3,500,105
Eastern Connecticut Health Network, Refunding, Series A, Radian Insured, 6.00%,
7/01/25 ........................................................................ 2,965,000 2,972,946
Eastern Connecticut Health Network, Refunding, Series C, Radian Insured, 5.125%,
7/01/30 ........................................................................ 2,500,000 2,191,600
Eastern Connecticut Health Network, Series A, Radian Insured, Pre-Refunded, 6.00%,
7/01/25 ........................................................................ 6,230,000 6,409,299
Fairfield University, Series M, 5.00%, 7/01/26 .................................... 450,000 470,867
Fairfield University, Series M, 5.00%, 7/01/34 .................................... 1,000,000 1,003,990
Fairfield University, Series N, 5.00%, 7/01/29 .................................... 7,000,000 7,220,780
Greenwich Academy, Series B, FSA Insured, Pre-Refunded, 5.00%, 3/01/32 ............ 4,210,000 4,448,286
Hartford University, Series G, Radian Insured, 5.25%, 7/01/26 ..................... 5,000,000 4,924,250
Horace Bushnell Memorial Hall, Series A, NATL Insured, 5.625%, 7/01/29 ............ 1,000,000 1,003,230
Hospital for Special Care, Series C, Radian Insured, 5.25%, 7/01/37 ............... 2,500,000 2,200,825
Loomis Chafee School, Series G, 5.00%, 7/01/30 .................................... 3,000,000 3,071,610
Loomis Chafee School, Series G, 5.00%, 7/01/38 .................................... 6,285,000 6,265,642
Lutheran General Health Care System, ETM, 7.375%, 7/01/19 ......................... 375,000 458,644
Annual Report | 125
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CONNECTICUT (CONTINUED)
Connecticut State Health and Educational Facilities Authority Revenue, (continued)
Miss Porter's School Issue, Series B, AMBAC Insured, 5.00%, 7/01/26 ............... $ 1,730,000 $ 1,843,696
Miss Porter's School Issue, Series B, AMBAC Insured, 5.00%, 7/01/36 ............... 4,415,000 4,554,735
New Horizons Village Project, 7.30%, 11/01/16 ..................................... 2,905,000 2,905,058
Norwich Free Academy, Series A, AMBAC Insured, 5.00%, 7/01/34 ..................... 1,675,000 1,704,865
Quinnipiac University, Series H, AMBAC Insured, 5.00%, 7/01/36 .................... 8,000,000 8,033,920
Quinnipiac University, Series J, NATL Insured, 5.00%, 7/01/37 ..................... 15,000,000 15,059,850
Quinnipiac University, Series K-1, NATL Insured, 5.00%, 7/01/31 ................... 4,000,000 4,084,400
Renbrook School, Series A, AMBAC Insured, 5.00%, 7/01/37 .......................... 1,170,000 1,069,216
Sacred Heart University, Refunding, Series E, Radian Insured, 5.00%, 7/01/28 ...... 4,000,000 3,819,360
Sacred Heart University, Series C, 6.50%, 7/01/16 ................................. 180,000 180,927
Sacred Heart University, Series C, 6.625%, 7/01/26 ................................ 785,000 787,559
Salisbury School, Series C, Assured Guaranty, 5.00%, 7/01/38 ...................... 5,000,000 5,207,000
Series B, NATL Insured, 5.00%, 7/01/33 ............................................ 2,000,000 1,925,240
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 .......................... 4,615,000 4,261,537
The William W. Backus Hospital, Series F, FSA Insured, 5.00%, 7/01/28 ............. 1,500,000 1,551,525
The William W. Backus Hospital, Series F, FSA Insured, 5.125%, 7/01/35 ............ 4,025,000 4,116,448
Trinity College, Refunding, Series J, NATL Insured, 4.50%, 7/01/37 ................ 2,000,000 1,996,760
Trinity College, Series G, AMBAC Insured, Pre-Refunded, 5.00%, 7/01/31 ............ 5,425,000 5,794,008
Trinity College, Series H, NATL Insured, 5.00%, 7/01/26 ........................... 1,855,000 1,921,224
Village Families and Children, Series A, AMBAC Insured, 5.00%, 7/01/32 ............ 1,000,000 835,790
Westminster School, Series E, XLCA Insured, 5.00%, 7/01/37 ........................ 10,660,000 11,009,115
Westover School, Series A, Radian Insured, Pre-Refunded, 5.70%, 7/01/30 ........... 2,000,000 2,055,600
Yale University, Series A-2, 5.00%, 7/01/40 ....................................... 20,000,000 21,142,200
Yale University, Series Y-1, 5.00%, 7/01/35 ....................................... 15,000,000 15,646,650
Yale University, Series Z-1, 5.00%, 7/01/42 ....................................... 10,000,000 10,445,600
Yale University, Series Z-3, 5.05%, 7/01/42 ....................................... 6,000,000 6,322,320
Yale-New Haven Hospital, Series J-1, AMBAC Insured, 5.00%, 7/01/31 ................ 12,500,000 12,573,500
Connecticut State HFA Housing Mortgage Finance Program Revenue, Sub Series C-1,
4.85%, 11/15/34 ................................................................... 3,260,000 3,279,984
4.95%, 11/15/39 ................................................................... 6,365,000 6,406,627
Connecticut State HFAR,
Housing Mortgage Finance Program, Refunding, Series E, Sub Series E-2, 5.20%,
11/15/21 ....................................................................... 1,840,000 1,842,631
Housing Mortgage Finance Program, Series B, 6.10%, 11/15/31 ....................... 2,715,000 2,718,502
Housing Mortgage Finance Program, Series E, Sub Series E-4, 5.05%, 5/15/28 ........ 4,650,000 4,688,130
Housing Mortgage Finance Program, Series F, Sub Series F-2, 5.875%, 11/15/33 ...... 5,000,000 5,374,500
Housing Mortgage Finance Program, Series F, Sub Series F-2, 6.00%, 11/15/38 ....... 2,000,000 2,138,080
Special Obligation, Special Needs Housing, Series 1, AMBAC Insured, 5.00%, 6/15/22 1,000,000 1,042,030
Special Obligation, Special Needs Housing, Series 1, AMBAC Insured, 5.00%, 6/15/32 1,000,000 1,002,220
State Supported Special Obligation, Series 10, 5.00%, 6/15/28 ..................... 420,000 452,277
Connecticut State Higher Education Supplemental Loan Authority Revenue,
CHESLA Loan Program, Series A, 5.05%, 11/15/27 .................................... 1,000,000 1,026,160
Family Education Loan Program, Series A, AMBAC Insured, 6.00%, 11/15/18 ........... 540,000 552,604
Family Education Loan Program, Series A, NATL Insured, 5.50%, 11/15/17 ............ 395,000 406,265
Connecticut State Housing Finance Authority Housing Mortgage Finance Program Revenue,
5.20%, 11/15/34 ................................................................... 1,770,000 1,826,021
5.30%, 11/15/39 ................................................................... 2,500,000 2,555,500
126 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CONNECTICUT (CONTINUED)
Connecticut State Revenue, Revolving Fund, Series A, 5.00%,
6/01/26 ........................................................................... $ 4,925,000 $ 5,512,159
7/01/26 ........................................................................... 6,025,000 6,558,694
7/01/27 ........................................................................... 4,060,000 4,400,390
Connecticut State Special Tax Obligation Revenue, Transportation Infrastructure,
Series A, FSA Insured, Pre-Refunded, 5.375%, 10/01/18 ............................. 1,000,000 1,075,530
Series B, AMBAC Insured, 5.00%, 12/01/20 .......................................... 5,000,000 5,365,150
Series B, AMBAC Insured, 5.00%, 12/01/22 .......................................... 1,000,000 1,067,520
Greater New Haven Water Pollution Control Authority Regional Water Revenue,
Refunding, Series A, NATL Insured, 5.00%, 11/15/24 ................................ 3,315,000 3,489,170
Refunding, Series A, NATL Insured, 5.00%, 8/15/35 ................................. 3,250,000 3,251,365
Series A, FSA Insured, 5.00%, 11/15/37 ............................................ 3,000,000 3,052,740
New Haven GO,
Series A, Assured Guaranty, 5.00%, 3/01/29 ........................................ 1,000,000 1,052,520
Series C, NATL Insured, ETM, 5.00%, 11/01/22 ...................................... 25,000 28,424
Series C, NATL Insured, Pre-Refunded, 5.00%, 11/01/22 ............................. 2,975,000 3,286,542
South Central Regional Water Authority Water System Revenue,
Eighteenth Series B, NATL Insured, 5.25%, 8/01/29 ................................. 1,000,000 1,071,970
Eighteenth Series B, NATL Insured, 5.25%, 8/01/32 ................................. 1,000,000 1,056,530
Eighteenth Series B-1, NATL Insured, 5.00%, 8/01/26 ............................... 3,500,000 3,692,255
Refunding, Twenty-second Series, FSA Insured, 5.00%, 8/01/38 ...................... 5,000,000 5,134,500
Series A, NATL Insured, 5.00%, 8/01/33 ............................................ 6,000,000 6,114,540
University of Connecticut Revenue, Student Fee,
Refunding, Series A, FGIC Insured, 5.00%, 11/15/26 ................................ 10,000,000 10,458,000
Series A, 5.00%, 5/15/23 .......................................................... 10,000,000 10,459,300
Series A, FGIC Insured, Pre-Refunded, 6.00%, 11/15/25 ............................. 1,500,000 1,575,795
--------------
385,655,005
--------------
U.S. TERRITORIES 23.5%
PUERTO RICO 23.1%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.50%, 5/15/39 ......................................................... 4,000,000 3,540,840
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 .................................................................... 1,000,000 1,024,900
Assured Guaranty, 5.00%, 7/01/28 .................................................. 2,000,000 2,060,280
Puerto Rico Commonwealth GO, Public Improvement,
NATL Insured, Pre-Refunded, 5.75%, 7/01/26 ........................................ 1,000,000 1,016,320
Refunding, FSA Insured, 5.125%, 7/01/30 ........................................... 835,000 839,142
Refunding, Series B, 6.00%, 7/01/39 ............................................... 10,000,000 10,272,000
Series A, 5.00%, 7/01/29 .......................................................... 1,000,000 946,560
Series A, 5.125%, 7/01/31 ......................................................... 3,195,000 3,064,740
Series A, 5.00%, 7/01/33 .......................................................... 465,000 426,614
Series A, 5.00%, 7/01/34 .......................................................... 280,000 256,071
Series A, FGIC Insured, Pre-Refunded, 5.00%, 7/01/32 .............................. 1,000,000 1,101,800
Series A, Pre-Refunded, 5.00%, 7/01/33 ............................................ 535,000 607,878
Series B, 5.00%, 7/01/35 .......................................................... 1,895,000 1,725,265
Series B, Pre-Refunded, 5.00%, 7/01/35 ............................................ 3,105,000 3,672,190
Annual Report | 127
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN CONNECTICUT TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
----------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series A, 5.00%, 7/01/38 ............................................... $ 120,000 $ 112,079
Series G, 5.00%, 7/01/33 .......................................................... 400,000 371,876
Series G, Pre-Refunded, 5.00%, 7/01/33 ............................................ 600,000 681,732
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue,
Series A, AMBAC Insured, 5.00%, 7/01/31 ........................................... 5,000,000 4,542,100
Puerto Rico Electric Power Authority Power Revenue,
Series HH, FSA Insured, Pre-Refunded, 5.25%, 7/01/29 .............................. 7,000,000 7,185,010
Series II, Pre-Refunded, 5.25%, 7/01/31 ........................................... 1,000,000 1,116,190
Series RR, XLCA Insured, Pre-Refunded, 5.00%, 7/01/30 ............................. 1,000,000 1,177,430
Series TT, 5.00%, 7/01/32 ......................................................... 18,500,000 18,037,130
Series WW, 5.50%, 7/01/38 ......................................................... 6,700,000 6,761,774
Puerto Rico HFAR, Capital Fund Modernization, 5.125%, 12/01/27 ....................... 4,250,000 4,310,987
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Educational Facilities Revenue, University Plaza
Project, Series A, NATL Insured, 5.00%, 7/01/33 ................................... 1,000,000 935,900
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue, Guaynabo Warehouse, Series A,
5.15%, 7/01/19 .................................................................... 3,595,000 3,673,407
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 1,995,000 1,964,856
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 6,005,000 6,609,343
Series I, 5.00%, 7/01/36 .......................................................... 1,000,000 907,600
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A, 6.00%,
8/01/42 ........................................................................... 22,000,000 23,012,220
University of Puerto Rico Revenues, University System, Refunding,
Series P, 5.00%, 6/01/26 .......................................................... 5,000,000 4,769,450
Series Q, 5.00%, 6/01/36 .......................................................... 1,500,000 1,324,425
--------------
118,048,109
--------------
U.S. VIRGIN ISLANDS 0.4%
Virgin Islands PFAR, senior lien, Capital Projects, Series A-1, 5.00%, 10/01/29 ...... 1,000,000 975,570
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/21 ........................................................................... 1,000,000 1,001,990
--------------
1,977,560
--------------
TOTAL U.S. TERRITORIES ............................................................... 120,025,669
--------------
TOTAL INVESTMENTS (COST $498,105,905) 99.1% .......................................... 505,680,674
OTHER ASSETS, LESS LIABILITIES 0.9% .................................................. 4,477,199
--------------
NET ASSETS 100.0% .................................................................... $ 510,157,873
==============
See Abbreviations on page 263.
The accompanying notes are an integral part of these financial statements.
128 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN DOUBLE TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 10.54 $ 11.10 $ 12.06 $ 11.98 $ 11.99
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ..................... 0.51 0.50 0.49 0.50 0.50
Net realized and unrealized gains (losses) ... 1.02 (0.57) (0.96) 0.08 (0.01)
-------- -------- -------- -------- --------
Total from investment operations ................ 1.53 (0.07) (0.47) 0.58 0.49
-------- -------- -------- -------- --------
Less distributions from net investment income: .. (0.51) (0.49) (0.49) (0.50) (0.50)
Redemption fees(d) -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 11.56 $ 10.54 $ 11.10 $ 12.06 $ 11.98
======== ======== ======== ======== ========
Total return(f) ................................. 14.78% (0.62)% (4.05)% 4.97% 4.13%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.69% 0.68% 0.69% 0.70% 0.71%
Net investment income ........................... 4.64% 4.58% 4.14% 4.16% 4.17%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $507,856 $468,062 $462,515 $428,458 $370,481
Portfolio turnover rate ......................... 18.53% 14.45% 18.19% 10.88% 14.19%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 129
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 10.58 $ 11.14 $ 12.11 $ 12.01 $ 12.03
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ..................... 0.45 0.44 0.43 0.43 0.43
Net realized and unrealized gains (losses) ... 1.03 (0.57) (0.97) 0.10 (0.02)
------- ------- ------- ------- -------
Total from investment operations ................ 1.48 (0.13) (0.54) 0.53 0.41
------- ------- ------- ------- -------
Less distributions from net investment income: .. (0.45) (0.43) (0.43) (0.43) (0.43)
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year .................... $ 11.61 $ 10.58 $ 11.14 $ 12.11 $ 12.01
======= ======= ======= ======= =======
Total return(f) ................................. 14.21% (1.17)% (4.64)% 4.55% 3.47%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.24% 1.23% 1.24% 1.24% 1.26%
Net investment income ........................... 4.09% 4.03% 3.59% 3.62% 3.62%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $90,262 $72,413 $66,985 $58,803 $55,931
Portfolio turnover rate ......................... 18.53% 14.45% 18.19% 10.88% 14.19%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
130 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $10.78
------
Income from investment operations(b):
Net investment income(c) ...................... 0.33
Net realized and unrealized gains (losses) .... 0.78
------
Total from investment operations ................. 1.11
------
Less distributions from net investment income .... (0.32)
------
Net asset value, end of period ................... $11.57
======
Total return(d) .................................. 10.38%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ......................................... 0.59%
Net investment income ............................ 4.74%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $2,538
Portfolio turnover rate .......................... 18.53%
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 131
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS 97.2%
U.S. TERRITORIES 97.2%
GUAM 6.4%
Guam Education Financing Foundation COP, 5.00%, 10/01/23 ............................. $ 2,500,000 $ 2,427,950
Guam Government Limited Obligation Revenue, Section 30, Series A,
5.375%, 12/01/24 .................................................................. 5,195,000 5,375,838
5.625%, 12/01/29 .................................................................. 3,850,000 3,943,940
5.75%, 12/01/34 ................................................................... 4,250,000 4,328,922
Guam International Airport Authority Revenue,
Series A, NATL Insured, 5.25%, 10/01/20 ........................................... 1,725,000 1,758,120
Series A, NATL Insured, 5.25%, 10/01/22 ........................................... 700,000 710,444
Series B, NATL Insured, 5.25%, 10/01/22 ........................................... 1,000,000 1,014,920
Series B, NATL Insured, 5.25%, 10/01/23 ........................................... 1,000,000 1,012,950
Series C, NATL Insured, 5.25%, 10/01/21 ........................................... 5,000,000 5,011,500
Series C, NATL Insured, 5.00%, 10/01/23 ........................................... 5,000,000 4,832,400
Guam Power Authority Revenue, Refunding, Series A, NATL Insured,
5.125%, 10/01/29 .................................................................. 1,975,000 1,853,044
5.25%, 10/01/34 ................................................................... 7,000,000 6,416,270
--------------
38,686,298
--------------
PUERTO RICO 79.9%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.50%, 5/15/39 ......................................................... 5,000,000 4,426,050
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/38 .................................................................... 3,100,000 3,179,267
Assured Guaranty, 5.125%, 7/01/47 ................................................. 27,000,000 27,043,470
Puerto Rico Commonwealth GO,
Public Improvement, NATL Insured, Pre-Refunded, 5.75%, 7/01/26 .................... 3,000,000 3,048,960
Public Improvement, Refunding, Series A, 5.50%, 7/01/18 ........................... 2,395,000 2,525,623
Public Improvement, Refunding, Series A, 5.50%, 7/01/32 ........................... 10,000,000 10,005,800
Public Improvement, Refunding, Series A-4, FSA Insured, 5.00%, 7/01/31 ............ 3,000,000 3,052,530
Public Improvement, Refunding, Series B, 5.75%, 7/01/38 ........................... 4,000,000 4,039,880
Public Improvement, Refunding, Series C, 6.00%, 7/01/39 ........................... 10,650,000 10,823,808
Public Improvement, Series A, 5.375%, 7/01/28 ..................................... 1,300,000 1,301,456
Public Improvement, Series A, FGIC Insured, 5.125%, 7/01/31 ....................... 3,315,000 3,179,847
Public Improvement, Series A, FGIC Insured, Pre-Refunded, 5.125%, 7/01/31 ......... 1,685,000 1,790,313
Refunding, Series C, Sub Series C-7, NATL Insured, 6.00%, 7/01/27 ................. 3,500,000 3,622,430
Refunding, Series C, Sub Series C-7, NATL Insured, 6.00%, 7/01/28 ................. 1,195,000 1,236,000
Series A, 5.25%, 7/01/29 .......................................................... 6,600,000 6,520,602
Series A, 5.25%, 7/01/30 .......................................................... 8,575,000 8,427,167
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Refunding, Series CC, FSA Insured, 5.25%, 7/01/32 ................................. 5,500,000 5,875,595
Refunding, Series CC, FSA Insured, 5.25%, 7/01/34 ................................. 2,000,000 2,116,360
Series Y, Pre-Refunded, 5.50%, 7/01/36 ............................................ 11,850,000 14,366,110
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series H, 5.00%, 7/01/35 ............................................... 20,000 18,461
Refunding, Series M, 5.00%, 7/01/37 ............................................... 5,455,000 5,006,435
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................. 20,720,000 19,481,358
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 11,990,000 13,226,049
Series H, Pre-Refunded, 5.00%, 7/01/35 ............................................ 80,000 90,898
Series K, Pre-Refunded, 5.00%, 7/01/40 ............................................ 9,500,000 11,185,585
132 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Refunding, Series C, FGIC Insured, 5.50%, 7/01/22 ................................. $ 6,285,000 $ 6,460,289
Series B, 5.00%, 7/01/31 .......................................................... 2,500,000 2,288,175
Series B, 5.00%, 7/01/37 .......................................................... 24,250,000 21,942,127
Series B, 5.00%, 7/01/41 .......................................................... 7,920,000 7,092,835
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue, Series A,
AMBAC Insured, 5.00%, 7/01/31 ..................................................... 20,000,000 18,168,400
CIFG Insured, 5.00%, 7/01/27 ...................................................... 900,000 867,591
Puerto Rico Electric Power Authority Power Revenue,
Refunding, Series SS, FSA Insured, 5.00%, 7/01/30 ................................. 3,015,000 3,088,385
Refunding, Series UU, CIFG Insured, 5.00%, 7/01/26 ................................ 6,500,000 6,567,080
Series NN, Pre-Refunded, 5.125%, 7/01/29 .......................................... 3,655,000 4,167,870
Series TT, 5.00%, 7/01/32 ......................................................... 14,800,000 14,429,704
Series TT, 5.00%, 7/01/37 ......................................................... 2,235,000 2,141,733
Puerto Rico HFAR,
Capital Fund Modernization, 5.125%, 12/01/27 ...................................... 8,500,000 8,621,975
Capital Fund Program, 4.60%, 12/01/24 ............................................. 3,425,000 3,469,457
Capital Fund Program, Pre-Refunded, 4.60%, 12/01/24 ............................... 5,575,000 6,256,042
Puerto Rico HFC, HMR, MBS, Series A, GNMA Secured, 5.20%, 12/01/33 ................... 10,610,000 10,656,047
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Educational Facilities Revenue, University Plaza
Project, Series A, NATL Insured, 5.00%, 7/01/33 ................................... 6,000,000 5,615,400
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Hospital Revenue,
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.125%, 8/01/25 ................ 2,500,000 2,514,725
Dr. Pila Hospital Project, Refunding, FHA Insured, 6.25%, 8/01/32 ................. 500,000 502,605
Hospital Auxilio Mutuo Obligation Group Project, Series A, NATL Insured, 6.25%,
7/01/24 ........................................................................ 8,445,000 8,446,351
Mennonite General Hospital Project, 5.625%, 7/01/17 ............................... 525,000 530,644
Mennonite General Hospital Project, 5.625%, 7/01/27 ............................... 1,950,000 1,970,963
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Industrial Revenue,
Guaynabo Municipal Government, 5.625%, 7/01/15 .................................... 4,710,000 4,744,383
Guaynabo Municipal Government, 5.625%, 7/01/22 .................................... 3,160,000 3,170,523
Guaynabo Warehouse, Series A, 5.15%, 7/01/19 ...................................... 1,250,000 1,277,263
Guaynabo Warehouse, Series A, 5.20%, 7/01/24 ...................................... 4,120,000 4,204,913
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Revenue,
Ana G. Mendez University System Project, Refunding, 5.375%, 12/01/21 .............. 2,000,000 1,938,060
Ana G. Mendez University System Project, Refunding, 5.375%, 2/01/29 ............... 7,850,000 7,013,739
Cogeneration Facility, AES Puerto Rico Project, 6.625%, 6/01/26 ................... 5,970,000 6,028,745
International American University of Puerto Rico Project, NATL Insured, 4.25%,
10/01/24 ....................................................................... 1,000,000 886,190
International American University of Puerto Rico Project, NATL Insured, 4.375%,
10/01/25 ....................................................................... 1,000,000 887,000
International American University of Puerto Rico Project, NATL Insured, 4.50%,
10/01/29 ....................................................................... 3,750,000 3,185,025
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.75%, 8/01/12 ....... 7,500,000 7,588,125
Annual Report | 133
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Municipal Finance Agency Revenue, Series A, FSA Insured, 5.00%,
8/01/27 ........................................................................... $ 3,500,000 $ 3,525,340
8/01/30 ........................................................................... 3,500,000 3,561,215
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series M, 6.25%, 7/01/21 ............................................... 5,000,000 5,494,250
Refunding, Series N, 5.00%, 7/01/32 ............................................... 5,000,000 4,508,150
Refunding, Series N, 5.00%, 7/01/37 ............................................... 10,000,000 8,797,400
Refunding, Series P, 6.50%, 7/01/30 ............................................... 5,000,000 5,345,500
Refunding, Series P, 6.75%, 7/01/36 ............................................... 5,000,000 5,382,750
Refunding, Series Q, 5.625%, 7/01/39 .............................................. 6,350,000 6,176,201
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 9,070,000 9,982,805
Series I, 5.25%, 7/01/33 .......................................................... 2,450,000 2,326,667
Series I, 5.00%, 7/01/36 .......................................................... 4,000,000 3,630,400
Series I, Pre-Refunded, 5.25%, 7/01/33 ............................................ 50,000 57,737
Series I, Pre-Refunded, 5.375%, 7/01/34 ........................................... 5,000,000 5,799,700
Puerto Rico Port Authority Revenue, Series D, FGIC Insured, 6.00%, 7/01/21 ........... 1,250,000 1,225,763
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
Pre-Refunded, 5.50%, 8/01/29 ...................................................... 9,000,000 9,779,040
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue,
Capital Appreciation, Series A, zero cpn. to 8/01/19, 6.25% thereafter, 8/01/33 ... 7,000,000 4,114,810
first sub., Series A, 5.75%, 8/01/37 .............................................. 16,100,000 16,642,570
first sub., Series A, 5.375%, 8/01/39 ............................................. 1,500,000 1,500,495
first sub., Series A, 5.50%, 8/01/42 .............................................. 4,000,000 3,993,760
first sub., Series A, 6.00%, 8/01/42 .............................................. 19,850,000 20,763,298
Series A, 5.25%, 8/01/57 .......................................................... 15,000,000 14,921,250
--------------
479,841,519
--------------
U.S. VIRGIN ISLANDS 10.9%
Virgin Islands HFA, SFR, Refunding, Series A, GNMA Secured,
6.45%, 3/01/16 .................................................................... 75,000 75,110
6.50%, 3/01/25 .................................................................... 235,000 235,470
Virgin Islands PFAR,
Gross Receipts Taxes Loan Note, Radian Insured, 5.00%, 10/01/26 ................... 5,000,000 5,003,850
Gross Receipts Taxes Loan Note, Radian Insured, 5.00%, 10/01/33 ................... 9,220,000 8,684,226
Gross Receipts Taxes Loan Note, Refunding, ACA Insured, 5.00%, 10/01/31 ........... 2,500,000 2,404,150
Gross Receipts Taxes Loan Note, Refunding, BHAC Insured, 5.00%, 10/01/28 .......... 3,695,000 3,970,832
senior lien, Capital Projects, Series A-1, 5.00%, 10/01/29 ........................ 1,000,000 975,570
senior lien, Capital Projects, Series A-1, 5.00%, 10/01/39 ........................ 2,000,000 1,837,800
Virgin Islands Matching Fund Loan Note, Diageo Project, Series A, 6.75%, 10/01/37 . 7,000,000 7,488,320
Virgin Islands Matching Fund Loan Note, senior lien, Series A, 5.25%, 10/01/24 .... 2,000,000 2,034,040
Virgin Islands Matching Fund Loan Note, Series A, 6.00%, 10/01/39 ................. 3,250,000 3,280,420
Virgin Islands Port Authority Marine Revenue, Series A, FSA Insured,
5.25%, 9/01/18 .................................................................... 3,930,000 3,968,160
5.00%, 9/01/23 .................................................................... 10,000,000 9,722,700
134 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN DOUBLE TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
U.S. VIRGIN ISLANDS (CONTINUED)
Virgin Islands Water and Power Authority Electric System Revenue,
Refunding, 5.30%, 7/01/18 ......................................................... $ 4,175,000 $ 4,187,274
Refunding, 5.30%, 7/01/21 ......................................................... 1,000,000 1,001,990
Series A, 5.00%, 7/01/31 .......................................................... 3,000,000 2,794,980
Virgin Islands Water and Power Authority Water System Revenue, Refunding,
5.25%, 7/01/12 .................................................................... 4,000,000 4,031,120
5.50%, 7/01/17 .................................................................... 4,000,000 4,016,560
--------------
65,712,572
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $582,488,609) .............. 584,240,389
--------------
SHORT TERM INVESTMENTS (COST $4,000,000) 0.7%
MUNICIPAL BONDS 0.7%
U.S. TERRITORIES 0.7%
PUERTO RICO 0.7%
(a) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... 4,000,000 4,000,000
--------------
TOTAL INVESTMENTS (COST $586,488,609) 97.9% .......................................... 588,240,389
OTHER ASSETS, LESS LIABILITIES 2.1% .................................................. 12,415,973
--------------
NET ASSETS 100.0% .................................................................... $ 600,656,362
==============
See Abbreviations on page 263.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 135
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 10.99 $ 11.04 $ 11.47 $ 11.42 $ 11.51
---------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ..................... 0.43 0.43 0.42 0.42 0.42
Net realized and unrealized gains (losses) ... 0.61 (0.05) (0.43) 0.05 (0.10)
---------- -------- -------- -------- --------
Total from investment operations ................ 1.04 0.38 (0.01) 0.47 0.32
---------- -------- -------- -------- --------
Less distributions from net investment income ... (0.44) (0.43) (0.42) (0.42) (0.41)
---------- -------- -------- -------- --------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
---------- -------- -------- -------- --------
Net asset value, end of year .................... $ 11.59 $ 10.99 $ 11.04 $ 11.47 $ 11.42
========== ======== ======== ======== ========
Total return(f) ................................. 9.61% 3.48% (0.11)% 4.22% 2.83%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.67% 0.68% 0.71% 0.69% 0.69%
Net investment income ........................... 3.76% 3.91% 3.67% 3.68% 3.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $1,390,805 $873,648 $699,833 $611,291 $540,348
Portfolio turnover rate ......................... 3.68% 13.05% 17.10% 8.94% 12.62%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
136 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.01 $ 11.06 $ 11.49 $ 11.44 $ 11.53
-------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ..................... 0.36 0.37 0.35 0.36 0.35
Net realized and unrealized gains (losses) ... 0.61 (0.05) (0.42) 0.05 (0.09)
-------- ------- ------- ------- -------
Total from investment operations ................ 0.97 0.32 (0.07) 0.41 0.26
-------- ------- ------- ------- -------
Less distributions from net investment income ... (0.37) (0.37) (0.36) (0.36) (0.35)
-------- ------- ------- ------- -------
Redemption fees(d) .............................. -- --(e) --(e) --(e) --(e)
-------- ------- ------- ------- -------
Net asset value, end of year .................... $ 11.61 $ 11.01 $ 11.06 $ 11.49 $ 11.44
======== ======= ======= ======= =======
Total return(f) ................................. 8.98% 2.90% (0.66)% 3.65% 2.27%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.22% 1.23% 1.26% 1.24% 1.24%
Net investment income ........................... 3.21% 3.36% 3.12% 3.13% 3.09%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $257,249 $91,164 $34,763 $28,510 $30,178
Portfolio turnover rate ......................... 3.68% 13.05% 17.10% 8.94% 12.62%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 137
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
------------------
ADVISOR CLASS 2010 2009(a)
- ------------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.00 $10.58
-------- ------
Income from investment operations(b):
Net investment income(c) ..................... 0.44 0.11
Net realized and unrealized gains (losses) ... 0.61 0.42
-------- ------
Total from investment operations ................ 1.05 0.53
-------- ------
Less distributions from net investment income ... (0.45) (0.11)
-------- ------
Net asset value, end of year .................... $ 11.60 $11.00
======== ======
Total return(d) ................................. 9.70% 5.00%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ........................................ 0.57% 0.58%
Net investment income ........................... 3.86% 4.01%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $144,745 $5,769
Portfolio turnover rate ......................... 3.68% 13.05%
(a) For the period December 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
138 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS 96.7%
ALABAMA 3.0%
Alabama Water Pollution Control Authority Revenue, Revolving Fund Loan, Refunding,
Series B, AMBAC Insured,
4.625%, 8/15/13 ................................................................... $ 5,900,000 $ 6,073,401
4.125%, 2/15/14 ................................................................... 3,000,000 2,827,800
East Alabama Health Care Authority Health Care Facilities Revenue,
Mandatory Put 9/01/18, Series A, 5.25%, 9/01/36 ................................... 10,000,000 10,074,900
Mandatory Put 9/01/18, Series B, 5.50%, 9/01/33 ................................... 13,500,000 13,990,860
Tax Anticipation Bond, Series A, NATL Insured, 4.50%, 9/01/13 ..................... 1,925,000 1,952,797
Tax Anticipation Bond, Series A, NATL Insured, 4.625%, 9/01/14 .................... 2,010,000 2,035,306
Tax Anticipation Bond, Series A, NATL Insured, 4.50%, 9/01/15 ..................... 2,100,000 2,111,886
Huntsville Health Care Authority Revenue, Series A, NATL Insured,
5.00%, 6/01/17 .................................................................... 2,900,000 3,041,404
Pre-Refunded, 4.80%, 6/01/13 ...................................................... 2,400,000 2,636,856
Jefferson County GO, Capital Improvement wts., Series A, NATL Insured, 5.00%,
4/01/17 ........................................................................... 2,195,000 1,563,806
Jefferson County Limited Obligation School wts. Revenue, Series A, 5.25%, 1/01/16 .... 2,000,000 1,860,940
Sylacauga GO, wts., AMBAC Insured, Pre-Refunded, 5.50%, 6/01/12 ...................... 600,000 619,668
University of Alabama General Revenue, Series A, NATL Insured, 5.00%, 7/01/15 ........ 4,070,000 4,532,514
--------------
53,322,138
--------------
ALASKA 0.2%
Matanuska-Susitna Borough Lease Revenue, Goose Creek Correctional Center,
Assured Guaranty, 5.00%, 9/01/19 .................................................. 3,650,000 4,161,803
--------------
ARIZONA 6.8%
Arizona Health Facilities Authority Revenue,
Banner Health, Series D, 5.50%, 1/01/22 ........................................... 5,000,000 5,329,900
Banner Health, Series D, 5.00%, 1/01/23 ........................................... 5,000,000 5,129,900
Series A, 5.00%, 1/01/22 .......................................................... 8,000,000 8,241,920
Arizona School Facilities Board COP, 5.25%, 9/01/19 .................................. 10,000,000 10,953,000
Arizona School Facilities Board Revenue, Series B, NATL Insured, 4.00%, 9/01/13 ...... 5,000,000 5,318,450
Arizona State Board of Regents Arizona State University System Revenue, Series C,
5.75%,
7/01/20 ........................................................................... 500,000 591,335
7/01/21 ........................................................................... 500,000 587,345
Arizona State COP, Department Administration, Series A, FSA Insured,
5.00%, 10/01/19 ................................................................... 5,650,000 6,156,749
5.25%, 10/01/21 ................................................................... 10,000,000 10,878,200
5.25%, 10/01/22 ................................................................... 40,910,000 44,166,845
Arizona State University COP, Research Infrastructure Projects, AMBAC Insured, 5.25%,
9/01/16 ........................................................................... 2,505,000 2,699,889
Glendale IDAR, John C. Lincoln Health, Refunding, Series B, 5.00%, 12/01/18 .......... 5,605,000 5,553,714
Maricopa County GO, School District No. 97, Deer Valley School Improvement, Series A,
FGIC Insured, 4.75%, 7/01/12 ...................................................... 4,000,000 4,300,040
Maricopa County Hospital Revenue, Sun Health Corp., Pre-Refunded, 5.00%, 4/01/18 ..... 2,000,000 2,333,540
Mesa GO, Refunding, Series A, FGIC Insured, 4.20%, 7/01/16 ........................... 715,000 738,852
Scottsdale IDA Hospital Revenue, Scottsdale Healthcare, Refunding, Series A, 5.00%,
9/01/21 ........................................................................... 4,000,000 3,928,040
Annual Report | 139
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Tempe Arizona IDA Lease Revenue, State University Foundation, AMBAC Insured, 4.00%,
7/01/15 ........................................................................... $ 1,000,000 $ 1,029,490
7/01/16 ........................................................................... 1,000,000 1,015,540
University Medical Center Corp. Hospital Revenue, 6.00%, 7/01/24 ..................... 2,000,000 2,169,220
--------------
121,121,969
--------------
ARKANSAS 0.3%
Arkansas State Development Finance Authority Revenue, State Agencies Facilities,
Corrections, Series B, FSA Insured, 5.00%,
11/01/17 .......................................................................... 1,955,000 2,148,565
11/01/19 .......................................................................... 1,065,000 1,149,188
University of Arkansas University Revenues, Student Fee University of Arkansas at Fort
Smith, FSA Insured, 4.75%, 12/01/15 ............................................... 2,295,000 2,389,324
--------------
5,687,077
--------------
CALIFORNIA 14.3%
California Health Facilities Financing Authority Revenue,
Catholic Healthcare West, Series L, 5.125%, 7/01/22 ............................... 10,000,000 10,393,300
Providence Health and Services, Series C, 6.00%, 10/01/18 ......................... 500,000 581,850
Scripps Health, Series A, 5.00%, 10/01/21 ......................................... 5,000,000 5,234,100
California State Department of Water Resources Power Supply Revenue, Series A,
Pre-Refunded, 5.125%, 5/01/18 ..................................................... 3,000,000 3,317,880
California State GO,
5.50%, 4/01/21 .................................................................... 20,000,000 21,507,200
Refunding, 5.00%, 2/01/17 ......................................................... 3,000,000 3,161,190
Refunding, 5.00%, 8/01/21 ......................................................... 20,000,000 20,611,400
Various Purpose, 5.25%, 11/01/17 .................................................. 10,000,000 10,749,000
Various Purpose, XLCA Insured, 5.00%, 11/01/22 .................................... 4,805,000 4,927,624
California State Public Works Board Lease Revenue, Various Capital Projects,
Series G, Sub Series G-1, 5.25%, 10/01/18 ......................................... 5,605,000 5,848,481
Series G, Sub Series G-1, 5.25%, 10/01/19 ......................................... 10,000,000 10,365,200
Series G, Sub Series G-1, 5.00%, 10/01/21 ......................................... 15,055,000 15,134,039
Series I, 5.00%, 11/01/18 ......................................................... 4,000,000 4,104,360
Series I, 5.25%, 11/01/20 ......................................................... 5,000,000 5,160,250
California Statewide CDA Revenue, Enloe Medical Center, Series A, California Mortgage
Insured,
5.25%, 8/15/19 .................................................................... 1,990,000 2,105,360
5.375%, 8/15/20 ................................................................... 1,650,000 1,741,014
Clark County Airport Revenue, System, sub. lien, Series C, FSA Insured, 5.00%,
7/01/22 ........................................................................... 5,000,000 5,289,950
7/01/23 ........................................................................... 15,000,000 15,763,650
El Dorado Irrigation District COP, Refunding, Series A, Assured Guaranty,
5.00%, 8/01/22 .................................................................... 2,610,000 2,817,182
5.25%, 8/01/23 .................................................................... 2,860,000 3,119,230
Los Angeles Department of Water and Power Revenue, Refunding, Series B, 5.25%,
7/01/24 ........................................................................... 17,000,000 19,233,630
Los Angeles Department of Water and Power Waterworks Revenue, Refunding, Series B,
NATL Insured, 4.25%, 7/01/17 ...................................................... 4,000,000 4,199,840
140 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Los Angeles Municipal Improvement Corp. Lease Revenue,
Capital Equipment, Refunding, Series A, Assured Guaranty, 5.00%, 4/01/17 .......... $ 3,215,000 $ 3,606,973
Capital Equipment, Refunding, Series A, Assured Guaranty, 5.25%, 4/01/19 .......... 3,180,000 3,604,212
Refunding, Assured Guaranty, 5.25%, 4/01/18 ....................................... 2,495,000 2,831,775
Los Angeles USD, GO,
Election of 2004, Series F, FGIC Insured, 5.00%, 7/01/24 .......................... 6,700,000 7,059,455
Series A, NATL Insured, 4.25%, 7/01/16 ............................................ 2,500,000 2,630,600
Series F, 5.00%, 7/01/22 .......................................................... 5,675,000 6,214,693
Orange County Airport Revenue, 5.00%,
7/01/20 ........................................................................... 3,465,000 3,837,626
7/01/21 ........................................................................... 7,545,000 8,293,690
San Francisco City and County COP, Multiple Capital Improvement Projects, Series A,
5.00%, 4/01/25 .................................................................... 4,000,000 4,138,520
5.25%, 4/01/26 .................................................................... 2,500,000 2,613,725
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue, Capital
Appreciation, Refunding, Series A, 5.65%, 1/15/17 ................................. 3,000,000 3,040,080
San Jose RDA Tax Allocation, Merged Area, Refunding, Series D, Assured Guaranty,
5.00%,
8/01/21 ........................................................................... 10,000,000 10,517,600
8/01/22 ........................................................................... 10,000,000 10,452,800
Tulare Joint UHSD, GO, Election of 2004, Series A, NATL Insured, 5.00%, 8/01/16 ...... 2,870,000 3,106,000
Tuolumne Wind Project Authority Revenue, Tuolumne Co. Project, Series A, 5.25%,
1/01/23 ........................................................................... 8,000,000 8,504,560
Val Verde USD, COP, FGIC Insured, ETM, 5.00%, 1/01/15 ................................ 1,000,000 1,158,850
--------------
256,976,889
--------------
COLORADO 2.4%
Adams County PCR, Public Service Co. of Colorado Project, Refunding, Series A,
NATL Insured, 4.375%, 9/01/17 ..................................................... 17,000,000 16,138,610
Denver City and County COP, Series B, AMBAC Insured, Pre-Refunded, 5.75%, 12/01/16 ... 3,000,000 3,153,750
Denver City and County Excise Tax Revenue, Refunding, Series A, FSA Insured, 5.00%,
9/01/20 ........................................................................... 10,090,000 11,148,239
E-470 Public Highway Authority Revenue, Series D1, NATL Insured, 5.50%, 9/01/24 ...... 8,000,000 7,968,400
Public Authority for Colorado Energy Natural Gas Purchase Revenue, 5.75%, 11/15/18 ... 4,815,000 5,018,530
--------------
43,427,529
--------------
FLORIDA 7.2%
Broward County School Board COP, Series A, FSA Insured, 5.00%, 7/01/16 ............... 5,915,000 6,429,428
Citizens Property Insurance Corp. Revenue, Senior Secured, High-Risk Account, Series
A-1, 6.00%, 6/01/17 ............................................................... 5,000,000 5,481,550
Collier County Capital Improvement Revenue, NATL Insured, 4.60%, 10/01/13 ............ 1,000,000 1,054,680
Collier County School Board COP, FSA Insured, 5.00%, 2/15/22 ......................... 5,075,000 5,317,433
Hillsborough County Capacity Assessment Special Assessment Revenue, Series 2006,
FGIC Insured, 5.00%, 3/01/19 ...................................................... 5,000,000 4,996,400
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Series A, 5.65%, 5/15/18 ... 6,500,000 7,054,840
Marion County Public Improvement Revenue, Refunding, NATL Insured,
4.20%, 12/01/12 ................................................................... 1,400,000 1,482,964
4.30%, 12/01/13 ................................................................... 1,800,000 1,901,070
Miami-Dade County Aviation Revenue, Miami International Airport, Refunding,
Series A-1,
4.25%, 10/01/18 ................................................................... 6,920,000 7,004,216
4.50%, 10/01/19 ................................................................... 4,805,000 4,894,757
Annual Report | 141
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Miami-Dade County Aviation Revenue, Miami International Airport, Refunding,
Series A-1, (continued)
5.00%, 10/01/21 ................................................................... $ 5,000,000 $ 5,174,300
5.00%, 10/01/22 ................................................................... 5,890,000 6,040,666
5.25%, 10/01/23 ................................................................... 4,875,000 5,067,416
Miami-Dade County School Board COP, Series A, Assured Guaranty, 5.00%, 2/01/23 ....... 12,115,000 12,654,723
Orange County School Board COP, Series B, FGIC Insured, 5.00%,
8/01/18 ........................................................................... 5,150,000 5,408,788
8/01/19 ........................................................................... 5,985,000 6,190,226
Orlando Waste Water Services Revenue, Refunding, Series A, AMBAC Insured, 4.00%,
10/01/14 .......................................................................... 5,000,000 5,229,400
Palm Beach County School Board COP, Series E, NATL Insured, 5.00%, 8/01/21 ........... 6,060,000 6,326,519
Pasco County Solid Waste Disposal and Resource Recovery System Revenue, Series D,
FSA Insured, 5.00%,
10/01/22 .......................................................................... 9,490,000 10,105,521
10/01/24 .......................................................................... 10,455,000 11,066,618
South Miami Health Facilities Authority Hospital Revenue, Baptist Health South Florida
Group,
5.00%, 8/15/19 .................................................................... 5,000,000 5,279,700
Tampa Bay Water Utility System Revenue,
FGIC Insured, Pre-Refunded, 5.75%, 10/01/15 ....................................... 1,000,000 1,081,410
Series B, FGIC Insured, Pre-Refunded, 4.75%, 10/01/16 ............................. 3,400,000 3,623,448
--------------
128,866,073
--------------
GEORGIA 2.1%
Atlanta Tax Allocation, Atlantic Station Project, Refunding, Assured Guaranty, 5.25%,
12/01/20 .......................................................................... 1,500,000 1,567,785
12/01/21 .......................................................................... 1,000,000 1,038,570
Atlanta Water and Wastewater Revenue,
Refunding, Series B, FSA Insured, 5.00%, 11/01/20 ................................. 8,575,000 9,451,193
Series B, FSA Insured, 5.00%, 11/01/21 ............................................ 9,230,000 10,118,203
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.30%,
12/01/13 .......................................................................... 1,020,000 1,018,133
Municipal Electric Authority Revenue, Series B, 5.00%, 1/01/20 ....................... 10,000,000 11,202,500
South Georgia Governmental Services Authority Revenue, FGIC Insured, 5.00%, 1/01/16 .. 2,650,000 2,891,548
--------------
37,287,932
--------------
ILLINOIS 2.9%
Chicago GO, Projects, Refunding, Series A, 5.00%, 1/01/22 ............................ 10,935,000 12,125,275
Chicago O'Hare International Airport Revenue, Refunding, Series B, FSA Insured, 5.00%,
1/01/20 ........................................................................... 7,850,000 8,504,690
Illinois Finance Authority Revenue, Rush University Medical Certificates Billing
Group, Series A, 6.75%, 11/01/24 .................................................. 5,000,000 5,545,500
(a) Illinois State GO, Refunding, FSA Insured, 5.00%, 1/01/19 ............................ 12,000,000 13,212,600
Southwestern Illinois Development Authority Revenue, Local Government Program,
Edwardsville Community, FSA Insured, 5.00%, 12/01/19 .............................. 11,005,000 12,006,565
--------------
51,394,630
--------------
142 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY 0.6%
(a) Kentucky Asset/Liability Commission Agency Fund Revenue, Project Notes, Federal
Highway Trust, First Series A, 5.00%, 9/01/20 ..................................... $ 6,000,000 $ 6,864,180
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement,
5.70%, 10/01/10 ................................................................... 1,000,000 1,000,490
5.75%, 10/01/11 ................................................................... 1,500,000 1,500,195
Kentucky State Turnpike Authority Economic Development Road Revenue, 5.00%, 7/01/22 .. 1,000,000 1,122,680
--------------
10,487,545
--------------
LOUISIANA 2.9%
Jefferson Sales Tax District Special Sales Tax Revenue, Refunding, Series B, Assured
Guaranty,
5.00%, 12/01/21 ................................................................... 15,000,000 16,569,450
Louisiana State Citizens Property Insurance Corp. Assessment Revenue, Series B,
AMBAC Insured, 5.00%, 6/01/19 ..................................................... 20,000,000 20,702,800
New Orleans Aviation Board Revenue, Restructuring GARB, Refunding, Series A-1,
Assured Guaranty, 6.00%, 1/01/23 .................................................. 2,000,000 2,245,860
New Orleans GO, Radian Insured, 5.00%, 12/01/25 ...................................... 7,915,000 7,939,616
St. John the Baptist Parish EDR, USX Corp. Project, Refunding, 5.35%, 12/01/13 ....... 4,000,000 4,019,160
--------------
51,476,886
--------------
MARYLAND 0.7%
Maryland State EDC Student Housing Revenue, University of Maryland College Park
Projects, Refunding, CIFG Insured, 5.00%,
6/01/19 ........................................................................... 1,445,000 1,455,707
6/01/20 ........................................................................... 1,000,000 1,001,520
Maryland State Health and Higher Educational Facilities Authority Revenue,
Peninsula Regional Medical Center, 5.00%, 7/01/18 ................................. 1,600,000 1,685,840
Peninsula Regional Medical Center, 5.00%, 7/01/19 ................................. 1,430,000 1,492,906
Peninsula Regional Medical Center, 5.00%, 7/01/20 ................................. 1,000,000 1,037,800
Washington County Hospital, 5.25%, 1/01/22 ........................................ 1,000,000 977,370
Washington County Hospital, 5.25%, 1/01/23 ........................................ 1,250,000 1,214,688
Western Maryland Health, Refunding, Series A, NATL Insured, 5.00%, 1/01/19 ........ 3,020,000 3,127,391
--------------
11,993,222
--------------
MASSACHUSETTS 0.2%
Massachusetts State Health and Educational Facilities Authority Revenue, Caregroup,
Series B-2, NATL Insured, 5.375%, 2/01/26 ......................................... 1,720,000 1,733,227
Massachusetts State Industrial Finance Agency Revenue, D'Youville Senior Care, 5.50%,
10/01/12 .......................................................................... 1,105,000 1,106,978
--------------
2,840,205
--------------
MICHIGAN 6.7%
Detroit GO,
Series A-1, NATL Insured, 5.00%, 4/01/19 .......................................... 5,000,000 4,302,850
Series B, FSA Insured, 5.00%, 4/01/18 ............................................. 2,635,000 2,688,833
Series B, FSA Insured, 5.00%, 4/01/19 ............................................. 2,515,000 2,549,078
Annual Report | 143
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Michigan Municipal Bond Authority Revenue,
Local Government Loan Program, Group A, Refunding, Series B, AMBAC Insured, 5.00%,
12/01/17 ....................................................................... $ 1,000,000 $ 992,960
Local Government Loan Program, Group A, Refunding, Series B, AMBAC Insured, 5.00%,
12/01/18 ....................................................................... 1,000,000 981,190
School District City of Detroit, FSA Insured, 5.00%, 6/01/17 ......................... 10,000,000 10,692,700
Michigan State GO, Refunding, Series A, 5.25%, 11/01/22 .............................. 10,000,000 10,868,700
Michigan State HDA, SFMR, Series A, 5.00%, 12/01/19 .................................. 10,000,000 10,297,800
Michigan State Hospital Finance Authority Revenue, Trinity Health Credit Group,
Mandatory Put 12/01/17, Refunding, Series A, 6.00%, 12/01/34 ...................... 10,000,000 11,384,200
Michigan State Revenue, Grant Anticipation Bonds, FSA Insured, 5.25%, 9/15/20 ........ 7,500,000 8,186,025
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co. Exempt Facilities Project, Refunding, Series ET-2, 5.50%, 8/01/29 7,000,000 7,478,170
Michigan House Republic Facilities, Series A, Assured Guaranty, 5.25%, 10/15/22 ... 4,000,000 4,333,920
Michigan House Republic Facilities, Series A, Assured Guaranty, 5.25%, 10/15/23 ... 1,000,000 1,078,960
Michigan Tobacco Settlement Finance Authority Revenue, Tobacco Settlement Asset,
Senior Series A, 5.25%, 6/01/22 ................................................... 10,000,000 9,257,000
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont Hospital,
Refunding, 6.25%, 9/01/14 ......................................................... 3,000,000 3,324,570
Saginaw-Midland Municipal Water Supply Corp. Revenue GO, Water Supply System,
Refunding, NATL Insured, 4.25%, 9/01/13 ........................................... 1,245,000 1,340,716
South Lyon Community Schools GO, Refunding, FGIC Insured, 5.00%, 5/01/16 ............. 3,040,000 3,484,448
Wayne State University Revenues, Refunding, Series A, 5.00%,
11/15/18 .......................................................................... 4,265,000 4,812,669
11/15/19 .......................................................................... 5,210,000 5,898,241
11/15/20 .......................................................................... 5,255,000 5,879,977
Wayne-Westland Community Schools GO, Refunding,
4.50%, 5/01/12 .................................................................... 1,035,000 1,106,943
4.625%, 5/01/13 ................................................................... 1,095,000 1,200,952
FSA Insured, 5.00%, 5/01/16 ....................................................... 2,825,000 3,103,771
Wyandotte Electric Revenue, Refunding, Assured Guaranty, 5.00%, 10/01/17 ............. 3,955,000 4,360,625
--------------
119,605,298
--------------
MINNESOTA 1.7%
Minneapolis GO, Various Purpose,
5.00%, 12/01/17 ................................................................... 2,050,000 2,188,826
Pre-Refunded, 5.00%, 12/01/17 ..................................................... 950,000 1,023,977
Minneapolis Special School District No. 001 COP, Refunding, Series B, FGIC Insured,
4.625%, 2/01/17 ................................................................... 1,000,000 1,019,730
Minnesota Agricultural and Economic Development Board Revenue, Health Care Facility,
Essentia, Series C-1, Assured Guaranty,
5.00%, 2/15/21 .................................................................... 4,165,000 4,482,789
5.00%, 2/15/22 .................................................................... 5,570,000 5,947,924
5.25%, 2/15/23 .................................................................... 5,000,000 5,397,950
Mounds View ISD No. 621 GO, NATL Insured, 5.00%,
2/01/14 ........................................................................... 2,340,000 2,500,126
2/01/15 ........................................................................... 2,425,000 2,590,943
2/01/16 ........................................................................... 2,460,000 2,628,338
144 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Ramsey County GO, Capital Improvement Plan, Series A, 4.75%, 2/01/15 ................. $ 2,215,000 $ 2,346,217
--------------
30,126,820
--------------
MISSOURI 1.4%
Hannibal IDA Health Facilities Revenue, Refunding, 5.00%, 3/01/19 .................... 1,675,000 1,625,437
Jackson County Reorganized School District No. 7 Lee's Summit GO, School Building,
NATL Insured, 5.00%, 3/01/16 ...................................................... 2,000,000 2,230,060
Missouri Joint Municipal Electric Utility Commission Power Project Revenue, Plum Point
Project, NATL Insured, 5.00%,
1/01/17 ........................................................................... 1,500,000 1,540,305
1/01/19 ........................................................................... 1,000,000 1,015,070
Southeast Missouri State University System Facilities Revenue, Refunding and
Improvement, NATL Insured,
4.375%, 4/01/12 ................................................................... 335,000 346,537
4.50%, 4/01/14 .................................................................... 545,000 560,985
4.60%, 4/01/15 .................................................................... 1,360,000 1,392,055
4.70%, 4/01/16 .................................................................... 1,165,000 1,188,568
Springfield Public Utility Revenue, FGIC Insured, 4.50%, 8/01/21 ..................... 15,245,000 16,023,867
--------------
25,922,884
--------------
NEVADA 1.1%
Clark County School District GO, Refunding, Series A, NATL Insured, 4.50%, 6/15/19 ... 5,000,000 5,368,550
Clark County Water Reclamation District GO,
Series A, 5.25%, 7/01/21 .......................................................... 3,435,000 3,786,023
Series A, 5.25%, 7/01/22 .......................................................... 3,120,000 3,405,729
Series B, 5.25%, 7/01/21 .......................................................... 3,430,000 3,780,512
Series B, 5.25%, 7/01/22 .......................................................... 3,615,000 3,946,062
--------------
20,286,876
--------------
NEW JERSEY 10.3%
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding, Series 1,
5.90%, 1/01/15 .................................................................... 735,000 709,540
New Jersey State COP, Equipment Lease Purchase, Series A,
5.25%, 6/15/22 .................................................................... 10,000,000 10,712,300
5.25%, 6/15/23 .................................................................... 17,945,000 19,237,399
AMBAC Insured, 5.00%, 6/15/17 ..................................................... 5,000,000 5,361,500
New Jersey State Educational Facilities Authority Revenue, Kean University, Refunding,
Series A, 5.00%, 9/01/21 .......................................................... 6,000,000 6,470,100
New Jersey State Higher Education Assistance Authority Student Loan Revenue,
Refunding, Series 1A, 5.00%, 12/01/17 ............................................. 3,250,000 3,548,057
Refunding, Series 1A, 5.25%, 12/01/19 ............................................. 2,500,000 2,745,750
Refunding, Series 1A, 4.75%, 12/01/21 ............................................. 7,500,000 7,748,400
Refunding, Series 1A, 4.75%, 12/01/22 ............................................. 10,000,000 10,226,500
Series A, 5.375%, 6/01/24 ......................................................... 15,000,000 15,808,500
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Refunding, Series A, 5.25%, 12/15/21 .............................................. 10,000,000 11,305,500
Refunding, Series A, 5.50%, 12/15/22 .............................................. 25,000,000 28,668,750
Refunding, Series A, Assured Guaranty, 5.50%, 12/15/22 ............................ 11,465,000 13,209,514
Annual Report | 145
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
New Jersey State Transportation Trust Fund Authority Revenue, Transportation
System, (continued)
Refunding, Series C, FSA Insured, 4.50%, 12/15/10 .................................... $ 10,000,000 $ 10,327,500
Series D, FSA Insured, 5.00%, 6/15/19 ............................................. 5,630,000 6,061,990
New Jersey State Turnpike Authority Turnpike Revenue, Series H, 5.00%,
1/01/20 ........................................................................... 10,000,000 11,178,500
1/01/21 ........................................................................... 20,000,000 22,180,400
--------------
185,500,200
--------------
NEW YORK 10.4%
Erie County IDA School Facility Revenue, City School District Buffalo Project, Series
A, 5.00%, 5/01/22 ................................................................. 14,840,000 16,194,150
FSA Insured, 5.75%, 5/01/22 ....................................................... 5,000,000 5,712,300
Liverpool Central School District GO, Refunding, FSA Insured, 5.00%, 7/15/14 ......... 1,560,000 1,688,731
Long Island Power Authority Electric System Revenue, General,
Refunding, Series A, FGIC Insured, 5.00%, 12/01/19 ................................ 7,000,000 7,543,340
Series E, FGIC Insured, 5.00%, 12/01/18 ........................................... 8,500,000 9,275,625
MTA Commuter Facilities Revenue, Services Contract, Series R, ETM, 5.50%, 7/01/11 .... 2,215,000 2,248,159
MTA Revenue, Transportation,
Refunding, Series F, 5.00%, 11/15/15 .............................................. 1,250,000 1,398,800
Series A, FSA Insured, 5.00%, 11/15/20 ............................................ 5,000,000 5,449,300
Series A, FSA Insured, 5.50%, 11/15/20 ............................................ 4,365,000 5,095,832
Series C, 5.00%, 11/15/16 ......................................................... 1,150,000 1,280,491
Series C, 5.75%, 11/15/18 ......................................................... 15,000,000 17,382,300
New York City GO,
Refunding, Series C, NATL Insured, 5.875%, 8/01/16 ................................ 5,000 5,148
Refunding, Series G, 5.00%, 8/01/21 ............................................... 7,000,000 7,627,550
Refunding, Series H, 5.00%, 8/01/17 ............................................... 4,330,000 4,715,110
Series C, NATL Insured, Pre-Refunded, 5.875%, 8/01/16 ............................. 1,245,000 1,286,558
Series D1, 5.00%, 12/01/21 ........................................................ 5,000,000 5,465,650
Series F, 4.75%, 1/15/16 .......................................................... 3,000,000 3,182,100
Series H, 5.00%, 8/01/16 .......................................................... 3,000,000 3,299,490
Series J, Sub Series J-1, FSA Insured, 5.00%, 6/01/20 ............................. 10,000,000 10,857,700
Series O, 5.00%, 6/01/19 .......................................................... 5,000,000 5,418,550
New York City Transitional Finance Authority Building Aid Revenue, Fiscal 2009,
Series S-3, 5.00%, 1/15/23 ........................................................ 5,000,000 5,393,150
Series S-4, 5.00%, 1/15/21 ........................................................ 4,665,000 5,101,224
New York City Transitional Finance Authority Revenue, Future Tax, Series C,
4.50%, 2/15/13 .................................................................... 3,725,000 3,979,119
Pre-Refunded, 4.50%, 2/15/13 ...................................................... 775,000 834,768
New York State Dormitory Authority Revenue, Mortgage, St. Barnabas, Series B, FHA
Insured, 4.25%, 8/01/14 ........................................................... 2,355,000 2,468,864
New York State Dormitory Authority Revenues,
Non-State Supported Debt, School Districts Bond Financing Program, Series A,
Assured Guaranty, 5.00%, 10/01/24 .............................................. 5,000,000 5,398,550
State Supported Debt, City University System Consolidated, Fifth General, Series A,
NATL Insured, 5.50%, 7/01/23 ................................................... 7,915,000 9,185,278
State Supported Debt, Mental Health, Refunding, Series D, NATL Insured, 5.00%,
8/15/17 ........................................................................ 190,000 190,095
146 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenues, (continued)
State Supported Debt, Mental Health Services Facilities Improvement, Refunding,
5.50%, 2/15/18 ................................................................. $ 10,000,000 $ 11,534,800
State Supported Debt, Mental Health Services Facilities Improvement, Refunding,
5.00%, 2/15/19 ................................................................. 3,245,000 3,608,278
New York State Energy Research and Development Authority PCR, New York State Electric
and Gas Corp. Project, NATL Insured, 4.10%, 3/15/15 ............................... 7,000,000 7,046,900
New York State Thruway Authority General Revenue, Refunding, Series H, FGIC Insured,
5.00%, 1/01/22 .................................................................... 10,000,000 10,763,300
Rockland County Solid Waste Management Authority Revenue, Refunding, Series A,
Assured Guaranty, 5.375%, 12/15/18 ................................................ 5,365,000 5,994,958
--------------
186,626,168
--------------
NORTH CAROLINA 2.8%
Asheville Water System Revenue, FSA Insured, Pre-Refunded, 5.25%,
8/01/15 ........................................................................... 915,000 978,053
8/01/17 ........................................................................... 1,020,000 1,090,288
8/01/19 ........................................................................... 1,030,000 1,100,977
Charlotte Water and Sewer System Revenue, 5.00%, 6/01/16 ............................. 4,000,000 4,195,840
Charlotte-Mecklenburg Hospital Authority Health Care System Revenue, Carolinas
HealthCare System, Series A, FSA Insured, 5.00%, 1/15/22 .......................... 10,000,000 10,631,800
North Carolina Eastern Municipal Power Agency Power System Revenue, Refunding,
Series A, Assured Guaranty, 5.25%, 1/01/19 ........................................ 15,000,000 16,577,550
Series C, Assured Guaranty, 6.00%, 1/01/19 ........................................ 2,500,000 2,800,175
North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue, Catawba
Electric, Refunding, Series A, 5.25%, 1/01/20 ..................................... 4,500,000 4,966,830
Oak Island Enterprise System Revenue, Assured Guaranty, 5.50%, 6/01/23 ............... 1,735,000 1,848,695
Wake County GO, Public Improvement, Pre-Refunded, 4.50%, 3/01/14 ..................... 6,400,000 6,878,208
--------------
51,068,416
--------------
OHIO 4.3%
Akron GO, Various Purpose, Refunding and Improvement, NATL Insured, 4.125%,
12/01/14 .......................................................................... 1,000,000 1,059,750
Allen County GO, Refunding, AMBAC Insured, 4.75%, 12/01/17 ........................... 2,180,000 2,271,429
American Municipal Power Inc. Revenue, Refunding, 5.25%,
2/15/20 ........................................................................... 6,000,000 6,570,480
2/15/21 ........................................................................... 11,500,000 12,535,805
Buckeye Tobacco Settlement Financing Authority Revenue, Asset-Backed, Senior Current
Interest Turbo Term Bond, Series A-2, 5.375%, 6/01/24 ............................. 4,505,000 4,249,792
Cleveland Municipal School District GO, FSA Insured, 5.00%,
12/01/14 .......................................................................... 1,915,000 2,162,610
12/01/15 .......................................................................... 1,510,000 1,670,694
12/01/16 .......................................................................... 1,400,000 1,527,078
Franklin County Health Care Facilities Revenue, Presbyterian Retirement Services,
Refunding,
5.40%, 7/01/10 .................................................................... 775,000 775,186
5.50%, 7/01/11 .................................................................... 500,000 500,040
Lake Local School District Wood County GO, NATL Insured,
5.20%, 12/01/17 ................................................................... 375,000 395,160
Pre-Refunded, 5.20%, 12/01/17 ..................................................... 2,190,000 2,389,837
Annual Report | 147
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Lakewood City School District GO, School Improvement, Refunding, FSA Insured, 4.50%,
12/01/22 .......................................................................... $ 2,900,000 $ 3,086,992
Mahoning County Sewer System Revenue, AMBAC Insured, 5.20%, 12/01/14 ................. 1,360,000 1,405,152
Mason City School District GO, School Improvement, Refunding, FGIC Insured, 5.00%,
12/01/15 .......................................................................... 2,670,000 3,079,044
Montgomery County Revenue, Miami Valley Hospital, Mandatory Put 11/15/14, Refunding,
Series B, 5.25%, 11/15/39 ......................................................... 4,000,000 4,184,160
Nordonia Hills City School District GO, School Improvement, Refunding, FGIC Insured,
4.50%, 12/01/21 ................................................................... 2,360,000 2,494,756
University of Cincinnati General Receipts Revenue, Series C, Assured Guaranty, 5.00%,
6/01/21 ........................................................................... 11,810,000 12,994,897
6/01/22 ........................................................................... 11,675,000 12,766,612
Youngstown GO, AMBAC Insured, 6.125%, 12/01/15 ....................................... 1,275,000 1,374,221
--------------
77,493,695
--------------
OREGON 1.4%
Deschutes County Hospital Facilities Authority Hospital Revenue, Cascade Healthcare,
Refunding, 7.375%, 1/01/23 ........................................................ 2,000,000 2,319,980
Oregon State Department of Administrative Services COP, Series A, FGIC Insured, 5.00%,
11/01/19 .......................................................................... 2,340,000 2,573,087
Oregon State Department of Transportation Highway User Tax Revenue, senior lien,
Series A, 5.00%, 11/15/22 ......................................................... 5,840,000 6,607,084
Portland Sewer System Revenue, second lien, Series B, NATL Insured, 5.00%,
6/15/18 ........................................................................... 3,135,000 3,504,805
6/15/19 ........................................................................... 3,290,000 3,650,189
Salem Water and Sewer Revenue,
NATL Insured, 4.10%, 6/01/16 ...................................................... 1,035,000 1,076,090
Refunding, FSA Insured, 4.375%, 6/01/11 ........................................... 2,160,000 2,256,509
Refunding, FSA Insured, 4.50%, 6/01/12 ............................................ 2,250,000 2,421,180
--------------
24,408,924
--------------
PENNSYLVANIA 6.3%
Allegheny County Hospital Development Authority Revenue, University of Pittsburgh
Medical Center,
(a) Series A, 5.00%, 5/15/19 .......................................................... 9,000,000 9,715,320
(a) Series A, 5.00%, 5/15/20 .......................................................... 7,500,000 8,051,175
Series B, 5.00%, 6/15/18 .......................................................... 5,000,000 5,238,850
Allegheny County IDAR, Pollution Control, Refunding, Series A, AMBAC Insured, 4.35%,
12/01/13 .......................................................................... 5,000,000 5,179,700
Pennsylvania State Turnpike Commission Turnpike Revenue,
Refunding, Series C, Sub Series C-1, Assured Guaranty, 6.00%, 6/01/23 ............. 10,000,000 11,590,000
Series B, 5.00%, 12/01/19 ......................................................... 32,230,000 36,618,437
Philadelphia GO, Refunding, Series A, Assured Guaranty, 5.25%, 8/01/22 ............... 20,000,000 21,812,800
Philadelphia Municipal Authority Revenue, Lease, 6.00%, 4/01/22 ...................... 7,065,000 7,511,579
Philadelphia Water and Wastewater Revenue, Series A,
5.00%, 1/01/20 .................................................................... 1,210,000 1,292,679
5.25%, 1/01/21 .................................................................... 3,655,000 3,963,482
5.25%, 1/01/22 .................................................................... 2,330,000 2,512,322
--------------
113,486,344
--------------
148 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA 1.8%
Piedmont Municipal Power Agency Electric Revenue, Refunding, Series A-4, 5.00%,
1/01/20 ........................................................................... $ 17,000,000 $ 18,014,560
Rock Hill Utility System Revenue, Refunding and Improvement, Series A, FSA Insured,
4.00%, 1/01/14 .................................................................... 2,000,000 2,124,720
Scago Educational Facilities Corp. for Pickens School District Revenue, Pickens County
Project, FSA Insured, 5.00%, 12/01/18 ............................................. 5,000,000 5,393,850
South Carolina Jobs EDA Hospital Revenue, Improvement, Palmetto Health, Refunding,
5.375%, 8/01/22 ................................................................... 6,000,000 6,157,920
--------------
31,691,050
--------------
TEXAS 3.5%
Dallas County Utility and Reclamation District GO, Refunding,
Series A, AMBAC Insured, 5.15%, 2/15/21 ........................................... 3,025,000 3,094,031
Series B, AMBAC Insured, 5.15%, 2/15/21 ........................................... 8,025,000 8,208,130
Dallas Waterworks and Sewer System Revenue, Refunding, AMBAC Insured, 4.50%,
10/01/19 .......................................................................... 10,000,000 10,875,400
Dallas-Fort Worth International Airport Revenue, Joint, Refunding, Series A, 5.00%,
11/01/23 .......................................................................... 1,500,000 1,582,395
11/01/24 .......................................................................... 1,000,000 1,049,560
Harris County Hospital District Revenue, senior lien, Refunding, Series A, NATL
Insured, 5.00%, 2/15/22 ........................................................... 4,165,000 4,260,545
Houston Hotel Occupancy Tax and Special Revenue, Convention and Entertainment,
Series B, AMBAC Insured, 5.00%, 9/01/11 ........................................... 6,000,000 6,281,880
Laredo ISD Public Facility Corp. Lease Revenue, Series C, AMBAC Insured, 5.00%,
8/01/19 ........................................................................... 1,000,000 1,024,890
Port Corpus Christi Nueces County General Revenue, Union Pacific, Refunding, 5.35%,
11/01/10 .......................................................................... 2,500,000 2,515,400
Sabine River Authority PCR, Southwestern Electric Co., Refunding, NATL Insured, 4.95%,
3/01/18 ........................................................................... 15,000,000 14,776,500
Tyler Health Facilities Development Corp. Hospital Revenue, East Texas Medical Center,
Refunding and Improvement, Series A, 5.25%,
11/01/22 .......................................................................... 5,000,000 4,895,600
11/01/23 .......................................................................... 5,000,000 4,866,600
--------------
63,430,931
--------------
UTAH 0.1%
Salt Lake County College Revenue, Refunding, 5.00%, 10/01/19 ......................... 2,585,000 2,573,238
--------------
U.S. TERRITORIES 1.3%
GUAM 0.2%
Guam Government Limited Obligation Revenue, Section 30, Series A, 5.50%,
12/01/18 .......................................................................... 1,540,000 1,667,558
12/01/19 .......................................................................... 1,025,000 1,104,233
--------------
2,771,791
--------------
PUERTO RICO 1.1%
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Refunding, Series C, AMBAC Insured, 5.50%, 7/01/24 ................................ 10,000,000 10,228,500
Annual Report | 149
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Electric Power Authority Power Revenue, Refunding, Series SS, NATL
Insured, 5.00%, 7/01/24 ........................................................... $ 10,000,000 $ 10,195,900
--------------
20,424,400
--------------
TOTAL U.S. TERRITORIES ............................................................... 23,196,191
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,670,461,479) ............................................................. 1,734,460,933
--------------
SHORT TERM INVESTMENTS 3.8%
MUNICIPAL BONDS 3.8%
CONNECTICUT 0.1%
(b) Connecticut State Health and Educational Facilities Authority Revenue, Wesleyan
University, Series E, Daily VRDN and Put, 0.13%, 7/01/38 .......................... 2,400,000 2,400,000
--------------
MARYLAND 0.9%
(b) Maryland State EDC, EDR, U.S. Pharmacopeial, Refunding,
Series A, Daily VRDN and Put, 0.16%, 7/01/38 ...................................... 6,400,000 6,400,000
Series B, Daily VRDN and Put, 0.16%, 7/01/38 ...................................... 5,000,000 5,000,000
(b) Maryland State Health and Higher Educational Facilities Authority Revenue, Upper
Chesapeake Hospital, Refunding, Series A, Daily VRDN and Put, 0.16%, 1/01/43 ...... 4,390,000 4,390,000
--------------
15,790,000
--------------
MASSACHUSETTS 0.5%
(b) Massachusetts State Health and Educational Facilities Authority Revenue,
Baystate Medical Center, Series J-2, Daily VRDN and Put, 0.15%, 7/01/44 ........... 4,600,000 4,600,000
Stonehill College, Series K, Daily VRDN and Put, 0.14%, 7/01/37 ................... 4,800,000 4,800,000
--------------
9,400,000
--------------
MICHIGAN 0.6%
(b) Eastern Michigan University Revenues, General, Refunding, Series A, Daily VRDN and
Put, 0.15%, 3/01/49 ............................................................... 6,900,000 6,900,000
(b) Michigan Higher Education Facilities Authority Revenue, Limited Obligation,
University of Detroit, Refunding, Daily VRDN and Put, 0.17%, 11/01/36 ............. 3,300,000 3,300,000
--------------
10,200,000
--------------
MISSOURI 1.3%
(b) Missouri Development Finance Board Cultural Facilities Revenue, The Nelson Gallery
Foundation, Refunding, Series A, Daily VRDN and Put, 0.14%, 12/01/37 .............. 10,100,000 10,100,000
(b) Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, St. Louis University,
Refunding, Series A-1, Daily VRDN and Put, 0.12%, 10/01/35 ........................ 3,300,000 3,300,000
Refunding, Series B-1, Daily VRDN and Put, 0.12%, 10/01/35 ........................ 4,700,000 4,700,000
Series B, Daily VRDN and Put, 0.13%, 10/01/24 ..................................... 5,100,000 5,100,000
--------------
23,200,000
--------------
150 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL INTERMEDIATE-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
OHIO 0.3%
(b) Cuyahoga County Revenue, Cleveland Clinic Health System Obligated Group, Series B,
Sub Series B-1, Daily VRDN and Put, 0.12%, 1/01/39 ................................ $ 6,000,000 $ 6,000,000
--------------
OREGON 0.1%
(b) Medford Hospital Facilities Authority Revenue, Rogue Valley Manor Project, Daily
VRDN and Put, 0.17%, 8/15/37 ...................................................... 800,000 800,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $67,790,000) ...................................... 67,790,000
--------------
TOTAL INVESTMENTS (COST $1,738,251,479) 100.5% ....................................... 1,802,250,933
OTHER ASSETS, LESS LIABILITIES (0.5)% ................................................ (9,451,370)
--------------
NET ASSETS 100.0% .................................................................... $1,792,799,563
==============
See Abbreviations on page 263.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 151
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 10.11 $ 9.96 $ 9.93 $ 9.91 $ 9.99
-------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.24 0.27 0.31 0.29 0.21
Net realized and unrealized gains (losses) .. 0.25 0.16 0.05 0.02 (0.09)
-------- -------- ------- ------- -------
Total from investment operations ............... 0.49 0.43 0.36 0.31 0.12
-------- -------- ------- ------- -------
Less distributions from net investment income .. (0.25) (0.28) (0.33) (0.29) (0.20)
-------- -------- ------- ------- -------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
-------- -------- ------- ------- -------
Net asset value, end of year ................... $ 10.35 $ 10.11 $ 9.96 $ 9.93 $ 9.91
======== ======== ======= ======= =======
Total return(f) ................................ 4.86% 4.33% 3.64% 3.20% 1.23%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by
affiliates .................................. 0.92% 1.03% 1.19% 1.16% 1.09%
Expenses net of waiver and payments by
affiliates .................................. 0.50% 0.53% 0.50% 0.50% 0.50%
Net investment income .......................... 2.33% 2.70% 3.12% 2.88% 2.07%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $380,522 $184,887 $43,914 $18,683 $26,005
Portfolio turnover rate ........................ 15.53% 12.69% 18.39% 57.74% 32.42%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
152 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS 75.5%
ALABAMA 1.2%
Alabama State University Revenue, General Tuition and Fee, Assured Guaranty, 5.00%,
9/01/14 ........................................................................... $ 665,000 $ 744,268
9/01/15 ........................................................................... 700,000 783,979
9/01/16 ........................................................................... 730,000 815,118
East Alabama Health Care Authority Health Care Facilities Revenue,
Mandatory Put 9/01/13, Series B, 5.00%, 9/01/33 ................................... 1,000,000 1,039,920
Mandatory Put 9/01/18, Series A, 5.25%, 9/01/36 ................................... 1,000,000 1,007,490
--------------
4,390,775
--------------
CALIFORNIA 15.2%
Alameda-Contra Costa Transit District COP, FHR Computer System Project,
4.00%, 8/01/12 .................................................................... 710,000 749,966
California Health Facilities Financing Authority Revenue, Sutter Health,
Series A, 5.00%, 8/15/12 .......................................................... 1,000,000 1,081,610
California State Economic Recovery GO, Series A,
4.00%, 7/01/10 .................................................................... 1,000,000 1,011,780
5.25%, 7/01/13 .................................................................... 200,000 222,528
California State GO, Refunding, 5.00%, 4/01/15 ....................................... 500,000 554,970
California State Public Works Board Lease Revenue, Various Capital Projects, Series G,
Sub Series G-1, 5.00%, 10/01/13 ................................................... 10,685,000 11,442,139
California Statewide CDA, PCR, Southern California Edison Co., Mandatory Put 4/01/13,
Refunding, Series A, XLCA Insured, 4.10%, 4/01/28 ................................. 1,500,000 1,559,340
California Statewide CDA Revenue,
CHF-Irvine LLC, UCI East Campus Apartments, Phase II, 5.00%, 5/15/14 .............. 1,000,000 1,067,740
Methodist Hospital of Southern California Project, FHA Insured, 5.50%, 2/01/13 .... 2,430,000 2,643,403
Fontana PFA Lease Revenue, AMBAC Insured, 5.00%, 9/01/14 ............................. 375,000 403,211
Fontana USD, GO,
BAN, 4.00%, 12/01/12 .............................................................. 9,000,000 9,316,890
Capital Appreciation, BAN, zero cpn., 12/01/12 .................................... 5,000,000 4,643,950
Hercules RDA Tax Allocation Revenue, Series A, AMBAC Insured, 5.00%, 8/01/14 ......... 1,430,000 1,507,363
Los Angeles CRDA Community Redevelopment Financing Authority Revenue, Bunker Hill
Project, Series A, FSA Insured, 5.00%, 12/01/13 ................................... 1,000,000 1,123,070
Lynwood USD, GO, Election of 2002, Series A, FSA Insured, 4.00%, 8/01/10 ............. 100,000 101,352
Northern California Power Agency Public Power Revenue, Hydroelectric Project No. 1,
Refunding, Series C, Assured Guaranty, 5.00%, 7/01/15 ............................. 1,000,000 1,142,170
Pacifica COP, AMBAC Insured, 4.50%, 1/01/13 .......................................... 1,050,000 1,127,795
Palo Verde Community College District COP, AMBAC Insured, 5.00%, 1/01/15 ............. 745,000 823,113
Rio Linda Unified Elementary School District, Election of 2002, Series A, FSA Insured,
4.00%, 8/01/10 .................................................................... 100,000 101,540
Roseville City School District GO, TRAN, 3.00%, 9/08/10 .............................. 9,000,000 9,089,460
San Jose RDA Tax Allocation, Series A, 6.125%, 8/01/15 ............................... 3,000,000 3,314,970
Santa Clara County Financing Authority Revenue, El Camino, Series B, AMBAC Insured,
5.00%, 2/01/14 .................................................................... 1,000,000 1,075,560
2/01/15 ........................................................................... 1,025,000 1,111,110
Southern California Public Power Authority Natural Gas Project Revenue, Project No. 1,
Series A, 5.00%, 11/01/15 ......................................................... 1,000,000 1,060,030
Annual Report | 153
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Tustin USD School Facilities ID No. 2002-1 GO, Capital Appreciation, Election of 2002,
Series C, FSA Insured, zero cpn., 6/01/18 ......................................... $ 810,000 $ 556,729
West Kern Community College District COP, AMBAC Insured, 4.50%, 11/01/14 ............. 780,000 850,364
--------------
57,682,153
--------------
COLORADO 0.4%
Regional Transportation District COP, Transit Vehicles, Series A, AMBAC Insured,
5.00%, 12/01/15 ................................................................... 1,500,000 1,673,085
--------------
FLORIDA 5.3%
Citizens Property Insurance Corp. Revenue, Senior Secured, High-Risk Account, Series
A-1, 5.50%, 6/01/17 ............................................................... 5,000,000 5,328,100
6.00%, 6/01/17 .................................................................... 5,000,000 5,481,550
Florida State Hurricane Catastrophe Fund Finance Corp. Revenue, Series A, 4.25%,
7/01/14 ........................................................................... 4,000,000 4,331,480
Miami-Dade County GO, 5.00%, 7/01/12 ................................................. 3,000,000 3,268,830
Miami-Dade County Public Facilities Revenue, Jackson Health System, Assured Guaranty,
4.00%, 6/01/16 .................................................................... 1,580,000 1,630,165
--------------
20,040,125
--------------
GEORGIA 1.8%
Atlanta Water and Wastewater Revenue, Refunding, Series B, FSA Insured, 4.00%,
11/01/15 .......................................................................... 6,390,000 6,802,474
--------------
ILLINOIS 5.4%
Chicago Wastewater Transmission Revenue, Series A, BHAC Insured,
5.00%, 1/01/16 .................................................................... 1,425,000 1,619,527
5.50%, 1/01/17 .................................................................... 1,000,000 1,170,770
Illinois State GO,
FSA Insured, 5.00%, 9/01/16 ....................................................... 9,000,000 9,910,350
(a) Refunding, FSA Insured, 5.00%, 1/01/16 ............................................ 7,000,000 7,822,500
--------------
20,523,147
--------------
INDIANA 0.1%
Avon Community School Building Corp. Revenue, First Management, AMBAC Insured, 4.25%,
1/15/11 ........................................................................... 520,000 532,262
--------------
KANSAS 0.5%
Junction City COP, Radian Insured, 4.00%, 9/01/10 .................................... 310,000 312,638
Junction City GO,
Series DU, FSA Insured, 3.00%, 9/01/10 ............................................ 765,000 771,847
Water and Sewer, Refunding, Series DV, FSA Insured, 3.00%, 9/01/10 ................ 630,000 635,695
--------------
1,720,180
--------------
LOUISIANA 0.1%
Louisiana Local Government Environmental Facilities and CDA Revenue, Shreveport
Utility System Projects, NATL Insured, 4.00%, 12/01/14 ............................ 500,000 519,245
--------------
MASSACHUSETTS 0.6%
Massachusetts State Health and Educational Facilities Authority Revenue, Cape Cod
Healthcare Obligation, Assured Guaranty, 4.00%,
11/15/13 .......................................................................... 1,150,000 1,215,159
11/15/15 .......................................................................... 1,000,000 1,045,590
--------------
2,260,749
--------------
154 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN 4.5%
Charlevoix Public School District GO, School Building and Site, FSA Insured, 3.00%,
5/01/10 ........................................................................... $ 800,000 $ 803,472
5/01/11 ........................................................................... 800,000 824,072
Michigan Municipal Bond Authority Revenue, Local Government, Charter County Wayne,
Series B, Assured Guaranty, 5.00%, 11/01/13 ....................................... 4,000,000 4,346,200
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont, Refunding,
Series W, 5.25%, 8/01/17 .......................................................... 7,000,000 7,349,930
Wyandotte Electric Revenue, Refunding, Assured Guaranty, 5.00%, 10/01/13 ............. 3,355,000 3,671,611
--------------
16,995,285
--------------
MINNESOTA 2.8%
Farmington GO, Improvement, Series B, FSA Insured, 3.50%, 2/01/14 .................... 455,000 492,323
Minneapolis Health Care System Revenue, Fairview Health Services, Series A, 5.00%,
11/15/12 .......................................................................... 1,000,000 1,062,420
Minnesota Agricultural and Economic Development Board Revenue, Health Care Facilities,
Essentia, Series C1, Assured Guaranty, 5.00%, 2/15/15 ............................. 1,335,000 1,480,929
Northern Municipal Power Agency Electric System Revenue, Refunding, Series A,
Assured Guaranty, 5.00%, 1/01/12 .................................................. 2,000,000 2,119,720
1/01/15 ........................................................................... 5,000,000 5,577,050
--------------
10,732,442
--------------
MISSISSIPPI 0.4%
Mississippi Development Bank Special Obligation Revenue, Jackson Public School
District GO Bond Project, FSA Insured, 5.00%,
4/01/11 ........................................................................... 1,000,000 1,040,670
4/01/12 ........................................................................... 500,000 535,555
--------------
1,576,225
--------------
MISSOURI 1.0%
Independence School District Lease COP, Series C, FSA Insured, 3.25%, 3/01/14 ........ 4,000,000 4,000,000
--------------
NEBRASKA 1.2%
University of Nebraska Facilities Corp. Lease Rent Revenue, UNMC Health Professions,
5.00%, 8/15/13 .................................................................... 4,000,000 4,410,720
--------------
NEW JERSEY 1.5%
Essex County Utilities Authority Solid Waste Revenue, Refunding, Assured Guaranty,
4.00%,
4/01/12 ........................................................................... 2,045,000 2,164,305
4/01/13 ........................................................................... 3,335,000 3,577,521
--------------
5,741,826
--------------
NEW YORK 8.7%
Buffalo GO, General Improvement, Series A, Assured Guaranty, 5.00%, 2/01/11 .......... 1,110,000 1,147,174
Erie County Water Authority Water Revenue, Refunding, 4.00%, 12/01/10 ................ 1,000,000 1,027,410
Monroe County GO, Refunding, Series A, Assured Guaranty, 5.00%, 6/01/11 .............. 2,135,000 2,227,552
New York City IDAR, Capital Appreciation, Yankee Stadium, Pilot, Assured Guaranty,
zero cpn., 3/01/14 ................................................................ 5,335,000 4,688,558
New York City Trust for Cultural Resources Revenue, Museum of Modern Art, Refunding,
Series 1A, 5.00%, 10/01/10 ........................................................ 500,000 513,020
Annual Report | 155
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York Local Government Assistance Corp. Revenue, senior lien, Refunding, Series A,
5.00%, 4/01/11 .................................................................... $ 300,000 $ 314,958
New York State Dormitory Authority Revenues,
Kateri Residence, Refunding, 4.00%, 7/01/10 ....................................... 230,000 230,536
Non-State Supported Debt, Aids Long Term Health Care Facility, Refunding, 5.00%,
11/01/11 ....................................................................... 1,000,000 1,028,240
Non-State Supported Debt, Fordham University, Series B, Assured Guaranty, 3.25%,
7/01/13 ........................................................................ 610,000 646,356
Non-State Supported Debt, Manhattan College, Series B, Radian Insured, 5.00%,
7/01/13 ........................................................................ 840,000 870,123
Non-State Supported Debt, Rochester General Hospital, Refunding, Radian Insured,
5.00%, 12/01/15 ................................................................ 100,000 103,884
Non-State Supported Debt, School District Financing Program, Series A, FSA Insured,
5.00%, 10/01/15 ................................................................ 1,000,000 1,155,290
Non-State Supported Debt, School Districts Financing Program, Series A, Assured
Guaranty, 2.00%, 10/01/10 ......................................................... 1,990,000 2,008,248
Non-State Supported Debt, School Districts Financing Program, Series A, Assured
Guaranty, 3.75%, 10/01/14 ...................................................... 1,380,000 1,488,261
State Supported Debt, FSA Insured, 5.00%, 2/15/15 ................................. 1,000,000 1,132,130
New York State Environmental Facilities Corp. Special Obligation Revenue, Riverbank
State Park, Refunding, CIFG Insured, 5.00%, 4/01/16 ............................... 200,000 228,390
New York State Urban Development Corp. Revenue, Refunding, Series D, 5.00%, 1/01/15 .. 4,000,000 4,506,280
Poughkeepsie Town GO, Public Improvement, Refunding, FSA Insured, 5.00%, 4/15/15 ..... 250,000 287,350
Scarsdale Union Free School District GO, Refunding, 3.25%, 12/01/10 .................. 500,000 511,185
St. Lawrence County IDA Civic Facility Revenue, St. Lawrence University, Series A,
5.00%, 10/01/16 ................................................................... 6,000,000 6,643,380
Suffolk County IDA Civic Facility Revenue, Westhampton Free Associates Library,
AMBAC Insured, 3.25%, 6/15/12 ..................................................... 300,000 315,198
Syracuse GO, Public Improvement, Series A, FSA Insured, 3.25%, 6/15/12 ............... 725,000 749,063
Triborough Bridge and Tunnel Authority Revenues, Refunding, Series C, 5.00%,
11/15/12 .......................................................................... 1,000,000 1,109,960
Warren and Washington Counties IDAR, Hudson Falls Recovery, Refunding, Series A,
AMBAC Insured, 3.375%, 11/01/10 ................................................... 300,000 304,101
--------------
33,236,647
--------------
OHIO 4.2%
Cleveland Airport System Revenue, Series C, Assured Guaranty, 5.00%, 1/01/16 ......... 5,140,000 5,668,341
Ohio State Department of Administrative Services COP, Administrative Knowledge System,
Series A, NATL Insured, 5.25%, 9/01/15 ............................................ 6,205,000 7,017,048
Ohio State Higher Educational Facility Revenue, Otterbein College 2007 Project, CIFG
Insured, 4.50%, 12/01/11 .......................................................... 210,000 223,658
Toledo GO, Capital Improvement, Refunding, Assured Guaranty, 3.25%, 12/01/14 ......... 2,860,000 2,987,957
--------------
15,897,004
--------------
PENNSYLVANIA 0.7%
University of Pittsburgh of the Commonwealth System of Higher Education Revenue,
University Capital Project, Mandatory Put 9/15/13, Series A, 5.50%, 9/15/39 ....... 2,500,000 2,818,000
--------------
156 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA 2.0%
Piedmont Municipal Power Agency Electric Revenue, Refunding, Series A-2, 5.00%,
1/01/15 ........................................................................... $ 4,000,000 $ 4,409,840
Scago Educational Facilities Corp. for Pickens School District Revenue, Pickens County
Project, FSA Insured, 5.00%, 12/01/14 ............................................. 3,000,000 3,343,410
--------------
7,753,250
--------------
TENNESSEE 4.2%
(a) Memphis Electric System Revenue, sub. notes, Refunding, 5.00%, 12/01/15 .............. 5,000,000 5,807,100
Sevier County PBA Revenue, Local Government Public Improvement, Series VII-D-1,
5.00%, 6/01/15 .................................................................... 9,000,000 10,246,230
--------------
16,053,330
--------------
TEXAS 5.4%
Brock ISD, GO, Capital Appreciation, zero cpn., 8/15/16 .............................. 460,000 380,586
Dallas-Fort Worth International Airport Revenue, Joint, Refunding, Series A, 5.00%,
11/01/14 .......................................................................... 3,235,000 3,615,824
Gulf Coast Waste Disposal Authority Environmental Facilities Revenue, GO, BP
Productions North America, Mandatory Put 9/03/13, Refunding, 2.30%, 1/01/42 ....... 10,000,000 10,155,200
Harris County Hospital District Revenue, senior lien, Refunding, Series A, NATL
Insured, 5.00%, 2/15/12 ........................................................... 745,000 783,136
Harris County MTA Lease Revenue COP, Series A, Assured Guaranty, 5.00%, 11/01/11 ..... 2,200,000 2,343,440
Lubbock Educational Facilities Authority Revenue, Lubbock Christian, Refunding and
Improvement, 4.50%, 11/01/10 ...................................................... 395,000 397,544
San Antonio Water Revenue, System, Series A, FSA Insured, 5.50%, 5/15/13 ............. 500,000 548,370
Tarrant County Cultural Education Facilities Finance Corp. Revenue, Christus Health,
Refunding, Series A, Assured Guaranty, 5.75%, 7/01/18 ............................. 2,000,000 2,191,200
--------------
20,415,300
--------------
WASHINGTON 3.5%
Energy Northwest Electric Revenue, Project 1, Refunding, Series A, 5.00%, 7/01/11 .... 375,000 397,406
Greater Wenatchee Regional Events Center Public Facilities District Revenue, Revenue
and Special Tax, BAN, Series A, 5.25%, 12/01/11 ................................... 7,000,000 7,131,390
King County Housing Authority Revenue, Birch Creek Apartments Project, 4.40%,
5/01/18 ........................................................................... 2,290,000 2,388,813
Snohomish County School District No. 2 Everett GO, Refunding, FGIC Insured, 5.00%,
12/01/14 .......................................................................... 250,000 289,425
Washington State Health Care Facilities Authority Revenue,
Kadlec Medical Center, Series A, Assured Guaranty, 5.00%, 12/01/10 ................ 1,000,000 1,017,840
MultiCare Health System, Series A, FSA Insured, 4.00%, 8/15/13 .................... 250,000 266,585
MultiCare Health System, Series A, FSA Insured, 4.00%, 8/15/14 .................... 310,000 332,305
MultiCare Health System, Series B, FSA Insured, 4.00%, 8/15/13 .................... 250,000 266,585
MultiCare Health System, Series B, FSA Insured, 4.00%, 8/15/14 .................... 600,000 643,170
MultiCare Health System, Series B, FSA Insured, 4.00%, 8/15/15 .................... 625,000 667,219
--------------
13,400,738
--------------
WYOMING 0.1%
Sweetwater County Improvement Project Powers Board Lease Revenue, NATL Insured, 5.00%,
12/15/10 .......................................................................... 500,000 515,520
--------------
Annual Report | 157
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 4.7%
GUAM 0.3%
Guam Government Limited Obligation Revenue, Section 30, Series A, 5.00%, 12/01/12 .... $ 1,000,000 $ 1,059,590
--------------
PUERTO RICO 4.4%
Puerto Rico Commonwealth GO, Public Improvement, FSA Insured, 5.50%, 7/01/15 ......... 5,000,000 5,577,150
Puerto Rico Commonwealth Government Development Bank Revenue, Refunding,
NATL Insured, 4.75%, 12/01/15 ..................................................... 5,000,000 5,142,950
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Refunding, Series X, NATL Insured, 5.50%, 7/01/13 ................................. 580,000 620,821
Puerto Rico Electric Power Authority Power Revenue, Series WW, 5.25%, 7/01/13 ........ 1,000,000 1,095,640
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Revenue, Ana G. Mendez University System Project,
5.00%, 3/01/11 .................................................................... 545,000 539,021
Puerto Rico Municipal Finance Agency GO, Series A, FSA Insured, 5.75%, 8/01/12 ....... 3,000,000 3,035,250
Puerto Rico PBA Guaranteed Revenue, Mandatory Put 7/01/17, Refunding, AMBAC Insured,
5.50%, 7/01/35 .................................................................... 750,000 773,640
--------------
16,784,472
--------------
TOTAL U.S. TERRITORIES ............................................................... 17,844,062
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS (COST $279,060,735) .............. 287,534,544
--------------
SHORT TERM INVESTMENTS 25.8%
MUNICIPAL BONDS 25.8%
CALIFORNIA 0.9%
(b) Metropolitan Water District of Southern California Waterworks Revenue, Authorization,
Series B, Weekly VRDN and Put, 0.17%, 7/01/28 ..................................... 400,000 400,000
(b) Southern California Public Power Authority Power Project Revenue,
Mead-Adelanto Project, Refunding, Series A, Daily VRDN and Put, 0.11%, 7/01/20 .... 600,000 600,000
Mead-Phoenix Project, Refunding, Series A, Daily VRDN and Put, 0.11%, 7/01/20 ..... 2,300,000 2,300,000
--------------
3,300,000
--------------
COLORADO 6.0%
(b) Colorado Educational and Cultural Facilities Authority Revenue,
National Jewish Federation Bond Program, Daily VRDN and Put, 0.17%, 2/01/35 ....... 4,300,000 4,300,000
National Jewish Federation Bond Program, Refunding, Series A-8, Daily VRDN and Put,
0.17%, 9/01/35 ................................................................. 4,100,000 4,100,000
National Jewish Federation Bond Program, Refunding, Series D-1, Daily VRDN and Put,
0.17%, 7/01/36 ................................................................. 2,200,000 2,200,000
National Jewish Federation Bond Program, Series A-7, Daily VRDN and Put, 0.17%,
7/01/29 ........................................................................ 3,000,000 3,000,000
National Jewish Federation Bond Program, Series A-10, Daily VRDN and Put, 0.16%,
9/01/37 ........................................................................ 4,145,000 4,145,000
National Jewish Federation Bond Program, Series A-11, Daily VRDN and Put, 0.17%,
8/01/27 ........................................................................ 1,325,000 1,325,000
YMCA Rockies Project, Refunding, Daily VRDN and Put, 0.16%, 10/01/38 .............. 3,900,000 3,900,000
--------------
22,970,000
--------------
158 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
FLORIDA 0.3%
(b) Broward County Educational Facilities Authority Revenue, Educational Facilities,
Nova Southeastern University, Refunding, Series C, Daily VRDN and Put, 0.13%,
4/01/24............................................................................ $ 800,000 $ 800,000
(b) Jacksonville Health Facilities Authority Hospital Revenue, Baptist Medical Center,
Daily VRDN and Put, 0.16%, 8/15/34................................................. 500,000 500,000
--------------
1,300,000
--------------
KENTUCKY 1.7%
(b) Christian County Assn. of County Leasing Trust Lease Program Revenue, Refunding,
Series A, Daily VRDN and Put, 0.14%, 4/01/37....................................... 2,345,000 2,345,000
(b) Lexington-Fayette Urban County Airport Board General Airport Revenue, Refunding,
Series B, Daily VRDN and Put, 0.14%, 7/01/38....................................... 3,100,000 3,100,000
(b) Shelby County Lease Revenue, Series A, Daily VRDN and Put, 0.14%, 9/01/34............. 1,000,000 1,000,000
--------------
6,445,000
--------------
MARYLAND 0.9%
(b) Maryland State EDC, EDR, U.S. Pharmacopeial, Refunding, Series B, Daily VRDN and Put,
0.16%, 7/01/38..................................................................... 2,800,000 2,800,000
(b) Maryland State Health and Higher Educational Facilities Authority Revenue, Upper
Chesapeake Hospital, Refunding, Series A, Daily VRDN and Put, 0.16%, 1/01/43....... 700,000 700,000
--------------
3,500,000
--------------
MASSACHUSETTS 4.7%
(b) Massachusetts State Health and Educational Facilities Authority Revenue,
Harvard University, Refunding, Series R, Daily VRDN and Put, 0.09%, 11/01/49....... 800,000 800,000
Museum of Fine Arts, Series A-1, Daily VRDN and Put, 0.14%, 12/01/37............... 4,200,000 4,200,000
Museum of Fine Arts, Series A-2, Daily VRDN and Put, 0.12%, 12/01/37............... 3,100,000 3,100,000
Tufts University, Refunding, Series N-1, Daily VRDN and Put, 0.12%, 8/15/40........ 5,000,000 5,000,000
Tufts University, Refunding, Series N-2, Daily VRDN and Put, 0.09%, 8/15/34........ 4,600,000 4,600,000
--------------
17,700,000
--------------
MICHIGAN 1.5%
(b) Eastern Michigan University Revenues, General, Refunding, Series A, Daily VRDN and
Put, 0.15%, 3/01/49................................................................ 5,200,000 5,200,000
(b) Michigan Higher Education Facilities Authority Revenue, Limited Obligation,
University of Detroit, Refunding, Daily VRDN and Put, 0.17%, 11/01/36.............. 300,000 300,000
--------------
5,500,000
--------------
MISSOURI 2.1%
(b) Missouri Development Finance Board Cultural Facilities Revenue, The Nelson Gallery
Foundation, Refunding, Series A, Daily VRDN and Put, 0.14%, 12/01/37............... 4,100,000 4,100,000
(b) Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, St. Louis University, Refunding, Series B-1, Daily VRDN and Put, 0.12%,
10/01/35 .......................................................................... 4,015,000 4,015,000
--------------
8,115,000
--------------
Annual Report | 159
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN FEDERAL LIMITED-TERM TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
-------------------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
NEW HAMPSHIRE 2.4%
(b) New Hampshire Health and Education Facilities Authority Revenue, Dartmouth College,
Refunding,
Series A, Daily VRDN and Put, 0.15%, 6/01/31 ...................................... $ 4,500,000 $ 4,500,000
Series B, Daily VRDN and Put, 0.15%, 6/01/41 ...................................... 4,800,000 4,800,000
--------------
9,300,000
--------------
NEW JERSEY 1.7%
(b) New Jersey EDA School Revenue, School Facilities Construction, Series R, Sub Series
R-1, Daily VRDN and Put, 0.11%, 9/01/31 ........................................... 6,600,000 6,600,000
--------------
NORTH CAROLINA 2.0%
(b) Charlotte COP, Central Yard Project, Series A, Weekly VRDN and Put, 0.20%, 3/01/25 ... 1,500,000 1,500,000
(b) North Carolina Medical Care Commission Health Care Facilities Revenue, Wake Forest
University, Refunding, Series D, Daily VRDN and Put, 0.14%, 7/01/34 ............... 5,900,000 5,900,000
--------------
7,400,000
--------------
OHIO 0.5%
(b) Allen County Hospital Facilities Revenue, Catholic Healthcare, Series B, Daily VRDN
and Put, 0.14%, 10/01/31 .......................................................... 2,000,000 2,000,000
--------------
TEXAS 0.9%
(b) Tarrant County Cultural Education Facilities Finance Corp. Revenue, Texas Health
Resources, Refunding,
Series C, Daily VRDN and Put, 0.12%, 11/15/33 ..................................... 1,560,000 1,560,000
Series D, Daily VRDN and Put, 0.12%, 11/15/19 ..................................... 1,800,000 1,800,000
--------------
3,360,000
--------------
U.S. TERRITORIES 0.2%
PUERTO RICO 0.2%
(b) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN and
Put, 0.12%, 7/01/32 ............................................................... 600,000 600,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $98,090,000) ...................................... 98,090,000
--------------
TOTAL INVESTMENTS (COST $377,150,735) 101.3% ......................................... 385,624,544
OTHER ASSETS, LESS LIABILITIES (1.3)% ................................................ (5,102,926)
--------------
NET ASSETS 100.0% .................................................................... $ 380,521,618
==============
See Abbreviations on page 263.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
160 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
year)
Net asset value, beginning of year ............... $ 8.75 $ 9.98 $ 11.04 $ 10.83 $ 10.81
---------- ---------- ---------- ---------- ----------
Income from investment operations(b):
Net investment income(c) ...................... 0.54 0.55 0.53 0.54 0.55
Net realized and unrealized gains (losses) .... 1.25 (1.24) (1.06) 0.20 0.03
---------- ---------- ---------- ---------- ----------
Total from investment operations ................. 1.79 (0.69) (0.53) 0.74 0.58
---------- ---------- ---------- ---------- ----------
Less distributions from net investment
income ........................................ (0.55) (0.54) (0.53) (0.53) (0.56)
---------- ---------- ---------- ---------- ----------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ..................... $ 9.99 $ 8.75 $ 9.98 $ 11.04 $ 10.83
========== ========== ========== ========== ==========
Total return(f) .................................. 20.96% (7.09)% (5.03)% 6.99% 5.45%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 0.63% 0.63% 0.62% 0.62% 0.63%
Net investment income ............................ 5.66% 5.77% 4.98% 4.97% 5.11%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $5,477,710 $4,255,784 $4,784,743 $5,329,032 $5,070,599
Portfolio turnover rate .......................... 8.58% 19.10% 20.10% 10.90% 11.63%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 161
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 8.81 $ 10.05 $ 11.11 $ 10.90 $ 10.87
------- ------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.49 0.50 0.48 0.48 0.50
Net realized and unrealized gains (losses) .... 1.26 (1.25) (1.07) 0.20 0.03
------- ------- -------- -------- --------
Total from investment operations ................. 1.75 (0.75) (0.59) 0.68 0.53
------- ------- -------- -------- --------
Less distributions from net investment income .... (0.50) (0.49) (0.47) (0.47) (0.50)
------- ------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
------- ------- -------- -------- --------
Net asset value, end of year ..................... $ 10.06 $ 8.81 $ 10.05 $ 11.11 $ 10.90
======= ======= ======== ======== ========
Total return(f) .................................. 20.29% (7.66)% (5.53)% 6.36% 4.93%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.18% 1.18% 1.17% 1.17% 1.18%
Net investment income ............................ 5.11% 5.22% 4.43% 4.42% 4.56%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $68,463 $87,208 $139,855 $215,121 $240,628
Portfolio turnover rate .......................... 8.58% 19.10% 20.10% 10.90% 11.63%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
162 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- ---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 8.86 $ 10.10 $ 11.16 $ 10.95 $ 10.91
---------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ...................... 0.49 0.50 0.48 0.49 0.50
Net realized and unrealized gains (losses) .... 1.27 (1.25) (1.07) 0.19 0.03
---------- -------- -------- -------- --------
Total from investment operations ................. 1.76 (0.75) (0.59) 0.68 0.53
---------- -------- -------- -------- --------
Less distributions from net investment income .... (0.50) (0.49) (0.47) (0.47) (0.49)
---------- -------- -------- -------- --------
Redemption fees(d) ............................... -- --(e) --(e) --(e) --(e)
---------- -------- -------- -------- --------
Net asset value, end of year ..................... $ 10.12 $ 8.86 $ 10.10 $ 11.16 $ 10.95
========== ======== ======== ======== ========
Total return(f) .................................. 20.28% (7.62)% (5.51)% 6.34% 5.00%
RATIOS TO AVERAGE NET ASSETS
Expenses ......................................... 1.18% 1.18% 1.17% 1.17% 1.18%
Net investment income ............................ 5.11% 5.22% 4.43% 4.42% 4.56%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $1,002,985 $663,766 $697,697 $761,994 $695,270
Portfolio turnover rate .......................... 8.58% 19.10% 20.10% 10.90% 11.63%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 163
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------
ADVISOR CLASS 2010 2009 2008(a) 2007 2006(b)
- ------------- -------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 8.77 $ 10.00 $ 11.06 $ 10.85 $10.76
-------- -------- -------- ------- ------
Income from investment operations(c):
Net investment income(d) ...................... 0.55 0.56 0.55 0.55 0.10
Net realized and unrealized gains (losses) .... 1.26 (1.24) (1.07) 0.20 0.04
-------- -------- -------- ------- ------
Total from investment operations ................. 1.81 (0.68) (0.52) 0.75 0.14
-------- -------- -------- ------- ------
Less distributions from net investment income .... (0.56) (0.55) (0.54) (0.54) (0.05)
-------- -------- -------- ------- ------
Redemption fees(e) ............................... -- --(f) --(f) --(f) --(f)
-------- -------- -------- ------- ------
Net asset value, end of year ..................... $ 10.02 $ 8.77 $ 10.00 $ 11.06 $10.85
======== ======== ======== ======= ======
Total return(g) .................................. 21.14% (6.99)% (4.94)% 7.08% 1.34%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses ......................................... 0.53% 0.53% 0.52% 0.52% 0.53%
Net investment income ............................ 5.76% 5.87% 5.08% 5.07% 5.21%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $621,454 $170,562 $143,331 $53,127 $ 471
Portfolio turnover rate .......................... 8.58% 19.10% 20.10% 10.90% 11.63%
(a) For the year ended February 29.
(b) For the period January 3, 2006 (effective date) to February 28, 2006.
(c) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(d) Based on average daily shares outstanding.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Amount rounds to less than $0.01 per share.
(g) Total return is not annualized for periods less than one year.
(h) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
164 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS 94.3%
ALABAMA 0.5%
Camden IDB Exempt Facilities Revenue, Weyerhaeuser,
Series A, Pre-Refunded, 6.125%, 12/01/24 .......................................... $ 3,000,000 $ 3,551,460
Series B, Pre-Refunded, 6.375%, 12/01/24 .......................................... 1,750,000 2,021,390
Courtland IDBR, Environmental Improvement Revenue, International Paper Co. Refunding,
Series B, 6.25%, 8/01/25 .......................................................... 2,500,000 2,518,850
Cullman County Health Care Authority GO, Refunding, 7.00%, 2/01/36 ................... 7,500,000 7,734,750
Oneonta Eastern Health Systems Special Care Facilities Financing Authority GO,
Pre-Refunded, 7.75%, 7/01/21 ...................................................... 8,970,000 9,149,400
Phenix City IDB Environmental Improvement Revenue, MeadWestvaco-Mead Coated Board
Project, Refunding, Series B, 6.10%, 5/15/30 ...................................... 5,800,000 5,799,362
Prattville IDB Environmental Improvement Revenue, International Paper Co. Projects,
Series A, 9.25%, 3/01/33 .......................................................... 5,500,000 6,815,325
--------------
37,590,537
--------------
ALASKA 0.1%
Alaska Industrial Development and Export Authority Power Revenue, Upper Lynn Canal
Regional Power,
5.70%, 1/01/12 .................................................................... 740,000 740,466
5.80%, 1/01/18 .................................................................... 1,495,000 1,480,992
5.875%, 1/01/32 ................................................................... 5,730,000 5,137,002
--------------
7,358,460
--------------
ARIZONA 4.9%
Apache County IDA,
IDR, Tucson Electric Power Co. Project, Refunding, Series C, 5.85%, 3/01/26 ....... 16,500,000 16,532,505
PCR, Tucson Electric Power Co. Project, Refunding, Series A, 5.85%, 3/01/28 ....... 53,150,000 53,223,878
PCR, Tucson Electric Power Co. Project, Refunding, Series B, 5.875%, 3/01/33 ...... 33,800,000 33,805,408
Arizona Health Facilities Authority Hospital System Revenue, John C. Lincoln Health
Network, Pre-Refunded, 6.375%, 12/01/37 ........................................... 2,500,000 2,885,675
Arizona Health Facilities Authority Revenue, Catholic Healthcare West, Series A,
6.625%, 7/01/20 ................................................................... 3,940,000 4,062,140
Arizona State COP, Department Administration, Series A, FSA Insured, 5.25%,
10/01/21 .......................................................................... 26,695,000 29,039,355
Casa Grande IDA Hospital Revenue, Casa Grande Regional Medical Center, Series A,
7.25%, 12/01/32 ................................................................... 14,500,000 13,394,810
Coconino County PCC Revenue, Tucson Electric Power Navajo, Refunding, Series A,
7.125%, 10/01/32 .................................................................. 21,125,000 21,130,915
Downtown Phoenix Hotel Corp. Revenue, sub. bond, Series B, NATL Insured, 5.00%,
7/01/36 ........................................................................... 10,000,000 9,334,200
Maricopa County IDA Health Facility Revenue,
Catholic Healthcare West, Refunding, Series A, 5.50%, 7/01/26 ..................... 7,500,000 7,684,800
Catholic Healthcare West Project, Refunding, Series A, ACA Insured, 5.00%,
7/01/16 ........................................................................ 4,875,000 4,891,526
Maricopa County PCC, PCR,
El Paso Electric Co. Project, Series A, 7.25%, 4/01/40 ............................ 20,000,000 22,734,200
Public Service Co. of Colorado, Refunding, Series A, 5.75%, 11/01/22 .............. 14,300,000 14,312,584
Various, Public Service Co., Palo Verde, Refunding, Series A, 6.25%, 1/01/38 ...... 15,000,000 15,486,900
Navajo County Pollution Control Corp. Revenue, Mandatory Put 6/01/16, Series D, 5.75%,
6/01/34 ........................................................................... 10,750,000 11,217,947
Phoenix Civic Improvement Corp. Airport Revenue, senior lien, Series A, 5.00%,
7/01/38 ........................................................................... 15,000,000 15,019,200
Annual Report | 165
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ARIZONA (CONTINUED)
Pima County IDAR,
Industrial Development, Tucson Electric Power Co., Series A, 6.375%, 9/01/29 ...... $ 35,000,000 $ 35,718,900
Tucson Electric Power Co. Project, Series A, 6.10%, 9/01/25 ....................... 10,140,000 10,109,783
Salt Verde Financial Corp. Senior Gas Revenue, 5.00%, 12/01/37 ....................... 10,000,000 8,559,500
University Medical Center Corp. Hospital Revenue,
6.00%, 7/01/24 .................................................................... 250,000 271,153
6.25%, 7/01/29 .................................................................... 1,000,000 1,075,980
5.00%, 7/01/35 .................................................................... 10,175,000 9,402,311
6.50%, 7/01/39 .................................................................... 1,500,000 1,605,900
Yuma County IDA Water and Sewer Exempt Facility Revenue, Water and Sewer, Refunding,
Series A, 6.375%, 12/01/37 ........................................................ 15,500,000 13,004,810
--------------
354,504,380
--------------
ARKANSAS 0.3%
Arkansas State Development Finance Authority Industrial Facilities Revenue, Potlatch
Corp. Projects, Series A, 7.75%, 8/01/25 .......................................... 3,800,000 3,862,320
Baxter County IDR, Aeroquip Corp. Project, Refunding, 5.80%, 10/01/13 ................ 2,400,000 2,618,040
Calhoun County Solid Waste Disposal Revenue, Georgia-Pacific Corp. Project, 6.375%,
11/01/26 .......................................................................... 10,000,000 9,872,800
Warren Solid Waste Disposal Revenue, Potlatch Corp. Project, 7.00%, 4/01/12 .......... 3,150,000 3,194,541
--------------
19,547,701
--------------
CALIFORNIA 17.8%
ABAG 1915 Act Special Assessment, Windemere Ranch AD, 1999-1, Pre-Refunded, 6.375%,
9/02/32 ........................................................................... 9,735,000 10,811,594
Aliso Viejo CFD No. 2005-01 Special Tax, Glenwood at Aliso Viejo, 6.00%, 9/01/38 ..... 5,200,000 4,356,248
Anaheim PFAR, Refunding, Series A-2, NATL Insured, 4.75%, 9/01/29 .................... 24,000,000 22,941,360
Azusa Special Tax, Escrow, CFD No. 2005-1, Improvement Area 1, 5.00%, 9/01/37 ........ 5,465,000 3,438,851
Bay Area Toll Authority Toll Bridge Revenue, San Francisco Bay Area, Refunding,
Series F, 5.00%, 4/01/31 .......................................................... 35,200,000 35,714,272
Beaumont Financing Authority Local Agency Revenue, Improvement Area No. 19C, Series A,
5.35%, 9/01/36 .................................................................... 3,680,000 2,875,994
Beaumont PFAR, Sewer Enterprise Project, Series A, Pre-Refunded, 6.90%, 9/01/23 ...... 3,970,000 4,797,983
Calabasas Special Tax, CFD No. 01-1, Refunding, 6.25%, 9/01/31 ....................... 5,780,000 6,398,229
California County Tobacco Securitization Agency Tobacco Revenue, Asset-Backed, Alameda
County, 5.875%, 6/01/35 ........................................................... 3,700,000 3,182,370
California Health Facilities Financing Authority Revenue,
Children's Hospital of Orange County, Series A, 6.50%, 11/01/24 ................... 5,000,000 5,528,350
Children's Hospital of Orange County, Series A, 6.50%, 11/01/38 ................... 8,000,000 8,524,720
Marshall Medical Center, Series A, California Mortgage Insured, 5.00%, 11/01/24 ... 2,295,000 2,252,772
Marshall Medical Center, Series A, California Mortgage Insured, 5.00%, 11/01/29 ... 2,220,000 1,983,903
Marshall Medical Center, Series A, California Mortgage Insured, 5.00%, 11/01/33 ... 3,130,000 2,684,507
California HFAR, Home Mortgage, Series K, 4.70%, 8/01/31 ............................. 20,000,000 16,489,800
California Infrastructure and Economic Development Bank Revenue,
Bay Area Toll Bridges, first lien, Series A, AMBAC Insured, Pre-Refunded, 5.00%,
7/01/33 ........................................................................ 67,115,000 78,522,537
Department of Social Services Administration Building, AMBAC Insured, 5.00%,
12/01/30 ....................................................................... 10,300,000 10,800,271
Department of Social Services Administration Building, AMBAC Insured, 5.00%,
12/01/35 ....................................................................... 5,000,000 5,159,600
166 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
California Municipal Finance Authority Revenue, Harbor Regional Center Project, 8.50%,
11/01/39 .......................................................................... $ 5,000,000 $ 5,054,700
California PCFA Solid Waste Disposal Revenue, Keller Canyon Landfill Co. Project,
6.875%, 11/01/27 .................................................................. 10,000,000 10,011,100
California State Economic Recovery GO, Refunding,
Series A, 5.25%, 7/01/21 .......................................................... 25,000,000 27,740,500
Series A, 5.00%, 7/01/22 .......................................................... 10,620,000 11,262,829
California State GO,
Refunding, 5.25%, 4/01/30 ......................................................... 50,000 49,025
Refunding, 5.25%, 4/01/32 ......................................................... 40,000 38,482
Various Purpose, 6.00%, 4/01/38 ................................................... 28,725,000 29,614,900
Various Purpose, Refunding, 5.00%, 6/01/31 ........................................ 22,000,000 20,494,320
California State Public Works Board Lease Revenue,
Trustees of California State University, Series J, 6.00%, 11/01/34 ................ 13,105,000 13,412,312
Trustees of California State University, Series J, 6.00%, 11/01/29 ................ 7,365,000 7,704,895
California Statewide CDA Revenue,
American Baptist Homes West, Refunding, 6.00%, 10/01/29 ........................... 3,125,000 3,057,969
American Baptist Homes West, Refunding, 6.25%, 10/01/39 ........................... 5,000,000 4,907,200
Elder Care Alliance, Series A, Pre-Refunded, 8.25%, 11/15/32 ...................... 13,090,000 15,925,818
Eskaton Village Grass Valley, Pre-Refunded, 8.25%, 11/15/31 ....................... 2,900,000 3,085,165
Monterey Institute International, 5.50%, 7/01/31 .................................. 13,240,000 13,996,931
Prospect Sierra School, Pre-Refunded, 6.75%, 9/01/32 .............................. 6,230,000 6,540,815
St. Joseph Health System, Series B, FGIC Insured, 5.75%, 7/01/47 .................. 5,000,000 5,159,700
St. Joseph Health System, Series E, FSA Insured, 5.25%, 7/01/47 ................... 10,000,000 9,999,200
Sutter Health, Refunding, Series A, 5.00%, 11/15/43 ............................... 25,000,000 22,988,250
Thomas Jefferson School of Law, Series A, 7.25%, 10/01/38 ......................... 11,730,000 11,999,203
California Statewide CDA Special Tax Revenue, CFD 2007-1, Orinda, 6.00%, 9/01/37 ..... 10,000,000 8,425,900
Chabot-Las Positas Community College District GO, Capital Appreciation Bonds, Series
C, AMBAC Insured, zero cpn.,
8/01/33 ........................................................................... 21,015,000 4,616,155
8/01/34 ........................................................................... 10,000,000 2,030,000
8/01/43 ........................................................................... 31,515,000 3,352,881
8/01/45 ........................................................................... 34,035,000 3,133,943
Chino CFD Special Tax, No. 03-3, Improvement Area 2, 5.00%, 9/01/36 .................. 2,215,000 1,599,385
Chula Vista CFD Special Tax,
No. 07-I, Otay Ranch Village Eleven, 5.875%, 9/01/34 .............................. 3,050,000 2,619,035
No. 13-I, Otay Ranch Village Seven, 5.35%, 9/01/36 ................................ 2,600,000 1,853,072
No. 99-1, Otay Ranch SPA One, Pre-Refunded, 6.10%, 9/01/31 ........................ 4,890,000 5,121,884
Corona COP, Corona Community Hospital Project, Pre-Refunded, 9.425%, 9/01/20 ......... 7,720,000 7,931,682
El Dorado County CFD Special Tax, Community Facilities District No. 2001-1, Promontory
Specific Plan, 6.30%, 9/01/31 ..................................................... 3,500,000 3,200,820
Emeryville RDA, MFHR, Emery Bay Apartments II,
Series A, Pre-Refunded, 5.85%, 10/01/28 ........................................... 12,290,000 12,689,548
sub. lien, Series C, Pre-Refunded, 7.875%, 10/01/28 ............................... 1,735,000 1,809,015
Foothill/Eastern Corridor Agency Toll Road Revenue, Capital Appreciation, Refunding,
5.85%, 1/15/23 .................................................................... 35,000,000 35,499,450
zero cpn., 1/15/22 ................................................................ 49,115,000 23,391,019
zero cpn., 1/15/31 ................................................................ 4,000,000 967,280
zero cpn., 1/15/34 ................................................................ 4,500,000 871,065
zero cpn., 1/15/36 ................................................................ 4,000,000 646,680
Annual Report | 167
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
Fullerton CFD No. 1 Special Tax, Amerige Heights, 6.20%, 9/01/32 ..................... $ 3,500,000 $ 3,376,765
Golden State Tobacco Securitization Corp. Tobacco Settlement Revenue,
Asset-Backed, Senior Series A-1, 5.75%, 6/01/47 ................................... 10,000,000 7,346,600
Asset-Backed, Series A-3, Pre-Refunded, 7.875%, 6/01/42 ........................... 10,000,000 12,121,100
Enhanced, Asset-Backed, Refunding, Series A, 5.00%, 6/01/45 ....................... 30,750,000 25,893,960
Enhanced, Series A, AMBAC Insured, 5.00%, 6/01/45 ................................. 13,250,000 10,983,190
Jurupa Community Services District Special Tax, CFD No. 29, Series A, 8.625%,
9/01/39 ........................................................................... 1,100,000 1,136,784
Lake Elsinore 1915 Act Special Assessment, AD No. 93-1, Limited Obligation, Refunding,
7.00%, 9/02/30 .................................................................... 7,560,000 7,578,749
Lee Lake Water District CFD No. 3 Special Tax, Retreat, 5.95%, 9/01/34 ............... 5,000,000 4,200,250
Livermore CFD Special Tax, No. 06-1, Shea Properties, 5.40%, 9/01/36 ................. 6,595,000 5,116,335
Los Angeles MFR, Refunding,
Series J-1B, 7.125%, 1/01/24 ...................................................... 100,000 91,266
Series J-1C, 7.125%, 1/01/24 ...................................................... 335,000 305,741
Series J-2B, 8.50%, 1/01/24 ....................................................... 520,000 473,278
(a) Series J-2C, 8.50%, 1/01/24 ....................................................... 1,400,000 1,274,210
Los Angeles Regional Airports Improvement Corp. Lease Revenue, Facilities Sublease,
Delta Air Lines Inc., Los Angeles International Airport, Refunding, 6.35%,
11/01/25 .......................................................................... 12,000,000 11,350,800
(b) Los Angeles USD, GO, Series KRY, 5.25%, 7/01/34 ...................................... 30,000,000 31,037,700
Los Angeles Wastewater System Revenue, Refunding, Series A, NATL Insured, 5.00%,
6/01/30 ........................................................................... 7,530,000 7,778,189
M-S-R Energy Authority Gas Revenue,
Series B, 6.125%, 11/01/29 ........................................................ 30,505,000 31,187,092
Series B, 7.00%, 11/01/34 ......................................................... 20,000,000 22,471,600
Series C, 6.50%, 11/01/39 ......................................................... 20,000,000 21,145,600
Murrieta 1915 Act Special Tax, CFD No. 2000-1, 6.375%, 9/01/30 ....................... 4,000,000 3,895,280
Poway USD Special Tax,
CFD No. 10, Area A, 6.10%, 9/01/31 ................................................ 1,995,000 1,901,055
CFD No. 11, Area A, 5.375%, 9/01/28 ............................................... 2,965,000 2,691,923
CFD No. 11, Area A, 5.375%, 9/01/34 ............................................... 2,235,000 1,895,168
CFD No. 14, Del Sur, 5.25%, 9/01/36 ............................................... 7,500,000 5,773,275
Rocklin Special Tax, CFD No. 10, Whitney, 5.00%, 9/01/35 ............................. 7,315,000 5,380,695
Romoland School District Special Tax, CFD 1,
Improvement Area 1, 5.35%, 9/01/28 ................................................ 7,015,000 6,400,135
Improvement Area 1, 5.40%, 9/01/36 ................................................ 6,175,000 5,185,888
Improvement Area 2, 5.35%, 9/01/38 ................................................ 7,900,000 5,583,088
Roseville Special Tax, CFD No. 1, Westpark, 5.25%, 9/01/25 ........................... 1,550,000 1,343,447
San Francisco City and County COP, Multiple Capital Improvement Projects, Series A,
5.00%, 4/01/29 .................................................................... 10,000,000 9,926,700
San Francisco City and County RDA Lease Revenue, George R. Moscone Center, zero cpn.,
7/01/10 ........................................................................... 4,500,000 4,492,215
7/01/12 ........................................................................... 4,500,000 4,305,240
7/01/13 ........................................................................... 4,250,000 3,939,877
7/01/14 ........................................................................... 2,250,000 2,000,857
San Francisco Uptown Parking Corp. Parking Revenue, Union Square, NATL Insured, 6.00%,
7/01/31 ........................................................................... 8,920,000 9,261,636
168 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
CALIFORNIA (CONTINUED)
San Joaquin Hills Transportation Corridor Agency Toll Road Revenue,
Capital Appreciation, Refunding, Series A, 5.60%, 1/15/16 ......................... $ 22,500,000 $ 22,971,375
Capital Appreciation, Refunding, Series A, 5.65%, 1/15/17 ......................... 20,000,000 20,267,200
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/23 ......................... 20,000,000 19,432,400
Capital Appreciation, Refunding, Series A, 5.75%, 1/15/24 ......................... 20,000,000 19,295,200
junior lien, ETM, zero cpn., 1/01/12 .............................................. 30,100,000 29,545,558
junior lien, ETM, zero cpn., 1/01/24 .............................................. 52,700,000 30,311,986
junior lien, ETM, zero cpn., 1/01/25 .............................................. 45,200,000 24,546,764
junior lien, ETM, zero cpn., 1/01/26 .............................................. 131,900,000 67,474,764
junior lien, ETM, zero cpn., 1/01/27 .............................................. 139,100,000 66,653,938
senior lien, 5.00%, 1/01/33 ....................................................... 26,930,000 21,936,101
Santa Clara County GO, 5.00%, 8/01/34 ................................................ 25,000,000 26,184,000
Saugus USD Special Tax, 6.00%, 9/01/33 ............................................... 3,150,000 2,957,976
Seal Beach CFD No. 05-01 Special Tax, Pacific Gateway Business Center, 5.30%,
9/01/36 ........................................................................... 2,000,000 1,555,160
South Bayside Waste management Authority Solid Waste Enterprise Revenue, Shoreway
Environmental, Series A, 6.00%, 9/01/36 ........................................... 7,740,000 7,994,336
Stockton 1915 Act Special Assessment, Limited Obligation, Mosher AD No. 2003-2, 6.30%,
9/02/33 ........................................................................... 6,000,000 5,758,980
Stockton PFA Lease Revenue, Capital Improvement Projects, Series A,
6.75%, 9/01/29 .................................................................... 15,905,000 16,172,045
7.00%, 9/01/38 .................................................................... 12,175,000 12,488,628
Stockton Special Tax, Spanos Park West CFD No. 2001-1, Pre-Refunded, 6.375%,
9/01/32 ........................................................................... 4,100,000 4,744,889
Tustin CFD No. 06-01 Special Tax, Legacy/Columbus, Series A, 6.00%, 9/01/36 .......... 20,000,000 17,155,200
Upland CFD No. 2003-2 Special Tax, San Antonio, Improvement Area 1, Series A, 6.00%,
9/01/34 ........................................................................... 6,520,000 5,984,578
West Sacramento Special Tax, CFD No. 16, Pre-Refunded, 6.00%, 9/01/33 ................ 3,000,000 3,297,720
--------------
1,274,839,975
--------------
COLORADO 3.9%
Arkansas River Power Authority Power Revenue, Improvement, 6.00%, 10/01/40 ........... 10,000,000 10,059,300
Colorado Health Facilities Authority Revenue, Hospital, Refunding, Series C, FSA
Insured, 5.25%, 3/01/40 ........................................................... 20,000,000 20,000,000
Denver City and County Airport Revenue, Series D, 7.75%, 11/15/13 .................... 370,000 409,879
Denver City and County Special Facilities Airport Revenue, United Airlines Project,
Refunding, Series A, 5.25%, 10/01/32 .............................................. 27,365,000 20,735,008
Denver Convention Center Hotel Authority Revenue, Refunding, senior bond, XLCA
Insured, 5.00%,
12/01/30 .......................................................................... 15,000,000 13,102,350
12/01/35 .......................................................................... 15,000,000 12,580,200
Denver Health and Hospital Authority Healthcare Revenue, Series A, Pre-Refunded,
6.25%, 12/01/33 ................................................................... 4,000,000 4,870,280
E-470 Public Highway Authority Revenue, Capital Appreciation,
Refunding, Series B, NATL Insured, zero cpn., 9/01/37 ............................. 15,720,000 2,327,189
Refunding, Series B, NATL Insured, zero cpn., 9/01/38 ............................. 20,000,000 2,754,400
Refunding, Series B, NATL Insured, zero cpn., 9/01/39 ............................. 30,000,000 3,777,900
Annual Report | 169
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
COLORADO (CONTINUED)
E-470 Public Highway Authority Revenue, Capital Appreciation, (continued)
Series A, NATL Insured, zero cpn., 9/01/28 ..................................... $ 15,000,000 $ 4,417,800
Series B, NATL Insured, zero cpn., 9/01/29 ..................................... 10,000,000 2,720,700
Series B, NATL Insured, zero cpn., 9/01/30 ..................................... 17,300,000 4,342,127
Series B, NATL Insured, zero cpn., 9/01/31 ..................................... 10,000,000 2,321,900
Eagle County Airport Terminal Corp. Revenue, Series A,
7.00%, 5/01/21 ................................................................. 665,000 595,208
7.125%, 5/01/31 ................................................................ 1,215,000 1,029,068
Eagle County Sports and Housing Facilities Revenue, Vail Associate Project,
Refunding, 6.95%, 8/01/19 ...................................................... 41,200,000 40,611,252
Littleton MFHR, Riverpoint, Series C, Pre-Refunded, 8.00%, 12/01/29 ............... 2,605,000 2,789,278
McKay Landing Metropolitan District No. 002 GO,
Limited Tax, Pre-Refunded, 7.50%, 12/01/19 ..................................... 2,545,000 2,666,091
Sub. Limited Tax, Series A, Pre-Refunded, 7.50%, 12/01/34 ...................... 2,000,000 2,100,780
Public Authority for Colorado Energy Natural Gas Purchase Revenue,
6.125%, 11/15/23 ............................................................... 2,465,000 2,681,180
6.25%, 11/15/28 ................................................................ 12,500,000 13,585,250
6.50%, 11/15/38 ................................................................ 90,100,000 99,532,569
Saddle Rock South Metropolitan District No. 3 GO, Limited Mill Levy Obligation,
Pre-Refunded, 7.35%, 12/01/19 .................................................. 2,570,000 2,633,942
Superior Metropolitan District No. 1 Special Revenue, Refunding, AMBAC Insured,
5.00%, 12/01/28 ................................................................ 7,640,000 7,316,599
(a, c) Villages Castle Rock Metropolitan District No. 4 Revenue, Refunding, 8.50%,
6/01/31 ........................................................................ 3,000,000 2,844,240
--------------
282,804,490
--------------
CONNECTICUT 1.3%
Connecticut State Development Authority PCR,
Connecticut Light and Water, Refunding, Series A, 5.85%, 9/01/28 ............... 53,825,000 54,119,423
Western Massachusetts Electric Co., Refunding, Series A, 5.85%, 9/01/28 ........ 12,500,000 12,569,875
Connecticut State Development Authority Water Facility Revenue, Bridgeport
Hydraulic Co. Project, 6.15%, 4/01/35 .......................................... 3,000,000 3,004,440
Connecticut State Health and Educational Facilities Authority Revenue,
Sacred Heart University, Series C, 6.50%, 7/01/16 .............................. 310,000 311,597
St. Mary's Hospital, Refunding, Series E, 5.50%, 7/01/20 ....................... 5,650,000 5,217,266
Connecticut State HFAR, Housing Mortgage Finance Program, Refunding, Series C-1,
6.30%, 11/15/17 ................................................................ 16,060,000 16,060,000
--------------
91,282,601
--------------
DISTRICT OF COLUMBIA 1.8%
District of Columbia Ballpark Revenue, Series B-1, NATL Insured, 5.00%, 2/01/35 ... 18,000,000 16,557,660
District of Columbia Hospital Revenue, Children's Hospital Obligation Group,
Assured Guaranty, 5.25%, 7/15/38 ............................................... 11,000,000 11,058,410
District of Columbia Revenue,
Capital Appreciation, Georgetown University, Growth and Income Securities,
AMBAC Insured, zero cpn. to 3/31/18, 5.00% thereafter, 4/01/36 ................. 27,105,000 15,716,292
Methodist Home Issue, 6.00%, 1/01/29 ........................................... 4,750,000 4,193,443
Methodist Home Issue, Series A, 7.375%, 1/01/30 ................................ 2,525,000 2,545,453
Methodist Home Issue, Series A, 7.50%, 1/01/39 ................................. 4,140,000 4,169,228
170 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
DISTRICT OF COLUMBIA (CONTINUED)
District of Columbia Tobacco Settlement FICO Revenue,
Asset-Backed Bonds, Refunding, 6.50%, 5/15/33 ..................................... $ 22,000,000 $ 21,432,400
Capital Appreciation, Asset-Backed Bonds, Series A, zero cpn., 6/15/46 ............ 175,000,000 6,032,250
Capital Appreciation, Asset-Backed Bonds, Series B, zero cpn., 6/15/46 ............ 66,000,000 2,275,020
Metropolitan Washington D.C. Airports Authority Dulles Toll Road Revenue,
Capital Appreciation, second lien, Series C, Assured Guaranty, zero cpn. to
10/01/16, 6.50% thereafter, 10/01/41 .............................................. 60,000,000 42,648,000
--------------
126,628,156
--------------
FLORIDA 6.2%
Bartram Springs CDD Special Assessment, Refunding, 4.75%, 5/01/34 .................... 4,700,000 3,596,205
Beacon Tradeport CDD Special Assessment, Commercial Project, Series A, Pre-Refunded,
6.00%, 5/01/16 .................................................................... 18,545,000 19,485,046
6.20%, 5/01/22 .................................................................... 23,590,000 25,187,515
Brevard County Health Facilities Authority Health Care Facilities Revenue, Health
First Inc. Project, 7.00%, 4/01/39 ................................................ 6,500,000 7,130,630
Brighton Lakes CDD Special Assessment, Series B, Pre-Refunded, 7.625%, 5/01/31 ....... 2,985,000 3,048,192
Brooks of Bonita Springs CDD Capital Improvement Revenue, 6.85%, 5/01/31 ............. 1,315,000 1,317,959
Capital Region CDD Capital Improvement Revenue, Series A-2, 6.85%, 5/01/31 ........... 2,165,000 2,062,747
Championsgate CDD Capital Improvement Revenue, Series A, 6.25%, 5/01/20 .............. 2,180,000 1,663,144
Citizens Property Insurance Corp. Revenue, Senior Secured, High-Risk Account,
Series A-1, 6.00%, 6/01/17 ........................................................ 25,000,000 27,407,750
Citrus County Hospital Board Revenue, Citrus Memorial Hospital, Refunding, 6.375%,
8/15/32 ........................................................................... 10,550,000 10,543,248
East Homestead CDD Special Assessment Revenue, 5.45%, 5/01/36 ........................ 1,425,000 1,021,782
Escambia County Environmental Improvement Revenue, International Paper Co. Projects,
Series A, 9.50%, 3/01/33 .......................................................... 7,975,000 10,052,408
Fleming Plantation CDD Special Assessment, Series B, Pre-Refunded, 7.375%, 5/01/31 ... 9,900,000 10,111,464
Florida State Board of Education Capital Outlay GO, Public Education, Refunding,
Series D, 6.00%, 6/01/23 .......................................................... 5,000,000 6,285,150
Groves CDD Special Assessment Revenue, Series A, Pre-Refunded, 7.75%, 5/01/32 ........ 1,675,000 1,710,795
Halifax Hospital Medical Center Hospital Revenue,
Refunding and Improvement, Series A, 5.375%, 6/01/46 .............................. 18,000,000 16,417,080
Series A, Pre-Refunded, 7.25%, 10/01/24 ........................................... 4,700,000 4,982,235
Series A, Pre-Refunded, 7.25%, 10/01/29 ........................................... 1,400,000 1,484,070
Hawk's Point CDD Special Assessment, Hawk's Point Community Development, Series A,
5.30%, 5/01/39 .................................................................... 1,450,000 926,101
Hillsborough County IDA, PCR, Tampa Electric Co. Project, Series A, 5.65%, 5/15/18 ... 6,500,000 7,054,840
Hillsborough County IDAR, Refunding, Series B, 5.25%,
10/01/28 .......................................................................... 1,500,000 1,473,750
10/01/34 .......................................................................... 7,250,000 6,950,430
Indian Trace CDD, GO, Water Management Special Benefit, sub. lien, Refunding,
Series B, 8.25%, 5/01/11 .......................................................... 4,840,000 4,881,092
Indian Trace Development District Special Assessment, Isles at Weston Project, 5.50%,
5/01/33 ........................................................................... 2,690,000 2,230,413
Indigo CDD Capital Improvement Revenue, Refunding,
Series A, 7.00%, 5/01/31 .......................................................... 880,000 819,500
(a) Series C, 7.00%, 5/01/30 .......................................................... 4,520,000 4,215,442
Annual Report | 171
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
Islands at Doral CDD Special Assessment, 6.125%, 5/01/24 ............................. $ 1,655,000 $ 1,586,135
Lake Ashton CDD Revenue, Series A, 7.40%, 5/01/32 .................................... 1,400,000 1,409,198
Lakeland Retirement Community Revenue, first mortgage, Carpenters Estates, Accredited
Investors, Refunding,
5.875%, 1/01/19 ................................................................... 1,350,000 1,295,595
6.25%, 1/01/28 .................................................................... 1,230,000 1,142,621
6.375%, 1/01/43 ................................................................... 2,250,000 2,027,542
Lee County Transportation Facilities Revenue, Sanibel Bridges and Causeway, Series B,
CIFG Insured, 5.00%, 10/01/30 ..................................................... 11,505,000 11,700,470
Mediterra North CDD Capital Improvement Revenue, Series A, 6.80%, 5/01/31 ............ 7,520,000 7,419,533
Mediterra South CDD Capital Improvement Revenue,
6.85%, 5/01/31 .................................................................... 2,265,000 2,210,436
Series B, 6.95%, 5/01/31 .......................................................... 6,805,000 6,627,866
Mediterranea CDD Special Assessment, Series A, 5.60%, 5/01/37 ........................ 1,500,000 950,490
Miami-Dade County Aviation Revenue, Miami International Airport, Refunding, Series
A-1, 5.50%, 10/01/41 .............................................................. 20,850,000 20,948,620
Miami-Dade County School Board COP, Series B, Assured Guaranty, 5.00%, 5/01/33 ....... 14,310,000 14,154,164
Midtown Miami Community Development Special Assessment Revenue,
Series A, 6.25%, 5/01/37 .......................................................... 7,500,000 6,662,550
Series B, 6.50%, 5/01/37 .......................................................... 3,905,000 3,533,361
Mount Dora Country Club CDD Special Assessment Revenue, 7.75%, 5/01/13 ............... 200,000 200,758
Northern Palm Beach County ID Revenue, Water Control and Improvement, Unit of
Development No. 43,
6.10%, 8/01/21 .................................................................... 275,000 262,595
Pre-Refunded, 6.10%, 8/01/21 ...................................................... 1,960,000 2,129,207
Northern Palm Beach County ID Special Assessment, Water Control and Improvement Bonds,
Unit of Development No. 46, Series A, 5.35%, 8/01/41 .............................. 800,000 461,424
Oakstead CDD Revenue, Capital Improvement, Series A, Pre-Refunded, 7.20%, 5/01/32 .... 3,065,000 3,127,802
Orange County Health Facilities Authority Revenue, Hospital, Adventist Health System
Inc., Pre-Refunded, 5.625%, 11/15/32 .............................................. 10,000,000 11,172,000
Palm Glades CDD Revenue, Special Assessment, Series A, 5.30%, 5/01/36 ................ 1,300,000 755,820
Parklands West CDD Revenue, Special Assessment, Series A, 6.90%, 5/01/32 ............. 2,640,000 2,394,744
Parkway Center CDD Special Assessment, Series A, Pre-Refunded, 8.25%, 5/01/31 ........ 1,314,814 1,343,858
Pelican Marsh CDD Special Assessment Revenue, Series A,
7.10%, 5/01/20 .................................................................... 2,830,000 2,849,810
7.20%, 5/01/31 .................................................................... 6,200,000 6,231,000
Pensacola Airport Revenue, Airport Revenue Bonds, Refunding, 6.00%, 10/01/28 ......... 7,000,000 7,116,830
Poinciana CDD Special Assessment, Series A, 7.125%, 5/01/31 .......................... 9,990,000 9,573,817
Port St. Lucie Utility Revenue, System, Refunding, Series A, NATL Insured, 5.00%,
9/01/29 ........................................................................... 11,025,000 11,116,177
(a) Portico CDD Capital Improvement Revenue, 5.45%, 5/01/37 .............................. 2,800,000 1,664,712
(a) Portofino Landings CDD Special Assessment, Series A, 5.40%, 5/01/38 .................. 2,795,000 1,186,673
Reserve CDD Capital Improvement Revenue, Stormwater Management, 8.25%, 5/01/14 ....... 1,250,000 1,256,338
Reserve CDD No. 2 Capital Improvement Revenue, 7.125%, 5/01/30 ....................... 3,365,000 3,327,346
Reserve CDD Utility Revenue, Stormwater Management, Refunding, Series A, 6.625%,
12/01/22 .......................................................................... 3,295,000 3,194,140
172 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
FLORIDA (CONTINUED)
River Place St. Lucie CDD Special Assessment Revenue,
Series A, 7.625%, 5/01/21 ...................................................... $ 995,000 $ 939,738
Series A, 7.625%, 5/01/30 ...................................................... 1,590,000 1,436,040
Series B, 7.25%, 5/01/10 ....................................................... 970,000 959,020
Riverwood CDD Special Assessment Revenue, Series A, 7.75%, 5/01/14 ................ 435,000 441,934
Sampson Creek CDD Capital Improvement Revenue, Series A, Pre-Refunded, 6.95%,
5/01/31 ........................................................................ 2,635,000 2,681,402
Somerset County Revenue, Somerset CDD, 5.30%, 5/01/37 ............................. 7,780,000 4,340,384
South Broward Hospital District Revenue, South Broward Hospital District Obligated
Group, Refunding,
4.75%, 5/01/32 ................................................................. 11,235,000 11,037,713
5.00%, 5/01/36 ................................................................. 12,500,000 12,549,000
South Miami Health Facilities Authority Hospital Revenue, Baptist Health South
Florida Group, 5.00%, 8/15/32 .................................................. 15,000,000 15,027,300
South-Dade Venture CDD Special Assessment Revenue, 6.00%, 5/01/24 ................. 2,455,000 2,445,499
St. Lucie West Services District Capital Improvement Revenue, Cascades Project,
6.10%, 5/01/18 ................................................................. 1,615,000 1,495,329
St. Lucie West Services District Special Assessment Revenue, Port St. Lucie,
Water Management Benefit, Refunding, Series B, 6.25%, 5/01/25 .................. 5,080,000 5,084,521
Stonegate CDD Special Assessment Revenue, 6.00%, 5/01/24 .......................... 2,020,000 1,889,993
Stoneybrook West CDD Special Assessment Revenue, Series A, Pre-Refunded, 7.00%,
5/01/32 ........................................................................ 2,990,000 3,049,052
Tara CDD No. 1 Capital Improvement Revenue, Series A, 7.15%, 5/01/31 .............. 1,230,000 1,233,481
Venetian CDD Capital Improvement Revenue, Series A, 6.75%, 5/01/34 ................ 8,065,000 7,305,761
Verandah East CDD Revenue, Capital Improvement, Series A, 5.40%, 5/01/37 .......... 1,940,000 929,202
Verandah West CDD Revenue, Series A, 6.625%, 5/01/33 .............................. 8,145,000 7,424,330
Village CDD No. 4 Special Assessment Revenue, 7.20%, 5/01/31 ...................... 5,490,000 5,585,526
Village CDD No. 8 Special Assessment Revenue, 6.375%, 5/01/38 ..................... 9,900,000 8,715,168
Village Center CDD Recreational Revenue,
Sub Series B, 6.25%, 1/01/13 ................................................... 2,615,000 2,629,356
Sub Series B, 8.25%, 1/01/17 ................................................... 1,425,000 1,432,624
Sub Series C, 7.375%, 1/01/19 .................................................. 1,950,000 1,953,685
Vista Lake CDD Capital Improvement Revenue, Series A, Pre-Refunded, 7.20%,
5/01/32 ........................................................................ 2,560,000 2,611,379
Waterchase CDD Capital Improvement Revenue, Series A, Pre-Refunded, 6.70%,
5/01/32 ........................................................................ 2,735,000 2,943,845
Waterlefe CDD Capital Improvement Revenue, Series A, 6.95%, 5/01/31 ............... 1,090,000 1,093,575
Waters Edge CDD Capital Improvement Revenue, 5.30%, 5/01/36 ....................... 1,700,000 1,238,875
(a, d) Waterstone CDD Capital Improvement Revenue, Series B, 5.50%, 5/01/18 .............. 4,400,000 1,758,768
Westchase East CDD Capital Improvement Revenue, 7.10%, 5/01/21 .................... 1,180,000 1,178,041
Winter Garden Village at Fowler Groves CDD Special Tax, 5.65%, 5/01/37 ............ 1,950,000 1,785,947
--------------
446,289,108
--------------
GEORGIA 3.1%
Atlanta Tax Allocation, Princeton Lakes Project, 5.50%, 1/01/31 ................... 1,035,000 887,202
Atlanta Water and Wastewater Revenue, Refunding,
Series A, 6.25%, 11/01/34 ...................................................... 30,000,000 31,874,100
Series B, FSA Insured, 5.25%, 11/01/34 ......................................... 30,000,000 31,745,400
Annual Report | 173
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Baldwin County Hospital Authority Revenue, Oconee Regional Medical Center, 5.375%,
12/01/28 .......................................................................... $ 1,470,000 $ 1,223,893
Burke County Development Authority PCR,
Oglethorpe Power, Vogtle Project, Series C, 5.70%, 1/01/43 ........................ 55,000,000 57,937,550
Oglethorpe Power Corp., Vogtle Project, Series E, 7.00%, 1/01/23 .................. 25,000,000 29,426,000
Floyd County Development Authority Environmental Improvement Revenue, Temple-Inland
Inc., Refunding, 5.70%, 12/01/15 .................................................. 1,575,000 1,655,955
Forsyth County Hospital Authority Revenue, Anticipation Certificate, Georgia Baptist
Health Care System Project, ETM,
6.25%, 10/01/18 ................................................................... 5,550,000 6,415,744
6.375%, 10/01/28 .................................................................. 8,000,000 10,121,120
Fulton County Residential Care Revenue, Lenbrook Project, Series A, 5.00%, 7/01/27 ... 5,000,000 3,677,450
Gainesville RDA Educational Facilities Revenue, Riverside Military Academy, Refunding,
5.125%, 3/01/37 ................................................................... 6,500,000 4,087,785
Henry County Hospital Authority Revenue, Henry Medical Center Inc. Project, Refunding,
NATL Insured, 5.00%, 7/01/34 ...................................................... 15,000,000 14,915,400
Main Street Natural Gas Inc. Gas Project Revenue,
Series A, 5.50%, 9/15/28 .......................................................... 5,000,000 4,858,500
Series B, 5.00%, 3/15/22 .......................................................... 5,500,000 5,426,575
McDuffie County Development Authority Waste Disposal Revenue, Temple-Inland Forest
Products, 6.95%, 12/01/23 ......................................................... 5,120,000 5,105,818
Richmond County Development Authority Environmental Improvement Revenue, International
Paper Co. Project, Series A, 6.25%, 11/01/33 ...................................... 7,000,000 7,229,810
Savannah EDA Revenue, Recovery Zone Facility, International Paper Co. Project, Series
A, 6.25%, 11/01/33 ................................................................ 4,865,000 4,908,347
--------------
221,496,649
--------------
HAWAII 0.1%
Hawaii State Department of Budget and Finance Special Purpose Revenue, Hawaiian
Electric Co. and Subsidiary, 6.50%, 7/01/39 ....................................... 7,500,000 8,097,600
--------------
IDAHO 0.6%
Idaho Health Facilities Authority Revenue, St. Luke's Health System Project, Series A,
6.75%, 11/01/37 ................................................................... 12,500,000 13,654,000
Nez Perce County PCR,
Potlatch 84, 7.00%, 12/01/14 ...................................................... 5,000,000 5,240,300
Potlatch Corp. Project, Refunding, 6.00%, 10/01/24 ................................ 22,500,000 22,347,675
--------------
41,241,975
--------------
ILLINOIS 3.8%
Antioch Village Special Service Area No. 1 Special Tax, Deercrest Project, 6.625%,
3/01/33 ........................................................................... 3,300,000 2,594,262
Bolingbrook Special Service Area No. 1 Special Tax, Augusta Village Project,
Pre-Refunded,
6.25%, 3/01/32 .................................................................... 3,588,000 4,024,050
6.75%, 3/01/32 .................................................................... 5,263,000 5,848,456
174 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Bolingbrook Special Service Area No. 2 Special Tax, Bloomfield West Project, Series A,
Pre-Refunded,
6.625%, 3/01/31 ................................................................... $ 4,301,000 $ 4,586,027
7.00%, 3/01/31 .................................................................... 4,752,000 5,140,048
Bolingbrook Special Service Area No. 3 Special Tax, Lakewood Ridge Project,
Pre-Refunded, 7.05%, 3/01/31 ...................................................... 5,675,000 6,165,206
Bryant PCR, Central Illinois Light Co. Project, Refunding, NATL Insured, 5.90%,
8/01/23 ........................................................................... 11,000,000 11,027,060
Cary Special Tax,
Refunding, Radian Insured, 5.00%, 3/01/30 ......................................... 3,040,000 2,672,616
Special Service Area No. 1, Cambria Project, Series A, Pre-Refunded, 7.625%,
3/01/30 ........................................................................ 2,869,000 2,926,380
Special Service Area No. 2, Foxford Hills Project, Pre-Refunded, 7.50%, 3/01/30 ... 5,155,000 5,258,100
Chicago GO, Projects, Refunding, Series A, FSA Insured, 5.00%, 1/01/27 ............... 34,105,000 36,423,117
Chicago O'Hare International Airport Revenue,
General Airport Third Lien, Series A, NATL Insured, 5.00%, 1/01/33 ................ 15,000,000 15,066,750
Refunding, Series A, FSA Insured, 5.00%, 1/01/38 .................................. 16,500,000 16,776,705
Gilberts Special Service Area No. 9 Special Tax, Big Timber Project, Pre-Refunded,
7.75%, 3/01/27 .................................................................... 6,000,000 6,566,340
Hampshire Special Service Area No. 14 Special Tax, Lakewood Crossing Subdivision,
5.95%, 3/01/36 .................................................................... 7,785,000 6,133,957
Illinois Finance Authority Revenue,
Institute Technology, 6.50%, 2/01/23 .............................................. 1,000,000 1,084,300
Institute Technology, 7.125%, 2/01/34 ............................................. 1,500,000 1,624,740
Lutheran Hillside Village, Refunding, 5.25%, 2/01/37 .............................. 7,500,000 6,762,300
Resurrection Health Care, Series A, FSA Insured, 5.25%, 5/15/29 ................... 15,500,000 15,424,515
Riverside Health System, 6.25%, 11/15/35 .......................................... 5,000,000 5,240,200
Roosevelt University Project, Refunding, 6.50%, 4/01/39 ........................... 15,000,000 15,561,600
Sherman Health System, Series A, 5.50%, 8/01/37 ................................... 17,240,000 15,245,677
Illinois Finance Authority Water Facility Revenue, American Water Capital Corporation
Project, 5.25%, 10/01/39 .......................................................... 3,800,000 3,765,990
Illinois Health Facilities Authority Revenue,
Sarah Bush Lincoln Health Center, Refunding, Series B, 6.00%, 2/15/11 ............. 735,000 740,248
Thorek Hospital and Medical Center, Refunding, 5.375%, 8/15/28 .................... 8,595,000 8,393,361
Illinois State Development Finance Authority PCR, Ameren Corp. and Central Illinois
Public Service Co., Refunding, Series A, 5.50%, 3/01/14 ........................... 3,515,000 3,518,656
Illinois Finance Authority Revenue, Rush University Medical Center Obligation Group,
Series B, 7.25%, 11/01/38 ......................................................... 10,000,000 11,097,400
Metropolitan Pier and Exposition Authority Hospitality Facilities Revenue, McCormick
Place Convention Center, ETM, 7.00%, 7/01/26 ...................................... 7,500,000 10,166,325
Minooka Special Assessment, Improvement, Prairie Ridge Project, 6.875%, 3/01/33 ...... 3,000,000 2,397,330
Montgomery Special Assessment, Improvement, Lakewood Creek Project, Pre-Refunded,
7.75%, 3/01/30 .................................................................... 4,678,000 5,019,915
Otter Creek Water Reclamation District Kane County GO, Separate Waterworks and Sewage
System, Refunding, XLCA Insured, 5.00%, 1/01/39 ................................... 5,000,000 4,902,350
Plano Special Service Area No. 2 Special Tax, Lakewood Springs Project, Series B,
6.375%, 3/01/34 ................................................................... 7,897,000 6,515,499
Annual Report | 175
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Southwestern Development Authority Revenue, Anderson Hospital, 5.625%, 8/15/29 ....... $ 2,425,000 $ 2,329,407
Wauconda Special Service Area No. 1 Special Tax, Liberty Lakes Project,
6.00%, 3/01/33 .................................................................... 4,479,000 3,861,346
6.625%, 3/01/33 ................................................................... 5,242,000 4,883,447
Yorkville United City Special Services Area Special Tax,
No. 2003, Windett Ridge Project, Series 101, 6.875%, 3/01/33 ...................... 3,418,000 2,990,716
No. 2004, MPI Grande Reserve Project, Series 104, 6.375%, 3/01/34 ................. 4,222,000 3,229,619
No. 2005-108, Autumn Creek Project, 6.00%, 3/01/36 ................................ 4,919,000 3,666,819
--------------
269,630,834
--------------
INDIANA 1.8%
Delaware County Hospital Authority Hospital Revenue, Cardinal Health System, 5.25%,
8/01/36 ........................................................................... 5,000,000 4,345,600
Goshen Industrial Revenue, Greencroft Hospital Assn. Inc., Refunding, 5.75%,
8/15/19 ........................................................................... 3,000,000 2,634,150
8/15/28 ........................................................................... 5,000,000 4,001,800
Indiana Health and Educational Facility Financing Authority Hospital Revenue, 5.50%,
3/01/37 ........................................................................... 8,000,000 7,675,600
Indiana Health and Educational Facility Financing Authority Revenue, Baptist Homes of
Indiana, Refunding, 5.25%, 11/15/35 ............................................... 12,000,000 10,473,120
Indiana Health Facility Financing Authority Hospital Revenue,
6.25%, 3/01/25 .................................................................... 5,900,000 6,125,734
6.00%, 3/01/34 .................................................................... 12,000,000 12,217,080
Community Foundation Northwest Indiana, Refunding, Series A, 6.375%, 8/01/31 ...... 11,740,000 11,949,794
Community Foundation Northwest Indiana, Series A, Pre-Refunded, 6.375%, 8/01/31 ... 36,760,000 39,965,839
Jackson County Scheck Memorial Hospital, Refunding, 5.125%, 2/15/17 ............... 1,500,000 1,506,930
Indiana Municipal Power Agency Power Supply System Revenue, Indiana Municipal Power
Agency, Series B, 6.00%, 1/01/39 .................................................. 4,000,000 4,267,640
Indiana State Development Finance Authority Environmental Revenue, USX Corp. Project,
Refunding, 5.60%, 12/01/32 ........................................................ 8,200,000 8,205,658
Jasper County PCR, Northern Indiana Public Service Co., Refunding, Series C, NATL
Insured,
5.60%, 11/01/16 ................................................................... 10,000,000 10,793,500
5.85%, 4/01/19 .................................................................... 5,000,000 5,490,450
--------------
129,652,895
--------------
KANSAS 0.1%
Kansas State Development Finance Authority Hospital Revenue, Adventist Health,
Refunding, 5.75%, 11/15/38 ........................................................ 6,250,000 6,645,813
--------------
KENTUCKY 1.2%
Kentucky Economic Development Finance Authority Health System Revenue,
Norton Healthcare Inc.,
Refunding, Series C, NATL Insured, 6.10%, 10/01/22 ................................ 10,650,000 11,200,285
Refunding, Series C, NATL Insured, 6.15%, 10/01/27 ................................ 3,995,000 4,165,107
Series C, NATL Insured, Pre-Refunded, 6.10%, 10/01/22 ............................. 5,325,000 6,266,460
Series C, NATL Insured, Pre-Refunded, 6.15%, 10/01/27 ............................. 6,005,000 7,077,193
(b) Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Owensboro Medical Health System, Refunding, Series A, 6.50%, 3/01/45 .............. 17,500,000 17,332,875
176 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
KENTUCKY (CONTINUED)
Kentucky Economic Development Finance Authority Hospital System Revenue, Appalachian
Regional Health Center Facility, Refunding and Improvement, 5.875%, 10/01/22 ...... $ 6,835,000 $ 6,046,925
Kentucky Economic Development Finance Authority Louisville Arena Project Revenue,
Louisville Arena, Sub Series A-1, Assured Guaranty, 6.00%, 12/01/42 ............... 5,000,000 5,375,950
Louisville and Jefferson County Metropolitan Government College Revenue, Improvement,
Bellarmie University Inc. Project,
5.625%, 5/01/29 ................................................................... 5,555,000 5,560,666
6.125%, 5/01/39 ................................................................... 5,000,000 5,077,800
Louisville and Jefferson County Metropolitan Government Health Facilities Revenue,
Jewish Hospital and St. Mary's HealthCare Inc. Project, Refunding, 6.125%, 2/01/37 11,500,000 11,977,825
Owen County Waterworks System Revenue, American Water Co. Project, Series A, 6.25%,
6/01/39 ........................................................................... 8,000,000 8,573,200
--------------
88,654,286
--------------
LOUISIANA 3.2%
Beauregard Parish Revenue, Boise Cascade Corp. Project, Refunding, 6.80%, 2/01/27 .... 13,990,000 11,423,534
Calcasieu Parish Inc. IDB, PCR, Gulf States Utilities Co. Project, Refunding, 6.75%,
10/01/12 .......................................................................... 2,665,000 2,675,767
East Baton Rouge Parish Sewer Commission Revenue, Refunding, Series A, 5.25%,
2/01/39 ........................................................................... 6,000,000 6,251,040
Louisiana Local Government Environmental Facilities and CDA Revenue, Westlake Chemical
Corp. Projects, 6.75%, 11/01/32 ................................................... 38,250,000 39,584,160
Louisiana Public Facilities Authority Hospital Revenue, Franciscan Missionaries,
6.75%, 7/01/39 .................................................................... 10,000,000 10,795,600
Louisiana Public Facilities Authority Revenue,
FHA Insured Mortgage, Baton Rouge General, NATL Insured, 5.25%, 7/01/33 ........... 20,000,000 20,260,800
Ochsner Clinic Foundation Project, Series B, 5.25%, 5/15/38 ....................... 10,000,000 8,800,800
Ochsner Clinic Foundation Project, Series B, 5.50%, 5/15/47 ....................... 10,000,000 8,868,500
Louisiana State Citizens Property Insurance Corp. Assessment Revenue, Series B,
AMBAC Insured, 5.00%, 6/01/22 ..................................................... 10,000,000 10,095,300
New Orleans GO,
Limited Tax, NATL Insured, 5.00%, 3/01/21 ......................................... 5,000,000 4,884,350
Public Improvement, Series A, Radian Insured, 5.25%, 12/01/36 ..................... 13,480,000 12,633,726
Pointe Coupee Parish PCR, Gulf States Utilities Co. Project, Refunding, 6.70%,
3/01/13 ........................................................................... 2,425,000 2,443,818
Rapides Finance Authority Revenue, Cleco Power LLC Project, Mandatory Put 10/01/11,
6.00%, 10/01/38 ................................................................... 4,750,000 4,981,990
St. John the Baptist Parish Revenue, Marathon Oil Corp. Project, Series A, 5.125%,
6/01/37 ........................................................................... 80,500,000 75,287,625
West Feliciana Parish PCR, Entergy Gulf States Project, Refunding, Series B, 6.60%,
9/01/28 ........................................................................... 11,245,000 11,253,546
--------------
230,240,556
--------------
MAINE 0.4%
Rumford PCR, Boise Cascade Corp. Project, Refunding, 6.625%, 7/01/20 ................. 4,800,000 4,065,696
Skowhegan PCR, S.D. Warren Co. Project,
Refunding, Series B, 6.65%, 10/15/15 .............................................. 4,940,000 4,742,845
Series A, 6.65%, 10/15/15 ......................................................... 24,570,000 23,373,195
--------------
32,181,736
--------------
Annual Report | 177
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MARYLAND 0.5%
Maryland State Community Development Administration Development Housing and CDR,
Housing, Series A, 5.875%, 7/01/16 ................................................ $ 1,440,000 $ 1,442,894
Maryland State EDC, EDR, 5.75%, 6/01/35 .............................................. 10,000,000 10,216,400
Maryland State EDC Revenue, Chesapeake Bay Conference Center Project, senior lien,
Refunding,
Series A, 4.75%, 12/01/11 ......................................................... 650,000 615,063
Series A, 5.00%, 12/01/16 ......................................................... 3,000,000 2,367,300
Series A, 5.00%, 12/01/31 ......................................................... 10,000,000 7,246,000
Series B, 5.00%, 12/01/16 ......................................................... 700,000 552,370
Series B, 5.25%, 12/01/31 ......................................................... 2,000,000 1,448,900
Maryland State Health and Higher Educational Facilities Authority Revenue,
Anne Arundel Health System, Series A, 6.75%, 7/01/39 .............................. 3,000,000 3,423,360
Edenwald, Series A, 5.40%, 1/01/37 ................................................ 1,200,000 1,038,744
Washington County Hospital, 6.00%, 1/01/43 ........................................ 6,000,000 5,999,400
--------------
34,350,431
--------------
MASSACHUSETTS 0.3%
Massachusetts Bay Transportation Authority Revenue, General Transportation System,
Series A, 7.00%, 3/01/21 .......................................................... 2,000,000 2,434,760
Massachusetts State Development Finance Agency Revenue,
Berkshire Retirement Project, first mortgage, 5.60%, 7/01/19 ...................... 1,030,000 1,024,737
Berkshire Retirement Project, first mortgage, 5.625%, 7/01/29 ..................... 1,620,000 1,526,186
Curry College, Series A, ACA Insured, 5.00%, 3/01/36 .............................. 2,000,000 1,736,000
Loomis Community Project, first mortgage, Refunding, Series A, 5.625%, 7/01/15 .... 1,625,000 1,583,562
Loomis Community Project, first mortgage, Refunding, Series A, 5.75%, 7/01/23 ..... 3,500,000 3,189,410
Massachusetts State Development Finance Agency Solid Waste Disposal Revenue,
Mandatory Put 5/01/19, Refunding, 5.75%, 12/01/42 ................................. 3,700,000 3,938,058
Massachusetts State Health and Educational Facilities Authority Revenue, St. Memorial
Medical Center, Refunding, Series A, 6.00%, 10/01/23 .............................. 5,575,000 4,415,790
--------------
19,848,503
--------------
MICHIGAN 4.3%
Delta County EDC Environmental Improvement Revenue, Mead Escanaba Paper, Series A,
Pre-Refunded, 6.25%, 4/15/27 ...................................................... 10,500,000 11,729,235
Detroit City School District GO, School Building and Site Improvement, Series A, FSA
Insured,
6.00%, 5/01/29 .................................................................... 15,900,000 17,370,114
Detroit Sewer Disposal System Revenue, second lien, Series A, NATL Insured, 5.00%,
7/01/35 ........................................................................... 25,750,000 24,403,275
Detroit Water Supply System Revenue, second lien, Refunding, Series C, FSA Insured,
5.00%, 7/01/33 .................................................................... 11,000,000 10,924,320
Garden City Hospital Finance Authority Hospital Revenue, Garden City Hospital
Obligated Group, Refunding, Series A,
5.625%, 9/01/10 ................................................................... 340,000 340,874
5.75%, 9/01/17 .................................................................... 530,000 492,158
5.00%, 8/15/38 .................................................................... 5,250,000 3,348,975
Gaylord Hospital Finance Authority Limited Obligation Revenue, Otsego Memorial
Hospital, Refunding, 6.50%,
1/01/31 ........................................................................... 1,000,000 895,300
1/01/37 ........................................................................... 1,000,000 881,910
178 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MICHIGAN (CONTINUED)
Michigan State Building Authority Revenue,
Facilities Program, Refunding, Series I, 6.00%, 10/15/38 .......................... $ 6,000,000 $ 6,551,520
Facilities Program, Refunding, Series I, AMBAC Insured, 5.00%, 10/15/33 ........... 13,495,000 13,457,214
Facilities Program, Refunding, Series II, NATL Insured, 5.00%, 10/15/29 ........... 16,585,000 16,671,242
Refunding, Series IA, FGIC Insured, 5.00%, 10/15/31 ............................... 9,500,000 9,526,030
Michigan State Hospital Finance Authority Revenue,
Detroit Medical Center Obligation Group, Refunding, Series A, 6.25%, 8/15/13 ...... 7,500,000 7,518,525
Detroit Medical Center Obligation Group, Refunding, Series A, 6.50%, 8/15/18 ...... 30,205,000 28,882,323
Detroit Medical Center Obligation Group, Refunding, Series B, 5.50%, 8/15/23 ...... 500,000 412,480
Detroit Medical Center Obligation Group, Series A, 5.25%, 8/15/23 ................. 500,000 402,065
Hospital, Oakwood Obligated Group, Refunding, Series A, 5.00%, 7/15/37 ............ 3,680,000 3,176,245
Marquette, 5.00%, 5/15/34 ......................................................... 6,000,000 4,928,160
Memorial Healthcare Center, Refunding, 5.75%, 11/15/15 ............................ 1,000,000 1,011,480
Mercy Health Services, Series Q, AMBAC Insured, ETM, 5.75%, 8/15/16 ............... 7,310,000 7,348,597
Mid-Michigan Obligation Group, Series A, 6.125%, 6/01/34 .......................... 4,065,000 4,340,892
Sinai Hospital, Refunding, 6.625%, 1/01/16 ........................................ 2,210,000 2,191,370
Sinai Hospital, Refunding, 6.70%, 1/01/26 ......................................... 7,250,000 6,598,297
Michigan State Strategic Fund Limited Obligation Revenue,
Detroit Edison Co., Refunding, Series A, NATL Insured, 5.55%, 9/01/29 ............. 1,015,000 991,381
Detroit Edison Co. Pollution Control Project, Refunding, Series C, 5.45%,
9/01/29 ........................................................................ 11,000,000 11,109,780
Detroit Edison Co. Pollution Control Project, Refunding, Series C, XLCA Insured,
5.65%, 9/01/29 ................................................................. 10,000,000 9,803,300
Dow Chemical, Mandatory Put 6/02/14, Refunding, Series A-1, 6.75%, 12/01/28 ....... 2,800,000 3,100,104
Dow Chemical, Refunding, Series B-2, 6.25%, 6/01/14 ............................... 20,050,000 22,432,541
Michigan Tobacco Settlement Finance Authority Revenue, Tobacco Settlement Asset,
Senior Series A, 6.00%, 6/01/34 ................................................... 13,675,000 11,874,276
Senior Series A, 6.00%, 6/01/48 ................................................... 10,000,000 7,903,500
Turbo, Series A, 6.875%, 6/01/42 .................................................. 17,500,000 16,036,825
Royal Oak Hospital Finance Authority Hospital Revenue, William Beaumont Hospital,
Refunding, 8.25%, 9/01/39 ......................................................... 20,000,000 23,752,400
Series W, 6.00%, 8/01/39 .......................................................... 17,220,000 17,379,113
Tawas City Hospital Finance Authority Revenue, Tawas St. Joseph's Hospital Project,
Series A, ETM, 5.60%, 2/15/13 ..................................................... 690,000 691,552
--------------
308,477,373
--------------
MINNESOTA 0.9%
Hubbard County Solid Waste Disposal Revenue, Potlatch Corp. Project, 7.25%, 8/01/14 .. 9,000,000 9,165,060
Mahtomedi Senior Housing Revenue, St. Andrews Village Project, Refunding, 5.75%,
12/01/40 .......................................................................... 5,000,000 4,264,000
Minneapolis and St. Paul Metropolitan Airports Commission Airport Revenue, sub. bond,
Refunding, Series C, FGIC Insured, 5.00%, 1/01/31 ................................. 6,185,000 6,279,940
Minneapolis Health Care Facility Revenue,
Augustana Chapel View Homes, Series D, 5.875%, 6/01/35 ............................ 5,075,000 3,868,013
Jones-Harrison Residence Project, 5.70%, 10/01/35 ................................. 1,000,000 876,140
Minneapolis Health Care System Revenue, Fairview Health Services, Series A,
6.625%, 11/15/28 .................................................................. 11,000,000 12,214,730
6.75%, 11/15/32 ................................................................... 6,250,000 6,915,812
Annual Report | 179
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
MINNESOTA (CONTINUED)
Minnesota Agriculture and Economic Development Board Revenue, Health Care System,
Refunding, Series A, 6.375%, 11/15/29 ............................................. $ 175,000 $ 178,139
Series A, Pre-Refunded, 6.375%, 11/15/29 .......................................... 6,325,000 6,658,897
Minnesota State HFAR, Rental Housing, Refunding, Series D, NATL Insured, 5.95%,
2/01/18 ........................................................................... 295,000 295,858
Roseville MFHR, Rosepointe I Project, Series C, Pre-Refunded, 8.00%, 12/01/29 ........ 2,980,000 3,105,369
St. Paul Housing and RDA Hospital Revenue, Healtheast Project, 6.00%, 11/15/35 ....... 10,000,000 9,066,900
--------------
62,888,858
--------------
MISSISSIPPI 1.2%
Claiborne County PCR, Systems Energy Resources Inc. Project, Refunding, 6.20%,
2/01/26 ........................................................................... 33,300,000 33,164,469
Lowndes County Solid Waste Disposal and PCR, Weyerhaeuser Co. Project, Refunding,
Series B, 6.70%, 4/01/22 .......................................................... 18,875,000 20,609,235
Warren County Gulf Opportunity Zone Revenue, International Paper, Series A, 6.50%,
9/01/32 ........................................................................... 10,000,000 10,464,300
Warren County Revenue, Gulf Opportunity, International Paper, Series A, 5.50%,
9/01/31 ........................................................................... 20,000,000 19,292,000
--------------
83,530,004
--------------
MISSOURI 0.6%
Branson Regional Airport Transportation Development District Airport Revenue,
Series A, 6.00%, 7/01/37 .......................................................... 1,200,000 820,776
Series B, 6.00%, 7/01/25 .......................................................... 6,000,000 4,429,980
Series B, 6.00%, 7/01/37 .......................................................... 5,000,000 3,278,300
Lake of the Ozarks Community Board Corp. Bridge System Revenue, Refunding, 5.25%,
12/01/20 .......................................................................... 8,350,000 6,995,964
Missouri Joint Municipal Electric Utility Commission Power Project Revenue, Iatan 2
Project, Series A, 6.00%, 1/01/39 ................................................. 11,000,000 11,599,830
St. Louis Airport Revenue, Lambert, St. Louis International Airport, Series A-1,
6.25%, 7/01/29 .................................................................... 7,000,000 7,321,230
6.625%, 7/01/34 ................................................................... 3,000,000 3,165,000
West Plains IDA Hospital Revenue, Ozarks Medical Center,
6.30%, 11/15/11 ................................................................... 320,000 326,147
6.75%, 11/15/24 ................................................................... 1,870,000 1,832,282
Refunding, 5.50%, 11/15/12 ........................................................ 325,000 325,039
--------------
40,094,548
--------------
MONTANA 0.1%
Forsyth PCR, Puget Sound Energy, Refunding, Series A, AMBAC Insured, 5.00%, 3/01/31 .. 10,220,000 10,128,224
--------------
NEVADA 1.1%
Clark County ID Special Assessment,
Local ID No. 128, The Summerlin Centre, Series A, 5.00%, 2/01/26 .................. 1,320,000 904,187
Local ID No. 128, The Summerlin Centre, Series A, 5.05%, 2/01/31 .................. 1,035,000 670,991
Local ID No. 132, Summerlin South Area, Villages 15A and 18, 6.875%, 2/01/21 ...... 3,580,000 3,440,631
Local ID No. 142, Mountains Edge, 6.375%, 8/01/23 ................................. 4,010,000 3,810,623
Local ID No. 151, Summerlin-Mesa, 5.00%, 8/01/20 .................................. 755,000 566,582
Local ID No. 151, Summerlin-Mesa, 5.00%, 8/01/25 .................................. 2,370,000 1,627,029
180 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEVADA (CONTINUED)
Clark County IDR,
Nevada Power Co. Project, Refunding, Series B, 5.90%, 10/01/30 .................... $ 7,375,000 $ 7,036,930
Nevada Power Co. Project, Series A, ACA Insured, 5.60%, 10/01/30 .................. 2,220,000 1,978,775
Southwest Gas Corp. Project, Series D, AMBAC Insured, 5.55%, 12/01/38 ............. 7,260,000 6,880,738
Henderson Health Care Facility Revenue, Catholic Healthcare West, Series A, 5.625%,
7/01/24 ........................................................................... 7,000,000 7,178,780
Henderson Local ID Special Assessment,
No. T-2, 9.50%, 8/01/11 ........................................................... 165,000 166,744
No. T-4C, Green Valley, Refunding, Series A, 5.90%, 11/01/18 ...................... 3,025,000 3,033,712
No. T-12, Series A, 7.375%, 8/01/18 ............................................... 31,040,000 25,108,566
No. T-16, 4.90%, 3/01/16 .......................................................... 1,355,000 720,697
No. T-16, 5.00%, 3/01/18 .......................................................... 970,000 515,613
No. T-16, 5.00%, 3/01/19 .......................................................... 965,000 512,878
No. T-16, 5.10%, 3/01/22 .......................................................... 1,445,000 767,743
No. T-16, 5.125%, 3/01/25 ......................................................... 1,530,000 812,843
No. T-17, 5.00%, 9/01/15 .......................................................... 710,000 640,732
No. T-17, 5.00%, 9/01/16 .......................................................... 725,000 638,935
No. T-17, 5.00%, 9/01/25 .......................................................... 1,365,000 985,666
Las Vegas Local Improvement Bonds Special Assessment, Special ID No. 607, 6.25%,
6/01/24 ........................................................................... 4,835,000 4,215,298
Las Vegas Special Assessment, ID No. 505, Elkhorn Springs, 8.00%, 9/15/13 ............ 1,735,000 1,771,123
Overton Power District No. 5 Special Obligation Revenue, 8.00%, 12/01/38 ............. 7,500,000 8,798,250
--------------
82,784,066
--------------
NEW HAMPSHIRE 0.3%
New Hampshire Higher Educational and Health Facilities Authority Revenue,
Hillcrest Terrace, 7.50%, 7/01/24 ................................................. 14,550,000 13,909,946
New Hampshire Catholic Charities, Refunding, Series A, 5.75%, 8/01/11 ............. 425,000 424,337
New Hampshire State Business Finance Authority Revenue, Elliot Hospital Obligation
Group, Series A, 6.125%, 10/01/39 ................................................. 5,000,000 5,030,250
--------------
19,364,533
--------------
NEW JERSEY 4.4%
Hudson County Improvement Authority Solid Waste Systems Revenue, Refunding,
Series 1, 6.00%, 1/01/19 .......................................................... 2,180,000 1,907,391
Series 1, 6.00%, 1/01/29 .......................................................... 5,000,000 3,925,350
Series 2, 6.125%, 1/01/19 ......................................................... 2,125,000 1,875,865
Series 2, 6.125%, 1/01/29 ......................................................... 5,105,000 4,068,123
New Jersey EDA Lease Revenue, International Center for Public Health Project,
University of Medicine and Dentistry, AMBAC Insured, 6.00%, 6/01/32 ............... 9,965,000 9,966,694
New Jersey EDA Revenue,
Cigarette Tax, 5.50%, 6/15/24 ..................................................... 23,000,000 22,840,610
Cigarette Tax, 5.50%, 6/15/31 ..................................................... 6,500,000 6,037,980
Cigarette Tax, 5.75%, 6/15/34 ..................................................... 10,000,000 9,595,200
first mortgage, Keswick Pines, Refunding, 5.75%, 1/01/24 .......................... 1,500,000 1,291,305
first mortgage, Presbyterian, Series A, 6.25%, 11/01/20 ........................... 7,635,000 6,952,431
Annual Report | 181
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
New Jersey EDA Special Facility Revenue, Continental Airlines Inc. Project,
6.625%, 9/15/12 ................................................................... $ 25,525,000 $ 25,445,107
6.25%, 9/15/19 .................................................................... 32,000,000 30,116,800
6.40%, 9/15/23 .................................................................... 79,890,000 73,899,049
New Jersey Health Care Facilities Financing Authority Revenue,
Capital Appreciation, St. Barnabas Health, Refunding, Series B, zero cpn.,
7/01/33 ........................................................................ 57,680,000 8,018,097
Capital Appreciation, St. Barnabas Health, Refunding, Series B, zero cpn.,
7/01/34 ........................................................................ 52,330,000 6,668,935
Capital Appreciation, St. Barnabas Health, Refunding, Series B, zero cpn.,
7/01/35 ........................................................................ 20,000,000 2,336,200
South Jersey Hospital, 5.00%, 7/01/46 ............................................. 6,000,000 5,823,600
St. Joseph's Healthcare System, 6.625%, 7/01/38 ................................... 25,000,000 25,291,500
Trinitas Hospital Obligation Group, Pre-Refunded, 7.50%, 7/01/30 .................. 5,000,000 5,161,600
New Jersey State Transportation Trust Fund Authority Revenue, Transportation System,
Series A, 6.00%, 12/15/38 ......................................................... 55,000,000 61,306,850
Tobacco Settlement FICO Revenue, Capital Appreciation Bonds, Series 1B, zero cpn.,
6/01/41 ........................................................................... 40,000,000 2,022,400
--------------
314,551,087
--------------
NEW MEXICO 1.6%
Farmington PCR, Public Service Co. of New Mexico, San Juan Project,
Refunding, Series A, 6.30%, 12/01/16 .............................................. 24,045,000 24,200,812
Refunding, Series B, 6.30%, 12/01/16 .............................................. 5,175,000 5,208,534
Refunding, Series D, 6.375%, 4/01/22 .............................................. 66,125,000 66,183,190
Series A, 6.60%, 10/01/29 ......................................................... 9,000,000 9,039,330
New Mexico State Hospital Equipment Loan Council Hospital Revenue, St. Vincent
Hospital, Series A, Radian Insured, Pre-Refunded,
5.25%, 7/01/30 .................................................................... 4,360,000 5,115,980
5.00%, 7/01/35 .................................................................... 3,470,000 4,027,802
--------------
113,775,648
--------------
NEW YORK 4.8%
Chautauqua County IDA Exempt Facility Revenue, NRG-Dunkirk Power Project, 5.875%,
4/01/42 ........................................................................... 7,000,000 7,123,690
Corinth IDA Environmental Improvement Revenue, International Paper Co. Project,
Refunding, Series A, 5.75%, 2/01/22 ............................................... 2,000,000 2,000,940
Long Island Power Authority Electric System Revenue, General, Refunding, Series A,
6.00%, 5/01/33 .................................................................... 12,500,000 13,993,750
MAC for City of Troy Revenue, Capital Appreciation, Series C, NATL Insured, zero cpn.,
7/15/21 ........................................................................... 428,010 267,742
1/15/22 ........................................................................... 649,658 395,791
MTA Revenue, Transportation, Series F, 5.00%, 11/15/30 ............................... 7,000,000 7,191,520
New York City GO,
Fiscal 2003, Series I, 5.00%, 3/01/25 ............................................. 9,000,000 9,300,330
Refunding, Series H, 6.25%, 8/01/15 ............................................... 20,000 20,049
Refunding, Series H, 6.125%, 8/01/25 .............................................. 10,000 10,024
Refunding, Series J, 6.00%, 8/01/21 ............................................... 5,000 5,012
Series B, 7.00%, 2/01/18 .......................................................... 115,000 115,321
Series D, 7.625%, 2/01/14 ......................................................... 5,000 5,015
Series F, 7.50%, 2/01/21 .......................................................... 85,000 85,261
Series G, 7.50%, 2/01/22 .......................................................... 10,000 10,031
182 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City IDA Civic Facility Revenue,
Amboy Properties Corp. Project, Refunding, 6.75%, 6/01/20 ......................... $ 5,920,000 $ 5,470,317
Series C, 6.80%, 6/01/28 .......................................................... 5,000,000 5,337,600
Staten Island University Hospital Project, Series C, 6.45%, 7/01/32 ............... 1,450,000 1,365,074
New York City IDA Special Facility Revenue,
American Airlines Inc., JFK International Airport Project, 7.625%, 8/01/25 ........ 20,000,000 19,828,400
American Airlines Inc., JFK International Airport Project, 7.75%, 8/01/31 ......... 15,000,000 14,998,350
American Airlines Inc., JFK International Airport Project, Series A, 8.00%,
8/01/12 ........................................................................ 30,000,000 30,453,600
British Airways PLC Project, 7.625%, 12/01/32 ..................................... 15,550,000 14,259,816
New York City IDAR,
Liberty, 7 World Trade Center Project, Series A, 6.25%, 3/01/15 ................... 42,000,000 42,484,680
Liberty, 7 World Trade Center Project, Series A, 6.50%, 3/01/35 ................... 50,000,000 48,500,000
Liberty, 7 World Trade Center Project, Series B, 6.75%, 3/01/15 ................... 5,000,000 5,104,250
Queens Baseball Stadium, Pilot, AMBAC Insured, 5.00%, 1/01/31 ..................... 9,500,000 8,619,160
New York City Municipal Water Finance Authority Water and Sewer System Revenue,
Second General Resolution, Refunding, Series AA, 5.00%, 6/15/37 ................... 11,035,000 11,352,918
Series E, 5.00%, 6/15/34 .......................................................... 10,000,000 10,276,300
New York Liberty Development Corp. Revenue, Goldman Sachs Headquarters, 5.25%,
10/01/35 .......................................................................... 13,000,000 13,146,120
New York State Dormitory Authority Revenues, Non-State Supported Debt, Orange Regional
Medical Center,
6.125%, 12/01/29 .................................................................. 16,000,000 15,081,920
6.25%, 12/01/37 ................................................................... 30,000,000 28,126,200
Oneida County IDAR, Civic Facility, St. Elizabeth Medical, Series B, 6.00%,
12/01/19 .......................................................................... 1,000,000 998,430
Port Authority of New York and New Jersey Special Obligation Revenue, Continental
Airlines Inc., Eastern Project, La Guardia,
9.00%, 12/01/10 ................................................................... 2,355,000 2,368,847
9.125%, 12/01/15 .................................................................. 23,390,000 23,520,048
Utica IDA Civic Facility Revenue, Utica College Civic Facility,
6.75%, 12/01/21 ................................................................... 1,250,000 1,252,275
6.85%, 12/01/31 ................................................................... 2,000,000 1,951,200
--------------
345,019,981
--------------
NORTH CAROLINA 0.4%
Albemarle Hospital Authority Health Care Facilities Revenue, Refunding, 5.25%,
10/01/27 .......................................................................... 4,500,000 3,778,470
Columbus County Industrial Facilities and PCFA Revenue, International Paper Co.
Projects, Recovery Zone Facility Bonds, Series B, 6.25%, 11/01/33 ................. 4,000,000 4,146,280
Series A, 6.25%, 11/01/33 ......................................................... 1,300,000 1,347,541
North Carolina Eastern Municipal Power Agency Power System Revenue, Series A, 5.50%,
1/01/26 ........................................................................... 4,500,000 4,821,165
North Carolina HFAR, SF, Series II, FHA Insured, 6.20%,
3/01/16 ........................................................................... 735,000 772,382
9/01/17 ........................................................................... 535,000 535,487
North Carolina Medical Care Commission Health Care Facilities Revenue, Pennybyrn at
Maryfield, Series A,
5.75%, 10/01/23 ................................................................... 3,625,000 2,835,584
6.00%, 10/01/23 ................................................................... 2,500,000 2,005,400
Annual Report | 183
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NORTH CAROLINA (CONTINUED)
North Carolina Medical Care Commission Retirement Facilities Revenue, first mortgage,
United Methodist, Refunding, Series C,
5.25%, 10/01/24 ................................................................... $ 920,000 $ 859,464
5.50%, 10/01/32 ................................................................... 1,600,000 1,436,192
North Carolina Medical Care Commission Revenue, Series A, 6.125%, 10/01/35 ........... 8,250,000 6,083,962
--------------
28,621,927
--------------
NORTH DAKOTA 0.1%
Ward County Health Care Facilities Revenue, Trinity Obligated Group, 5.125%,
7/01/25 ........................................................................... 2,250,000 2,073,353
7/01/29 ........................................................................... 2,500,000 2,240,975
--------------
4,314,328
--------------
OHIO 0.7%
Buckeye Tobacco Settlement Financing Authority Revenue,
Asset-Backed, Senior Convertible Capital Appreciation Turbo Term Bond, Series A-3,
zero cpn. to 12/01/12, 6.25% thereafter, 6/01/37 ............................... 15,000,000 10,198,500
Asset-Backed, Senior Current Interest Turbo Term Bond, Series A-2, 5.75%,
6/01/34 ........................................................................ 11,250,000 9,192,600
Asset-Backed, Senior Current Interest Turbo Term Bond, Series A-2, 6.00%,
6/01/42 ........................................................................ 5,000,000 3,987,050
Capital Appreciation, Asset-Backed, First Sub Series B, zero cpn., 6/01/47 ........ 55,000,000 2,225,300
Franklin County Health Care Facilities Revenue,
Ohio Presbyterian, Series A, Pre-Refunded, 7.125%, 7/01/29 ........................ 1,000,000 1,092,550
Presbyterian Retirement Services, Refunding, 5.50%, 7/01/17 ....................... 3,100,000 3,100,093
Presbyterian Retirement Services, Refunding, 5.50%, 7/01/21 ....................... 950,000 925,718
Miami County Hospital Facilities Revenue, Refunding and Improvement, Upper Valley
Medical Center, 5.25%, 5/15/26 .................................................... 2,750,000 2,690,270
Scioto County Hospital Revenue, Southern Ohio Medical Center, Refunding, 5.75%,
2/15/38 ........................................................................... 17,000,000 17,259,250
Toledo Lucas County Port Authority Airport Revenue, Bax Global Project, Refunding,
Series 1, 6.25%, 11/01/13 ......................................................... 2,600,000 2,498,444
--------------
53,169,775
--------------
OKLAHOMA 0.2%
Oklahoma Development Finance Authority Revenue, Comanche County Hospital Project,
Series B, 6.60%, 7/01/31 .......................................................... 5,000,000 5,129,350
Tulsa Industrial Authority Revenue, Refunding, NATL Insured, 5.00%, 10/01/31 ......... 5,325,000 5,465,793
Valley View Hospital Authority Revenue, Valley View Regional Medical Center,
Refunding, 6.00%, 8/15/14 ......................................................... 2,005,000 1,982,504
--------------
12,577,647
--------------
OREGON 0.2%
Gilliam County Solid Waste Disposal Revenue, Waste Management, Mandatory Put 5/03/10,
Series A, 6.00%, 8/01/25 .......................................................... 3,500,000 3,520,300
Oregon Health and Science University Revenue, Series A, 5.75%, 7/01/39 ............... 5,000,000 5,400,250
Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Linfield College Project, Series A, Pre-Refunded, 6.75%, 10/01/25 ................. 5,215,000 5,461,096
--------------
14,381,646
--------------
184 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA 5.6%
Allegheny County Hospital Development Authority Revenue,
Health System, Series A, NATL Insured, Pre-Refunded, 6.50%, 11/15/30 .............. $ 10,000,000 $ 10,636,400
Health System, Series B, Pre-Refunded, 9.25%, 11/15/15 ............................ 18,725,000 19,922,838
Health System, Series B, Pre-Refunded, 9.25%, 11/15/22 ............................ 24,000,000 25,970,640
West Pennsylvania Allegheny Health System, Refunding, 5.00%, 11/15/28 ............. 8,360,000 6,593,616
West Pennsylvania Allegheny Health System, Refunding, 5.375%, 11/15/40 ............ 70,000,000 52,693,200
Allegheny County IDAR, Environmental Improvement, Refunding, 5.50%, 11/01/16 ......... 1,890,000 1,886,730
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%, 5/01/10 ......... 1,150,000 1,149,747
Delaware County IDAR, Resource Recovery Facility, Refunding, Series A,
6.10%, 7/01/13 .................................................................... 30,140,000 30,317,826
6.20%, 7/01/19 .................................................................... 17,525,000 17,548,133
Harrisburg Authority University Revenue, Harrisburg University of Science, Series B,
6.00%, 9/01/36 .................................................................... 3,000,000 2,640,660
Lancaster County Hospital Authority Revenue, Brethren Village Project, Series A,
6.375%, 7/01/30 ................................................................... 1,000,000 941,910
6.50%, 7/01/40 .................................................................... 3,000,000 2,833,440
Lancaster IDAR, Garden Spot Village Project, Series A, Pre-Refunded, 7.625%,
5/01/31 ........................................................................... 1,650,000 1,686,053
New Morgan IDA Solid Waste Disposal Revenue, New Morgan Landfill Co. Inc., Project,
6.50%, 4/01/19 .................................................................... 3,160,000 3,162,370
Northampton County General Purpose Authority Hospital Revenue, St. Luke's Hospital
Project, Series A, 5.50%, 8/15/40 ................................................. 15,000,000 14,803,050
Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue,
Allegheny Energy Supply Co., LLC Project, 7.00%, 7/15/39 .......................... 60,000,000 67,167,000
Reliant Energy Seward LLC Project, Series A, 6.75%, 12/01/36 ...................... 94,510,000 94,264,274
Pennsylvania State Turnpike Commission Turnpike Revenue,
Convertible Capital Appreciation, Series C, FSA Insured, zero cpn. to 6/01/16,
6.25% thereafter, 6/01/33 ......................................................... 5,000,000 3,651,300
Series B, 5.75%, 6/01/39 .......................................................... 20,000,000 21,219,400
Philadelphia Hospitals and Higher Education Facilities Authority Hospital Revenue,
Temple University Health System, Refunding, Series B, 5.50%, 7/01/26 .............. 18,000,000 16,698,600
Sayre Health Care Facilities Authority Revenue, Guthrie Healthcare System,
Refunding, Series A, 5.75%, 12/01/21 .............................................. 815,000 839,939
Series A, Pre-Refunded, 5.75%, 12/01/21 ........................................... 2,185,000 2,395,131
Washington County IDA, PCR, West Pennsylvania Power Co., Series G, AMBAC Insured,
6.05%, 4/01/14 .................................................................... 5,025,000 5,036,005
--------------
404,058,262
--------------
RHODE ISLAND 0.3%
Rhode Island State Health and Educational Building Corp. Revenue, Hospital Financing,
Lifespan Obligated Group,
Pre-Refunded, 6.50%, 8/15/32 ...................................................... 8,000,000 9,074,720
Refunding, NATL Insured, 5.75%, 5/15/23 ........................................... 405,000 406,656
Series A, 7.00%, 5/15/39 .......................................................... 8,200,000 9,084,124
Tobacco Settlement Financing Corp. Revenue, Asset-Backed, Series B, zero cpn.,
6/01/52 ........................................................................... 90,000,000 1,488,600
--------------
20,054,100
--------------
Annual Report | 185
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
SOUTH CAROLINA 0.9%
Dorchester County School District No. 002 Installment Purchase Revenue, Growth Remedy
Opportunities Tax Hike, 5.25%, 12/01/29 ........................................... $ 16,500,000 $ 17,086,410
Greenville County School District Installment Purchase Revenue, Building Equity Sooner
Tomorrow, 5.00%, 12/01/28 ......................................................... 10,000,000 10,206,500
Lancaster Educational Assistance Program Inc. Revenue, School District of Lancaster
County Project, 5.00%, 12/01/26 ................................................... 15,015,000 15,146,231
Scago Educational Facilities Corp. for Calhoun School District Revenue, School
Project, Radian Insured, 5.00%, 12/01/26 .......................................... 7,540,000 6,162,141
Scago Educational Facilities Corp. for Williamsburg School District Revenue,
Williamsburg County Project, Refunding, Radian Insured, 5.00%, 12/01/31 ........... 2,000,000 1,857,140
South Carolina Jobs EDA Student Housing Revenue, Coastal Housing Foundation, Series A,
6.50%, 4/01/42 .................................................................... 10,000,000 10,327,600
South Carolina State Public Service Authority Revenue, Refunding, Series A, 5.00%,
1/01/32 ........................................................................... 6,000,000 6,323,520
--------------
67,109,542
--------------
TENNESSEE 0.9%
Clarksville Natural Gas Acquisition Corp. Gas Revenue, 5.00%, 12/15/20 ............... 5,990,000 5,989,521
Johnson City Health and Educational Facilities Board Hospital Revenue, first mortgage,
Mountain States Health, Refunding, Series A, NATL Insured, zero cpn.,
7/01/27 ........................................................................... 19,365,000 6,170,851
7/01/28 ........................................................................... 19,400,000 5,665,382
7/01/29 ........................................................................... 19,365,000 5,209,379
7/01/30 ........................................................................... 19,370,000 4,745,844
Knox County Health Educational and Housing Facilities Board Hospital Facilities
Revenue,
Capital Appreciation, Refunding and Improvement, Series A, FSA Insured, zero cpn.,
1/01/25 ........................................................................ 5,000,000 2,186,850
Capital Appreciation, Refunding and Improvement, Series A, FSA Insured, zero cpn.,
1/01/26 ........................................................................ 2,610,000 1,071,849
Covenant Health System, Refunding and Improvement, Series A, zero cpn., 1/01/37 ... 12,760,000 2,377,953
Covenant Health System, Refunding and Improvement, Series A, zero cpn., 1/01/39 ... 13,755,000 2,313,728
Knox County Health Educational and Housing Facilities Board Revenue, University Health
System Inc., Refunding, 5.25%, 4/01/36 ............................................ 20,475,000 19,099,489
Memphis-Shelby County Airport Authority Airport Revenue, Refunding, Series B, 5.75%,
7/01/23 ........................................................................... 5,000,000 5,307,550
7/01/24 ........................................................................... 3,500,000 3,683,505
--------------
63,821,901
--------------
TEXAS 5.3%
Angelina and Neches River Authority Waste Disposal Revenue, Temple-Inland Forest
Products, 6.95%, 5/01/23 .......................................................... 1,750,000 1,745,293
Austin Convention Enterprises Inc. Convention Center Revenue, first tier,
Refunding, Series B, 5.75%, 1/01/34 ............................................... 7,000,000 5,714,660
Series A, Pre-Refunded, 6.70%, 1/01/32 ............................................ 10,000,000 10,533,000
Bexar County Health Facilities Development Corp. Revenue, Army Retirement Residence,
Refunding, 5.00%,
7/01/27 ........................................................................... 1,000,000 930,670
7/01/33 ........................................................................... 1,520,000 1,342,479
186 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Brazos County Health Facilities Development Corp. Franciscan Services Corp. Revenue,
Obligation Group, St. Joseph Regional, 5.50%, 1/01/38 ............................. $ 5,250,000 $ 5,040,315
Brazos River Authority PCR,
Texas Utility Co., Refunding, Series A, 7.70%, 4/01/33 ............................ 21,740,000 14,594,062
TXU Electric Co. Project, Refunding, Series A, 8.25%, 10/01/30 .................... 45,000,000 31,823,550
TXU Electric Co. Project, Refunding, Series C, 7.70%, 3/01/32 ..................... 6,800,000 4,408,848
TXU Electric Co. Project, Refunding, Series D-1, 8.25%, 5/01/33 ................... 17,000,000 11,657,410
TXU Energy Co. LLC Project, Mandatory Put 4/01/13, Refunding, Series A, 6.75%,
4/01/38 ........................................................................ 1,000,000 897,610
TXU Energy Co. LLC Project, Refunding, Series B, 6.30%, 7/01/32 ................... 9,000,000 4,876,380
TXU Energy Co. LLC Project, Refunding, Series C, 6.75%, 10/01/38 .................. 1,555,000 890,517
Brazos River Harbor Navigation District Brazoria County Environmental Revenue,
Dow Chemical Co. Project, Refunding, Series B-2, 4.95%, 5/15/33 ................... 2,500,000 2,406,375
Mandatory Put 6/05/12, Refunding, 6.25%, 5/15/33 .................................. 5,000,000 5,340,900
Brownsville Utility System Revenue, Refunding and Improvement, Series A, AMBAC
Insured, 5.00%, 9/01/31 ........................................................... 12,500,000 12,716,000
(b) Central Texas Regional Mobility Authority Revenue,
Capital Appreciation, Refunding, zero cpn., 1/01/35 ............................... 3,000,000 449,550
Capital Appreciation, Refunding, zero cpn., 1/01/37 ............................... 2,500,000 319,825
Capital Appreciation, Refunding, zero cpn., 1/01/38 ............................... 2,405,000 284,175
Capital Appreciation, Refunding, zero cpn., 1/01/39 ............................... 2,545,000 277,710
senior lien, Refunding, 5.75%, 1/01/25 ............................................ 2,500,000 2,487,425
Coppell Special Assessment, Gateway Project, 8.70%, 3/01/12 .......................... 1,155,000 1,167,832
Dallas-Fort Worth International Airport Revenue, Joint,
Series B, NATL Insured, 6.00%, 11/01/23 ........................................... 4,000,000 4,014,680
Series C, NATL Insured, 6.25%, 11/01/28 ........................................... 3,250,000 3,262,740
El Paso Health Facilities Development Corp. Revenue, Senior Care Facilities, Bienvivir
Senior Health, Pre-Refunded,
7.00%, 8/15/12 .................................................................... 385,000 403,168
7.50%, 8/15/18 .................................................................... 2,300,000 2,574,367
7.75%, 8/15/31 .................................................................... 3,000,000 3,368,670
Gulf Coast Waste Disposal Authority Waste Disposal Revenue, Valero Energy Corp.
Project, 6.65%, 4/01/32 ........................................................... 1,500,000 1,504,200
Harris County Health Facilities Development Corp. Hospital Revenue, Memorial Hermann
Healthcare System, Refunding, Series B, 7.25%, 12/01/35 ........................... 13,500,000 15,251,085
Houston Airport System Revenue, Special Facilities, Continental Airlines, Series E,
6.75%, 7/01/21 .................................................................... 24,995,000 24,205,408
Lubbock Educational Facilities Authority Revenue, Lubbock Christian, Refunding and
Improvement, 5.25%, 11/01/37 ...................................................... 1,000,000 916,890
Lufkin Health Facilities Development Corp. Health System Revenue, Memorial Health
System of East Texas,
5.50%, 2/15/32 .................................................................... 1,000,000 935,930
5.50%, 2/15/37 .................................................................... 2,500,000 2,233,225
Refunding, 6.25%, 2/15/37 ......................................................... 5,000,000 4,948,350
Matagorda County Navigation District No. 1 PCR, Central Power and Light Co. Project,
Refunding, Series A, 6.30%, 11/01/29 .............................................. 10,000,000 10,842,600
Matagorda County Navigation District No. 1 Revenue,
Centerpoint Energy Project, Refunding, 5.60%, 3/01/27 ............................. 12,000,000 12,124,680
Houston Lighting, Refunding, AMBAC Insured, 5.125%, 11/01/28 ...................... 7,000,000 6,548,360
Annual Report | 187
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
North Texas Tollway Authority Revenue,
Capital Appreciation, System, first tier, Refunding, Series I, zero cpn. to
1/01/15, 6.50% thereafter, 1/01/43 ............................................. $ 25,000,000 $ 19,052,000
System, first tier, Refunding, Series A, 5.625%, 1/01/33 .......................... 1,000,000 1,030,200
System, first tier, Refunding, Series A, 6.25%, 1/01/39 ........................... 12,500,000 13,510,500
System, first tier, Refunding, Series A, 5.75%, 1/01/48 ........................... 30,000,000 30,679,800
System, first tier, Refunding, Series B, 5.75%, 1/01/40 ........................... 11,680,000 12,004,704
System, first tier, Refunding, Series K-2, 6.00%, 1/01/38 ......................... 15,000,000 15,904,950
System, second tier, Refunding, Series F, 5.75%, 1/01/38 .......................... 20,000,000 20,325,600
Sabine River Authority PCR, TXU Electric Co. Project, Refunding,
Series A, 5.80%, 7/01/22 .......................................................... 1,000,000 610,940
Series B, 6.15%, 8/01/22 .......................................................... 13,115,000 8,291,828
Series C, 5.20%, 5/01/28 .......................................................... 29,945,000 15,885,523
Sam Rayburn Municipal Power Agency Revenue, Refunding, 6.00%,
10/01/16 .......................................................................... 8,500,000 8,852,920
10/01/21 .......................................................................... 1,500,000 1,540,170
Texas State Turnpike Authority Revenue, Capital Appreciation, AMBAC Insured, zero
cpn., 8/15/32 ..................................................................... 51,000,000 11,539,770
Trinity River Authority PCR, Texas Electric Co. Project, Refunding, 6.25%, 5/01/28 ... 445,000 255,030
Tyler Health Facilities Development Corp. Hospital Revenue,
East Texas Medical Center, Refunding and Improvement, Series A, 5.375%, 11/01/37 .. 8,000,000 7,348,560
Mother Frances Hospital, Series B, 5.00%, 7/01/37 ................................. 3,400,000 2,905,266
--------------
382,776,700
--------------
VERMONT 0.2%
Vermont Educational and Health Buildings Financing Agency Revenue, Fletcher Allen
Health, Series A, AMBAC Insured, 6.00%, 12/01/23 .................................. 15,000,000 15,131,550
--------------
VIRGINIA 0.4%
Isle Wight County IDA Environmental Improvement Revenue, International Paper Co.
Project, Series A, 6.60%, 5/01/24 ................................................. 1,065,000 1,076,566
James City County EDA Residential Care Facility Revenue, first mortgage, Williamsburg
Landing, Series A, 5.35%, 9/01/26 ................................................. 750,000 662,122
Peninsula Ports Authority Coal Terminal Revenue, Dominion Terminal Associates,
Refunding, 6.00%, 4/01/33 ......................................................... 9,500,000 9,688,955
Tobacco Settlement Financing Corp. Revenue,
Asset-Backed, Pre-Refunded, 5.50%, 6/01/26 ........................................ 2,500,000 2,797,375
Asset-Backed, Pre-Refunded, 5.625%, 6/01/37 ....................................... 3,000,000 3,551,910
Capital Appreciation Bonds, second sub., Refunding, Series D, zero cpn., 6/01/47 .. 50,000,000 1,576,500
Senior Series B1, 5.00%, 6/01/47 .................................................. 6,250,000 4,410,500
Virginia Beach Development Authority Residential Care Facility Mortgage Revenue,
Westminster Canterbury Project, Refunding,
5.00%, 11/01/22 ................................................................... 1,000,000 863,260
5.25%, 11/01/26 ................................................................... 2,000,000 1,711,340
5.375%, 11/01/32 .................................................................. 1,000,000 833,370
--------------
27,171,898
--------------
188 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
WASHINGTON 2.2%
Douglas County PUD No. 1 Wells Hydroelectric Revenue, Refunding, Series B, NATL
Insured, 5.00%, 9/01/35 ........................................................... $ 7,685,000 $ 7,832,706
FYI Properties Lease Revenue, Washington State District Project, 5.50%,
6/01/34 ........................................................................... 5,000,000 5,343,150
6/01/39 ........................................................................... 16,250,000 17,226,950
Skagit County Public Hospital District No. 1 Revenue, Skagit Valley Hospital, 5.75%,
12/01/32 .......................................................................... 2,000,000 2,003,500
Snohomish County Public Hospital District No. 3 GO, AMBAC Insured, 5.00%, 12/01/31 ... 10,000,000 9,293,500
Washington State GO,
Motor Vehicle Fuel, Series B, 5.00%, 8/01/34 ...................................... 10,000,000 10,465,800
Series A, 5.00%, 7/01/31 .......................................................... 37,965,000 39,910,327
Washington State Health Care Facilities Authority Revenue,
Central Washington Health Services, 7.00%, 7/01/39 ................................ 8,500,000 9,137,245
Fred Hutchinson Cancer Center, Refunding, Series A, 6.00%, 1/01/33 ................ 7,500,000 7,600,800
Kadlec Medical Center, Refunding, Series A, Assured Guaranty, 5.00%, 12/01/30 ..... 4,000,000 3,953,880
Providence Health and Services, Refunding, Series A, FGIC Insured, 5.00%,
10/01/36 ....................................................................... 7,000,000 7,026,950
Providence Health and Services, Series A, FGIC Insured, Pre-Refunded, 5.00%,
10/01/36 ....................................................................... 305,000 359,686
Virginia Mason Medical, Series B, ACA Insured, 6.00%, 8/15/37 ..................... 30,000,000 30,285,600
Washington State Higher Education Facilities Authority Revenue, Whitworth University
Project, Refunding, 5.625%, 10/01/40 .............................................. 5,235,000 5,178,200
--------------
155,618,294
--------------
WEST VIRGINIA 0.4%
County Commission of Harrison County Solid Waste Disposal Revenue, Allegheny Energy
Supply Co. LLC, Refunding, Series D, 5.50%, 10/15/37 .............................. 14,745,000 13,587,960
Pleasants County PCR, County Commission, Series F, 5.25%, 10/15/37 ................... 14,000,000 13,818,280
--------------
27,406,240
--------------
WISCONSIN 1.0%
Central Brown County Water Authority Water System Revenue, Refunding, AMBAC Insured,
5.00%, 12/01/30 ................................................................... 11,205,000 11,326,686
Kaukauna Environmental Improvement Revenue, International Paper Co. Project, Series A,
6.70%, 5/01/24 .................................................................... 4,100,000 4,144,485
Wisconsin Housing and EDA Home Ownership Revenue, Series E, 4.90%, 9/01/37 ........... 22,210,000 21,116,379
Wisconsin State General Fund Annual Appropriation Revenue, Series A, 6.00%, 5/01/33 .. 15,000,000 16,696,800
Wisconsin State Health and Educational Facilities Authority Revenue,
Fort Healthcare Inc. Project, 5.75%, 5/01/24 ...................................... 5,000,000 5,058,450
New Castle Place Project, Series A, 7.00%, 12/01/31 ............................... 2,500,000 2,397,500
Thedacare Inc., AMBAC Insured, 5.00%, 12/15/30 .................................... 9,530,000 9,070,845
Thedacare Inc., Series A, 5.50%, 12/15/38 ......................................... 5,000,000 5,144,350
--------------
74,955,495
--------------
WYOMING 0.2%
Campbell County Solid Waste Facilities Revenue, Basin Electric Power Cooperative,
Series A, 5.75%, 7/15/39 .......................................................... 5,500,000 5,809,375
Wyoming Municipal Power Agency Power Supply Revenue, Series A,
5.50%, 1/01/28 .................................................................... 1,350,000 1,441,827
5.50%, 1/01/33 .................................................................... 2,360,000 2,482,295
Annual Report | 189
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
WYOMING (CONTINUED)
Wyoming Municipal Power Agency Power Supply Revenue, Series A, (continued)
5.50%, 1/01/38 .................................................................... $ 2,810,000 $ 2,942,492
5.00%, 1/01/42 .................................................................... 1,000,000 981,180
5.375%, 1/01/42 ................................................................... 2,750,000 2,850,155
--------------
16,507,324
--------------
U.S. TERRITORIES 4.1%
GUAM 1.2%
Guam Government GO,
Refunding, Series A, 5.125%, 11/15/27 ............................................. 7,270,000 6,640,709
Refunding, Series A, 5.25%, 11/15/37 .............................................. 37,000,000 31,979,100
Series A, 6.00%, 11/15/19 ......................................................... 8,000,000 8,444,560
Series A, 6.75%, 11/15/29 ......................................................... 10,000,000 10,657,900
Series A, 7.00%, 11/15/39 ......................................................... 15,000,000 16,123,500
Guam Government Waterworks Authority Water and Wastewater System Revenue, Water,
6.00%, 7/01/25 .................................................................... 4,000,000 4,081,680
5.875%, 7/01/35 ................................................................... 8,000,000 7,849,440
--------------
85,776,889
--------------
NORTHERN MARIANA ISLANDS 0.4%
Northern Mariana Islands Commonwealth GO, Refunding, Series B, 5.00%, 10/01/33 ....... 25,000,000 19,409,000
Northern Mariana Islands Commonwealth Ports Authority Seaport Revenue, Series A,
6.60%, 3/15/28 .................................................................... 7,460,000 7,100,950
--------------
26,509,950
--------------
PUERTO RICO 2.0%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding,
5.50%, 5/15/39 .................................................................... 11,500,000 10,179,915
5.625%, 5/15/43 ................................................................... 3,500,000 3,034,080
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%,
7/01/38 ........................................................................... 4,000,000 4,102,280
7/01/44 ........................................................................... 5,200,000 5,329,480
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................. 7,000,000 6,581,540
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Revenue, Cogeneration Facility, AES Puerto Rico Project,
6.625%, 6/01/26 ................................................................... 1,365,000 1,378,432
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue,
Capital Appreciation, Series A, zero cpn. to 8/01/19, 6.25% thereafter, 8/01/33 ... 36,500,000 21,455,795
Convertible Capital Appreciation, first sub., Series A, zero cpn. to 8/01/16,
6.75% thereafter, 8/01/32 ...................................................... 53,000,000 40,492,530
first sub., Series A, 5.50%, 8/01/42 .............................................. 42,000,000 41,934,480
University of Puerto Rico Revenues, University System, Refunding, Series P, 5.00%,
6/01/30 ........................................................................... 7,645,000 7,014,975
--------------
141,503,507
--------------
190 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
U.S. VIRGIN ISLANDS 0.5%
Virgin Islands PFAR,
senior lien, Capital Projects, Series A-1, 5.00%, 10/01/24 ........................ $ 555,000 $ 562,143
sub. lien, Refunding, Series C, 5.00%, 10/01/19 ................................... 9,145,000 9,562,469
sub. lien, Refunding, Series C, 5.00%, 10/01/22 ................................... 10,000,000 10,197,900
Virgin Islands Matching Fund Loan Note, Diageo Project, Series A, 6.625%,
10/01/29 ....................................................................... 18,380,000 19,831,653
--------------
40,154,165
--------------
TOTAL U.S. TERRITORIES ............................................................... 293,944,511
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $6,782,219,708) ............................................................. 6,765,122,148
--------------
SHORT TERM INVESTMENTS 5.0%
MUNICIPAL BONDS 5.0%
CALIFORNIA 0.7%
California State Revenue, RAN, Sub Series A-1, 3.00%, 5/25/10 ........................ 50,000,000 50,237,000
--------------
CONNECTICUT 0.2%
(e) Connecticut State Health and Educational Facilities Authority Revenue, Yale
University, Series V-2, Daily VRDN and Put, 0.09%, 7/01/36 ........................ 14,400,000 14,400,000
--------------
FLORIDA 0.1%
(e) Florida State Municipal Power Agency Revenue, All Requirements Power Supply,
Refunding, Series C, Daily VRDN and Put, 0.15%, 10/01/35 .......................... 4,300,000 4,300,000
--------------
KENTUCKY 0.2%
(e) Kentucky Economic Development Finance Authority Hospital Facilities Revenue,
Baptist Healthcare System, Refunding, Series B-2, Daily VRDN and Put, 0.12%,
8/15/38 ........................................................................... 11,100,000 11,100,000
--------------
LOUISIANA 0.2%
(e) Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc. Project,
First Stage, ACES, Refunding, Daily VRDN and Put, 0.13%, 9/01/17 .................. 14,000,000 14,000,000
--------------
MASSACHUSETTS 0.9%
(e) Massachusetts State Health and Educational Facilities Authority Revenue,
Harvard University, Refunding, Series R, Daily VRDN and Put, 0.09%, 11/01/49 ...... 6,600,000 6,600,000
Museum of Fine Arts, Series A-2, Daily VRDN and Put, 0.12%, 12/01/37 .............. 9,200,000 9,200,000
Northeastern University, Refunding, Series Q, Daily VRDN and Put,
0.14%, 10/01/35 ................................................................ 48,600,000 48,600,000
--------------
64,400,000
--------------
MINNESOTA 0.1%
(e) Minneapolis and St. Paul Housing and RDA Health Care System Revenue, Allina Health
System, Refunding, Series B-2, Daily VRDN and Put, 0.14%, 11/15/35 ................ 5,800,000 5,800,000
--------------
MISSOURI 0.6%
(e) Missouri Development Finance Board Cultural Facilities Revenue, The Nelson Gallery
Foundation, Refunding, Series A, Daily VRDN and Put, 0.14%, 12/01/37 .............. 11,600,000 11,600,000
(e) Missouri State Health and Educational Facilities Authority Educational Facilities
Revenue, St. Louis University, Refunding, Series A-2, Daily VRDN and Put, 0.12%,
10/01/35 .......................................................................... 5,000,000 5,000,000
Annual Report | 191
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MISSOURI (CONTINUED)
(e) North Kansas City Hospital Revenue, North Kansas City Hospital, Refunding, Daily VRDN
and Put, 0.14%, 11/01/33 .......................................................... $ 27,145,000 $ 27,145,000
--------------
43,745,000
--------------
NEW JERSEY 0.3%
(e) Mercer County Improvement Authority Revenue, Atlantic Foundation Project, Refunding,
Daily VRDN and Put, 0.13%, 9/01/28 ................................................ 5,500,000 5,500,000
(e) New Jersey EDA School Revenue, School Facilities Construction, Series R, Sub Series
R-3, Daily VRDN and Put, 0.14%, 9/01/31 ........................................... 10,150,000 10,150,000
(e) New Jersey Health Care Facilities Financing Authority Revenue, Virtua Health, Series
C, Daily VRDN and Put, 0.12%, 7/01/43 ............................................. 8,800,000 8,800,000
--------------
24,450,000
--------------
NORTH CAROLINA 0.2%
(e) Charlotte-Mecklenburg Hospital Authority Health Care System Revenue, Carolinas
HealthCare System, Refunding, Series C, Daily VRDN and Put, 0.14%, 1/15/26 ........ 6,800,000 6,800,000
(e) North Carolina Medical Care Commission Health Care Facilities Revenue, Wake Forest
University, Refunding, Series D, Daily VRDN and Put, 0.14%, 7/01/34 ............... 11,000,000 11,000,000
--------------
17,800,000
--------------
OHIO 0.5%
(e) Allen County Hospital Facilities Revenue, Catholic Healthcare, Series A, Daily VRDN
and Put, 0.14%, 10/01/31 .......................................................... 16,900,000 16,900,000
(e) Cuyahoga County Revenue, Cleveland Clinic Health System Obligated Group, Series B,
Sub Series B-1, Daily VRDN and Put, 0.12%, 1/01/39 ................................ 7,400,000 7,400,000
Sub Series B-3, Daily VRDN and Put, 0.12%, 1/01/39 ................................ 9,900,000 9,900,000
--------------
34,200,000
--------------
PENNSYLVANIA 0.3%
(e) Geisinger Authority Health System Revenue, Geisinger Health System, Refunding, Series
A, Daily VRDN and Put, 0.14%, 5/15/35 ............................................. 20,900,000 20,900,000
--------------
TEXAS 0.4%
(e) Texas Water Development Board Revenue, State Revolver, sub. lien, Refunding, Series A,
Daily VRDN and Put, 0.12%, 7/15/19 ................................................ 30,840,000 30,840,000
--------------
VIRGINIA 0.1%
(e) Norfolk Redevelopment and Housing Authority Revenue, Old Dominion University Project,
Refunding, Daily VRDN and Put, 0.16%,
8/01/31 ........................................................................... 4,300,000 4,300,000
8/01/33 ........................................................................... 5,500,000 5,500,000
--------------
9,800,000
--------------
192 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN HIGH YIELD TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 0.2%
PUERTO RICO 0.2%
(e) Puerto Rico Commonwealth GO, Refunding, Series A-6, Daily VRDN and Put, 0.12%,
7/01/33 ........................................................................... $ 12,400,000 $ 12,400,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $358,339,340) ..................................... 358,372,000
--------------
TOTAL INVESTMENTS (COST $7,140,559,048) 99.3% ........................................ 7,123,494,148
OTHER ASSETS, LESS LIABILITIES 0.7% .................................................. 47,117,192
--------------
NET ASSETS 100.0% .................................................................... $7,170,611,340
==============
See Abbreviations on page 263.
(a) Security has been deemed illiquid because it may not be able to be sold
within seven days. At February 28, 2010, the aggregate value of these
securities was $12,944,045, representing 0.18% of net assets.
(b) Security purchased on a when-issued or delayed delivery basis. See Note
1(b).
(c) The bond pays interest and/or principal based upon the issuer's ability to
pay, which may be less than the stated interest rate or principal paydown.
(d) See Note 6 regarding defaulted securities.
(e) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 193
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- ---------- ---------- ---------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.29 $ 11.45 $ 12.22 $ 12.15 $ 12.18
---------- ---------- ---------- ---------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.52 0.51 0.50 0.51 0.52
Net realized and unrealized gains (losses) ...... 0.69 (0.18) (0.77) 0.08 (0.02)
---------- ---------- ---------- ---------- --------
Total from investment operations ................... 1.21 0.33 (0.27) 0.59 0.50
---------- ---------- ---------- ---------- --------
Less distributions from net investment income ...... (0.51) (0.49) (0.50) (0.52) (0.53)
---------- ---------- ---------- ---------- --------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
---------- ---------- ---------- ---------- --------
Net asset value, end of year ....................... $ 11.99 $ 11.29 $ 11.45 $ 12.22 $ 12.15
========== ========== ========== ========== ========
Total return(f) .................................... 10.87% 2.94% (2.29)% 4.96% 4.17%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.63% 0.63% 0.64% 0.64% 0.65%
Net investment income .............................. 4.42% 4.41% 4.17% 4.23% 4.28%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $1,230,689 $1,100,142 $1,081,204 $1,006,797 $892,122
Portfolio turnover rate ............................ 9.93% 10.97% 10.99% 3.65% 8.11%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
194 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
--------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.36 $ 11.52 $ 12.28 $ 12.22 $ 12.24
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................ 0.46 0.44 0.44 0.45 0.46
Net realized and unrealized gains (losses) ...... 0.69 (0.17) (0.76) 0.06 (0.02)
------- ------- ------- ------- -------
Total from investment operations ................... 1.15 0.27 (0.32) 0.51 0.44
------- ------- ------- ------- -------
Less distributions from net investment income ...... (0.44) (0.43) (0.44) (0.45) (0.46)
------- ------- ------- ------- -------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year ....................... $ 12.07 $ 11.36 $ 11.52 $ 12.28 $ 12.22
======= ======= ======= ======= =======
Total return(f) .................................... 10.30% 2.36% (2.73)% 4.28% 3.66%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.18% 1.18% 1.19% 1.19% 1.20%
Net investment income .............................. 3.87% 3.86% 3.62% 3.68% 3.73%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $34,899 $47,329 $60,396 $72,203 $78,327
Portfolio turnover rate ............................ 9.93% 10.97% 10.99% 3.65% 8.11%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 195
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.39 $ 11.55 $ 12.31 $ 12.24 $ 12.27
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) ........................ 0.46 0.45 0.44 0.45 0.46
Net realized and unrealized gains (losses) ...... 0.70 (0.18) (0.76) 0.07 (0.03)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.16 0.27 (0.32) 0.52 0.43
-------- -------- -------- -------- --------
Less distributions from net investment income ...... (0.44) (0.43) (0.44) (0.45) (0.46)
-------- -------- -------- -------- --------
Redemption fees(d) ................................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 12.11 $ 11.39 $ 11.55 $ 12.31 $ 12.24
======== ======== ======== ======== ========
Total return(f) .................................... 10.35% 2.35% (2.73)% 4.35% 3.57%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.18% 1.18% 1.19% 1.19% 1.20%
Net investment income .............................. 3.87% 3.86% 3.62% 3.68% 3.73%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $292,947 $207,945 $166,918 $158,706 $139,401
Portfolio turnover rate ............................ 9.93% 10.97% 10.99% 3.65% 8.11%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
196 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND
YEAR ENDED
FEBRUARY 28,
-----------------
ADVISOR CLASS 2010 2009(a)
- ------------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 11.29 $11.78
------- ------
Income from investment operations(b):
Net investment income(c) ........................ 0.53 0.35
Net realized and unrealized gains (losses) ...... 0.69 (0.51)
------- ------
Total from investment operations ................... 1.22 (0.16)
------- ------
Less distributions from net investment income ...... (0.52) (0.33)
------- ------
Redemption fees(d) ................................. -- --(e)
------- ------
Net asset value, end of year ....................... $ 11.99 $11.29
======= ======
Total return(f) .................................... 10.98% (1.29)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses ........................................... 0.53% 0.53%
Net investment income .............................. 4.52% 4.51%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $13,791 $ 770
Portfolio turnover rate ............................ 9.93% 10.97%
(a) For the period July 1, 2008 (effective date) to February 28, 2009.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
Annual Report | 197
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS 98.3%
DELAWARE 0.7%
Delaware River and Bay Authority Revenue, NATL Insured, 5.00%, 1/01/27 ............... $ 10,000,000 $ 10,213,300
--------------
NEW JERSEY 68.4%
Atlantic County Improvement Authority Luxury Tax Revenue, Convention Center Project,
NATL Insured, ETM, 7.40%, 7/01/16 ................................................. 9,500,000 11,412,255
Bergen County Improvement Authority School District Revenue GO, Wyckoff Township Board
of Education Project, 5.00%, 4/01/32 .............................................. 3,400,000 3,570,680
Bergen County Utilities Authority Water PCR, System, AMBAC Insured, 5.00%, 12/15/31 .. 3,000,000 3,090,840
Berhards Township School District GO, NATL Insured,
5.00%, 7/15/30 .................................................................... 1,680,000 1,758,691
Pre-Refunded, 5.00%, 7/15/30 ...................................................... 8,358,000 9,780,866
Berkeley Township Board of Education GO, FSA Insured, 4.75%, 8/01/22 ................. 1,975,000 2,016,574
Cape May County Industrial PCFA Revenue, Atlantic City Electric Co., Refunding, Series
A, NATL Insured, 6.80%, 3/01/21 ................................................... 5,400,000 6,583,518
Cumberland County Improvement Authority Solid Waste System Revenue, Series A, 5.00%,
1/01/30 ........................................................................... 3,150,000 3,087,662
Egg Harbor Township School District GO,
FGIC Insured, Pre-Refunded, 5.125%, 7/15/24 ....................................... 4,870,000 5,235,201
NATL Insured, Pre-Refunded, 5.00%, 4/01/29 ........................................ 3,195,000 3,736,329
NATL Insured, Pre-Refunded, 5.00%, 4/01/30 ........................................ 3,027,000 3,539,865
Freehold Township Board of Education GO, NATL Insured, Pre-Refunded, 5.00%, 2/15/30 .. 1,500,000 1,567,560
Hammonton School District GO, FGIC Insured, Pre-Refunded, 5.00%,
8/01/26 ........................................................................... 1,155,000 1,242,029
8/01/27 ........................................................................... 1,215,000 1,306,550
Higher Education Student Assistance Authority Student Loan Revenue, Series A, NATL
Insured,
6.15%, 6/01/19 .................................................................... 1,150,000 1,164,076
Hoboken GO, Parking Utility, Series A, FGIC Insured, 5.00%, 1/01/23 .................. 4,315,000 4,318,064
Hoboken Parking Authority Parking Revenue, AMBAC Insured, Pre-Refunded, 5.30%,
5/01/27 ........................................................................... 3,600,000 3,866,940
Hudson County Improvement Authority Lease Revenue, County Secured, County Services
Building Project, FSA Insured, 5.00%, 4/01/32 ..................................... 3,895,000 4,110,783
Hudson County Improvement Authority Parking Revenue, County-Guaranteed, Harrison
Parking Facility Redevelopment Project, Series C, Assured Guaranty, 5.125%,
1/01/34 ........................................................................... 2,000,000 2,085,660
Hudson County Improvement Authority Solid Waste Systems Revenue, Koppers Site Project,
Series A, 6.125%, 1/01/29 ......................................................... 6,510,000 4,935,752
Jersey City GO, Series A, FSA Insured, Pre-Refunded, 5.625%, 3/01/20 ................. 1,000,000 1,010,000
Lafayette Yard Community Development Corp. Revenue, Hotel/Conference Center Project,
Trenton Guaranteed, NATL Insured, Pre-Refunded,
6.00%, 4/01/29 .................................................................... 1,750,000 1,775,375
5.80%, 4/01/35 .................................................................... 2,520,000 2,556,137
Middlesex County COP, NATL Insured,
5.00%, 8/01/31 .................................................................... 3,250,000 3,291,827
zero cpn., 6/15/24 ................................................................ 1,000,000 488,440
Middlesex County Improvement Authority Lease Revenue, County Guaranteed, Regional
Educational Services Commission, 5.25%, 12/15/33 .................................. 3,000,000 3,256,740
Middlesex County Improvement Authority Revenue, Administration Building Residential
Project, FNMA Insured,
5.25%, 7/01/21 .................................................................... 750,000 759,150
5.35%, 7/01/34 .................................................................... 1,575,000 1,579,473
198 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
Monroe Township Municipal Utilities Authority Middlesex County Revenue, FGIC Insured,
Pre-Refunded, 5.00%, 2/01/26 ...................................................... $ 1,000,000 $ 1,043,200
Morristown Parking Authority Parking Revenue, NATL Insured, 5.00%,
8/01/30 ........................................................................... 1,815,000 1,907,765
8/01/33 ........................................................................... 2,630,000 2,743,984
Mount Olive Township Board of Education GO, NATL Insured, Pre-Refunded, 5.00%,
7/15/29 ........................................................................... 7,875,000 9,147,915
New Jersey EDA Lease Revenue, International Center for Public Health Project,
University of Medicine and Dentistry, AMBAC Insured, 6.00%, 6/01/32 ............... 5,000,000 5,000,850
New Jersey EDA Revenue,
Cigarette Tax, 5.50%, 6/15/24 ..................................................... 5,000,000 4,965,350
Cigarette Tax, 5.75%, 6/15/34 ..................................................... 5,000,000 4,797,600
Hillcrest Health Services System Project, Refunding, AMBAC Insured, 5.375%,
1/01/16 ........................................................................ 2,500,000 2,504,475
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/27 ........... 5,000,000 5,017,000
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/29 ........... 12,500,000 12,504,000
Motor Vehicle Surcharge Revenue, Series A, NATL Insured, 5.00%, 7/01/34 ........... 10,000,000 9,724,900
Municipal Rehabilitation, Series A, AMBAC Insured, 5.00%, 4/01/28 ................. 16,240,000 16,503,088
School Facilities Construction, Refunding, Series K, FGIC Insured, 5.25%, 12/15/21 10,000,000 11,305,500
School Facilities Construction, Series C, NATL Insured, 4.75%, 6/15/25 ............ 16,500,000 16,630,185
School Facilities Construction, Series L, FSA Insured, 5.00%, 3/01/30 ............. 10,500,000 10,789,170
School Facilities Construction, Series O, 5.125%, 3/01/28 ......................... 5,000,000 5,204,150
School Facilities Construction, Series U, 5.00%, 9/01/37 .......................... 5,000,000 5,009,250
School Facilities Construction, Series U, AMBAC Insured, 5.00%, 9/01/37 ........... 5,000,000 5,059,300
School Facilities Construction, Series U, FSA Insured, 5.00%, 9/01/32 ............. 2,000,000 2,059,160
School Facilities Construction, Series Y, 5.00%, 9/01/33 .......................... 6,000,000 6,057,900
School Facilities Construction, Series Z, Assured Guaranty, 5.50%, 12/15/34 ....... 3,000,000 3,256,260
New Jersey EDA State Lease Revenue, Liberty State Park Lease Rental, Refunding,
AMBAC Insured, 5.75%, 3/15/20 ..................................................... 4,605,000 4,616,512
New Jersey EDA Water Facilities Revenue,
American Water Co., Refunding, Series A, 5.70%, 10/01/39 .......................... 10,000,000 9,914,700
Hackensack Water Co. Project, Refunding, Series A, NATL Insured, 5.80%, 3/01/24 ... 1,000,000 1,000,470
New Jersey American Water Co., Refunding, Series B, 5.00%, 10/01/39 ............... 8,750,000 8,736,262
New Jersey Health Care Facilities Financing Authority Revenue,
Atlantic City Medical Center, Pre-Refunded, 5.75%, 7/01/25 ........................ 2,170,000 2,420,418
Atlantic City Medical Center, Refunding, 5.75%, 7/01/25 ........................... 2,830,000 2,902,108
Atlantic Health System Hospital Corp., Series A, 5.00%, 7/01/27 ................... 8,000,000 8,141,200
Atlanticare Regional Medical Center, 5.00%, 7/01/25 ............................... 4,605,000 4,723,947
Atlanticare Regional Medical Center, Refunding, 5.00%, 7/01/37 .................... 19,490,000 19,402,295
Burdette Tomlin Memorial Hospital, 5.50%, 7/01/29 ................................. 5,725,000 5,729,637
Englewood Hospital, NATL Insured, 5.00%, 8/01/31 .................................. 9,275,000 9,314,604
Hackensack University Medical Center, 6.00%, 1/01/34 .............................. 10,000,000 10,044,600
Hackensack University Medical Center, Refunding, Assured Guaranty, 5.25%,
1/01/31 ........................................................................ 5,000,000 5,154,900
Hackensack University Medical Center, Refunding, Assured Guaranty, 5.25%,
1/01/36 ........................................................................ 5,000,000 5,145,050
Holy Name Hospital, 5.00%, 7/01/36 ................................................ 5,000,000 4,152,650
Hunterdon Medical Center, Series A, 5.125%, 7/01/35 ............................... 2,000,000 1,976,100
Jersey City Medical Center, AMBAC Insured, 5.00%, 8/01/31 ......................... 4,675,000 4,689,960
Meridian Health System Obligated Group Issue, FSA Insured, 5.25%, 7/01/29 ......... 20,000,000 20,029,600
Annual Report | 199
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
New Jersey Health Care Facilities Financing Authority Revenue, (continued)
Meridian Health System Obligated Group Issue, Refunding, FSA Insured, 5.375%,
7/01/24 ........................................................................ $ 6,500,000 $ 6,524,505
Meridian Health System Obligated Group Issue, Tranche I, Assured Guaranty, 5.00%,
7/01/38 ........................................................................ 10,000,000 9,954,300
Meridian Health System Obligated Group Issue, Tranche II, Assured Guaranty, 5.00%,
7/01/38 ........................................................................ 14,000,000 13,936,020
Robert Wood Johnson University Hospital, 5.75%, 7/01/25 ........................... 5,000,000 5,015,850
Somerset Medical Center, 5.75%, 7/01/28 ........................................... 11,000,000 9,097,770
South Jersey Hospital, 5.00%, 7/01/36 ............................................. 10,000,000 9,883,800
South Jersey Hospital, 5.00%, 7/01/46 ............................................. 27,200,000 26,400,320
South Jersey Hospital, Pre-Refunded, 5.875%, 7/01/21 .............................. 10,000,000 11,182,800
South Jersey Hospital, Pre-Refunded, 6.00%, 7/01/32 ............................... 18,600,000 20,853,576
Southern Ocean County Hospital, FSA Insured, 5.00%, 7/01/27 ....................... 2,000,000 2,000,500
St. Barnabas Health Care System, Series A, 5.00%, 7/01/29 ......................... 12,000,000 9,585,120
St. Mary's Hospital, ETM, 5.875%, 7/01/12 ......................................... 1,535,000 1,594,604
St. Mary's Hospital Passaic, Series 1, 5.00%, 3/01/26 ............................. 3,355,000 3,446,591
St. Mary's Hospital Passaic, Series 1, 5.00%, 3/01/27 ............................. 3,345,000 3,410,227
St. Peter's University Hospital, Refunding, Series A, 6.875%, 7/01/30 ............. 1,500,000 1,505,490
State Contract Hospital Asset Transitions Program, Series A, 5.25%, 10/01/38 ...... 15,000,000 15,300,300
Virtua Health, Assured Guaranty, 5.50%, 7/01/38 ................................... 10,000,000 10,497,700
New Jersey Health Care Facilities Financing Authority State Contract Revenue, 5.75%,
10/01/31 .......................................................................... 10,000,000 10,611,700
New Jersey State COP, Equipment Lease Purchase, Series A, 5.25%, 6/15/29 ............. 1,000,000 1,034,830
New Jersey State Educational Facilities Authority Revenue,
College of New Jersey, Refunding, Series D, FSA Insured, 5.00%, 7/01/28 ........... 5,940,000 6,309,290
College of New Jersey, Refunding, Series D, FSA Insured, 5.00%, 7/01/35 ........... 11,000,000 11,194,150
FGIC Insured, Pre-Refunded, 5.50%, 7/01/30 ........................................ 6,615,000 6,729,572
Kean University, Refunding, Series A, 5.50%, 9/01/36 .............................. 6,500,000 6,869,070
Kean University, Series B, NATL Insured, Pre-Refunded, 5.00%, 7/01/30 ............. 5,240,000 6,146,048
Kean University, Series D, FGIC Insured, 5.00%, 7/01/39 ........................... 10,695,000 10,596,713
Kean University, Series D, FGIC Insured, Pre-Refunded, 5.00%, 7/01/33 ............. 10,000,000 11,256,800
Montclair State University, Refunding, Series A, AMBAC Insured, 5.00%, 7/01/31 .... 15,000,000 15,104,100
Montclair State University, Refunding, Series A, AMBAC Insured, 5.00%, 7/01/36 .... 20,000,000 20,030,800
Montclair State University, Series J, 5.25%, 7/01/38 .............................. 2,000,000 2,044,500
Princeton University, Refunding, Series A, 5.00%, 7/01/30 ......................... 5,000,000 5,284,200
Princeton University, Refunding, Series E, 5.00%, 7/01/33 ......................... 5,000,000 5,360,550
Princeton University, Series D, Pre-Refunded, 5.00%, 7/01/29 ...................... 1,000,000 1,160,230
Ramapo College of New Jersey, Series D, AMBAC Insured, Pre-Refunded, 5.00%,
7/01/25 ........................................................................ 1,000,000 1,058,090
Ramapo College of New Jersey, Series D, AMBAC Insured, Pre-Refunded, 5.00%,
7/01/31 ........................................................................ 1,500,000 1,587,135
Ramapo College of New Jersey, Series D, NATL Insured, Pre-Refunded, 5.00%,
7/01/36 ........................................................................ 6,745,000 7,846,054
Ramapo College of New Jersey, Series E, FGIC Insured, Pre-Refunded, 5.00%, 7/01/34 2,000,000 2,306,740
Refunding, Series D, 5.00%, 7/01/27 ............................................... 1,325,000 1,311,591
Refunding, Series D, 5.00%, 7/01/33 ............................................... 1,000,000 947,220
200 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
New Jersey State Educational Facilities Authority Revenue, (continued)
Richard Stockton College, Refunding, Series A, 5.375%, 7/01/38 .................... $ 5,000,000 $ 5,205,550
Richard Stockton College, Refunding, Series F, AMBAC Insured, 5.00%, 7/01/28 ...... 2,370,000 2,422,069
Rowan University, Refunding, Series C, FGIC Insured, 5.00%, 7/01/31 ............... 1,505,000 1,538,050
Rowan University, Refunding, Series D, AMBAC Insured, 5.00%, 7/01/24 .............. 1,755,000 1,878,341
Rowan University, Series C, FGIC Insured, Pre-Refunded, 5.00%, 7/01/31 ............ 495,000 530,046
Rowan University, Series K, FGIC Insured, Pre-Refunded, 5.00%, 7/01/27 ............ 1,000,000 1,096,900
Seton Hall University, Refunding, Series E, 6.25%, 7/01/37 ........................ 5,000,000 5,639,850
Seton Hall University Project, Series G, AMBAC Insured, 5.00%, 7/01/26 ............ 1,870,000 1,891,673
Stevens Institute of Technology, Refunding, Series A, 5.00%, 7/01/34 .............. 4,750,000 4,457,400
Stevens Institute of Technology, Refunding, Series I, 5.00%, 7/01/18 .............. 590,000 591,186
Stevens Institute of Technology, Refunding, Series I, 5.00%, 7/01/28 .............. 865,000 848,660
Stevens Institute of Technology, Series I, ETM, 5.00%, 7/01/18 .................... 510,000 513,381
Stevens Institute of Technology, Series I, ETM, 5.00%, 7/01/28 .................... 710,000 712,251
William Paterson University, Series C, Assured Guaranty, 5.00%, 7/01/38 ........... 5,500,000 5,566,880
New Jersey State Higher Education Assistance Authority Student Loan Revenue,
Refunding, Series 1A, 5.00%, 12/01/25 ............................................. 4,150,000 4,239,640
Refunding, Series 1A, 5.00%, 12/01/26 ............................................. 2,000,000 2,046,340
Refunding, Series 1A, 5.125%, 12/01/27 ............................................ 5,000,000 5,096,850
Refunding, Series 1A, 5.25%, 12/01/28 ............................................. 5,000,000 5,149,550
Series A, 5.625%, 6/01/30 ......................................................... 14,500,000 15,394,650
Series A, Assured Guaranty, 6.125%, 6/01/30 ....................................... 10,000,000 10,688,900
New Jersey State Housing and Mortgage Finance Agency MFHR,
Series A1, FSA Insured, 6.35%, 11/01/31 ........................................... 2,000,000 2,002,700
Series B, FSA Insured, 6.25%, 11/01/26 ............................................ 970,000 971,959
Series D, FSA Insured, 5.50%, 5/01/22 ............................................. 725,000 734,614
Series E1, FSA Insured, 5.70%, 5/01/20 ............................................ 2,595,000 2,609,973
Series E1, FSA Insured, 5.75%, 5/01/25 ............................................ 1,165,000 1,170,580
Series I, 5.75%, 11/01/38 ......................................................... 3,595,000 3,685,450
New Jersey State Housing and Mortgage Finance Agency Revenue,
Home Buyer, Series CC, NATL Insured, 5.875%, 10/01/31 ............................. 940,000 944,531
Series AA, 6.50%, 10/01/38 ........................................................ 8,365,000 8,989,615
New Jersey State Transportation Trust Fund Authority Revenue,
Capital Appreciation, Transportation System, Series A, zero cpn., 12/15/29 ........ 5,000,000 1,582,650
Capital Appreciation, Transportation System, Series C, FSA Insured, zero cpn.,
12/15/33 ....................................................................... 10,000,000 2,585,000
Transportation System, Series A, 6.00%, 12/15/38 .................................. 25,000,000 27,866,750
Transportation System, Series A, AMBAC Insured, 5.00%, 12/15/34 ................... 10,000,000 10,069,800
Transportation System, Series A, FSA Insured, 5.00%, 12/15/34 ..................... 15,000,000 15,397,650
Transportation System, Series A, zero cpn., 12/15/32 .............................. 10,000,000 2,635,200
Transportation System, Series B, NATL Insured, Pre-Refunded, 5.00%, 12/15/21 ...... 10,000,000 10,796,000
New Jersey State Turnpike Authority Turnpike Revenue,
Growth and Income Securities, Series B, AMBAC Insured, zero cpn. to 1/01/15,
5.15% thereafter, 1/01/35 ...................................................... 7,500,000 5,902,350
Refunding, Series I, 5.00%, 1/01/35 ............................................... 5,000,000 5,144,450
Series A, AMBAC Insured, 5.00%, 1/01/30 ........................................... 13,500,000 13,785,120
Series E, 5.25%, 1/01/40 .......................................................... 21,920,000 22,797,458
Series H, 5.00%, 1/01/36 .......................................................... 14,000,000 14,360,780
Annual Report | 201
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW JERSEY (CONTINUED)
Newark Housing Authority Port Authority Revenue, Newark Marine Terminal, NATL Insured,
Pre-Refunded,
5.00%, 1/01/26 .................................................................... $ 3,245,000 $ 3,711,469
5.50%, 1/01/27 .................................................................... 3,240,000 3,766,241
5.50%, 1/01/28 .................................................................... 2,000,000 2,324,840
5.00%, 1/01/34 .................................................................... 25,000,000 28,593,750
5.00%, 1/01/37 .................................................................... 3,965,000 4,534,969
North Hudson Sewer Authority New Jersey Sewer Revenue, Series C, NATL Insured, 5.00%,
8/01/22 ........................................................................... 1,000,000 1,005,910
8/01/31 ........................................................................... 1,000,000 939,140
Ocean County Board of Education GO, Cape May, FGIC Insured, Pre-Refunded, 5.00%,
4/01/21 ........................................................................... 2,155,000 2,265,099
4/01/22 ........................................................................... 2,142,000 2,251,435
Passaic County Improvement Authority Parking Facilities Revenue, Paterson Parking Deck
Project, Series A, FSA Insured, 5.00%, 4/15/35 .................................... 1,375,000 1,425,751
Passaic Valley Sewer Commissioners GO, Sewer System, Refunding, Series E, AMBAC
Insured, 5.75%, 12/01/22 .......................................................... 8,925,000 9,028,530
Rutgers State University COP, AMBAC Insured, 5.00%, 1/01/34 .......................... 1,000,000 1,029,030
Rutgers State University Revenue, Series F, 5.00%, 5/01/39 ........................... 32,520,000 34,051,042
Salem County Improvement Authority Revenue, City Guaranteed, Finlaw State Office
Building, FSA Insured, 5.25%, 8/15/38 ............................................. 1,625,000 1,689,903
South Jersey Transportation Authority Transportation System Revenue, AMBAC Insured,
5.00%, 11/01/29 ................................................................... 12,000,000 12,128,760
Sussex County Municipal Utilities Authority Wastewater Facilities Revenue, Capital
Appreciation, Series B, FSA Insured, zero cpn.,
12/01/35 .......................................................................... 2,815,000 665,691
12/01/36 .......................................................................... 2,810,000 623,427
12/01/37 .......................................................................... 2,815,000 587,153
12/01/38 .......................................................................... 2,810,000 552,390
Tobacco Settlement FICO Revenue, Asset-Backed, Pre-Refunded, 6.00%, 6/01/37 .......... 13,000,000 14,503,580
Union County Utilities Authority Solid Waste Revenue, sub lease, Ogden Martin,
Refunding, Series A, AMBAC Insured, 5.35%, 6/01/23 ................................ 2,245,000 2,221,719
University of Medicine and Dentistry COP,
AMBAC Insured, 5.00%, 4/15/32 ..................................................... 4,625,000 4,258,746
NATL Insured, 5.00%, 6/15/36 ...................................................... 15,500,000 14,068,730
Series A, NATL Insured, 5.00%, 9/01/22 ............................................ 1,700,000 1,728,237
University of Medicine and Dentistry Revenue, Series A, AMBAC Insured, 5.00%,
12/01/24 .......................................................................... 2,500,000 2,401,475
12/01/31 .......................................................................... 29,395,000 27,225,355
Upper Freehold Regional School District GO, NATL Insured, Pre-Refunded, 5.00%,
2/15/35 ........................................................................... 8,730,000 10,248,147
Woodbridge Township GO, FGIC Insured, 5.00%, 7/15/24 ................................. 1,220,000 1,296,409
--------------
1,076,099,633
--------------
202 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK 8.0%
Port Authority of New York and New Jersey Revenue, Consolidated,
One Hundred Forty-Eighth Series, FSA Insured, 5.00%, 8/15/34 ...................... $ 10,000,000 $ 10,448,400
One Hundred Forty-Eighth Series, FSA Insured, 5.00%, 8/15/37 ...................... 5,000,000 5,195,150
One Hundred Forty-Fourth Series, 5.00%, 10/01/29 .................................. 5,000,000 5,295,400
One Hundred Forty-Ninth Series, 5.00%, 11/15/31 ................................... 10,000,000 10,568,200
One Hundred Sixty-First Series, 5.00%, 10/15/33 ................................... 10,000,000 10,586,500
One Hundred Twenty-Fifth Series, FSA Insured, 5.00%, 4/15/32 ...................... 23,950,000 24,626,108
Refunding, One Hundred Fifty-Third Series, 5.00%, 7/15/38 ......................... 8,850,000 9,224,178
Refunding, One Hundred Sixtieth Series, 5.00%, 9/15/36 ............................ 40,000,000 42,138,400
Port Authority of New York and New Jersey Special Obligation Revenue, John F. Kennedy
International Air Terminal, NATL Insured, 5.75%, 12/01/22 ......................... 8,000,000 7,963,520
--------------
126,045,856
--------------
PENNSYLVANIA 1.5%
Delaware River Joint Toll Bridge Commission Bridge Revenue, Series A, NATL Insured,
5.00%, 7/01/35 .................................................................... 5,000,000 5,076,250
Delaware River Port Authority Pennsylvania and New Jersey Revenue, FSA Insured, 5.75%,
1/01/22 ........................................................................... 8,500,000 8,516,320
1/01/26 ........................................................................... 10,000,000 10,015,000
--------------
23,607,570
--------------
U.S. TERRITORIES 19.7%
PUERTO RICO 19.4%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 .................................................................... 4,100,000 4,202,090
Puerto Rico Commonwealth GO, Public Improvement,
FSA Insured, Pre-Refunded, 5.125%, 7/01/30 ........................................ 13,655,000 14,527,418
Refunding, FSA Insured, 5.125%, 7/01/30 ........................................... 8,350,000 8,391,416
Refunding, Series A-4, FSA Insured, 5.00%, 7/01/31 ................................ 7,000,000 7,122,570
Series A, 5.00%, 7/01/29 .......................................................... 10,000,000 9,465,600
Series B, 5.00%, 7/01/35 .......................................................... 1,825,000 1,661,535
Series B, Pre-Refunded, 5.00%, 7/01/35 ............................................ 3,175,000 3,754,977
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Refunding, Series CC, FSA Insured, 5.25%, 7/01/34 ................................. 5,000,000 5,290,900
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, NATL Insured, 5.25%, 7/01/32 ................................. 10,000,000 9,692,500
Series B, Pre-Refunded, 6.00%, 7/01/39 ............................................ 10,000,000 10,288,800
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 5,000,000 5,515,450
Puerto Rico Commonwealth Infrastructure Financing Authority Special Obligation,
Series A, Pre-Refunded, 5.50%, 10/01/32 ........................................... 1,000,000 1,040,760
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series B, 5.00%, 7/01/37 .......................................................... 8,000,000 7,238,640
Puerto Rico Electric Power Authority Power Revenue,
Series II, Pre-Refunded, 5.25%, 7/01/31 ........................................... 13,000,000 14,510,470
Series RR, FGIC Insured, Pre-Refunded, 5.00%, 7/01/35 ............................. 30,000,000 35,322,900
Series TT, 5.00%, 7/01/32 ......................................................... 22,000,000 21,449,560
Series TT, 5.00%, 7/01/37 ......................................................... 17,925,000 17,176,990
Series WW, 5.50%, 7/01/38 ......................................................... 16,620,000 16,773,236
Annual Report | 203
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Industrial Tourist Educational Medical and Environmental Control
Facilities Financing Authority Educational Facilities Revenue, University Plaza
Project, Series A, NATL Insured, 5.00%, 7/01/33 ................................... $ 1,000,000 $ 935,900
Puerto Rico PBA Guaranteed Revenue, Government Facilities,
Refunding, Series D, 5.375%, 7/01/33 .............................................. 6,830,000 6,726,799
Refunding, Series N, 5.00%, 7/01/32 ............................................... 20,000,000 18,032,600
Series D, Pre-Refunded, 5.375%, 7/01/33 ........................................... 18,170,000 19,998,629
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series A,
NATL Insured, Pre-Refunded, 5.00%, 8/01/29 ........................................ 5,000,000 5,301,350
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.75%, 8/01/37 .................................................................... 10,000,000 10,337,000
5.50%, 8/01/42 .................................................................... 17,000,000 16,973,480
6.00%, 8/01/42 .................................................................... 32,000,000 33,472,320
--------------
305,203,890
--------------
U.S. VIRGIN ISLANDS 0.3%
Virgin Islands PFAR, Gross Receipts Taxes Loan Note, Radian Insured, 5.00%, 10/01/33.. 5,000,000 4,709,450
--------------
TOTAL U.S. TERRITORIES ............................................................... 309,913,340
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,507,724,018) ................................................................ 1,545,879,699
--------------
SHORT TERM INVESTMENTS 0.5%
MUNICIPAL BONDS 0.5%
NEW JERSEY 0.4%
(a) New Jersey EDA Natural Gas Facilities Revenue, NUI Corp., Series A, Daily VRDN and
Put, 0.12%, 6/01/26 ............................................................... 1,000,000 1,000,000
(a) New Jersey EDA School Revenue, School Facilities Construction, Series R,
Sub Series R-1, Daily VRDN and Put, 0.11%, 9/01/31 ................................ 5,300,000 5,300,000
Sub Series R-3, Daily VRDN and Put, 0.14%, 9/01/31 ................................ 1,000,000 1,000,000
--------------
7,300,000
--------------
NEW YORK 0.0%(b)
(a) Port Authority of New York and New Jersey Special Obligation Revenue, Versatile
Structure Obligations, Refunding, Series 3, Daily VRDN and Put, 0.12%, 6/01/20 .... 200,000 200,000
--------------
204 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN NEW JERSEY TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 0.1%
PUERTO RICO 0.1%
(a) Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series B, Daily VRDN and Put, 0.12%, 7/01/32 ....... $ 300,000 $ 300,000
Refunding, Series A-6, Daily VRDN and Put, 0.12%, 7/01/33 ......................... 500,000 500,000
--------------
800,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $8,300,000) ....................................... 8,300,000
--------------
TOTAL INVESTMENTS (COST $1,516,024,018) 98.8% ........................................ 1,554,179,699
OTHER ASSETS, LESS LIABILITIES 1.2% .................................................. 18,146,132
--------------
NET ASSETS 100.0% .................................................................... $1,572,325,831
==============
See Abbreviations on page 263.
(a) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
(b) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
Annual Report | 205
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN OREGON TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
----------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- --------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.21 $ 11.25 $ 11.93 $ 11.89 $ 11.90
-------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.49 0.50 0.49 0.48 0.50
Net realized and unrealized gains (losses) .. 0.66 (0.06) (0.69) 0.04 --(d)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.15 0.44 (0.20) 0.52 0.50
-------- -------- -------- -------- --------
Less distributions from net investment income .. (0.49) (0.48) (0.48) (0.48) (0.51)
-------- -------- -------- -------- --------
Redemption fees(e) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 11.87 $ 11.21 $ 11.25 $ 11.93 $ 11.89
======== ======== ======== ======== ========
Total return(f) ................................ 10.47% 4.02% (1.74)% 4.53% 4.28%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.64% 0.64% 0.64% 0.65% 0.66%
Net investment income .......................... 4.26% 4.40% 4.17% 4.19% 4.20%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $954,860 $787,595 $719,647 $686,892 $625,326
Portfolio turnover rate ........................ 9.79% 10.00% 5.30% 4.86% 4.96%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
206 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.33 $ 11.36 $ 12.05 $ 12.00 $ 12.01
-------- -------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.44 0.44 0.43 0.43 0.44
Net realized and unrealized gains (losses) .. 0.66 (0.05) (0.70) 0.04 (0.01)
-------- -------- ------- ------- -------
Total from investment operations ............... 1.10 0.39 (0.27) 0.47 0.43
-------- -------- ------- ------- -------
Less distributions from net investment income .. (0.43) (0.42) (0.42) (0.42) (0.44)
-------- -------- ------- ------- -------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
-------- -------- ------- ------- -------
Net asset value, end of year ................... $ 12.00 $ 11.33 $ 11.36 $ 12.05 $ 12.00
======== ======== ======= ======= =======
Total return(f) ................................ 9.85% 3.50% (2.34)% 3.99% 3.66%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.19% 1.19% 1.19% 1.20% 1.21%
Net investment income .......................... 3.71% 3.85% 3.62% 3.64% 3.65%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $195,473 $123,099 $96,802 $91,743 $84,268
Portfolio turnover rate ........................ 9.79% 10.00% 5.30% 4.86% 4.96%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 207
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $11.44
------
Income from investment operations(b):
Net investment income(c) .................... 0.32
Net realized and unrealized gains (losses) .. 0.42
------
Total from investment operations ............... 0.74
------
Less distributions from net investment income .. (0.31)
------
Net asset value, end of period ................. $11.87
======
Total return(d) ................................ 6.49%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ....................................... 0.54%
Net investment income .......................... 4.36%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $6,412
Portfolio turnover rate ........................ 9.79%
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
208 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS 97.8%
OREGON 79.3%
Albany Water Revenue, Refunding, NATL Insured, 5.00%, 8/01/33 ........................ $ 5,990,000 $ 6,030,792
Beaverton School District GO,
FSA Insured, 4.125%, 6/01/26 ...................................................... 1,315,000 1,339,959
Washington County School District No. 48J, Assured Guaranty, 5.00%, 6/01/31 ....... 1,280,000 1,360,730
Washington County School District No. 48J, Assured Guaranty, 5.125%, 6/01/36 ...... 1,000,000 1,054,510
Bend Sewer Revenue, AMBAC Insured, Pre-Refunded, 5.375%, 10/01/20 .................... 1,550,000 1,595,369
Benton County Hospital Facilities Authority Revenue, Samaritan Health Services
Project, Refunding,
5.20%, 10/01/17 ................................................................... 4,000,000 4,018,800
5.125%, 10/01/28 .................................................................. 4,500,000 4,381,515
Chemeketa Community College District GO, 5.00%,
6/15/25 ........................................................................... 1,500,000 1,652,565
6/15/26 ........................................................................... 2,615,000 2,861,333
Clackamas County Canby School District No. 86 GO,
5.25%, 6/15/20 .................................................................... 3,000,000 3,042,780
FSA Insured, 5.00%, 6/15/23 ....................................................... 1,000,000 1,075,230
FSA Insured, 5.00%, 6/15/25 ....................................................... 1,000,000 1,067,750
Clackamas County Hospital Facility Authority Revenue,
Gross Willamette Falls Project, Refunding, 5.375%, 4/01/22 ........................ 2,125,000 2,047,246
Gross Willamette Falls Project, Refunding, 5.125%, 4/01/26 ........................ 1,000,000 905,700
Legacy Health System, Series A, 5.50%, 7/15/35 .................................... 6,525,000 6,702,349
Willamette Falls Hospital Project, 6.00%, 4/01/19 ................................. 1,000,000 1,004,590
Willamette View Inc. Project, Refunding, 6.10%, 11/01/12 .......................... 385,000 385,928
Willamette View Inc. Project, Refunding, 6.30%, 11/01/21 .......................... 1,500,000 1,458,885
Clackamas County Oregon Trail School District No. 46 GO, 5.00%, 6/15/32 .............. 6,855,000 7,207,964
Clackamas County School District No. 7J Lake Oswego GO,
NATL Insured, Pre-Refunded, 5.00%, 6/01/26 ........................................ 5,000,000 5,285,200
Refunding, FSA Insured, 5.25%, 6/01/25 ............................................ 3,075,000 3,634,250
Clackamas County School District No. 12 North Clackamas GO,
Convertible Deferred Interest, Series B, FSA Insured, zero cpn. to 6/15/11,
5.00% thereafter, 6/15/27 ...................................................... 25,000,000 24,729,500
Series A, FSA Insured, 4.75%, 6/15/31 ............................................. 3,500,000 3,603,985
Clackamas County School District No. 46 Oregon Trail GO,
Capital Appreciation, Refunding, zero cpn., 6/15/37 ............................... 12,130,000 2,782,379
Capital Appreciation, Refunding, zero cpn., 6/15/38 ............................... 12,495,000 2,708,166
Refunding, Series A, 5.00%, 6/15/28 ............................................... 2,210,000 2,369,208
Refunding, Series A, 5.00%, 6/15/29 ............................................... 2,655,000 2,833,575
Clackamas County School District No. 108 GO, FSA Insured, Pre-Refunded, 5.00%,
6/15/25 ........................................................................... 5,000,000 5,294,100
Clackamas Education Service District GO, AMBAC Insured, 4.125%, 6/01/36 .............. 1,000,000 948,430
Columbia Gorge Community College District GO, NATL Insured, 5.00%, 6/15/22 ........... 1,000,000 1,081,250
Coos County School District No. 13 GO, FSA Insured,
5.00%, 6/15/22 .................................................................... 55,000 57,309
Pre-Refunded, 5.00%, 6/15/22 ...................................................... 2,465,000 2,708,197
Curry County School District No. 17-C Brookings Harbor GO, Pre-Refunded, 5.375%,
12/15/20 .......................................................................... 2,750,000 2,861,320
The Dalles GO, Refunding, Assured Guaranty, 5.00%, 6/01/29 ........................... 1,600,000 1,727,664
Annual Report | 209
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OREGON (CONTINUED)
Deschutes and Jefferson Counties School District No. 2J Redmond GO,
5.50%, 6/15/34 .................................................................... $ 5,000,000 $ 5,479,750
Series A, NATL Insured, 5.00%, 6/15/21 ............................................ 1,000,000 1,072,710
Deschutes County Administrative School District No. 1 GO, Series A, FSA Insured,
Pre-Refunded, 5.125%, 6/15/21 ..................................................... 3,500,000 3,711,470
Deschutes County Hospital Facilities Authority Hospital Revenue, Cascade Healthcare,
Refunding, 8.25%, 1/01/38 ......................................................... 20,000,000 23,548,800
Series B, AMBAC Insured, 5.375%, 1/01/35 .......................................... 7,000,000 7,204,820
Emerald Peoples Utility District Revenue, Refunding, Series A, FSA Insured, 5.25%,
11/01/21 .......................................................................... 1,000,000 1,074,550
Eugene Electric Utility Revenue, Refunding, 5.00%, 8/01/33 ........................... 10,060,000 10,487,349
Forest Grove Revenue, Campus Improvement, Pacific University Project, Refunding,
6.00%, 5/01/30 .................................................................... 4,000,000 4,115,000
6.375%, 5/01/39 ................................................................... 12,000,000 12,366,720
Gresham Stormwater Revenue, FGIC Insured, Pre-Refunded, 5.30%, 5/01/21 ............... 1,190,000 1,258,187
High Desert Education Service District GO, AMBAC Insured, 4.50%, 6/01/30 ............. 1,010,000 1,035,543
Hillsboro GO, AMBAC Insured, 5.00%, 6/01/29 .......................................... 5,360,000 5,554,300
Hillsboro Hospital Facility Authority Revenue, Hospital Tuality Healthcare Project,
Radian Insured, 5.375%,
10/01/26 .......................................................................... 2,000,000 1,949,600
10/01/31 .......................................................................... 2,000,000 1,870,360
Jackson County Airport Revenue, Series A, XLCA Insured, 5.25%,
12/01/27 .......................................................................... 1,000,000 1,000,550
12/01/32 .......................................................................... 1,000,000 960,170
12/01/37 .......................................................................... 1,475,000 1,396,648
Jackson County School District No. 4 GO, FSA Insured,
5.00%, 6/15/20 .................................................................... 1,450,000 1,490,252
Pre-Refunded, 5.00%, 6/15/20 ...................................................... 550,000 582,714
Jackson County School District No. 6 Central Point GO, Refunding, FSA Insured, 4.75%,
6/15/20 ........................................................................... 2,005,000 2,130,032
Jackson County School District No. 9 Eagle Point GO, Pre-Refunded, 5.00%,
6/15/20 ........................................................................... 1,680,000 1,779,926
6/15/21 ........................................................................... 1,500,000 1,589,220
Jackson County School District No. 549C Medford GO,
5.00%, 6/15/33 .................................................................... 3,225,000 3,383,025
5.00%, 6/15/34 .................................................................... 5,000,000 5,227,250
Series B, FSA Insured, 5.00%, 12/15/32 ............................................ 5,765,000 6,052,501
Keizer Special Assessment, Keizer Station Area A Local, 5.20%, 6/01/31 ............... 3,240,000 3,300,620
Klamath Falls Intercommunity Hospital Authority Revenue, Merle West Medical Center
Project,
Pre-Refunded, 6.25%, 9/01/31 ...................................................... 3,290,000 3,769,518
Refunding, 6.25%, 9/01/31 ......................................................... 1,960,000 1,763,824
Refunding, Assured Guaranty, 5.00%, 9/01/36 ....................................... 5,000,000 4,545,050
Lake Oswego GO, Refunding, Series A, 5.00%, 12/01/31 ................................. 6,400,000 6,884,992
Lane and Douglas Counties School District No. 45J3 GO, South Lane District, Refunding,
FSA Insured, 4.75%, 6/15/25 ....................................................... 3,510,000 3,595,223
Lane County GO, Series A, 5.00%,
11/01/27 .......................................................................... 1,650,000 1,756,541
11/01/28 .......................................................................... 1,240,000 1,308,969
210 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OREGON (CONTINUED)
Lane County Metropolitan Wastewater Management Commission Revenue,
5.25%, 11/01/28 ................................................................... $ 5,000,000 $ 5,426,750
FGIC Insured, 4.75%, 11/01/26 ..................................................... 1,615,000 1,663,224
Lane County School District No. 19 Springfield GO, FSA Insured, zero cpn.,
6/15/27 ........................................................................... 5,580,000 2,392,648
6/15/28 ........................................................................... 2,000,000 806,440
6/15/29 ........................................................................... 1,925,000 722,106
Lane County School District No. 52 Bethel GO, Refunding, FSA Insured, 5.00%, 6/15/20 . 5,700,000 5,958,495
Lebanon GO, AMBAC Insured, 5.00%,
6/01/25 ........................................................................... 1,635,000 1,748,518
6/01/27 ........................................................................... 1,675,000 1,773,942
Linn County Community School District No. 9 GO,
Lebanon, FGIC Insured, Pre-Refunded, 5.55%, 6/15/21 ............................... 1,155,000 1,322,694
Lebanon, FGIC Insured, Pre-Refunded, 5.60%, 6/15/30 ............................... 9,495,000 10,888,866
NATL Insured, Pre-Refunded, 5.375%, 6/15/30 ....................................... 5,000,000 5,073,100
Linn County School District No. 55 GO, Sweet Home, FSA Insured, Pre-Refunded, 5.00%,
6/15/29 ........................................................................... 1,000,000 1,059,480
Medford Hospital Facilities Authority Revenue, Asante Health System,
Refunding, Assured Guaranty, 5.125%, 8/15/40 ...................................... 25,000,000 25,049,500
Refunding, Series A, NATL Insured, 5.00%, 8/15/18 ................................. 2,570,000 2,574,292
Refunding, Series A, NATL Insured, 5.00%, 8/15/24 ................................. 1,715,000 1,699,291
Series A, Assured Guaranty, 5.00%, 8/15/40 ........................................ 10,050,000 9,972,012
Multnomah County Educational Facilities Revenue, University of Portland Project,
Pre-Refunded, 6.00%, 4/01/25 ...................................................... 2,000,000 2,008,440
Multnomah County Hospital Facilities Authority Revenue, Adventis Health System-West,
Series A, 5.125%, 9/01/40 ......................................................... 5,500,000 5,478,935
Multnomah County School District No. 7 Reynolds GO, Series 2005, NATL Insured, 5.00%,
6/01/35 ........................................................................... 3,220,000 3,229,145
Multnomah-Clackamas Counties Centennial School District No. 28-302 GO, FGIC Insured,
Pre-Refunded, 5.00%, 6/15/21 ...................................................... 5,000,000 5,297,400
Multnomah-Clackamas Counties Centennial School District No. 28-JT GO, Capital
Appreciation, AMBAC Insured, zero cpn., 6/01/16 ................................... 2,260,000 1,754,054
Northern Wasco County Peoples Utilities District Hydroelectric Revenue, McNary Dam
Fishway Project, 5.20%, 12/01/24 .................................................. 5,000,000 5,009,800
Oregon Coast Community College District GO, NATL Insured, 5.00%, 6/15/23 ............. 3,745,000 3,966,442
Oregon Health and Science University Revenue,
Capital Appreciation, Refunding, Series A, NATL Insured, zero cpn., 7/01/21 ....... 11,480,000 6,105,982
Series A, 5.75%, 7/01/39 .......................................................... 12,000,000 12,960,600
Series A, NATL Insured, 5.00%, 7/01/32 ............................................ 24,750,000 23,441,962
Oregon State Department of Administrative Services COP,
FSA Insured, 4.625%, 5/01/30 ...................................................... 7,795,000 7,893,139
Refunding, Series B, AMBAC Insured, 5.00%, 5/01/26 ................................ 7,500,000 7,674,450
Refunding, Series B, FSA Insured, 5.00%, 5/01/21 .................................. 1,805,000 1,924,040
Series A, 5.25%, 5/01/39 .......................................................... 3,800,000 3,971,152
Series A, AMBAC Insured, Pre-Refunded, 6.00%, 5/01/26 ............................. 2,000,000 2,038,620
Series A, FSA Insured, 5.00%, 5/01/23 ............................................. 2,695,000 2,872,439
Series A, FSA Insured, 5.00%, 5/01/30 ............................................. 13,205,000 13,658,856
Series B, FGIC Insured, 5.00%, 11/01/30 ........................................... 19,100,000 19,813,003
Series C, 5.00%, 11/01/34 ......................................................... 5,000,000 5,142,500
Annual Report | 211
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OREGON (CONTINUED)
Oregon State Department of Administrative Services Lottery Revenue,
Oregon Administration, Lottery, Series A, FSA Insured, 5.00%, 4/01/25 ............. $ 5,000,000 $ 5,440,300
Oregon Administration, Lottery, Series A, FSA Insured, 5.00%, 4/01/27 ............. 2,000,000 2,150,220
Series A, 5.00%, 4/01/27 .......................................................... 17,880,000 19,542,482
Series A, 5.00%, 4/01/28 .......................................................... 18,225,000 19,788,340
Series A, 5.00%, 4/01/29 .......................................................... 1,750,000 1,887,603
Oregon State Department of Transportation Highway User Tax Revenue,
Refunding, Series A, 5.00%, 11/15/25 .............................................. 1,295,000 1,391,231
Refunding, Series A, 5.00%, 11/15/29 .............................................. 3,330,000 3,498,864
senior lien, Series A, 5.00%, 11/15/29 ............................................ 3,085,000 3,342,567
senior lien, Series A, 4.50%, 11/15/32 ............................................ 21,000,000 21,148,260
senior lien, Series A, 5.00%, 11/15/33 ............................................ 6,500,000 6,898,125
Series A, 5.00%, 11/15/28 ......................................................... 15,000,000 15,820,050
Series A, Pre-Refunded, 5.125%, 11/15/23 .......................................... 5,000,000 5,583,550
(a) Oregon State EDR, Georgia-Pacific Corp. Project, Series CLVII, 6.35%, 8/01/25 ........ 7,910,000 7,848,144
Oregon State Facilities Authority Revenue,
Legacy Health System, Refunding, Series A, 5.00%, 3/15/30 ......................... 1,500,000 1,507,020
Peacehealth, Series A, Refunding, 5.00%, 11/01/39 ................................. 20,050,000 20,109,548
(b) Samaritan Health Services, Refunding, Series A, 5.25%, 10/01/40 ................... 7,500,000 7,455,975
Senior College in Student Housing Project, Series A, XLCA Insured, 5.00%, 7/01/35.. 3,660,000 2,792,031
University of Portland Projects, Series A, 5.00%, 4/01/32 ......................... 6,545,000 6,225,604
Willamette University Projects, Refunding, Series A, FGIC Insured, 5.00%,
10/01/35 ....................................................................... 5,210,000 5,214,793
Oregon State GO,
Alternative Energy Project, Series B, 6.00%, 10/01/26 ............................. 1,680,000 1,957,704
Elderly and Disabled Housing, Series A, 6.00%, 8/01/15 ............................ 910,000 916,279
Elderly and Disabled Housing, Series A, 6.00%, 8/01/21 ............................ 455,000 457,230
Elderly and Disabled Housing, Series A, 5.375%, 8/01/28 ........................... 1,435,000 1,435,918
Elderly and Disabled Housing, Series A, 4.70%, 8/01/42 ............................ 3,205,000 2,864,244
Elderly and Disabled Housing, Series B, 6.10%, 8/01/17 ............................ 1,410,000 1,418,390
Elderly and Disabled Housing, Series B, 6.25%, 8/01/23 ............................ 2,015,000 2,026,062
Elderly and Disabled Housing, Series C, 6.50%, 8/01/22 ............................ 335,000 335,858
State Board of Higher Education, Refunding, Series A, 5.00%, 8/01/30 .............. 1,705,000 1,791,392
State Board of Higher Education, Refunding, Series A, 4.50%, 8/01/37 .............. 1,500,000 1,519,770
State Board of Higher Education, Refunding, Series A, 5.00%, 8/01/38 .............. 6,225,000 6,561,025
State Board of Higher Education, Refunding, Series B, 5.00%, 8/01/38 .............. 1,500,000 1,580,970
State Board of Higher Education, Refunding, Series E, 5.00%, 8/01/29 .............. 7,745,000 8,083,766
State Board of Higher Education, Series A, 5.00%, 8/01/31 ......................... 1,695,000 1,788,988
State Board of Higher Education, Series A, 5.00%, 8/01/34 ......................... 5,000,000 5,317,250
State Board of Higher Education, Series A, 5.00%, 8/01/36 ......................... 2,715,000 2,828,134
State Board of Higher Education, Series A, 5.00%, 8/01/37 ......................... 5,555,000 5,828,084
State Board of Higher Education, Series A, Pre-Refunded, 5.00%, 8/01/31 ........... 2,000,000 2,129,320
State Board of Higher Education, Series A, Pre-Refunded, 5.00%, 8/01/35 ........... 6,000,000 7,041,960
State Board of Higher Education, Series B, 5.00%, 8/01/38 ......................... 5,000,000 5,269,900
State Board of Higher Education, Series C, 5.00%, 8/01/37 ......................... 1,115,000 1,169,813
Veteran's Welfare, Series 77, 5.30%, 10/01/29 ..................................... 1,335,000 1,335,467
Veteran's Welfare, Series A, 5.70%, 10/01/32 ...................................... 1,935,000 1,946,126
212 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OREGON (CONTINUED)
Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Peacehealth, AMBAC Insured, 5.00%, 11/15/26 ....................................... $ 5,500,000 $ 5,557,695
Reed College Project, Series A, 5.75%, 7/01/32 .................................... 10,735,000 10,888,940
Oregon State Housing and Community Services Department MFHR, Series B, 6.00%,
7/01/31 ........................................................................... 5,000,000 5,011,050
Oregon State Housing and Community Services Department Mortgage Revenue,
SFM Program, Series A, 6.35%, 7/01/14 ............................................. 300,000 300,315
SFM Program, Series A, 6.40%, 7/01/18 ............................................. 225,000 226,368
SFM Program, Series A, 6.45%, 7/01/26 ............................................. 410,000 411,792
SFM Program, Series C, 6.20%, 7/01/15 ............................................. 380,000 382,326
SFM Program, Series C, 6.40%, 7/01/26 ............................................. 225,000 225,947
SFM Program, Series D, 6.80%, 7/01/27 ............................................. 235,000 235,103
SFM Program, Series H, FHA Insured, 5.75%, 7/01/30 ................................ 980,000 982,695
SFMR, Refunding, Series G, 5.35%, 7/01/30 ......................................... 5,775,000 5,987,462
Polk Marion and Benton Counties School District No. 13J GO, FSA Insured, Pre-Refunded,
5.80%, 6/15/20 .................................................................... 1,985,000 2,016,403
Port Astoria PCR, James River Project, Refunding, 6.55%, 2/01/15 ..................... 945,000 951,218
Port of Portland International Airport Revenue,
Portland International Airport, Refunding, Series D, FGIC Insured, 5.00%, 7/01/23.. 3,000,000 3,033,270
Portland International Airport, Series 7-B, NATL Insured, Pre-Refunded, 7.10%,
7/01/21 ........................................................................ 2,800,000 3,091,256
Portland International Airport, Series 12A, FGIC Insured, 5.00%, 7/01/18 .......... 1,500,000 1,501,305
Series Nineteen, 5.50%, 7/01/38 ................................................... 23,000,000 24,498,910
Port St. Helens PCR, Portland General Electric Co. Project, Series A, 5.25%, 8/01/14.. 3,600,000 3,438,864
Portland Community College District GO, Series B, Pre-Refunded, 5.00%, 6/01/21 ....... 6,290,000 6,648,782
Portland EDR, Broadway Project, Refunding, Series A, 6.50%, 4/01/35 .................. 5,000,000 5,538,700
Portland GO, Limited Tax,
Series A, 5.00%, 6/01/24 .......................................................... 10,000,000 10,287,500
Series A, NATL Insured, 5.125%, 6/01/30 ........................................... 6,315,000 6,468,644
Series B, zero cpn., 6/01/21 ...................................................... 1,000,000 629,410
Portland Housing Authority MFR, Housing, Lovejoy Station Apartments Project,
NATL Insured, 6.00%, 7/01/33 ...................................................... 2,000,000 2,000,840
Portland MFR,
Civic Stadium Housing Project, Series A, 6.00%, 3/01/17 ........................... 845,000 849,690
Housing Garden Park Estates Project, Series A, GNMA Secured, 5.875%, 3/20/37 ...... 3,110,000 3,148,968
Portland River District Urban Renewal and Redevelopment Revenue, Series A, AMBAC
Insured, 5.00%, 6/15/21 ........................................................... 3,000,000 3,120,300
Portland Sewer System Revenue,
first lien, Series A, FSA Insured, 5.00%, 10/01/24 ................................ 6,235,000 6,659,915
second lien, Refunding, Series A, FSA Insured, 5.00%, 6/01/23 ..................... 2,500,000 2,643,050
second lien, Series B, NATL Insured, 5.00%, 6/15/28 ............................... 5,105,000 5,394,556
Portland Urban Renewal and Redevelopment Revenue, Interstate Corridor, Refunding,
Series A, FGIC Insured, 5.00%,
6/15/24 ........................................................................... 1,295,000 1,323,231
6/15/25 ........................................................................... 2,385,000 2,425,784
Portland Urban Renewal and Redevelopment Tax Allocation, Convention Center, Series A,
AMBAC Insured, 5.50%, 6/15/20 ..................................................... 3,000,000 3,062,010
Annual Report | 213
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
OREGON (CONTINUED)
Portland Water System Revenue,
NATL Insured, 4.50%, 10/01/27 ..................................................... $ 1,000,000 $ 1,029,220
NATL Insured, 4.50%, 10/01/28 ..................................................... 3,895,000 3,988,441
second lien, Series A, NATL Insured, 4.375%, 10/01/25 ............................. 3,415,000 3,532,271
Redmond Airport GO, Terminal Expansion Project, 5.00%, 6/01/39 ....................... 1,000,000 967,110
Redmond Airport Revenue, 6.25%, 6/01/39 .............................................. 1,010,000 1,014,101
Redmond GO, Series C, NATL Insured, 5.00%, 6/01/33 ................................... 1,260,000 1,291,349
Salem Hospital Facility Authority Revenue,
Salem Hospital Project, Series A, 5.00%, 8/15/27 .................................. 11,000,000 11,117,810
Salem Hospital Project, Series A, 5.00%, 8/15/36 .................................. 9,000,000 8,836,470
Series A, 5.75%, 8/15/23 .......................................................... 10,000,000 10,811,900
Salem-Keizer School District No. 24J GO, Deferred Interest, Series B, zero cpn.,
6/15/30 ........................................................................... 8,500,000 3,152,735
Southwestern Community College District GO, NATL Insured, Pre-Refunded, 5.00%,
6/01/28 ........................................................................... 1,100,000 1,263,097
Sunrise Water Authority Water Revenue, sub. lien,
Series B, XLCA Insured, 5.00%, 9/01/25 ............................................ 1,160,000 1,161,102
XLCA Insured, 5.00%, 3/01/25 ...................................................... 1,660,000 1,661,444
Tillamook and Yamhill Counties School District No. 101 Nestucca Valley GO, FSA
Insured, 5.00%, 6/15/25 ........................................................... 1,560,000 1,673,459
Tri-County Metropolitan Transportation District Revenue, Series A, 4.75%, 9/01/29 .... 15,305,000 16,130,093
Washington and Clackamas Counties Tigard-Tualatin School District No. 23J GO, NATL
Insured, Pre-Refunded, 5.00%, 6/15/22 ............................................. 7,000,000 7,682,220
Washington Clackamas and Yamhill Counties School District No. 88J GO,
Deferred Interest, Series A, NATL Insured, zero cpn., 6/15/27 ..................... 3,500,000 1,521,135
Sherwood, Series A, NATL Insured, zero cpn., 6/15/28 .............................. 2,960,000 1,210,670
Sherwood, Series A, NATL Insured, zero cpn., 12/15/31 ............................. 3,515,000 1,134,326
Sherwood, Series B, NATL Insured, 4.50%, 12/15/31 ................................. 2,900,000 2,919,517
Washington County Clean Water Services Sewer Revenue, senior lien, FGIC Insured,
5.00%, 10/01/19 ................................................................... 3,905,000 4,026,211
Washington County GO,
Obligations, Refunding, 4.375%, 6/01/26 ........................................... 1,000,000 1,046,810
Pre-Refunded, 5.00%, 6/01/26 ...................................................... 10,000,000 10,570,400
Washington County School District No. 48J Beaverton GO, Pre-Refunded, 5.00%, 6/01/22.. 4,155,000 4,557,993
Washington Multnomah and Yamhill Counties School District No. 1J Hillsboro GO,
FSA Insured, 5.60%, 4/01/20 ....................................................... 1,000,000 1,004,230
Yamhill County McMinnville School District No. 40 GO, FSA Insured, 5.00%, 6/15/28 .... 4,000,000 4,160,560
--------------
917,092,359
--------------
U.S. TERRITORIES 18.5%
GUAM 0.4%
Guam Government Limited Obligation Revenue, Section 30, Series A, 5.625%,
12/01/24 .......................................................................... 840,000 885,335
12/01/29 .......................................................................... 3,250,000 3,329,300
--------------
4,214,635
--------------
214 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES (CONTINUED)
PUERTO RICO 17.8%
Children's Trust Fund Puerto Rico Tobacco Settlement Revenue, Asset-Backed Bonds,
Refunding, 5.625%, 5/15/43 ........................................................ $ 10,000,000 $ 8,668,800
Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series A, 5.50%, 7/01/32 ........................... 15,000,000 15,008,700
Public Improvement, Series A, 5.00%, 7/01/29 ...................................... 10,000,000 9,465,600
Public Improvement, Series A, 5.125%, 7/01/31 ..................................... 9,885,000 9,481,989
Public Improvement, Series A, 5.375%, 7/01/33 ..................................... 10,000,000 9,784,600
Public Improvement, Series A, Pre-Refunded, 5.125%, 7/01/31 ....................... 5,115,000 5,441,797
Refunding, Series C, Sub Series C-7, NATL Insured, 6.00%, 7/01/28 ................. 4,500,000 4,654,395
Puerto Rico Commonwealth Highway and Transportation Authority Highway Revenue,
Series Y, Pre-Refunded, 5.50%, 7/01/36 ............................................ 13,000,000 15,760,290
Puerto Rico Commonwealth Highway and Transportation Authority Transportation Revenue,
Refunding, Series N, FGIC Insured, 5.25%, 7/01/39 ................................. 10,000,000 9,402,200
Series D, Pre-Refunded, 5.375%, 7/01/36 ........................................... 10,000,000 11,030,900
Puerto Rico Convention Center District Authority Hotel Occupancy Tax Revenue,
Series A, AMBAC Insured, 5.00%, 7/01/31 ........................................... 6,250,000 5,677,625
Puerto Rico Electric Power Authority Power Revenue,
Series II, FSA Insured, Pre-Refunded, 5.125%, 7/01/26 ............................. 9,150,000 10,186,786
Series II, Pre-Refunded, 5.25%, 7/01/31 ........................................... 12,000,000 13,394,280
Series RR, FGIC Insured, Pre-Refunded, 5.00%, 7/01/35 ............................. 10,000,000 11,774,300
Series WW, 5.25%, 7/01/33 ......................................................... 9,690,000 9,637,674
Puerto Rico PBA Guaranteed Revenue, Government Facilities, Refunding, Series M-3,
NATL Insured, 6.00%, 7/01/25 ...................................................... 15,000,000 16,009,800
Puerto Rico Public Finance Corp. Revenue, Commonwealth Appropriation, Series E,
Pre-Refunded, 5.50%, 8/01/29 ...................................................... 5,000,000 5,432,800
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue,
Convertible Capital Appreciation, first sub., Series A, zero cpn. to 8/01/16,
6.75% thereafter, 8/01/32 ......................................................... 20,000,000 15,280,200
first sub., Series A, 5.375%, 8/01/39 ............................................. 9,000,000 9,002,970
first sub., Series A, 6.50%, 8/01/44 .............................................. 10,000,000 10,787,400
--------------
205,883,106
--------------
U.S. VIRGIN ISLANDS 0.3%
Virgin Islands Water and Power Authority Electric System Revenue, Refunding, 5.30%,
7/01/18 ........................................................................... 2,500,000 2,507,350
7/01/21 ........................................................................... 1,400,000 1,402,786
--------------
3,910,136
--------------
TOTAL U.S. TERRITORIES ............................................................... 214,007,877
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,090,891,696) ............................................................. 1,131,100,236
--------------
Annual Report | 215
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN OREGON TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------ ---------------- --------------
SHORT TERM INVESTMENTS 1.7%
MUNICIPAL BONDS 1.7%
OREGON 1.6%
(c) Medford Hospital Facilities Authority Revenue, Rogue Valley Manor Project,
Daily VRDN and Put, 0.17%, 8/15/37 ................................................ $ 4,500,000 $ 4,500,000
Refunding, Daily VRDN and Put, 0.12%, 8/15/32 ..................................... 8,700,000 8,700,000
(c) Oregon State Health Housing Educational and Cultural Facilities Authority Revenue,
Peacehealth, Daily VRDN and Put, 0.11%, 12/01/15 .................................. 5,880,000 5,880,000
--------------
19,080,000
--------------
U.S. TERRITORIES 0.1%
PUERTO RICO 0.1%
(c) Puerto Rico Commonwealth GO, Public Improvement, Refunding, Series B, Daily VRDN
and Put, 0.12%, 7/01/32 ........................................................... 900,000 900,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $19,980,000) ...................................... 19,980,000
--------------
TOTAL INVESTMENTS (COST $1,110,871,696) 99.5% ........................................ 1,151,080,236
OTHER ASSETS, LESS LIABILITIES 0.5% .................................................. 5,664,089
--------------
NET ASSETS 100.0% .................................................................... $1,156,744,325
==============
See Abbreviations on page 263.
(a) In prior years, the Internal Revenue Service (IRS) issued a preliminary
adverse determination, ruling that the income generated by the bond was
taxable. The issuer of the bond was contesting this determination and,
until this was finalized, the Fund continued to recognize interest income
earned on the bond as tax-exempt. In March 2010, the Fund received notice
that the IRS withdrew its preliminary adverse determination.
(b) Security purchased on a when-issued basis. See Note 1(b).
(c) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
216 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
------------------------------------------------------------
CLASS A 2010 2009 2008(a) 2007 2006
- ------- ---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 9.65 $ 9.82 $ 10.47 $ 10.44 $ 10.48
---------- -------- -------- -------- --------
Income from investment operations(b):
Net investment income(c) .................... 0.45 0.44 0.44 0.44 0.46
Net realized and unrealized gains (losses) .. 0.62 (0.18) (0.65) 0.04 (0.04)
---------- -------- -------- -------- --------
Total from investment operations ............... 1.07 0.26 (0.21) 0.48 0.42
---------- -------- -------- -------- --------
Less distributions from net investment income .. (0.45) (0.43) (0.44) (0.45) (0.46)
---------- -------- -------- -------- --------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
---------- -------- -------- -------- --------
Net asset value, end of year ................... $ 10.27 $ 9.65 $ 9.82 $ 10.47 $ 10.44
========== ======== ======== ======== ========
Total return(f) ................................ 11.22% 2.72% (2.16)% 4.71% 4.08%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 0.65% 0.65% 0.66% 0.66% 0.66%
Net investment income .......................... 4.43% 4.53% 4.24% 4.26% 4.37%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $1,016,824 $820,227 $770,164 $747,279 $718,293
Portfolio turnover rate ........................ 12.88% 11.50% 16.68% 6.99% 13.07%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 217
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------
CLASS B 2010 2009 2008(a) 2007 2006
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 9.68 $ 9.86 $ 10.51 $ 10.47 $ 10.51
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.39 0.39 0.38 0.39 0.40
Net realized and unrealized gains (losses) .. 0.62 (0.19) (0.65) 0.04 (0.04)
------- ------- ------- ------- -------
Total from investment operations ............... 1.01 0.20 (0.27) 0.43 0.36
------- ------- ------- ------- -------
Less distributions from net investment income .. (0.39) (0.38) (0.38) (0.39) (0.40)
------- ------- ------- ------- -------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 10.30 $ 9.68 $ 9.86 $ 10.51 $ 10.47
======= ======= ======= ======= =======
Total return(f) ................................ 10.58% 2.04% (2.68)% 4.22% 3.51%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.20% 1.20% 1.21% 1.21% 1.21%
Net investment income .......................... 3.88% 3.98% 3.69% 3.71% 3.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $21,977 $30,177 $37,339 $43,897 $47,623
Portfolio turnover rate ........................ 12.88% 11.50% 16.68% 6.99% 13.07%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
218 | Annual Report
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------
CLASS C 2010 2009 2008(a) 2007 2006
- ------- -------- -------- -------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 9.73 $ 9.90 $ 10.55 $ 10.51 $ 10.56
-------- -------- -------- -------- -------
Income from investment operations(b):
Net investment income(c) .................... 0.39 0.39 0.38 0.39 0.40
Net realized and unrealized gains (losses) .. 0.63 (0.18) (0.65) 0.04 (0.05)
-------- -------- -------- -------- -------
Total from investment operations ............... 1.02 0.21 (0.27) 0.43 0.35
-------- -------- -------- -------- -------
Less distributions from net investment income .. (0.39) (0.38) (0.38) (0.39) (0.40)
-------- -------- -------- -------- -------
Redemption fees(d) ............................. -- --(e) --(e) --(e) --(e)
-------- -------- -------- -------- -------
Net asset value, end of year ................... $ 10.36 $ 9.73 $ 9.90 $ 10.55 $ 10.51
======== ======== ======== ======== =======
Total return(f) ................................ 10.62% 2.13% (2.68)% 4.19% 3.40%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.20% 1.20% 1.21% 1.21% 1.21%
Net investment income .......................... 3.88% 3.98% 3.69% 3.71% 3.82%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $217,322 $135,480 $107,286 $100,495 $88,237
Portfolio turnover rate ........................ 12.88% 11.50% 16.68% 6.99% 13.07%
(a) For the year ended February 29.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 219
Franklin Tax-Free Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND
PERIOD ENDED
FEBRUARY 28,
ADVISOR CLASS 2010(a)
- ------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 9.92
------
Income from investment operations(b):
Net investment income(c) .................... 0.29
Net realized and unrealized gains (losses) .. 0.34
------
Total from investment operations ............... 0.63
------
Less distributions from net investment income .. (0.28)
------
Net asset value, end of period ................. $10.27
======
Total return(d) ................................ 6.42%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses ....................................... 0.55%
Net investment income .......................... 4.53%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $6,832
Portfolio turnover rate ........................ 12.88%
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
(b) The 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 shares in relation to income earned
and/or fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
The accompanying notes are an integral part of these financial statements.
220 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS 97.3%
PENNSYLVANIA 86.5%
Allegheny County Airport Authority Airport Revenue, Pittsburgh International Airport,
Refunding, NATL Insured, 5.75%, 1/01/18 ........................................... $ 1,000,000 $ 1,006,170
Allegheny County COP, AMBAC Insured, 5.00%, 12/01/28 ................................. 4,000,000 4,008,400
Allegheny County GO,
NATL Insured, Pre-Refunded, 5.00%, 11/01/27 ....................................... 1,000,000 1,110,360
Notes, Series C-60, FSA Insured, 5.00%, 11/01/27 .................................. 3,000,000 3,161,700
Series C-61, Assured Guaranty, 5.00%, 12/01/33 .................................... 5,000,000 5,153,200
Allegheny County Higher Education Building Authority University Revenue, Duquesne
University,
5.00%, 3/01/28 .................................................................... 3,000,000 3,079,500
5.00%, 3/01/33 .................................................................... 1,300,000 1,302,548
Series A, XLCA Insured, 5.00%, 3/01/29 ............................................ 5,000,000 5,056,750
Series A, XLCA Insured, 5.00%, 3/01/33 ............................................ 5,630,000 5,647,340
Allegheny County Hospital Development Authority Revenue,
5.625%, 8/15/39 ................................................................... 12,000,000 12,367,560
Health System, Series A, NATL Insured, Pre-Refunded, 6.50%, 11/15/30 .............. 10,000,000 10,636,400
Allegheny County IDAR,
County Guaranteed, Refunding, Series B, NATL Insured, 5.00%, 11/01/29 ............. 1,485,000 1,508,923
County Guaranteed, Series B, NATL Insured, Pre-Refunded, 5.00%, 11/01/29 .......... 7,515,000 8,354,876
Series A, NATL Insured, Pre-Refunded, 5.00%, 11/01/29 ............................. 5,000,000 5,558,800
Allegheny County Port Authority Special Revenue, Transportation, Refunding, NATL
Insured, 5.00%,
3/01/25 ........................................................................... 13,250,000 13,513,145
3/01/29 ........................................................................... 16,500,000 16,680,675
Allegheny County Residential Finance Authority Mortgage Revenue, SFM,
Refunding, Series DD-1, GNMA Secured, 5.35%, 11/01/19 ............................. 245,000 245,978
Refunding, Series DD-2, GNMA Secured, 5.40%, 11/01/29 ............................. 1,175,000 1,176,951
Series II-2, GNMA Secured, 5.90%, 11/01/32 ........................................ 715,000 718,339
Allegheny County Sanitation Authority Sewer Revenue,
NATL Insured, 5.00%, 12/01/37 ..................................................... 6,745,000 6,777,039
Refunding, Series A, NATL Insured, 5.00%, 12/01/30 ................................ 7,000,000 7,090,090
Allegheny Valley School District GO, NATL Insured, 5.00%, 11/01/28 ................... 1,550,000 1,593,322
Allentown Parking Authority Parking Revenue, FSA Insured, 5.00%, 11/15/35 ............ 2,430,000 2,465,915
Armstrong County GO, Refunding, NATL Insured, 5.40%, 6/01/31 ......................... 2,500,000 2,511,125
Bethel Park School District GO, 5.10%, 8/01/33 ....................................... 3,600,000 3,733,308
Bethlehem Area School District GO, FSA Insured, 5.25%, 1/15/26 ....................... 6,605,000 7,055,527
Blair County Hospital Authority Revenue, Altoona Regulation Health System, 6.00%,
11/15/39 .......................................................................... 6,890,000 6,919,420
Bucks County IDAR, AMBAC Insured, 5.125%, 9/15/31 .................................... 3,675,000 3,691,317
Butler Area School District GO, FSA Insured, Pre-Refunded, 5.00%, 4/01/31 ............ 4,000,000 4,620,360
Butler County Hospital Authority Hospital Revenue, Butler Health System Project,
7.25%, 7/01/39 .................................................................... 4,500,000 5,050,710
Carbon County IDAR, Panther Creek Partner Project, Refunding, 6.65%, 5/01/10 ......... 500,000 499,890
Catasauqua Area School District GO, Refunding, FSA Insured, 5.00%, 2/15/36 ........... 6,000,000 6,123,540
Centre County Hospital Authority Revenue, Hospital, Mount Nittany Medical Center
Project, Assured Guaranty,
5.875%, 11/15/29 .................................................................. 1,000,000 1,039,130
6.125%, 11/15/39 .................................................................. 3,200,000 3,312,288
6.25%, 11/15/44 ................................................................... 2,500,000 2,590,075
Annual Report | 221
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Clarion County Hospital Authority Revenue, Clarion Hospital Project, Refunding,
5.60%, 7/01/10 .................................................................... $ 600,000 $ 602,556
5.75%, 7/01/12 .................................................................... 1,795,000 1,800,582
5.75%, 7/01/17 .................................................................... 2,200,000 2,199,956
5.625%, 7/01/21 ................................................................... 1,500,000 1,457,700
Connellsville Area School District GO, Series B, FSA Insured, 5.00%, 11/15/37 ........ 1,000,000 1,024,330
Cumberland County Municipal Authority College Revenue, Dickinson College,
Assn. of Independent Colleges and Universities of Pennsylvania Financing Program,
Series GG1, NATL Insured, 5.00%, 5/01/34 ....................................... 7,610,000 7,756,264
Assn. of Independent Colleges and Universities of Pennsylvania Financing Program,
Series HH1, 5.00%, 11/01/39 .................................................... 1,200,000 1,194,396
Series A, AMBAC Insured, Pre-Refunded, 5.50%, 11/01/30 ............................ 1,200,000 1,241,172
Dauphin County General Authority Health System Revenue, Pinnacle Health System
Project, Refunding, Series A, 6.00%, 6/01/36 ...................................... 10,000,000 10,306,400
Dauphin County General Authority Hospital Revenue, Hapsco-Western Hospital Project,
Series B, NATL Insured, ETM, 6.25%, 7/01/16 ....................................... 4,525,000 5,119,947
Deer Lakes School District GO, Assured Guaranty, 5.50%, 4/01/39 ...................... 7,500,000 8,013,225
Delaware County Authority College Revenue,
Cabrini College, Refunding, Radian Insured, 5.875%, 7/01/29 ....................... 1,140,000 1,122,433
Eastern College, Series C, 5.625%, 10/01/28 ....................................... 2,210,000 2,052,449
Haverford College, 5.75%, 11/15/29 ................................................ 3,500,000 3,572,730
Haverford College, 6.00%, 11/15/30 ................................................ 1,750,000 1,789,602
Delaware County Authority Hospital Revenue, Crozer Keystone Obligation, Group A,
5.00%, 12/15/31 ................................................................... 5,000,000 3,946,250
Delaware County Authority Revenue,
Dunwoody Village Project, Pre-Refunded, 6.25%, 4/01/30 ............................ 1,800,000 1,808,370
Health Facilities, Mercy Health Corp. Project, ETM, 6.00%, 12/15/26 ............... 10,800,000 11,754,180
Delaware County IDAR, Philadelphia Suburban Water Co. Project, NATL Insured, 6.00%,
6/01/29 ........................................................................... 2,000,000 2,004,120
Delaware Valley Regional Finance Authority Local Government Revenue, Series B,
AMBAC Insured, 5.60%, 7/01/17 ..................................................... 5,000,000 5,645,650
Erie County Hospital Authority Revenue, Hamot Health Foundation, CIFG Insured, 5.00%,
11/01/35 .......................................................................... 6,000,000 5,268,600
Erie County IDA Environmental Improvement Revenue, International Paper Co. Project,
Refunding, Series B, 6.00%, 9/01/16 ............................................... 600,000 607,716
Erie GO, Series E, FGIC Insured, 5.25%, 11/15/25 ..................................... 5,000,000 5,065,250
Erie Higher Education Building Authority College Revenue, Mercyhurst College, 5.50%,
3/15/38 ........................................................................... 2,000,000 1,944,300
Erie School District GO, AMBAC Insured, Pre-Refunded, 5.80%, 9/01/29 ................. 3,000,000 3,082,080
Erie Water Authority Revenue, FSA Insured, 5.00%, 12/01/43 ........................... 7,000,000 7,168,840
Greater Johnstown School District GO, Series C, NATL Insured, 5.125%, 8/01/25 ........ 3,605,000 3,693,467
Hazleton Health Services Authority Hospital Revenue, Hazleton General Hospital, 5.50%,
7/01/27 ........................................................................... 1,500,000 1,275,975
Johnstown RDA Sewer Revenue, Series A, FSA Insured, Pre-Refunded, 5.00%, 8/15/34 ..... 1,825,000 2,125,486
Lancaster County Hospital Authority Revenue, Health Center, Willow Valley Retirement
Project, 5.875%, 6/01/21 .......................................................... 1,000,000 1,009,370
222 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Lancaster Parking Authority Parking Revenue, Guaranteed, Series A, AMBAC Insured,
5.00%,
12/01/32 .......................................................................... $ 1,700,000 $ 1,717,272
12/01/35 .......................................................................... 2,500,000 2,512,550
Latrobe IDAR, St. Vincent College Project, 5.70%, 5/01/31 ............................ 1,500,000 1,451,565
Lehigh County General Purpose Authority Revenues,
Lehigh Valley Hospital, Health Network, Series B, FSA Insured, 5.25%, 7/01/19 ..... 2,750,000 2,838,027
Muhlenberg College Project, 5.25%, 2/01/34 ........................................ 1,500,000 1,548,405
Lehigh County General Purpose Hospital Revenue, Lehigh Valley Health, Series B,
FSA Insured, 5.00%, 7/01/35 ....................................................... 11,250,000 11,391,525
Luzerne County IDA Facility Revenue, Pennsylvania American Water Co., Refunding, 5.50%,
12/01/39 .......................................................................... 10,000,000 10,172,600
Lycoming County Authority College Revenue, Pennsylvania College of Technology,
AMBAC Insured, 5.25%, 5/01/32 ..................................................... 5,030,000 4,593,446
Refunding, AMBAC Insured, 5.35%, 7/01/26 .......................................... 2,400,000 2,389,464
Lycoming County Authority Health System Revenue, Susquehanna Health System Project,
Refunding, Series A, 5.75%, 7/01/39 ............................................... 20,000,000 19,998,200
Marple Newtown School District GO, FSA Insured, 5.00%, 6/01/31 ....................... 11,325,000 12,003,594
McKeesport Municipal Authority Sewer Revenue, 5.75%, 12/15/39 ........................ 5,000,000 5,021,800
Mercer County GO, FGIC Insured, 5.00%, 10/01/31 ...................................... 2,000,000 2,012,260
Mercer County IDA Water Facilities Revenue, NATL Insured, 6.00%, 7/01/30 ............. 5,000,000 5,002,600
Monroe County Hospital Authority Revenue, Hospital, Pocono Medical Center,
5.00%, 1/01/27 .................................................................... 1,000,000 959,270
5.125%, 1/01/37 ................................................................... 2,000,000 1,830,140
5.25%, 1/01/43 .................................................................... 2,000,000 1,824,400
Montgomery County GO, 5.00%, 9/15/22 ................................................. 3,335,000 3,456,561
Montgomery County IDA Retirement Community Revenue, ACTS Retirement-Life Communities
Inc. Obligated Group,
5.25%, 11/15/28 ................................................................... 5,000,000 4,726,150
Refunding, Series B, 5.00%, 11/15/22 .............................................. 1,000,000 950,260
Montour School District GO, FSA Insured, 5.00%,
4/01/32 ........................................................................... 5,000,000 5,168,300
4/01/37 ........................................................................... 12,500,000 12,783,500
Mount Lebanon School District GO, Series A, 5.00%, 2/15/34 ........................... 6,000,000 6,313,740
Muhlenberg School District GO, Series AA, FGIC Insured, Pre-Refunded, 6.00%, 9/01/23 . 4,000,000 4,115,400
Norristown Area School District GO, FGIC Insured, Pre-Refunded, 5.00%, 9/01/27 ....... 5,000,000 5,602,750
Northampton Borough Municipal Authority Water Revenue, NATL Insured,
5.00%, 5/15/34 .................................................................... 445,000 447,140
Pre-Refunded, 5.00%, 5/15/34 ...................................................... 1,955,000 2,254,897
Northampton County General Purpose Authority Hospital Revenue, St. Luke's Hospital
Project, Series A, 5.50%, 8/15/35 ................................................. 10,000,000 9,945,400
Northampton County General Purpose Authority Revenue,
Higher Education, Lehigh University, 5.00%, 11/15/39 .............................. 20,000,000 20,791,000
Lafayette College, Refunding, 5.00%, 11/01/34 ..................................... 20,000,000 20,753,200
Northeastern York School District GO, Series B, FGIC Insured, 5.00%,
4/01/30 ........................................................................... 1,000,000 1,033,050
4/01/31 ........................................................................... 2,000,000 2,056,300
Annual Report | 223
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Norwin School District GO,
FGIC Insured, Pre-Refunded, 6.00%, 4/01/30 ........................................ $ 5,000,000 $ 5,022,500
FSA Insured, 5.00%, 4/01/37 ....................................................... 10,000,000 10,251,100
FSA Insured, Pre-Refunded, 5.00%, 4/01/35 ......................................... 3,000,000 3,529,500
Series A, NATL Insured, 5.00%, 4/01/30 ............................................ 1,000,000 1,006,210
Owen J. Roberts School District GO, FSA Insured, 5.00%, 9/01/36 ...................... 2,710,000 2,805,853
Pennsbury School District GO, FGIC Insured, Pre-Refunded, 5.00%, 1/15/22 ............. 2,835,000 3,117,791
Pennsylvania Economic Development Financing Authority Exempt Facilities Revenue,
Allegheny Energy Supply Co., LLC Project, 7.00%, 7/15/39 .......................... 10,000,000 11,194,500
Pennsylvania Economic Development Financing Authority Revenue, Lincoln University,
Series A, FGIC Insured, 5.00%, 6/01/33 ............................................ 3,325,000 3,344,950
Pennsylvania Economic Development Financing Authority Water Facility Revenue, American
Water Co. Project, 6.20%, 4/01/39 ................................................. 10,000,000 10,671,100
Pennsylvania HFA, SFMR, Refunding,
Series 103C, 5.45%, 10/01/38 ...................................................... 10,000,000 10,334,700
Series 105C, 4.875%, 10/01/34 ..................................................... 25,000,000 25,099,250
Pennsylvania HFAR,
Future Income Growth Securities, SFM, Series 64, 5.25%, 4/01/30 ................... 3,050,000 3,050,122
SFM, Refunding, Series 63A, zero cpn., 4/01/30 .................................... 10,725,000 3,453,128
SFM, Refunding, Series 72A, 5.25%, 4/01/21 ........................................ 5,790,000 5,805,749
Pennsylvania State GO,
Second Series, 5.00%, 4/15/23 ..................................................... 10,000,000 11,311,900
Second Series A, 5.00%, 8/01/25 ................................................... 5,000,000 5,489,150
Pennsylvania State Higher Educational Facilities Authority College and University
Revenues, Drexel University, NATL Insured, 5.75%, 5/01/22 ......................... 3,095,000 3,097,383
Marywood University Project, NATL Insured, Pre-Refunded, 5.65%, 6/01/25 ........... 2,500,000 2,532,275
Pennsylvania State Higher Educational Facilities Authority Revenue,
Bryn Mawr College, AMBAC Insured, 5.125%, 12/01/29 ................................ 1,500,000 1,510,845
Bryn Mawr College, Refunding, AMBAC Insured, 5.00%, 12/01/37 ...................... 5,000,000 5,184,050
Drexel University, Series A, 5.00%, 5/01/20 ....................................... 1,485,000 1,521,308
Drexel University, Series A, 5.20%, 5/01/29 ....................................... 750,000 759,413
Drexel University, Series A, NATL Insured, 5.00%, 5/01/37 ......................... 25,525,000 25,765,956
La Salle University, Series A, 5.00%, 5/01/37 ..................................... 2,500,000 2,344,675
Philadelphia University, Refunding, 5.00%, 6/01/30 ................................ 2,295,000 2,111,056
State System of Higher Education, NATL Insured, 5.00%, 6/15/37 .................... 7,000,000 7,171,150
Temple University, Refunding, NATL Insured, 5.00%, 4/01/28 ........................ 5,000,000 5,131,450
Temple University, Refunding, NATL Insured, 5.00%, 4/01/33 ........................ 10,000,000 10,119,700
Trustees University of Pennsylvania, Refunding, Series C, 5.00%, 7/15/38 .......... 5,000,000 5,151,400
University of Pennsylvania Health System, Refunding, Series B, 6.00%, 8/15/26 ..... 5,000,000 5,687,850
(a) University of Pittsburgh Medical Center, Series E, 5.00%, 5/15/31 ............. 13,000,000 12,983,360
University Sciences Philadelphia, Assured Guaranty, 5.00%, 11/01/32 ............... 5,000,000 5,170,150
University Sciences Philadelphia, Refunding, Series A, XLCA Insured, 5.00%,
11/01/36 ....................................................................... 8,315,000 8,352,002
Widener University, 5.00%, 7/15/31 ................................................ 500,000 456,465
Widener University, 5.00%, 7/15/39 ................................................ 5,750,000 5,141,535
Pennsylvania State Public School Building Authority Community College Revenue,
Community College Philadelphia Project, 6.00%, 6/15/28 ............................ 5,000,000 5,406,850
224 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Pennsylvania State Public School Building Authority Lease Revenue, School District of
Philadelphia Project,
FSA Insured, Pre-Refunded, 5.00%, 6/01/33 ......................................... $ 15,000,000 $ 16,941,300
Refunding, Series B, FSA Insured, 4.75%, 6/01/30 .................................. 5,000,000 4,967,500
Pennsylvania State Public School Building Authority Revenue,
Career Institute of Technology, FGIC Insured, 5.00%, 11/15/28 ..................... 1,000,000 1,019,170
Central Montgomery County Area, FGIC Insured, 5.00%, 5/15/24 ...................... 2,500,000 2,607,425
Pennsylvania State Turnpike Commission Oil Franchise Tax Revenue, Series B, NATL
Insured, 5.00%, 12/01/24 .......................................................... 1,655,000 1,691,112
Pre-Refunded, 5.00%, 12/01/31 ..................................................... 5,000,000 5,713,350
Pennsylvania State Turnpike Commission Revenue, AMBAC Insured, Pre-Refunded, 5.00%,
7/15/31 ........................................................................... 10,000,000 10,725,700
Pennsylvania State Turnpike Commission Turnpike Revenue,
5.125%, 12/01/40 .................................................................. 16,860,000 17,045,629
Refunding, Series C, Sub Series C-1, Assured Guaranty, 6.25%, 6/01/38 ............. 5,000,000 5,626,050
Series A, AMBAC Insured, 5.00%, 12/01/34 .......................................... 5,000,000 5,079,750
Series R, AMBAC Insured, 5.00%, 12/01/26 .......................................... 2,000,000 2,059,780
Series R, AMBAC Insured, 5.00%, 12/01/30 .......................................... 11,125,000 11,389,219
sub. bond, Series A, Assured Guaranty, 5.00%, 6/01/39 ............................. 20,000,000 20,160,800
Pennsylvania State University Revenue, 5.00%, 9/01/35 ................................ 1,000,000 1,031,460
Philadelphia Authority for IDR,
Cultural and Commercial Corridors Program, Series A, FGIC Insured, 5.00%, 12/01/23 6,205,000 6,225,663
Cultural and Commercial Corridors Program, Series A, FGIC Insured, 5.00%, 12/01/25 5,690,000 5,634,522
Please Touch Museum Project, 5.25%, 9/01/36 ....................................... 7,210,000 5,861,009
Series B, AMBAC Insured, 5.25%, 7/01/31 ........................................... 2,000,000 1,881,720
Philadelphia Gas Works Revenue, Twelfth Series B, NATL Insured, ETM, 7.00%, 5/15/20 .. 835,000 1,009,707
Philadelphia GO,
Refunding, Series A, Assured Guaranty, 5.125%, 8/01/25 ............................ 5,000,000 5,260,950
Refunding, Series A, Assured Guaranty, 5.25%, 8/01/26 ............................. 5,000,000 5,316,500
Series B, Assured Guaranty, 7.125%, 7/15/38 ....................................... 10,000,000 11,540,100
Philadelphia Hospitals and Higher Education Facilities Authority Hospital Revenue,
Temple University Health System, Refunding, Series A,
5.50%, 7/01/30 .................................................................... 5,000,000 4,450,150
5.00%, 7/01/34 .................................................................... 5,000,000 4,011,550
Philadelphia Housing Authority Capital Fund Program Revenue, Series A, FSA Insured,
5.00%, 12/01/21 ................................................................... 5,000,000 5,206,450
Philadelphia IDA Lease Revenue, Series B, FSA Insured, Pre-Refunded, 5.125%,
10/01/26 .......................................................................... 12,000,000 12,978,240
Philadelphia Municipal Authority Revenue, Lease, 6.50%,
4/01/34 ........................................................................... 3,250,000 3,410,972
4/01/39 ........................................................................... 2,500,000 2,613,050
Philadelphia RDAR, Neighborhood Transformation, Series C, FGIC Insured, 5.00%,
4/15/31 ........................................................................... 14,565,000 13,490,540
Philadelphia School District GO,
Series C, NATL Insured, Pre-Refunded, 5.75%, 3/01/29 .............................. 8,000,000 8,000,000
Series D, FGIC Insured, Pre-Refunded, 5.125%, 6/01/34 ............................. 5,000,000 5,800,650
Series E, 6.00%, 9/01/38 .......................................................... 5,000,000 5,371,250
Annual Report | 225
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Philadelphia Water and Wastewater Revenue, Series A,
5.25%, 1/01/36 .................................................................... $ 3,000,000 $ 3,067,830
FGIC Insured, 5.00%, 11/01/31 ..................................................... 2,765,000 2,781,922
FSA Insured, 5.00%, 7/01/28 ....................................................... 4,000,000 4,122,200
FSA Insured, 5.00%, 7/01/29 ....................................................... 11,645,000 11,950,681
Pittsburgh Public Parking Authority Parking Revenue, AMBAC Insured, Pre-Refunded,
6.00%, 12/01/24 ................................................................... 2,000,000 2,028,020
Pittsburgh Urban RDA Mortgage Revenue, Series C, GNMA Secured, 5.70%, 4/01/30 ........ 1,295,000 1,295,363
Pittsburgh Water and Sewer Authority Revenue, FGIC Insured, ETM, 7.25%, 9/01/14 ...... 690,000 789,464
Plum Boro School District GO, FGIC Insured, Pre-Refunded, 5.25%, 9/15/30 ............. 8,870,000 9,505,624
Reading Area Water Authority Water Revenue, FSA Insured, 5.00%, 12/01/27 ............. 3,400,000 3,579,010
Reading GO, FSA Insured, 6.00%, 11/01/28 ............................................. 2,000,000 2,174,200
Reading School District GO, FSA Insured, 5.00%, 1/15/36 .............................. 8,500,000 8,747,435
Sayre Health Care Facilities Authority Revenue, Guthrie Healthcare System,
Refunding, Series A, 5.875%, 12/01/31 ............................................. 555,000 566,122
Series A, Pre-Refunded, 5.875%, 12/01/31 .......................................... 1,945,000 2,136,252
Scranton School District GO,
Series A, FSA Insured, 5.00%, 7/15/38 ............................................. 5,430,000 5,532,193
Series C, FSA Insured, 5.00%, 7/15/38 ............................................. 5,000,000 5,094,100
Scranton-Lackawanna Health and Welfare Authority Revenue, University of Scranton,
XLCA Insured, 5.00%, 11/01/37 ..................................................... 8,125,000 7,969,244
Seneca Valley School District GO, NATL Insured, Pre-Refunded, 5.375%, 1/01/21 ........ 2,000,000 2,172,560
Snyder County Higher Education Authority University Revenue, Susquehanna University
Project, 5.00%, 1/01/38 ........................................................... 4,000,000 4,024,080
Southcentral General Authority Revenue,
WellSpan Health Obligated Group, NATL Insured, ETM, 5.25%, 5/15/31 ................ 1,875,000 1,942,819
WellSpan Health Obligated Group, NATL Insured, Pre-Refunded, 5.25%, 5/15/31 ....... 8,125,000 8,677,094
WellSpan Health Obligated Group, Refunding, Series A, 6.00%, 6/01/25 .............. 10,000,000 11,066,400
York College of Pennsylvania, Associates, XLCA Insured, 5.00%, 5/01/37 ............ 1,090,000 1,094,480
Southern Lehigh School District GO, Series A, FGIC Insured, Pre-Refunded, 5.00%,
9/01/25 ........................................................................... 6,900,000 7,643,268
Southmoreland School District GO, NATL Insured, 5.00%, 4/01/27 ....................... 5,025,000 5,253,688
State Public School Building Authority College Revenue,
Delaware County Community College Project, FSA Insured, 5.00%, 10/01/32 ........... 1,000,000 1,044,530
Montgomery County Community College, FSA Insured, 5.00%, 5/01/28 .................. 1,225,000 1,321,016
Westmoreland County Community College, FGIC Insured, 5.25%, 10/15/22 .............. 2,170,000 2,227,961
State Public School Building Authority School Revenue, Harrisburg School District
Project, Series A, Assured Guaranty, 5.00%, 11/15/33 .............................. 5,000,000 5,080,750
Susquehanna Area Regional Airport Authority Airport System Revenue,
Refunding, Series A, AMBAC Insured, 5.00%, 1/01/28 ................................ 2,000,000 1,663,660
Series A, 6.50%, 1/01/38 .......................................................... 4,000,000 3,860,160
University of Pittsburgh of the Commonwealth System of Higher Education Revenue,
Capital Project, Series B, 5.00%, 9/15/31 ......................................... 10,000,000 10,634,800
University Capital Project, Refunding, Series B, 5.25%, 9/15/27 ................... 9,500,000 10,625,180
University Capital Project, Refunding, Series C, 5.00%, 9/15/35 ................... 9,500,000 9,985,070
Upper St. Clair Township School District GO,
FSA Insured, Pre-Refunded, 5.00%, 7/15/28 ......................................... 465,000 508,505
Refunding, FSA Insured, 5.00%, 7/15/28 ............................................ 535,000 548,402
226 | Annual Report
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA (CONTINUED)
Washington County GO,
Refunding, Series A, AMBAC Insured, 5.125%, 9/01/27 ............................... $ 4,295,000 $ 4,422,003
Series A, AMBAC Insured, Pre-Refunded, 5.125%, 9/01/27 ............................ 705,000 783,121
West Allegheny School District GO, Refunding, Series D, FGIC Insured, 4.75%,
9/01/19 ........................................................................... 2,000,000 2,045,820
9/01/20 ........................................................................... 3,805,000 3,882,584
West Mifflin Area School District GO, FSA Insured, 5.125%, 4/01/31 ................... 1,000,000 1,061,570
Whitehall Coplay School District GO, Series A, FSA Insured, 5.375%, 11/15/34 ......... 6,000,000 6,372,960
Wilkes-Barre Finance Authority Revenue, Wilkes University Project, Refunding, 5.00%,
3/01/37 ........................................................................... 4,500,000 4,120,560
Wyoming Area School District GO, Refunding, Series A, NATL Insured, 5.00%, 9/01/26 ... 5,005,000 5,231,426
--------------
1,092,520,604
--------------
U.S. TERRITORIES 10.8%
PUERTO RICO 10.0%
Puerto Rico Commonwealth Aqueduct and Sewer Authority Revenue, senior lien, Series A,
6.00%, 7/01/44 .................................................................... 2,100,000 2,152,290
Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series A-4, FSA Insured, 5.25%, 7/01/30 ............ 5,000,000 5,239,600
Public Improvement, Series A, 5.00%, 7/01/29 ...................................... 4,000,000 3,786,240
Public Improvement, Series A, 5.00%, 7/01/33 ...................................... 13,960,000 12,807,602
Public Improvement, Series A, Pre-Refunded, 5.00%, 7/01/33 ........................ 14,000,000 15,907,080
Series A, 5.00%, 7/01/28 .......................................................... 5,000,000 4,779,950
Series A, 5.25%, 7/01/37 .......................................................... 10,000,000 9,458,900
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue,
Series B, 5.00%, 7/01/37 .......................................................... 7,010,000 6,342,858
Puerto Rico Electric Power Authority Power Revenue, Series TT, 5.00%, 7/01/32 ........ 5,100,000 4,972,398
Puerto Rico PBA Guaranteed Revenue, Government Facilities, Series I, 5.00%, 7/01/36 .. 5,950,000 5,400,220
Puerto Rico Sales Tax Financing Corp. Sales Tax Revenue, first sub., Series A,
5.375%, 8/01/39 ................................................................... 20,000,000 20,006,600
6.00%, 8/01/42 .................................................................... 34,000,000 35,564,340
--------------
126,418,078
--------------
U.S. VIRGIN ISLANDS 0.8%
Virgin Islands PFAR,
Gross Receipts Taxes Loan Note, Radian Insured, 5.00%, 10/01/33 ................... 5,000,000 4,709,450
senior lien, Refunding, Series B, 5.00%, 10/01/25 ................................. 5,500,000 5,533,055
--------------
10,242,505
--------------
TOTAL U.S. TERRITORIES ............................................................... 136,660,583
--------------
TOTAL MUNICIPAL BONDS BEFORE SHORT TERM INVESTMENTS
(COST $1,195,422,371) ............................................................. 1,229,181,187
--------------
SHORT TERM INVESTMENTS 1.7%
MUNICIPAL BONDS 1.7%
PENNSYLVANIA 1.5%
(b) Geisinger Authority Health System Revenue, Geisinger Health System, Refunding,
Series A, Daily VRDN and Put, 0.14%, 5/15/35 ...................................... 18,800,000 18,800,000
--------------
Annual Report | 227
Franklin Tax-Free Trust
STATEMENT OF INVESTMENTS, FEBRUARY 28, 2010 (CONTINUED)
FRANKLIN PENNSYLVANIA TAX-FREE INCOME FUND PRINCIPAL AMOUNT VALUE
------------------------------------------ ---------------- --------------
SHORT TERM INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
U.S. TERRITORIES 0.2%
PUERTO RICO 0.2%
(b) Puerto Rico Commonwealth GO,
Public Improvement, Refunding, Series B, Daily VRDN and Put, 0.12%, 7/01/32 ....... $ 1,235,000 $ 1,235,000
Refunding, Series A-6, Daily VRDN and Put, 0.12%, 7/01/33 ......................... 1,000,000 1,000,000
--------------
TOTAL U.S. TERRITORIES ............................................................... 2,235,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $21,035,000) ...................................... 21,035,000
--------------
TOTAL INVESTMENTS (COST $1,216,457,371) 99.0% ........................................ 1,250,216,187
OTHER ASSETS, LESS LIABILITIES 1.0% .................................................. 12,739,039
--------------
NET ASSETS 100.0% .................................................................... $1,262,955,226
==============
See Abbreviations on page 263.
(a) Security purchased on a when-issued basis. See Note 1(b).
(b) Variable rate demand notes (VRDNs) are tax-exempt obligations which contain
a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end.
The accompanying notes are an integral part of these financial statements.
228 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
February 28, 2010
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
-------------- ------------ ------------ ------------
Assets:
Investments in securities:
Cost ..................................... $1,083,060,895 $671,994,877 $498,105,905 $586,488,609
============== ============ ============ ============
Value .................................... $1,095,128,260 $685,309,708 $505,680,674 $588,240,389
Cash ........................................ 91,514 54,862 13,878 6,475,845
Receivables:
Capital shares sold ...................... 1,300,409 1,918,640 1,139,958 1,978,860
Interest ................................. 11,663,880 9,565,439 4,929,322 6,026,936
Other assets ................................ 3,041 1,861 1,359 1,601
-------------- ------------ ------------ ------------
Total assets .......................... 1,108,187,104 696,850,510 511,765,191 602,723,631
-------------- ------------ ------------ ------------
Liabilities:
Payables:
Capital shares redeemed .................. 1,367,831 802,288 989,964 1,090,388
Affiliates ............................... 584,767 392,501 296,961 343,848
Distributions to shareholders ............ 1,009,308 617,421 246,602 542,487
Accrued expenses and other liabilities ...... 103,678 101,577 73,791 90,546
-------------- ------------ ------------ ------------
Total liabilities ..................... 3,065,584 1,913,787 1,607,318 2,067,269
-------------- ------------ ------------ ------------
Net assets, at value ............... $1,105,121,520 $694,936,723 $510,157,873 $600,656,362
============== ============ ============ ============
Net assets consist of:
Paid-in capital ............................. $1,109,245,783 $689,474,254 $505,151,115 $604,810,972
Undistributed net investment income
(distributions in excess of net
investment income) ....................... 63,413 (253,678) 365,951 456,117
Net unrealized appreciation (depreciation) .. 12,067,365 13,314,831 7,574,769 1,751,780
Accumulated net realized gain (loss) ........ (16,255,041) (7,598,684) (2,933,962) (6,362,507)
-------------- ------------ ------------ ------------
Net assets, at value ............... $1,105,121,520 $694,936,723 $510,157,873 $600,656,362
============== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 229
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ------------ ------------ ------------
CLASS A:
Net assets, at value ......................... $982,079,871 $565,222,200 $405,069,757 $507,856,227
------------ ------------ ------------ ------------
Shares outstanding ........................... 91,120,019 48,501,041 37,232,439 43,921,491
------------ ------------ ------------ ------------
Net asset value per share(a) ................. $ 10.78 $ 11.65 $ 10.88 $ 11.56
------------ ------------ ------------ ------------
Maximum offering price per share (net asset
value per share / 95.75%) ................. $ 11.26 $ 12.17 $ 11.36 $ 12.07
------------ ------------ ------------ ------------
CLASS B:
Net assets, at value ......................... $ 8,832,717 -- -- --
------------ ------------ ------------ ------------
Shares outstanding ........................... 814,429 -- -- --
------------ ------------ ------------ ------------
Net asset value and maximum offering price per
share(a) .................................. $ 10.85 -- -- --
------------ ------------ ------------ ------------
CLASS C:
Net assets, at value ......................... $109,678,840 $118,648,334 $ 94,058,397 $ 90,262,037
------------ ------------ ------------ ------------
Shares outstanding ........................... 10,055,978 10,093,260 8,595,325 7,776,028
------------ ------------ ------------ ------------
Net asset value and maximum offering price per
share(a) .................................. $ 10.91 $ 11.76 $ 10.94 $ 11.61
------------ ------------ ------------ ------------
ADVISOR CLASS:
Net assets, at value ......................... $ 4,530,092 $ 11,066,189 $ 11,029,719 $ 2,538,098
------------ ------------ ------------ ------------
Shares outstanding ........................... 419,586 949,789 1,014,540 219,339
------------ ------------ ------------ ------------
Net asset value and maximum offering price per
share ..................................... $ 10.80 $ 11.65 $ 10.87 $ 11.57
------------ ------------ ------------ ------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
230 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FEDERAL FRANKLIN FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE-TERM LIMITED-TERM HIGH YIELD NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------- ---------------- -------------- --------------
Assets:
Investments in securities:
Cost ..................................... $1,738,251,479 $377,150,735 $7,140,559,048 $1,516,024,018
============== ============ ============== ==============
Value .................................... $1,802,250,933 $385,624,544 $7,123,494,148 $1,554,179,699
Cash ........................................ 330,064 114,704 638,061 393,158
Receivables:
Capital shares sold ...................... 14,593,700 6,270,355 27,556,617 4,028,783
Interest ................................. 19,008,365 3,096,693 109,292,025 16,775,666
Other assets ................................ 4,501 920 18,952 4,275
-------------- ------------ -------------- --------------
Total assets .......................... 1,836,187,563 395,107,216 7,260,999,803 1,575,381,581
-------------- ------------ -------------- --------------
Liabilities:
Payables:
Investment securities purchased .......... 37,614,780 13,542,600 69,461,705 --
Capital shares redeemed .................. 3,227,179 704,161 12,039,371 1,182,913
Affiliates ............................... 955,492 96,572 3,796,516 893,443
Distributions to shareholders ............ 1,342,410 169,023 4,325,887 779,124
Accrued expenses and other liabilities ...... 248,139 73,242 764,984 200,270
-------------- ------------ -------------- --------------
Total liabilities ..................... 43,388,000 14,585,598 90,388,463 3,055,750
-------------- ------------ -------------- --------------
Net assets, at value ............... $1,792,799,563 $380,521,618 $7,170,611,340 $1,572,325,831
============== ============ ============== ==============
Net assets consist of:
Paid-in capital ............................. $1,740,333,346 $372,628,036 $7,538,638,214 $1,533,420,789
Undistributed net investment income
(distributions in excess of net
investment income) ....................... (853,001) 98,615 7,890,940 2,328,171
Net unrealized appreciation (depreciation) .. 63,999,454 8,473,809 (17,064,900) 38,155,681
Accumulated net realized gain (loss) ........ (10,680,236) (678,842) (358,852,914) (1,578,810)
-------------- ------------ -------------- --------------
Net assets, at value ............... $1,792,799,563 $380,521,618 $7,170,611,340 $1,572,325,831
============== ============ ============== ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 231
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FEDERAL FRANKLIN FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE-TERM LIMITED-TERM HIGH YIELD NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------- ---------------- -------------- --------------
CLASS A:
Net assets, at value ..................... $1,390,805,425 $380,521,618 $5,477,709,604 $1,230,689,416
-------------- ------------ -------------- --------------
Shares outstanding ....................... 120,038,781 36,775,301 548,346,510 102,624,944
-------------- ------------ -------------- --------------
Net asset value per share(a) ............. $ 11.59 $ 10.35 $ 9.99 $ 11.99
-------------- ------------ -------------- --------------
Maximum offering price per share (net
asset value per share / 97.75%, 97.75%,
95.75% and 95.75%, respectively) ...... $ 11.86 $ 10.59 $ 10.43 $ 12.52
-------------- ------------ -------------- --------------
CLASS B:
Net assets, at value ..................... -- -- $ 68,462,832 $ 34,898,766
-------------- ------------ -------------- --------------
Shares outstanding ....................... -- -- 6,803,228 2,892,370
-------------- ------------ -------------- --------------
Net asset value and maximum offering price
per share(a) .......................... -- -- $ 10.06 $ 12.07
-------------- ------------ -------------- --------------
CLASS C:
Net assets, at value ..................... $ 257,249,049 -- $1,002,984,556 $ 292,947,096
-------------- ------------ -------------- --------------
Shares outstanding ....................... 22,153,073 -- 99,108,712 24,199,170
-------------- ------------ -------------- --------------
Net asset value and maximum offering price
per share(a) .......................... $ 11.61 -- $ 10.12 $ 12.11
-------------- ------------ -------------- --------------
ADVISOR CLASS:
Net assets, at value ..................... $ 144,745,089 -- $ 621,454,348 $ 13,790,553
-------------- ------------ -------------- --------------
Shares outstanding ....................... 12,475,209 -- 62,039,852 1,149,908
-------------- ------------ -------------- --------------
Net asset value and maximum offering price
per share ............................. $ 11.60 -- $ 10.02 $ 11.99
-------------- ------------ -------------- --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
232 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
-------------- --------------
Assets:
Investments in securities:
Cost ......................................... $1,110,871,696 $1,216,457,371
============== ==============
Value ........................................ $1,151,080,236 $1,250,216,187
Cash ............................................ 858,888 3,000,630
Receivables:
Investment securities sold ................... -- 2,993,523
Capital shares sold .......................... 3,433,868 5,346,580
Interest ..................................... 12,057,307 17,490,773
Other assets .................................... 3,097 3,349
-------------- --------------
Total assets .............................. 1,167,433,396 1,279,051,042
-------------- --------------
Liabilities:
Payables:
Investment securities purchased .............. 7,387,575 12,870,800
Capital shares redeemed ...................... 1,987,624 1,237,918
Affiliates ................................... 636,406 715,164
Distributions to shareholders ................ 542,518 1,106,290
Accrued expenses and other liabilities .......... 134,948 165,644
-------------- --------------
Total liabilities ......................... 10,689,071 16,095,816
-------------- --------------
Net assets, at value ................... $1,156,744,325 $1,262,955,226
============== ==============
Net assets consist of:
Paid-in capital ................................. $1,117,654,184 $1,233,568,923
Undistributed net investment income ............. 2,521,506 766,851
Net unrealized appreciation (depreciation) ...... 40,208,540 33,758,816
Accumulated net realized gain (loss) ............ (3,639,905) (5,139,364)
-------------- --------------
Net assets, at value ................... $1,156,744,325 $1,262,955,226
============== ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 233
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
February 28, 2010
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ --------------
CLASS A:
Net assets, at value ..................................... $954,859,699 $1,016,824,330
------------ --------------
Shares outstanding ....................................... 80,451,629 99,026,718
------------ --------------
Net asset value per share(a) ............................. $ 11.87 $ 10.27
------------ --------------
Maximum offering price per share (net asset value per
share / 95.75%) ....................................... $ 12.40 $ 10.73
------------ --------------
CLASS B:
Net assets, at value ..................................... -- $ 21,977,185
------------ --------------
Shares outstanding ....................................... -- 2,132,845
------------ --------------
Net asset value and maximum offering price per share(a) .. -- $ 10.30
CLASS C:
Net assets, at value ..................................... $195,473,012 $ 217,322,000
------------ --------------
Shares outstanding ....................................... 16,285,641 20,972,566
------------ --------------
Net asset value and maximum offering price per share(a) .. $ 12.00 $ 10.36
------------ --------------
ADVISOR CLASS:
Net assets, at value ..................................... $ 6,411,614 $ 6,831,711
------------ --------------
Shares outstanding ....................................... 540,076 665,137
------------ --------------
Net asset value and maximum offering price per share ..... $ 11.87 $ 10.27
------------ --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
234 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended February 28, 2010
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------ ----------- ----------- -----------
Investment income:
Interest ........................................ $ 55,783,393 $31,949,999 $22,681,446 $29,559,959
------------ ----------- ----------- -----------
Expenses:
Management fees (Note 3a) ....................... 5,116,990 3,071,881 2,328,317 2,762,765
Distribution fees: (Note 3c)
Class A ...................................... 966,417 520,549 363,606 474,239
Class B ...................................... 74,893 -- -- --
Class C ...................................... 624,737 607,203 535,404 515,806
Transfer agent fees (Note 3e) ................... 316,210 257,961 162,327 290,281
Custodian fees .................................. 15,082 8,781 6,356 7,667
Reports to shareholders ......................... 51,278 39,631 27,146 46,067
Registration and filing fees .................... 32,197 22,418 21,588 77,582
Professional fees ............................... 41,818 34,780 34,464 30,970
Trustees' fees and expenses ..................... 8,672 4,832 3,601 4,472
Other ........................................... 72,915 51,093 47,341 45,209
------------ ----------- ----------- -----------
Total expenses ............................ 7,321,209 4,619,129 3,530,150 4,255,058
------------ ----------- ----------- -----------
Net investment income .................. 48,462,184 27,330,870 19,151,296 25,304,901
------------ ----------- ----------- -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ....... 471,301 (2,007,681) 196,305 (3,751,188)
Net change in unrealized appreciation
(depreciation) on investments ................ 60,709,625 47,793,095 28,939,594 53,797,175
------------ ----------- ----------- -----------
Net realized and unrealized gain (loss) ............ 61,180,926 45,785,414 29,135,899 50,045,987
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations ................................. $109,643,110 $73,116,284 $48,287,195 $75,350,888
============ =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Annual Report | 235
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 28, 2010
FRANKLIN
FRANKLIN FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE-TERM LIMITED-TERM HIGH YIELD NEW JERSEY
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------------- ------------ -------------- ------------
Investment income:
Interest ............................................ $ 59,864,183 $ 7,514,378 $ 392,497,703 $ 73,941,728
------------ ----------- -------------- ------------
Expenses:
Management fees (Note 3a) ........................... 6,480,023 1,232,320 28,734,257 6,875,974
Administrative fees (Note 3b) ....................... -- 529,241 -- --
Distribution fees: (Note 3c)
Class A .......................................... 1,088,756 388,023 4,794,007 1,162,384
Class B .......................................... -- -- 517,690 271,188
Class C .......................................... 1,082,349 -- 5,429,627 1,621,553
Transfer agent fees (Note 3e) ....................... 777,161 81,423 3,095,356 607,705
Custodian fees ...................................... 18,401 3,894 87,524 20,650
Reports to shareholders ............................. 128,670 16,817 471,838 97,367
Registration and filing fees ........................ 173,284 69,836 401,601 31,972
Professional fees ................................... 46,410 30,841 105,350 60,149
Trustees' fees and expenses ......................... 9,874 1,913 48,094 11,630
Other ............................................... 103,872 63,430 350,665 100,133
------------ ----------- -------------- ------------
Total expenses ................................ 9,908,800 2,417,738 44,036,009 10,860,705
Expenses waived/paid by affiliates (Note 3f) .. -- (1,095,170) -- --
------------ ----------- -------------- ------------
Net expenses ............................... 9,908,800 1,322,568 44,036,009 10,860,705
------------ ----------- -------------- ------------
Net investment income ................... 49,955,383 6,191,810 348,461,694 63,081,023
------------ ----------- -------------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ........... (224,628) (2,816) (8,206,383) 1,286,652
Net change in unrealized appreciation
(depreciation) on investments .................... 71,629,053 6,454,025 818,536,691 82,802,325
------------ ----------- -------------- ------------
Net realized and unrealized gain (loss) ................ 71,404,425 6,451,209 810,330,308 84,088,977
------------ ----------- -------------- ------------
Net increase (decrease) in net assets resulting
from operations ..................................... $121,359,808 $12,643,019 $1,158,792,002 $147,170,000
============ =========== ============== ============
The accompanying notes are an integral part of these financial statements.
236 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended February 28, 2010
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------ ------------
Investment income:
Interest ............................................................. $ 50,701,735 $ 56,615,975
------------ ------------
Expenses:
Management fees (Note 3a) ............................................ 4,964,061 5,321,453
Distribution fees: (Note 3c)
Class A ........................................................... 874,250 890,001
Class B ........................................................... -- 172,291
Class C ........................................................... 1,030,596 1,129,189
Transfer agent fees (Note 3e) ........................................ 351,687 530,276
Custodian fees ....................................................... 14,449 15,634
Reports to shareholders .............................................. 57,317 79,767
Registration and filing fees ......................................... 20,798 25,159
Professional fees .................................................... 48,510 50,446
Trustees' fees and expenses .......................................... 8,119 8,723
Other ................................................................ 82,250 87,166
------------ ------------
Total expenses .................................................... 7,452,037 8,310,105
------------ ------------
Net investment income .......................................... 43,249,698 48,305,870
------------ ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ............................ 409,254 (3,602,648)
Net change in unrealized appreciation (depreciation) on investments .. 57,465,171 70,449,288
------------ ------------
Net realized and unrealized gain (loss) ................................. 57,874,425 66,846,640
------------ ------------
Net increase (decrease) in net assets resulting from operations ......... $101,124,123 $115,152,510
============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 237
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
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,
------------------------------- ---------------------------
2010 2009 2010 2009
-------------- -------------- ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 48,462,184 $ 47,092,985 $ 27,330,870 $ 24,302,683
Net realized gain (loss) from investments .... 471,301 5,104,625 (2,007,681) (476,720)
Net change in unrealized appreciation
(depreciation) on investments ............. 60,709,625 (23,832,562) 47,793,095 (19,209,407)
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations ........... 109,643,110 28,365,048 73,116,284 4,616,556
-------------- -------------- ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (44,354,634) (42,645,873) (23,629,346) (21,514,143)
Class B ................................... (475,572) (645,470) -- --
Class C ................................... (3,808,835) (2,907,445) (3,657,907) (2,616,170)
Advisor Class ............................. (100,591) (148) (256,588) --
-------------- -------------- ------------ ------------
Total distributions to shareholders ............. (48,739,632) (46,198,936) (27,543,841) (24,130,313)
-------------- -------------- ------------ ------------
Capital share transactions: (Note 2)
Class A ................................... 7,004,893 22,129,364 61,406,089 37,449,907
Class B ................................... (6,160,267) (3,377,558) -- --
Class C ................................... 25,629,866 15,704,782 42,805,349 15,881,168
Advisor Class ............................. 4,408,655 5,000 10,714,746 --
-------------- -------------- ------------ ------------
Total capital share transactions ................ 30,883,147 34,461,588 114,926,184 53,331,075
-------------- -------------- ------------ ------------
Redemption fees ................................. -- 1,058 -- 71
-------------- -------------- ------------ ------------
Net increase (decrease) in net assets .. 91,786,625 16,628,758 160,498,627 33,817,389
Net assets:
Beginning of year ............................... 1,013,334,895 996,706,137 534,438,096 500,620,707
-------------- -------------- ------------ ------------
End of year ..................................... $1,105,121,520 $1,013,334,895 $694,936,723 $534,438,096
============== ============== ============ ============
Undistributed net investment income (distributions
in excess of net investment income)
included in net assets:
End of year .................................. $ 63,413 $ 346,303 $ (253,678) $ (40,520)
============== ============== ============ ============
The accompanying notes are an integral part of these financial statements.
238 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
--------------------------- ---------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 19,151,296 $ 17,443,698 $ 25,304,901 $ 25,091,311
Net realized gain (loss) from investments .... 196,305 256,393 (3,751,188) (514,867)
Net change in unrealized appreciation
(depreciation) on investments ............. 28,939,594 (11,406,182) 53,797,175 (32,138,084)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ........... 48,287,195 6,293,909 75,350,888 (7,561,640)
------------ ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (15,724,815) (14,619,347) (21,692,911) (21,851,064)
Class C ................................... (3,014,176) (2,439,850) (3,172,160) (2,889,132)
Advisor Class ............................. (188,687) -- (56,202) --
------------ ------------ ------------ ------------
Total distributions to shareholders ............. (18,927,678) (17,059,197) (24,921,273) (24,740,196)
------------ ------------ ------------ ------------
Capital share transactions: (Note 2)
Class A ................................... 42,790,870 31,280,348 (3,335,572) 33,331,759
Class C ................................... 18,249,273 17,336,628 10,670,149 9,945,890
Advisor Class ............................. 10,872,072 -- 2,416,475 --
------------ ------------ ------------ ------------
Total capital share transactions ................ 71,912,215 48,616,976 9,751,052 43,277,649
------------ ------------ ------------ ------------
Redemption fees ................................. -- 905 -- 2
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .. 101,271,732 37,852,593 60,180,667 10,975,815
Net assets:
Beginning of year ............................... 408,886,141 371,033,548 540,475,695 529,499,880
------------ ------------ ------------ ------------
End of year ..................................... $510,157,873 $408,886,141 $600,656,362 $540,475,695
============ ============ ============ ============
Undistributed net investment income included
in net assets:
End of year .................................. $ 365,951 $ 142,501 $ 456,117 $ 86,948
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 239
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------------- ---------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
----------------------------- ---------------------------
2010 2009 2010 2009
-------------- ------------ ------------ ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 49,955,383 $ 32,673,362 $ 6,191,810 $ 2,653,224
Net realized gain (loss) from investments .... (224,628) (5,898,016) (2,816) 1,360
Net change in unrealized appreciation
(depreciation) on investments ............. 71,629,053 853,246 6,454,025 2,228,049
-------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ........... 121,359,808 27,628,592 12,643,019 4,882,633
-------------- ------------ ------------ ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (42,673,788) (30,459,619) (6,244,991) (2,560,784)
Class C ................................... (5,379,158) (1,859,248) -- --
Advisor Class ............................. (2,705,120) (15,691) -- --
-------------- ------------ ------------ ------------
Total distributions to shareholders ............. (50,758,066) (32,334,558) (6,244,991) (2,560,784)
-------------- ------------ ------------ ------------
Capital share transactions: (Note 2)
Class A ................................... 459,010,683 178,559,999 189,236,973 138,650,302
Class C ................................... 157,438,425 56,328,454 -- --
Advisor Class ............................. 135,167,541 5,798,352 -- --
-------------- ------------ ------------ ------------
Total capital share transactions ................ 751,616,649 240,686,805 189,236,973 138,650,302
-------------- ------------ ------------ ------------
Redemption fees ................................. -- 4,722 -- 195
-------------- ------------ ------------ ------------
Net increase (decrease) in net assets .. 822,218,391 235,985,561 195,635,001 140,972,346
Net assets:
Beginning of year ............................... 970,581,172 734,595,611 184,886,617 43,914,271
-------------- ------------ ------------ ------------
End of year ..................................... $1,792,799,563 $970,581,172 $380,521,618 $184,886,617
============== ============ ============ ============
Undistributed net investment income (distributions
in excess of net investment income) included in
net assets:
End of year .................................. $ (853,001) $ (48,901) $ 98,615 $ 142,853
============== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
240 | Annual Report
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------- -------------------------------
YEAR ENDED FEBRUARY 28, YEAR ENDED FEBRUARY 28,
------------------------------- -------------------------------
2010 2009 2010 2009
-------------- -------------- -------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 348,461,694 $ 320,836,575 $ 63,081,023 $ 59,183,522
Net realized gain (loss) from
investments .................................. (8,206,383) (60,042,484) 1,286,652 (1,555,323)
Net change in unrealized appreciation
(depreciation) on investments ............. 818,536,691 (704,879,658) 82,802,325 (27,966,668)
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations ........... 1,158,792,002 (444,085,567) 147,170,000 29,661,531
-------------- -------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (284,270,838) (265,600,315) (50,323,389) (48,093,024)
Class B ................................... (4,239,652) (5,867,253) (1,587,698) (2,065,841)
Class C ................................... (42,845,055) (36,047,885) (9,266,851) (7,248,870)
Advisor Class ............................. (22,975,371) (9,414,085) (341,300) (26,899)
-------------- -------------- -------------- --------------
Total distributions to shareholders ............. (354,330,916) (316,929,538) (61,519,238) (57,434,634)
-------------- -------------- -------------- --------------
Capital share transactions: (Note 2)
Class A ................................... 586,676,631 96,370,949 61,986,632 41,516,354
Class B ................................... (29,593,015) (38,213,935) (15,049,955) (12,231,096)
Class C ................................... 232,848,212 62,822,395 70,973,653 45,319,925
Advisor Class ............................. 398,897,599 51,724,633 12,578,775 833,205
-------------- -------------- -------------- --------------
Total capital share transactions ................ 1,188,829,427 172,704,042 130,489,105 75,438,388
-------------- -------------- -------------- --------------
Redemption fees ................................. -- 6,664 -- 2,210
-------------- -------------- -------------- --------------
Net increase (decrease) in net assets .. 1,993,290,513 (588,304,399) 216,139,867 47,667,495
Net assets:
Beginning of year ............................... 5,177,320,827 5,765,625,226 1,356,185,964 1,308,518,469
-------------- -------------- -------------- --------------
End of year ..................................... $7,170,611,340 $5,177,320,827 $1,572,325,831 $1,356,185,964
============== ============== ============== ==============
Undistributed net investment income
included in net assets:
End of year .................................. $ 7,890,940 $ 14,467,950 $ $2,328,171 $ 956,429
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 241
Franklin Tax-Free Trust
FINANCIAL STATEMENTS (CONTINUED)
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,
----------------------------- -----------------------------
2010 2009 2010 2009
-------------- ------------ -------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 43,249,698 $ 38,025,397 $ 48,305,870 $ 42,748,482
Net realized gain (loss) from investments .... 409,254 2,267,270 (3,602,648) (192,563)
Net change in unrealized appreciation
(depreciation) on investments ............. 57,465,171 (10,042,779) 70,449,288 (21,524,495)
-------------- ------------ -------------- ------------
Net increase (decrease) in net assets
resulting from operations ........... 101,124,123 30,249,888 115,152,510 21,031,424
-------------- ------------ -------------- ------------
Distributions to shareholders from:
Net investment income:
Class A ................................... (37,077,945) (32,925,838) (40,280,732) (35,456,429)
Class B ................................... -- -- (1,038,347) (1,313,880)
Class C ................................... (5,730,892) (4,109,955) (6,616,521) (4,778,492)
Advisor Class ............................. (129,067) -- (139,679) --
-------------- ------------ -------------- ------------
Total distributions to shareholders ............. (42,937,904) (37,035,793) (48,075,279) (41,548,801)
-------------- ------------ -------------- ------------
Capital share transactions: (Note 2)
Class A ................................... 117,909,588 73,767,265 141,610,847 66,846,896
Class B ................................... -- -- (9,927,119) (6,521,436)
Class C ................................... 63,727,864 27,262,962 71,652,632 31,286,715
Advisor Class ............................. 6,227,144 -- 6,657,402 --
-------------- ------------ -------------- ------------
Total capital share transactions ................ 187,864,596 101,030,227 209,993,762 91,612,175
-------------- ------------ -------------- ------------
Redemption fees ................................. -- 1,026 -- 501
-------------- ------------ -------------- ------------
Net increase (decrease) in net assets .. 246,050,815 94,245,348 277,070,993 71,095,299
Net assets:
Beginning of year ............................... 910,693,510 816,448,162 985,884,233 914,788,934
-------------- ------------ -------------- ------------
End of year ..................................... $1,156,744,325 $910,693,510 $1,262,955,226 $985,884,233
============== ============ ============== ============
Undistributed net investment income
included in net assets:
End of year .................................. $ 2,521,506 $ 2,209,538 $ 766,851 $ 616,324
============== ============ ============== ============
The accompanying notes are an integral part of these financial statements.
242 | Annual Report
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, as amended, (1940 Act) as an open-end investment company, consisting of
twenty-four separate funds, ten of which are included in this report (Funds).
The financial statements of the remaining funds in the Trust are presented
separately. The classes of shares offered within each of the Funds are indicated
below. Effective July 15, 2009, the Franklin Colorado Tax-Free Income Fund, the
Franklin Connecticut Tax-Free Income Fund, the Franklin Double Tax-Free Income
Fund, the Franklin Oregon Tax-Free Income Fund, and the Franklin Pennsylvania
Tax-Free Income Fund began offering a new class of shares, Advisor Class. Each
class of shares differs by its initial sales load, contingent deferred sales
charges, distribution fees, voting rights on matters affecting a single class
and its exchange privilege.
CLASS A CLASS A, CLASS C & ADVISOR CLASS
- ------- -------------------------------------------------------
Franklin Federal Limited-Term Tax-Free Income Fund Franklin Colorado Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Double Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
CLASS A, CLASS B, CLASS C & ADVISOR CLASS
Franklin Arizona Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Municipal securities generally trade in the over-the-counter market rather than
on a securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Funds' pricing services use valuation models or matrix pricing, which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, to determine current value.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the
Annual Report | 243
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
availability (including the reliability) of the value of a portfolio security
held by the Fund. If such an event occurs, the securities may be valued using
fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Funds' Board of
Trustees.
B. SECURITIES PURCHASED ON A WHEN-ISSUED AND DELAYED DELIVERY BASIS
The Funds may purchase securities on a when-issued and 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.
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its income and net
realized gains.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of February 28, 2010, and have
determined that no provision for income tax is required in the Funds' financial
statements.
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. 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 accounting principles generally
accepted in the United States of America. 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.
244 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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. 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,
there is a risk that in the event of an issuer default, the insurer may not be
able to fulfill its obligations under the terms of the policy.
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.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
H. 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.
Annual Report | 245
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At February 28, 2010, 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, 2010
Shares sold .................... 12,693,078 $ 134,207,912 10,274,097 $116,715,622
Shares issued in reinvestment of
distributions ............... 2,507,684 26,545,956 1,347,355 15,361,480
Shares redeemed ................ (14,493,804) (153,748,975) (6,231,805) (70,671,013)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 706,958 $ 7,004,893 5,389,647 $ 61,406,089
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold .................... 17,238,832 $ 179,568,520 11,044,781 $123,137,478
Shares issued in reinvestment of
distributions ............... 2,367,049 24,288,648 1,178,442 13,011,390
Shares redeemed ................ (17,953,631) (181,727,804) (9,027,007) (98,698,961)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 1,652,250 $ 22,129,364 3,196,216 $ 37,449,907
=========== ============= ========== ============
CLASS B SHARES:
Year ended February 28, 2010
Shares sold .................... 12,821 $ 136,815
Shares issued in reinvestment of
distributions ............... 27,591 292,764
Shares redeemed ................ (620,272) (6,589,846)
----------- -------------
Net increase (decrease) ........ (579,860) $ (6,160,267)
=========== =============
Year ended February 28, 2009
Shares sold .................... 26,738 $ 274,783
Shares issued in reinvestment of
distributions ............... 39,754 411,280
Shares redeemed ................ (395,158) (4,063,621)
----------- -------------
Net increase (decrease) ........ (328,666) $ (3,377,558)
=========== =============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 3,490,469 $ 37,323,922 4,522,462 $ 52,013,630
Shares issued in reinvestment of
distributions ............... 242,579 2,602,178 237,644 2,737,499
Shares redeemed ................ (1,332,759) (14,296,234) (1,038,198) (11,945,780)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 2,400,289 $ 25,629,866 3,721,908 $ 42,805,349
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold .................... 2,875,619 $ 30,210,078 2,631,956 $ 29,904,244
Shares issued in reinvestment of
distributions ............... 185,682 1,923,396 166,791 1,852,485
Shares redeemed ................ (1,594,568) (16,428,692) (1,431,043) (15,875,561)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 1,466,733 $ 15,704,782 1,367,704 $ 15,881,168
=========== ============= ========== ============
246 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- -----------
ADVISOR CLASS SHARES:
Year ended February 28, 2010(a)
Shares sold .................... 465,317 $4,904,066 1,106,041 $12,505,231
Shares issued in reinvestment of
distributions ............... 1,341 14,414 70 812
Shares redeemed ................ (47,542) (509,825) (156,322) (1,791,297)
------- ---------- --------- -----------
Net increase (decrease) ........ 419,116 $4,408,655 949,789 $10,714,746
======= ========== ========= ===========
Period ended February 28, 2009(b)
Shares sold .................... 470 $ 5,000
======= ==========
(a) For the period July 15, 2009 (effective date) to February 28, 2010, for the
Franklin Colorado Tax-Free Income Fund.
(b) For the period July 1, 2008 (effective date) to February 28, 2009.
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 8,457,084 $ 90,194,787 7,991,759 $ 88,642,025
Shares issued in reinvestment of
distributions ............... 886,050 9,438,927 1,450,733 16,078,372
Shares redeemed ................ (5,343,140) (56,842,844) (9,916,957) (108,055,969)
---------- ------------- ---------- -------------
Net increase (decrease) ........ 3,999,994 $ 42,790,870 (474,465) $ (3,335,572)
========== ============= ========== =============
Year ended February 28, 2009
Shares sold .................... 11,862,212 $ 123,167,352 11,257,062 $ 122,507,234
Shares issued in reinvestment of
distributions ............... 827,813 8,550,106 1,439,308 15,609,611
Shares redeemed ................ (9,864,969) (100,437,110) (9,974,418) (104,785,086)
---------- ------------- ---------- -------------
Net increase (decrease) ........ 2,825,056 $ 31,280,348 2,721,952 $ 33,331,759
========== ============= ========== =============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 2,666,498 $ 28,518,935 1,989,310 $ 22,220,698
Shares issued in reinvestment of
distributions ............... 185,796 1,991,695 199,621 2,222,422
Shares redeemed ................ (1,147,228) (12,261,357) (1,255,900) (13,772,971)
---------- ------------- ---------- -------------
Net increase (decrease) ........ 1,705,066 $ 18,249,273 933,031 $ 10,670,149
========== ============= ========== =============
Year ended February 28, 2009
Shares sold .................... 2,845,749 $ 29,996,105 2,544,898 $ 28,039,246
Shares issued in reinvestment of
distributions ............... 153,663 1,592,772 179,371 1,949,699
Shares redeemed ................ (1,387,600) (14,252,249) (1,895,711) (20,043,055)
---------- ------------- ---------- -------------
Net increase (decrease) ........ 1,611,812 $ 17,336,628 828,558 $ 9,945,890
========== ============= ========== =============
Annual Report | 247
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
----------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
ADVISOR CLASS SHARES:
Period ended February 28, 2010(a)
Shares sold .................... 1,317,481 $14,155,332 236,421 $2,611,223
Shares issued in reinvestment of
distributions ............... 147 1,595 47 534
Shares redeemed ................ (303,088) (3,284,855) (17,129) (195,282)
--------- ----------- ------- ----------
Net increase (decrease) ........ 1,014,540 $10,872,072 219,339 $2,416,475
========= =========== ======= ==========
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 66,347,269 $ 748,892,309 29,888,601 $ 305,896,845
Shares issued in reinvestment of
distributions ............... 2,684,864 30,420,972 442,091 4,525,163
Shares redeemed ................ (28,480,303) (320,302,598) (11,838,520) (121,185,035)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 40,551,830 $ 459,010,683 18,492,172 $ 189,236,973
=========== ============= =========== =============
Year ended February 28, 2009
Shares sold .................... 46,595,106 $ 510,936,101 13,845,442 $ 138,586,300
Shares issued on reorganization
(Note 8) .................... -- -- 5,130,761 51,153,690
Shares issued in reinvestment of
distributions ............... 1,709,078 18,865,223 181,546 1,821,134
Shares redeemed ................ (32,181,764) (351,241,325) (5,282,411) (52,910,822)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 16,122,420 $ 178,559,999 13,875,338 $ 138,650,302
=========== ============= =========== =============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 16,109,032 $ 182,788,883
Shares issued in reinvestment of
distributions ............... 285,504 3,249,520
Shares redeemed ................ (2,520,193) (28,599,978)
----------- -------------
Net increase (decrease) ........ 13,874,343 $ 157,438,425
=========== =============
Year ended February 28, 2009
Shares sold .................... 6,525,110 $ 71,485,775
Shares issued in reinvestment of
distributions ............... 98,173 1,082,195
Shares redeemed ................ (1,486,661) (16,239,516)
----------- -------------
Net increase (decrease) ........ 5,136,622 $ 56,328,454
=========== =============
248 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN FEDERAL
INTERMEDIATE-TERM
TAX-FREE INCOME FUND
-------------------------
SHARES AMOUNT
---------- ------------
ADVISOR CLASS SHARES:
Year ended February 28, 2010
Shares sold .................... 13,942,484 $158,042,416
Shares issued in reinvestment of
distributions ............... 27,790 317,181
Shares redeemed ................ (2,019,454) (23,192,056)
---------- ------------
Net increase (decrease) ........ 11,950,820 $135,167,541
========== ============
Period ended February 28, 2009(a)
Shares sold .................... 536,388 $ 5,931,495
Shares issued in reinvestment of
distributions ............... 487 5,387
Shares redeemed ................ (12,486) (138,530)
---------- ------------
Net increase (decrease) ........ 524,389 $ 5,798,352
========== ============
(a) For the period December 1, 2008 (effective date) to February 28, 2009.
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 117,986,688 $ 1,119,081,032 20,715,015 $ 243,577,335
Shares issued in reinvestment
of distributions ............ 18,699,057 177,627,591 2,843,942 33,483,508
Shares redeemed ................ (74,575,160) (710,031,992) (18,345,754) (215,074,211)
------------ --------------- ----------- -------------
Net increase (decrease) ........ 62,110,585 $ 586,676,631 5,213,203 $ 61,986,632
============ =============== =========== =============
Year ended February 28, 2009
Shares sold .................... 99,498,655 $ 944,382,913 26,211,231 $ 302,139,948
Shares issued in reinvestment
of distributions ............ 16,553,818 155,044,587 2,667,263 30,416,202
Shares redeemed ................ (109,063,108) (1,003,056,551) (25,875,804) (291,039,796)
------------ --------------- ----------- -------------
Net increase (decrease) ........ 6,989,365 $ 96,370,949 3,002,690 $ 41,516,354
============ =============== =========== =============
CLASS B SHARES:
Year ended February 28, 2010
Shares sold .................... 370,865 $ 3,508,356 27,392 $ 321,314
Shares issued in reinvestment
of distributions ............ 269,663 2,563,555 97,157 1,148,484
Shares redeemed ................ (3,730,649) (35,664,926) (1,398,263) (16,519,753)
------------ --------------- ----------- -------------
Net increase (decrease) ........ (3,090,121) $ (29,593,015) (1,273,714) $ (15,049,955)
============ =============== =========== =============
Year ended February 28, 2009
Shares sold .................... 409,414 $ 3,782,361 123,361 $ 1,417,153
Shares issued in reinvestment
of distributions ............ 358,840 3,406,236 121,523 1,396,494
Shares redeemed ................ (4,787,219) (45,402,532) (1,322,152) (15,044,743)
------------ --------------- ----------- -------------
Net increase (decrease) ........ (4,018,965) $ (38,213,935) (1,077,268) $ (12,231,096)
============ =============== =========== =============
Annual Report | 249
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 33,253,253 $ 320,639,435 8,406,224 $ 99,993,322
Shares issued in reinvestment
of distributions ............ 2,892,508 27,866,718 540,339 6,429,957
Shares redeemed ................ (11,950,765) (115,657,941) (2,996,420) (35,449,626)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 24,194,996 $ 232,848,212 5,950,143 $ 70,973,653
=========== ============= ========== ============
Year ended February 28, 2009
Shares sold .................... 22,102,468 $ 213,928,128 6,637,192 $ 77,489,763
Shares issued in reinvestment
of distributions ............ 2,321,734 21,963,042 420,048 4,823,386
Shares redeemed ................ (18,591,917) (173,068,775) (3,260,430) (36,993,224)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 5,832,285 $ 62,822,395 3,796,810 $ 45,319,925
=========== ============= ========== ============
ADVISOR CLASS SHARES:
Year ended February 28, 2010
Shares sold .................... 59,264,698 $ 561,412,571 1,243,557 $ 14,507,876
Shares issued in reinvestment
of distributions ............ 1,348,347 13,040,176 2,466 29,025
Shares redeemed ................ (18,016,271) (175,555,148) (164,268) (1,958,126)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 42,596,774 $ 398,897,599 1,081,755 $ 12,578,775
=========== ============= ========== ============
Year ended February 28, 2009(a)
Shares sold .................... 17,120,226 $ 159,988,036 111,166 $ 1,311,170
Shares issued in reinvestment
of distributions ............ 249,047 2,299,853 1,279 14,197
Shares redeemed ................ (12,252,212) (110,563,256) (44,292) (492,162)
----------- ------------- ---------- ------------
Net increase (decrease) ........ 5,117,061 $ 51,724,633 68,153 $ 833,205
=========== ============= ========== ============
(a) For the period July 1, 2008 (effective date) to February 28, 2009, for the
Franklin New Jersey Tax-Free Income Fund.
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES:
Year ended February 28, 2010
Shares sold .................... 16,304,964 $ 189,113,883 21,756,734 $ 219,416,349
Shares issued in reinvestment of
distributions ............... 2,338,185 27,187,860 2,570,792 25,885,964
Shares redeemed ................ (8,476,619) (98,392,155) (10,336,327) (103,691,466)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 10,166,530 $ 117,909,588 13,991,199 $ 141,610,847
=========== ============= =========== =============
Year ended February 28, 2009
Shares sold .................... 14,721,824 $ 167,284,597 16,594,823 $ 161,859,979
Shares issued in reinvestment of
distributions ............... 2,080,516 23,381,133 2,232,346 21,701,112
Shares redeemed ................ (10,487,489) (116,898,465) (12,195,590) (116,714,195)
----------- ------------- ----------- -------------
Net increase (decrease) ........ 6,314,851 $ 73,767,265 6,631,579 $ 66,846,896
=========== ============= =========== =============
250 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS B SHARES:
Year ended February 28, 2010
Shares sold .................... 15,147 $ 154,176
Shares issued in reinvestment of
distributions ............... 66,366 668,594
Shares redeemed ................ (1,066,395) (10,749,889)
---------- ------------
Net increase (decrease) ........ (984,882) $ (9,927,119)
========== ============
Year ended February 28, 2009
Shares sold .................... 43,566 $ 424,464
Shares issued in reinvestment of
distributions ............... 83,291 815,180
Shares redeemed ................ (797,396) (7,761,080)
---------- ------------
Net increase (decrease) ........ (670,539) $ (6,521,436)
========== ============
CLASS C SHARES:
Year ended February 28, 2010
Shares sold .................... 6,565,810 $ 77,192,328 8,509,665 $ 86,482,377
Shares issued in reinvestment of
distributions ............... 360,226 4,241,147 439,460 4,469,284
Shares redeemed ................ (1,509,031) (17,705,611) (1,902,094) (19,299,029)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 5,417,005 $ 63,727,864 7,047,031 $ 71,652,632
========== ============ ========== ============
Year ended February 28, 2009
Shares sold .................... 3,723,660 $ 42,658,970 4,895,633 $ 48,518,545
Shares issued in reinvestment of
distributions ............... 248,209 2,815,631 309,413 3,027,106
Shares redeemed ................ (1,621,344) (18,211,639) (2,112,955) (20,258,936)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 2,350,525 $ 27,262,962 3,092,091 $ 31,286,715
========== ============ ========== ============
ADVISOR CLASS SHARES:
Period ended February 28, 2010(a)
Shares sold .................... 577,308 $ 6,667,530 760,831 $ 7,638,231
Shares issued in reinvestment of
distributions ............... 435 5,145 323 3,303
Shares redeemed ................ (37,667) (445,531) (96,017) (984,132)
---------- ------------ ---------- ------------
Net increase (decrease) ........ 540,076 $ 6,227,144 665,137 $ 6,657,402
========== ============ ========== ============
(a) For the period July 15, 2009 (effective date) to February 28, 2010.
Annual Report | 251
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Funds 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
The Funds, except the Franklin Federal Limited-Term Tax-Free Income Fund, pay an
investment management fee to Advisers based on the month-end net assets of each
of the funds as follows:
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
The Franklin Federal Limited-Term Tax-Free Income Fund pays an investment
management fee to Advisers based on the average daily net assets of the fund as
follows:
ANNUALIZED FEE RATE NET ASSETS
- ------------------- ---------------------------------------------------
0.500% Up to and including $100 million
0.450% Over $100 million, up to and including $250 million
0.425% Over $250 million, up to and including $500 million
0.400% In excess of $500 million
B. ADMINISTRATIVE FEES
FT Services provides administrative services to the Funds. The Franklin Federal
Limited-Term Tax-Free Income Fund pays an administrative fee to FT Services of
0.20% per year of its respective average daily net assets. Under an agreement
with Advisers, the administrative fee for the Funds, except the Franklin Federal
Limited-Term Tax-Free Income Fund, is paid by Advisers based on each fund's
average daily net assets, and is not an additional expense of the funds.
252 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES
The Funds' Board of Trustees 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 the Funds' shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
In addition, under the Funds' Class B and 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 for
each class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ----------- -----------
Reimbursement Plans:
Class A .............. 0.10% 0.10% 0.10% 0.10%
Compensation Plans:
Class B .............. 0.65% -- -- --
Class C .............. 0.65% 0.65% 0.65% 0.65%
FRANKLIN FRANKLIN
FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- LIMITED-TERM HIGH YIELD NEW JERSEY
TERM TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ----------- -----------
Reimbursement Plans:
Class A .............. 0.10% 0.15% 0.10% 0.10%
Compensation Plans:
Class B .............. -- -- 0.65% 0.65%
Class C .............. 0.65% -- 0.65% 0.65%
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------- ------------
Reimbursement Plans:
Class A .............. 0.10% 0.10%
Compensation Plans:
Class B .............. -- 0.65%
Class C .............. 0.65% 0.65%
Annual Report | 253
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
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 DOUBLE
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 broker/dealers ........ $332,872 $307,132 $ 182,006 $223,777
Contingent deferred sales charges retained .... $ 26,751 $ 22,101 $ 22,223 $ 16,598
FRANKLIN FRANKLIN
FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- LIMITED-TERM HIGH YIELD NEW JERSEY
TERM 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 broker/dealers ........ $458,872 $136,419 $1,893,811 $454,002
Contingent deferred sales charges retained .... $117,907 $106,534 $ 252,861 $ 92,879
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------- ------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ........ $571,733 $604,677
Contingent deferred sales charges retained .... $ 17,582 $ 40,588
E. TRANSFER AGENT FEES
For the year ended February 28, 2010, 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 DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ----------- -----------
Transfer agent fees ........................... $182,890 $131,510 $ 97,117 $158,995
FRANKLIN FRANKLIN
FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- LIMITED-TERM HIGH YIELD NEW JERSEY
TERM TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ----------- -----------
Transfer agent fees ........................... $349,130 $ 39,037 $1,726,151 $343,934
254 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES (CONTINUED)
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------- ------------
Transfer agent fees ........................... $193,902 $316,541
F. WAIVER AND EXPENSE REIMBURSEMENTS
For the Franklin Federal Limited-Term Tax-Free Income Fund, Advisers and FT
Services have contractually agreed in advance to waive or limit their respective
fees and to assume as their own expense certain expenses otherwise payable by
the fund so that the common expenses (i.e. a combination of management fees,
administrative fees, and other expenses, but excluding distribution fees), for
each class of the fund do not exceed 0.35% (other than certain non-routine
expenses or costs, including those relating to litigation, indemnification,
reorganizations, and liquidations) until June 30, 2010.
4. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At February 28, 2010, the capital loss carryforwards were as
follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
----------- ----------- ----------- -----------
Capital loss carryforwards expiring in:
2011 ................................ $ -- $ 81,665 $ -- $ --
2012 ................................ 12,957,454 4,695,674 2,891,444 --
2013 ................................ -- -- -- 200,921
2014 ................................ 2,638,564 -- -- 152,458
2015 ................................ 659,023 -- -- 134,018
2016 ................................ -- -- -- 503,897
2017 ................................ -- -- -- 944,001
2018 ................................ -- 2,700,288 -- 2,690,894
----------- ---------- ---------- ----------
$16,255,041 $7,477,627 $2,891,444 $4,626,189
=========== ========== ========== ==========
Annual Report | 255
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
FRANKLIN FRANKLIN
FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- LIMITED-TERM HIGH YIELD NEW JERSEY
TERM TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ ------------ -----------
Capital loss carryforwards expiring in:
2011 ................................ $ -- $ -- $131,377,453 $ --
2012 ................................ 2,156,839 -- 50,621,589 680,793
2013 ................................ 373,568 -- 35,250,377 --
2014 ................................ 213,358 337,388 7,711,279 --
2015 ................................ 361,303 321,499 -- --
2016 ................................ 1,114,337 17,957 62,972,830 --
2017 ................................ 6,237,620 -- 15,478,643 898,017
2018 ................................ 223,211 567 53,451,410 --
----------- ---------- ------------ ----------
$10,680,236 $ 677,411 $356,863,581 $1,578,810
=========== ========== ============ ==========
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------- ------------
Capital loss carryforwards expiring in:
2012 ................................ $ 2,266,828 $ --
2013 ................................ -- 876,215
2016 ................................ 972,134 --
2018 ................................ -- 3,499,532
----------- ----------
$ 3,238,962 $4,375,747
=========== ==========
During the year ended February 28, 2010, the funds utilized capital loss
carryforwards as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA CONNECTICUT NEW JERSEY OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ----------- ----------- ----------- -----------
$476,382 $196,473 $537,024 $550,696
On February 28, 2010, the following funds had expired capital loss
carryforwards, which were reclassified to paid-in capital.
FRANKLIN FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- HIGH YIELD PENNSYLVANIA
TERM TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
- ---------------- ----------- ------------
$614,893 $63,519,381 $4,700,564
256 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At February 28, 2010, deferred losses were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
COLORADO DOUBLE FEDERAL LIMITED- HIGH YIELD OREGON
TAX-FREE TAX-FREE TERM TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND INCOME FUND
- ----------- ----------- ---------------- ----------- -----------
$105,642 $1,159,804 $1,431 $460,403 $338,209
The tax character of distributions paid during the years ended February 28, 2010
and 2009, was as follows:
FRANKLIN ARIZONA FRANKLIN COLORADO
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
2010 2009 2010 2009
------------ ------------ ----------- -----------
Distributions paid from -
tax exempt income .......... $ 48,739,632 $ 46,198,936 $27,543,841 $24,130,313
============ ============ =========== ===========
FRANKLIN CONNECTICUT FRANKLIN DOUBLE
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
2010 2009 2010 2009
------------ ------------ ----------- -----------
Distributions paid from -
tax exempt income .......... $ 18,927,678 $ 17,059,197 $24,921,273 $24,740,196
============ ============ =========== ===========
FRANKLIN FEDERAL FRANKLIN FEDERAL
INTERMEDIATE-TERM LIMITED-TERM
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
2010 2009 2010 2009
------------ ------------ ----------- -----------
Distributions paid from -
tax exempt income .......... $ 50,758,066 $ 32,334,558 $ 6,244,991 $ 2,560,784
============ ============ =========== ===========
FRANKLIN HIGH YIELD FRANKLIN NEW JERSEY
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
2010 2009 2010 2009
------------ ------------ ----------- -----------
Distributions paid from -
tax exempt income .......... $354,330,916 $316,929,538 $61,519,238 $57,434,634
============ ============ =========== ===========
FRANKLIN OREGON FRANKLIN PENNSYLVANIA
TAX-FREE INCOME FUND TAX-FREE INCOME FUND
--------------------------- -------------------------
2010 2009 2010 2009
------------ ------------ ----------- -----------
Distributions paid from -
tax exempt income .......... $ 42,937,904 $ 37,035,793 $48,075,279 $41,548,801
============ ============ =========== ===========
Annual Report | 257
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At February 28, 2010, the cost of investments, net unrealized appreciation
(depreciation), undistributed tax exempt and ordinary income for income tax
purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------- -------------- --------------
Cost of investments ............................. $1,082,876,150 $ 671,956,598 $ 498,133,916
============== ============== ==============
Unrealized appreciation ......................... $ 42,829,124 $ 26,837,378 $ 13,431,491
Unrealized depreciation ......................... (30,577,014) (13,484,268) (5,884,733)
-------------- -------------- --------------
Net unrealized appreciation (depreciation) ...... $ 12,252,110 $ 13,353,110 $ 7,546,758
============== ============== ==============
Distributable earnings - undistributed tax
exempt income ................................ $ 887,977 $ 310,050 $ 598,047
============== ============== ==============
FRANKLIN FRANKLIN
FRANKLIN FEDERAL FEDERAL
DOUBLE INTERMEDIATE- LIMITED-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------- -------------- --------------
Cost of investments ............................. $ 587,029,482 $1,738,180,057 $ 377,146,026
============== ============== ==============
Unrealized appreciation ......................... $ 18,213,079 $ 70,008,354 $ 8,677,820
Unrealized depreciation ......................... (17,002,172) (5,937,478) (199,302)
-------------- -------------- --------------
Net unrealized appreciation (depreciation) ...... $ 1,210,907 $ 64,070,876 $ 8,478,518
============== ============== ==============
Undistributed tax exempt income ................. $ 962,960 $ 417,986 $ 233,121
Undistributed ordinary income ................... -- -- 29,807
-------------- -------------- --------------
Distributable earnings .......................... $ 962,960 $ 417,986 $ 262,928
============== ============== ==============
FRANKLIN FRANKLIN FRANKLIN
HIGH YIELD NEW JERSEY OREGON
TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND
-------------- -------------- --------------
Cost of investments ............................. $7,135,932,607 $1,515,801,422 $1,110,835,691
============== ============== ==============
Unrealized appreciation ......................... $ 354,342,142 $ 63,408,163 $ 49,909,945
Unrealized depreciation ......................... (366,780,601) (25,029,886) (9,665,400)
-------------- -------------- --------------
Net unrealized appreciation (depreciation) ...... $ (12,438,459) $ 38,378,277 $ 40,244,545
============== ============== ==============
Undistributed tax exempt income ................. $ 5,724,376 $ 2,884,702 $ 2,965,286
Undistributed ordinary income ................... 337,080 -- --
-------------- -------------- --------------
Distributable earnings .......................... $ 6,061,456 $ 2,884,702 $ 2,965,286
============== ============== ==============
258 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
FRANKLIN
PENNSYLVANIA
TAX-FREE
INCOME FUND
--------------
Cost of investments ............................. $1,217,105,995
==============
Unrealized appreciation ......................... $ 48,036,742
Unrealized depreciation ......................... (14,926,550)
--------------
Net unrealized appreciation (depreciation) ...... $ 33,110,192
==============
Distributable earnings - undistributed tax exempt
income ....................................... $ 1,758,149
==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, bond discounts and
non-deductible expenses.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond discounts.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended February 28, 2010, were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ARIZONA COLORADO CONNECTICUT DOUBLE
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ -------------- ------------
Purchases ................... $117,259,465 $164,892,462 $ 90,555,770 $110,940,683
Sales ....................... $ 89,050,418 $ 59,460,345 $ 16,365,740 $100,791,436
FRANKLIN FRANKLIN
FEDERAL FEDERAL FRANKLIN FRANKLIN
INTERMEDIATE- LIMITED-TERM HIGH YIELD NEW JERSEY
TERM TAX-FREE TAX-FREE TAX-FREE TAX-FREE
INCOME FUND INCOME FUND INCOME FUND INCOME FUND
------------- ------------ -------------- ------------
Purchases ................... $796,810,641 $157,806,764 $1,443,492,198 $283,235,100
Sales ....................... $ 47,822,710 $ 31,730,000 $ 511,720,155 $143,144,749
FRANKLIN FRANKLIN
OREGON PENNSYLVANIA
TAX-FREE TAX-FREE
INCOME FUND INCOME FUND
------------- ------------
Purchases ................... $293,724,572 $336,744,364
Sales ....................... $ 97,560,421 $141,146,903
Annual Report | 259
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CREDIT RISK AND DEFAULTED SECURITIES
At February 28, 2010, the Franklin High Yield Tax-Free Income Fund had 27.0% of
its portfolio invested in high yield or other securities rated below investment
grade. These securities may be more sensitive to economic conditions causing
greater price volatility and are potentially subject to a greater risk of loss
due to default than higher rated securities.
The Franklin High Yield Tax-Free Income Fund held a defaulted security and/or
other securities for which the income has been deemed uncollectible. At February
28, 2010, the aggregate value of this security was $1,758,768, representing
0.02% of the fund's net assets. The fund discontinues accruing income on
securities for which income has been deemed uncollectible and provides an
estimate for losses on interest receivable. The security has been identified on
the accompanying Statement of Investments.
7. CONCENTRATION OF RISK
Each of the Funds invests a large percentage of its total assets in obligations
of issuers within its respective state and U.S. territories, except for the
Franklin Federal Intermediate-Term Tax-Free Income Fund, the Franklin Federal
Limited-Term Tax-Free Income Fund and the Franklin High Yield Tax-Free Income
Fund. 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. 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.
8. REORGANIZATION
On November 12, 2008, the Franklin Federal Limited-Term Tax-Free Income Fund
acquired the net assets of the Franklin California Limited-Term Tax-Free Income
Fund and the Franklin New York Limited-Term Tax-Free Income Fund pursuant to a
plan of reorganization approved by the Franklin California Limited-Term Tax-Free
Income Fund and the Franklin New York Limited-Term Tax-Free Income Fund's
shareholders. The reorganization was accomplished by a tax free exchange, and
the net assets acquired and shares issued were as follows:
SHARES ISSUED BY FRANKLIN FEDERAL
FUND NAME NET ASSETS LIMITED-TERM TAX-FREE INCOME FUND
- --------- ----------- ---------------------------------
Franklin California Limited-Term Tax-Free Income Fund .. $28,352,779 2,843,809
Franklin New York Limited-Term Tax-Free Income Fund .... 22,800,911 2,286,952
----------- ---------
Total .................................................. $51,153,690 5,130,761
=========== =========
The net asset figures shown above include $(197,146) and $32,188 of unrealized
appreciation (depreciation) for the Franklin California Limited-Term Tax-Free
Income Fund and the Franklin New York Limited-Term Tax-Free Income Fund,
respectively. The combined net assets of the fund immediately after the
reorganization were $151,234,644.
260 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. 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 364-day joint syndicated senior unsecured credit facility
totaling $750 million (Global Credit Facility) to provide a source of funds to
the Borrowers for temporary and emergency purposes, including the ability to
meet future unanticipated or unusually large redemption requests. On January 22,
2010, the Funds renewed the Global Credit Facility for a total of $750 million,
maturing January 21, 2011.
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 0.10% based upon the unused portion of the Global
Credit Facility, which is reflected in other expenses on the Statements of
Operations. During the year ended February 28, 2010, the Funds did not utilize
the Global Credit Facility.
10. 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' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the Funds' own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
At February 28, 2010, all of the Funds' investments in securities carried at
fair value were in Level 2 inputs.
Annual Report | 261
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued Accounting
Standards Update No. 2010-6, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC
820): IMPROVING DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS, which enhances and
clarifies existing fair value measurement disclosure requirements and is
effective for interim and annual periods beginning after December 15, 2009. The
Funds are currently evaluating the impact, if any, of applying this provision.
12. 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.
262 | Annual Report
Franklin Tax-Free Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ABBREVIATIONS
SELECTED PORTFOLIO
1915 ACT - Improvement Bond Act of 1915
ABAG - The Association of Bay Area Governments
ACA - American Capital Access Holdings Inc.
ACES - Adjustable Convertible Exempt Security
AD - Assessment District
AMBAC - American Municipal Bond Assurance Corp.
BAN - Bond Anticipation Note
BHAC - Berkshire Hathaway Assurance Corp.
CDA - Community Development Authority/Agency
CDD - Community Development District
CDR - Community Development Revenue
CFD - Community Facilities District
CIFG - CDC IXIS Financial Guaranty
COP - Certificate of Participation
CRDA - Community Redevelopment Authority/Agency
EDA - Economic Development Authority
EDC - Economic Development Corp.
EDR - Economic Development Revenue
ETM - Escrow to Maturity
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority/Agency
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance Inc.
GARB - General Airport Revenue Bonds
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority/Agency
HFA - Housing Finance Authority/Agency
HFAR - Housing Finance Authority Revenue
HFC - Housing Finance Corp.
HMR - Home Mortgage Revenue
ID - Improvement District
IDA - Industrial Development Authority/Agency
IDAR - Industrial Development Authority Revenue
IDB - Industrial Development Bond/Board
IDBR - Industrial Development Board Revenue
IDR - Industrial Development Revenue
ISD - Independent School District
MAC - Municipal Assistance Corp.
MBS - Mortgage-Backed Security
MF - Multi-Family
MFH - Multi-Family Housing
MFHR - Multi-Family Housing Revenue
MFR - Multi-Family Revenue
MTA - Metropolitan Transit Authority
NATL - National Public Financial Guarantee Corp.
PBA - Public Building Authority
PCC - Pollution Control Corp.
PCFA - Pollution Control Financing Authority
PCR - Pollution Control Revenue
PFA - Public Financing Authority
PFAR - Public Financing Authority Revenue
PUD - Public Utility District
RAN - Revenue Anticipation Note
RDA - Redevelopment Agency/Authority
RDAR - Redevelopment Agency Revenue
SF - Single Family
SFM - Single Family Mortgage
SFMR - Single Family Mortgage Revenue
SFR - Single Family Revenue
TRAN - Tax and Revenue Anticipation Note
UHSD - Unified/Union High School District
USD - Unified/Union School District
XLCA - XL Capital Assurance
Annual Report | 263
Franklin Tax-Free Trust
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 Double Tax-Free Income Fund, Franklin Federal
Intermediate-Term Tax-Free Income Fund, Franklin Federal Limited-Term Tax-Free
Income Fund, Franklin High Yield Tax-Free Income Fund, Franklin New Jersey
Tax-Free Income Fund, Franklin Oregon Tax-Free Income Fund and Franklin
Pennsylvania Tax-Free Income Fund (separate portfolios of Franklin Tax-Free
Trust, hereafter referred to as the "Funds") at February 28, 2010, the results
of each of their operations for the year then ended, the changes in each of
their net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States 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 at February 28, 2010 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 16, 2010
264 | Annual Report
Franklin Tax-Free Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(5)(A) of the Internal Revenue Code, the Funds designate
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended February 28, 2010. A portion of the Funds'
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2011, shareholders will be notified of amounts for use in preparing
their 2010 income tax returns.
Annual Report | 265
Franklin Tax-Free Trust
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 the past five years and number of 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
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------ -------- ------------- ----------------------- -----------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1984 133 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING 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).
SAM GINN (1937) Trustee Since 2007 110 ICO Global Communications
One Franklin Parkway (Holdings) Limited (satellite
San Mateo, CA 94403-1906 company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the
Board and Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific
Telesis Groups (telephone holding company) (1988-1994).
EDITH E. HOLIDAY (1952) Trustee Since 1998 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J.
San Mateo, CA 94403-1906 Heinz Company (processed foods and
allied products), RTI International
Metals, Inc. (manufacture and
distribution of titanium), Canadian
National Railway (railroad) and
White Mountains Insurance Group,
Ltd. (holding company).
PRINCIPAL OCCUPATION DURING 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).
FRANK W.T. LAHAYE (1929) Trustee Since 1984 109 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company
(venture capital).
266 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------ ----------- ------------- ----------------------- -----------------------------------
J. MICHAEL LUTTIG (1954) Trustee Since 141 Boeing Capital Corporation
One Franklin Parkway December 2009 (aircraft financing).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President, General Counsel and member of Executive Council, The Boeing Company; and FORMERLY, Federal
Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006).
FRANK A. OLSON (1932) Trustee Since 2005 133 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief
Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL
Corporation (airlines).
LARRY D. THOMPSON (1945) Trustee Since 2007 141 Cbeyond (business communications
One Franklin Parkway provider).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and
FORMERLY, Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider)
(1997-2001); Senior Fellow of The Brookings Institution (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 110 None
One Franklin Parkway Independent 2007 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
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. (office supplies) (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
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- ----------- ------------- ----------------------- -----------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Since 1984 133 None
One Franklin Parkway Chairman of
San Mateo, CA 94403-1906 the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton
Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments.
Annual Report | 267
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- ----------- ------------- ----------------------- -----------------------------------
**GREGORY E. JOHNSON (1961) Trustee Since 2007 89 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, President and Chief Executive Officer, Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 33 of the investment companies in
Franklin Templeton Investments.
SHEILA AMOROSO (1959) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
RAFAEL R. COSTAS, JR. (1965) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
JAMES M. DAVIS (1952) Chief Chief Not Applicable Not Applicable
One Franklin Parkway Compliance Compliance
San Mateo, CA 94403-1906 Officer and Officer since
Vice 2004 and Vice
President - President -
AML AML
Compliance Compliance
since 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources,
Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance,
Franklin Resources, Inc. (1994-2001).
LAURA F. FERGERSON (1962) Chief Since 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Finance and
Administra-
tion
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice
President, Franklin Templeton Services, LLC (1997-2003).
GASTON GARDEY (1967) Treasurer, Since 2009 Not Applicable Not Applicable
One Franklin Parkway Chief
San Mateo, CA 94403-1906 Financial
Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin
Templeton Investments.
268 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- ----------- ------------- ----------------------- -----------------------------------
ALIYA S. GORDON (1973) Vice Since 2009 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Litigation Associate Counsel at Steefel, Levitt & Weiss, LLP (2000-2004).
DAVID P. GOSS (1947) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin
Templeton Investments.
STEVEN J. GRAY(1955) Vice Since August Not Applicable Not Applicable
One Franklin Parkway President 2009
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton
Distributors, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments.
RUPERT H. JOHNSON, JR.(1940) President President Not Applicable Not Applicable
One Franklin Parkway and Chief since 1993
San Mateo, CA 94403-1906 Executive and Chief
Officer - Executive
Investment Officer -
Management Investment
Management
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.
and Templeton Worldwide, 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 43 of the investment
companies in Franklin Templeton Investments.
ROBERT C. ROSSELOT (1960) Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President August 2009
Suite 2100
Fort Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice
President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust
International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments.
KAREN L. SKIDMORE (1952) Vice Since 2006 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906 and
Secretary
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in
Franklin Templeton Investments.
Annual Report | 269
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- --------------------------- ----------- ------------- ----------------------- -----------------------------------
CRAIG S. TYLE (1960) Vice Since 2005 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner,
Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
THOMAS WALSH (1961) Vice Since 2000 Not Applicable Not Applicable
One Franklin Parkway President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight 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.
** Charles B. Johnson is considered to be an interested person of the Trust
under the federal securities laws due to his position as officer and
director and major shareholder of Franklin Resources, Inc. (Resources),
which is the parent company of the Trust's investment manager and
distributor. Gregory E. Johnson is considered to be an interested person of
the Trust under the federal securities laws due to his position as an
officer and director of Resources.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, 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.
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/(800) 342-5236 TO REQUEST THE SAI.
270 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 23, 2010, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the separate tax-exempt funds within
the Trust (Fund(s)). In reaching this decision, the Board took into account
information furnished throughout the year at regular Board meetings, as well as
information prepared specifically in connection with the annual renewal review
process. Information furnished and discussed throughout the year included
investment performance reports and related financial information for each Fund,
as well as periodic reports on shareholder services, legal, compliance, pricing
and other services provided by the Investment Manager (Manager) and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates to U.S. mutual funds and other accounts, including
management's explanation of differences where relevant and a three-year expense
analysis with an explanation for any increase in expense ratios. Additional
material accompanying such report was a memorandum prepared by management
describing project initiatives and capital investments relating to the services
provided to the Funds by the Franklin Templeton Investments organization, as
well as a memorandum relating to economies of scale and a comparative analysis
concerning transfer agent fees charged each Fund.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund
Annual Report | 271
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
complex, the adherence to fair value pricing procedures established by the
Board, and the accuracy of net asset value calculations. The Board also noted
the extent of benefits provided Fund shareholders from being part of the
Franklin Templeton family of funds, including the right to exchange investments
between the same class of funds without a sales charge, the ability to reinvest
Fund dividends into other funds and the right to combine holdings in other funds
to obtain a reduced sales charge. Favorable consideration was given to
management's continuous efforts and expenditures in establishing back-up systems
and recovery procedures to function in the event of a natural disaster, it being
noted that such systems and procedures had functioned smoothly during the
Florida hurricanes and blackouts experienced in recent years. Consideration was
also given to the experience of each Fund's portfolio management team, the
number of accounts managed and general method of compensation. In this latter
respect, the Board noted that a primary factor in management's determination of
a portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed and that a portion of such bonus was required to
be invested in a predesignated list of funds within such person's fund
management area so as to be aligned with the interests of Fund shareholders. The
Board also took into account the quality of transfer agent and shareholder
services provided Fund shareholders by an affiliate of the Manager, noting
continuing expenditures by management to increase and improve the scope of such
services, periodic favorable reports on such service conducted by third parties,
and the continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to management's conservative
approach and diligent risk management procedures, including continuous
monitoring of counterparty credit risk and attention given to derivatives and
other complex instruments. The Board also took into account, among other things,
management's efforts in establishing a global credit facility for the benefit of
the Funds and other accounts managed by Franklin Templeton Investments to
provide a source of cash for temporary and emergency purposes or to meet unusual
redemption requests as well as the strong financial position of the Manager's
parent company and its commitment to the mutual fund business as evidenced by
its subsidization of money market funds. The Board also noted management's
efforts to minimize any negative impact on the nature and quality of services
provided the Funds arising from Franklin Templeton Investments' implementation
of a hiring freeze and employee reductions in response to market conditions
during the latter part of 2008 and early 2009.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the
agreement renewals. The Lipper reports prepared for each individual Fund showed
its investment performance or that of its Class A shares for a Fund having
multiple share classes, in comparison to a performance universe selected by
Lipper. Comparative performance for each Fund was shown for the one-year period
ended December 31, 2009, and for additional periods ended that date up to 10
years depending on when a particular Fund commenced operations. Investment
272 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
performance was shown on an income return basis, as well as a total return basis
for each Fund. The Lipper reports showed that the income return for each Fund,
other than Franklin Federal Limited-Term Tax-Free Income Fund, was in the upper
half of its Lipper performance universe during 2009, with most being in the
highest or second-highest quintile of such universe during such year and for the
previous three-, five- and 10-year periods as well. The Lipper reports showed
the total return for many of such Funds was below the median of their
performance universe during 2009, but that the total return of all such Funds
was good on a long-term basis with each having total returns above the median of
its respective performance universe during the previous five- and 10-year
periods on an annualized basis. Management explained that the one-year relative
total return performance of the Funds reflected management's conservative
strategy of not utilizing leverage or derivatives or using high yield debt in
investment-grade funds, which types of instruments had performed well in the
2009 market recovery. The Board expressed satisfaction with such performance,
noting management's explanation and the fact that the investment objective of
each of the Funds is to obtain a high level of tax-exempt income. The Lipper
report for Franklin Federal Limited-Term Tax-Free Income Fund covered the six
years of its operations and showed both its income return and total return to be
below the median of its performance universe for 2009 and for the previous
three- and five-year annualized periods. In discussing such performance,
management pointed out the Fund, consistent with its investment objective,
invested in securities with shorter maturities than those generally held by
funds in its performance universe and also avoided lower quality bonds or those
subject to the alternative minimum tax. The Board was satisfied with such
explanation and noted that the Lipper report showed such Fund's income and total
return during 2008, a year of market volatility and turmoil, each exceeded the
median return of its performance universe.
COMPARATIVE EXPENSES. Consideration was given to the management fee and total
expense ratios of each Fund in comparison with those of a group of funds
selected by Lipper as its appropriate Lipper expense group. Lipper 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 generally
increase as assets decline and decrease as assets grow, the Board believed the
independent analysis conducted by Lipper to be an appropriate measure of
comparative expenses. In reviewing comparative costs, Lipper provides
information on each Fund's contractual investment management fee in comparison
with the contractual investment management fee that would have been charged by
other funds within its Lipper expense group assuming they were similar in size
to the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper contractual investment management
fee analysis includes an administrative charge as being part of the investment
management fee, and total expenses, for comparative consistency, are shown by
Lipper for Fund Class A shares for Funds having multiple share classes. The
Lipper reports showed that the contractual investment management fee rates for
each Fund were at or below the median of its respective Lipper expense group,
with the exception of Franklin Federal Limited-Term Tax-Free Income Fund whose
actual
Annual Report | 273
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management fees were below its expense group median as a result of fee waivers.
The Lipper reports further showed that the actual total expense rates for all
Funds were below the median of their respective Lipper expense groups. Based on
the above, the Board was satisfied with the investment management fee and total
expenses of each Fund in comparison to its Lipper expense group as shown in the
Lipper reports.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds during the 12-month period ended September 30,
2009, being the most recent fiscal year-end for Franklin Resources, Inc., the
Manager's parent. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that while being continuously refined and reflecting
changes in the Manager's own cost accounting, such allocation methodology was
consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to review the reasonableness of
the allocation methodologies solely for use by the Funds' Board in reference to
the profitability analysis. In reviewing and discussing such analysis,
management discussed with the Board its 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 took into
account management's expenditures in improving shareholder services provided the
Funds, as well as the need to meet additional regulatory and compliance
requirements resulting from the Sarbanes-Oxley Act and recent SEC and other
regulatory requirements. In addition, the Board considered a third-party study
comparing the profitability of the Manager's parent on an overall basis as
compared to other publicly held managers broken down to show profitability from
management operations exclusive of distribution expenses, as well as
profitability including distribution expenses. The Board also considered the
extent to which the Manager and its affiliates might derive ancillary benefits
from fund operations, including its interest in a joint venture entity that
financed up-front commissions paid to brokers/dealers who sold fund Class B
shares prior to February 2005, when the offering of such shares was
discontinued. Based upon its consideration of all these factors, the Board
determined 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.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing any precise
determination is inherently subjective,
274 | Annual Report
Franklin Tax-Free Trust
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
the Board noted that based upon the Fund profitability analysis, it appears that
as some Funds get larger, at some point economies of scale do result in the
Manager realizing a larger profit margin on management services provided such
Fund. The Board also noted that any economies of scale are shared with each of
these Funds and their shareholders through management fee breakpoints existing
in each of the Fund's investment management agreements, so that as a Fund grows
in size, its effective management fee rate declines. The fee structure under the
investment management agreement with Franklin Federal Limited-Term Tax-Free
Income Fund provides an initial fee of 0.70% on the first $100 million of
assets; 0.65% on the next $150 million of assets; 0.625% on the next $250
million of assets; and 0.60% on assets in excess of $500 million. The assets of
such Fund at December 31, 2009, amounted to $334 million. The fee structure
under the investment management agreement with each other Fund provides an
initial fee of 0.625% on the first $100 million of assets; 0.50% on the next
$150 million of assets; 0.45% on assets in excess of $250 million; with
additional breakpoints beginning at 0.44% on assets in excess of $7.5 billion
and continuing thereafter. In reviewing such structure, management stated its
belief that this fee structure reaches a relatively low rate quickly as a Fund
grows and that such low rate, in effect, reflects anticipated economies of scale
as a Fund's assets increase. In support of such position, management pointed out
the favorable effective management fee and total expense comparisons for each
Fund within its Lipper expense group as previously discussed under "Comparative
Expenses." The Board believed that to the extent economies of scale may be
realized by the Manager and its affiliates, the schedule of fees under the
investment management agreement for each Fund provides a sharing of benefits
with the Fund and its shareholders.
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, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL
33394, 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.
Annual Report | 275
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY
CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE
INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY
READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE,
WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE
DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING
TONE.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund(2)
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin DynaTech Fund
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global Discovery Fund(4)
Templeton Global Long-Short Fund(5)
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(6)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(6)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(6)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(7)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(8)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(9)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(10)
Michigan(10)
Minnesota(10)
Missouri
New Jersey
New York(9)
North Carolina
Ohio(10)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(11)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) Effective 5/1/09, Mutual Qualified Fund changed its name to Mutual Quest
Fund. The fund's investment goal and strategy remained unchanged.
(3.) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25% of
the outstanding number of shares. Investors may tender all or a portion of
their shares during the tender period.
(4.) Effective 5/1/09, Mutual Discovery Fund changed its name to Mutual Global
Discovery Fund. The fund's investment goal and strategy remained unchanged.
(5.) Effective 12/18/09, this fund is closed to new investors, pending a
proposal to merge the fund into Templeton World Fund. Existing shareholders
may continue to make additional investments until shortly before the
completion of the transaction, expected in April 2010.
(6.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(7.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(8.) The fund invests primarily in insured municipal securities.
(9.) These funds are available in three or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and a money market portfolio (CA only).
(10.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/15/09.
(11.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/10 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
SIGN UP FOR 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(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
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.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
TF3 A 04/10
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 ACCOUNT 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 $808,233 for the fiscal year ended February 28, 2010 and $702,517 for the
fiscal year ended February 28, 2009.
(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.
The aggregate 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 were $2,762 for the fiscal year ended
February 28, 2010 and $4,000 for the fiscal year ended February 28, 2009. The
services for which these fees were paid included tax compliance and advice.
(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, 2010
and $18,159 for the fiscal year ended February 28, 2009. 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 $0 for the fiscal year
ended February 28, 2010 and $265,918 for the fiscal year ended February 28,
2009. 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.
(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 $2,762 for the fiscal year ended February 28, 2010 and $288,077
for the fiscal year ended February 28, 2009.
(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 significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls 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 27, 2010
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 27, 2010
By/S/GASTON GARDEY
----------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date April 27, 2010